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VOL. 127 | NO. 58 | Friday, March 23, 2012

Pearl and Mel Shaw

Boards Should Establish Legal Policies

By Mel and Pearl Shaw

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Part two of a three-part series Legal issues abound in all areas of life, including nonprofits. We asked local Memphis attorney Van Turner, a partner in the law firm of Brittenum Bruce PLLC and an experienced board member, for general guidance regarding the law and nonprofits.

On the subject of contracting Turner said, “The leadership should be aware that he or she is an agent for the nonprofit when entering into contracts. If the board of directors allows the leadership or the officers to negotiate and handle contracts, then everyone must understand that the executive director is binding the nonprofit to the deal. Therefore, if the board later decides that the contract is not good, they cannot come back and rescind the contract without a validly legal reason. The board of directors must make it clear in the by-laws whether it wants to approve every contract or allow the leadership to handle the contracts without board approval. What I usually see is that the board allows the leadership to contract up to a set amount and anything above that amount must be approved by the board.”

Many nonprofit leaders we talk with want to grow an endowment. Turner addressed this topic as a policy issue for the board to address.

“I would suggest creating a policy to handle the endowment,” he said. “One particular issue that I see with an endowment is that the board would likely need to contract with another entity to assist with the financial planning and management of the endowment. The endowment needs to be invested correctly, and the board should have a policy in place to make sure an expert is retained to handle the endowment funds.”

Many nonprofits also receive property from donors. We asked Turner for his perspective regarding donated property and the sale of such. Again, he referred us to the need for board policies.

“I believe that the gift acceptance policy should specifically spell out what happens with donated property,” Turner said. “Buying and selling property requires much more than executing a simple contract. The title of the property must be analyzed, insurance must be purchased, the proper disclosures need to be made, and the financing, if any, must be analyzed very carefully.

“Remember, the board has a fiduciary obligation to run the nonprofit. This means that if the board does not have the expertise, it should retain the expertise to make sure it is correctly conducting the business of the nonprofit. As the old saying goes, ‘an ounce of prevention is worth a pound of cure,’ and this simply means that taking time out on the front-end to develop solid by-laws and policy and procedures can prevent several issues later on as the nonprofit develops and grows.”

As our readers know, the role of the board is an important one. Policymaking is a key role with legal implications.

You can reach Turner at vturner@brittenumbruce.com or 271-3794.

Mel and Pearl Shaw are the owners of Saad & Shaw. They help nonprofit organizations and institutions rethink revenue sources. They are the authors of “How to Solicit a Gift: Turning Prospects into Donors.” Visit them at www.saadandshaw.com or call 522-8727.

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