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Avoid governance and legal distractions with these 10 strategies

1. Ask forgiveness, not permission

I receive calls from nonprofit CEOs who are struggling with their boards. I'm also asked by boards to intervene when there's an issue with the CEO. What I've learned is that great CEOs don't overly confer with the board. Instead, great CEOs understand that it's their job to implement the board's strategy within the scope of the strategy, policies and budget set by the board. Too much "checking in" can have the unintended consequence of inviting micromanagement from the board. Conversely, straying too far outside the lines of board-approved strategy, policies and budget can cost a CEO his or her job.

2. Assemble a trusted team of professional advisers

Great CEOs form long-term relationships with a banker, an insurance broker, a lawyer and an accountant who understand nonprofits. It's best to form these relationships when the organization is doing well so that it will have strong relationships to fall back on when problems arise.

3. Understand that legal and compliance duties aren't aspirational

Great nonprofit CEOs take their legal, tax, contractual and other duties seriously. Legal and tax problems are not only expensive to correct, but can be particularly devastating to nonprofits that rely on donor goodwill. Unlike for-profits that can usually correct compliance problems by writing a check, compliance issues for tax-exempt organizations can lead to revocation of tax-exempt status — which usually spells the end of the organization.

4. Use a professional employer organization

Employment practices liability is the leading risk for nonprofits. Professional employer organizations enable nonprofits to cost-effectively outsource the management of human resources, employee benefits, payroll and workers' compensation to human resource professionals. Great CEOs know that outsourcing high-risk functions reduces risk and helps the organization focus on its mission.

5. Protect trade name, trademark and donor lists

All successful organizations have valuable intangible assets. Nonprofits trade on their reputation and public goodwill. A nonprofit that is appealing to donors likely has a distinctive trade name and trademark as well as valuable donor information. Great CEOs know that failure to protect these assets can be devastating to a nonprofit.

6. Expect and ask for a reasonable salary

Great nonprofit CEOs know that if they don't take care of themselves, they can't take care of the nonprofit's business. Many nonprofit executives work for very little early on and hope to receive a severance payment to make up for it when they retire. If the nonprofit is a charity, paying an insider money it does not legally owe for services already rendered raises private inurement and excess benefit issues. Great CEOs build a reasonable salary for their services into the budget.

7. Trust, but verify

Great CEOs implement checks and balances that secure and protect the nonprofit's funds and other resources. They know that just because they're working in the nonprofit sector, they still need to conduct business on behalf of the organization with the same level of diligence and care they would use if they were running a for-profit business. Sadly, dishonesty is not limited to any particular sector.

8. Create a sound succession plan

Great CEOs don't leave a leadership gap in their wake. They know that to be sustainable, the organization needs to develop talent that can pinch hit and take over if necessary. Great CEOs identify and nurture potential leaders within their organizations.

9. Select a professional statutory agent

Smart CEOs know that a statutory agent receives crucial documents, such as service of lawsuits and court filings as well as notices of potential problems with a nonprofit's corporate status. These matters are simply too important to delegate to a volunteer.

10. Don't rely too heavily on pro bono services

Great CEOs know that you get what you pay for. Even if that lawyer or accountant who serves on the nonprofit's board has a great reputation, that doesn't mean that he or she has the specific expertise required or the time to work on the organization's matters for free. Shop around for professional service providers and don't be afraid to ask for alternative fee arrangements. Many professionals will offer more favorable fee arrangements for long-term clients.

For more from Ellis Carter, visit CharityLawyer.



MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.




Charity lawyer focused on simplifying nonprofit law