Nonprofit Board Accountability: A Brief Comparison with For-Profit Corporations

What can nonprofit organizations learn about accountability from for-profit corporations?  Plenty!  Despite their differences, for-profits and nonprofit organizations can have much in common structurally and operationally.  Taking a look at the best ways for-profit corporations hold themselves accountable will yield helpful principles than can strengthen nonprofit organizations. 

For-profit and nonprofit general similarities and differences

Compare the nonprofit to a for-profit corporation.  Notably, the Illinois Not-for-Profit Corporation Act and many other state nonprofit corporation laws are structurally quite similar to state for-profit corporation laws.  Both acts provide for formation, corporate powers, limited liability due to corporate structure, directors, officers, merger, dissolution, and annual reports.  Operations and accountability of the board of directors and the executive personnel may be quite similar in both types of organizations.  In both the for-profit and nonprofit context, “the buck stops with the Board,” and the Board appoints executive personnel (CEO, COO, CFO, etc) to run the company.  Given these similarities in basic structure, it is not surprising that the nature of accountability in a nonprofit board, like that of a for-profit board, is encapsulated in the directors’ fiduciary duties.

But the interesting question when it comes to nonprofit accountability is:  “To whom?”  In the for-profit context, the board is accountable to the company’s owners or shareholders.  But in the nonprofit context, there are no shareholders.  So, to whom is the nonprofit accountable?  Generally speaking, a public charity is accountable to the “public.”  But a public charity also has stakeholders, who may be members (e.g., a church), donors, volunteers, and perhaps other organizations who engage jointly in various projects.  Much has been written about Section 501(c)(3) organizations’ legal accountability to the IRS, state Attorneys General, and other government regulators.  But like for for-profit entities, who are accountable to shareholders, public charities also have broad and deep accountability to their stakeholders. Though these stakeholders are not “owners” like shareholders in a for-profit corporation, it is advisable for nonprofit boards to understand their accountability to such stakeholders.   Such accountability is key to maximum financial and programmatic success.

Accountability tip:  good communication to stakeholders

What can nonprofit leaders do to improve lines of accountability with stakeholders?  Look again to the principles used by the best for-profit corporations: good communication is key.  Many for-profits provide shareholders with a simple end-of–year annual report or other similar informative document.  Such a report accomplishes many purposes:  It showcases the organization’s achievements.  The report makes available to shareholders the for-profit’s financial information.   The wide dissemination of such information helps shareholders hold the directors accountable for the leadership. 

Sixth Circuit Bucks Trend, Refuses to Overturn State Same-Sex Marriage Laws

Against the recent trend in federal circuit courts, the Sixth Circuit has refused to hold state laws supporting the traditional definition of marriage unconstitutional, largely on states’ rights, non-religious grounds.  Last month, in a 2-1 decision, the Sixth Circuit reversed decisions of four district courts that struck down such state laws.  See DeBoer v. Snyder, No. 14-1341, 2014 WL 5748990 (6th Cir. Nov.

Multi-Site Nonprofit Employers and Unemployment Coverage (Part 2)

As explained in our law firm’s prior blog article, nonprofit employers enjoy special privileges under unemployment laws.  For example, nonprofit employers are “covered” by such laws only if they have at least four employees during at least 20 weeks of a calendar year.  (Note that churches and other religious institutions are categorically exempt.)  But what happens if a nonprofit has at least four employees scattered among multiple states?   

For example, consider a nonprofit organization with two employees working at its office in Illinois, one employee working remotely from Seattle, and two employees working remotely from Mississippi.  Is the nonprofit “covered” for unemployment tax purposes?  Must it pay unemployment taxes into each state system?  Or is the nonprofit completely exempt, since it does not have at least four employees in any one state?  This is an increasingly common employment scenario, so a good understanding is important for effective legal compliance.

A.             Four Tests to Determine Jurisdiction

In situations where employers have employees performing in multiple states, such employers must pay unemployment tax to the state to which tax is owed.  States have generally agreed upon a four-step analysis to determine the state to which unemployment tax is owed.  With the exception of the third test, the tests refer to factors pertaining to the employee.  The below tests are to be performed consecutively, in the order specified, for each of the multi-state organization’s employees.