1. SMU School of Law Role of the General Counsel Corporate Governance in the Nonprofit Setting Prepared By: Darren B. Moore Bourland, Wall & Wenzel, P.C. 301 Commerce Street, Suite 1500 Fort Worth, Texas 76102 (817) 877-1088 E-mail: dmoore@bwwlaw.comdmoore@bwwlaw.com ©Bourland, Wall & Wenzel, P.C.

2. Facts and Figures Facts from the Independent Sector. In 2009, there were over 1.9 million nonprofit organizations in the United States.

3. Nonprofit vs Charitable Organization Nonprofit Organizations Tax-Exempt Organizations Charitable Organizations Private Foundations

4. 501(c)(3) Elements Proper organizational structure Organized exclusively for charitable purposes Operated exclusively for charitable purposes No part of net earnings inures to benefit of private individual Not an action organization

5. Employment & Economic Impact 501(c)(3) organizations employ approximately 10% of the workforce. Employees of (c)(3)s accounted for 6.6% of wages paid in the U.S. in 2004 In 2009, the nonprofit sector accounted for 5.5% of the GDP

6. How Much Should We Worry About Legal Compliance? Too Worried Paralyzed by paranoia Every decision means calling the lawyer - delay/expense Can’t set priorities – everything is urgent Now Worried Enough Nobody’s looking at us, so it doesn’t matter We mean well – misguided reliance on the “halo effect”

7. Governance is No Joke! Directors and trustees are fiduciaries with real responsibilities Nonprofit governance matters To the community To the beneficiaries of the charity To state and federal regulators

8. Board of Directors Officers Staff / Volunteers Professional Advisers THE PLAYERS

9. The Rules Duty of Care Duty of Loyalty Duty of Obedience Fiduciary Duties: Owed by Directors and Officers

10. The Tools Certificate of Formation Bylaws Corporate Policies

11. Policies Conflict of Interest Whistleblower Policy Document Retention and Destruction Policy Compensation Review Procedures Grant Procedures (foreign/domestic) Gift Acceptance Policy Policy on Chapters, Affiliates, and Branches

12. Policies & Corporate Records Too Detailed Words don’t match reality“He said, she said” minutes Administrative burden means lack of compliance Missing in Action Insufficient written policies No conflicts policy → hard to deal with conflicts of interest responsibly No travel policy → invitation to trouble No minutes → tough to prove Board was paying attention – in most audits, minutes are at the top of the IRS document request list

13. Standing to Bring a Complaint Organization (and/or its members where applicable) OAG Donors in very narrow circumstances Note: Venue for breach of fiduciary duty claims brought by the OAG lies in Travis County

14. Governance and the Form 1023 Form 990 and Form 990 Instructions Final Regulations on EBT Position Paper Work Plans Compliance Initiatives

15. Private Inurement Subset of private benefit Private inurement can result in revocation of tax-exempt status or intermediate sanctions for engaging in excess benefit transaction

16. Excess Benefit Transactions Transactions between public charity and Disqualified Person must be at fair market value Any excess benefit is subject to an excise taxMakes conflict of interest policy critical

17. EBT Compensation: Rebuttable Presumption of Reasonableness Transaction approved by an authorized body of the organization composed of non-conflicted individuals Prior to making determination, authorized body obtained and relied upon appropriate comparability data Authorized body adequately documents basis for determination concurrently with making decision

18. Successful Programs Ethical Practice Tax Compliance Good Governance Mixing the Right Ingredients