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Nonprofit Leadership Transition Insights

Jun 16, 2023

Mike English | Vice President

In this insightful interview, Mike English, a seasoned expert in non-profit leadership transition, shares his wisdom on the challenges non-profits face due to high turnover rates among executive directors. He discusses the importance of finding the right leader to fulfill an organization’s mission and offers strategies to navigate leadership transitions smoothly. From setting up a search committee to conducting rigorous interviews and managing internal candidates, English provides a comprehensive guide to non-profit leadership transition. This interview is a must-watch for anyone involved in non-profit management, offering valuable insights to ensure the long-term success of your organization.

visit them here: morancompany.com

 

What Nonprofit Questions are Answered?

  1. Why is the turnover rate for non-profit executive directors so high?
  2. How can a non-profit find the right leader for the organization?
  3. What should a non-profit leadership transition process include?
  4. What are the potential challenges in a non-profit leadership transition, and how can they be avoided?
  5. How can a non-profit manage internal candidates during a leadership transition?

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KC Cares, Kansas City’s nonprofit voice, tells the stories of Kansas City nonprofits and connects them with the community.  

Produced by Charitable Communications 

•••••••••••••••••••••••••••••••

In partnership with: 

Ewing Marion Kauffman Foundation

Take risks. Own success. Be Uncommon.

TW: @kauffmanfdn FB: @kauffmanfdn IG: @kauffmanfdn

Transcript:

(00:00) looking Kansas City a better place to live work and play this KC care segment is brought to you by the Ewing Marion Kaufman Foundation kauffman.org. as an executive director running a non-profit organization is no easy task they are staffed to manage or a lack of Staff fundraising Financial oversight programs and events to attend a board to work with and volunteers to recruit and work with and so much more it’s running a business despite the tax designation statistics indicate the turnover rate for executive directors is between 18

(00:36) and 22 percent the expectation is a non-profit board can look to navigate a leadership transition every four to five years so how can a non-profit find the Right leader for the organization and fulfill its Mission what should a search include what are the bumps in the road and how can you avoid them well we’ve gone to an expert in this space as part of our ask the expert series and we welcome back Mike English he’s vice president for search strategies and Senior search consultant for the Moran company which is based here in Kansas

(01:07) City and conducts these searches on a daily basis Mike comes to us having been a guest on the show a few years years back as an executive director himself turned the page so welcome back Mike we’re glad to have you thank you Ruth it’s great to be here all right well we want to share with our audience uh you navigated your own search for your replacement and then I decided it was so much fun you wanted more right yes I had been an executive director for for some different non-profit organizations for oh gosh

(01:40) about 20 years and most recently was executive director at Turn the Page KC a local non-profit organization um I was there about eight years um you know I I was ready to move on I think it was good for the organization too as this happens I think at a for a lot of people in in that role and so um we conducted kind of our own search and and um I was a big part of that and really enjoyed it so like you said I I’ve made that transition to to working in executive search for non-profit organizations uh full-time uh with the

(02:11) Moran company what was that transition like for you you had been at the home for so long so I wonder jumping the fence right it you know it was it was it was good I I really enjoyed uh the non-profit culture and the people in nonprofit organizations and that includes staff and board and so that in this role I get to work with um non-profit boards all over the country and so it’s been it’s been pretty seamless because it’s it’s you know that’s a role I know really well and so um as I do this work it’s um I really

(02:50) enjoy kind of trying to make that match between what the organization needs and and people out there that can do it well well let’s Dive Right In I I started the show with some statistics that I think might surprise some folks you know changing a leader every four to five years what’s behind that that seems like not long tenure right it is you know it’s it’s not easy work being an executive director and so there there is certainly I think some burnout that that executive directors face um after a number of years and so

(03:29) um I think that’s that’s certainly part of it and you know what we you know and and the person hired isn’t always the the best fit and so what we really try to do is make sure that that match between executive director and board and organizational culture is really strong and really the right fit so that we get a longer tenure in that in that organization so yeah I think it’s the the reason behind that turnover is probably simply just it’s not easy work and um it really is important to find a

(04:02) really good match between organization and and or um executive director this might be an odd question but I’m wondering what’s like the failure rate overall kind of in the industry when you do go and you hire somebody and it just doesn’t work out right it’s a good question it’s it’s you know for search firms like ours um typically executive search firms provide a one-year guarantee and so if the individual leaves in under a year the company does that surge again for free and so um typically firms measure that

(04:43) as the success rate so you know what are the um percentage of placements that last the year and also once a person lasts that first year they’re um more likely to be there long term for for us I think it’s over 95 percent of our placements uh last over a year and of course we’re doing more and more searches each year and so um we’re not quite sure you know how long people will last because they’re still in the role and hopefully won’t be a long a long time but you know when an organization invests in a search and

(05:14) brings in professionals to help conduct that search in my experience it’s more likely to end up with a long-term placement all right let’s start at the very beginning you’re that board president and you get that call that letter that email that says I’m leaving for whatever reason right how do you begin as that organization take us through that kind of thought process right the first the first kind of um variable is how long um is that person going to stay what is your notice in terms of when is that

(05:54) person going to leave if you have if you have ample notice and it’s maybe it’s a retirement or it’s a person who’s um just decided to to move on but is willing to stay several months until a replacement can be found uh that’s ideal and so what that board president um would do and what we recommend that person do is is establish a search committee and so that’s a committee of board members typically sometimes with staff as well uh to serve as that um representation of the board when conducting a surgeon at this point

(06:27) and this is how we get work of course those search firms will determine they want to hire a firm to to lead the search and so that’s when we kind of come in the process and um and help the organizations um in some cases or in a lot of cases unfortunately there may not be that sort of notice so that executive director maybe has found a new job and it’s going to be leaving in a few weeks or maybe they’re leaving abruptly and in those cases what most nonprofits will then do is um find an interim executive director

(06:59) and that’s that’s an important step in order to provide some stability into to find that interim executive director uh that non-profit May identify a senior leader within the organization so maybe your CFO or a chief development officer someone who who they can ask to serve as that interim a lot of cases that’s the board member will offer to serve as that interim executive director and then there there are people out there that um that are Pros that are maybe that are retired directors or Consultants that

(07:30) can come in and be hired to serve as an interim so if it’s an Abrupt departure an interim can really help to provide that stability while that surge takes place so so those are the two scenarios longer term or more urgent search and those are kind of the first steps the the board president would take how critical is it to find the right person to be that interim it’s it depends on the circumstances of the organization so um it in some cases you’ll have a non-profit that’s really in um chaos or in flux

(08:08) um and if that’s the case uh it’s really important to find the right person to help provide stability maybe clean up any issues there might be because you don’t want a new permanent executive director to come in uh to a situation that is that is chaos and so that would be the most important time to find a really solid interim is when there are things that need to be stabilized um in other cases where it’s maybe it’s a the organization is in really strong shape a lot of non-profits boards will

(08:44) see this as an opportunity maybe to test somebody out right so you’ve gotta okay in your leader that could be a great internal candidate and by appointing that person the interim executive director and then conducting a search at the same time they can really you know see if that person is successful so um there may be some um uncertainty there by appointing a current staff member as the interim but it’s a good opportunity in some cases how often do you all encounter uh you know being involved in a search where

(09:15) they say we don’t want that interim as our executive director we we want a caretaker keep things stable I’m just curious where that lands it’s a good it’s it’s a good question I would say about 50 in my experience will will have a board that um uh if there’s an interim in place that person is uh is going to be an internal candidate for the position um and and you might be thinking well why would you even do a search if you’re gonna point an interim that you may end up hiring well for for one one things

(09:50) that what I mentioned before it’s an opportunity to give that person a chance to prove prove themselves but then also I think by um it’s it provides credibility to that person if they are ultimately hired as the permanent executive director because they they provided area they conducted a search so in in other cases there the expectation is that the interim executive director will not be a candidate for the job it’s important to be upfront about that uh with that interim executive director um and so uh in those cases that’s about

(10:25) another half of the searches that at least I’ve been a part of where there is an interim the expectation is that person will um be there Just As a caretaker I want to Circle back you had said you know setting up that search committee it’s usually some board members may include staff what’s your opinion about also bringing in I guess I would say clients recipients the people that you actually serve with what your nonprofit’s mission is is that part of the mix it is and I I think it’s that’s a really

(10:57) important part of the mix in terms of gathering feedback and input on the attributes that the organization should be looking for and so in all of our searches we conduct uh interviews and surveys of recipients of clients of um of stakeholders at the very beginning and then develop what we call the position profile that then helps us uh work on that search um and so I think no matter what that’s a very important first step in terms of the search committee itself that’s the committee that it’s going to

(11:32) be interviewing and ultimately making the decision about who to make the job offer to and so um in most cases that is limited to board members um and in some cases staff will be a part of that as well um to a lesser extent uh General Community stakeholders or clients are part of that so the search committees together you’re doing the homework at the beginning of what do we want in a leader um an attribute survey I guess or uh what is it we’re looking for how important is it in that part of the process is it what we’re not

(12:12) looking for very important very important so so that once that recruiting starts or that that posting of the position is is made then um everybody understands what you’re now looking for because there may be some very strong candidates on paper that um that the organization there there’s there’s maybe some you know it could be a management style or a personality style that the organization knows would create conflict with staff and you do know that and then that may be a management style you can avoid for

(12:48) example if um an organization and a lot of non-profits are this way or really looking for a collaborative leader then um you know that you’re not looking for sort of a very top-down my way or the highway away type leader and so then during that Outreach and those interviews the the search committee knows okay well this is probably not the best fit for our culture how do you really ascertain that as you said people look great on paper how how do you find that out if somebody’s uh this is how I run it this is how it goes or I love to sit

(13:26) around and have that cup of coffee and really find out what it’s all about right I think the first thing you do is you ask them and there are clever ways to do that in an interview is it because when you when you ask about a person’s leadership style um most people are going to give an answer that they think you want to hear right and maybe it’s true maybe it’s not but but by by asking about scenarios and and practical examples there are ways to really uncover what their management style is and and those questions that I

(13:57) find are most helpful about conflict so how have you how do you handle a certain conflict give us an example and those questions can can help ascertain what that person’s management style really is and then of course once if it’s a finalist candidate and you’re doing references that’s something that you can really find out by checking references so we kind of jumped over the uh you’ve got the job description you put it out there in whatever places and and are there places that you would recommend that you should

(14:26) absolutely be posting these kinds of positions yes for sure if it’s Kansas City the the non-profit connect is is the probably go-to place for posting non-profit jobs and executive director jobs um since we work in cities all over the country uh we typically try to find that um that type of non-profit Association organization to post that position um and then the um there are a number of different job sites nationally that we typically use um that help us to find um candidates by sector or um some that are good at helping to generate a more

(15:10) diverse portfolio of candidates and then of course LinkedIn is is really emerging as a a great place to circulate positions and get candidates you know I would say for our searches we probably get over 50 percent of our our candidates see the job or hear about it from LinkedIn that’s interesting we’re talking with Mike English the Moran company filling Us in on all those critical things that we should be doing if you’re looking for an executive director Mike so you’ve got the job description out

(15:39) there it’s floating around in all the appropriate places how long do you wait to start you know saying okay we have enough and what is that critical number well so we put a time limit on it so we put about a six week recruiting period so once that position is posted we have it posted an application portal open for six weeks and during that time we’re doing active Outreach as well so um the some of the best candidates you’ll find for a job aren’t necessary they’re not necessarily looking and so

(16:16) um by getting the word out talking to lots of people we’re able to kind of uncover or um uh I guess uh new candidates that may not see that on a posting so after about six weeks uh we then move quickly into that Final Phase which is evaluating applications identifying who we want to interview and then moving through a few rounds of interviews and to kind of narrow the field and find the perfect candidate so I wouldn’t put a necessarily a number of applicants uh numbers out there but a but a time period is is a good way to

(16:51) you may have you may have a hundred you may have 200 candidates you may have 20 but if you’re doing you’re recruiting you’re an Outreach well you’ll have the right person at the end okay so going back to that search committee then who conducts the interviews you know sometimes search committees are really big sometimes they’re not so big right who does the talking are they asking I like a search committee that’s got maybe four or five people on it and and so during the interviews with the

(17:24) candidates and to do multiple rounds of interviews we find it’s it’s it’s a good start to do it over Zoom um and so over Zoom or whatever platform you use um and so that way you can you know interview several people um over zoom in a first round and and um sort of divide up the questions or the topic areas uh is a good way to make sure that the full committee is engaged in participating and talking on on the call and asking those interview questions so um and then after that sort of what we call the zoom round that

(18:00) maybe that initial round or that semi-finalists around candidates then it’s important to bring them in in person and so then that search committee again will interview maybe two or three kind of finalist candidates and then um at that point a non-profit has to decide do we want the full board to have a say in this higher and be part of that interview process or are they delegating that uh decision-making power to the search committee and that really varies by the type of organization and the size of the board if the full board is going

(18:34) to be a part of that interview um then there’s uh then there’s typically a nut you know structuring that around a board meeting meeting maybe the most sort of convenient way to set that up and then at the uh and then it’s just up to the nonprofit how they want to handle that that interview at that point let’s talk about questions what do you ask and what can’t you ask yes that’s good that’s a good question we have a we have a whole list of questions that we can’t ask that we always provide our clients and so

(19:08) um those are you know obvious legal questions like you can’t ask a person’s age or their marital status privilege and those kind of things um and then in terms of questions to ask um I like to match up we talked about that position profile that’s developed at the beginning I’d like to make sure we’re matching up our questions with what we’re looking for and so um the the jobs usually entail some leadership working with Boards of directors um managing people raising money um understanding finances communicating

(19:46) internally and externally those are sort of those General topic areas that we try to ask questions about and then as I mentioned before those questions um are most effective when you can really drill in and ask for concrete examples of um how much money has the person been responsible for raising that’s a that’s a usually an important question for a smaller non-profit they want to make sure that the person can raise money so um matching up those topic areas with what you’re looking for and then asking

(20:18) for a person’s experience maybe their um their point of view perspective or strategy and then trying to drill in on specific examples is a really good way to make sure you’re you know you’re getting what you want an executive director how long should that interview last the um I would say that are that the so the way we handle interviews is we like to interview a lot of people and so our initial round of interviews we may have 20 people and so each of those interviews are usually about 30 minutes

(20:50) and then we kind of narrow the field to maybe five or six people and then that next round of interviews will take um we schedule those for about 45 minutes to an hour and then have a final round which is usually over an hour with the individual and because it’s a executive director role um it’s it’s also important to make sure that there’s an opportunity for that person to really ask a lot of questions so um at this point of the of the interview you know the candidate is is in a way interviewing the organization as well

(21:24) and so um setting that interview that final interview where there might be two or three candidates for about about an hour and a half to two hours um that’s a good length of time to make sure that you’re getting everything you need to know about the person but also they’re getting an opportunity to make sure they want the job I’m so glad you brought that up you know I’ve heard people talk about going through interviews like this and they come out they they feel like they’ve been interrogated but nobody really you

(21:51) know allowed them to ask a few questions so that’s such a key critical point how important or I’m trying to find the right way to ask this how critical is it for that final candidate or two to be able to have some interplay with the staff it’s it’s really important on both sides so for the again you’re going to make an if this is the person you want you’re going to offer them the job and you want them to accept the job and most people are not going to be comfortable accepting that job until they’ve met the

(22:30) staff and so um there should be an opportunity for them to to meet the staff um and then uh on the other side you really want to make sure that the staff um feels part of the process like they had a chance to the person before they’re being hired that can be a little tricky setting it up in a way so that the staff has input and has a role um but but may not be a formal interview with the staff and so I like to set those meetings up as um somewhat less formal uh where the the candidate meets the staff um and so that uh ultimately when that

(23:11) person has hired the staff feels comfortable um and the the candidate takes a job because they’ve had a chance to meet the staff and they feel good about where they’re going I’ll ask this question I think I probably obviously know the answer but I’ll let I’ll let sport answer how does a non-profit decide whether they do this internally versus going to a company such as Moran yes um we get a lot of inquiries from organizations that are um trying to decide that and so a lot of it depends on a budget

(23:51) and whether they uh you know they have the resources to to pay a search firm to do the search and as well as their own capacity to do it so um if a non-profit feels like they have the expertise on their board and the time to put in the process uh then in a lot of cases they’ll decide to do it on their own and um one of one thing I want to stress about the time commitment is that to do a search and get a good result there really needs to be a lot of effort into that recruiting and that Outreach to find candidates because you can post

(24:25) a job and you may just not get a lot of interest in it um because like I said before a lot of the best candidates aren’t looking they’re not looking at those job boards since you need somebody to do that outrage and so if the board has um the time and the capacity to do that they could do that on their own um but if the organization um is really uh you know wants to bring in professionals and that’s where we get hired to come in and kind of lead them through the process because it’s it’s probably the most important thing you’ll

(24:54) do as a board member um for a non-profit organization is to make a hire of a new executive director and so um obviously I’m biased but I think that search firm isn’t is really important in order to to make sure it may cost some money but you’re making sure you’re getting that right person it’s an it’s an investment you’re getting you know you’ll it’ll really benefit the organization in the long term if you find the right person all right we’re at the point that you’ve

(25:22) got the candidate that’s the person you want how long should it take between we want you Mike versus Mike giving a decision right I would say not more than a few days so okay um it’s because what’s happening at this point too is you have gone through this process and you’ve narrowed the field down to maybe two or three people and in most cases uh there’s a favorite but there are also others that would also be great so when you make that offer uh you don’t want it to drag on too long because if you do in the personal but

(26:04) ultimately declines the offer then um you may have lost your other individuals that you also like and so setting a so what search committees often do is prepare prepare an offer letter um with a date by which they expect a reply in a decision um and so if it’s a you know if it’s a Friday or that offered is made uh maybe giving that person the weekend to think it over and make sure that that they’re all in and then hopefully get that decision by Monday gotcha I was going to ask what’s the percentage of people that get offered

(26:41) and say oh thank you I don’t know that’s a good question it does happen um what the searches were involved with uh there’s it’s a pretty rigorous process and so and we do a lot of um have a lot of discussions with candidates to make sure that their um they’re committed to this that they’re really all in the other thing I try to do is make sure that we’re upfront about the salary from the get-go and so the salary I I think can be that can be one reason people decline an offer probably the most probably the

(27:17) biggest reason but if if that person really knows and we remind them throughout the process this is the salary range are you comfortable with that does that does that work um then when the offer is made that’s not going to be a reason they decline that offer um but what what can happen is a person may you know if they’re looking for a job they’re they’re they might be entertaining other opportunities as well and so right in some cases they’ll decline your offer because they’re taking another job so

(27:45) um that’s another thing to be cognizant of when conducting a search is you may not be the only Suitor for this person and so um again that’s another once those interviews start I think it’s important to kind of be um efficient about the process otherwise you may lose candidates we’ve just got a couple minutes left tell us some real big don’ts instead of dues what are the domes well I think so um one big don’t I would say we talked a little bit about internal candidates before um and so I think it’s important to be

(28:23) very um transparent with that internal candidate about about the process so um one don’t I would say is to um uh treat an internal candidate um unfairly or poorly during the process or um you know allow them to have the perception that they were treated unfairly or poorly because that person would often will then leave um the organization and that’s probably a valuable part of your your organization and so um we try to make sure that those internal candidates it might be the CFO the development director whoever it is

(29:01) um feels like that feels good about the process um so that they don’t leave so that that would be one one don’t the other I would say um is uh and this is my personal opinion don’t hide the salary um because again that’s the probably the biggest reason why this can fall apart at the end is if a candidate had different expectations about what that that salary is going to be um and then uh finally I would say don’t let it drag on um we have our props that takes about about 12 to 14 weeks from start to

(29:35) finish um once it’s posted I mentioned we have a six week recruiting period and then once interviews take it’s you choose only three weeks or so from when we schedule interviews to when an offer is made um and so what can happen with a busy board of directors is that scheduling gets in the way and then all of a sudden it’s you know three weeks in between each round of interviews that’s that you’re going to lose candidates during that time and so um I always recommend setting up your schedule right at the

(30:08) beginning for everybody so put that you know semi-finalists and finalist round of interviews on your calendar right now um so that um nothing gets in the way once you get to the end because if you drag it on too long your your um more likely to lose really good candidates just because they find something else he’s Mike English he’s with the Moran company check out their website www.morancompany.

(30:40) com my thanks this was great I’m so glad to get you on as the expert appreciate your time my pleasure thanks for having me thank you for tuning in to KC to KC cares Kansas City’s non-profit voice were produced by charitable communication you’re saying what was brought to you by the Marion Kaufman Hoffman Foundation www.kauffman.

(31:01) org to be a guest on KC cares or to go find any of our ask the expert or other episodes go to our website KCcaresonline.org and spread the love you can find us on Facebook and Twitter at KC cares radio and Instagram at KC cares online and don’t forget you can catch us Saturday mornings at 8 A.M on ESPN 1510 a.m and 94.

(31:23) 5 FM thank you for joining us I’m KC cares thank you

Previous Episodes!

Starting Managing Nonprofit Organization Danielle Merrick

May 19, 2023

Danielle Merreck | Attorney

In this insightful interview, Danielle Merrick, a law professor at UMKC and director of Kansas City volunteer lawyers and accountants for the Arts, shares valuable knowledge about starting and managing a nonprofit organization. She discusses the wealth of resources available in Kansas City, the legalities of nonprofit formation, and the importance of planning, budgeting, and setting up a board of directors. Merrick also explains the difference between a nonprofit corporation and tax-exempt status, emphasizing the need for internal controls and annual filings. This interview is a must-watch for anyone considering starting a nonprofit or seeking to improve their existing organization’s management practices.

visit them here: https://law.umkc.edu/

 

What Nonprofit Questions are Answered?

  1. What are some resources available for starting and maintaining a non-profit organization?
  2. What is the difference between a non-profit corporation and tax-exempt status?
  3. What are some common mistakes made by non-profits?
  4. How can non-profits amend their bylaws?
  5. What is the annual event mentioned that pairs non-profits with attorneys?

 

Find us on

Facebook:@ Kccaresradio

Twitter: @kccaresradio

Instagram: @Kccaresonline

•••••••••••••••••••••••••••••••

Also available on

Itunes || Spotify || Stitcher || Soundcloud || Youtube 

•••••••••••••••••••••••••••••••

KC Cares, Kansas City’s nonprofit voice, tells the stories of Kansas City nonprofits and connects them with the community.  

Produced by Charitable Communications 

•••••••••••••••••••••••••••••••

In partnership with: 

Ewing Marion Kauffman Foundation

Take risks. Own success. Be Uncommon.

TW: @kauffmanfdn FB: @kauffmanfdn IG: @kauffmanfdn

Transcript:

(00:00) City nonprofits and the people behind them KC cares is the intersection of the non-profit and the profit communities making Kansas City a better place to live work and play this KC care segment is brought to you by the Ewing Marion Kaufman Foundation www.koffman.org I’m Ruth Baum Bigus many non-profits are started because of the passion of the founder to help the community in some way while Noble and purpose there are many things to consider including legal issues and obligations when the word legal is mentioned in the same sentence

(00:33) as non-profit it may send shutters up the spine but our guest today on this ask the expert episode is here to ease your worries and break things down for us KC cares welcomes Danielle Merrick she is a University of Missouri Kansas City professor in the School of Law and a director of the Kansas City volunteer lawyers and accountants for the Arts and many other things that Danielle is involved in that’s just a snapshot that I thought we’d start with so welcome to the show thank you I’m doing well well as I said uh legal

(01:10) may send those shutters or spook or Scare some folks who go in and they you know they want to help heal somebody raise money for some other where does someone start with legal issues and a non-profit where’s bring us in so the first thing is is that um there are a lot of resources in the Kansas City area that can assist you with um both information about how to form a non-profit and do it properly and then also with maintaining that non-profit so one of the places that I recommend on a regular basis is the Midwest Center for non-profit leadership

(01:56) um also non-profit connect um so the Midwest Center for nonprofit leadership is a program that’s actually through the blocks School of Business through UMKC and it puts on I believe it’s quarterly um they put on a quarterly a um basically so you want to form a non-profit class and I believe it’s maybe an hour and a half or two hours long and they have illegal non-profit expert that comes in and just talks about the basic building blocks about setting up a non-profit um they also talk about kind of the

(02:32) um sorts of planning that an individual or group of individuals needs to go through to successfully form a non-profit so if you are someone that’s in the very beginning stages in the what I like to call you God told me to do X stage then that’s a great resource is to start there to kind of get some of that exposure to that um non-profit connect and Midwest Center for nonprofit leadership nonprofit connect is basically an affinity group for individuals who are already either involved with a non-profit whether that

(03:08) be as Board of director members or executive directors or Founders or whatever and it provides a few things it provides a um networking platform they have events where you can network with other non-profits so that you can kind of uh compare War Stories they also put on classes and events that are designed to educate people on non-profit best practices um so like the Midwest Center for nonprofit leadership has a fundraising certificate so if you have a board or an executive director member who wants to be more Savvy at fundraising there’s a

(03:41) fundraising program that they can go through non-profit connect puts on similar classes like that so I always say you know do that first if you’re starting at that the next thing I would suggest is that one of the things that people don’t really understand about non-profit is that um well two things one is that non-profits are owned by the people of the state in which they’re formed they’re not owned by any one individual so one of the things that I tell people when they’re thinking about forming a non-profit is

(04:15) you have to decide whether or not your primary goal is for this to be your baby and you control it or your primary goal is whatever the mission is and the mission might go on without you and you might not be involved with your non-profit at all in the future so you have to decide which is more important and there’s not a right or wrong answer to that because some people are like no this is my baby I want to always be involved in it and I never want to be parted from it and if that’s the case then a for-profit

(04:50) structure is probably a better structure for that um but if it’s more Mission driven and your personal affiliation with it is not as important then a non-profit structure might be the right way to go the second thing that a lot of people don’t understand about nonprofit is that their the legal work to set up a non-profit is like the last 10 percent ninety percent of it is all y’all like you’ve got to come up with your budget you’ve got to come up with your program and you have to figure out your board of

(05:22) directors you I mean you have to do all of that the lawyers are not going to do any of that for you nobody nobody’s going to come to me and go I’d like to set up a homeless shelter and we go okay yeah I know exactly how you want to run this and let me just you know dictate everything to you I’m gonna go okay great tell me all about your homeless shelter and if you say uh well I don’t know I haven’t decided I’m not charging for my services with all of my clients so you’re all you’re doing is wasting some

(05:50) time but if you’re paying an attorney they’re charging you for you to Fumble around and not be able to tell them what your program is so you know really kind of doing that research ahead of time and really knowing a lot of those types of things before you go consult with an attorney to start setting things up will save you money it will save you time and it’ll save you frustration um so I recommend all of those things when we first are setting up a non-profit um just as a total complete site and you’re

(06:28) probably aware of this already um given that you interface with non-profit stuff on a regular basis is that um Kansas City has a lot of non-profits like a lot we do yes I do a lot a lot um and you know some people could say that that’s the generosity of the Midwest and the generosity of the city as a whole um but it does create problems um there was a study by Midwest Center for nonprofit leadership I believe it was in 2019 Maybe 2018.

(07:00) uh all I’ve noticed it was before the pandemic this is after the pandemic um and it basically said that due to the number of non-profits in Kansas City all these existing nonprofits are essentially competing for the same 43 individual donors so my thing when anybody approaches me about starting a non-profit the very first thing I ask them is have you volunteered with a non-profit that’s doing what you’re doing is it possible there’s a nonprofit you could already partner with and be a program under an existing non-profit as

(07:33) opposed to setting up a fully formed secondary non-profit and that should always be anybody who has a great idea that they want to help somewhere in the community that should always be their primary problem of focus is there somebody already doing this or something ancillary to this that I could expand on and just assist that mission as opposed to diverting Dollars to the administration of another non-profit so um you know that all being said when I get a non-profit client in I usually spend the first 30 to 45 minutes trying

(08:06) to talk them out of forming a new non-profit oh no oh no but you know sometimes there are reasons that partnering with another organization doesn’t work or maybe you know they have part maybe they have been very involved in what they’ve been doing and have been doing in a grass level level for several years and they just want to formalize it and so there are reasons why they might want to form a non-profit anyway um non-profits in both Missouri and Kansas are under corporate law um which seems a little weird but that’s

(08:44) how it is Missouri and Kansas are slightly different Missouri has set all of their non-profit corporate law into a whole separate section Kansas and Kansas is stupid sometimes and I can say this because I live in Kansas Kansas was like no we’re just gonna smash the non-profit corporate law into the for-profit corporate lawn we’re going to call it zero par Value stock that gets issued so Kansas nonprofit law is a little bit more strange a little less straightforward than Missouri is because you’re in this

(09:18) inside of a for-profit law so if you are someone who’s interested in forming a Kansas nonprofit I absolutely suggest that you not try to do that on your own only because there are so many nuances in Kansas non-profit law because it’s mashed into the for-profit law that makes it a little less straightforward um so both of them are under corporate profit law or Corporation law um the main thing we do is what we we file Articles of Incorporation with the secretary of state to set up a non-profit Corporation now the nonprofit

(09:54) corporation form on the Secretary of State’s websites um they have gotten so many people who form non-profits and don’t actually know what they’re doing that they have put the language in the instructions of the PDFs of those that has all the language that the Internal Revenue Service requires for your non-profit to be considered eligible for tax-exempt status now that’s the next misconception that people have is that there is a non-profit Corporation and then there is tax exempt status and these are two separate things

(10:35) you could have a non-profit corporation that is not tax exempt you can have a tax exempt entity that is not a non-profit Corporation so most people when they tell me they want to start a non-profit what they actually mean what they’re colloquially referring to is a charitable non-profit corporation that is eligible for tax exempt status under 501c3 of the IRS code so the IRS requires specific language in your Articles of Incorporation and in your bylaws for you to be eligible to apply for tax-exempt status

(11:17) so if upon forming your non-profit Corporation you fail to put that language in whatever attorney you meet with is going to have to tell you that we’re going to have to amend your Articles of Incorporation and amend your bylaws before we can even apply for tax-exempt status so it’s really important if you are not aware of what that language needs to be in the Articles of Incorporation go look at the instructions on the Secretary of State’s website for those the PDF of those forms it’s right there the

(11:49) language is right there um or ask someone try to find out what the language is supposed to be because that going back and having to amend that that sets off a whole series of processes that delays your application for tax exempt status [Music] um so you know we’re always trying to make sure that you know if you’re going to do things on your own you’re we’re giving you the best start you’re trying to you know get as many things squared away properly to begin with [Music] um so once you’ve set up your Articles of

(12:21) Incorporation Missouri and Kansas have different requirements for the number of board members Missouri requires that you have three board members at all times Kansas requires one um both require that you have a president a secretary and a Treasurer and those can be three individuals that throw that fill those roles or it can be one individual filling all three roles like the trinity and so normally the persons who are filling those roles are members of the board of directors but they don’t have to be they could be

(12:53) outside persons that are not on the board of directors that does create a level of complication that I don’t most attorneys would not recommend that but it’s not illegal to do it that way um so what happens if you have less than three board of directors in Missouri or what happens if you have less than one Board of director in Kansas that means that technically you’re not in compliance with Missouri or Kansas statute which means that your limited liability under that non-profit Corporation no longer exists

(13:29) so what that means is if you’re a Missouri non-profit operating with only two board members instead of three your board members and your executive director are now personally liable for anything that happens yes exactly so it is very important that you understand in whatever state you’re formed what the requirements are to maintain your non-profit Corporation as well um one of those is the board of directors but then the other thing is that Missouri and Kansas both for non-profit corporations require an annual report uh

(14:04) with the secretary of state if you fail to file that annual report they will administratively dissolve your nonprofit corporation and then you’re back to individual personal liability for everyone affiliated with the organization so once you’ve done that you’ve got your thing set up you’ve solicited your board of directors now you need bylaws and now you need a conflict of interest policy and your bylaws are the best way I can describe bylaws is they are a contract between the board of directors and the non-profit

(14:38) organization as to how the non-profit organization is going to be administered and so the bylaws are describing like here’s how often we’re going to have board meetings and here’s how we’re going to elect people and here’s how we’re going to remove people if we need to and here’s how we feel if someone just leaves or or whatever and it’s a whole layer of things two hints about bylaws number one non-profit corporations that are tax exempt um have a higher level of required disclosure than a privately held

(15:11) for-profit Corporation that means that as a taxpayer in the state of Missouri I can ask any existing non-profit for a copy of their bylaws or a copy of their Articles of Incorporation or a copy of their recent tax returns with the IRS or copies of their most recent board minutes and they have to provide them to me so one of the things that I tell people who are trying to figure out how to set up buy-loses I’m like find a big organization that does something similar to you and requests a copy of their bylaws because now you

(15:47) know they’ve paid an attorney to look at them and now you can kind of see how they structured stuff that doesn’t mean you have to structure everything the way they did but it gives you some insight into right well how do I want to do some of this stuff the biggest thing that happens that I see client the biggest mistakes I see with bylaws is the bylaws are drafted and don’t account for proxies or electronic participation in meetings yes um so you know if you’re by less don’t contain that you technically can’t have

(16:21) a zoom board meeting you technically can’t have a teleconference board meeting you technically can’t have someone vote on behalf of somebody else and so making sure that those are included in new bylaws if you’re drafting is very important in this day and age to make sure that electronic communication proxy all of that stuff is in there um the second most common mistake I see with people with bylaws is they don’t follow them so yikes yes so whatever your bylaws say you have to do I would say that the most

(16:59) common question I get from existing non-profits is they’ll say can we do X and my most common response is what do your bylaws say and if they’re bylaws say they can do X they can do X if their bylaws are silent on that or say they can’t do X they probably can’t do X and so you know being familiar with your bylaws and knowing what you can and can’t do and then abiding by them is very important I find that I have to go back because it’s not something I think that you easily memorize I’ll speak to myself

(17:38) it’s not something I keep top of mind because you’re busy doing your mission if though it isn’t in your bylaws and you want it in your bylaws can you amend them and how difficult is that to do so yes you can um even if you’re bylaws do not have a stated Amendment policy most bylaws do but for some reason if they are silent on the amendment there is never a situation in which you cannot amend a document um so let’s pretend it’s silent the default rule is that you can amend it as long as a majority of the board of

(18:19) members agree to amend it in writing so those are the key things a majority and in writing they can amend the bylaws now if you have a membership-based organization that’s a little different if it is a membership based organization and let me be clear there’s a difference between membership for marketing versus membership in a legal structure membership for marketing is like I’m a friend of the zoo and I get a couple of zoo passes but I don’t get to have any power to vote in the board of directors that’s a market membership

(18:54) legal membership is I have a membership based organization like um a homeowners association or a country club or a social league and the members get to vote in the board of directors so if you have a legal structure that has members then amending your bylaws will also require the members the majority of the members to approve in writing the amendment to the bylaws um and then you call a meeting you present all the Amendments people vote bam your bylaws are amended the most common amendments that I’ve done in the

(19:33) last you know I’ve been an attorney for about 20 years now the most common amendments I do is adding proxy and electronic communication like electronic meeting that’s the most common um occasionally we’ve done some things where we’ve either added in term limits or removed term limits but for the most part the most common thing is is changing the way that voting and meeting structures happen because especially organizations that were formed you know early odds or before electronic meetings and electronic communication just was

(20:05) not something that was regularly included in bylaws something at this point again that you would recommend that you go ahead and do I mean we’re in this world of zoom and teams and everything else and I know for us for example during the pandemic we had to I mean you couldn’t gather unless you decided you’re gonna go stand on a driveway and you could all vote and and do that I don’t think any of us probably did that um so tax exemption status you really need to be clear about you really need to

(20:38) know your bylaws you really need to know your articles what are those big you know step in the mud kind of things that you see non-profits kind of just either don’t pay attention to or aren’t you know what are those big mistakes we make um so I see a few um non-profit boards tend to have a decent amount of turnover and so in that turnover if there is not someone who is The Keeper of the records sometimes records just get lost in the turnover um one of the ways that I suggest nonprofits can help avoid that

(21:27) is um having or non-profit organization pay for a business Dropbox or business OneDrive or a business box or whatever Google whatever file system you like to use whatever you know one is your favorite they’re all these are like they’re all apples right it’s just like whether you like Galas or Pink Ladies or honey crispy they all have the same security they all have the same functionality it’s whatever one you prefer setting up something like that paying for the business subscription so you don’t have to worry about

(22:07) you know we’ve run out of room or whatever right and then every person who is a member of the board has a login to that business you know online file system that way when Susie Smith leaves the board we just deactivate her from OneDrive but all the stuff that she ever put in there is already up there so the next person who comes in your place can go in and be like oh we’ll hear all the minutes and here is the bylaws and here all the amendments to the biologic here are all the tax returns and all of that

(22:43) type of stuff so having some measure of internal controls in terms of document retention and things like that that makes your life so much easier and digitizing we have so much readily available technology to digitize that stuff at this point and the more you can digitize it the easier it is to keep everybody on the same page and to have everybody have access to the same thing so um that’s one thing I see happen a lot like especially organizations that were formed prior to the pandemic but I’ll have organizations that come in

(23:21) that they were formed in the 90s and they’re like we know we have bylaws but no one can find a copy where are they so we pretty much have to start over and draft new bios because nobody can find a copy of the original bylaws and we have no idea what they are um and so that’s one of the things that happens a lot um the next thing that I see happen a lot is uh just general internal control issues with um um one person having control of the social media accounts and then that one person for whatever reason right being

(23:56) not a good person and yeah uh or one person having access to the bank accounts or one person who controls all the funds and nobody’s really overseeing that or you know anything that could potentially have an adverse negative effect on the organization ideally should have a point person and an overseer and those should be two different persons um so you know for your social media accounts you have two people manage it you have two administrators for it one person might be the one who’s doing 99 of the posts and the other person’s just

(24:38) there if something goes wrong but you have two people same with your bank account you’ll have two people every time you know for the Kansas City volunteer lawyers and accounts for the Arts for example I am the executive director I’m the one writing all the checks I’m the one charging all the things on the credit card Etc but we have a Treasurer who every month is looking at all of my transactions and every time I write a check he sees an image of it every time I cash a check he sees an image of it and if

(25:08) something doesn’t line up or something I didn’t like make enough of a note to make it clear what it is he will email me and he’ll be like this 21.25 in miscellaneous what is that for and then I’ll be like oh yeah sorry okay yeah I did our annual report with the Missouri Secretary of State and I didn’t notate that when I put it in there but he’s you know just over there kind of making sure he’s like hey let’s you know where’d you spend that money and and I it’s not particularly onerous

(25:37) for me and it’s not particularly onerous for him and I’m not really interested in embezzling but it’s a way to have that check in Balance to kind of make sure that that doesn’t happen um so those are a couple of things that I see a lot um and then the other thing that I see a lot is people just um failing to file annual reports failing to file tax returns with the IRS missing deadlines and things like that um the IRS if you are granted tax exempt status if you fail to file your 990 return for three consecutive years so

(26:17) three years in a row they’ll revoke your tax exempt status and getting that reinstated most of the time means you start over I and so you know having I have on my personal Google Calendar for example reminders like every March 1st it pops up and it’s like file the 990. you know and so something like that so that somebody is making sure that all of those you know T’s across your eyes are dotted um because we want to maintain that tax it’s upset us that that was what a lot of the nonprofits have really worked for

(26:55) because they’re soliciting grants they’re soliciting donations or corporate sponsorships and the way that they are able to obtain those things is by having a tax exempt status with the federal government so maintaining those things is very important and it’s really easy to let those slip through the cracks and and and nobody’s meaning to and it just happens right so having a process for that is important crisis is always important we’re just about out of time but I wanted you to share that

(27:23) there’s an upcoming uh event in June that folks can try to participate in give us the the quick stick yeah so there we do annually um the UMKC School of Law who I represent um Stinson Law Firm which is one of the larger firms here in Kansas City and the American Association of corporate Council we put on an event annually as well as with Kansas legal aid and United Way a um event where we pair non-profit organizations with a team of both Stinson attorneys and American corporate Council attorneys to address

(28:06) some non-profit issues in a one-day clinic so the attorneys and the clients meet for two and a half ish hours and so whatever the issue is it needs to be something we can kind of wrap up in two and a half-ish hours um we um if you are an attorney that it has a limited license and you’re interested in doing some transactional work and you’re not a member of the American Association of corporate Council if you become a member you can participate if you’re a Stinson attorney listening you should participate

(28:37) um and then if you are a non-profit um there is the we’re actually at this point our applications we’ve actually I think we’ve exceeded the number of people that we can take this year but we will do it again next year so be on the lookout in like March April um an invitation will go out and you can apply and you if you have something like we need someone to review our bylaws and tell us how to amend them that’s a great project for this Tech clinic or um we’re thinking about hiring employees

(29:08) and we don’t know what we’re supposed to do like what are some tips with that great thing for this clinic so you know that’s some types of things that you’d be consider doing um it’s completely free um the legal services are free they give you lunch at the end um where’s the best place for people to go check so that maybe next year they can stay in the loop or you know in between they might be able to reach out so um this year and last year we have posted it on um non-profit connect they have kind of

(29:43) like a bulletin board sort of thing um it’s on nonprofit connect it’s also been on Stinson’s LinkedIn page and the American Association of corporate councils LinkedIn page as well as Stinson’s website Stinson markets it pretty heavily but if you’re not following Stinson you’re not going to necessarily run across it people can always contact me um and I can get them hooked up with that but then the other thing is is that if you are a non-profit and you have a legal issue please just reach out to me

(30:17) um I do non-profit issues through um KC’s school of law clinic and so there’s some stuff that I might be able to help you with through the UMKC School of Law I might be able to tell you to participate in this Clinic coming up in the summer with Stinson and the ACC or I might have other resources for you so um I’m pretty open to taking emails and answering people’s questions and at least trying to direct them to the right resources for them if I can’t personally help them through my clinic

(30:46) will you share how they can reach you I assume by email is the best yes um so um my per my direct email is Merrick my last name D.A the first two initials of Danielle at umkc.edu or the clinics email is e l s clinic at umkc.edu so the acronym for entrepreneurial Legal Services clinic at umkc.edu um you can call and leave a message I will eventually return your message but I tend to be in meetings a lot of the day um but the phone number is 816-235 -6341 um and that’s the best way to reach me and like I said I’m happy to answer

(31:39) questions direct to resources um I actually go and speak to non-profit boards on a somewhat regular basis so if you’re a non-profit and you’re like I’d like someone to come and talk to my board about board responsibilities support liabilities I’m like yeah I can come and do that so um I I speak to non-profit boards about legal issues as well just to give non-profit organizations a better understanding of everything that’s required of them Danielle thank you this has been great I feel like I just went to a mini Law

(32:08) class and and you didn’t charge me which was even better so thank you for sharing your expertise we’re really grateful for For All You’ve shared with us yeah you’re welcome thank you for joining us for KC cares Kansas City’s non-profit voice we’re produced by charitable Communications also a non-profit this KC care segment was brought to you by the Ewing Marion Kaufman Foundation www.koffman.

(32:34) org you can spread the love and find us on Facebook and Twitter at KC cares radio on Instagram at KC cares online and check out our website at www.kccaresonline.org you can find Danielle and all of our expert podcasts right there and don’t forget you can catch us Saturday mornings on ESPN 15 10 a.m and 94.5 FM 8 A.

(32:57) M thanks for joining us I’m KC cares [Music]

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