An earlier commentary, “Are You Guilty of By-Law Negligence”, noted the frequent ignorance of and/or disregard for organizational By-Laws despite their role, relevance and importance. While one can speculate about the reasons why so little attention is given to By-Laws, there is no uncertainty about the risks and consequences of ignoring or contravening them.

There are three types of risks.

LEGAL RISK

Most if not all states require any new organization to submit By-Laws along with other documentation to be registered as a legal corporation. This requirement exists to ensure that the proposed organization will be operated in accordance with applicable state laws and regulations, in order to be properly classified either as a for-profit or as a nonprofit corporation. Each classification has its own unique requirements, policies and procedures which must be included in the By-Laws.

State laws typically include a provision that the board and its individual members are accountable, and liable, for the conduct of the affairs of the corporation. In brief, an organization’s By-Laws are the ground rules by which it must carry out its business.  As such, By-Laws are in effect a contract between the nonprofit and its home state.

Boards and board members who disregard or contravene their By-Laws, even unwittingly, do so at their professional and personal peril.

REPUTATIONAL RISK

But the risk to a nonprofit, its board and members begins long before any final determination of guilt or innocence of any actual wrong-doing.

Once a state or city attorney begins an investigation, regardless of the why or how an investigation is started, it is only a question of time before the existence of the investigation becomes the subject of rumors and/or media attention.

The mere hint of an investigation brings with it a dark cloud of doubt or suspicion that is extremely hard to dispel, a risk magnified many times over by the advent of social media.

An unblemished reputation is one of a nonprofit’s most valuable assets.  Putting it at risk should be avoided at all costs, particularly by the very ones to whom the state has entrusted the nonprofit.

To put it at risk by simply not being cognizant of the nonprofit’s By-Laws would be the epitome of negligence.

ETHICAL RISK

Nonprofits have a plethora of stakeholders in addition to their state including the IRS, those who provide philanthropic support, those who may contract for their services, those they serve and not least those who carry out the organization’s work – its staff and volunteers.

Each relies on the board and its members to conduct themselves prudently, professionally and in accord with their own policies and procedures codified in its By-Laws.

While not every disregard or contravention of its By-Laws would necessarily be illegal for the board and its members, it most certainly would be unethical and unprofessional.

It would also be the height of hypocrisy as any wandering from policies and procedures by staff and volunteers is rarely tolerated by boards, appropriately so.

Boards lead by example, or should.

PREVENTION OF BY-LAW NEGLIGENCE: A PARLIAMENTARIAN

In theory there should be no need for a parliamentarian, as being conversant with a nonprofit’s By-Laws should be expected of all board members, and most particularly by its officers along with the Executive Director.

The need for a parliamentarian, someone who is familiar with the rules and procedures by which a group has decided to conduct its business, is symptomatic of the failure of others to fulfill their responsibilities.

That said, newer and smaller boards, particularly of community-based organizations, are rarely able to attract experienced board members and EDs with even minimal governance experience.

Whether for that or other reasons, if there is a need for a parliamentarian, one option – and the one I normally recommend – is to build that function into the role of the board’s vice-chair.

While other board officers have clearly defined functions requiring each to invest a certain amount of time on a regular basis, that is rarely the case with vice-chairs.  Being tasked to serve as parliamentarian would not only even-out officers’ workloads but would also be useful preparation should the vice-chair move up to the chair role at some point.

BOTTOM-LINE

Failure of a board to adhere to its own By-Laws would be negligent, a serious but preventable risk, one easily mitigated.

Failing to address the risk would be additional negligence.

Remember: ostriches that stick their heads in the sand leave everything else fully exposed.