Great article on e-mail voting from the Nonprofit Quarterly:
Email, texting, Facebook, Twitter . . . these diverse modes of electronic communication and others have exploded over recent years. We are now able to communicate faster, cheaper, and with more people simultaneously than we ever have been able to before.
To busy nonprofit board members, whose schedules make face-to-face board meetings seem like a luxury, a new trend in nonprofit governance has surfaced that may run afoul of the law – the “vote” by e-mail option.
Responding to the difficulty in wrangling a geographically diverse and time-crunched board, many nonprofit organizations are now allowing directors to “vote” by e-mail. This seems like the perfect solution. An issue or opportunity arises that calls for quick response. Directors are reluctant to attend an extra meeting. Why not circulate an e-mail, ascertain that there is general agreement and take action?
The ease and speed of email voting is seductively simple. But, this practice is a trap, because a board that relies on e-mail voting fails to comply with legal requirements for a proper vote, and exposes its decisions to attack. Nonprofit corporate statutes typically provide for board action to be taken either at a meeting (including a meeting by phone or video conference) or by unanimous written consent. Since an e-mail vote technically does not fit either category, it is quite possible that a court would consider an e-mail vote nothing more than an informal action, which is not legally valid. Even more likely, an attorney representing a nonprofit organization in a loan transaction might not be able to issue the “opinion of counsel” typically required by a lender, and this could delay or derail the entire deal.
Let’s take an example.
Playball (PB) runs a youth baseball program. A local businessman offers to donate land for fields, and arranges for a loan to cover construction costs. As interest rates are rising, PB needs to lock in the rate quickly. PB’s president tries to schedule a special meeting of the board to approve the loan, but can’t find a time when a quorum of four of the seven directors can meet.
So, she sends an e-mail seeking approval for the loan. Five directors respond, “Sure,” while two object. With a majority vote in hand, PB’s president signs the commitment letter and pays a commitment fee.
The closing approaches. PB’s attorney prepares the required opinion, which must state that: “All corporate proceedings required by law or the provisions of PB’s Certificate of Incorporation or bylaws to be taken by PB in connection with the transaction have been duly and validly taken.”
“Let me see the minutes of the meeting approving the loan,” says PB’s attorney.
“We couldn’t call a meeting, so we voted by e-mail,” responds PB’s president.
“Ok,” says the attorney. “You need a unanimous written consent, or to ratify the vote at a meeting or by teleconference.”
Unanimous consent is unattainable because two directors object. And, one of the five original consenting directors changes his vote. And of the remaining consenting directors, two are traveling in Asia, and cannot even meet by teleconference. With five of seven directors available, but only two who will vote in favor of the loan, PB’s attorney can’t deliver the opinion, the bank won’t make the loan, there is no deal, and PB forfeits its commitment fee.
While far-fetched, this scenario illustrates the danger of relying on informal board action.
Prohibition on Proxy Voting
In most states, directors may not vote by proxy. The theory behind this prohibition is that the discussion and interchange of ideas that occurs at board meetings is essential to the informed exercise of the directors’ fiduciary duty to the corporation.
An e-mail vote – that is, a proposal circulated and responded to by e-mail – is essentially a proxy vote delivered electronically.
The prohibition on proxy voting by directors has its roots in case law developed over many decades, known as “common law,” and eventually codified in statutes. The law regarding proper board action is substantially the same under the common law and under statutes governing business corporations and nonprofit corporations. In fact, most of the law developed in the business (or stock) corporation arena, but is applicable to nonprofit (or nonstock) organizations as well. But nonprofit organizations, whose directors are usually uncompensated volunteers, may be particularly prone to allowing their directors to vote by email.
The principal case in Connecticut on the issue of proxy voting by directors is a fairly typical one. In the 1956 business corporation case called Greenberg v. Harrison, the court invalidated the repayment of a loan by a corporation to its lender. The loan was to continue for one year unless earlier repayment was approved by unanimous consent of the directors. Finding that there was no unanimous consent because one director gave a proxy to another director but did not attend the board meeting, the court explained:
The affairs of a corporation are in the hands of its board of directors, whose duty it is to give deliberative control to the corporate business. This requires the physical presence of a director at directors’ meetings, and he cannot act by proxy.
Alternatives
In our example, PB’s attorney tired to implement the statutory exceptions to the requirement that directors meet in person. These exceptions can be easily adapted as modern technology progresses, and should be incorporated into an organization’s bylaws.
Teleconference
The statute allows meetings to be conducted by “any means of communication by which all directors participating may simultaneously hear each other during the meeting.” This provision allows teleconferences, and should permit web conferencing that combines voice or video communication with document sharing.
Unanimous Consent
Closer to the concept of e-mail voting, the statute also permits a board to act by unanimous written consent, if each director signs “a consent describing the action taken or to be taken.” This protects a director’s right to question the action or insist that the board discuss the matter, as a director may compel a meeting simply by withholding consent.
Combining the formality of unanimous written consent with the simplicity of e-mail, an organization’s staff member or officer may circulate the proposed resolution as a formal consent attached to an email. The organization must then collect all of the directors’ signatures. The consent may be signed electronically – \\John H. Smith\\ – for example, and delivered electronically – as a PDF attached to an e-mail.
E-mailed Resolution
An organization might also send an e-mail containing the full text of the resolution and ask each director to specifically respond and sign electronically. However, this procedure increases the risk that a technicality will be overlooked, and it is no simpler than attaching a formal consent to an e-mail.
The distinction between a formal consent circulated as an attachment to an e-mail, and an e-mailed poll of the board may seem inconsequential. But, note three important differences. Most important, all directors must vote unanimously. The directors must also receive a complete description of the proposed resolution and they must “sign” the consent.
E-mail is a useful tool for taking the pulse of a board. An organization may informally poll its directors and then ratify the decision with a formal in-person or teleconference meeting or by unanimous written consent.
The risk that an informal e-mail vote will prove problematic is small if the decision is unanimous, if no one litigates to pursue an objection or if no opinion of counsel is required. Nonetheless, directors should protect the integrity of their decisions by adhering to the statutory procedures and ensuring that through active and meaningful participation they stay informed and comply with their fiduciary duty of care.
Leah Cohen Chatinover is of counsel at Stanger & Arnold, LLP in West Hartford, Connecticut. She is a business lawyer for nonprofit organizations of all types, and can be reached at lchatinover@stangerlaw.com
Tuesday, May 31, 2011
Thursday, May 26, 2011
ADA Accessibility and Funding Question
Great question from a DEC Coordinator, which I'm checking into:
Several people have asked me if the ADA accessibility rule also applies to others who receive money from NYSCA (not through DEC) and, indeed, all non-profits who are funded by the State.
If you have any thoughts, feel free to post.
Suggested Resources (from DEC Coordinators):
Several people have asked me if the ADA accessibility rule also applies to others who receive money from NYSCA (not through DEC) and, indeed, all non-profits who are funded by the State.
If you have any thoughts, feel free to post.
Suggested Resources (from DEC Coordinators):
Defining 501C Corporations
Here's some info and definition on the different types of 501C corporation from everybody's favorite...wikipedia:
Monday, May 23, 2011
Online Application Tools
Just a reminder that if anyone wants to continue the discussion about online application tools, you can post here. I mentioned SurveyMonkey and Wufoo. You can tailor them to mirror your apps and just post a link online for people to complete. I know someone mentioned the idea of having a more detailed conversation or session on this topic too. Feel free to offer other suggestions here.
- Wufoo
- Surveymonkey
- Queens Arts Council: http://qca.cuerate.org/
- Form Assembly: http://www3.formassembly.com/
DEC Showcase
NOTE: I have added all DEC Coordinator e-mails to each video clip. You may have to create a username and password to view the videos.
Here are the film clips from the DEC Showcase. These clips are not public, but we were wondering if those of you who work with the performers could ask about us making these available? You can e-mail me to let me know. Thank you!
Jesse and Joseph Bruchac
Native American music and storytelling
Saratoga Arts – Saratoga County: Adrianna Flax, DEC coordinator
Porch Pieces
Salem Art Works: Presentation of community arts performance piece
Lower Adirondack Regional Arts Council: Candice Frye, DEC coordinator
Rob Hervey
Didjeridoo
Greene County Council on the Arts: Colette Lemmon, DEC coordinator
Peter Donahoe
Pinhole photographer: Presentation
Columbia County Council on the Arts: Colette Lemmon, DEC coordinator
Maxwell Kofi Donkor
Cultural Educator, Sculptor and Master Drummer
Arts in Orange: Suzanne Schubert, DEC coordinator
Phillip Levine
Poetry reading
Dutchess County Arts Council: Eve Madalengoitia, DEC coordinator
Vong Pak
Traditional Korean drum and dance
Brooklyn Arts Council: Ethany Uttech, DEC coordinator
"Bells & Motley Olden Music, Dance and Storytelling":
Performers and Teachers of Historic and Folkloric Traditions
John Bromka, Sondra Bromka
Cultural Resources Council: John Shaffer, DEC coordinator
Percussia
Ingrid Gordon, percussion
Margaret Lancaster, flute
Queens Council on the Arts: Katie Tuss, DEC coordinator
Darren Stevenson, PUSH Physical Theatre
Solo physical theater
Arts Cultural Council of Rochester: Jen Hale, DEC coordinator
Atkinson Family Bluegrass Band
Liza (Atkinson) Winters - guitar and vocals
Shelene Atkinson – guitar and vocals
Laura Atkinson – bass guitar and vocals
Dick Atkinson – banjo and vocals
Adam Atkinson - mandolin
Dave Bevins -resonator guitar
St. Lawrence County Arts Council: Suzanne McBroom, DEC coordinator
DEC Presentations
Here are the PowerPoint presentations from our Retreat. If you have any follow up questions, let me know.
- DEC Regional Presentations: Arts Council of the Southern Finger Lakes; Saratoga County Arts Council; and St Lawrence County Arts Council
- NYSCA DEC Program Overview
- Burning Issues
- NYCON Management and Governance: Understanding Nonprofit Operations and Best Practices
- Managing Your DEC Site
- Cultural Plan
- NYCON Financial Management and Infrastructure
- NYCON Fund Development
- NYCON Marketing and Publicity: Raising Awareness and Increasing Impact with Online Tools
DEC Grantees: Checklist
This is to be developed, but I wanted to capture our discussion about the checklist for potential grantees. This checklist would help with compliance, risk management and accoutability. Here are the ideas discussed:
- Request 501(C)3 letter of determination
- Articles of incorporation from NYS
- 990s (IRS annual filing- was applicable to nonprofits over $25,000 and now over $50,000)
- CHAR 500 (annual NYS filing form)
- Financials
- Other reports to funders
- NYS Charities Bureau
- Certificate of insurance
- Other ideas?
DEC Coordinator Suggestions:
- New this year, we are requesting the NYS Charities Bureau Registration Number for all 501(c)3 applicants. I found, depending on the 501(c)3, you can access previous 990 forms which contain their mission, financial info, board member info, etc. A wealth of information (if they are required to file a 990).
http://bartlett.ag.ny.gov/Char_Forms/search_charities.jsp
E-mail Voting
Just following up on our discussion about e-mail voting and the specific feedback about this issue from of our NYCON attorneys, Kevin Stadelmaier. As Doug mentioned, board votes by e-mail are a problem. Here is Kevin's feedback:
Its not codified specifically that you can't vote by e-mail...however, 708(a) indicates that all corporate action be taken via a meeting where Directors are present in person or via teleconference (708 c) or through the 708(b) "Action without a Meeting.(AWOAM)" There are no other voting methods specified. A meeting must grant each director present an opportunity to be heard and hear others deliberate on a matter before voting. Also, deliberation cannot be based upon separate conversations between Board members but instead must be heard by all Board members appearing at a meeting. (See Hauben v. Morris, 291 NYS 96 (Sup. Ct. 1936).
"AWOAM" requires that All Directors without abstention submit their votes in writing. NYS law has not evolved to the point where submission for votes by e-mail would qualify as a "writing" according to the statute under 708(b) "Action without a Meeting." We interpret that to prohibit anything but an originally signed document. A vote by e-mail on a Board matter, where an actual meeting is held, would be akin to a proxy vote on a Board matter which is specifically disallowed under statute and allowed only in the context of membership meetings. Hope this helps.
Kevin M. Stadelmaier, Esq., Legal Advisor
New York Council of Nonprofits, Inc.
295 Main Street, Suite 106
Ellicott Square Building
Buffalo, New York 14203
Its not codified specifically that you can't vote by e-mail...however, 708(a) indicates that all corporate action be taken via a meeting where Directors are present in person or via teleconference (708 c) or through the 708(b) "Action without a Meeting.(AWOAM)" There are no other voting methods specified. A meeting must grant each director present an opportunity to be heard and hear others deliberate on a matter before voting. Also, deliberation cannot be based upon separate conversations between Board members but instead must be heard by all Board members appearing at a meeting. (See Hauben v. Morris, 291 NYS 96 (Sup. Ct. 1936).
"AWOAM" requires that All Directors without abstention submit their votes in writing. NYS law has not evolved to the point where submission for votes by e-mail would qualify as a "writing" according to the statute under 708(b) "Action without a Meeting." We interpret that to prohibit anything but an originally signed document. A vote by e-mail on a Board matter, where an actual meeting is held, would be akin to a proxy vote on a Board matter which is specifically disallowed under statute and allowed only in the context of membership meetings. Hope this helps.
Kevin M. Stadelmaier, Esq., Legal Advisor
New York Council of Nonprofits, Inc.
295 Main Street, Suite 106
Ellicott Square Building
Buffalo, New York 14203
Governance Info
Following up on our discussions at the Retreat, you will find NYCON templates related to governance listed below. If there were additional documents discussed not here, please let me know. You will also find our governance standards publication, Standards for Common Sense, which is a great board primer for any organization.
NYCON Governance Publication
NYCON Templates
NYCON Governance Publication
NYCON Templates
Fiscal Sponsorship
Here are some resources that we discussed regarding fiscal sponsorship. Below you will find document examples from NYCON's subsidiary Innovative Charitable Initiatives, which provides fiscal sponsorship for many nonprofits and has done so for years. These documents provide a good reference and help manage risk for you and any organization considering acting as a fiscal sponsor.
Innovative Charitable Initiatives
Innovative Charitable Initiatives
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