Doing right by your bylaws
Board bylaws, along with your articles of incorporation and statement of policies, are an essential component of your nonprofit, laying out the board’s procedures for voting, adding directors, appointing officers, and more.
Ideally, this legal document is crafted, or updated, with help from legal counsel – but not everyone can afford a lawyer, especially when starting a new nonprofit. (Though pro bono and online help is available – see the sidebar below.) That’s why GCN President & CEO Karen Beavor sat down with GCN Board Chairman Jeff Woodward, partner at the law firm of Taylor English and founder of the Atlanta Community Toolbank, to discuss what should go into the bylaws, how to review and update them, and a scheme for ensuring every board member reads them.
Karen Beavor: What's the significance of bylaws in nonprofit organizations?
Jeff Woodward: The day-to-day governance functions of the organization are heavily dependent on how you organize, manage, and utilize board members. Bylaws dictate that. The best kinds of bylaws answer the questions that arise when an issue comes up, and otherwise allow you to act flexibly.
The best kinds of bylaws answer the questions that arise... and otherwise allow you to act flexibly.
I think the greatest issue is that boards don't read their bylaws up front. The process of updating them, of treating bylaws as a living document, is something that's not usually on people's radar. When they do read them, board members often find out that there are requirements they failed to follow.
Beavor: We sometimes get panicky calls about that: An executive or a board member begins looking through the bylaws, and find that they're out of compliance. What's the worst thing that could happen if you're out of compliance with your bylaws, from a legal standpoint?
Woodward: Remember that the bylaws are an internal working document, not something the public or anyone else has access to, like your articles of incorporation. Could you have a board split into factions over an action that some see as improperly approved? You could, but that is an internal dispute. It only becomes an external issue when it involves an outside party – for example, when taking out a loan. An outside organization like a bank would rely on “apparent authority,” where they’re relying on you to tell them the way that your organization works.
Beavor: What are the main kinds of content you would want to see in the bylaws?
Woodward: The biggest issue is control, and the biggest issue within control is factional control. When a nonprofit is started by an impassioned person, or group of people, the immediate concern is, “By law, we have to get a board, and it has to be diversified – there have to be unrelated people on the board.” That’s the first inhibitor to control, so the question that always comes up in the beginning is, “How do we keep ourselves on the board? Or people who are like-minded?” As opposed to looking at the nonprofit as something owned by the public, and as a living thing that needs to grow and contract as things change – circumstances, beneficiaries, technology, and so forth.
People tend to focus on voting control, and miss out on what is probably the larger control issue: the nominating process.
For that, people tend to focus on voting control, and miss out on what is probably the larger control issue: the nominating process. The voting process is important, but the bigger issue is who gets to make the vote. The questions to tackle: How does the nominating process work? Who controls the nominating process? Is it the process public? If you’re an association, do you look for candidates among your members? Is the nominating component a part of that board, or are there third parties taking care of that?
Voting is number two: What the board votes on, and what they don't vote on; what should require a super-majority; defining the issues that are so critical you need to reach consensus, as well as what counts as a “consensus;” and identifying the issues that should be routine, so the staff can conduct day-to-day operations.
Outside of that, there is IRS compliance, which is pretty easy, and ensures your continued tax exempt status; procedures for changing the rules; you conflict-of-interest policy; and board member duties. Board indemnification is one of the few things you’ll see in both the bylaws and the publicly-accessible articles, because you want the public to know that you indemnify our board members. That helps ensure the comfort level of people joining your organization.
Everything that doesn’t affect one of those narrow issues falls within policy. That includes most decisions made at board meetings; we don't want to amend the bylaws every time there’s a vote. Policies are meant to change and grow, to provide the flexibility that an organization needs.
Pro Bono Partnership of Atlanta connects volunteer lawyers with nonprofits that serve the underserved and disadvantaged. At the top of their list of services: “Revising bylaws.”
Taylor English Duma LLP is an award-winning law firm that works with and supports dozens of nonprofits, with a wide range of nonprofit-specific focus areas –including governance – and attorneys committed to making a positive and sustainable impact on the world.
Blue Avocado has compiled a handy, to-the-point bylaws checklist.
FormSwift provides state-specific templates for composing your bylaws.
GCN’s Nonprofit Consulting Group is always available to help in crafting, reviewing, and updating bylaws – our Senior Consultants Kathy Keeley and Mary Hughes have extensive experience in governance consulting, and are ready to discuss your specific needs. Contact our team at [email protected] or 678-916-3082.
Beavor: I get this question with some regularity: Can an executive director also serve as a board member?
Woodward: That gets into conflicts of interest – it's hard to manage.
Beavor: Yeah, I think I would agree with that. As the ED, you can't possibly serve on the board – you would be recusing yourself from every conversation.
Woodward: You want the CEO to represent the interests of the staff, the interests of vendors, the interests of beneficiaries – all the people that they deal with on a day-to-day basis. They can wear all those hats as a CEO.
Beavor: A lot of folks write their bylaws as broadly as possible because they don't want to be constrained; others make theirs fairly specific, because they want parameters. Which camp are you in?
Woodward: I’d give a very lawyerly answer: It depends. At a larger organization – where you've got 50 or 60 people on a board – you probably want something fairly specific, so people stay in their lanes. If it's a smaller board, say five or 10 people, I would push toward great flexibility: You need that sort of dynamism to manage the day-to-day of the organization. It also depends a bit on personalities: If you've got a very political board or a split board, you want to have things more spelled out. If your board is used to staying in their lanes, it can be more flexible.
Most organizations today, if they maintain a good relationship between board and staff, push toward flexibility: giving the staff – the experts – the power to run the entity the way that they need to, without being overly constrained by the board. Micromanagement has been an issue since boards were invented!
Beavor: So it's not only like a cultural fit, but it's circumstantial. If you had a long-term CEO who was set to retire, maybe the board should consider looking at those bylaws in advance of a new ED coming in?
Woodward: Yes. If you are a long-standing organization and you are hiring an experienced director to come take a top position, they're going to look at those bylaws. If they see that the bylaws don’t provide the flexibility that they need, that could be a big deterrent.
Beavor: That's a really good point. How often would you recommend changing the bylaws?
Woodward: An annual review for bylaws is uncommon, but not a bad thing. There are a couple of things you can do each year. One is to update your people’s conflict-of-interest disclosures, by asking if any new conflicts have come up. You can also ask them if there are any updates they’d like the board to consider. Usually the answer is no, but putting it on the agenda means that people will end up reading the bylaws – and it’s amazing the number of people who you’ll get to read them for the first time.