New York State Capitol in Albany (Matt H. Wade/Wiki)
On Nov. 28, Gov. Andrew Cuomo signed into law a Nonprofit Revitalization Reform Bill, Chapter 466 Laws of 2016, that will strengthen the regulation and operation of nonprofit organizations in New York in many ways while also helping the communities they serve. The timing could not be better. In the current national political climate, nonprofits are likely to be called to provide new levels of support in multiple areas, including protection of civil rights, delivery of social services, immigration enforcement, family planning, and more.
Part of the law relating to board chairs goes into effect on Jan. 1, the remainder on May 27. The measure will introduce major improvements in many areas of nonprofit governance. For example, it will help ensure that board members are more familiar with, and responsible for, their organization’s policies and procedures regarding conflicts of interest and whistleblower complaints. It will bar any person who is the subject of a whistleblower complaint from involvement in handling that complaint, and creates new levels of legal liability for individuals who abuse nonprofit assets for personal gain, even when they do not serve as an officer, director, or employee of the organization.
The law will create an incentive for nonprofits to review and correct procedures related to conflicts of interest, particularly those that happen innocently. This will apply to a wide range of potential conflict situations, such as when a director is unaware that a relative has an interest in a transaction or when a board approves a transaction after considering alternatives but fails to document the basis for its approval. The law outlines both a mechanism for a board to ratify a procedurally defective transaction if it is in the organization’s best interest and an incentive for the board to tighten up its procedures going forward.
Board oversight over agency finances will also improve by making it easier to recruit new board members who have relevant finance expertise. Current law prohibits audit committee service by local business owners and employees if they or members of their extended families have certain relationships with a company that does even a small amount of business with the nonprofit. For instance, the chief financial officer of a bank with multibillion-dollar revenues that has extended a small line of credit to a nonprofit or an executive from a local utility company from which that nonprofit purchases electricity would be prohibited from serving on the audit committee of that nonprofit if the organization had purchased $25,000 in goods or services from the company. The new law allows audit committee service if the nonprofit’s transactions with the business are extremely small in comparison to the size of the revenues of that bank or utility company.
With the new law in place, nonprofit board members—most of whom are volunteers—can focus more on supporting the organization’s work rather than complying with rules that inhibit the organization’s work and mission. For instance, the law adopts Charities Bureau guidance by allowing staff members rather than the board to approve a transaction with a director, officer, or other related party if the transaction is of limited monetary value. Staff can also approve the transaction if it would not usually be reviewed by the board in the ordinary course of business and is available to others on the same, or similar terms. The law also better enables nonprofits to respond quickly to unexpected events, such as funding opportunities or meeting constituent needs in natural disasters, by allowing the board to form committees and appoint committee members more quickly.
The governor’s decision to sign the new law shows the importance he places on the nonprofit sector. The bill was supported by 12 leading nonprofit umbrella organizations such as Nonprofit Coordinating Committee and Human Services Council, the New York State and New York City bar associations, the New York State Law Revision Commission, Lawyers Alliance for New York, and 10 individual nonprofit organizations eager to strengthen their boards and maximize their impact.
These widely supported reforms were crafted through a bipartisan effort by legislators and their staff from both the Assembly and the Senate, following intensive discussions with the office of the Attorney General. While we often focus on the gridlock and unnecessary regulation in government, this law is a very positive example of how government can be an effective partner in helping nonprofits serve their communities.