WHAT’S THE RISK IN NOT FOLLOWING THE BYLAWS? (DON KRAMER)
By Don Kramer | Nonprofit Law Group Chair of Montgomery, McCracken, Walker & Rhoads, LLP
To see more of Don Kramer’s Nonprofit Issues and join his mailing list, receiving free Q&A every Tuesday, visit his website at http://www.nonprofitissues.com/
We are a state-wide nonprofit membership organization that, among other things, passes state funding through to some of our members that serve clients in our area of activity. One of our members is having a problem with board members not following their bylaws. What are the risks of their not complying?
Whenever there is an absence of the rule of law, those with the most power at the moment usually have the ability to do what they want. Knowingly and regularly violating a nonprofit’s “constitution” over objection would undermine the rule of law. Depending on the type of violation, such conduct could have a lot of potential ramifications.
First, of course, is that the action taken by the board in violation of the bylaws may not be legal. If a member or a dissident director brings suit (because the rule of law will still prevail outside the organization), it can be time-consuming, mission-diverting, and expensive to resolve — and probably not covered by insurance. If a third-party attacks the action, the organization may not be able to defend its improper procedure. The conduct could also attract the interest of the state Attorney General and, depending on the violation, could create some personal liability for the directors who disregard the rules.
More importantly, a regular course of disregarding the rules undermines the willingness to participate by constituents of the organization who don’t agree with the process but whose effort and support are important for the organization’s success. Most people resent a “rigged” system where those in power can apparently do whatever they want, without regard to the views or the rights of others.
Your situation is further complicated because you are dealing with public money. That raises a whole other potential for public scrutiny and adverse publicity. Do you have the power or the obligation to withhold funds because the organization has failed to comply with its internal procedures? Will the state agency providing the funding see a reason to withhold from your member, or perhaps from you? Will a legislator who sides with the disregarded minority make trouble for your member, for you, or for the cause you both espouse?
Maybe none of the bad stuff will ever happen. But why ask for trouble when the board can advance the cause and follow the rules at the same time?
Tuesday, August 16, 2016
Reprinted with permission from Don Kramer’s Nonprofit Issues – A Newsletter of “Nonprofit Law You Need to Know” at http://www.nonprofitissues.com/
Though the non-profit Food From Farms no longer exists, the organization existed to provide support to farmers markets and other food sustainability programs. This blog entry has been transferred from their site to ensure their legacy continues, and their work can remain to support farmers markets, farms, and more.