075: Revel In Real Estate & Board Oversight Basics – Tony Martignetti Nonprofit Radio

Tony’s guest this week:

Gene Takagi, founding partner in the Nonprofit & Exempt Organizations Law Group

Read and watch more on Tony’s blog: http://mpgadv.com

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Hello and welcome to tony martignetti non-profit radio big non-profit ideas for the other ninety five percent it’s me, your aptly named host for january twentieth, two thousand twelve. I hope you were with me last week when we had podcasting primer with john federico principle of the new rules talk about what podcasting is and how you get started. Are you doing video or audio? Only what’s your content and how do you distribute your podcasts? Also with me was scott koegler, our regular technology contributor and the editor of non-profit technology news, and he gave us his thoughts on twitter organization pages. Should you get in? How do you get in this week? Revel in real estate chase magnuson of george washington university and alan thomas from the american college have small and midsize non-profits in mind, as they describe howto identify prospects for real estate gif ts how to cultivate, solicit and negotiate thes gif ts and what is the due diligence that’s required to keep your charity safe from a bad gift? This is a recording from the national conference on philanthropic planning and board oversight basics. Jean takagi are regular legal contributor and principal of the non-profit and exempt organizations law firm in san francisco, defines oversight and explains how it should be executed to protect your charity and your board members. This is the first part of our conversation, which is going to continue in february between the guests on tony’s take to my blogger this week. You don’t need the fancy stuff for your plant. E-giving the most sophisticated gift’s really are not necessary to have a very successful and suitable plan giving program, and i’ll talk about that. We’re live tweeting the show as we do every week. Use hashtag non-profit radio to join the conversation on twitter. This show is supported by g grace corporate real estate services. I am grateful for their support. Thank you right now, we take a break, and when we returned, we ll talk about reveling in real estate and stay with me. Dafs you’re listening to the talking alternative network. Are you suffering from aches and pains? Has traditional medicine let you down? Are you tired of taking toxic medications, then come to the double diamond wellness center and learn how our natural methods can help you to hell? Call us now at to one to seven to one eight, one eight three that’s to one to seven to one eight one eight three or find us on the web at www dot double diamond wellness dot com way. Look forward to serving you. Is your marriage in trouble? Are you considering divorce? Hello, i’m lawrence bloom, a family law attorney in new york and new jersey. No one is happier than the day their divorce is final. My firm can help you. We take the nasty out of the divorce process and make people happy. Police call a set to one, two, nine six four three five zero two for a free consultation. That’s lawrence h bloom two, one two, nine, six, four, three five zero two. We make people happy. Oppcoll hey, are you crazy listeners looking to boost your business? Why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com. Welcome back, i hope you’re ready to revel in real estate. Here is my interview with chase magnuson and alan thomas from the national conference on philanthropic planning. Welcome to tony martignetti non-profit radio coverage of the national conference on philanthropic planning. Where on the riverwalk in san antonio, texas. The topic right now is except real estate gif ts exclamation mark on my guests are chase magnuson and alan thomas chases director of gift planning for real estate at the george washington university. And alan thomas is vice president of advancement for the american college in bryn mawr, pennsylvania. Gentlemen, welcome. Thank you. Thank you. Nice to be here with you. A pleasure to have both of you. You have an exclamation mark after except real estate gift chase why’s that why’s that so important? Well, it’s important because it’s one of the largest equity opportunities for both the donors to become philanthropist as well as the charities to benefit from they’re gifts of real estate. And historically, charities have been either rejecting or not accepting real estate gifts. And i think alan and irp bringing some pretty good reasons why organisations oughta consider real estate gifts in addition. With some wonderful solutions. I i think accepting real estate gifts is a wonderful topic name. But i would make it even more emphatic and just say, take real estate. Any kind of okay? What’s the reluctance been chase. Why have we seen that? The expertise of the organization’s doesn’t lend itself well to the real estate industry? Ah, they’re two separate disciplines, and they haven’t put together teams of experts to help solve problems. And there is a great fear love liability that comes with the ownership of real estate. And i think some of the some of the issues that alan and i are going to be covering today would help solve those problems. Reduce the risk is there is risk, right? And what? We can minimize the right. Yes, indeed we can. Okay. Um, ellen let’s. Turn to you and think about how we start to talk two donors. How do we start to cultivate them around thinking about a real estate gift? Tony, great question. We we need to encourage the charities, too, reach out to the real estate community in order to promote real estate, real estate professionals, real estate attorneys would absolutely real estate. Brokers, attorneys and financial advisors who represent potential donors as well. And we need to get this message out that charities are willing to accept real estate and that there are advantages too, their donors too, to make these gifts to charities. And there are vory wonderful mechanisms that will promote this and make this viable for both the donor and the charity. Okay, what it’s actually, the charities have been standing in the door rejecting gifts that donors very generously have come to the table with because the charity’s air not set up to handle it. Over eighty percent of all gifts from donors offered to charities are rejected out of hand. Real estate. Yes, and the and the best. We can calculate the amount of real estate that’s rejected every years between sixteen and twenty billion dollars. That could be coming to charities at least some a portion of that, if the charities would go to the trouble of putting together teams of experts to help them manage the process. So it is such a wonderfully ah wonderful opportunity. Foran untapped market to really spur on the charities in a very difficult time in fund-raising. All right, so let’s, pursue that. What? What does the charity need to have in place? Chase they need to have policy, some procedures internally. They need to have a committee of people who make decisions. The plan giving officer who is the front line agent for the charities have to have a working knowledge of the types of real estate gifts and how they can be used. And here at this conference, i would venture to say ninety five to ninety eight percent of all the plan giving officers understand the technical side of it. But they need they need residential real estate agents for for personal residents. They need commercial brokers for investment properties. Farm and ranch brokers who specialize in another area and industrial brokers for corporate gifts of surplus rules state. Yet really, it really covers a gamma of about twenty six real estate specialties, and no one person can have all of that kind of expertise by themselves. So this may not be appropriate than for the smallest, some of the smaller or smallest charities. Oh, on the contrary, they ought to team up with a larger, better position charity to share in the gift. Okay, let’s talk. About that, then. So what can the small and midsize shops do that that don’t have the the board or the wherewithal? Teo hyre this expertise what in the small tony do, tony, the small charity can partner with a larger charity, and that has the expertise and has those contacts and the team sort of driven approach to accepting real estate, and they can partner and split the proceeds between when it when a property is sold? Okay, so there are ways of partnering and and helping those smaller charities our message today to this, this universe of folks here at the plant giving conference is to help them understand that there are mechanisms and ways in which to accept real estate that will insulate them from the risk that maybe inherent, and they’re all course skeptical about the real estate market today, and we need to assure them that there are ways of underwriting acceptance of gifts that should be acceptable to their boards and make them comfortable, right? And we’ll have time to get to some of those go ahead. Chase looks like it was something i was going to say that the small charities by teaming up with a larger charity don’t expose themselves to cost of managing a process or hiring new people, and it can move very, very smoothly through the process. But what what professionals like alain bring to the table is they’ve actually closed major real estate gifts. What we here at these conferences, frankly, are quite often just theories on how it’s going to be done. So for four practitioners who have closed multiple transactions on all kinds of properties, you’re looking at one of somebody that’s very unique and chase the two of us wear all admiring each other well, no, i admire your strength, no, but it but it needs to be it needs to be heard out there somebody’s actually doing it rather than just theory on a piece of it can be done well, and your title is director of gift planning for real estate. So i imagine you’re working. I mean, we’re not just sitting back, you’re earning your keep. I’d like to get a copy of that to washington. I’ll get a copy of this for my university, so they didn’t have anything to do with getting dinged. You’re listening to the talking alternative network. E-giving cubine are you stuck in your business or career trying to take your business to the next level, and it keeps hitting a wall? This is sam lebowitz, the conscious consultant. I will help you get to the root cause of your abundance issues and help move you forward in your life. Call me now and let’s. Create the future you dream of. Two, one, two, seven, two, one, eight, one, eight, three, that’s to one to seven to one, eight one eight three. The conscious consultant helping huntress people be better business people. Buy-in hi, this is psychic medium. Betsy cohen, host of the show. The power of intuition. Join me at talking alternative that come mondays at eleven a. M call in for a free psychic reading learned how to tune into your intuition to feel better and to create your optimum life. I’m here to guide you and to assist you in creating life that you deserve. Listen. Every monday at eleven a, m on talking alternative dot com. Are you feeling overwhelmed and the current chaos of our changing times? A deeper understanding of authentic astrology can uncover solutions in every area of life. After all, metaphysics is just quantum physics, politically expressed hi and montgomery taylor and i offer lectures, seminars and private consultations. For more information, contact me at monte m o nt y at r l j media. Dot com talking alternative radio twenty four hours a day. Hi, i’m kate piela, executive director of dance, new amsterdam. And you’re listening to tony martignetti non-profit radio. Big non-profit ideas for the other ninety five percent. Dahna durney chase earns his keep exclamation Mark exclamation mark 3 of us, okay, now, but i want to say i want to pursue this a lot more so a small charity someone comes to them with the idea of a real estate gift, wouldn’t that charity be reluctant to go to another another charity and partner for fear of losing the donor relationship? Alan? Well, the important thing is that that small charity needs to still be the primary contact with that donor, and they need to be assured that they will be in the having that principal dialogue bringing the larger charity in as as an adviser and able to help guide the process. Chase and i talk about process because you need an infrastructure buy-in place and a process in order to be able to accept real estate gifts if you don’t have that infrastructure and process you’re going to be, i’m flailing away and and in all likelihood, probably not accepting real estate gifts when they’ve always falling into the eighty percent of jordan chase mention exactly, i would go in another direction for the small charity that’s looking at a million dollar gift, and they’re not. Capable of handling that, how dangerous does it have to be for them to lose their donor if the if the property is handled with a sister corporation and they get five hundred thousand dollars of the gift they get xero or they get five hundred thousand dollars, that doesn’t seem to be to be a very hard business decision for the small charity and whoever they’re teaming up with they’ve already vetted them, and they know who they’re dealing with. We all live in a very small community known as the non-profit world, and you simply cannot afford to to go against what you’ve told another charity you’ll dio and we really go out and say to the small charity, we’re not going to invade your relationship with your donor. This is a one off transaction that we might help with. Have you pardoned partnered at george washington with small charities? Not yet, but i’ve done it in my prior career, and we’re establishing ourselves to do exactly that. Okay, so are you reaching out to the non-profit community and some of the earlier they’re here well across the kind of nationally, okay? Yeah, and i think alan would do the same, and that will be part of our message today as well. Yes, you’re coming on dso, and it need not be in your in your respective cities, the part of the partner charity. No, there are our efforts or national in scope, and so isn’t chases. We, we will look at real estate, gets all over. The united states were actually intergalactic. With a word like intergalactic, you don’t need an exclamation. Absolutely no way that carries today. No fluctuation required the word that word is resounding in its own period. Even a semi colon that’s. Okay over does. Okay, no. But i think it’s important for the audience of this show is small and midsize. Non-profits i think it’s important for them to know that that both of your institutions are interested in talking to small or shops that that maybe offered a real estate gift and don’t have the wherewithal to manage it themselves. Absolutely, i would. I would liketo characterize us as mentors. Once we teach the smaller charity how to do it. Well, step away, and they never have to share again. Okay, but they can also use community foundations and other charities in their community that the donor might want to have an interest in rather than coming to a george washington university. All right, um, alan, you talked a little about cultivation. You starting to cultivate the gifts through the advisors. But i really should have started with identifying let’s. Let’s, uh, let’s. Identify the right donors to be proactively recommending or promoting the idea of real estate gifts how do we i d defy the right group toe promote these ideas too well in any kind of plan giving situation, the best donor that you’re going to have for your charity is one who has been involved in your charity in the past, who has a strong affinity to your mission and and has been a past giver. So first of all, you look at somebody who is invested in your charity already and would be the most likely prospect for a planned gift of any kind. And then you would want teo sort of identify those who in particular might have real estate assets above and beyond the average kind of donor and who might be a very good prospect. So that takes time to cultivate your plan giving donors and understand who those best ones are for real estate gifts and what type of real estate might they need to have? I mean, suppose they just have primary home could could could the type of donor that you described be a candidate for the type of gifts we’re talking about with just a primary home? Yes, tony, the very first example we will. Given our presentation today is called a retained life estate, and that is a gift where a donor gives they’re residents could be a primary residence or a vacation home or a ranch that they give it to a charity, and they retain a life estate to remain there through the balance of their lives. On tony martignetti non-profit radio, we have jargon jail, i’m working plan giving. I know what you mean, but let’s talk about life. Is that what i want to keep you out of jargon? Jail? Okay, otherwise i’ll throw you in. Okay? Pinstripe soup in all doesn’t matter, right? And you don’t get what is what is a life of state that life donor is retaining a life of state is when you reserve the right to stay in that property through the duration of your lifetime, and it could be one person or or joint people could be more than one. So if you have a husband and wife who are seventy five, seventy six six and they love your charity, they want to give their primary home to you, and they want to stay in that property for the balance of their lives. They transfer the deed to your charity and and reserve this life tenancy to remain in that property for the rest of their lives. So then when one of them in the first of them dies, the survivor continues to live there. Yes. And then at the survivors death? What? What happens to the property then? The charity has complete control over it. Okay? Because it is a new deed. Is that right? The deed is transferred to the charity when the retain life estate is created. Right? That’s what i meant at its creation. We’re we’re writing a new deed. Yes. Where the donor keeps the life residents like state on dh could be for more than one life. And then, at their death transferred to the check. Yes. And there there are two other benefits. Should the donors decide they want to move out of the home into a assistant living, they can rent the property and get the rental income. Or they can sell the balance of their life. A state to the charity for a lump sum. So it’s, sort of like a spic it for additional income for the donor, it’s. Wonderfully flexible it is. Wonderfully flexible, yes, i’d like to come. I’d like to come in a different direction, alice, giving you the allens, giving you the traditional explanation on how you manage and cultivate, but we’re also problem solvers. We often get donors that come to us that say we’re trier dh of managing our property, we need income, we could use some tax shoulder here’s our property, give us the alternatives so we’re like we’re really weaving a mosaic on different opportunities for lifetime income tax shoulder and to solve the property management issue, so we’re problem solvers at the same time we’re cultivating the relationship. Excellent, wonderful it’s a wonderful role to play it is the retained life estate, so we’ve been using the example singularly would baizman saying at the death of the donors don’t or donorsearch nto the remainder is to the charity, but this can be done for multiple charities then is that right? Yes. Ok. And how? How would the charity’s then work together? When the property is transferred to them? At the death of the survivor, there would be a primary charity that would take title to the property with the responsibilities to make sure it’s maintained that it’s insured and that sort of thing. And then an interlocking agreement with the donors and the other charities on how the eventual proceeds will be divided. Okay, very simple. It’s all worked out during while the donors are living. So they know how the proceeds will be distributed across the charity. Yes. And it becomes very much like a landlord tenant kind of situation because your donors remain there living in the property. Caring for it is they have been so it’s, like a landlord tenant situation and alan who’s responsible for the expenses. While the donors are living there, we typically look to have the donor take care of the expenses, the maintenance, the real estate taxes, the insurance. And so that the charity doesn’t have to make those expenditures. Okay, way. Make site inspections because we are the stewarts for the organizations that are getting the proceeds to make sure our asset is well taken care of. So how often is there a site visit? At least annual? Yes. Annually. Okay. And what if the donor chase would like to make improvements or renovations or to the property? Do they need to get the permission? Of the charities how does that work? Yes, that’s that is in the original contract for donation because additions to properties in the eye of the beholder may change the value. Heard it or do something else because uncle fred came in and decided to put a carport in but he’s, not a contractor. And when you go look at it, the carp ports on the wrong property. And here comes the litigation. Ok, so there does that we have, right? Yeah. Okay. All right. So following our course, we’re talking about identifying the right donors and cultivating chase let’s continue with how do you open this conversation with people who you think are good prospects for ah, retained life of state we were talking about? Well, i think that there’s some qualifiers such is their age. You you wouldn’t open this conversation without having several donorsearch meetings the you asked the question, what are you trying to accomplish and it’s from that point that we move forward, we can eliminate many alternatives in the gifting program of real estate because we’ve heard the donors are going in a different direction if if things like we want to live out our lives here in comfort that is the first kickoff to say, look, you could get some tax deduction, you could become your legacy can be turned into a current philanthropic recognized gift, and you can stay here and we’ll help you do that. That’s an easy conversation. You often meet the donors at their home you can look around you known awful lot about about your diet, your donor base. So i don’t. Alan, do you have if allen’s probably got a key question when he comes in the door, where’s the deal now you set him up now he better have one because you’ve set him up for god gave him time, anyone? Now, if you’d like to add more to opening that conversation, i would like to add a new additional part of the conversation, and that is that this is a holistic discussion that goes way beyond just the real estate. You need to know your donors in this situation because, for instance, you don’t want to take a retained life estate if that’s their single asset or predominantly their asset, and they don’t have any other income or assets in order to meet their future. Living living needs their medical needs, and you don’t want to find yourself in a situation where they need that the of the worth of that real estate in order to cover their future needs so that that that’s an additional part of the discussion which goes beyond just the real estate. So we is planned giving people need to have a complete, broader dahna perspective on what that donors situation is it’s very important. It’s all about the donors donor-centric donor-centric we’ve been saying about you don’t okay, all right, so then alan let’s continue. We opened the conversation, the person is willing to hear a little more do we start to bring in their advisors, their family? What? What sort of the next step? Maybe the second or third meeting about this topic, we absolutely need to bring in their advisers, and we highly recommend bring in family. Ah, the last thing you want is family to be surprised when when mom and dad have all of a sudden announced to them g i gave the homestead teo x y z charity, and we’re going to stay here for the rest of our lives. But it’s gone, so you don’t want direct, close family to be surprised in those situations, so you want the adviser of the family and we need to bring in our expertise with ah ah appraisers and conduct our due diligence to make sure that the property is valued correctly and that there aren’t any unsuspected sort of liabilities associated with it. Okay, i’m hoping we have a minute or so to get into some what some of that due diligence is, but chase, let me ask you who might some of these experts or should sorry donors advisers be that we’re asking the donors to bring into the conversation. In addition to their own family attorney, they ought to be talking to a specialist and will’s in the states. They ought to be talking to a c p a that we work closely with that professional, the plan e-giving a person should be eventually brought in on a three or four way conversation and then, depending on the type of property, the plane giving officer would reach out to a real estate specialist on on that particular kind of property to get an evaluation just a range of values, because some donors think their properties worth a million, and it may only be worth not to say only, but it could be where six hundred thousand so expectations have to be matched and that’s what alan was talking about, this is a process you don’t do it one setting, you work through it and that sort of thing. So everybody needs to be on at least the same page on what is the value of the asset we’re going to talk about today. And how do you want to use that? And do you want to share that between our organisation and others that you have historically given money to? And you could do that all in one package, and we’re here to help, okay? We have just about a minute left, gentlemen, alan let’s, talk a little about the due diligence. What? What does that do? The charity or charities working together? I need to do to make sure that this is an appropriate gift for them to accept. Chase and i have forms that we’ve actually developed form for the donor to answer three or four pages of questions, and then we have our own donor-centric list for ensuring that we’ve covered all the issues that zoning issues, title issues, environmental issues having an environmental phase one study done these are all things that need to be conducted in order to know that you’re getting a property that you’re comfortable with and you know it was free of liability and is going to be worth what you’re representing to your charity. The last thing you want to do is except a piece of real estate that later your board finds out, has evaluation drastically different than what you’ve represented and, oh, by the way, there’s some sort of environmental issue related there as well, so that part of the due diligence and that brings us really full circle in terms of minimizing the risk, there are potential risks, but we can work buy-in partner with other charities to minimize those risks we’ve been talking about except real estate gifts. Exclamation mark with chase magnuson, director of gift planning for real estate at the george washington university, and alan thomas, vice president of advancement at the american college bryn mawr, pennsylvania german one thank you very much, tony, thank you so much for this pleasure to be here. Enjoyed it as well. Tony martignetti non-profit radio coverage of the national conference on philanthropic planning in san antonio, texas. As you heard my interview from that conference, we’ll take a break when we return. It’s, tony’s, take two, and then gene takagi will be with me, and we’ll be talking about board oversight. Stay with me. You’re listening to the talking alternative network. Are you feeling overwhelmed in the current chaos of our changing times? A deeper understanding of authentic astrology can uncover solutions in every area of life. After all, metaphysics is just quantum physics, politically expressed hi and montgomery taylor and i offer lectures, seminars and private consultations. For more information, contact me at monte m o nt y at r l j media. Dot com are you stuck in your business or career trying to take your business to the next level, and it keeps hitting a wall? This is sam lebowitz, the conscious consultant. I will help you get to the root cause of your abundance issues and help move you forward in your life. Call me now and let’s. Create the future you dream of. Two, one, two, seven, two, one, eight, one, eight, three, that’s to one to seven to one, eight one eight three. The conscious consultant helping conscious people. Be better business people. Hey, all you crazy listeners looking to boost your business? Why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com metoo hello and welcome back. It’s, time for tony’s take two at roughly thirty two minutes into the hour. My block this week is you don’t need the fancy stuff for your plans. E-giving for small and midsize charities, having just a bequest marketing program is a perfectly respectable planned giving program. You see a lot of talk about mega gif ts and sophisticated and creative and fancy gift, and those certainly exists in all kind of trust arrangements and things that are even less typical than trust, but you don’t need them necessarily any program, irrespective of what the size of the institution is when they start playing e-giving always starts with requests because it is the most popular type of plan gift easy for charities toe promote its easy for donors to understand s o across all programs, bequests are the place to start, and they’re the most popular type of plan gift you’d expect about three quarters of of all your gift in any size program to be bequest. Um, because everybody needs a will and everybody understands what a will is and how to use it for charity. Purpose is very simple. Follow on from that, but for a lot of charities, that’s the place not only to start but also just to end because they don’t have the expertise to be more sophisticated with their donors in terms of types of terms, in terms of types of gifts, or they don’t have the money to hire the expertise necessarily. So the bottom line is you don’t have to go fancy and exotic if you’re if you’re smaller, charity think just about requests, and that is a very respectable planned e-giving program and that’s what the block is about you’ll find it at m p g a d v dot com the post is called you don’t need the fancy stuff for your plant e-giving that is tony’s take two for friday, january twentieth, the third show of two thousand twelve jean takagi is with me now jean is principal of neo, the neat non-profit and exempt organizations law group in san francisco. He also edits the popular non-profit law blawg, which you’ll find at non-profit law blawg dot com and you can follow him on twitter at g tak gt a k jean takagi, welcome back, great to be here durney hope your two thousand twelve great. Thank you. Happy new year s are our first discussion of the new year and we’re talking about the basics of board oversight. Why is board oversight even an issue so critical in these times? Tony, where non-profit organizations are really working in an environment of fewer resource, is greater competition and it’s up to the board to not only show leadership but teo exercise oversight. Teo give confidence to the public and two donors that the organization is running well, that they’re making effective and efficient use of the reason lorts teo accomplish and further their mission on dh what do we mean by oversight? What does it include, but really means about on? For most boards of directors, it means about looking over the finances of the organization, looking over the programs of the organization, looking at legal compliance and looking at the executive director’s performance. So all of those would constitute some levels of oversight to make sure that the organization is running the way it’s supposed to run. Okay. And what if the board, um, either collectively or individually, however it’s best to describe it? Um, isn’t doing proper oversight that’s where organizations could get in trouble, okay, that with some organizations, especially with the media and with the internet and public scrutiny and forms nine ninety, which are the annual information returns that charities have to file being available public to the public. Just fun. Guidestar dot com it’s, easy to see what’s going on financially programmatically it’s, easy for organizations to be scrutinized and for boards to be held accountable for what’s going on in an organization and while legal liability for boardmember is really, really remote in the charitable sectors. It can’t happen a time, but maybe more importantly, an organization, and simply get devastated by poor governance way seen examples of this with you, can i just before you go into the example, can i just remind you speak a little bit louder? Yeah, much better, thank you. Great. So we’ve seen examples of organizations that can get into trouble, and we might discuss this a little further later on. But the second mile is just one organization. There was a central asia institute that was associated with greg mortensen, who wrote the three cups of tea that was also in the news. Lately they’re a bunch of organizations over the last five or six years that have been in the news for poor governance on and ultimately that could really hurt the donors, the donation based on that could hurt the programs and the beneficiaries of these non-profit and the second mile that you referred to that was that penn state scandal crisis and on we will have some time to talk about some of the examples. What about? I mean, i hear the phrase fiduciary duty a lot, you know? But what, what, what? What are the duties that are fiduciary that board members have to the charity great? And i’ll try not to step into jargon, joey, i’ll get you don’t worry about is here. Yeah, but they’re really three separate legal duties that a board of directors or each director has that serves on the board of directors first is the duty of care, and that generally means that a director must act in a reasonable and in form manner under the given circumstances. So if they’re acting like a reasonable average person would who’s in charge of an organization, then they’re meeting their duty of care. You started you starting to fade a little bit, you have to speak a little louder part of that part of meeting the duty of care is just acting as a reasonable person would in a like position under similar circumstances, so it a person would review financials oven organization that they’re in charge of that would be considered reasonable, and all directors should be reviewing the financials. They should also be reviewing whether their programs are effectively and efficiently meeting their missions or furthering their missions. So having some sort of measurement tool or developing it, or on dh, that could be very challenging at times, but taking steps towards that that’s all reasonable ticks back from the fiduciary or director so that’s part of the duty of care, another legal duty is the duty of loyalty and that’s really acting in good faith and in the best interests of the organization, even ahead of their own interests. So when you’re in charge of an organization that the director on the board, you’ve gotta act in good faith and in the best interest of the organization, if an opportunity comes up, that would benefit you and to the detriment of the organization that’s an opportunity that you shouldn’t take. If it was produced you in in the contacts of being a director of the organization, that sounds like it flows over into conflict of interest policies exactly right? Okay? And every organization should have a conflict of interest policy, okay? We’ll get to the different policies. I know there are a lot of them, but that’s, this is interesting. Flushing out the fiduciary duties. Go ahead. I’m sorry. The duty of loyalty. Is there anything else there? Be good faith and best interest? Sure, and and it really is about managing conflicts of interest doesn’t mean that organization couldn’t take advantage of a director who’s going to provide a below cost lise to the organisation, for example, but that it would have to be done with disinterested members of the board, the board, the board director of directors or the members of the board that don’t have a financial interest in that least, teo clearly show that, yes, it is below market or no better than fair market value in favor of the other director who’s interested in that transaction. It also has to do with things like keeping things confidential if you learn of things of the director. Of the organization, including employee salaries that you’re not really supposed to share with the general public. Well, as a director, you have a duty of loyalty to keep that information confidential. The third d d that i mentioned with the duty of obedience, some face it within within the context of the duty of karen duty of loyalty, but the duty of obedience to be treated as a separate duty, you know, don’t you want to be a priest, teach the duty of obedience, right? This is not a valid, just a duty. Maybe we get it from the religious contacts, but it really has to do with obeying what the law says you have to do and obeying what your internal laws say you have to do and that maybe the provisions of your by-laws for example, and their policies that we we can talk about it means that you’re going to comply with all of those things, and you’re gonna do that reasonably. Okay, so that’s interesting internal as well as external laws correct all of the internal laws you set for yourself. You can’t just ignore that you can’t let your by-laws sit on the shelf. Without making sure that you understand and know them, then how to comply with them. Okay, now you said that there are obligations around finance programs, legal compliance and overseeing the work of the executive director or president, you know, whoever that is, whatever that title is, but how does a director who comes, how do they have all this expertise? I mean, how can they do all this? Yeah, very difficult questions. So some of the directors that that joined the board may not have the expertise. So part of what you need to do in recruitment if you’re on an existing board, is to try to get different board members who khun bring in such expertise so that they can share it with other board members. The other thing to do is to bring in consultants to help out. So if you don’t have that expertise on the board and you’re not able to recruit for it right away bringing and consultant and give lessons two to your board have been get presentations, make information available to them, and i think this is a the role of an executive director’s job as well, to make sure that their board has sufficient educational materials so that they’re able to properly support that executive director and meet their fiduciary duties. Maybe know and understand. What’s expected of you. It could really be a lot of fun. And you can find out how to really leverage your authority to help that organization do even better work. Okay, so let me see if i understand then then those three duties the duty of care and loyalty and obedience. Those air individual. But then the financial program, legal compliance and overseeing the executive director work those air collective of the board. Or is that not right? Yeah, i think that’s right. So that the three duties that we talked about right applied to each individual originally. Right? Right. Right. But the oversight process, the board, the board members all have their individual duties. But collectively is how they hold power. Directors individually, actually have no power, tony, unless they’re delegated with power by the board. So inherently they have no power individually. They only have it collectively and collectively, it’s how they have to exercise. That oversignt okay. Now we have just about a minute before the break. There’s. A lot more detail. To cover, but just in that minute or so. What if, individually a director is not meeting the one or or any of those duitz three duties? What, individually, khun b. The liability. Well, typically, liability is not going to be imposed unless it’s the worst circumstances. So unless there’s some sort of embezzlement going god or payroll taxes are not being paid to the irs that’s always a very bad thing, directors aren’t usually going to be held liable for for for little things. But if the director is not been paying any attention, not attending meetings, not reviewing financials, not participating in the decisions that the board is expected to make, they can get themselves in trouble, and part of that may be with the media, and they could be blasted by the media criticized that could do particular damage to individuals beyond what the legal liabilities are something for every director to be careful of. We’re talking about board oversight basics very interesting, very important for the protection of your charity and protection of your board members and chair and the board members protecting the charity and themselves with jean takagi are regular legal contributor, and we’re going to take a break and then we’ll return with more board oversight basic, so i hope you stay with us talking alternative radio twenty four hours a day. Hi, i’m carol ward from the body mind wellness program. Listen to my show for ideas and information to help you live a healthier life in body, mind and spirit. You hear from terrific guests who are experts in the areas of health, wellness and creativity. So join me every thursday at eleven a, m eastern standard time on talking alternative dot com professionals serving community. This is tony martignetti aptly named host of tony martignetti non-profit radio. Big non-profit ideas for the other ninety five percent technology fund-raising compliance, social media, small and medium non-profits have needs in all these areas. My guests are expert in all these areas and mohr. Tony martignetti non-profit radio fridays one to two eastern on talking alternative broadcasting are you concerned about the future of your business for career? Would you like it all to just be better? Well, the way to do that is to better communication. And the best way to do that is training from the team at improving communications. This is larry sharp, host of the ivory tower radio program and director at improving communications. Does your office need better leadership? Customer service sales or maybe better writing are speaking skills? Could they be better at dealing with confrontation conflicts, touchy subjects all are covered here at improving communications. If you’re in the new york city area, stop by one of our public classes or get your human resource is in touch with us. The website is improving communications, dot com that’s improving communications, dot com improve your professional environment. Be more effective, be happier. And make more money. Improving communications. That’s the talking all calm. If you have big ideas and an average budget tune, tony martignetti non-profit radio we dio i’m jonah helper, nari team in co founders of next-gen charity. Welcome back on with jean takagi. Jean takagi is with me and we’re talking about board oversight basics. You had said gene, that the the directors can khun delegate this toe to consultants or maybe i don’t know other experts, but they have to exercise their duties in hiring that the right consultant, right? That’s that’s, right. Chinese directors khun delegate all sorts of tasks out. So they made delegate learning cast. So, uh, to teo, specific individuals, the most common individuals directors are going to delegate things to they’re going to delegate management to their executive into their staff. Oh, okay. All right. Yeah, yeah, but they must do so with reasonable karen oversight. So the selection of their executive on key staff members is going to be an appropriate thing for directors that concentrate on ok. Interesting. So you’re including delegation of the day to day management from the board to the to the all the all the employees to the executive director who then hires all the employees. Okay, absolutely. For organizations that have the benefit of employees. That’s one of the most important tasks of the directors to delegate management but also exercise proper oversight over that process? Yes. And that’s, the oversight overseeing network, i guess another common example of delegation that i see is the audit function ordered ng that’s, right, tony so for many organizations, having an independent audit is really critical for directors, especially those who may not have a great understanding of howto read financial statements in great detail. All of them should have a basic understanding of that in order to meet their fiduciary duties again of providing oversight over the finances but an audit and really both educate the board and give them some comfort that they’re adequately protecting the organization’s assets if they get a clean audit. All right, so we talked a good amount there about so far about the financial side, but there’s also the programmatic side of the boards oversight, and i think that gets short shrift now, let’s not do that way. Don’t make that mistake. Yeah, and i think you know, non-profit organizations, charitable organizations don’t exist. Ultimately, for a bottom line, they exist to further their charitable mission on dh there’s, no sort of measurement or context or accountability for how well there they’re actually furthering their mission. And i think the boards are not doing their job effectively. That tough part about this is programmatic measurement of successes, and things are really difficult to do in the context of many non-profits i think that’s been ongoing issue, and i think you’ve had experts on your show before have been talking about how to how to measure program results in how to be more effective and efficient, but it’s a difficult task still one board have to embrace and try to go after rather than run away? No, most recently, i think the guest that comes to mind is ken berger is the ceo of charity navigator, talking about encouraging charities to measure impact so that that’s that’s what we’re talking about. Okay, so yeah, so we don’t want to give way don’t make the mistake of short shrift ing programmatic because you’re right, that is the reason they exist. It’s it’s you’re right, it’s not financial let’s. See what? What are you mentioned? A couple of the examples that have come out in the news lately. What what? What can we learn from these? Well, let’s focus on the most recent huge scandal that hit the jerry sandusky penn state, the second mile candle that came out and justin in real brief context on jerry sandusky was a former assistant football coach with penn state university, and he also was a founder of the second mile, which was a charity that was developed toe help kids. Unfortunately, sandusky was indicted in november, following good three year investigation into reported sexual assault of young boys over a period of about fifteen years while he was associated with both the second mile end state university. So really, uh, very troublesome and now the second mile, that charity is struggling to remain in existence right now, and they’re trying to figure out what they need to do but lots of lessons to be learned, but that ultimately we we don’t know how, you know the courts are going to try sandusky, whether he’ll be found guilty or innocent on those charges, but there are enormous amounts of westerns to be learned from that from mom for non-profit okay, well, we this is why we’re going to break the subject into two, two segments, so you’re going to be back in february weii just have about ninety seconds or so left. What do you want? To share in just that time with with the audience about what we can learn from the that second mile. Sure, i think you big comments tio make at first, okay, no free passes for the founders of the organization or for big donors or other big shots of the organization, they should be expected to do the job that they’ve been in task to do so their director on the board, they should be falling while the policies that every director has to follow. So, uh, if they’re a big donor, they don’t get special privileges to work with the organization’s programs unless it passed the test that that allow persons that are qualified to do those programs. Another lesson. If you are criticized and you’re you’re subjected to allegations of wrongdoing, i think the first thing you have to do is remember that the criticisms addressing those criticisms is more than just pr. You have to find out if there’s substantive and if there’s an investigation, that would be reasonable. You should order an investigation on dh that’s part of that oversight that we’ve been talking about. You get help when necessary. That’s really important, jean, we have to stop there, but you are going to be back to talk about this exact topic. We’re going to continue it. Jean takagi is principal of the non-profit exempt organizations law group in san francisco and yet it’s the block, which you’ll find at non-profit law blawg dot com jean, thanks very much for being on again. Great thanks pleasure. We’ll talk in a few weeks, okay? My thanks also to chase magnuson and alan thomas and the organizers of the national conference on philanthropic planning. Next week e-giving forward and back rob mitchell, ceo of atlas forgiving, will be my guest to talk about two thousand eleven’s e-giving by sector source and state, and we’ll also look ahead to predictions for this year. Keep up with what’s coming up, go to the go to the facebook page and sign up for insider email alerts on that page. If you like the show, please like the page, be grateful to have your support there as a fan. Listen, live our archive. 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