December 06, 2016
On November 28, 2016, Governor Andrew Cuomo signed into law a Nonprofit Revitalization Reform Bill that will strengthen the regulation and operation of nonprofit organizations in New York State 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.
The new law will help by introducing 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 around conflicts of interest and whistleblower complaints. It bars 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 creates 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 was 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 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 twelve leading nonprofit umbrella organizations, including the Nonprofit Coordinating Committee of New York and the Human Services Council, the New York State and New York City bar associations, the New York State Law Revision Commission, the Lawyers Alliance for New York, and ten 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 showing that state government can be an effective partner in helping nonprofits serve their communities.
Laura Abel, senior policy counsel, and Sean Delany, executive director, Lawyers Alliance for New York.