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Non-Profit Arts Version Of “The Talk”

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From what I have been reading, the new Fair Labor Standards Act regulations regarding overtime pay is going be pretty tough for non-profit arts organizations to handle. If you aren’t up on the news, the salary threshold part of the overtime exemption criteria will rise from $23,660 to $47,476. Anyone making less than that or who doesn’t meet the other criteria for exemption will need to be paid overtime.

Generally, most of the criteria hasn’t changed so the big issue for non-profits is the salary threshold. Last month, American Theatre did a pretty good job of covering how the new rules will impact theaters specifically. There have been articles about non-profits in general, but few that discussed how arts organizations were planning to address the change.

The reason I say this new requirement is going to be tough is because some of the comments of the interviewees made me cringe. One person mentioned the benefit of staffing their organization with young 20-somethings to take advantage of the fact they would still be living at home and under their parents healthcare. Another respondent estimated the cost of living in their anonymous mid-size Midwest city was $20,000/year which I suspect is misinformed. The lowest costs of living, even for small Midwest cities, I found hovered around $25,000.

While I cringed at some of the tactics people were generating to deal with the projected expense they were going to incur, I didn’t view them as particularly extraordinary. The alternative approaches being considered are absolutely typical of the problem solving process arts organizations engage in. This is the sort of unorthodox creativity you have to employ to pull things off in the non-profit arts.

The problem is that depending on stop-gap measures and pressure of organizational culture will no longer be viable in the face of this new salary threshold and expectations of a work-life balance that new employees are bringing to the workplace. The gulf will literally and figuratively be too wide to straddle.

This is going to be one of those situations that is going to result in a lot of negative news before it gets better. Doubtless there will be cases we will be amazed have lingered only to explode somewhat scandalously a decade down the road (or sooner since the salary threshold for non-exempt moves to $51,000 in 2020).

The situation is likely to force long delayed conversations between arts organizations, their funders, boards, audiences and employees about what is really required to operative effectively.

The only consolation is that this conversation will still be way easier than talking to your kids about sex.

I don’t think I am being especially prescient when I say now would be a good time to develop a cogent response to the statement “Arts need to be self-supporting or close,” and start distributing the talking points to everyone. It is guaranteed that sentiment will be expressed constantly.

At the same time, a serious discussion about business plans and legal structures employed by arts organizations may become unavoidable. We may see groups recreate and reinvent themselves. Especially if non-profits are permitted to retain their assets as they transition into a corporate entity with a different tax structure.

All this being said, the American Theatre piece discusses how organizations are already making efforts to implement constructive measures to prepare for these changes.

Maybe around this time next year when people have been operating under the new rules for 9-10 months, I will suggest to Drew McManus that ArtsHacker do a series on some practices and restructuring efforts that initially seem to be working. The salary changes are going to have too significant an impact on the arts industry not to share advice about what has been successful for the organization and beneficial to employees.

In the meantime, I will work on learning more about the implications of FLSA rules in order to provide tips about how to prepare for the changes.

For example, many organizations may not know that use of comp time to offset “binge-and-purge” schedules around production time is already illegal  and is about to become more so for a wider range of employees.

But this kind of comp-hours time-shifting isn’t kosher under FLSA provisions. If a non-overtime-exempt employee works 60 hours one week, say, they can’t offset that by clocking just 20 the next week; they’ll be earning their regular salary for the 20-hour week and time-and-a-half for the hours over 40 in the 60-hour week. This was always the case under the FLSA, but with the new $47, 746 threshold, it will apply to many more employees than before.

Enquiring Stakeholders Want To Know

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Last week I made a post about “rebranding” overhead costs in other terms in order to get away from the associated stigma. Included in the post, I mentioned that a non-profit was being sued by donors for dipping into its restricted funds to invest in the organization’s exploding growth.

On the Non-Profit Quarterly website today was an interview with Cindy M. Lott about the changing non-profit regulatory and enforcement environment that suggested similar scrutiny of non-profits may only increase.

The interview with Lott discusses a lot about the history of non-profit regulation on the state and federal level. One of the things they note is that the IRS’s decision to digitize 990 filings is going to bring the opportunity for a lot more transparency for non-profit charities. Access to financial documents and other information will hopefully provide a greater capacity to detect misappropriation and embezzlement of funds.

What caused me a bit of concern wasn’t the prospect that governments might use this information to apply undue scrutiny to non-profits, but that donors and funders might.

According to Lott, state attorneys general have always had legal standing to bring a suit against a non-profit entity or board of directors. In recent years, she says, other groups have argued that they have standing to bring suit as well.

Occasionally, we see beneficiaries who say, “Wait a minute—I represent an interest that is not being brought by AGs for whatever reason.” And we see marginalized members of the board and donors who say this as well.

While this is contrary to laws regarding who has standing, the fact that there are shareholder actions and class actions in the private sector may be cited to pressure for the same rights in the non-profit sector. Lott notes that secretary of state offices which oversee non-profits in each state are heavily involved with enforcing consumer protection and might easily equate donor dollars with consumer dollars.

I am merely noting what may be a natural outcome of the current trajectory of an underresourced enforcement community intersecting with a wealth of publicly available data. We may very well find in the near future that donors and beneficiaries who have access to information about where these billions of dollars are going may, in fact, decide that they would like a say when they believe something goes off the rails.

The interview cites the action taken by a wide segment of stakeholders in the case of Sweet Briar College’s planned closing. The footnotes for the interview provide a number of other examples of stakeholder actions, including a class action by donors who discovered 100% of their donation didn’t go toward programs as they intended and a suit by two sons who want to review the cause of losses suffered by a foundation their father established.

At this point I don’t see anything to be immediately alarmed about. It will definitely be worthwhile to keep an eye out for how things develop in the areas of governmental oversight and legal standing of donors and other possible stakeholders.

Is It Worth Gambling On A High Stakes Raffle Fundraiser?

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Via the Marginal Revolution blog, I recently read a piece on Priceonomics about how the Yerba Buena Center for the Arts was using a loophole in California state law to “raise $4 million by selling $10 million in raffle tickets.”

Since the authors note that other states have a similar loophole (or lack thereof), I thought this could be something of interest to arts organizations in general. While it can be something to explore, before rushing out to organize one, you should also be aware that there are some elements to their raffle that have raised more than a few eyebrows.

Essentially what they do is sell $150 raffle tickets for the opportunity to win a $5 million Dreamhome or a $4 million payout.

Yerba Buena does not buy a house every year, and it is unlikely that it has ever given away the dream home that it advertises on fliers and billboards. Instead, as SFGate has reported, the organization finds someone who is trying and failing to sell their expensive home. The homeowner signs a contract with Yerba Buena agreeing to potentially sell their house, which would allow the nonprofit to give it to the winner of the contest.

[…]

Since taking the dream house comes with a big tax bill, winners always choose the money. SFGate failed to find any winners who moved into the San Francisco dream homes, and this seems to be the case nationwide. “I believe that with most, if not all, [dream house raffles] around the U.S., the winner takes the cash,” says Brian Yacker, a lawyer who works in nonprofit law. “I don’t recall a winner taking the house.”

A San Francisco Chronicle piece on the raffle notes,

Often owners of these homes connect with the Dream House Raffle because the nonprofit will pay them to take their property off the market as it becomes a marketing tool.

“Usually, the nonprofit is not given the home,” Pender wrote. “It might lease it from the owner with an option to buy if the winner chooses the home. The owner gets paid for keeping the house off the market during the raffle, and even if it doesn’t end in a sale, the home gets plenty of free publicity.”

This actually sounds like a smart approach and win-win all around, especially if you know that people will generally choose the money.

What raises eyebrows is the fine print. You only get the dream house or the $4 million payout if a minimum number of tickets are sold, in this case, 65,000. According to that same San Francisco Chronicle article, the art center won’t reveal if they ever reached that minimum in the seven years they have held the raffle and have deflected inquiries by the Better Business Bureau saying it was proprietary information.

The SF Chronicle notes though that even if only 70% of the 65,000 tickets are sold by June 24, the winner still gets to claim 50% of the profit from ticket sales which would come to $3,412,500, not an insignificant amount. They also peg the chances to win some sort prize at 1 in 30.

In terms of the operational nuts and bolts of these types of raffles, Priceonomics reports that California law requires 90% of the raffle proceeds go to the non-profits’ programming. (Though they say thanks to legal maneuvers, Yerba Buena actually spends 60%-80% of the proceeds on the prizes and cost of running the raffle.) Other states have looser requirements,

In other states, no loophole is required. Tennessee law, for example, only requires that 25% of the raffle proceeds go toward charitable causes; in Minnesota, it’s 40%. Massachusetts law just states that a “reasonable” amount of the proceeds should fund the nonprofit’s work.

Now before you start pondering the potential to use a raffle of this scale to make money, you should note Priceonomics’ comments the perceptual issues involved.

For one, there is the ongoing discussion of overhead costs. If people feel like the money they have donated isn’t going toward programming that benefits a needy organization or people that they serve, it can undermine donor confidence. Priceonomics cites a number of instances where people felt burned upon learning that only a small portion of what they gave actually benefited the group they were being solicited to help.

They list a number of examples where organizations have abused people’s ability to gain tax credit for donating homes and vehicles. The SF Chronicle article cites a few sketchy situations with dream home raffles.

Though Priceonomics does note in Yerba Buena’s case,

Most participants in Yerba Buena’s raffle probably would not be shocked to learn that a good chunk of their $150 raffle ticket goes toward the cost of the $4 million cash prize. And since the cost of raffle tickets is not tax-deductible, taxpayers are not subsidizing these fundraisers.

Actually, one of the criticisms of the billboard and bus advertisements for the dreamhome raffle is the fact it is a fundraiser for the arts center is downplayed.

The other perceptual issue Priceonomics cites in relation to raffles of this scale it can be equated with gambling. While a $150 ticket is not going to be viewed as exploiting low income people the way state lotteries are, if people feel like too little is going toward programs, it may create a negative view of the organization.

“The original reason for the 90-10 raffle rule—and having those raffles just for nonprofits—is because it’s not gambling but a fun way to support nonprofits you want to support,” says Berlin. “Once you move away from most of the money going to charity, it looks more like gambling.”

If you think you might want to do a raffle of this sort, it is worth reading both the Priceonomics and SF Chronicle pieces.

The former does a good job analyzing the logistics of such a raffle and ends stating their general admiration of the arts center for freeing up their time to focus on programming rather than fundraising. The SF Chronicle article takes a more skeptical view of the whole arrangement, questioning and then physically verifying the house even exists. Between the two, you can get a good sense of all the questions you might need to answer if you choose to replicate this sort of raffle.

But, We Will Be Careful #FamousLastWords

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The one activity related to performances that regularly is a source of frustration for my staff is getting certificates of liability insurance from people.

This is one of those requirements common to both contracts for venues one is renting to mount a performance and contracts venues/promoters send artists requesting they provide some sort of performance.

I wrote a piece covering what liability insurance is and how to go about getting it for ArtsHacker.

Since the goal of ArtsHacker posts is to provide a relatively quick reference about topics, I didn’t really get too deeply into WHY the coverage is important.

Just a quick explanation for those who don’t want soak in more of my genius on ArtsHacker. Liability insurance,

“protects you (and the spaces in which you work) against lawsuits from the public resulting from accidents, injuries, insults etc. Note: this insurance does NOT cover you or your employees.”  (Source: National Performance Network)

People generally accept that they have to pay to use a space and equipment just like they have to pay for costumes, set pieces, props, musical equipment, etc., all these things make for a better experience. Insurance just seems like an extra unwarranted expense that doesn’t contribute to the success of the event so they resist the requirement to obtain coverage.

About 15 years ago when I first started managing a performance hall I insisted every renter carry this insurance. The first group this applied to grumbled that they were never required to carry it before, but complied. In one of the performances one of their stage hands wasn’t paying attention and lowered our rear projection screen on a row of strip lights melting a lovely long gash right across the screen.

Since that day, I have blessed my insistence that they carry the insurance because that is what paid to get the screen replaced.  Neither the renter or my department could have afforded it. Since then I have never wavered in my determination to require that every renter carry it. I have shown up before load-ins on weekends when I could be relaxing if it was necessary to play the bad guy and refuse a group entry due to lack of insurance coverage.

Fortunately, I have never run into another situation that required an insurance claim to be filed. But there have been dozens of instances where renters damaged something they elected to replace out of pocket. There have been plenty of close calls as well.

For many of the same reasons, it is becoming an increasingly common practice to require performers one has contracted in for an event to carry the insurance. They are bringing in equipment that you are not familiar with. You don’t know how well-maintained it is. They may insist that no one else touch certain equipment. While that prevents you from being blamed for breaking it, you also don’t get a chance to inspect it closely.

So what happens when a speaker stack they built falls into the audience? What happens if a singer starts swinging the microphone overhead and it flies off the cable and someone gets hit? If a sword slips out of someone’s hand during a combat scene? If the lead singer elbows someone in the face while crowd surfing? If a member of the stage crew anchors a hammock to the mechanism that releases the fire curtain in an emergency and takes a nap? (true story)

Do you as the venue want to be responsible for things you have no direct control over like poor condition of equipment and poor decision making?

Many artists’ require that the venue or promoter reciprocate and carry various types of insurance to protect against these exact same issues on their part.

Large shows usually have the liability insurance set up because they know it is going to be required. Smaller groups may not be as familiar with it and don’t carry it as a practice. There can be a lot of negotiation and conversations between all parties involved in these situations.

Occasionally we may waive the requirement for groups we contract to perform if we don’t think there will be much danger of damage. But if you are going to do that, my advice is to have a complete understanding of what the performers are going to do. Don’t just blithely assume classical musicians aren’t going to do something extreme. I have had people raise the lid and remove the music rack on a grand piano so they could set glasses of water on the strings or strike/pluck them with various objects.  (If God wanted a piano played with a claw hammer, he would have designed it that way.)

 

Positive Signs For Reimbursement Of Overhead Costs

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You may remember back in January that I wrote about the new rules promulgated by Office of Management and Budget (OMB) requiring that any entity receiving federal funds much cover at least 10% of a non-profit’s overhead costs.

Don’t worry, its okay if you don’t remember. But this is relatively important and bears repeating.

One of the concerns at the time was that state and local governments and other funders might pressure non-profits with whom they contract or provide grants to waive a their right to receive overhead costs. The OMB rules prohibit this, but if a non-profit isn’t aware of the rules or are afraid to advocate for themselves, the problem may continue.

Given this context, it was a positive sign when the L.A. County Board of Supervisors voted to adopt the OMB guidelines and to write a letter to the state government to do the same.

It may not seem significant for a governing body to agree to adhere to the conditions under which federal funding was allocated, but as Non-Profit Quarterly notes there are “rob Peter to pay Paul” concerns about how funding may be manipulated.

Rules do not implement themselves without strong nonprofit monitoring and oversight—hopefully, as in this case, in partnership with government authorities. In this case, not only are the supervisors talking to state officials, but they will also be developing an implementation strategy in consultation with Los Angeles nonprofits, which we presume, based on what we have seen as policy statements from CalNonprofits, ought to address how to ensure that higher indirect cost reimbursements do not occur at the cost of lessening service delivery.

As I had noted in my earlier post, the National Council of Non Profits created a guide to educate organizations about the rules and provide responses to assertions from funding entities that the rules don’t apply.

One thing I had mentioned was that arts organizations should note that these rules likely apply to the funding you receive through your state or regional arts organization:

One- it doesn’t matter whether it is called a contract or grant or any other term, the rules are based on the substance of the transaction.

Two – Sub-recipient non-profits who are required to acknowledge part of the funding is received from the federal government are covered under these rules.

Have You Gotten To The Point You Care When People Steal Your Work?

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You know how you are supposed to check the batteries in your smoke detectors every time we go on or off daylight savings time? It may be worth having a similar rule for checking your intellectual property licenses for your online presences. Maybe every time you renew your domain name?

There was a recent story about a photographer who had set his Creative Commons License to allow commercial use with attribution.

When a map company used his image on one of their publications giving him full attribution, he sued them for their use of the image and lost.

The tone of the article is that it was sort of silly of him to be protesting the use of his work in a way explicitly allowed.

But it occurred to me that it would be very easy for many artists and organizations to accidentally find themselves in a similar situation as their online presence evolved.

For example, maybe your website or blog just starts out as a source of information for people about what you are doing. You set your license to require people to quote you with attribution or a link. You aren’t trying to monetize anything and you would be happy if people quoted you all over the Internet.

Later, your organization starts a new exciting program where you are producing all sorts of interesting stuff (or if you are an individual, you take up a hobby/refine your skills and get really good).

You start putting images and examples of your work online, forgetting your license is so permissive and the next thing you know you are seeing your work appearing all over social media, people are selling tshirts and tote bags with your images and are using your video and audio tracks in their own videos.

If you have been publicizing/bragging about achievements and have realized ambitions much greater than when you first established your blog, website, Pinterest, Flickr, etc, presence you may want to go back and review how much permission people have to utilize the content of those pages.

A similar issue may arise if you are featuring other people’s work and their more stringent use requirements aren’t clearly discernible.

Upon review, you may be surprised by how lax your settings are. Or maybe you will despair that no one wants to steal your stuff despite how lax your settings are.

You Are Now Free To Exploit Your Interns

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For the last year or so, non-profit arts organizations have been somewhat nervously wondering whether the criteria being used to define what constituted an internship might be applied to the non-profit industry as well.

The concern arose over a ruling against Fox Searchlight pictures in a case where interns on the film Black Swan where the court found the interns should have been classified as employees instead under the six points of criteria set down by the U.S. Labor Department.

Earlier this month, an appeals panel vacated the decision of the lower court saying the Labor Department criteria was out of date and providing a different criteria.

He argued that the proper way to determine workers’ status was to apply a “primary beneficiary test” — a concept proposed by Fox in which the worker can be considered an employee only if the employer benefits more from the relationship than the intern.

Judge Walker wrote that he and his fellow judges on the panel “agree with defendants that the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”

He further argued that the test should hinge largely on the internship’s educational benefits: for example, whether the internship was tied to the intern’s formal schooling and whether it occurred in an educational setting.

Summer is the high season for internship and apprenticeships in the arts since so many students are out of school. It is fortunate that this ruling came out when it did. Now arts organizations can squeeze more labor out of their interns in the remaining weeks of the summer without any concerns.

Everyone knows that the arts are good for you and that you must suffer for your art. Ergo, any task an intern performs must be more beneficial to them than it is to the employer. Misery and lack of pay constitute authentic experiences for arts practitioners after all.

Yeah well, be that as it may, this is more a case of just because you CAN do it, doesn’t mean you SHOULD. Just because the environment is potentially more relaxed than it was last month doesn’t mean proper standards don’t need to be developed for internships to make the experiences more valuable.

Schools like the Ringling College of Art and Design have clear standards (no more than 20% clerical work) and a series of evaluation forms.

There are a good number of people who don’t enter internships under the auspices of a formal training program. In either case, the success of the internship heavily depends on the type of experience the work site provides/creates.

If anything, an internship should be viewed as an additional responsibility the organization is taking on, not a solution to a lack of labor. Even beyond the consideration that staff members will need to take additional time to train an unskilled individual, time and effort to regularly evaluate and provide feedback to the intern needs to be factored in.

Having informal discussions over lunch or at the bar after hours still constitutes work for staff, especially if the need to address problems arises. Of necessity, intern assessment and evaluation needs to be a much more rigorous process than periodic evaluation of employees. (Not that many arts organizations do that very well, but that is a different post.)

Diego Rivera and the Paintbrush of Destiny

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As part of our website revamp, I am in the process of adding content about the various murals located around the building. One of the best pieces is a little removed from the lobby and spans a couple floors so I have made a video and map to help guide people to it.

So it was with great interest that I read a recent piece on NPR about the rights visual artists, especially muralists, can exert to determine the disposition of the buildings in/on which they are painted.

As I started reading, I began to worry that more people might refuse to allow murals to appear on the sides of their buildings if they were aware of these issues. However, the story notes that Philadelphia, which has a robust, formal mural program, has found ways to strike a balance and work with both the artist and building owner to find some sort of accommodation. They are likely a good source for advice on these matters.

Only works created after 1990 enjoy this protection under the Visual Artists Rights Act (VARA). So Diego Rivera’s paintbrush technically hasn’t altered the destiny of any buildings as far as the Act is concerned.

This piece from the National Endowment for the Arts and this one from the Arts & Business Council of Greater Philadelphia do a pretty good job of explaining various aspects of the law.

One thing I think bears emphasizing since many of the commenters on the NPR story get it wrong is that while works for hire are not covered under the VARA, that does not mean that only works created for free are covered. If you are commissioned to create a work as an independent contractor and get paid for it, your work is covered. This is clearly stated in the Arts and Business Council flyer, but I wanted to reinforce that.

The reason I think it is particularly important to be aware of this law is because so many communities are utilizing murals to help spruce up the neighborhood. Often these murals are on abandoned buildings that are good candidates for destruction should those murals generate the the desired positive ambiance and attract new residents and businesses.

Since the rights are retained until the death of the last surviving creator, it might be good to form a general agreement that the work is being created with the expectation (and perhaps hope) that someone will eventually destroy it.

The other thing to note is that the VARA deals with the artist’s moral rights to the work which can never be given away. The artist can transfer ownership, but can’t give up their moral rights. Per the NEA Office of General Counsel article:

“VARA restricts the exercise of the rights of attribution and integrity to the author or joint authors of the artwork, regardless of whether he/they hold title either to the copyright or the artwork itself. Thus while both copyright and physical ownership are property rights which may be transferred, moral rights may not be transferred. Moral rights may, however, be waived. The waiver instrument must be very specific: the creator must consent in a written and signed instrument specifically identifying the artwork, the uses of that work, and with a clause limiting the waiver to both aspects.”

So even if a mural was presented as a birthday present to someone, the next owner of the building can’t immediately bulldoze it as the new owner of the mural. Notice of 90 days must provided to the artist(s) during which period of time they can take whatever action they decide is necessary from a final visit to take pictures before it is destroyed to seeking a court injunction against the demolition.

The one issue that isn’t really addressed is what protections exist for art that someone produces uninvited. People go out and paint over unwanted graffiti everyday….unless it is a Banksy in which case they may chisel out the section of the wall and sell it at auction.

If someone cares enough to chisel it out and keep it, aren’t they admitting it is valuable and not a nuance? So if Banksy (or Banksy’s lawyer) shows up and says the art is site specific (which many clearly are) and may not be moved/destroyed/defaced per VARA, who has the right to determine what happens with the work?

Investing In Social Outcomes

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Non-Profit Law blogger Gene Tagaki had a post on LinkedIn a couple weeks ago about Social Impact Bonds. These bonds are a fairly new approach to funding non-profit activities. While I think they could be a viable tool for funding the arts, I had some reservations about them as well.

The biggest difference between a social impact bond and the current practice of government entities providing grants to solve the same problem is that a private investor is involved in the process.

Here’s how that might work using social impact bonds:

  1. A government agency identifies a social problem and commits to making a payment, but only if the targeted social outcome goal is met.
  2. An investor interested in addressing the social problem makes an investment which will may result in repayment with an additional return on its investment, but only if the social outcome goal is met.
  3. A nonprofit organization is paid by the investor, delivers services to achieve the social outcome goal, and provides a report back to the other parties.

Typically, an intermediary develops the SIB, raises capital from the investor(s), selects the nonprofit service provider(s), and selects an independent assessor that will determine if the social outcome goal is met.

Among the benefits to this approach that Takagi lists are:

  • Government payments only for agreed upon social outcome results, generally shifting government funding from short-term relief to longer-term impact.
  • Greater development and use of metrics for impact assessment, which may contribute to a favorable change in the way government funding works in its selection of service providers, models of service, and evaluation criteria and protocols.
  • Investors screen nonprofit service providers for those most likely to deliver the targeted social outcome result.

The shift toward long term impact rather than short term goals would definitely be a boon for most arts organizations. But the potential for service providers to be chosen on the basis of independent analysis using different criteria can be very appealing.

Arts organizations which are well positioned in communities investors wish to impact and who specialize in providing the services desired have the potential for receiving all the funding they need to do the job rather than funding in proportion to their budget. If organizations are chosen based on effectiveness rather than prestige, smaller arts organizations may be more likely to benefit as well.

The potential downside of this approach is that because it is an investment, the desire for a return may dictate many elements of the program.

  • Diversion of more cost-efficient direct government and philanthropic funding of sure-bet programs to address social problems…
  • Investors may dictate strategies of service provision to maximize their opportunity for a high economic return on their investment instead of a high social return.
  • Funding will be restricted and likely prevent nonprofits from using such funds to build the necessary infrastructure to support new or expanded programs to achieve the social outcome result.
  • Funding for innovative and long-term strategies may be stifled by investors willing to fund only the strategies with the most proven track records of success and/or easily measured, short-term returns.

Even if your organization doesn’t participate in a Social Impact Bond program, I foresee some potential repercussions in government granting and funding taking their cues from investors. If a government entity sees that companies are investing in certain programs, they may either view it as a type of imprimatur of those programs without doing any research or developing any criteria of their own. Or the government entity may wish to curry favor or stimulate greater investment in the community by supporting investor agendas with grants and favorable rules.

Part of the process to be qualified to invest in a Broadway show is that your personal wealth be such that you can afford to lose money. That is essentially what Takagi suggests in the analysis at the end of his piece. Only true social investors who are prepared to lose money or only gain a small rate of return in order to effect a social good should be allowed to participate in the Social Impact Bond program.

I bring up the Broadway investment scheme because the same potential for damaging investor influence exists there but the agreements have been structured so that it is clear the majority of investors don’t have any say in the way the show is executed. A basic framework exists that could be applied to Social Impact Bond funding.

Info You Can Use: It Is Possible To Be Too Thankful To Volunteers

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As your performance season ends, like me you may be looking to thank all the volunteers whose hard work made your projects possible over the past year. You might feel a little guilty about all the effort they put forth on your behalf and want to spend a little more money than you planned in showing your appreciation.

However, according to a post by the For Purpose Law Group, there is such a thing as being too appreciative and you can create more problems for your volunteers than you intended.

For example, technically giving a volunteer a $25 gift card is taxable and you as the organization are supposed to withhold taxes.

Stipends or cash gifts of any amount (even allowable “nominal” stipends to bona fide volunteers) are generally taxable income. The volunteer recipient must report the amounts on his or her tax return and pay applicable taxes AND the organization must withhold taxes and make FICA payments – just as it does for employees.

Yeah, I did not know that either.

The other wrinkle is if you pay volunteer a stipend. A volunteer can’t be paid a stipend in return for their services, but you can use it to help offset expenses they might incur. This is something community theater groups often do with their cast and crew. Even in this case, there are some strict guidelines which apply.

Pay particular attention to the last paragraph.

“Although a volunteer can receive no compensation, a volunteer can be paid expenses, reasonable benefits or a nominal fee (or any combination) to perform … services.”

“…(A) fee is not nominal if it is a substitute for compensation or tied to productivity.” And “… determining whether the expenses, benefits or fees would preclude an individual from qualifying as a volunteer under the FLSA requires examining the total amount of payments in the context of the economic realities of a particular situation.”

The agency “presumes that fees paid to volunteers are nominal as long as the fee does not exceed twenty percent of what an employer would otherwise pay to hire a full-time employee for the same services.”

But – and this is a big “but” – if the “volunteer” receives anything of value exceeding $500 a year, that person must be treated as paid staff or as an independent contractor and relinquishes important liability protection under the federal Volunteer Protection Act (as well as becoming potentially liable, in the case of independent contractor classification, for a whole slew of self-employment taxes).

I point out that last paragraph because it is easy to hit that $500 threshold. Paying someone $100 for six weeks of rehearsal and a performance as gesture of acknowledgment and to help defray gas doesn’t come close to really paying them what they are worth. But it is so very easy for a really dedicated person to hit $500 over the course of a year. (And remember, there is supposed to be a reporting of income and withholding on each of those $100 payments.)

It appears that the prohibition against tying the stipend to productivity means you can’t provide a larger stipend to crew heads than to the crew or give everyone who did 250 volunteer hours a $25 gift certificate and everyone who did fewer hours a $15 gift certificate.

“A test to help evaluate whether a payment to a volunteer is a compensation substitute is “whether the amount of the fee varies as the particular individual spends more or less time engaged in the volunteer activities.”

In their suggestions at the end of the post, authors May Harris and Linda Rosenthal, say the best solution may be a bouquet of flowers rather than a gift card. I think other modest gestures like appreciation meals probably qualify as well, assuming you aren’t serving caviar.

Info You Can Use: Do You Know The Value of A Volunteer’s Time?

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Did you know I am a contributor to ArtsHacker, a website dedicated to offering all sorts of solutions to arts organizations?

Did you know that a volunteer’s time is worth an average of $22.55/hour and may be worth more in your locale?

Did you know you can actually claim each volunteer’s time on grant reports and financial reporting that you submit?

Did you know I wrote all about these things in a post that appeared on ArtsHacker last Wednesday?

Did you know that a meme about volunteering featuring the World’s Most Interesting Man makes your post more interesting?

Well, hey, now you do.

All kidding aside, volunteer hours are very valuable to an arts organization both as a result of the effort they expend on its behalf and for the value you can claim on various financial documents. And with even just a few volunteers working for you, it can add up to quite a lot.

There are accounting rules, of course, that limit what and how much of a volunteer’s time you can claim. But even if you use this information for nothing more than helping your organization recognize the true value of a volunteer’s effort, calculating this number can be worth it.

Do you know the value of your volunteers’ time?

Would You Trade Board Oversight For Investor Scrutiny?

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The Clyde Fitch Report takes a close look at a bill being proposed in the U.S. Senate to give Broadway investors the same tax break as those who invest in movies.

The goal of the legislation according to a press release put out by the bill’s sponsor, New York Sen. Chuck Schumer is to provide more incentive for banks and investment funds to invest in Broadway shows and therefore spur job growth.

“..Due to the tremendous risk involved, it is very unlikely that any managed fund or banking institution in the United States will lend resources for live theatrical productions, so the majority of capitalization comes from small or independent investors.”

After some analysis The Clyde Fitch Reports’ asks if there really is a dearth of investors and they wonder if banks should really be investing clients’ money in an endeavor widely acknowledged as likely to lose money.

Do you believe banking and investment institutions should gamble their clients’ money to produce Broadway shows?

Do you believe 233 names, sets of names and/or entities listed over the title of a random list of 10 Broadway shows represents a problem generating a “pool of interested investors in Broadway”?

Do you believe investors in commercial Broadway deserve a tax break?

Are there any other individuals in the American theater for whom tax-code tweaks might be desirable?

When I first read the article, I thought it was a proposal to get investors paid earlier in the process. While it isn’t, I wondered with the weight of large investment institutions present, would the arrangement get altered so that investors recouped sooner and “Hollywood accounting” adopted resulting in the creatives getting little.

I also wondered with more money behind them, would Broadway productions become more adventuresome, or even more oriented toward stage adaptations of proven works and revivals.

On the other hand, since I am always keeping my eyes open for alternative funding models, I also wondered if this might provide more options nationally to arts organizations.

When I first read the following from the Schumer press release, I thought perhaps these investment tax breaks might be applicable to artistic projects created around the country.

“On average, Touring Broadway contributed an economic impact to the local economy that was 3.5 times the gross ticket sales. This income is also vital to sustaining our nation’s theatres, as more than 50% of Performing Arts Center’s ticket sales derive from patrons attending the Touring Broadway series. This revenue permits local venues to offer opera, ballet, unique exhibitions and to fund much needed arts education curricula. Without Touring Broadway, all of these vital programs would suffer.”

Then I realized, no, what the release is saying is that Broadway needs the tax breaks so everyone else can present Broadway tours.

I am a little skeptical about the economics cited here. I don’t know about the venues with week long runs, but while Broadway audiences are among our biggest, they are also the shows that tend to lose the most money for us. We ain’t funding anything else off the proceeds.

Now if they were obliged to lower their rates for non-profits in return for this tax break, that would be beneficial to us. But I don’t see that happening.

All the same, I do wonder if the law being proposed could benefit people in other parts of the country looking to run a performing arts center as a commercial enterprise by allowing them to solicit investors.

Or perhaps it could help turn other cities into development centers by attracting investment for works that weren’t necessarily contemplated to go to Broadway but rather stay put in Portland, Minneapolis, Miami, etc. as a significant attraction for the region.

The productions may not gain the same cachet it would from Broadway, but what it did develop might be enough to create regional or national interest in a tour of say a multi-media dance work that generated a respectable return on the investment.

If the legislation is not written in such a way to include non-Broadway productions, is it worth lobbying to have the scope widened?

As the title of this post suggests, it would change the complexion of the way performing arts entities operated.

Does Your Venue Policy Include Terrorism Insurance? Knowing Might Become Important Soon

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We get a lot of alerts about Congressional actions that might impact arts organizations all the time. Something that wasn’t really on my radar at all was the (non) renewal of the Terrorism Risk Insurance Act. Basically, the federal government provides guarantees for insurance companies that end up having to pay out terrorism claims. If the act isn’t renewed by January 31, it is likely that terrorism coverage policies will be cancelled.

What is making this a big deal is the claim that the Super Bowl won’t happen if this isn’t renewed. This has been an issue before in 2006 with the World Cup when there was difficulty obtaining coverage that was not prohibitively expensive. (By the way, NBC says the game will go on regardless.)

I am not sure if this would impact performing arts centers or not, but I suspect larger stadium shows and outdoor summer festivals like those held in NYC Central Park and Chicago’s Grant park might be at risk.

According to an article on The Hill website, as of 11:00 am this morning, there was still some disagreement between the House and Senate on the details of the renewal.

This is one of those issues that can end up impacting you without you even being aware that it is looming. How many people know if they have terrorism insurance included in their commercial policy? When was the last time you read the updates to your policy?

I will confess, I don’t often read updates to my auto policy but recently did and discovered changes that are clearly aimed at keeping me from using my vehicle for ride sharing programs like Uber or Lyft.

Like it or not, the possibility of terrorism is calculated into so much of what we do. It’s issues like the renewal of this bill that comprise the thousand little things we aren’t aware may have a big impact on our operations.

I wonder, was there ever insurance against nuclear attack during the height of the Cold War? I have recently been listening to ’80s music and realized there are a surprising number of references to nuclear war. I thought I was just anxious because I was a teenager. I guess the absence of an actual strike prevented anyone from realizing what the potential payout might have been.

Info You Can Use: When Is Your Arts Career Not A Hobby?

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There was a very interesting article on the Forbes website which explored the point at which the IRS determines your arts career is actually a job and not a hobby.

Since you can deduct job related expenses to a greater degree than hobby related expenses, the distinction is rather important to an artist.

And while a taxpayer may deduct expenses of a trade or business in excess of the profit earned by the business, thus generating a net loss, a hobby may only deduct its expenses to the extent of the profits of the activity; in other words, the hobby cannot generate a net loss.

The article author Tony Nitti, lists the 9 point test that the IRS uses the make the distinction. In the article he discusses a specific case where the IRS was challenging the filing of an artist and provides examples of how each question of the test would be applied in this case.

Later, he talks about how this particular artist’s career met the criteria of each of the test questions.

Something I found notable was that usually in these cases, a person has a steady job and then engages in a side activity which they subsidize with the income from their regular job.

In this artist’s case, she was an artist for about 20 years before she was hired on to the faculty of a college. The IRS was suggesting that her artistic career which preceded the steady job was the hobby.

This is one of the reasons I feel the article is valuable. For a great many practicing artists, this will be the path their career takes. It is only when they have proven their worth after some period of activity that they may be offered work on a consistent basis.

Now I should note, as Nitti does, that the reason the IRS was looking at this artist was because of the types of things she was claiming are expenses. That issue still has to be resolved in a separate hearing. Most artists probably shouldn’t worry about being targeted by the IRS.

The hearing about whether her artistic career was a career or a hobby has been completed. Nitti’s discussion about why her activities met the criteria is an important read. Even though this case addresses the career of a visual artist, it doesn’t take much effort to see how it applies to other disciplines.

Basically, if you keep adequate records, educate yourself about the market, consult with market experts, price your work to make a profit and have an expectation that work you are currently doing (which I suspect would apply to rehearsing and practicing) will eventually make a profit, then you might have a career as an artist!

Obviously it isn’t as simple as that summary so read the article.

Info You Can Use: Change That Contract!

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I thought I would talk a little about performance contracts today. It may not have been in relation to performance contracts, but I recently read that many people are under the impression that when they receive a contract they either meet the conditions or no deal is possible.

This may be true for the terms of service presented with every computer app and service out there, but isn’t necessarily so in a great many areas of life.

The reality is that contracts for performances are often a lot like dating. There are non-negotiable conditions and then there is a lot of aspirational conditions reflecting an ideal scenario. Knowing which is which is a matter of experience, but you won’t get that experience until you start to ask.

For example, when we do Broadway shows, there are certain stage dimensions that the tour requires. Most of the time, we are pretty close, but if we aren’t we can still do the show. It is just that the production makes a decision about what set pieces will remain on the truck.

Similarly, nearly every Broadway show technical rider we receive asks for a 36 foot tall Genie lift and 2 sets of washers and dryers. We have a lift that can reach 19 feet and only one washer and dryer set. No one has ever balked about doing the show based on that.

There are some stages which will be too small to accommodate a show or lack sufficient equipment, but productions know that every venue is different and will undertake all sorts of contortions to make the show happen.

On the other hand, if they say you have to have 50 people with various qualifications onsite at 8:00 am to help unload and set up the stage, they mean it. They will either fine you for not having enough stagehands or stop constructing the set until enough people are present–often both.

These guys left a venue at 2 am the night before and arrived on your doorstep at 8 am and tonight they will be leaving at 2 am to start it all over again. They have little tolerance for situations which will make their job harder or more hazardous.

In terms of the legal content of the contract where it talks about liability, force majeure obligations and indemnifications, you might feel a little intimidated by the formality of the language and feel you have little recourse but to accept.

In fact, this is the place where you should be looking very closely to make sure you are not placed at a severe disadvantage. Most force majeure clauses I have seen are reasonable and equitable in acknowledging the impact of severe weather and other unavoidable emergencies. Then there are some where you could have a meteor smash into your building and you would have to make payment in full plus an additional inconvenience fee.

Be careful about taking a claim of “industry standard clause” at face value.  Ask colleagues or post a question on a discussion forum if you are uncertain or confused about a section of a contract.

However, there are people working at standardizing performance contracts. The Broadway League has created a form booking contract that now seems to accompany every tour of a Broadway show we present.

Given that these contracts are among the longest I deal with, having nine pages which is the same from show to show is a great boon. You make your changes, save it and send it along with every new show. Then you are only left with combing through four-five show specific pages and 15-20 pages of the tech rider. That may seem like a lot of work still remaining, but the nine pages of the form booking agreement tend to have most of the complicated legal language.

Don’t get overly worried if your changes to a contract make it look like a rainbow spiderweb of insertions, deletions, reversals and counter signatures. It is not uncommon for a contract to look something like the below.

contract capture

This is just a visual example of what a marked up contract might look like only. Most of the change notation placements make little logical or legal sense. I applied them very loosely and even obscured other parts of the contract. These are just examples of the type of notations that commonly appear on a contract and how crowded it might appear with deletions, additions and alternative language proposals.

The STET by the way means to reverse the change. It is often used to indicate that a person doesn’t agree with the change in its entirety and wants it restored to its previous state. (Which, it should be noted, may not necessarily be its original state.)

Every change that is made should be initialed and dated by both parties before either signs off on the contract. It is also wise to keep a clean copy of the original document and save each version of the contract as a separate file. I strongly suggest springing for Adobe Acrobat so you can edit PDF documents electronically and easily reverse them. Otherwise you will go crazy trying to replicate all the changes for every iteration.

Of course, there is no guarantee that your changes will be accepted. You should just feel you have an ability to negotiate reasonable conditions.

While this entry is only meant to address a small segment of contracting and to do so from the presenter point of view, I was considering using this as a basis for an entry for Drew McManus’ ArtsHacker project.

With that in mind, I would be interested in knowing what other information would make this or a related entry useful to a reader. What questions might you have?

Info You Can Use: Fiscal Sponsorship As Apprenticeship Program For Non-Profits

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Non-Profit Law blogger Gene Tagaki recently tweeted a link to an article he wrote for the American Bar Association about 5 years ago urging lawyers to consider alternatives to forming non-profits organizations for their clients.

I should note that this article was written before the first Benefit Corporations were legal in the U.S. so that also remains an option to forming a non-profit.

One of the biggest considerations for not forming a non-profit is the fact that there are so many, with more being formed every day, but an ever shrinking supply of funding to support their efforts.

“Ron Mattocks, author of Zone of Insolvency: How Nonprofits Avoid Hidden Liabilities and Build Financial Strength, asserts that as many as one-third of the nation’s 1.4 million registered nonprofits operate in the zone of insolvency.
[…]
If a nonprofit is insufficiently prepared to compete and operate in such an environment, the end product may be gross inefficiencies, frustrated founders, disillusioned donors, and fewer resources ultimately reaching its intended beneficiaries.”
 

There is also the issue of whether the founders have a realistic business plan that is viable amid the economic conditions present. Takagi also spends some time cautioning against founder’s assumptions of the amount of control they can legally exert over the organization.

Among the alternatives to forming a non-profit Tagaki suggests is actually working with an existing non-profit. I often wondered, if people are able to muster the resources to create an entirely new non-profit that overlaps or competes with an existing one, why not first approach the existing non-profit first proposing to enhance their efforts with an ancillary or complementary program.

That is pretty much what Tagaki suggests:

When appropriate, lawyers should make their clients aware of the following benefits of working with an existing nonprofit:

-Avoidance of start-up costs and administrative burdens of a new nonprofit.
-Increased efficiency in furthering the charitable mission by using an established infrastructure.
-Opportunity to gain experience and expertise in running a nonprofit.
-Development of connections in the nonprofit community.

Collaborating with an existing nonprofit is an alternative that may be considered even where the contemplated charitable idea is not currently being implemented by an existing nonprofit. A nonprofit with a compatible mission may be receptive to implementing and operating a new program, particularly if a volunteer is willing to bring resources to the table. Alternatively, the nonprofit may have institutional knowledge relating to the charitable idea and its implementation. Moreover, the nonprofit may open doors and leverage assets that might not be otherwise readily available, such as

-Existing resources, including staff, volunteers, infrastructure, and systems.
-In-house experience and expertise, which may allow the contemplated program to be launched and operated efficiently and in compliance with the law.
-Donor and business relationships, including with institutional funders, nonprofit leaders, allied organizations, and the media.
-Goodwill, which may provide the program with name recognition and built-in public trust.

The other alternative he suggests is a Fiscal Sponsorship where a project is housed within the auspices of an existing non-profit. It allows the project to take advantage of the non-profit’s status without needing to create a separate entity. If the sponsorship agreement is written correctly, the project has the freedom to move to another non-profit or perhaps spin off as a separate non-profit once they have experienced sufficient growth. Fiscal sponsorship arrangements have been used to host short term projects or as an incubator for fledgling non-profits.

The Sponsor usually retains a portion of the gifts as a fee (5-10 percent is common) and allocates the rest to the Project. The Project Initiators may serve as employees or volunteers of the Sponsor delegated with the responsibility of operating the Project. They also may retain the right to move the Project to another Sponsor or to a new exempt organization created to permanently house the Project. Any such rights should be precisely spelled out in the fiscal sponsorship agreement.

Fiscal sponsorship may provide a Project with immediate tax-exempt status, advantageous treatment as a public charity (i.e., nonprivate foundation) without independently passing a public support test, some degree of administrative support, and a governing body that has a duty to ensure that the Project is operating in compliance with applicable laws. The Project Initiators must weigh such benefits against a lack of autonomy; their limited control over the Project, which remains under the ultimate control of the Sponsor; and the sponsorship fees.

The trade-off aside, if a fiscal sponsorship agreement is written well it can be an extremely helpful process of essentially testing the viability of a concept and learning how to run a non-profit organization without incurring the start up costs.

I was not aware that this option really existed. It might almost be better if aspiring non-profits pursued this option more regularly. Even if it didn’t result in new organizations spinning off all that often, it could potentially create more robust non-profit organizations. (Perhaps even resulting in more nimble sponsored programs growing to subsume their nominal sponsoring parent.)

Since the fiscal sponsorship option is relatively unknown as an option, perhaps the biggest hurdle will be getting both parties prepared and willing to engage in such an arrangement.

It is well known that non-profits start new programs in order to garner funding to support their main goals. It would be easy for a sponsoring organization to starve the program it agreed to house of the resources it needs to succeed. From the other side, as Tagaki mentioned, once you bring your program under the auspices of a fiscal sponsor, their priorities need to become your priorities to a large degree.

Info You Can Use: Non-Profits and Loans

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If you didn’t catch it, in June Non-Profit Quarterly had a good 101 guide on when it is appropriate for non-profits to take out loans.  Most times you hear about non-profits and loans it is once the non-profit is in financial trouble and deep in debt.  The discussion of constructive use of loans by non-profit arts organizations is relatively rare.

In my own experience, conversations among arts administrators usually touches on earned revenue, fund raising/sponsorships and grants.  I have never heard anyone talk about using loans to fund an initiative. This might be, as the NPQ article suggests, there is a stigma of failure associated with taking out a loan. Or it might be simply that we are so used to worrying about falling attendance, lack luster fundraising and onerous grant writing that no one really thinks to mention loans.

In addition to discussing the times it is and is not appropriate to seek a loan, the article notes that there are no “one-size-fits-all” loans so organizations can negotiate terms that suit their needs.  They also provide a general sense of what answers and materials you might expect to be asked to provide as part of the loan process.

 

 

Stuff To Ponder: Professionalizing Non-Profit Boards

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Via Tyler Cowen at Marginal Revolution is a proposal put forth in the Stanford Law Review suggesting replacing board members with a professional board services company.

When I first saw the title “Why Not Put a Firm on Your Board” on Cowen’s blog, I thought maybe the Stanford article was going to be a satire of the whole “corporations are people” idea that is the basis so many recent Supreme Court decisions. However, they are completely serious and there is some sense to what they propose. (Though I suspect they may still have been inspired by the court.)

As I read the article, I started to wonder if something similar might be good for non-profits. The article is definitely aimed at large for-profit corporations, but the fundamental problems are the same:

-Both for and non-profit boards are comprised of people who have other day jobs and don’t have the time, either during or outside board meetings, to exercise proper oversight of the corporation.

-Board members either get too little information about the corporation to do their jobs, or are overwhelmed with too much.

-Board members often don’t possess specialized knowledge about the entity they are overseeing and therefore can not make good decisions.

-Finally, board members are in a position where they are more loyal to the management of the company than to the general community of stakeholders.

The articles authors propose a company, which they dub “Board-R-Us,” to provide professionalized oversight of management and assume legal liability for decisions made. I am not convinced that these companies wouldn’t succumb to pressure and influence from their clients like Arthur Andersen did or via their own corporate owners.

That aside, there were some compelling reasons for speculating on whether something like this might be viable for non-profits. In addition to the problems with effective oversight mentioned above, non-profit arts organizations often express frustrations trying to recruit a board that better represents the demographics of their community or target audience.

A board services provider (BSP) could recruit and train board members for a non-profit organization. A BSP would likely have extensive contacts at many companies, service organizations, universities, etc developed in the process of searching on behalf of many organizations which would make the search easier for them than for board nominating committees.

The BSP could advise both the organization and the board members about how to more effectively interact with each other so that neither dreaded attending regular meetings.

I am not sure if a BSP would essentially just be a recruitment firm or if the board members would work for them. The former situation would more easily permit board members to serve voluntarily. The latter might require a stipend of some sort.

I am not sure how a stipend might be resolved legally, but if a board member was paid by a separate company and if it wasn’t much more significant than gas money, it might pass muster.

One of the benefits of engaging a BSP for a non-profit is that you could actually have a healthy rotation of people through your board when the BSP assigned new people as terms expired.

A robust rotation system might also prove an incentive to companies to encourage employees to participate in non-profit boards via a BSP. The networking opportunities available as people rotated through the boards of different organizations can be valuable to companies. If the BSP is helping the non-profits provide pertinent information in an organized manner and the board meetings are being run efficiently, few may feel the experience is a waste of their time.

These scenarios assume a situation similar to the current arrangement of part-time board members helping to manage a non-profit with some guidance and oversight from a BSP rather than full-time oversight from a BSP simply because of the costs involved with the latter option.

In terms of how even part time services from a BSP might be paid for, I envision a dedicated good governance fund administered by a state arts council. If the arts council can’t find a source willing to specifically fund this, they might charge participating arts organizations a nominal fee and create a pool of money to pay a BSP.

The participating arts organizations could then choose from among a number of available board service providers.

I Gave Away My Right To Vote

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A couple weeks ago, I encouraged others to take away my right to vote.

Why? Because I am an ex-officio director on a board by dint of my position and during a recent review of the board’s by laws, I discovered they did not specify that my position was non-voting.

In a recent repost of one of her blog entries, Ellis Carter clears up some common misunderstandings about ex-officio officers, one of which is that the term means they don’t have voting rights.

There is often a misconception that ex officio board members lack voting rights. The term “ex-officio” has nothing to do with voting rights. Ex-officio directors can be voting or non-voting; therefore, it’s important to clarify in the bylaws whether ex officio board members have voting rights.

No election or appointment is required. Also, it can be very confusing to make a position “ex-officio” and subject the ex-officio director position to term limits. Ex officio directors are not generally subject to term limits because the director position is tied to the office. What happens if the term ends before the director leaves the office the position is tied to? The better practice is to avoid term limits for ex-officio directors all together.

Other than the fact the original intent has always been that the person in my position not have a vote, one of the prime reasons I asked to have the by-laws changed was to remove any concerns about a conflict of interest that might exist. This particular board’s sole existence is as an independent partner in the presenting season of the performing arts center I run. Among the things they vote to approve are fairly significant transfers of funds in support of that partnership.

While I have never attempted to vote and my presence has never been used to establish a quorum, there is always the possibility my position technically having a vote might be used as a tie-breaker in a contentious situation.

On the other side of the coin, there may be decisions the board makes that neither I nor the university will want to be entangled in. Closing an admittedly small opening to claim I might have voted on the decision is a good step to take.

It occurs to me to wonder if ex-officio board members are covered by board insurance depending on whether they have voting privileges or not. Are there any lawyers reading who might know?

Info You Can Use: Who Owns An Artist’s Booking Data?

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A very interesting question regarding the relationship between an agent and artist was recently broached on the Musical America blog. An agent who has an artist leaving their representation for another company asks who owns the leads and contacts they have cultivated on behalf of the artist.

However, the question has come up as to whether we are obligated to give the artist all of the leads and contacts we have been pursuing on his behalf that have not been booked yet. That doesn’t seem fair. We have been working on some presenters for years, have invested a lot of time, and consider that to be our proprietary information. If we turn all of that over to his new manager, that’s just going to be a gift to the new manager who will follow up on all of our work and take the commissions.

Now you may think the agent is correct. It doesn’t seem fair that the new manager will benefit from the efforts of the company that the artist is leaving. However, lawyer Brian Taylor Goldstein answers that under the law of agency, representatives, a term which applies to people like attorneys, realtors, accountants, artist agents, etc, work for a principal party and all the work they do belongs to that principal. (my emphasis)

…there are four key concepts:

(1) An agent works for the principal and, while the agent can advise the principal, the agent must follow the instructions and directives of the principal.

(2) An agent can never put his or her own interests above that of the principal.

(3) All of the “results and proceeds” of the agent’s work on behalf of the principal belongs to the principal.

(4) Any contractual provision, written or oral, that contravenes rules (1) – (3) is null and void.

In short, when a manager represents an artist, the manager has no proprietary information. In other words, those aren’t your leads and contacts, they are the artist’s. While your leads and contacts may start out as your own, once you contact someone on behalf of an artist, the artist is legally entitled to know anyone you have spoken to on his or her behalf, including the details of such conversation. Moreover, unless there is an agreement to the contrary, the artist is also free to contact anyone directly on his own behalf.

This information was surprising to me. I knew that this relationship existed with one’s realtor, but didn’t realize it extended to artists and agents/managers as well.

Goldstein goes on to explain that the law is set up this way to protect the agent from liability for any breach by the principal. The agent isn’t liable if the artist fails to show up for a performance, for example.

(Of course, since the agent will be the first to receive an emotionally fraught phone call if the artist doesn’t show, they will bear a lot of non-legal responsibility.)

He also enumerates a number of aspects of the agent-artist relationship that people may assume are a matter of law, but are merely a result of traditional practice, and perhaps due for a change.

We Are Too Small To Get Caught…Right?

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It used to be that there were constantly stories about copyright owners going after kids who had downloaded music and video or sampled/excerpted parts of works and represented it as their own. We would hear about companies tracking stuff on computers and going after the owners.

You don’t hear these sort of stories as much any more. Since many of the copyright owners were big corporations, perhaps they figured there was a lot of bad P.R. associated with their efforts.

Or maybe they felt like there was too much of the activity going on that it was fruitless to try to catch everyone and try to stop it.

I know that a lot of performing arts companies have taken liberties with the shows they produce, assuming that the country is so big and their organization so small that no one will bother to check up on them.

Well thanks to technology, it is apparently getting easier for performance rights holders to monitor production activity. Or at least technology is making us more aware that the rights holders are checking on and catching people.

A recent You’ve Cott Mail brought attention to a couple cease and desist letters issued last week due to unauthorized script changes.

An article about a Milwaukee production of David Mamet’s Olenna implies they got caught making their unauthorized change when a review of the show appeared online.

As first reported by Howard Sherman, Hands on a Hardbody show creators actually attended a performance in Texas and noticed the show wasn’t the one they created. A number of actions were subsequently taken by the Dramatists Guild and Samuel French, Inc, which appear in updates on Sherman’s post.

These aren’t isolated incidents. Howard Sherman has been keeping an eye on these issues and addressing them on his blog. Back in January, he discussed the Asolo Repertory Theater having to postpone their opening when they got caught rewriting Brian Friel’s Philadelphia Here I Come! [Disclosure: I worked for the Florida State University side of the Asolo about 20 years ago.]

Sherman also covered a Long Island* high school making unauthorized alterations to the school edition of Rent

There are a lot of issues connected with artistic freedom, color blind casting, community standards and the comparative attitudes of material creators toward their works that factor into these stories. Most are addressed in the dozens of comments on Sherman’s posts. They are a good place to start if you aren’t familiar with the basic, but common, issues related to the stage.

While the performance licenses are pretty explicit about what you can and can’t do, the conversation about intellectual property is always evolving so it is definitely something to keep an eye on.

Not to mention that if you have been flaunting the conditions of your license assuming that you won’t get caught, it may be time to reassess that belief.

*I mistakenly misidentified the school involved with Rent as being in CT. Thanks to Howard Sherman for bringing the mistake to my attention

Info You Can Use: Legal Tips

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A couple weeks ago, Gene Takagi of the Non-Profit Law Blog made a post cautioning lawyers about issues to consider when representing a nonprofit.

As you might imagine, every one of his tips were important for members of a non-profit board and leadership to know as well. Some of his traps and tips are frequent points of conversation in the non-profit arts community: don’t write a mission statement that is too restrictive; be sure you have a viable business plan and don’t assume non-profit status is your only option; boards members should be aware they have a very real governance role; non-profit doesn’t mean tax-exempt or no-profit; all overhead is not bad; get board and directors insurance.

There were also some topics that are less frequently discussed:

Traps
1. Failing to inform the client at the outset of representation that you represent the organization and not any individual directors or officers.

4. Including “non-voting directors” in the organization’s bylaws (under most states’ laws, there is no such thing as a “non-voting director” and, subject to very limited exceptions, each director has the right to vote on all matters before the board).

5. Providing in the bylaws that the board of directors may combine in-person votes at a meeting with email votes to take board actions.

6. Reinforcing the myth that nonprofits should always minimize overhead expenses (even at the expense of building an appropriate foundation on which to build the organization’s operations).

7. Failing to inform the client about the differences among volunteers, independent contractors, and employees, and the risks of misapplying these classifications.

10. Failing to discuss with the client the benefits of having organizational policies that address the legal and management implications of conflicts of interest, proper gift receipts, misuse of social media, expense reimbursements, acceptance of noncash gifts, document retention/destruction, and whistleblowers.

For me, that first one about the lawyer representing the organization and not you always strikes me as worth repeating. I have never had the ill-fortune of being in a situation where there was a even the whiff of legal action. However, when I am reviewing contract clauses that make me uneasy or am faced with a potentially contentious encounter, I will find myself thinking that the legal department will cover me if worse came to worse. Then I have to remind myself that in fact, they won’t necessarily have my back because they serve the interests of the organization, which may not include protecting me.

Point #5 about mixing in-person and email voting is a reference to a prohibition in California law. However, reading the rationale behind the illegality of such action, it seems reasonable to expect other states would have a similar restrictions.

Since I have heavily summarized his post, it is worth taking a look at everything Takagi cautions and advises for the legal health of a non-profit

Is A Ticket A Contract?

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Yesterday, commenter Lee Saylor asked a question about foul weather and refunds on a post I did a couple weeks ago regarding that subject.

He noted that like many performing arts organizations, the no-refund policy was on the back of the ticket. That raised an interesting topic I wanted to discuss.

When I was first starting out my career, I was told that a ticket was a contract with the audience member and that the policies on the back were the terms of the contract. If I recall correctly this was to support the idea that if someone purchased a ticket, they had the right not to appear and we had to hold the empty seat for them.

However, I believe it was just last week that someone pointed out to me that it can’t be a contract because you receive the terms after you have made the purchase. That made sense to me because it wouldn’t be fair to a consumer to find out they were bound to certain conditions they were unaware of prior to their purchase.

EXCEPT, that is exactly what happens when you buy software. You don’t learn about the terms of service (TOS) until after you have purchased the software and start to install it. Back when software came on discs, there was a big outcry because if you broke the seal on the envelop it came in the company wouldn’t issue a refund if you didn’t like it or it didn’t work on your computer system.

At the time they were concerned people were copying the discs and returning them. These days I am not sure if software companies will refund you if you actually read the TOS and say you don’t agree and want your money back.

Refunds aside, like buying a ticket, you don’t learn the details of the TOS until after you have made the purchase. (Contrast with buying airline tickets where they encourage you to read their contract of carriage prior to completing your transaction.) So my question is, are they contracts? Does the timing of when you receive the terms determine whether they constitute a contract or not?

Do any lawyers or people who play them on stage or TV have any idea?

Now whether it is a contract or not doesn’t disqualify what is written on the back of your tickets as a statement of policy or rules that will govern the transaction should the person seek to redeem it for a performance.

Whether that will protect you against a legal claim is another issue entirely.

Stuff To Ponder: What Is The Definition of Emergency?

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This last week I have gotten some real lessons in the importance of disaster planning.

During the quiet of the holidays I started a conversation with some colleagues about how we would handle inclement weather on performance days. Everyone keeps telling me how they try to shy away from scheduling shows in January because the weather is so bad. With that in mind, I wanted to have a plan for how we would proceed before the need arose.

Since we present a number of touring shows, we would be in a position of needing to pay artists per our contract unless the weather is so bad a state of emergency is declared. In that case, we would issue refunds to the ticket buyers.

However, if the weather is poor, but not so bad that we cancel the show, there may still be a number of people contacting us asking for refunds because they chose not to attend. My recent conversation has been about what we should do to respond to these people. Since we need to pay the performers, we probably won’t be in a position to offer refunds.

I have been discussing possible options with staff, board members and others. Our eventual solution may not make our customers happy but surveys have shown that even when the solution doesn’t please them, customers have a better impression of your company when you make the attempt to resolve their complaints rather than just refusing them outright.

In the process of the conversation, we decided we should post our policy on our website noting that we only offer refunds when the university closes and/or the sheriff declares a level 3 emergency.

And then came this week with the extreme cold.

Pretty much every school in county closed and many of the universities in the state did as well. We were open though.

Given that it was sunny and there was barely a dusting of snow on the ground, I started to launch into the stereotypical grandparent tirade and talked about how I stood out waiting for the bus in colder weather than this when I was younger. (Unfortunately, I not as tough as my grandfather. I only had to trudge uphill through the snow to the bus stop one way rather than both ways.)

Had we had a show and a different provost who decided to cancel classes, I might have been in a situation whereby our own policy dictated we issue refunds. At the same time the performing artists would stand there looking at me like I was crazy for saying the show was cancelled due to the cold and then glare at me when I said we weren’t paying them.

Not that the cold didn’t cause any difficulties. Yesterday we narrowly avert a large disaster when someone noticed a ball of ice forming on the sprinkler heads of the lobby fire suppression system. They just got the water turned off as the ice melted. There was some flooding, but nothing like what it could have been.

Every company knows that they should have a good disaster plan, how they will respond, where people should turn to for communications, etc,. Performing arts organizations need to know about the evacuation plans of the venue they perform in and think about issues like refunds.

But the events of the last week have made me realize I also need to know about the criteria being used by the decision makers I am depending on. I may assume the criteria is one thing and it won’t be. It may also change as personnel change.

As we heard about school closings Monday morning, a person I know who had attended and taught in some of those schools was amazed, noting they had never closed in the past. He opined that they might be quicker to close now due to people being more litigious.

In any case, being aware of shifting criteria can make for better planning. Had we or one of our renters had a school show this week with all the schools cancelling, that would have been quite problematic. Thinking about that, it just occurred to me that I should know what my policy about payment will be if a renter is impacted by school closings.

The person who made the decision to keep campus open this week when other campuses closed will be stepping down in June. I already started to advocate that very clear guidelines be developed for what conditions will result in the campus being closed and for the successor to be aware of the repercussions on our activities should the decision be made.

Now I also realize I need to know what constitutes a level 3 emergency in the sheriff’s eyes.

What Should I Talk About?

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Now that I am back living in the lower 48, I have begun thinking a little more seriously about possibly presenting at some of the national or regional conferences. I had actually thought about it a bit when I was in Hawaii, but distance limited my opportunity to attend many conferences and hampered collaboration opportunities.

That gave me the idea to ask my readers–what do you think I should do a session on? This is actually a double duty question because I am also essentially asking what topic would you want me to write blog entries on to.

I understand that many people can’t attend conferences so I would ultimately be planning on posting whatever I talked about on the blog. And readers might see bits and pieces of what I was working on emerge on the blog as my research brought me in contact with new information.

Rather than to ask what topics I should blog about, I wanted to frame in the context of what do you want to know about so badly that you would seriously consider undertaking the expense of travel, hotel, food, etc to attend a conference where someone was talking about it?

I also suspect I take for granted people’s familiarity with many topics I come across in my daily reading. The reality might be that people are desperate for information. So even if I didn’t do a conference session on it, your feedback will help determine topics I blog about in the future.

Just as examples of conferences sessions to get you started, Arts Presenters is looking for session proposals on Catalyzing Communities around the arts, Making the Case for the Arts and The Art of Transition. That last one seems like it could encompass everything from leadership transition to changing your organizational approach to programming and marketing.

I just found out that I probably will be attending APAP conference this year. Though I am not sure I would get a proposal together by the deadline next Thursday so I am not necessarily looking for a topic that would fit that conference.

I figure I can either lead or contribute to a conversation about:

-contract negotiations, submitting offers, reading contract riders
-closely partnering with multiple arts presenters to organize a tour as a consortium
-partnering with artists to create performance works reflecting stories/values of indigenous cultures

Of course, I can talk about many other topics like marketing, social media, presenting in higher education environments (and bureaucracies) but I feel like a lot of other conference presenters can and have done so before. Though I am certainly happy to produce blog posts on these topics

I feel what I have listed are areas in which I have more specialized knowledge than many others. It is also likely that I am forgetting some too. If there is a subject area which you have come to value my expertise, let me know.

Thanks.

Info You Can Use: Generating Interview Questions

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I have only been at my new job for six weeks and already they have me on a search committee. Some may groan at the thought, but the position being hired will likely impact my area pretty significantly so I was actually relieved when I was asked to serve.

We had our first committee meeting today which was preceded by a training session on interviewing. In addition to reminding us about the usual forbidden subjects of age, race, religion, martial status, etc, the human resource director talked a little about a new approach the university was using with searches.

It is a little difficult to explain clearly here, but essentially it starts with the committee prioritizing the most important areas of the job (e.g. leadership, communication, experience, strategic vision, collegiality etc).

This would help us determine what questions should be asked at what stage of the process. If leadership and experience are top priorities and were going to make or break a candidate for us, we would ask questions that related to those areas during the phone interview phase rather than exploring collegiality.

At later stages we might have more questions touching on leadership and experience since they are high priorities, add in questions dealing with middling priorities to help us expand our impression of the candidates, but choose to only ask a few questions on low priority items or omit them altogether.

What really impressed me about this approach is that it keeps the early interview rounds focused and theoretically dictates how long latter phases of the interview process actually need to be.

Instead of saying, we should have the candidate meet with Bob because it just seems like a good idea, looking at the prioritization you may realize there isn’t any reason for an official meeting with Bob. If there is, a low prioritization might point to a 20 minute meeting or a meal alongside others rather than an hour long one on one meeting in Bob’s office.

Now, notice I say theoretically. Politics may dictate the candidates meet with Bob even in the absence of a compelling reason. That could be detrimental to the search. The HR director mentioned that searches often fail because highly qualified candidates can identify weak processes like undue focus in irrelevant areas.

There was one slide in the HR director’s presentation that I immediately knew I wanted to feature here on the blog. After the committee had finished its discussions, I ran down to the human resource office to ask her permission to share it with you.

It is a general template for the interview questions.  Clicking on the image will open a new window so you can refer to it and my commentary on it without having to back arrow.

Interview Guide Template. Used with permission. © Shawnee State University
Interview Guide Template.
Used with permission. © Shawnee State University

The bullet points on the left under “Leadership” note general activities the university has identified that person possessing leadership qualities will have/need to engage in.

The italicized text in the center is how these qualities are specifically exhibited in relation to this job. (This being an example document, they are exceedingly general.) Under that are the questions that are derived from this.

The Situation/Obstacle/Action/Results at the bottom allow the committee member to make notes about how the candidate’s answer touched upon these different phases during the situation being described.

What I really like about this format is that it places the elements from which the questions emerged on the same page with the question. There are always going to be answers you never anticipated when you envisioned the qualities of the person fulfilling the job. It is easy to become confused about whether the response illustrates that they are qualified or not.

But if you gaze down and see the answer being given touches upon all the qualities that comprise the foundation of the question, you can feel more confident about their qualifications.

I am looking forward to continuing in this process. I may end up with a different impression later on, though the search chair has used it in a few searches before and speaks highly of it.

Not So Special, Not So Dedicated Arts Tax

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A cautionary tale for the “Beware Politicians Bearing Gifts” file. (A pretty thin file given the relationship between politics and the arts.)

Four years ago, I posted about how the State of New Jersey was trying to ignore a law that guaranteed funding to the arts from hotel tax revenue. This was a particularly unwise move given that cutting funding to the arts meant the tax would go away entirely thanks to a poison pill provision.

In other words, for want of cutting a couple million from arts funding, the state would lose many more millions when the hotel tax disappeared due to making the cut.

The government received a lot of criticism for contemplating the move, including from a former governor.

Now there is a new administration and a new attitude. When the tax was created, it was contemplated that the funding for the arts would increase as tax revenue increased. The problem is where the previous administration had viewed the $28 million minimum funding limit as the floor they wanted to demolish, the current administration sees it as the ceiling they are happy to bolster.

Instead of providing more funding as more revenue comes in to the dedicated tax, the state is raking the excess revenue into the general coffers.

“…the tax generated more than $1.1 billion for state and local governments since it was introduced 10 years ago, but only $184 million has gone to the New Jersey State Council on the Arts, the largest of the four agencies that should have received a far bigger chunk of the money.

[…]

It’s a cautionary tale for supporters of a separate bill that would take a slice of the sales tax to fund the state’s open space and historic preservation programs, which have run out of money. It might look great on paper, but without the political will behind it, the promises are hollow.”

This story makes me wonder about the fate of the funds collected as a result of the tax increase that was passed in Minnesota to provide support to wildlife areas and the arts.

I know the Minnesota legislature has been asking if the Minneapolis Orchestra has betrayed the public trust by accepting funding but not providing concerts. My hope is that it is motivated by an appreciation of the arts and a desire to see them produced rather than a desire to scrap the funding.

Can anyone from Minnesota give me a sense of how things have worked out?

Info You Can Use: Let’s Play Find The Exploitative Clause

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About a month ago, I wrote about webcomic Penny Arcade’s online reality competition Strip Search which is aimed at finding the next great webcomic artist. (By the way, both the comic and the show are often NSFW)

I had mentioned that it seemed like the aim of the show was to use the Penny Arcade fame to help advance the careers of these artists.

I think their most recent episode of Strip Search provides a model for teaching arts students of all stripes about contracts.

Penny Arcade has famously signed away the rights to their intellectual property at least twice and only regained it by dumb luck. This is a topic near and dear to their hearts. I have seen the creators, Mike Krahulik and Jerry Holkins, and their business manager, Robert Khoo, talk about it in interviews and convention panels a number of times.

Khoo is probably the only business manager in the gaming world to achieve hero status for saving Krahulik and Holkins from themselves and helping to grow their company.

In this episode they have the contestants read through an exploitative contract and then go in and talk to Khoo about what they want struck or changed. Khoo basically plays a bumbling idiot in the negotiations because the whole point was to get the artists to evaluate the contract rather than necessarily deal with a combative negotiation environment.

Also, because it was a contest they only had a set amount of time to evaluate the contract and conduct negotiations. In real life situations everybody acknowledges the importance of investing all due care reading contracts and consulting with an attorney.

After the contestants spoke with him, Khoo mentioned that there were two basic approaches to the contract they could have taken. Either decided what their core values were and question whether the contract achieved or impeded those values or go through line by line analyzing each condition (or obviously a hybrid of both).

Because a classroom setting is similar to the contest environment with only a limited time to evaluate a contract (even if a student gets to take it home over the weekend), having a similar opportunity to look at a contract with many elements not in the artist or organization’s best interest and then roleplay a negotiation could certainly be helpful to arts students.

One of the things I never thought I got enough of in grad school was contracts. We got to look at a few contracts to see the sort of things that went into them and I got to read all the Actors Equity handbooks I wanted.

There really wasn’t a discussion about the type of things you would want to change because it wasn’t in your best interest.

Many people may be under the impression that a contract is something that you need to comply with as best you can if you want to do business with them at all. I think there is a basic assumption that the other party is acting in completely good faith and little acknowledgment of the possibility that the other guy may be trying to fleece you to the fullest extent possible.

Most people acting good faith with a reasonable bias toward themselves, but you had still better read the contract every single time it gets set before you.

Is It Against The Law To Pay Me More?

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You may have heard about Dan Palotta’s recent TED Talk about how judging charities on concepts like administrative overhead ratios is hobbling their ability to solve huge problems.

He makes some persuasive points, though some of the concerns I had with his proposals when they appeared on the Harvard Business Review blog three years ago still remain.

Gene Takagi picked up on the talk and addressed legal considerations which would prevent non-profits from operating in the manner Palotta suggests. (Just to be clear, Palotta never suggests charities cleave to non-profit status.)

Takagi notes that charity pay scales are limited by laws governing 501 c 3s and so can’t compete well on salary if supporters show tolerance for doing so to attract the best talent. Expenditures are limited in much the same manner,

“If a for-profit spends 90 cents to make $1, it may be a perfectly acceptable profit margin, but if a charity spends 90 cents to make $1, it would be widely viewed as a terrible waste. As a result, many charities fail to properly report their fundraising expenses, and the IRS has raised the possibility of utilizing the controversial commensurate test, which addresses whether a charity is using its resource in line with its charitable mission…But this can’t be judged strictly on percentages, and charities should be allowed to experiment so if an honest fundraising and mission awareness-raising campaign fails, the charity isn’t slaughtered for it. The problem, however, is not the law, but the misguided public ideology of which Dan spoke.”

Charities are also often limited and discouraged from pursuing new revenue ideas by federal and state laws as well as popular sentiment.

I think the biggest question that this whole discussion raises for me is whether social attitudes are such that a for-profit company raising money for social issues will be tolerated. Given that people will give money to projects via things like Kickstarter without much consideration about whether it is non-profit or not, is the idea that non-profits do things that companies won’t due to lack of profitability and governments can’t/won’t due to lack of political will and expertise, over?

Currently I think there is a capricious element to Kickstarter campaigns that make it an unsuitable model for garnering long term support. However the very existence of such mechanisms may be shifting mindsets to a place where worthiness and overhead ratios are not mutually exclusive.

Info You Can Use: NP Orgs Exist In Shadow Universe (Great Resource Guides Too)

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My Twitter feed delivered me two great resources for arts professionals on the same day this week.

The first came courtesy of Sydney Arts Management Advisory Group. I guess I should have known that when they talked about a guide developed for “WA Artists” they meant Western Australia and not Washington State. In my defense, they link to a lot of prominent U.S. arts sources (like me!).

The guide they shared, Amplifier: The Arts Business Guide for Creative People, from Propel Youth Arts, is really one of the best guides for creatives just starting out that I have come across. If you cut out the resource guide at the end of the booklet, 98% of it is applicable to a creative anywhere.

The guide is really accessible with fun illustrations and interviews that will probably make you want to move to Western Australia. It also walks you through all sorts of planning processes with questions and checklists: project management, business plans, identifying markets, goal setting, evaluation, finances & funding, legal, product, pricing, place and promotion.

It doesn’t just deal with performance, but also tackles film, visual art and publishing, delves into copyright law (which appears almost identical to U.S. law) and licenses.

The guide also spends a few pages on risk assessment and insurance for events which is something I have never really seen in similar guides even though it is very important.

The second resource comes from the Wallace Foundation. This one is more geared toward arts groups rather than individuals starting out and is focused on administrative issues like finances, board oversight and administration.

You may have seen some tweets about it but not followed the link. It is really worth stopping by to take a look.

Some of the guides and case studies are what you might expect “Building Stronger Nonprofits Through Better Financial Management” and How to Talk About Finances So Non-Financial Folks Will Listen.

But there are some with more intriguing titles like: “Efficiency” and “Not-for-Profit” Can Go Hand in Hand,  and The Looking-Glass World of Nonprofit Money: Managing in For-Profits’ Shadow Universe.  

The latter is described as” Especially useful overview for board members with little exposure to the unique nature of finance in a nonprofit context.” I  never really thought of NP orgs as operating in a shadow universe. Sounds so cool! Does that mean Rocco Landesman was the dark emperor or something while he headed the National Endowment for the Arts?

There are also proposals like “The Nonprofit Starvation Cycle” which advocate for changes in the way foundations support non-profits.

The part of this resource I have seldom seen in other places was a whole section of five articles, including a podcast, on figuring out the True Cost of programs. They specifically have a calculator for figuring out the cost of after school programs, but following the steps outlined in some of the other articles can help reveal truths like social media isn’t actually free.

I haven’t read through everything in the guide, but I am definitely going to bookmark it for future reference.

Info You Can Use: Fundraising Must Benefit The Group, Not The Individual

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The approach of the holidays provides me with a little more free time so I have been catching up on my “come back to and read” list. I got to reading a piece by Non-Profit Law blogger, Emily Chan addressing activities athletic booster clubs engage in that may endanger their non-profit status.

Since these clubs are organized under 501 (c) (3) just like arts organizations, I became a little concerned because I see similar things happening with some arts organizations.

The potential conflict Chan addresses is in making the amount of money a person raises directly correlate with the benefit to an individual like crediting against the payment of tuition/dues or travel expenses.

Furthermore, such a credit system still raises private benefit concerns regardless of whether a parent is considered an insider or even involved in the booster club. Lois Lerner, the Director of Exempt Organizations at the Internal Revenue Service, recently affirmed that crediting amounts raised by a participant against that participant’s costs (e.g., dues, travel expenses) is a private benefit violation that may jeopardize the organization’s exempt status.

What immediately came to mind is that a lot of dance schools have their students sell tickets, Entertainment coupon books, etc., keep track of what each person sells and rewards the kids. I don’t think there is any problem with one child only getting to choose glitter stickers because she sold less than the child who was able to claim a stuffed animal.

However, if those sales determined who got to perform or helped one person defray more of the cost of going to see a show in New York than another, there could be a problem. If it defrays the cost of everyone equally, or even a specific class within the group like sending the cast of a show to perform at a festival, then it isn’t problematic.

Really, it is mostly a matter of benefits specific to individuals. This also likely includes fund raising to benefit a specific individual, say the medical expenses of a musician who was in a car crash.

Individuals should not be soliciting contributions from donors with any suggestion or intention that the contribution will be directly used for that individual who solicited the gift. Additionally, the booster club should not accept any contributions that have been earmarked by the donor for a particular individual. Not only would such contributions not be tax-deductible for the donor, the booster club would likely be acting as a conduit in violation of the federal tax laws regulating private inurement and private benefit by allowing such money to pass through the organization to the individual without having exercised any control, oversight, or discretion over those funds

I wonder how this might apply to organizations that try to forge a deeper connection with donors by having them sponsor a student. Keeping in mind that I am not a lawyer, my guess is that if the organization is selecting the student being sponsored, there isn’t a problem. The money went into a general pot with no specific expectation of which student would benefit.

But what happens if the student drops out and the donor has taken a shine to another student and wants the sponsorship applied to her as a replacement? This is a tricky situation if you are hoping for the long term, continued support of the donor.

I also wonder if something changes with the student’s status that requires more funding than for any other student, say their place of residence changes so they must pay higher out of state tuition, can the donor be solicited or even direct additional money to benefit a specific student without endangering the non profit tax status?

Fine Line Of Being For Art And Humanity

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A story on the Slate website revived the question of “what is art?” for me covering a “No Longer Art” exhibition at Columbia University. On display are damaged works which insurance companies no longer consider to be art.

“To give a brief explanation of art that is no longer art: Sometimes the cost of restoring a work of art exceeds the value of the work, in which case the insurer declares a total loss, and the work is declared no longer art—that is, of no market value. The damage can range from obvious to subtle—from a ripped painting or shattered sculpture to a wrinkle in a photographic print, or mold damage which can’t be seen at all. As it wouldn’t do to send the not-artwork to the crematorium—the work might be of scholarly value, or might one day be worth repairing, or might one day be more easily repaired—the work is stored, not dead, but in a state of indefinite coma. The Salvage Art Institute, Elka’s curatorial brainchild, collects and exhibits not-art.”

This seems to imply the work was art based on the intent of the creator and its state at the time of purchase. Often you will see a piece comprised of broken objects, whether they were intentionally damaged or found in that state. Because the artist assembled the broken items with a conscious intent, the piece is considered whole.

Like the philosophical question about how much of your body can you lose before you are no longer considered human, at what point does a work cease to be art then? If a piece of broken glass attached to canvas falls off while it is being mounted, does it cease to be art if that is one piece of 10,000? What if it is one piece of 10? What if it is a piece of blown glass that becomes detached and shatters on the floor?

What of the performing arts? If a playwright or choreographer was explicit in their directions, does a work cease to be art if the lines or movements are intentionally changed by a performance group? What if the performers try to stay true to the original but make mistakes? Are those flubs equivalent to rips, wrinkles or unseen mold damage?

We often talk about giving credit to artists if their work is sampled, but what about the other side of the situation? How much can be changed before the performing group needs to stop referring to the work as the creation of the playwright, composer or choreographer?

Should Baz Luhrmann have called his Romeo and Juliet by some other name since West Side Story smelled just as sweet? Should Arthur Laurents and Leonard Bernstein called West Side Story, Romeo and Juliet?

And then there is the question about who gets to decide if it is art any more? Should we trust an insurance company’s judgement if an artist says a new dent on a beaten piece of metal is inconsequential and it would have had the same appearance if he had decided to swing the hammer 51 times instead of 50? Do we heed the artist if the roles are reversed and he says the piece is ruined; if he had intended 51 blows, that is how many times he would have struck.

I know this conversation has gone round and round many times without conclusion, but I think this is the very core question which connects art with being human. Any other claim of “What it means to be human” is just marketing B.S. This question asks wherein resides the essence and soul of a piece of art. It is just as difficult to determine where humanity and the soul resides in a person.

The great example from college philosophy courses relates to Star Trek transporters which disassemble and reassemble humans. Once Captain Kirk is broken down to billions of atomic pieces, can the being that is reassembled be the same Captain Kirk? Where is that same point of no return for art where what is taken away removes that quality of being?

Info You Can Use: Like This Post And You Could Win….

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..Well Actually I Can’t Promise You Will Win Anything.

That was one subject tackled in a slideshow/PDF Venable LLP posted from a talk they did in early August, How Nonprofits Can Raise Money and Awareness through Promotional Campaigns without Raising Legal Risk. The slideshow proper is followed by resource documents that delve a little deeper into many of the topics.

The collected information is a great basic resource on many of the legal questions you may have about different sorts of promotional and fundraising techniques like raffles, games of skill and chance. The laws of many states make it necessary to have the “No Purchase Necessary” option and the ease (or lack thereof) of taking advantage of that option is frequently a subject of legal action.

While every state has different laws, the slideshow helps to clarify the general distinguishing characteristics of these activities. For example, I wasn’t aware of some of the following:

Some less obvious examples that may satisfy the “chance” criterion include those in which: a prize is awarded to the “100th” store (or Web site) visitor on a particular day; the amount of the prize depends on the number of people who decide to participate; the prizes are of unequal value; or, a drawing is used to break a tie, or a single prize is divided between tied winners.

The document addresses some of the issues use of the Internet to solicit contributes raises in relation to social media and rules dealing with being registered as a charity in other states if a significant amount of contributions is originating from there.

One of the biggest legal situations they discuss is the commercial co-venture (CCV) where a business might promote that a portion of a purchase will go to benefit a charity. NY State launched an investigation regarding companies that did that in relation to breast cancer and turned up a great deal of fraud. Apparently half the states have laws regulating CCVs in terms of disclosure and the manner in which the relationship is promoted.

Use of social media for solicitations is apparently a gray area legally so the suggestion is to proceed with the same care you would if you were making the same appeals face to face or in print. There are also concerns that you respect privacy when collecting user data, especially from children, and protect the data from theft. Geolocating and behavioral advertising and tracking are identified as hot button issues.

However each social media service has a number of their own rules of which you need to be aware.

For example with Facebook:

-Promotion may not be administered directly on the site, must be administered through a third-party Facebook Platform application
– Cannot use Facebook functionality or feature as an entry mechanism; e.g., “Liking” a profile page or posting a comment on a wall. Also cannot condition entry into the promotion upon taking any other action on Facebook; e.g., liking a status update or uploading a photo.

• However, can condition entry on a user “liking” a Facebook page, checking in to a “Place”, or connecting to the Facebook platform based promotion application as part of the entry process. E.g, can require that users “like” a Facebook page and then submit a completed entry form to enter.

This was something of a surprise because it seems like I get requests to like things all the time and have seen it tied to a chance to win something. I have been trying to remember about how they have been structured.

Facebook is also pretty strict about requiring groups to provide notice that Facebook is not associated with the promotion really in any way.

Another area of concern is intellectual property rights. If you are encouraging people to submit some sort of creative project you can run into a number of issues,

“Incorporating user-generated content in a marketing campaign could expose the sponsor to liability for libel, copyright infringement, violation of one’s right of privacy/publicity, deceptive advertising, trademark infringement, or other violations.”

While social media sites and marketers are protected from liability for what people submit or post on their sites, if you turn around and use the submitted content to promote your organization or product thinking it is entirely original, you could be in quite a bit of trouble.

If you look at the slide show but have more questions, it is really worth looking at the additional resource documents at the end. There are some good short articles that deal with the Do’s and Don’ts of Social Media promotion and

Last Of The Great Pretenders

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Last month when I heard that Herb Reed of the Platters had died and was reminded that he had waged a fairly protracted legal battle over the use of the Platters name, I thought back to an entry I did about the question of who owns a band’s name.

At the time, there were over 80 groups listed performing under the Platters name and a number of people, including Reed claiming ownership. There was a push for truth in music laws to keep imposter bands but as noted in my entry and the NPR story I link to, it isn’t always very easy to determine who has the most valid ownership claim.

As something of a postscript to my original entry, Reed was ultimately successful in exerting his claim as the sole original member.

Shorter Board Meetings? You Have My Consent!

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Last week a very interesting article came down my Twitter feed, (I apologize for not noting the source), written by Les Wallace about the best board meeting he ever attended.

What made it the best meeting he ever attended was a very effective use of the time, revolving around the use of a consent agenda. I had not really heard of a consent agenda before, but fortunately the folks over at Board Source wrote up a handy guide explaining:

A consent agenda is a bundle of items that is voted on, without discussion, as a package. It differentiates between routine matters not needing explanation and more complex issues needing examination.

[…]

With a consent agenda, what might have taken an hour for the board to review, takes only five minutes. Because it promotes good time management, a consent agenda leaves room for the board to focus on issues of real importance to the organization and its future, such as the organization’s image and brand, changing demographics of its constituents, or program opportunities created by new technology.

According to Board Source the types of things typically found in a consent agenda are the minutes of the previous meeting, confirmation of decisions, the CEO and committee reports, informational materials and routine correspondence. You don’t want to have financial documents and anything potentially controversial or requiring substantive discussion and decision making as part of the consent agenda.

It takes a fair amount of work to compile all this information. The organization has to be disciplined all the way through. Wallace mentions the work the CEO, staff and other board members did in advance to prepare the materials and have it placed it in the board section of the website for review two weeks prior to the meeting.

Wallace also mentions the board meeting moved from important to trivial matters rather than following Robert’s Rules of Order. The financial statements provided were color coded dashboard summaries of the organization’s financial position provided by the finance committee. An executive summary of staff and committee reports were provided at the meeting with more detailed information available online.

According to Wallace, this cut about 40 minutes out of the meeting and the board used that time to address strategic issues for the organization, attend to some board development and other governance issues.

The Board Source article has more information about how to use a consent agenda and exercises to use to help transition boards to this practice. It’s worth a look if this sounds the least bit intriguing to you.

One of my initial concerns was that the consent agenda could be used to hide problems amid minutiae or circumvent board members, but according to the Board Source guidance (my emphasis):

“If a board member has a question, wants to discuss an item, or disagrees with a recommendation, he or she should request that the item be removed from the consent agenda. Without question or argument, the board chair should remove the item from the consent agenda and add it to the meeting agenda for discussion.”

Using a consent agenda requires a great deal of discipline on the board if it is going to be effective-

“Just a quick question” is not an option when using a consent agenda. Either an item is removed and discussed or it stays put. This places the burden of facilitation on the board chair to be disciplined about stopping discussion and removing items from the consent agenda.”

Info You Can Use: Doing Business With Board Members

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Since I am on the topic of board decisions this week, Non Profit Law blog recently listed a link about non profits doing business with their own board members.

While it is natural for non profits to seek out people from specific professions/skillsets to be on their boards in order to provide some expert guidance and advice, things get a little sticky when it becomes necessarily to contract professional services.

Since board members often have a personal investment in the organization, they may tend to charge extremely competitive fees for their services. As the article notes, it can also be a little awkward to be talking about paying someone else to do work that a board member in the room is perfectly capable of performing.

The article notes that not only is it difficult to avoid having some business dealings with your board members, it may be hard to actually get good people to serve on the board if they perceive there will be undue scrutiny of how their professional and volunteer activities overlap.

However, it is important to have a conflict of interest policy for board service. Failing to have one and follow it create potential problems for the organization, especially given the role non-profits serve in their communities.

Experts say one danger of so many veteran board members is that a nonprofit could lose touch with how a community perceives the awarding of contracts to members of its own board.

“Public legitimacy and support are very important, and a more isolated board may not be as aware of that,” said Francie Ostrower…

[…]

Board Source , an organization for nonprofit boards recommended by the National YMCA, suggests that board members who want to do work for the organization should donate their services. If they can’t, they should follow the board’s conflict policies.

Other critics of the practice such as Joshua Humphreys, a fellow at Tellus Institute, a Boston policy think tank, take a dimmer view.

“Best practice for nonprofits is to draw a bright line between board service and doing business with service providers,” said Humphreys. “It creates divided loyalties between the public purpose of the charity and the private gains someone is motivated by.”

Siegel (Jack Siegel, Charity Governance) said the practice chips away at the independent thinking of board members who are the recipients of contracts, as they tend to side with their supporters on the board in other matters.

“If you see conflict (of interest), you can almost bet there are other problems in the organization,” Siegel said.

The article goes on to quote Siegel pointing out that it is difficult to hold the work of board members to the standard you should because you have a relationship with them. This point struck a sympathetic chord with me as I remembered some occasions in my career where the quality of the work by a board member was never in question, but changes to elements no one really liked were never requested for fear of offending the board member by questioning their style/taste.

One of the suggestions for eliminating the conflict is that the person leave the board for the duration of their company’s contract under the assumption that if the person is really invested in the success of the organization, they will extend the same discounts as they would when they were serving.

What the article doesn’t mention is that if they don’t extend the same discount it may actually be better for your relationship with the person. If all those involved feel that a fair market price is being paid for the work, there is less potential for resentment on the part of the service provider over sacrificing time and income on a difficult project and less hesitation on the part of the non-profit to assert that their standards be met.

Still, this is all easy to say in theory. In practice, you run into the old question, “how do you fire a volunteer?” When people generously provide time, energy and expertise, they are investing a lot of themselves personally. It can be difficult to refuse their help without making it seem like you are refusing them as a person.

That is why it is good to have a well-constructed conflict of interest policy to which to point. When the situation arises where a board member will start to do business with the organization in a significant way, you can point to the policy and note that providing the service will, of necessity, change the board member’s relationship with the organization and as such the following actions must be taken per the conflict of interest policy.

Board Source has some general information on conflicts of interest on their website and some samples conflict of interest statements for purchase and download. (I have never read them so I can’t attest to their usefulness.)

Info You Can Use: Let Me Take Vacation, Or You’re Gonna Pay!

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Hat tip to Non Profit Law blogger Emily Chan for providing a link to an article on a subject near and dear to my heart — vacation time.

There are some problems non-profits can run into regarding vacation and over time pay, but reading further is only necessary if people in your organization work a lot of overtime and don’t take all their vacation.

Hmm, nobody clicked away.

I wasn’t entirely joking when I said problems related to the accrual of vacation and over time were near and dear to my heart. Putting aside the number of vacation and comp time days I forfeited last year, I am regularly told about the guy who retired and wiped out most of the next season’s budget.

That is one of the hazards covered in the piece on Olive Grove Consulting’s blog. While most of the laws discussed are specific to California, there is a pretty good chance your state has similar labor laws.

For instance, in relation to accruing a lot of vacation time:

One law that often catches employers off guard is California’s requirement that employees be paid all vested vacation wages at the time of termination. As a result, an organization should ensure that it has sufficient reserves to pay out all accrued vacation. If an organization has a vacation policy that does not cap the amount of vacation an employee may accrue – and if employees do not regularly draw down their balances by taking vacation – then, the potential liability on the organization’s books can become significant.

California law prohibits employers from adopting “use-it-or-lose-it” vacation policies where vacation is forfeited if an employee does not take it. But, employers are permitted to place a reasonable cap on the amount of vacation that an employee may accrue. Thus, for example, if an organization allows employees to take 80 hours of vacation per year, the organization may cap the maximum vacation accrual amount at 140 hours. That way, even if some employees do not regularly take vacation, they will never accrue more than 140 hours, which will allow the organization to avoid having a significant amount of vacation liability on its books. To do this effectively, the organization must clearly articulate its vacation policy, including all applicable caps, in its handbook or in a stand-alone vacation policy.

Note: I edited answers for two question on this topic together. Also, my emphasis- Joe

The article also covers over time pay and discusses the California definition of employees who may be classified as exempt. This definition, which is very close to the federal definition, is based on spending more than 50% of your time performing certain types of duties or belonging to certain learned professions like lawyers, doctors, accountants (but not bookkeepers), clergy, registered nurses (but not LPNs).

Creative and artistic professions are considered exempt. The Olive Grove blog doesn’t expound, but the federal Fair Labor Standards Act says that:

Some employees may also perform “creative professional” job duties which are exempt. This classification applies to jobs such as actors, musicians, composers, writers, cartoonists, and some journalists. It is meant to cover employees in these kinds of jobs whose work requires invention, imagination, originality or talent; who contribute a unique interpretation or analysis.

So even if your imagination is working over time, you won’t get paid extra for it.

The Olive Grove blog also has some informative material about laws regarding comp time in lieu of pay, disciplining employees who do not record their over time and whether a non-profit can consider over time to be volunteer work.

Just in case you like the idea of voluntary over time but don’t read the article, let me just tell you–DON’T DO IT!

“However, the DOL (U.S. Dept of Labor) also takes the position that individuals may not “volunteer” to perform work for their employer that is the same as or similar to their normal work duties. Instead, this is compensable work time. The DOL is also likely to take this same position regarding time an employee spends performing dissimilar services, if those services occur at the employer’s request, under its direction or control, or during the employee’s normal working hours.”

Again, because the laws of your locality may vary from these, just take this information as a guide to the sort of questions you should be asking about labor laws in your state

Still More On Crowdfunding Start Up Arts Orgs

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If you have been reading my blog regularly over the last few months, you know I have been keeping an eye on the possibility of the crowd funding elements of the recently passed JOBS Act replacing non profit status as a viable method of creating and sustaining an arts organization.

If you haven’t been reading that long, well harken back to my original musings on the subject as well as some more recent musings with links to information on the implications of the law as passed.

Hat tip to Charity Lawyer Blog’s Ellis Carter (whom I have previously incorrectly identified as male. Sorry about that Ellis) for her link to a piece on Startup Company Law Blog about the problems with the law.

Author Joe Wallin confirms many of the general suspicions I had about the costs of compliance probably being overly burdensome given the $1 million limit.

One thing that surprised me was that the law actually prohibits start ups from the “do it yourself” approach which I have always assumed to be a hallmark of start ups.

3) The Law Forces Companies To Use Intermediaries

The law forces startups to use intermediaries to raise the funds. This is fundamentally different from what typically happens with startups. Most startups raise funds without the help of intermediaries. In fact, this is the prevailing norm for startup companies. The typical advice to a startup is–don’t use an intermediary! Founders, do it yourself!

 But here the law forces companies into the arms of either registered broker-dealers or registered funding portals. These entities are subject to numerous requirements, and their compliance with those requirements will make the process much more difficult and costly for companies.

Maybe arts organizations with their bare bones mentality about providing a product might make it work within the restriction, but the whole point of pursuing an alternative to the non profit business model is to adopt an alternative approach and mindset about providing cultural experiences. (a.k.a. ramen isn’t a default food group for artists.) Though it will probably bring it own attendant problems, success might be measured by how diversely arts and cultural organizations manifest after phasing away from non-profit status.

At the end of his post, Wallin suggests Congress go back and make some changes to the law to allow start ups to proliferate more easily. I am sure there is still plenty of opportunity for successful crowd funded start ups within the law. If it isn’t changed before that, perhaps the successes will lend credence to the idea this can be a viable path for entrepreneurs, moreso with a few changes.

Info You Can Use: Internship Guide For Arts Organisations

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The subject of paying interns has been in the news fairly frequently. This summer I noted that while non-profits are currently exempt from some of the rules of the Fair Labor Standards Act, this may not be true for long. Classifying employees as interns or independent contractors may not be valid, even for non-profits depending on their work situations.

In the England, arts organisations (yes, I am intentionally using British spelling) have a legal responsibility to pay interns according to minimum wage standards. The Arts Council of England just published a guide to these rules. While these wage laws don’t apply the entities in the U.S., the criteria for what constitutes an intern are very close to those applicable to for profits in the U.S.

The guide also provides suggestions for designing a meaningful internship experience and for writing appropriate ads for these positions. Therefore the guide can be a good resource for those looking to get ahead of possible changes in the labor laws and seeking to provide a positive working environment.

Info You Can Use: So You Think You Want To Merge

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It seems discussion of non-profit mergers is becoming more prevalent of late. I recently became aware of a research document created by Wilder Research and MAP for Non Profits looking at what factors contribute to or inhibit the successful merger of non profits in the pre-merger, merger and post-merger phases.

There were actually some parts of the document, What do we know about nonprofit mergers? Findings from a literature review, focus group, and key informant interviews, that were very familiar. So much so I thought perhaps I had already written a blog post on it already. It doesn’t seem that is the case. However, since their report includes a literature review in addition to surveying they conducted themselves, it is likely I read some of this before.

They raise some good questions and provide some interesting advice on many aspects of a merger on issues like the name of the new organization, getting a third party involved to shepherd the process, doing due diligence on each other, issues about conflicting organizational cultures, creating a clear time line for the process.

One suggestion they had was to involve your top five funders in the process in order to gain their investment. That may be very sound advice as at least one case they mentioned found that most funders treated the merged organization with its newly expanded capacity as if it were one of the constituent entities effectively cutting their support in half.

Many organizations chose to merge as a result of some sort of crisis, either the loss of leadership, financial problems, change in the operating environment, etc. According to the research, one of the worst times/reasons to merge is if one organization is at the brink of financial ruin. Other than the fact that the new organization will inherit the problems of the troubled organization and that it is not prudent to negotiate anything from a position of weakness, research shows that even mergers between relatively sound organizations don’t necessarily result in a financially stronger combined organization.

The following are areas that they identify as needing to be addressed during the merger phase. There is a similar list for the pre- and post- phases.

2A. Key stakeholder involvement
2A1. Executive staff champion
2A2. Board commitment to the merger process
2A3. Client, consumer, and funder involvement in planning

2B. Role of staff in merger process
2B1. Staff involvement in planning
2B2. Communications with staff throughout process
2B3. Staff’s perception of the effect of the merger

2C. Integrating formal and informal structures
2C1. Attention to cultural integration
2C2. Attention to board and mission integration

2D. Providing due diligence to the process
2D1. Clear decision making process
2D2. Clear and realistic time frame

They provided the following factors which contribute to a merger’s failure:

-Lack of capacity, sophistication, or skill in the board or executive leadership
-Leadership’s inability to communicate well or to effectively influence others
-A weak or declining balance sheet or imminent financial collapse of one organization
-Programs or services that are not particularly unique or of distinctive value to the community
-Organization’s fear of losing autonomy or change
-Differences in governance, culture, or mission
-Board and staff opposition to the idea of merger
Engagement purely for survival, not from strength
-People involved do not see the real work involved in a merger
-Loss of key leader during the process

Info You Can Use: Board Action In The Age of Technology

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Hat tip to the Non-Profit Law Blog for providing a link to a piece on the Charity Lawyer blog about board votes by unanimous written consent.

An organization upon whose board I sit was recently revising its bylaws and the subject of voting on courses of action between meetings arose. We were especially interested in the legality of voting by email.

I can’t imagine we are the only ones having this conversation and fortunately, Ellis M. Carter at Charity Lawyer provides some answers.

“Unlike directors voting at a meeting which may require only a majority of the directors to approve any board action, most states that permit action by written consent require unanimous approval. Once an action by written consent is signed by all of the directors, the written consent resolution will have the same effect as a unanimous vote of the Board.

In such cases, a consent resolution will be sent to each individual director by mail, email or fax for his or her signature. To streamline the signature gathering process, the written consent document can permit counterpart signatures. This means that each director can sign the signature page of his or her copy and the signed signature pages, when taken together, are considered a validly executed document.

[…]

Generally, the action is considered to be taken on the date the last director signs the consent. For recordkeeping purposes, the signed consents must be kept by the secretary in the corporate minute book. Additionally, the resolution should be entered into the minutes of the next board meeting and made part of the official record of the corporation.”

In respect to emails, in order to remove any question of legality or whether an emailed response may have been made by an unauthorized person who gained access to an unattended computer, it is best to use a password protected electronic signature such as is available in Adobe documents. If that is too difficult, Carter suggests just printing the email, physically signing it and send it back by fax, regular mail or a scanned attachment to an email.

Info You Can Use: You Tweeted What About Me?!

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So after my post a couple weeks ago about why it is bad in a legal sense to have a restrictive social media policy, I am sure some of you have been wondering under what circumstances you can actually discipline someone for what they post online.

Well thanks to a piece on Forbes website, we have an answer (and hat tip to Gene Takagi)

As I had mentioned in my earlier entry, you can’t forbid, and therefore punish, any attempt to organize employees in a discussion about employment conditions. Under labor law, this is termed “protected concerted activity.” If a person is speaking for a group of employees or attempting to organize a discussion among employees, it is protected.

However, there are some tricky nuances to this and a link on the Forbes article to a National Labor Relations Board report, “Report Concerning Social Media Cases,” delves into the matter and presents specific cases to explain why the employee was or was not protected by the law. As Kashmir Hill, the author of the Forbes article notes, it is actually pretty easy and interesting to read for a government document.

My read is that with the current state of social media it may be fairly difficult to fire someone for complaining about work conditions. Essentially, if other employees chime in either on or off line to agree that an employer is a jerk for making employees work under certain conditions, the speech is protected as representing a group complaint. If other employees just comment that they are sorry to hear a situation upset the poster, then the poster may not be speaking on behalf of other employees.

It is only when a comment passes a certain threshold where a person is wishing violence upon people or making statements which are maliciously false that protection of representing a group complaint may not apply. However, being called a power-hungry, martinet jackass does not meet the standard for maliciously false. Suggesting a restaurant buys rat dropping to make their ground beef go further probably would.

Complaints that are clearly representative of an individual’s opinion aren’t protected, especially if they do not invite or receive the agreement of other employees. The same with complaints about the job which are not terms and conditions of employment like saying your store gets the ugliest customers in town.

One interesting fact that came up in a number of the NLRB case studies is that you can not have a blanket policy prohibiting people from posting pictures of themselves in company uniform or in connection with the company logo. ”

“…Employer’s logos or photographs of the Employer’s stores would restrain an employee from engaging in protected activity. For example, an employee could not post pictures of employees carrying a picket sign depicting the Employer’s name, peacefully handbill in front of a store, or wear a t-shirt portraying the Employer’s logo in connection with a protest involving terms and conditions of employment.”

The NLRB documents didn’t say it outright, but presumably you could fire someone if they posted a picture of themselves drunk in uniform at a strip club or urinating on your corporate logo. Though I have no idea if a number of employees urinating would be considered a group cause or not.

Another part of the NRLB document I found useful was two case studies starting on page 19 that first discussed a company’s social media policy that they considered to be too broad. In the second case, they found the policy was lawful but the other prohibitions were too broad. Finally, there was a case where a company’s policy restricting employees’ contact with the media was deemed lawful.

I felt all three were very useful because they all contained rules that any of us might include in our policies. In the first two cases, it is good to know what types of language one should keep out of policies. The last case included restrictions on media contact out of a desire to have one voice speak for the organization. Again, a situation for which many organizations strive.

“…we determined that a policy that stated that “the company will respond to the news media in a timely and professional manner only through the designated spokespersons” could not be read as “a blanket prohibition” against all employee contact with the media. Additional language in the rule referring to “crisis situations” and ensuring “timely and professional” response to media inquiries further clarified that the rule was not meant to apply to Section 7 activities.

Similarly, we concluded here that the Employer’s media policy repeatedly stated that the purpose of the policy was to ensure that only one person spoke for the company. Although employees were instructed to answer all media/reporter questions in a particular way, the required responses did not convey the impression that employees could not speak out on their terms and conditions of employment.”

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