BUS 320: Nonprofit Organizations Exam #1

Duty of Obedience

The Board is required to make sure that an organization is complying with the law and any decisions/action are consistent with the org's mission and governing documents (including charter)

fiduciary mode

When the board is operating in this mode, it is concerned with the "bedrock of governance.", when the board operates in this mode it is concerned with matters such as stewardship of tangible assets, faithfulness to mission, performance accountability and obedience to law

generative mode

a board in ______________ is engaged in thinking that it is creative, out-of-the-box thinking; in which visionary leaders often engage. It relates to values and judgments, encompasses "sense making" (understanding things in new ways), and may result in insights that lead to paradigm shifts. It's the necessary foundation for setting direction and goals and thus an essential activity of leadership. Also part of the Chait, Ryan, and Taylor: Governance as Leadership

Double Bottom Line

a manner by which nonprofit organizations must measure their success; a nonprofit exists to pursue a social mission so success must be measures in terms of its ability to achieve that mission; in a competitive environment, nonprofit managers must pay close attention to the financial bottom line if their orgs will survive and succeed

benefit corporation

a profit-seeking corporation whose charter specifies a social or environmental goal that the company must pursue in addition to profit; free to trade off profit for social benefit w/o legal issues related to fiduciary responsibility of directors; required to produce an Annual Benefit Report that assesses the public benefits that it provides

tax-exempt sector

a term commonly used by accountants, attorneys, and other tax specialists; identifies NPOs entirely in terms of their status under US tax law; with a few exceptions, nonprofits are exempt from paying federal income taxes and generally from state and local income taxes

institutionally related foundations

the fundraising arm of a host or parent public charity; they are public charities because they solicit and receive gifts from the public. This type of foundation directs its support to just one organization; such foundations are commonly associated with public universities.

governing boards

boards that hold ultimate responsibility for ensuring that the organization serves its mission and for the overall welfare of the organization itself

Expressive Purpose of Nonprofits

developed by Peter Frumkin nonprofits provide an outlet for individuals to express their values and passions through their involvement with NPOs

member-serving organizations

exist primarily to secure benefits for the people who belong to them or who support them through dues, membership fees, or other contributions (ex: social and fraternal organizations, labor unions, etc.); tax-exempt but not eligible to receive tax-deductible gifts

Instrumental Purposes of Nonprofits

the services that nonprofits provide and the needs they meet, rather than their role as vehicles for individual expression

charity

giving intended to meet current individual human needs or to alleviate current human suffering (ex: feed homeless or aid victims of a natural disaster) emotionally driven and often compulsive (ex: GoFundMe provides a vehicle for individuals to respond to the critical needs of specific individuals)

impact investors

individuals and organizations willing to accept lower rates of financial return in exchange for social benefits

social welfare organization

is an nonprofit organization exempt under Code Section 501(c)(4). It is similar to a 501(c)(3) organization in that its income is generally exempt from tax and is subject to the same limits on private inurement and excessive payments to insiders

social enterprise

nonprofits that have a social objective but employ commercial principles in their generation of revenue; captures the positive essence of all private organizations having a social purpose, perhaps better than a nonprofit

private foundations

usually have one or a few donors--often one person, company, or family; receive different tax deductions allowed to individual donors for gifts to public charities and private foundations

voluntary failure

volunteering and charitable giving aren't enough to serve those most in need

Certified B Corp

not truly a new corporate legal form, but a for-profit business that has been certified as following socially responsible practices and have a positive social impact while engaging in commerce, like Leadership in Energy & Environmental Design (LEED certification by US Green Building Council)

hybrid organizations

organizations that operate under both nonprofit and for-profit legal forms; pay almost equal attention to both components of double bottom line, focusing on creation of social and economic value; may be "doing good by doing well"

public charities

organizations that receive support fro a relatively large number of donors or from government (the public); include most of the nonprofits

Duty of Care

paying attention and exercising due diligence in monitoring the org's finances and supervising the actions of its management;board members should exercise common sense and not lose money as a result of recklessness, indifference, or failure to seek appropriate advice

philanthropy

rational form of long-term, charitable investment in the infrastructure of society (ex: gifts made to construct new hospitals, endow universities, or create new charitable foundations intended to exist in perpetuity); if goals are achieved, the need for charity would be eliminated, since there will exist institutions

social purpose corporation (SPC)

similar to benefit corporation; mission statement is required to explicitly warn investors that the org may put social benefits ahead of profits -- intended to strengthen the protection against any shareholder efforts to bring pressure for greater profits at the expense of social benefit

board-centered leadership

Herman and Heimovics 2005 theory that concluded CEO's should lead but their leadership needs to be board centered and designed to support the board in meeting its governing responsibilities.

nongovernmental organizations

International organizations that operate outside of the formal political arena but that are nevertheless influential in spearheading international initiatives on social, economic, and environmental issues.

operating foundations

******support their own programs and generally do not make grants to other organizations

advocacy organizations

503(c)(4) social welfare organizations that advocate for a specific cause such as Sierra Club, NAACP, NRA. These organizations are tax-exempt but gifts to these advocacy organizations are not tax-deductible

Form 990

A form filed by not-for-profit organizations with the Internal Revenue Service that reports on financial governance and charitable activities

conflict of interest

A situation in which a person in a position of responsibility or trust has competing professional or personal interests that make it difficult to fulfill his or her duties impartially

low-profit, limited liability company (L3C)

An L3C is a variation of the limited liability company (LLC); ability to pursue charitable, educational or socially beneficial objectives as its primary motive. a hybrid entity taking on the flexible characteristics of an LLC in combination with a low-profit socially beneficial objective. originally created to facilitate program-related investment by foundations-- give foundations the ability to invest a portion of their assets in grantee organizations for a modest return, possibly in addition to making outright grants; L3C can accept investments and provide a financial return at a rate below what would be expected from a purely commercial entity (no evidence that the form increased such investments by foundations)

NASPAA

Network of Schools Public Policy, Affairs, and Administration; founded in 1970 to accredit MPA in universities

NACC

Nonprofit Academic Centers Council; a membership association of academic centers and programs that focus on NPOs

faith-based organizations

Programs such as churches, temples, synagogues, and others that receive funding to provide some level of social services or resources to clients

public foundations

Some funding intermediaries use the word Foundation in their name but are public charities A foundation that is publicly supported for the benefit of, a specific community or geographic region.

unrelated business income tax (UBIT)

Tax that applies to NPO income of otherwise tax-exempt not-for-profit entities. Determined by relationship to exempt purpose and other criteria. UBIT Criteria: A trade or business as defined by the IRS Regularly carried on Not substantially related to the exempt purpose of the organization "Substantially related": the conduct of the business activities has, causal relationship to achieving exempt purposes (other than through the production of income). The activities that generate the income must contribute importantly to accomplishing the organization's exempt purposes to be substantially related Excluded: activities carried out by volunteers; trade or business for what the "convenience" of clients or members; sale of donated merchandise Tax Cuts & Jobs Act (2017): included changes in how orgs calculate unrelated business income

public-serving organizations

These promote some aspect of social welfare; they include churches, charitable and social welfare organizations, as well as foundations and other funding intermediaries.

National Taxonomy of Exempt Entities (NTEE)

This divides the universe of nonprofit organizations into 26 major groups under 10 broad categories with 600 subcategories Classification based on an organization's purpose, activities, and programs Similar to the industry classification codes used to group for-profit companies

charitable sector

a term generally used to characterize the nonprofit sector, but actually references the subset of NPOs that have 501(c)(3) public charity status Critiques given by the author: - contrary to the reality that charitable gifts are not the largest source of nonprofit revenues - not synonymous with nonprofit sector bc there are orgs that qualify under US tax code but neither seek nor receive any form of charitable support (ex: membership dues, government grants and contracts) - doesn't encompass major institutions (Ex: Harvard University) that are nonprofit but hardly consistent with general understanding of charity

civil society sector

a term used to identify/define the nonprofit sector; differentiates it from government and private sector; comprised of groups or organizations working in the interest of the citizens but operating outside of the governmental and for-profit sectors.

excess benefit transaction

a transaction that results in unfair benefits to a person who has substantial influence over a not-for-profit organization, for example, unreasonable compensation, sales of assets at bargain prices, and lease arrangements

independent sector

an alternative term for all nonprofit organizations, as distinct from government and corporations formed to make a profit

social entrepreneur

an innovator who identifies new methods for achieving social change, which may or may not apply business principles

BoardSource

an organization that provides research, education and assistance to nonprofit organization boards.

charitable nonprofits

an organization whose primary objectives are philanthropy and social well-being; tax-exempt and the gifts they receive are tax-deductible

social entrepreneurship

application of business methods and generation of earned income rather than gifts

Duty of Loyalty

board members put the interest of the org above their personal interest or that of another organization with which they may also have a formal relationship. Board members should have formal policies to describe the procedures to be followed when a conflict of interest is present