Chapter 28: Good Faith-Based Charities

(This is chapter 28 of "Up and Out," a book condensing my long experience about how to best help poor people.  I pledged earlier to get it up online as soon as possible, so it would be available for free to everyone trying to cope with helping the Katrina evacuees.)

(These are not things that need to be done during the first part of this emergency.  Rather, this is for the time after that, when Katrina evacuees will be moving from getting immediate emergency assistance to trying to normalize their lives.  That is when good programs to help them "up and out" of their situation need to kick in.  The following is for that time.)

(For other chapters, look under "Categories" and click on the chapter you want.)

UP AND OUT: A GUIDE TO TRUE COMPASSION FOR THE POOR"
PART II: MOVING UP AND BREAKING OUT OF POVERTY
Section 3: Getting Into Action

Chapter 28: Good Faith-Based Charities

What kinds of programs a good faith-based charity should have has already been discussed in Chapter 24.  Other guidelines were discussed in Chapters 25-27.  What this chapter will do, then, is to describe what kind of structure is helpful for good faith-based charities.

The Board of Directors: a good accountability structure.

Chapter 18, on accountability, is suggested background reading on the need for any organization to have good accountability, and the kinds of grief that can be avoided by having, and sticking to, a good accountability system. 

For charities, that starts with the Board of Directors (hereafter called the Board.)

Authority:

In terms of authority, the Board has the highest authority.  The Board is in charge.  The Board does not run the day-to-day operations of the charity, but hires an Executive Director (hereafter called the ED) to do that.  The Board delegates considerable authority to the ED, and the ED reports directly to the Board.

The ED is the only person normally authorized to act on behalf of the entire organization, though always under the authority of the Board.  From time to time, however, the Board may specifically empower another person to do that.  (For instance, the Board Chair may be authorized to act for the Board on some particular occasion, such as making a statement at a press conference on behalf of the Board or organization.) 

Without such authorization by the entire Board, however, no individual Board member may presume to do that, or to take on the prerogatives of the ED.  No Board member should presume, for instance, to go around the ED to give direct orders to staff, or to assume any direct control of any part of the organization, without being authorized to do so by the full Board.

The first ED is most often the founder, the one who started the charity from nothing.  That ED is likely to be an entrepreneurial kind of person.  The ED’s who come later are more likely to be somewhat more managerial in style.

Usually, the first Board is recruited and organized by the founding ED.

It is the responsibility of the ED to keep the Board informed, and to give them counsel, guidance and considerable direction.  The ED is the one who should do the most in planning ahead, and also in providing vision and energy.  The ED leads the charity, under the oversight of the Board.

The ED should also take the lead in finding and recommending suitable new Board members.  There is always turnover on a Board.  The Board can get dangerously low on members if prompt replacement of departing members does not happen.

The ED makes personnel decisions, taking responsibility for all hiring and firing. As soon as the Board is large enough, there should be a Personnel Committee to assist the ED in personnel matters.

Board Composition:

In terms of composition of the Board, there is an ideal “Board Matrix” for a charity that helps the poor.  That is, there are certain “slots” that need to be filled, and members should be sought who fit those slots.  Filling out such a matrix will help provide the kinds of expertise the charity is most likely to need.

The most important slots to fill are: an attorney and a Certified Public Accountant (CPA.) 

The attorney should become the Secretary of the Board.  The attorney should prepare the basic documents of the organization, such as the Articles of Incorporation and the Bylaws, and follow them through until they are approved by authorities of that state.  The attorney should also recommend other attorneys when different specialties are needed, such as fighting lawsuits, dealing with labor problems or environmental issues—all very expensive and perilous times for the charity.  (Environmental issues can arise because charities typically are forced into non-residential areas, such as commercial or industrial areas.  These often have pre-existing contamination that can result in legal problems.)

Financial Protections

The CPA should be the Treasurer of the Board.  The CPA should have oversight of all the finances of the charity.  The CPA should also set up the financial office procedures of the charity.  The charity should follow these exactly, because of the accountability and safeguards against misuse of funds that are built into them.

The ED, plus at least two Board members, usually the Chair and the Treasurer, should be authorized to sign checks.  The Board will probably set a limit on what size check the ED can sign without first getting approval from the Board. 

When the time comes to apply for a “501(c)(3)”, which is the IRS authorization for tax deductibility for donations, that should be done under the oversight of the CPA.

Audits

All charities should have annual outside audits.  It is not possible to get any grant, as a rule, without them.  Audits done from inside the charity will not be accepted by grant-makers.  They must be audits done by an outside CPA.  So the CPA on the Board cannot do the audit.  It is the job of the Treasurer to find an outside CPA to do the annual audit, and to negotiate the best possible price for it.

The annual audit, when finished, will have with it a “management letter.”  This will be extremely helpful.  It will point out any weak spots in the financial or management systems of the organization and give suggestions for fixing them.  That will give advance warning about possible serious problems before they happen.  It could save the charity a world of grief.

Protection from Liability Exposure and Lawsuits 

To fill out the rest of the Board matrix, if the charity owns any property, it needs to add to the Board an insurance broker (not agent) and a real estate broker (not agent.)  These will have tremendous expertise in all matters concerning property.  The insurance broker, in addition, will be expert on matters of insurance, of safety issues and of liability exposure. 

The organization will almost certainly be sued, probably more than once.  So having the expertise of an insurance broker concerning liability matters will help prevent many situations that could lead to liability exposure.  This will protect the charity, not only from being sued in the first place, but from losing if it is sued.

This protection is crucial for a charity, because when any organization is sued, every asset it has potentially goes on the auction block.  The loss of a lawsuit, where large damages are awarded, can shut it down.    

Liability Protection for a Church with Its Own Charity

For that reason, if a church starts its own in-house charity, it would be wise to separate itself legally from the charity by incorporating it separately and treating it completely as a separate entity.  Then if the charity should be sued successfully, the assets of the church are not also at risk.

Other Kinds of Board Members

Other Board members should include those with different kinds of expertise: business people, for hard-headed business sense; entrepreneurs, for experience in new and risky ventures; bankers, mortgage and stock brokers or financial planners, for their financial good sense; a professional or two, for their experience in dealing with people’s personal problems; and executives and managers, for their experience in performance issues.  It is also helpful to have members familiar with the workings of either elected officials or the unelected bureaucracy of city, county or state governments.

If the charity is faith-based, there should be some clergy on the Board, but not as a majority of members.  Business people should be in the majority.  That is because, while a faith-based charity has characteristics of both a business and a church, it is neither one nor the other.  Business matters are a larger part of its role, however, than they are for a church.  So more business expertise is needed on its Board than a church needs.

Liability Concerns of the Board Members

Many members of the Board are likely to have strong concerns that they will have liability exposure of their own personal and business assets, through being on the Board of the charity.  So they may not want to be on the Board unless they are adequately protected from that risk.  This is a totally reasonable concern.  If the charity hopes to have much expertise on its Board, it must deal with this concern.

Some states have enacted laws protecting volunteer (unpaid) Board members of charitable non-profits from any personal liability as a result of membership on the Board.  That satisfies most potential Board members.  If such protection does not exist in the state where the charity is located, liability insurance for the Board should be purchased.  (Usually, it can be gotten more easily and inexpensively as an addition to the property and fire insurance already carried by the charity.)

Care and Feeding of the Board:

It should always be remembered that Board members are volunteers.  They are not paid for what they do.  In addition, they are all very busy people.  Serving on the Board is a considerable sacrifice for them.

Time Management for Board Matters 

For that reason, it is essential to be very conscious of the time constraints Board members have.  Meetings should start right on time, and end on time.  Members should receive, two to five days before the meeting, a packet containing the minutes of the last meeting and the agenda for the upcoming meeting, plus any relevant paperwork.  Members should also receive a staff phone call one or two days before the meeting reminding them of it. 

It will be easier to have good attendance at Board meetings, and even to recruit Board members, if all regular meetings are lunch meetings.  Busy people are reluctant to lose most of a morning or an afternoon because of a Board meeting.  But everyone needs to eat.  If a light lunch, usually of finger foods like sandwiches, is served, members can combine their lunchtime with the Board meeting.  That makes them more likely to attend. 

If a potential Board recruit is concerned about not having time to serve on the Board, it can sometimes make all the difference to mention that all Board meetings are lunch meetings.

Likewise, committee meetings will be better attended if they are breakfast or lunch meetings at a restaurant.

It will also be easier to have good attendance at monthly Board meetings if they are held strictly to the time announced—usually an hour and a half maximum.

Preparations for Board Meetings

Keeping the meetings that brief takes work and planning beforehand.  Getting the needed paperwork to Board members, in addition to copies of the agenda and minutes of the previous meeting, a few days before the meeting, will help.   

Even though all paperwork has already been sent in advance, additional copies should also be available at the meeting for any members who did not bring their copies, so that the others will not be held back by their not having the paperwork before them.

The Chair, aided by the ED, should then drive the agenda, not allowing too much time to be spent on any one item or on trivialities.  The ED, when making the agenda, should schedule the most important items close to the first, not at the last when time will be running out.  If meetings are allowed to run over time, some Board members may not keep coming.  Attendance is improved by punctuality in starting and ending on time.

It is good to have an understanding that it is better for a Board member to arrive late or leave early, when necessary, than not to attend at all.  This will also improve attendance at meetings.

Surprising a Board is never a good idea.  A Board cannot function well in oversight and counsel if it does not have all the facts, and have them early.  When any issue needs urgent attention, it is best not to wait for the next Board meeting to bring it up for the first time.  Rather, the ED should make phone calls briefing members so that they have time to think it over before the meeting.  A good rule is never to expect a Board to take action on any issue the first time they hear about it.  It usually will not happen.

Keeping Valuable Board Members

Board members are usually expected to do for free (or “pro bono”) for the charity the things they charge other people for.  Some exceptions should be made to this in certain cases.  That is especially true for the attorneys and CPA’s.

When a charity is lucky enough to get an attorney and a CPA on their Board, they are likely to be younger, more junior members of their firms.  That means that if they spend much time on their free work for the charity, they will hear complaints about it from the senior partners of their firms.  That is because they are expected to bring in a certain amount of business for their firm.  They cannot do that as well if they are spending time on the work of the charity.  (If they try to do their charity work on their own time instead, then they will come under pressure to quit from their neglected families.)   

It is very important not to lose attorneys and CPA’s from the Board, as they are very hard to find in the first place, and even harder to replace.  Therefore, it is often advisable for the charity to pay them a reasonable amount for at least some of the work they do.  That will protect them from complaints by the heads of their firms.  For instance, if the firm of the CPA has a payroll service, that is the one the charity should use.  (The charity needs one anyhow, to make sure that all payroll deductions and tax payments are sent in on time, which avoids expensive penalties and problems with the IRS.)

Committees of the Board

When a Board gets larger than six to ten members, it helps to divide some of the work of the Board into committees.  For smaller Boards, only an executive committee is needed.  As the Board and the charity get larger, other committees should be added, usually one at a time, to expedite the business of the Board.

Usually, Board committees meet only as needed, not on a regular basis.  They usually are not authorized to act for the Board.  They study the issue, make recommendations on it to the Board, and the Board acts on their recommendations.

As the CEO of the charity, the ED should be an ad hoc member of all committees.  That is, the ED should be invited to all committee meetings (as early as all the others are invited), even though without a vote, and be allowed to speak and advise.

Executive Committee

The purpose of the Executive Committee is to act on behalf of the Board when emergencies requiring prompt attention arise between regularly scheduled Board meetings.

Even when it does act, its action is still subject to approval by the Board at the next meeting.

The Executive Committee usually consists of the Chair, Vice Chair, Treasurer and Secretary of the Board.

Personnel Committee

A Personnel Committee, when the organization is large enough, can be a great help to the ED.  The ED is responsible for the hiring and firing of all other employees.  Both hiring and firing are crucial to the success of the charity, and both are loaded with problems.

Hiring the right people is very difficult.  Firing people is a minefield.  A wise ED will call on the Personnel Committee’s wisdom and assistance.  They can help interview applicants and make their recommendations to the ED.  They also can give invaluable counsel during the tense and painful times when a firing is being considered. 

The Personnel Committee can also serve as the group to whom employees can appeal when they feel unfairly treated by the ED.  That is an important safety valve for staff.  It also keeps the entire Board from having to be involved.  And although an ED may be uneasy about staff complaints to the Personnel Committee, they will usually be very careful and very fair.

Other Committees of the Board

Depending on the size of the charity and of the Board, other standing committees may be named.  Some typical ones are: Finance Committees, assisting in financial oversight; Audit Committees, to receive and evaluate the annual audit; and Fund-raising Committees, to assist in raising money. 

Other committees may come and go, depending on the task at hand.  A Search Committee is usually formed to find a new ED.  (The Personnel Committee is not suitable for that.  It does other kinds of things, and with employees lower than that level.)  A Building Committee may be formed to oversee new construction.  These committees specialize and go into depth, so that the entire Board does not have to deal with every detail of every issue.

2.The Executive Director (ED)

The Executive Director is the key person in the organization.  It is not exaggerating to say that the ED is the heart and soul of the organization.  A good ED will make the organization work, no matter what it takes.  A poor or unwise or lazy or uncommitted ED will make an organization weak, or even ruin it and bring it down.

Once a Board realizes that an ED is not doing well and that things are steadily going downhill, action should be taken promptly to replace that ED.  Waiting too long can cause the organization to go down so far that it cannot come back up.

On the other hand, the Board should understand when it has a good ED, and give that ED their full backing and support.  When that ED has problems or makes mistakes, but is still clearly a good and successful ED, the Board should still support that ED.  (Except, that is, when a problem or mistake is so bad that the ED or organization would be too compromised if that ED continued in office.)

A good ED is very hard to find, and very hard to replace.  Care should be taken of a good ED.  That ED should be encouraged not to overwork, so that the ED does not burn out or neglect the ED’s family.  The ED should be paid as well as the charity can manage, in line with usual rates of pay for a charity of that size.

The ED should be heard by the Board with respect, and treated with deference.  It is not a wise Board that mistreats a good ED.  In fact, that seldom happens.  If any Board member should mistreat the ED, however, the officers of the Board should take it upon themselves to correct that situation promptly.

Until the charity is large enough to hire a professional fund-raiser, the ED is responsible for raising the funds necessary to carry on the work of the charity.  Up to half of the ED’s time will be needed for fund raising.  Even after professional fund-raisers are hired, the ED will still have to spend a considerable amount of time in fund raising.  Unfortunately, a charity cannot run without charitable giving.  Even though an ED has many pressing duties and situations to deal with, if fund raising is neglected, soon the ED will have no work to do at all!

The ED will also need to spend considerable time in recruiting volunteers.

3.  The Staff   

The staff of a charity is typically underpaid and overworked.  They should not be under-appreciated as well!   

The staff should be given good initial training and additional training from time to time.  Work habits, character and a motivation to help the poor, should be considered over job skills when hiring.  Then the charity can pay for new staff to be trained, for instance in computer courses, if needed.

Care should be taken to comply with all the labor laws concerning pay, hours worked and working conditions.

Regular staff meetings should be held.  Staff evaluations should be done on a regular schedule.  Annual raises should be given according to a schedule established by the Board, in order to encourage experienced staff to stay.  In addition, performance raises and promotions should be given as the ED sees fit.  Especial care should be taken not to lose key staff people.

Since staff is not well paid compared to private business, or even to many other charities that are not focused on the poor, it is important to provide them and their families with good health care insurance.  If the charity cannot pay the entire premium, at least they can pay a significant part of it.

The Newsletter

A newsletter is essential for a charity.  It is a prime fundraising tool.  It is also important to keep donors, volunteers and friends of the charity informed as to what the charity is doing.  Donors have a right to know how the charity is using their funds, and how well it is performing.  The newsletter does all that, and motivates donors and volunteers to continue their support. 

It is important for other reasons.  It can help attract new donors and volunteers.   When it is time to apply for the IRS tax exemption, that is, the 501(c)(3), the IRS often will request copies of back newsletters.  When a grant is applied for, copies of newsletters usually often requested.

The newsletter should always contain an envelope addressed to the charity, for the convenience of those who want to give donations, but who may forget if an envelope is not handy right then.  Giving always goes up right after a newsletter is mailed, providing an envelope is enclosed.

The Basic Documents of the Charity                        

These are such things as the Articles of Incorporation, the By-Laws, the 501(c)(3), any deeds or mortgages, and any legal agreements, such as the agreement letter signed when a large grant is awarded.

While copies may be obtained if any of these documents are lost, it can take a great deal of time and cause delays in very important matters.  Therefore, originals of such documents should always be kept somewhere away from the offices of the charity.  A safe deposit box in a bank is ideal.  Then if there is a fire or other disaster in the office, the basic documents that are the legal foundation of the charity are not lost.

In addition, copies should always be retained in the offices of the charity.  They will be required for many grant applications, for instance.  So copies should always be easily and quickly available in the files.

All the above description of the basic structure of a charity that helps the poor may seem very rudimentary to well-established, older charities, or to charities with other purposes.  But for many small charities, for charities that have done good work without much in the way of structure, for churches that may be considering starting a charity through which to help the poor, what has been described can be a helpful blueprint as they try to build a successful, lasting charity.

There are even large, older charities that still lack the kind of structure and safeguards described above.  They also can benefit from studying these.

The next chapter will offer some suggestions to guide those who wish to start a brand new charity to help the poor.