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IRS Clarifies Excise Tax Rules on Nonprofit Executive Compensation Under IRC Section 4960

On January 19, 2021, the IRS released final regulations for IRC section 4960, which was added to the Code as part the 2017 Tax Cuts and Jobs Act (TJCA).

Section 4960 provides that, an “applicable tax-exempt organization” (ATEO) paying a “covered employee” compensation in excess of $1 million (or any excess parachute payment in an applicable year) is subject to a 21% excise tax. 

Further, these final regulations largely follow proposed regulations issued in June 2020 and apply to tax years beginning after December 31, 2021.

Take note of IRS clarifications and modifications between the proposed and final regulations. Understanding these rules can help you assess their impact on your organization and start proactive compensation and tax planning to help reduce tax exposure.

What is an ATEO?

An ATEO includes:

  • Organizations exempt under Section 501(a)
  • Farmers’ cooperatives under Section 521(b)(1)
  • Section 115 organizations
  • Political organizations described in Section 527(e)(1)

However, the final regulations do not address the application of Section 4960 to federal instrumentalities, such as federal credit unions, which are exempt from all current and future federal taxes under existing legislation. 

Until there is further guidance from the IRS, the preamble to the final regulations allow the federal instrumentality to treat itself as not subject to the Section 4960 excise tax either as an ATEO or related organization. However, if the federal instrumentality is a related organization of an ATEO, the compensation it pays must be taken into account by the applicable ATEO.

Applicable year defined

The final regulations define the applicable year of an ATEO as the calendar year ending with or within an ATEO’s taxable year in which compensation was paid. Further, the final regulations provide rules addressing applicable years as well as rules addressing related organizations with different taxable years.

Employee defined

The final regulations define an employee for purposes of Section 4960 to be consistent with the definition of employee for federal income tax withholding purposes, which includes common-law employees and officers as well as certain corporate officers. 

What is the definition of a covered employee?

The Section 4960 excise tax will only apply to amounts paid to a “covered employee” of an ATEO, related ATEO, and related non-ATEOs (including taxable entities, nonprofit entities that are not ATEOS, and governmental entities that are not ATEOs). 

Under Section 4960, a covered employee is any employee (or former employee) of an ATEO (or any predecessor) who is or was one of the five highest compensated employees for any preceding taxable year beginning after December 31, 2016. For purposes of determining the five highest-compensated employees, each ATEO must consider remuneration paid by related organizations.

A “related organization” of an ATEO is defined as a person or governmental entity that:

  • Controls, or is controlled by, the ATEO
  • Is controlled by one or more persons who control the ATEO
  • Is a supported organization or a Section 509(a)(3) supporting organization

While Section 4960 does not define control for purposes of identifying a related organization, the final regulations adopted the definition of “control” as set forth in Section 512(b)(13)(D), which is the “greater than 50% control” threshold used in Form 990 reporting. 

The final regulations clarify the determination of a covered employee. An ATEO may disregard individuals for purposes of determining an ATEO’s five highest employees under the following two exceptions.

Limited hours exception

Under this “safe harbor,” an employee — who is not paid by an ATEO and performs less than 100 hours of service as an employee of an ATEO — is treated as having worked less than 10% of the employee’s total hours for the ATEO and will not classify as a covered employee. 

This safe harbor applies to officers of an ATEO who devote minimal time in their roles but receive compensation greater than $1 million from a related for-profit organization.

Non-exempt funds exception

Under this exception, an employee who performs more significant services for an ATEO but is paid by a related for-profit entity will not be classified as a covered employee and will not be subject to the excise tax if the following conditions are met:

  • The employee must be compensated solely by the related for-profit entity in both the current taxable year and the preceding taxable year using assets that are not tax-exempt (the for-profit entity must not be controlled by the ATEO)
  • The employee’s time devoted to the related for-profit entity must exceed 50% of the total hours worked for the ATEO or a related ATEO over the two-year period
  • No related organization may have provided services for a fee to the ATEO
What is a parachute payment?

A parachute payment is any payment in nature of compensation that is contingent on a covered employee’s separation from employment. If the aggregate present value of the parachute payments exceeds three times the covered employee’s “base amount” (generally, average annual compensation over the five most recent taxable years) then there is a “excess parachute payment” subject to the excise tax. 

However, any payment made to an individual who is not a highly compensated employee, as defined in IRC Section 414(q), is not subject to the excise tax.

What is considered compensation?

The final regulations, like the proposed regulations, define compensation within the meaning of Section 3401(a), which equates to Form W-2 Box 1 wages with some modifications. 

In addition, the IRS has provided the following clarifications:

  • Compensation for Section 4960 purposes does not include amounts that are not includible in gross income under the Section 7872(c)(3) $10,000 de minimis exception related to foregone interest attributable to loans.
  • Compensation paid to licensed medical professionals (including veterinarians) for medical services — which includes administrative tasks such as medical recordkeeping — is not compensation for Section 4960 purposes. 
  • Compensation paid to licensed medical professionals for teaching and research will be considered compensation for Section 4960 unless it meets a regulatory exception.
  • ATEOs may use a good faith and reasonable allocation between compensation for providing medical services and non-medical services.
  • ATEOs may use a good faith and reasonable process in making allocations for purposes of any deferred compensation arrangements.
  • For compensation other than wages, the amount of compensation treated as paid by the employer is generally the recent value of such compensation that vested during an applicable year.
  • For compensation scheduled to be actually or constructively paid within 90 days of vesting, the employer may use the future amount to be paid, rather than computing the present value at vesting.
  • Taxable fringe benefits, such as employer-provided parking in excess of the value excluded under Section 132, are considered compensation for purposes of Section 4960.

For more information on federal tax regulations, contact Frank Giardini at frank.giardini@CLAconnect.com or 215-371-3271.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CLA) to the reader. For more information, visit CLAconnect.com.

Unplanned Exit: Death of the CSE

Loss of the Key Connector
The CSE plays a central, connecting role in key relationships within the association. These relationships cover every aspect of the association’s life, from sponsors to strategic allies, and vendors to legislative and regulatory officials. The death of this central connector will upset those who knew the CSE and disrupt the organization.

The staff will be immediately and perhaps profoundly impacted. The CSE often plays the role of mentor, advisor, and friend to members of staff. Some will be deeply troubled. The same will be true of board members and other volunteers, especially past board chairs, as well as members. How the association responds to the death of its CSE will be long remembered.

While many constituents will be affected, immediate attention should be focused on the CSE’s family and the association staff.

The Family

The family will be devastated, so the board chair should reach out as soon as appropriate to the CSE’s spouse or partner. Former board chairs and other association leaders may likewise want to make contact. However, it is important to keep in perspective that the family has lost a loved one, a spouse or partner, a parent. The CSE’s job was just part of the family’s relationship with their deceased loved one. Most family members, even immediate next of kin, will have only passing awareness of the association. 

The family’s wishes should be observed in all aspects. If possible, identify a family member to serve as liaison to coordinate with someone designated by the association. This will be important later as the association fulfills any obligations relating to the CSE’s compensation, insurance, retirement, etc. But association leaders must remember that the family’s primary concerns will not include the association.

The Staff

Caring for the staff is one of the principal concerns following the death of a CSE. Staff will likely learn about the death in different ways and at different times, depending on the circumstances. It will be hard regardless of when or how the news is learned. In any case, a thoughtfully and compassionately managed staff meeting should be held as soon as practical. The agenda might include the following:

  • Acknowledge the shock and trauma of the death and impact on the staff.
  • Provide the opportunity for a moment of silence, prayers, reflection, etc.
  • Share whatever is known for sure about the cause or circumstances, but do so in a thoughtful, dignified manner and respect confidentiality.
  • Provide the opportunity for employees to share their feelings and ensure that they feel supported as they discuss and process the news.
  • Describe any support systems or benefits that the association will provide to employees such as grief counseling (if any).  
  • Outline the association’s response and communication plan.
  • Summarize what is known about funeral and other plans and how staff can extend their sympathy to the CSE’s family.
  • Briefly describe how the staff will operate until an interim CSE is appointed or provide information on how and when they will hear more information.
  • Explain that they will be kept informed as more information about the funeral or memorial arrangements, etc., are finalized.
  • Assure them they will be kept informed throughout the search and transition process.
When the CSE Dies: A What-To-Do-Next Checklist 

Though a checklist may seem clinical and cold in this situation, this tool can be helpful during times of crisis. The contents should include the following: 

  • Offer to assist the CSE’s family in any way possible.
  • Meet with staff to discuss the death, help them cope, and describe next steps.
  • Implement a communication plan to ensure sensitive and timely notification to key association audiences, including
    • Former chairs and board members;
    • Former staff;
    • Chapter, section, and other component leaders;
    • Key strategic allies, sponsors, and other key constituencies;
    • Industry and related media;
    • Legislators and regulators;
    • Members.
  • Establish a firm but flexible plan for next steps to be taken by the board.
  • Identify a spokesperson to whom all public inquiries can be referred, especially media. CEO’s networks are very broad, and although the board and staff may try to notify everyone appropriately, they should be prepared to speak with off-the-radar contacts who may step forward when they hear the news. Part of that responsibility should include consulting with the family regarding preferred responses to questions about cause of death and requests for private information such as mailing addresses or family emails, funeral arrangements, and ways to pay tribute to the deceased leader.   
  • Send flowers to the funeral home or house of worship, unless otherwise requested by the next of kin. Consider sending two arrangements—one from staff, the other from the board. 
  • Consider
    • donating to the CSE’s favorite charity, house of worship, or academic institution
    • naming a conference room, program, or award in the CSE’s honor or creating a scholarship or other appropriate legacy within the association’s foundation or at an appropriate academic institution.
  • Include an obituary and tribute in the association’s publication and at the group’s annual convention.
  • Review the CSE’s contract to determine the timing and details regarding the association’s obligations concerning salary and other payments, insurance claims, resolution of deferred and other retirement compensation, etc.
  • Address administrative matters such as forwarding the CSE’s phone and/or changing the voicemail greeting. Include an auto-reply message in the CSE’s email as well.

The shock of a CSE’s death may result in odd or unexpected staff behavior. As Allison Foster, CAE, reported in an article concerning the death of her CSE, “Several staff members began performing poorly and lashed out at the association in public ways.” This reaction was surprising, given that the association had worked hard to support staff, even providing grief counseling. While understanding that this reaction was likely caused by grief, “the degree of hostility was unacceptable.” The association offered “a one-time buy-out to any staff member who felt the need to leave.”

This is an excerpt from The Association CEO Succession Toolkit: A Preparation Guide for Leadership Transitions by Gary LaBranch, CAE

The Right Work in the Right Way: 10 Tips for Individual Board Members

Your chief staff officer and chief elected officer bear primary responsibility—as your association’s “chief board development officers”—to help your board do the right work in the right way. But don’t underestimate how much you can enhance or impede your board’s effectiveness. Now that you have a better understanding of how even a good board can always be better, consider these 10 ways in which you can help make your board great.

  1. Use your association’s mission statement as a guidepost, and place the interests of the association first in any decisions your board makes. 
  2. Learn your association’s key financial drivers and ask the right questions. For example, instead of focusing on a small line item in the budget submitted to the board for approval, ask how your association’s financial plan is aligned with its strategic plan or whether key sources of revenue or expenses are rising or falling. 
  3. Let your chief elected officer and chief staff officer know what you most need to learn about your association, trends in the profession and industry you serve, or your fiduciary obligations and best practices to fulfill your governance responsibilities. 
  4. Contribute to your board’s culture of candor and inquiry by “athletically listening” (rather than listening to react) to the diverse views of your colleagues; challenging assumptions you might question in a civil, respectful way; and resolving differences inside rather than outside the boardroom. 
  5. Help your board devote as much time as possible to the issues with the greatest impact on your association’s success and vitality. To address those issues, request board meeting materials that will help the board provide insight and foresight, as well as oversight and hindsight. 
  6. Respect your association’s reporting lines and communication channels. Don’t supervise, micromanage, or befriend individual staff members, all of whom report either directly or indirectly to the chief staff officer. 
  7. Focus your time on the responsibilities assigned to the collective board and its individual members, rather than getting enmeshed in the tactics and implementation assigned to staff members or other groups. 
  8. Participate in the self-improvement process your board uses to assess its performance each year. Periodically ask yourself how well you think you contribute to the board’s work and what you can do or might need to be as effective as possible.
  9. Help with board succession planning by identifying association members who are good candidates for the pipeline of potential volunteer leaders. 
  10. Encourage your fellow board members to help the board make data-driven decisions based on information rather than opinions.

This is an excerpt from The Governing Board: Key Responsibilities for Association Boards and Board Members by Nancy R. Axelrod.

Nine Myths About Board Meeting Procedure Worth Debunking

Board of directors

As an attorney and professional parliamentarian, I’m sometimes asked, “Who was Robert, and why do his rules rule?” Henry Martyn Robert was the original author of Robert’s Rules of Order.

Most organizations with a parliamentary authority use Robert’s. To the public, Robert’s Rules and parliamentary procedure are one and the same. However, a lot of what is “known” about procedure—especially board meetings—is wrong. Mark Twain warned, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Below are nine myths about board meeting procedure that associations should put to rest.

Myth 1: Parliamentary Procedure Doesn’t Matter

Many associations dictate in their bylaws or other governing documents that a parliamentary book will be followed when transacting business. Some states even have statutes that require certain organizations (e.g., HOAs, condos, nonprofits) to follow rules or Robert’s. Ignoring or incorrectly applying such procedures can lead to embarrassment and even lawsuits.

Myth 2: Any Robert’s Will Do

While there are many books with Robert’s Rules in the title, most are earlier editions or knockoffs. There is one official Robert’s that is the successor to earlier works. Each new edition brings changes to procedure. The current edition is Robert’s Rules of Order Newly Revised, 12th Edition. If your organization’s rules specify the “latest edition,” this is the book you need to use.

Myth 3: Boards Follow the Same Rules as Other Meetings

Rules aren’t one-size-fits-all. Problems are common when large meetings behave too informally, or small meetings behave too formally. Rules should be like clothes—they should fit the organization they are meant to serve.

Most parliamentary manuals provide that board and membership meetings are conducted differently. Large meetings must be fairly formal. However, formality can hinder business in smaller bodies. Robert’srecommends less formal rules for boards where there are not more than about a dozen members present, including:

  • Members may raise a hand instead of standing to obtain the floor.
  • Members may remain seated while speaking or making motions.
  • Motions need no second.
  • Discussion of a subject is permitted while no motion is pending.
  • When a proposal is clear, a vote can be taken without a formal motion.
  • There is no limit to the number of times a member may speak to a subject or motion.
  • Occasions where debate must be limited or stopped should be rarer than in larger meetings.
  • The chair is typically a full participant and can debate and vote on all questions.
  • Votes are often taken by a show of hands.

Smaller boards that dislike informality may follow more formal procedures. Informal boards may also choose to be more formal on important or controversial matters.

Myth 4: Seconds Always Matter

In a larger or more formal body, a second to a motion implies that at least two members want to discuss it. If there is no second, there should be no further action on the proposal. However, after any debate, the lack of a second is irrelevant. For less formal smaller bodies, seconds aren’t required.

Myth 5: Debate and a Formal Vote Are Required

Many noncontroversial matters can be resolved without debate through “general” or “unanimous” consent. Using this method, the presiding officer asks, “Is there any objection to …?” For example, “Is there any objection to ending debate?” If no one objects, debate is closed. If a member objects, the matter is resolved with a motion and vote. Unanimous consent allows an assembly to move quickly through non-contested issues.

Myth 6: The Maker of a Motion Gets to Speak First and Last

The maker of a motion has the right to speak first to a proposal. After speaking, the maker has no more rights to speak than other members.

Myth 7: “Old business”

“Old business” is not a parliamentary term and suggests a revisiting of any old thing ever discussed. The correct term, “unfinished business” makes clear the term refers to specific items carried over from the previous meeting. A presiding officer never needs to ask, “Is there any unfinished business?” Rather, the officer should simply state the question on the first item.

Myth 8: Yelling “Question!” Stops Debate

The previous question (or motion to close debate) is often handled wrong. Shouting “Question!” is not only bad form, but it’s also ineffective. A member wanting to close debate must be recognized by the chair. The previous question requires a second and a two-thirds vote. Only the assembly decides when to end debate.

Myth 9: The Chair Rules the Meeting

The chair is the servant of the assembly, not its master. If the assembly rules are being violated, any member can raise a “point of order.” Once the chair rules on the point of order, a member can appeal from the decision of the chair. If seconded, the appeal takes the parliamentary question away from the chair and gives it to the assembly. The assembly is the ultimate decider of all procedural issues.

The benefits of a well-run board meeting go beyond legal concerns. Proper procedure can turn long, confrontational meetings into short, painless ones. Eliminating these myths will bring your meetings more in line with proper procedure and result in shorter, more effective meetings. 

20 Questions Board Members Should Ask to Assess Financial Health

Financial Planning

1. Is our financial plan consistent with our strategic plan?

Sufficient Available Cash

2. Is our cash flow projected to be adequate?
3. Are our cash-flow projections reasonable, objective, and not overly optimistic?

Satisfactory Reserves

4. Do we have sufficient reserves?
5. Has the board adopted a formal policy for the establishment of reserves?

Meeting the Budget

6. Are we regularly comparing our financial activity with what we have budgeted?
7. What procedures do we use to make sure that the differences between what was budgeted and what actually happened are being appropriately addressed?

Propriety of Expenditures

8. Does the board provide oversight of contractual agreements to ensure that the organization’s exempt status will not be questioned or impaired?

9. Does the board provide for internal controls over expenditures?
10. Does the organization maintain adequate business insurance?

Internal Controls

11. Do we have the appropriate checks and balances necessary to prevent errors, fraud, and abuse?
12. Are we alert to the possibility of fraud within our organization and are we taking safeguards to try to prevent fraudulent activities?

External Audits

13. Do we have an external audit?
14. Does our annual audit have an unqualified (“clean”) opinion?

Financial Documents

15. Is our financial staff providing us with accurate and timely financial statements that allow us to understand the financial state of the organization?
16. Do we regularly review IRS Form 990? Does it accurately represent our organization?

Signs of Financial Distress

17. Are our key sources of revenue rising or falling? If they are falling, what are we doing about it?
18. Are our key expenses, especially salaries and benefits, under control?

Making Investments

19. When was the last time our investment policy was reviewed?
20. Are we satisfied with the performance of our investments, given the level of risk appropriate for these funds?

Give Your Governing Documents a Checkup

Your association’s articles of incorporation and bylaws are the most important documents prescribing how the organization is to be organized and operated. The articles document is essentially a contract with the state where your organization is incorporated (which may differ from where your offices are located) and takes precedence over every other governing document. The bylaws expand upon and must be consistent with the articles and often serve as an agreement between your association and its members.

Your governing documents must accurately reflect not only the law, but also the association’s actual operations, to avoid misunderstandings and to ensure that the organization is not bound to an unintended requirement. 

It’s wise to periodically conduct a quick check-up of your governing documents. Focus on these areas:

  1. Organizational purposes. Are purposes specified in the bylaws, and if so, are they consistent with the articles? An association may change its purposes and reflect the change in the bylaws, but forget to amend its articles with the state. If you specify in the bylaws that the organization’s “purposes are as stated in the articles of incorporation,” then amendments can be made just in the document that controls. 
  2. Membership voting rights. Do your articles and bylaws, in conjunction with state law, provide that your association has members with voting rights? If so, are the specific rights spelled out? For example, do members vote only to nominate or elect directors, or to approve major corporate transactions, or to amend the bylaws? And do these statements match the association’s intent? 
  3. Board action procedures. Most states require that a board take action only at a meeting where a quorum is present or by unanimous written consent. Most do not permit proxy voting but do allow directors to participate in meetings via teleconference. Ensure that your bylaws reflect the requirements of your state’s nonprofit corporation law (as opposed to the for-profit or general corporations code) and are followed.
  4. Committee designations. Most state laws require that board committees—those groups that may exercise board authority—be composed exclusively of board members and be appointed by the board. Other committees and working groups may be formed through other channels and may include non-board members, but they may only make recommendations to the board for action. Check that your committee designations comply with state law and that your bylaws and committee documents are clear about what committees may exercise board authority and under what circumstances.

Governance Terms

A

Advisory Board: Unlike traditional boards of directors, advisory boards do not have formal governance responsibilities or legal duties. Instead, they provide advice and expertise to the executive team.

Affiliate:  an organization that is related to another organization, typically through ownership, control, or shared interests. 

Annual Meeting: A mandatory yearly gathering of a company’s interested shareholders, during which the directors present an annual report.

Articles of Incorporation: a formal document filed with the state government to legally document the creation and recognition of a corporation by the state;  also known as  “Charter”, or “Certificate of incorporation”

Audit Committee: A committee of the board of directors responsible for overseeing financial reporting, the audit process, and internal controls.

Authority Matrix:  A tool used within organizations to define and document the levels of authority and decision-making powers assigned to various positions or roles; also known as a “Delegation of Authority Matrix” or “Responsibility Assignment Matrix”.

Authorized Shares: The number and types (classes) of shares the corporation is authorized to issue

B

Ballot Vote: A method of voting used in corporate board meetings where members write their vote on a slip of paper.

Board of Directors: A group of individuals elected to represent shareholders and oversee the management and operation of a company.

Board Resolutions: Formal decisions made by the board of directors to approve significant actions and policies, such as budget approvals, major contracts, and policy changes. They must be consistent with the bylaws and articles of incorporation.

Board Self-Assessment: A systematic process by which an organization’s board of directors evaluates its own performance, effectiveness, and governance practices.

Bylaws: The rules and regulations enacted by an organization to provide a framework for its operations and management.

C

Certificate of Formation: a formal document filed with a government body (a state in the US) to legally document the creation and recognition of a limited liability company by that government body.

Chairman: The head of the board of directors, responsible for leading board meetings and ensuring effective governance.

Chief Staff Executive: The highest-ranking executive in a company, responsible for overall management and performance. The CEO reports to the board of directors and often serves as a link between the board and the company’s operations.

Clayton Act: A United States federal law that addresses specific practices such as mergers and acquisitions that could reduce competition.

Code of Conduct: A formal document that outlines the ethical standards, values, and principles expected of employees, directors, and officers within an organization.

Committees: Formal groups established by the board or management to focus on specific areas of the organization’s operations, governance, or strategic initiatives. Committees can be standing (permanent) or ad hoc (temporary).

Community Impact: Contributing positively to the communities in which the company operates, through initiatives like philanthropy, volunteering, and community development projects.

Competency-Based Board: A board of directors, whose members are selected and evaluated based on their individual competencies, skills, and experiences relevant to the organization’s needs and strategic objectives. This approach emphasizes the importance of having a diverse group of directors with a broad range of expertise to effectively oversee and guide the organization.

Compliance: Adherence to laws, regulations, guidelines, and specifications relevant to its business.

Conflict of Interest: A situation in which a person or organization could potentially benefit personally from their actions or decisions made in their official capacity.

Consent Agenda:  A procedural tool used by boards of directors, committees, or other governing bodies to streamline meeting processes and efficiently manage routine or non-controversial items of business

Contested Election: A situation in which there are multiple candidates competing for a single position or seat, within a governing body such as a board of directors, a legislative body, or a membership organization.  ALSO CALLED COMPETITIVE ELECTION

Corporate Secretary: An officer responsible for ensuring the integrity of the governance framework, being the company’s compliance officer, and managing the corporate record.

Corporate Social Responsibility (CSR): A company’s commitment to manage its social, environmental, and economic effects responsibly.

Cumulative Voting: A method of voting where have a certain number of votes that they can allocate to one or more candidates, providing a way to support preferred candidates more strongly.

D

Director at Large:  A member of an organization’s board of directors who does not have specific oversight of a particular department or functional area but instead provides broad oversight and general governance to the organization

Due Diligence: The investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract. 

Duty of Care: A fundamental principle in corporate governance and fiduciary duty that requires officers and directors to exercise ordinary and reasonable care in the performance of their duties, exhibiting honesty and good faith

Duty of Loyalty: A fundamental principle in corporate governance and fiduciary duty that requires officers and directors to prioritize the interests of the organization and its stakeholders above their own personal interests.

Duty of Obedience: A fundamental principle in corporate governance and fiduciary duty that requires officers and directors to ensure compliance with the laws, regulations, and governing documents that apply to the organization. 

E

Executive Committee: A small, permanent group of senior executives and board members who are delegated the authority to make significant decisions on behalf of the full board of directors or the organization.

Executive Leadership: Senior management responsible for executing the board’s strategic vision and managing day-to-day operations.

Executive Sessions: A private meeting within a board meeting, attended only by board members and other invited individuals, such as legal counsel or auditors.

F

Fiduciary Duty: The legal obligation of a board member to act in the best interest of the company and its shareholders.

Foreign Corporation: A business entity that is incorporated or registered in a jurisdiction (such as a state or country) outside of where it conducts its primary business operations.

G

Geographically Comprised Board: A board of directors, that are formed or organized based on geographical areas.

Governance: The system or framework of rules, relationships, practices, and processes by which a company is directed and controlled.

H

Hybrid Board:  A specific type of board structure that combines elements of both unitary and staggered boards, where some directors might be elected annually, while others have staggered terms.  

I

Independent Director: A board member who does not have a material or pecuniary relationship with the company or its related entities.

Industry Standards:  Established norms or requirements within a specific industry that are created 

K

Key Performance Indicators (KPIs): Measurable values that demonstrate how effectively an organization is achieving its key business objectives.

L

LLC (limited liability company): a type of business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Lobbying Disclosure Act (LDA):  a United States federal law enacted in 1995 to regulate lobbying activities and promote transparency in government relations with disclosure requirements, reporting their lobbying activities and expenditures.

M

Manual of Policies and Procedures: A document that expands on of the terms of formation and operation of the organization in accordance with the articles of incorporation and the bylaws. Nonprofit organizations and associations  a comprehensive document that outlines the policies, protocols, and standard operating procedures (SOPs) governing the operations and conduct within an organization. It is an expansion on articles of incorporation and the bylaws;  also known as the “P&P manual” or “P&P guide”

Mission: A concise description of the company’s core purpose and primary objectives. This explains why the company exists and what it aims to achieve in the long term.

Minutes: Official records of the decisions and discussions that take place during meetings of the Board or shareholders. Minutes document the actions and serve as a legal record of decisions made. They must accurately reflect the resolutions passed and discussions held, and they are often referenced for compliance and accountability.

Motion: A formal statement or proposal presented by a member of the board or a shareholder that asks the meeting to take a specific action or adopt a certain position; see “Parliamentary Procedure”.

N

Nominations Committee: A board committee that oversees the appointment of directors and succession planning for senior executives.

Non-Executive Director: A member of the board of directors who is not part of the company’s executive management team.

O

Operating Agreement: A key document used by limited liability companies (LLCs) to outline the business’s financial and functional decisions, including rules, regulations, and provisions. This agreement governs the internal operations of the business in a way that suits the specific needs of the owners (referred to as members). It is similar to a partnership agreement or corporate bylaws, but specifically for LLCs.

P

Parliamentary Procedure: A set of rules, ethics, and guidelines used to conduct meetings and make decisions in a systematic, fair, and orderly manner. 

Principal Office Address: The main office where the corporation’s headquarters is located and records are kept.

Plurality Voting:  A method for voting where the highest number of votes win, often used when multiple positions are open.

Procedures: Step-by-step instructions on how policies are implemented and followed. 

Proxy Voting: A mechanism allowing shareholders to vote on corporate matters without being physically present at the meeting.

Q

Quorum: The minimum number of members or directors who must be present at a meeting to legally conduct business and make decisions. Without a quorum, any decisions or votes made may be considered invalid.

R

Registered Agent and Office: The name and address of the corporation’s registered agent, who is authorized to receive legal documents on behalf of the corporation, and the location of the registered office.

Remuneration Committee: A board committee responsible for determining executive compensation and overseeing remuneration policies.

Representative board: A board of directors, whose members are selected of individuals who represent various stakeholders or interest groups associated with the organization.

Rising Vote: A method of voting used in corporate board meetings where members stand to indicate their vote, and the chair counts the votes;  used when a voice vote is unclear or when a count is needed.

Risk Management: The identification, assessment, and prioritization of risks followed by coordinated efforts to ensure the organization’s sustainability and resilience.

Roberts Rules of Order: A specific and widely recognized manual of parliamentary procedure, originally written by Henry Martyn Robert in 1876.

Role Call Vote: A method of voting used in corporate board meetings Each member’s name is called, and they state their vote aloud. This method provides a clear record of how each member voted and is used for important or controversial issues.

S

Sarbanes-Oxley Act (SOX):  A United States federal law passed in 2002 that aims to improve corporate governance, financial transparency, and accountability

Shareholders: The owners of shares in a company, normally having voting rights and a claim to a part of the company’s profits; also known as stockholders.

Sherman Act: A United States federal law that prohibits activities that restrain trade or competition in interstate commerce.

Slated Ballot: A voting method often used in elections  where a predefined list or “slate” of candidates is presented to voters for approval or rejection as a whole, rather than voting on each candidate individually.  A useful tool for a nominating committee to use to ensure that the board has the necessary mix of skills, experience, and diversity.

Staggered Board: A specific type of board structure where directors serve overlapping terms, with only a portion of the board being elected or re-elected in a given year; also known as a classified board. 

Stakeholders: All parties with an interest in a company, including employees, customers, suppliers, and the community, in addition to shareholders.

Stakeholder Engagement: The process of involving individuals, groups, or organizations that may be affected by or can affect a company’s decisions.

Statement of Purpose: a formal declaration that outlines the fundamental objectives, values, and principles guiding a corporation’s operations and decisions.

Strategic Objectives: High-level goals that the company aims to accomplish to fulfill its mission and vision. These objectives provide a roadmap for strategic planning and performance measurement

Strategic Planning: The process of defining the organization’s direction and allocating resources to pursue this strategy.

Subsidiary: An organization that is controlled by another an organization, referred to as the parent organization. 

Succession Planning: The process of identifying and developing new leaders who can replace old leaders when they leave or retire.

Sustainability:  The integration of environmental, social, and economic considerations into the decision-making processes and strategies of a company to ensure that the company operates in a manner that is responsible, ethical, and capable of sustaining long-term success while minimizing negative impacts on the environment and society.

Sustainability Committee: A dedicated committee at the board level to oversee sustainability initiatives and ensure they are integrated into the corporate strategy.

T

Task Force: A temporary group created to address specific issues, challenges, or projects within a limited timeframe. They are focused on achieving a particular objective and disband once the goal is met 

Transparency: Openness in the company’s operations and decisions, ensuring that stakeholders have access to accurate and timely information.

Treasurer: Corporate officer responsible for the operational aspects of financial management, such as cash flow, liquidity management, and financing activities.

U

Unitary board: A specific type of board structure where directors are elected at the same time, typically at the annual shareholders’ meeting.

V

Voice Vote: A method of voting used in corporate board meetings where members verbally express their votes. The chair then announces the result based on what they heard.  This is the simplest and most common method of voting in meetings

W

Whistleblower Policy: Procedures and protections for individuals who report unethical or illegal activities within an organization.

Y

Year-End Financial Reporting: A process of preparing and disclosing financial statements at the end of a company’s fiscal year.

Z

Zero-Based Budgeting (ZBB): A budgeting process in which all expenses must be justified for each new budgeting period, regardless of whether they were included in previous budgets.

When the CSE Dies: A What-To-Do-Next Checklist

  • Offer to assist the CSE’s family in any way possible.
  • Meet with staff to discuss the death, help them cope, and describe next steps.
  • Implement a communication plan to ensure sensitive and timely notification to key association audiences, including
    • Former chairs and board members;
    • Former staff;
    • Chapter, section, and other component leaders;
    • Key strategic allies, sponsors, and other key constituencies;
    • Industry and related media;
    • Legislators and regulators;
    • Members.
  • Identify a spokesperson to whom all public inquiries can be referred, especially media. A CSE’s networks are very broad, and although the board and staff may try to notify everyone appropriately, they should be prepared to speak with off-the-radar contacts who may step forward when they hear the news. Part of that responsibility should include consulting with the family regarding preferred responses to questions about cause of death and requests for private information such as mailing addresses or family emails, funeral arrangements, and ways to pay tribute to the deceased leader.
  • Send flowers to the funeral home or house of worship, unless otherwise requested by the next of kin. Consider sending two arrangements—one from staff, the other from the board.
  • Consider – donating to the CSE’s favorite charity, house of worship, or academic institution – naming a conference room, program, or award in the CSE’s honor or creating a scholarship or other appropriate legacy within the association’s foundation or at an appropriate academic institution.
  • Include an obituary and tribute in the association’s publication and at the group’s annual convention. 
  • Review the CSE’s contract to determine the timing and details regarding the association’s obligations concerning salary and other payments, insurance claims, resolution of deferred and other retirement compensation, etc.
  • Address administrative matters such as forwarding the CSE’s phone and/or changing the voicemail greeting. Include an auto-reply message in the CSE’s email as well. 

Moving Ahead

Following the initial shock, the association’s leaders must press ahead with the appointment of an interim CSE and a search for a new CSE.