Month: June 2010

Can a nonprofit purchase a for-profit company and operate it as a social enterprise?

This question came up in a recent discussion on the npEnterprise Forum. Incidentally, npE is the official listserv partner of the Social Enterprise Alliance, and, with 7000+ global subscribers, has become the global commons for the social enterprise movement. Subscriptions are free and open to all. I’m one of the moderators.

OK, back to the above question. A lawyer (Arthur Rieman) replied: “In general, an exempt org that wants to engage in a transaction such as [this] can do so provided the transaction is properly structured and documented, on the one hand, and all of the relevant IRS and Attorney General (especially here in California) regulations are heeded. Depending on the actual facts of the situation, your legal counsel should be able to guide you and the organization’s Board of Directors through the processes necessary to make the transaction sufficiently transparent and in compliance with the relevant laws and rules should a regulator come knocking at your door.”

A foundation officer (Ken Ristine) replied (edited for length): “[This topic] demands particular attention to detail regarding how you structure such a deal. The question is, do you want to expose the nonprofit to the legal consequences of [potential product or practice] liability? Are your nonprofit board members willing to accept such a risk? In both cases the answer is probably No.

“One idea then is to structure the for-profit in such a way, say as a wholly-owned subsidiary, that it has its own formal corporate structure. That structure, including a separate board, creates a barrier between the for-profit and the nonprofit regarding issues such as operations, taxation, and liability. But, if the enterprise generates profit, all or part of the profit can flow to the nonprofit.

“This example is only a small look at what you have to deal with. You really need to get together with an attorney and accountant who understand these issues to hash out the details. You may need both someone with small business experience as well as another person who really knows the nonprofit law around structuring related organizations.”

So there you have it. Yes, your nonprofit (probably) can do it, but be sure to get good legal and accountant advice first.

Here’s a useful IRS web site on this: http://www.irs.gov/charities/article/0,,id=96104,00.html

Copyright © 2010 Rolfe Larson Associates – Fifteenth Anniversary, 1995 – 2010
Author of Venture Forth! Endorsed by the late Paul Newman of Newman’s Own
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Succession planning is one of the most important topics in nonprofit capacity building. That wasn’t the case even 10 years ago. Today, there’s more people moving from job to job, and a large number of baby boomers retiring. Effectively filling those open positions is critical to the success of the organization.

Unfortunately, succession planning is still done quite poorly — primarily because it’s too often seen as a matter of replacing a person, rather than organizational performance management. Those two perspectives produce very different ways to do succession planning.

(Unfortunately, performance management is too often viewed only as employee performance management, and not as organizational performance management — but that’s another blog post.)

Succession planning is a management function,
not a staffing crisis.

Establish Board-approved, up-to-date personnel policies

They should include guidelines and procedures about, e.g., staffing analysis, hiring, orienting, training and organizing employees; performance management; and compensation and benefits. Those policies not only ensure fair and equitable treatment of employees — they can minimize chances that you’d lose a lawsuit with an employee.

Here’s more about personnel policies.

Conduct relevant and realistic strategic and departmental planning

The planning clarifies the most appropriate priorities for the position to address. A position, or job role, is really a means to get something done in the organization — it’s means to achieve an overall goal or address an overall priority. Why fill a position that was not designed well in the first place? Only through useful planning will the organization know if the position is designed well.

Here’s more about strategic planning.

Conduct staffing analysis to identify most appropriate roles

Too often, job roles are developed in response to recurring crises in the workplace, to an increasing amount of work that is not getting done. Instead, roles should be identified near the end of strategic planning when clarifying what expertise is needed to achieve goals. The analysis should produce up-to-date, relevant job descriptions. (There are many who assert that job descriptions are no longer a useful management tool — that’s another blog post.)

Here’s more information about staffing analysis.

Use suitable practices of employee performance management

These practices should be done regardless of whether the employee is leaving or not. They include:

• Establishing performance goals in reference to the employee’s job description and priorities for the year
• Techniques for effective delegation, not just work direction
• Getting up-to-date descriptions from the employee about his priorities, issues, plans, etc.
• Sharing useful feedback to continue to enhance the employee’s performance
• Addressing performance issues when they occur (they might require training, providing more resources, getting more from the employee or firing the employee)

Here’s more about employee performance management.

Making sure all employees go on vacation

That forces the organization to learn about — and be able to do — the jobs when the employees are gone. A supervisor might not really know what his employees are actually doing to get the job done. Ironically, the better the supervisor is at delegating, the less the supervisor might know about the details of his employee’s job.

Succession planning is about developing and implementing a system, a practice of activities on a recurring basis. Then, when an employee leaves, the system almost naturally refills the position with the most suitable candidate.

Here’s more resources about succession planning.

What do you think?

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For more resources, see our Library topic Nonprofit Capacity Building.

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.