Today, May Harris, your host, engages with Gene Takagi, the founding attorney of NEO Law Group and a prolific writer for the Nonprofit Law Blog. Gene brings nearly 20 years of experience to this conversation, having initially started on his journey to the nonprofit sector in STEM, traversing through various career paths, and ultimately finding his purpose in the realm of advising nonprofit organizations. Since beginning his own nonprofit focused practice in 2005, Gene has served the nonprofit community with expertise and an unparalleled passion for helping nonprofit leaders reach their full potential.

Many nonprofits assume that the same guidance regarding where to form that pertains to “for profit” businesses must apply to nonprofits as well, which often leads founders to ask about forming in the state of Delaware. However, May suggests that it may be the other way around. If a nonprofit is formed in California, a state with robust default rules and regulations that act as a solid foundation for nonprofits, they will be more effectively set up to weather future storms. These regulations aid as a guide during the formation of your organization, helping mitigate risks, plan for the future, and maintain public trust. In contrast to less robust states, where regulations are more lax, California's comprehensive approach sets a standard that both Gene and May find to be a "best practice" worth emulating.

With the growth of freely available information, primarily in the form of social media like Instagram and Tiktok, nonprofits face increasing scrutiny. When it’s simple for a potential whistleblower to post a video online, nonprofits can come under fire from the public even if the claims are false. Operational dynamics can make or break an organization in times of accusations, so the importance of maintaining impeccable records, adhering to bylaws, and consistently operating within the mission cannot be overstated. Gene argues that a proactive approach to compliance and transparency not only defends against potential accusations, but also reinforces the credibility of nonprofits. If your “ducks are in a row” when regulators come knocking, these negative claims are easier to defend. But if you scramble to get your information together only when asked, regulators may think your organization has something to hide.

Debunking the Overhead Myth

May and Gene tackle the prevalent misconception that nonprofits must operate with little to no funds available for administration, or “overhead.”. While the notion of allocating all funds to the mission and the organization’s programs is ideal, both May and Gene discuss the necessity of overhead for administrative and maintenance purposes. Acknowledging that a strong infrastructure is vital for mission success, they emphasize the importance of striking a balance between minimizing overhead and ensuring the organization's sustainability.

Crafting a Forward-Thinking Mission:

The significance of structuring your mission statement with your future goals in mind is paramount to grow your organization. Encapsulating the essence of why an organization exists, a mission statement should be broad enough to allow for evolution and expansion. Gene warns that a narrowly defined mission may inadvertently restrict the organization's potential impact. For example, you may create a mission statement that you will serve the unsheltered population of Los Angeles. However, a couple years down the road you find a grant opportunity to assist more people in the nearby county of Riverside, but because of your limiting statement, you would be unable to apply for the grant or assist those in other counties without violating your own governing documents.

Building the Right Board:

Recognizing that a board is more than just a group of individuals who believe in the mission, Gene advocates for a conscious approach to board building. Beyond passion, board members should bring a diverse set of skills, experiences, and backgrounds to the table. Establishing working committees is another valuable strategy, providing a structured framework for tackling complex decisions. Whether it's your accountant, attorney, friend, or banker, Gene and May contend that everyone has access to potential board members. Like any relationship, developing these connections requires effort, but the dividends in terms of expertise and support for the organization are immeasurable.

Closing Thoughts

May and Gene’s insights on managing nonprofits in California provide a comprehensive roadmap for success in a complex regulatory landscape. California's robust regulations not only set a standard for best practices but also underscore the importance of transparency and trust in nonprofit operations. Gene's advice on proactive compliance, dispelling the overhead myth, and crafting forward-thinking missions serves as a foundational guide to build resilient nonprofits.