Governance Update (Part One) – Notes from WCTEO Conference

The 11th Annual Western Conference on Tax-Exempt Organizations (WCTEO) was held in Los Angeles on November 15-16, 2007.  Among the most interesting programs at the Conference was the "Governance Update" presented by Michael W. Peregrine of McDermott Will & Emery LLP and James R. Schwartz of Manatt, Phelps & Phillips LLP.  While the content leaned more heavily to issues affecting larger organizations than I would have preferred, I really enjoyed the Pardon the Interruption-like format of the presentation with both panelists trading opinions on each subject.

The premise of the presentation was that the organization, governance and business practices of nonprofits has continued to be a "front burner" legal feasibility issue because of:

  • Continuing corporate controversies involving high profile nonprofits.
  • A perspective that existing laws may be insufficient to provide effective oversight of nonprofits.
  • A continuing policy debate concerning the need for greater clarity on "charitable" status and the nexus between "Mission" and "Operations."
  • Continuing regulatory concern with nonprofits’ executive compensation practices.
  • A recognition of the increasing extent to which both state and federal government interact with the nonprofit sector, and the policy issues emerging from there.
  • A legislative and regulatory concern that the governance practices of nonprofit, charitable organizations must be improved, in order to address issues related to abuse and mismanagement of charitable assets.
  • An increased willingness of third parties and interest groups in challenging the business practices of nonprofits.
  • The substantial new focus of the IRS on nonprofit corporate governance.
  • The increase in referrals from state charity officials to the IRS.

Part Two of this Post will identify the trends that emerged in 2007.