Guide-for-Nonprofit-Organizations-Bankruptcy-Issues-FINAL-with-ads

CommitteesThe existing committee structure should remain in place during a period of financial crisis. Tothe extent possible, the duties of the directors and members of those committees shouldcontinue ―business as usual.‖ However, recognize that business is not as usual. As mentionedpreviously, when a corporate entity is faced with actual or potential insolvency will expand adirector’s fiduciary duty beyond those owed to the entity and its mission to duties owed to theentity’s financial stakeholders – creditors, grantors, and lenders. The existing financial andoperational reports that the board has reviewed and, in some instances, approved will berevisited. For this reason, on top of the day to day responses that a financial crisis demands,there will be additional strain on the board’s finance committee until the crisis is addressed andresolved. The audit committee, which in a typical year functions as a working group for mereweeks, may find itself called to bi-weekly or weekly conference calls to stay on top of duediligence and the potential need to address restatements of prior filings. The nonprofit’sexecutive committee – if it has one – should be in daily communication.The existing committee structure will not be enough, however, if the financial crisis is severeenough to send staff and board to the Internet searching for key term ―bankruptcy.‖ At the firstmeeting called by the board chair upon learning of the storm bearing down on the entity, anorder of business should be the formation of a special restructuring committee. Therestructuring committee should include key members of staff and the board – it will need bothoperational and financial expertise – and will be tasked specifically with advising the board onthe causes of and potential cures for the crisis that threatens the entity’s existence. Therestructuring committee will request reports from other committees and engage directly withretained outside professionals to assist it in its tasks. Its role will be to synthesize thenonprofit’s options and ultimately make recommendations to the board about the best pathforward. This is, in effect, emergency strategic planning with a very short time horizon.Engagement of Board Members; Board Chair Role; Assignment of TasksIt is during a crisis that a nonprofit board often finds that it needs more members, while at thesame time, the crisis makes it virtually impossible to recruit new members and heightens therisk that existing members will resign. Resignations may occur, and dealing with them is anissue if multiple resignations put the board at risk of insufficient membership to mount aquorum or otherwise function. That issue is addressed later in this section.If there is a necessary time for board members to more fully engage, rather than disengage, it isduring a financial crisis. The board chair – whose role includes that of board cheerleader –should undertake the following as soon she learns of the scope of the crisis:Call a special session of the board, inviting at least the nonprofit’s executive directorand, if appropriate, chief financial officer to report.Determine in advance of the meeting who should be on the special restructuringcommittee that will be proposed at the meeting, and reach out to those parties inadvance of the meeting (if a member does not want to be put in that spot, best to knowin advance).Draft and circulate an agenda for the meeting that includes the following elements:o Purpose of the meeting – Financial Matterso Report by the executive director on the issues facing the entity11