News and analysis
May 15, 2013

N.Y. to Consider Nonprofit Governance Overhaul

New York State lawmakers introduced legislation on Tuesday designed to eliminate bureaucratic hurdles for starting a nonprofit and improve board oversight of executive compensation and contracts that could involve sweetheart deals.

The two bills—the Nonprofit Revitalization Act and the Executive Compensation Reform Act—were introduced after a year of work led by the New York attorney general’s office.

Together, the set of proposals, if approved by the state assembly, would mark the most expansive nonprofit overhaul in four decades, according to Sean Delany, a spokesman for the Nonprofit Coordinating Committee of New York and former assistant attorney general overseeing charities.

“Between the two sets of bills, there’s a better chance of having nonprofit reform than ever before,” said Mr. Delany, who is also executive director of Lawyers Alliance for New York, which provides free legal work to nonprofits. “It’s a big deal.”

Limits on Board Chairmanship

The bills crafted by the attorney general’s office would require boards to be more involved in decisions about compensation of chief executives and the five highest paid employees. That oversight would include approving data gathered from comparable organizations to justify salaries.

Boards would also be required to step up their oversight of any transactions and contracts that involve nonprofit employees, directors, officers, and their relatives.

The measure would prohibit the nonprofit’s chief executive or any of its employees from serving as chairman of the group’s board of directors.

Concern About Burdens

Under the measures, nonprofits would no longer be required to go through the sometimes time-consuming process of attaining approvals from state agencies, such as the education department, before incorporating in New York.

Mr. Delany said the nonprofit coordinating council supports the attorney general’s measure but would be requesting changes. He said the state’s new approach on monitoring compensation needs to align better with those issued by the Internal Revenue Service. In addition, he says, simpler procedures are needed for contracts that don’t involve any conflicts of interest.

“The bill’s nonprofit governance reforms need further attention to ensure that they do not impose unnecessary new burdens on those in the nonprofit sector who can least afford additional expenses,” he said in a statement.