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Bylaws are the governing documents for nonprofit corporations and usually focus largely on the composition, duties, and conduct of the organization’s board of directors. Bylaws should be treated as living documents that grow and change along with the nonprofit itself in order to facilitate institutional wisdom and progress, but instead, oftentimes bylaws left stagnant and outdated. When bylaws become outdated, they are less helpful to the institution in times of transition and stress, and may become ineffective under new statutes. To prevent this from happening, we recommend reviewing your bylaws periodically, and looking for specific items which may need to be updated.
When Should the Board of Directors Review the Bylaws?
We recommend that nonprofit boards review their bylaws every two or three years, to ensure they still make sense and represent the lived practices of the board. Over time, if bylaws are not reviewed regularly, their prescribed practices and principles versus those held and carried out by the board may begin to drift apart. The primary goals for keeping bylaws current are so that (1) new directors can read and understand their duties and expectations as a director and (2) so that if there is an occurrence which warrants review of the board and its practices, the bylaws exist to explain and bolster the procedures followed. If the bylaws are not understandable, or no longer current, they may not be helpful when they are needed most.
What Should the Board of Directors Look for when Reviewing the Bylaws?
Readability. The first thing a nonprofit board should look for in its review is the readability of the bylaws. When reading your organization’s bylaws, ask yourself whether they are . . .
Too long so that they can’t be read in one sitting?
Too short so that they don’t explain important processes and protocols of the board?
Too complicated to understand so that they are not an accessible resource?
If any of the above is true, a revision is needed. Bylaws should be a living document that can be easily utilized by directors as a reference tool and high-level instruction manual. Solving the overarching issue of readability should be a foundational goal during any bylaw review.
Structural Changes. If there have been changes to your organization in recent years, there may be certain structural aspects of the bylaws that need to be amended, like:
Increasing or decreasing the number of directors or standing sub-committees;
Altering the qualifications for membership on the board;
Needed changes to term lengths and limits for directors and/or officers of the board
Top Five Sections to Review
Beyond structure, the most common bylaw sections that nonprofits are missing, or need help improving are:
(1) Indemnification and advancement of expenses for directors.
A bylaws section on indemnification and advancement of expenses explains the liability of directors in the case that a lawsuit is brought which relates to their board service, and explains when a director versus the organization will be responsible for such costs.
Potential directors are often much more willing to serve on an organization’s board if they feel secure in the level of personal liability they are incurring with their service, and understand that the organization has their back as a director.
(2) For schools, there should be a section dedicated to the Head of School.
A primary duty of the board of directors of a school is to find, appoint, evaluate, and remove the Head of School. The bylaws should have a section providing an overview of these processes, and whether any delegation is permitted.
This section should also address the Head’s duties as opposed to the duties of the board.
(3) Powers to call interim meetings between regular meetings.
Most nonprofits hold regular meetings of the board, usually on a monthly or quarterly basis. But what happens if a pressing issue arises that needs to be addressed before the next regular meeting? Your organization’s bylaws should have an answer to that question in the form of the ability to call a special meeting of the entire board, or of a smaller subset of the board, which may be desired for handling sensitive matters.
(4) Conflict-of-interest policies.
It is crucial that every board operate under a conflict-of-interest policy that adheres to Pennsylvania’s laws governing corporations, found in Title 15 of Pennsylvania’s Consolidated Statutes.
Oftentimes an organization’s conflict-of-interest policy is in a separate document from the bylaws, or some are even unwritten. Your organization’s conflict-of-interest policy should be memorialized in writing and acknowledged by every serving director. It does not need to be included in its entirety in the bylaws, but it should be referenced in the bylaws, so that if a conflict arises, the bylaws direct their reader to the right place.
(5) For religious organizations, the bylaws should contain language throughout that illustrates the attributes that help the nonprofit qualify as religious, including certain decision-making practices, a religious-based mission, and/or religious qualifications for directors.
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