Five-minute general counsel: can a nonprofit change mission?

This LinkedIn question asked about mission drift for non-profits. There are a couple different layers of answer, depending on what’s going on and who’s asking.

First, the fundamental concern: will the change of mission jeopardize nonprofit status (and that typically means jeopardize 501(c)(3) status, which means deductibility of donations by donors)? The answer depends on whether the new mission falls within the law’s requirements to qualify for 501(c)(3) status. Easy example: an organization dedicated to educating children about music switches to educating children about art: no problem. Hard example: an organization that switches from operating a homeless shelter to advocacy, lobbying, and litigation about homelessness issues. Maybe that change would institute a review by the IRS to determine whether the rules were all still being followed, but the inquiry is always going to be fact-specific unless the organization changes so dramatically that you already know the answer to the question. (Example: the homeless shelter converts to a bed and breakfast.)

The trap you should not fall into is confusing the mission (“charitable purpose” is the catchphrase) of the organization with its operating model, financial structure, or even “mindset” about the issues. Many nonprofits charge money to at least some of the people who benefit from their programs or services. I gave a talk at a conference this past weekend for AutismNJ, which charges parents, educators, and professional members for attendance. That alone has no determinative effect on their nonprofit status.

Second concern: does this change affect our donors’ view of the organization?

Third concern: does this change affect our employees’ and volunteers’ view of the organization?

These last two concerns are readily handled together because they are essential components of any strategic planning exercise: determining the effects of a proposed strategy on the ecosystem around the organization. This question arises for nonprofits and for-profits alike. The answer for any group is going to be different, based on the particular history, composition of these stakeholder groups, and the rationales for the proposed changes.

I take the original questioner’s point of view to be best expressed as “I don’t like the new changes and so I’m going to complain.” And then that person will probably leave, looking for a new organization with similar goals and models and operations to the old group before it changed.

2 Comments

  1. Craig Ewoldt on October 9, 2013 at 8:02 pm

    Often it is not just a “I don’t like the changes.” Is it even legitimate to change. There are moral owners of an organization, and the organizations board is obligated to represent their interests. The moral owners are the recipients of the services, the donors that have given to the organization to fulfill its original mission, and the staff and employees who have dedicated their lives to the mission. They should all have input into any mission, value and vision changes.

    • Rick on October 12, 2013 at 6:56 pm

      Craig, thanks for your comment. I think your comments are dead-on when it comes to the wisdom and viability of any choice to change mission. But it’s important to distinguish between the legal requirements and those practical items that are a good idea. Engagement and buy-in from stakeholders are important to consider in both deciding whether an organization should change what it is doing in a dramatic fashion and in choosing a new direction.

      As an aside, it can be entirely appropriate for an organization to simply turn its assets to a different, existing, organization. That’s consistent with the “no private inurement” rules and often preferable to the idea of turning the money over to the state or federal government (at least in the eyes of every nonprofit founder I’ve ever met!).

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