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Common Trends in Successful Section 501(c)(6) & 501(c)(3) Organizations. John H. Graham IV, CAE President & CEO, ASAE February 29, 2008 Washington Nonprofit Legal & Tax Conference Washington, DC. Connecting Great Ideas and Great People. Background.
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Common Trends in Successful Section 501(c)(6) & 501(c)(3) Organizations John H. Graham IV, CAE President & CEO, ASAE February 29, 2008 Washington Nonprofit Legal & Tax Conference Washington, DC Connecting Great Ideas and Great People
Background • Since 2003, served as President & CEO of the American Society of Association Executives (ASAE). • ASAE is a section 501(c)(6) individual membership organization of more than 22,000 association executives and industry partners representing nearly 12,000 organizations. • ASAE has a budget of about $39 million and a staff of approximately 135.
Background • Before ASAE, served the American Diabetes Association (ADA) for 24 years, the last 13 as CEO. • ADA is a section 501(c)(3) organization funding research to combat diabetes. ADA has annual revenues of more than $230 million and both consumer and health care professional members.
Size & Scope In 2006, the IRS Exempt Organizations Division recognized as tax-exempt: • 86,563 section 501(c)(6) trade and professional associations • 1,064,191 section 501(c)(3) charities, foundations, and similar organizations.
Section 501(c)(6) Definition • IRS defines 501(c)(6) as: “an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit.” • The term “business” includes professions.
Section 501(c)(3) Definition IRS defines 501(c)(3) as: • Eligible to receive tax-deductible contributions. • Commonly referred to as charitable organizations. • Must be organized and operated exclusively for exempt purposes.
501(c)(3)s Predominantly donor-based, though some have members. Fundraising is mission critical. Political activity is restricted by law. 501(c)(6)s Must be membership organizations. Characteristically supported by dues. May engage in some political activity as long as it’s not primary. Key Differences
Issues in Common Governance & Operations • Historically self-regulating. • Reports of abuse have heightened the focus on financial controls and need for transparency and accountability. • Codes of ethics and conflict of interest policies becoming commonplace.
Issues in Common Reporting • Most (c)(6) and (c)(3) organizations file Form 990, retooled last summer. Core form is the same for all; additional schedules depend on activity. • Tax-exempt groups pleased with elimination of compensation and fundraising ratios from summary page. • Additional compensation information (for “key employees”) viewed with concern.
Issues in Common Additional Scrutiny • Form 990 retooled to satisfy both tax reporting requirements and public interest in tax-exempt filings. • Increasing interest in executive compensation. • Continued Congressional scrutiny, particularly for 501(c)(3) charities and foundations that accept public contributions.
Issues in Common Measuring Effectiveness • Emphasis on defined, measurable goals and objectives, along with a process to evaluate success. • Beyond fundraising $’s, effectiveness for 501(c)(3) groups more outcome-based. • Input vs. Output model is different for nonprofit organizations. Successful outcomes do not necessarily translate as financial.
7 Measures of Success In 2006, ASAE & The Center, working in collaboration with Good to Great author Jim Collins, released study on what distinguishes exceptional nonprofit organizations from their less successful counterparts. Included both 501(c)(3) and (c)(6) groups.
7 Measures of Success 1. Customer Service Culture Remarkable organizations build their structures, processes and interactions – their entire culture – around assessing and meeting members’ needs and expectations.
7 Measures of Success 2. Alignment of Products and Services Remarkable organizations have a passion for purpose, and link their mission to everything they do - including development of strategic direction, new products and services, etc.
7 Measures of Success 3. Data-Driven Strategies Remarkable organizations gather information, analyze it, and then use it to become even better. Research – whether quantitative or qualitative – is always put to use, not put on the shelf.
7 Measures of Success 4. Dialogue and Engagement Remarkable organizations have a close-knit, consistent culture where all employees not only receive the same script, but also see the potential to contribute.
7 Measures of Success 5. CEO as a Broker of Ideas While CEOs may certainly be visionary leaders, what’s more important is their ability to facilitate visionary thinking throughout the organization.
7 Measures of Success 6. Organizational Adaptability Remarkable organizations not only weather crises but also learn from them. While willing to change, they maintain a clear understanding of their core purpose and adapt accordingly.
7 Measures of Success 7. Alliance Building Remarkable organizations pursue alliances that fit with their mission and purpose. They determine with whom not to partner, as much as with whom they should partner.
Other Macro Trends 21st Century workforce issues • Three generations in the workforce (Baby Boomers, Gen X, and Gen Y or Millennials) • Decreasing pool of senior managers over next 10-15 years • Younger staff assuming leadership positions earlier in career
Diversity can’t be ignored With changing demographics, managing diversity is key to future relevance and success. Other Macro Trends
Other Macro Trends Social responsibility • Associations thinking of SR as good business. • Definition and actual practices are different for each organization.
Speaker Contact Info: John H. Graham IV, CAE President & CEO ASAE & The Center for Association Leadership Phone: 202-626-2741 E-mail: jgraham@asaecenter.org Connecting Great Ideas and Great People