Are the Changes to Michigan’s Nonprofit Governance Rules Improvements?

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April 19, 2015; Crain’s Detroit Business

Even as some states are cracking down on nonprofit board members who fall asleep at the wheel (see today’s feature), Michigan has passed new legal changes that, among other things, provide greater indemnification for them. These changes appear as amendments to the state’s Nonprofit Corporation Act (Public Acts 557-559).

One provision expands nonprofit directors’ indemnification to protect all directors from liability for gross negligence, holding them responsible only for actions that are self-serving or that are meant to intentionally harm the organization. It also extended the indemnification to paid directors. Most nonprofits do not pay their trustees, of course, but according to Duane Tarnacki, a member in the Detroit office of Clark Hill PLC, approximately a third of private foundations in Michigan do, including the Kresge, Skillman, and William Davidson foundations.

The amendments also provide that private foundations can have one director at a minimum, instead of the three required for other nonprofits, and that a quorum can be constituted of as few as one-third of members.

Rob Collier, president of the Council of Michigan Foundations, commented, “People could raise questions about that, but the business of our nonprofit sector has become so complicated, to get talented people to serve on your board, they need to know there’s some protection.”

I might argue that these changes go way too far but we would love to hear from you, our readers. Stay tuned to more on this issue.—Ruth McCambridge