Non-profit Agency – SBA or SEC model?
This essay is in partial response to an article by Rick Cohen on the Blue Avacado about the demise of the Vanguard Foundation.
SBA or SEC model for Non-profit Legislation:
While Congresswoman Betty McCollum’s proposed legislation about creating a “Small Business Administration (SBA) for non-profits has received a fair amount of press in non-profit circles, my question is would a model based on the Securities and Exchange Commission (SEC) organization make more sense? The core principle of the laws about capital formation is “Full Disclosure and Transparency.” That’s way public corporations have to file both annual reports (10-K’s in SEC parlance) and quarterly reports (10-Qs), as well as special reports about any “material change”, e.g. insider trading, change in the corporate structure, etc.
In the context of Rick’s question about where was the IRS or the Attorney General, it’s often very late in the game when criminal actions are discovered. If non-profits above a certain size were required to have periodic filings (since they are also a “public” entity) this could be a better model for creating early warning systems that would let both donors and officials know of potential problems sooner rather than later.
The other appeal of the SEC model is that it is one that has both government and non-government entities as a critical part of the overall structure. The SEC does not have 100% responsibility for monitoring and disclosing issues with corporations, the “Self-Regulatory Organizations (SROs)” actually have the first responsibility for monitoring and making sure corporations and broker-dealers are following the rules. Who are the SROs – they are they exchanges and other key components of the USA’s capital formation system – New York Stock Exchange, NASDAQ, etc.
In the non-profit world, the Independent Sector, the National Council of Nonprofits, the Foundation Center, and others are some of the organizations that with expanded resources and authority could perhaps take on the responsibilities of being a “SRO” for non-profits. SROs have to be willing to discipline their members, that’s one of their key responsibilities. I give kudos to Congresswoman McCollum for paying attention to the non-profit world, which many Representatives and Senators do not. If the proposed legislation has any hearings, perhaps some of these ideas deserve discussion.
The CFC Coach
P.S. I’m not a securities lawyer, and don’t play one on TV.