Having just returned from the National Network of Fiscal Sponsors (NNFS) Annual Conference, it was heartening to be reminded that so many organizations are doing good work in so many different arenas. 

The mood at the conference was broadly hopeful, though several sponsors and speakers flagged that they – like everyone else – are dealing with global uncertainty.  From the impact of Supreme Court decisions to changes in Fiscal Sponsors relationships to their Sponsored Organizations – change was very much in the air.  

Ripples of the Supreme Court’s Affirmative Action Decision - 

There was a great deal of thoughtful discussion surrounding the Supreme Court’s Decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College.  Sponsors were considering their role in being advocates while managing the risks of their Fiscally Sponsored Organizations running programs that violate the law.  The final plenary session was devoted to that discussion – and included a rousing call to fiscal sponsors not to shy away from being involved in movements to advance racial equity and combat the history of discrimination in the United States.  

Simply by virtue of the profession, lawyers are expected to say no when confronted with a risk.  Or to offer the most defensive option as the only route forward.   But for many of us practicing in the nonprofit sector, a love for advocates and those conducting social impact work is part of the job.  So it was no shock to me that most of the lawyers presenting at the conference did not tell the gathered to shy away from initiatives to advance social justice. 

To be clear – some nonprofits will need to pivot.  Colleges and universities cannot simply conduct business as usual.  The Court’s opinion directly addressed many programs being conducted in many of those institutions across the country.  But for other types of nonprofits and fiscal sponsors – I would encourage them to ask their lawyers if they would recommend making any changes to their anti-discrimination work.  You’ll probably be surprised when your attorneys are proud to represent you based on your programs.  And that their greatest concern is just to make sure that you understand the risk profile and the circumstances that would require you to make changes to your programs.  

Concerns of Fiscal Sponsors and Strategies for (Enhanced?) Oversight

Several sessions focused on risk analysis and encouraging a proactive approach by fiscal sponsors to make sure the fiscally sponsored projects they work with are not creating unseen liability.  As a practitioner, I have certainly seen situations where the fiscally sponsored project (a) did not understand that it was their job to fundraise for their organizations until it was too late and the project was out of funding or (b) were coming in with an attitude of “move fast and break things” without considering that some of the “things” being broken were tax laws and state charitable trust law.  The breaking of which carries exposure for the sponsor.

As such, many fiscal sponsors have made it a priority to be fully transparent with their Projects, both already sponsored and incoming, and inform them about what joining fiscal sponsorship entails.  Not just the prospect of tax-deductible contributions or funding from large foundations – but also an obligation to assist the Sponsor in complying with laws.  Even if that means calling someone before executing contracts, or consulting with the sponsor before expanding operations.  Sponsors are navigating those conversations carefully. 

As always, I am acutely aware of the difference between the legal structures and the lived reality of fiscal sponsorship.  From a legal perspective, in a Model A structure - the Sponsor has full authority.  The lived reality though is that the FSP is doing most of the day-to-day work with varying degrees of supervision – with the legal reality only coming into sharp focus when things go badly wrong.  As a lawyer, I’d rather fiscal sponsors be able to avoid messy separations (at least the messy part) or having to call us in to sort through a mire of missteps.  As such, I was happy to hear creative mechanisms suggested to avoid project failure.

Among the excellent hygiene practices, I heard of organizations conducting: a check-in when a project only has 3 months of “runway” (or ability to meet its average or expected monthly expenses) left; a dormancy status for projects that intend to spend down their funds and stop operating for a period – with the ability to return when they have the time and energy (and funding) again; a regular check-in with project staff (which in my view should already be standard); and a periodic assessment by the sponsor about which projects really fit with what it really wants to be doing.  

If you are an organization that raised any of these policies during the conference (a) thank you and (b) I hope you’ve included these excellent and novel policies in your explicit terms and conditions for fiscal sponsorship.  These policies are only as effective as a sponsor’s willingness to act on them. Sponsors must know themselves and their willingness to brandish asset freezes (in the case of Model A fiscal sponsorships) or claw backs (in the case of Model C’s).  

For sponsors that simply aren’t willing to go down this road – a greater cushion of project runway would offer a greater chance to transition difficult projects into the next stage their development – whether that is another fiscal sponsor, their own exempt status, or wind down of their operations.  Either way, the best precautions are those that fit with your organization’s desired mode of operations and that offer enough protection for the risks you are running.