© Kenneth N. Margolin, August 2010

For many Massachusetts human service nonprofit corporations, budgetary issues in the current recession have become all–consuming. The major trade associations rightly urge their members to be active in monitoring and pressuring their legislators to avoid budgetary cuts that will further reduce services provided by nonprofits to the most vulnerable citizens. Salary structures, already too low, are further strained for some organizations. Maximum effort must be expended on a constant basis in fundraising, staff recruitment and retention, and referrals of new clients or acquisition of new contracts and avoiding the loss of any contracts up for rebid.

In such difficult times, it is very tempting for organizations to skimp on what I will term foundational legal expenses. Foundational legal expenses are those that are spent in four key areas: (1) general statutory and regulatory compliance; (2) personnel policies; (3) program development or expansion, including real estate acquisition; (4) dealing with state and local officials. The temptation is great when budgets are tight, to consider the expenditure of all legal fees, unless absolutely and urgently essential, to be discretionary. Savings can be had, the thinking goes, by either delegating work that should be performed by counsel, to a senior or mid–level administrator, calling upon an attorney Board member to do legal work for free or on–the–cheap, or foregoing the legal analysis altogether.

Yes, I have a bias, having provided legal counsel to nonprofits as a key part of my law practice for 30 years – but, it is a bias buttressed by experience. Skimping on foundational legal expenses can be one of the most expensive mistakes a nonprofit administrator can make. The point of spending money on foundational legal expenses is to be proactive, to prevent problems that will have to be straightened out by an attorney, potentially at a cost that can be many multiples of the proactive expenditure. In another article on this web site, I gave the example of the necessity of a comprehensive zoning analysis before real estate is purchased for a new or expanded program. Personnel policies that are not legally compliant or that unnecessarily bind the organization's executive director, can create headaches for any organization. Engaging counsel early on in communications with state or local officials in matters that might have legal significance, can prevent the official from acting unlawfully, requiring a pricey appeal or lawsuit. Noncompliance with any significant legal or regulatory requirement brings potential exposure to expensive fixes.

Part of the difficulty that many administrators have in justifying legal fees when there is no current legal catastrophe or pressing need, is that they may have gotten away with cutting corners on legal expenses in the past. The problem is that when a legal mess occurs, it can come out of the blue. The expense can quickly eclipse many years of false savings. My recommendation, biased though it may be, is to have an attorney knowledgeable about your organization, who you trust. If you have a question about the need for legal intervention, seek his opinion. You can always choose to ignore it, but you will at least have a picture of potential legal obstacles as you pursue your organization's client service mission.