It has been difficult to avoid the news about allegations of exaggeration and mismanagement that have swirled around author and nonprofit director Greg Mortenson and his Central Asia Institute (CAI) over the last month. Speaking in a 60 Minutes interview, author Jon Krakauer called Mortenson’s bestselling memoir, Three Cups of Tea, “a lie.”  Critics have alleged that Mortenson was neither kidnapped by the Taliban nor nursed back to health by Pakistani villagers after a failed attempt to climb K2, as he stated in his book. CNN has reported that only 41% of the millions of dollars CAI received in 2009 was used to build schools, and that $1.7 million was spent to promote Mortenson’s books.

For those involved with nonprofits, the negative publicity regarding one of the voluntary sector’s high profile success stories has elicited both disappointment and fear that the public will lose trust in the sector as a whole. It is still too early to know whether the Mortenson situation will reduce charitable giving as a whole. But for nonprofit professionals and boards of directors, the controversy serves as a cautionary tale and an opportunity for reflection. CAI has illustrated, in a very public way, the consequences of inadequate governance.

Adequate Governance Prevents Mismanagement

Some – including Chronicle of Philanthropy contributor Leslie Lenkowsky – have suggested that government officials should more closely monitor nonprofit organizations to ensure that they operate in furtherance of their missions. But this is not how the law governing charitable organizations in the U.S. and Canada was designed. Further, given that there are now approximately 1.6 million public charities registered in the U.S. and 80,000 charities registered in Canada, it would be simply untenable to make state government officials responsible for ensuring that every organization’s charitable donations are used in accordance with the organization’s mission.

Rather, the U.S. and Canada already have an oversight mechanism that is supposed to prevent the kinds of mismanagement alleged against CAI: boards of directors. Charitable organizations are required to have a board of directors to serve as their governing body, ensuring that the charity operates consistently with the public interest and applicable tax law. Indeed, if CAI’s board of directors had been paying close attention to the organization’s operations, its executive director’s activities, and its finances, it is difficult to imagine how the organization could have arrived in its current predicament.

Under-Involved Boards Cannot Provide Adequate Oversight

Anyone who has spent much time in nonprofits knows that under-involved boards of directors are a common problem.  Having served as an attorney and board member in various nonprofit organizations, I have noticed that this frequently occurs in organizations with charismatic and ambitious executive directors (Mortenson is a good example). Under-involved boards are often found where an organization’s executive director is also its principal founder, where the board size is small, and where the directors are the executive director’s family and friends. (CAI lists only three board members, one of whom is Mortenson himself.) These boards tend to be ill-equipped to adequately oversee the organization. Because they are busy, inexperienced, or have a close relationship with the executive director, these boards tend to meet infrequently and ratify the executive director’s decisions without question. Under these circumstances, adequate oversight is impossible.

The lack of oversight by a qualified board of directors chips away at organizational quality. It results in executive directors who remain in their positions far too long, fail to recognize their own shortcomings, and sometimes, make ethical shortcuts along the way. Indeed, we all know passionate and idealistic founders who – as Nicholas Kristof suggested in his defense of Mortenson – lack the discipline and organizational skills needed to run those organizations professionally.

Characteristics of an Involved and Adequately Governing Board

It is both a legal requirement and an ethical imperative that boards of directors adequately oversee their organizations.  Now is as good a time as any to remind ourselves of the fiduciary responsibility we have to our organizations and our donors. Here are a few qualities of an adequately governing board:

• All board members attend every meeting unless they have a pressing reason not to.
• Board members insist on a board size that is large enough to encompass a broad base of expertise.
• Board members regularly visit the site of the organization’s operations.
• The board solicits information not only from the executive director but also from other members of the staff.
• The board’s approval is required before an annual budget can be finalized.
• The executive director submits regular reports to the board regarding actual expenses.
• The board formally evaluates the executive director’s performance at least annually.
• When the executive director ceases to effectively run the organization, the board terminates him or her.

Ultimately, it is the board’s duty to preclude the kinds of allegations that surround CAI from occurring. Let those of us who serve as directors take this opportunity for self-evaluation and a renewed commitment to the principle of good governance. The public’s trust in our industry depends on it.

Anne Andrews is a legal strategy consultant and LGT Venture Philanthropy Fellow currently based in New Delhi, India.

Last month, Young Social Entrepreneurs of Canada held its second annual re:Vision conference on social entrepreneurship. The re:Vision series brings together some of Canada’s brightest young and emerging social entrepreneurs each spring to connect and drive this movement forward in their communities. This year, we convened around a vital question: Where is social entrepreneurship heading in the next five years?

It’s a question that has consumed our organizing team in the past few months as we’ve witnessed first-hand the incredible pick up in dialogue, events, and commercial activity reinventing the relationship between business and social change. With 100+ representatives of the next generation of social entrepreneurs present, we posed that question to the room. Here’s what they said:

• Popularity on campus. The crowd predicted that the majority of universities and colleges across the country would open robust programs or course sets on social entrepreneurship, innovation and finance.

• Billion dollar social businesses. Some foresaw a few social businesses breaking the small business ceiling and becoming large, scaled enterprises.

• Normalizing blended value. The idea of incorporating a social/environmental lens in corporate decision-making on par with the financial lens will become more mainstream, especially among start-ups and small businesses in which founders have tighter control of their venture’s decision-making apparatus.

• Socialwashing. Part two of the normalization of blended value will be “socialwashing”. Like the greenwashing effect that has challenged the integrity of the “green” label slapped onto any product, the marketing appeal of “social” designations will result in their attachment to some products and companies more as marketing veneers than as indications of core values.

• Scandals. Consequently, a few particularly bad socialwashing apples will find themselves unpleasantly exposed in the media. This spotlight will spark a public debate about the merits of social entrepreneurship that will, in the end, force the movement to articulate a more definitive identity, aided by an emerging landscape of certifications, measurement tools and legislation.

• Measuring sticks. Positive and negative buzz alike will necessitate the wide-scale adoption of standard methods for measuring social impact. These methodologies will be implemented across the landscape of foundations, institutional investors, consulting firms and entrepreneurs themselves, causing the emergence of a "language" of social impact.

This list represents only a select number of predictions, but it is useful as a gauge of the future envisioned by a sample of the emerging generation of social entrepreneurs. You may agree or disagree with their predictions, but whatever the case, we invite you to speak up.

What’s your take on where Canadian social entrepreneurship is headed in the next five years?

Assaf Weisz is executive director of the Young Social Entrepreneurs of Canada - the nation's hub for young social entrepreneurs - and a supporter of their social enterprises.

You did it! You started, or you are starting, your own business. Good for you. The days of sticking it out at the same monster corporation for 30 years and ending with a cushy pension are over. There’s never been a better time to take charge of your own life and start a business doing something you really love!

In Canada, the three most widely used legal structures for a business are sole proprietorship, partnership, and corporation.

So which one are you?  How do you know and how do you decide what’s best for you?

There are no set rules, but each form of ownership has advantages and disadvantages that affect you and your business. It’s important to examine these variables before you choose a particular structure for your new venture.

Sole Proprietorship

Oh, how easy it is to be a sole proprietor. Simply hang your sign and charge someone a fee: Poof! You’re in business.

A sole proprietorship is a business that is owned and operated by one individual – you. You are the boss and you have 100% control. You can run your business under a name other than your own for marketing and branding purposes without any sort of registration. You do have to register your business with the province if you want to use your branded name as your bank account name, collect/charge HST or hire employees. Though this costs money, registering a business is much cheaper than registering a corporation and maintaining it.

Easy start-up and low annual maintenance costs are the biggest advantages to choosing to be a sole proprietor.

Another big advantage is the simplicity of taxes. As a sole proprietor, business income is your income and must be declared on your personal tax forms. There is no need to file a separate tax form for your business.  Additionally, business expenses and business losses can be used to reduce your overall personal income.

There are several disadvantages to sole proprietorship that should be taken into account, as well. The big one is personal liability. Because you are the big cheese, head honcho, all-seeing-all-knowing god of your business, you are on the hook for everything. You are personally responsible for all liabilities of the business. Should your business go bankrupt, your personal assets are up for grabs to repay those debts to creditors and lenders. Should your business be sued, you are personally on the hook to pay those fees too.

If you choose to run your business as a sole proprietor, ensure that you do not have an extremely risky venture with large liabilities, high overhead costs, or a high probability of lawsuits. If you do have these types of costs and risk, ensure that you are properly insured to handle them.

Partnership

Like a sole proprietor, if you and some friends hang out a sign and sell something for a profit, poof! You’re officially in a partnership. This is very important to understand because you can bind yourself legally into a partnership without even realizing it. Once in, the government has default rules of engagement that direct your business regardless of whether or not you have a formal partnership agreement in place.

The government will see your business venture as a partnership if either of these conditions are met:

i. You and your partners own business assets together (property, inventory, capital etc.), or
ii. All parties share NET PROFITS (as opposed to gross revenue) of business transactions.

If this is you, congrats! You are in a general partnership. Without a partnership agreement, you are now governed under the default partnership rules of your province.

For the purposes of this article, I will examine the advantages and disadvantages of the default rules of general partnership without a partnership agreement.

A great advantage to being in a partnership versus a corporation is the low-key structure. There is no need for formal meetings, meeting minutes, elected officers, and the hassle of all the extra paperwork like a corporation. By default, each partner must share equally in the management and also share in the profits.

Additionally, with a partnership, there is tax simplicity. Each partner is responsible for claiming their share of partnership income and expenses on their own taxes. There is no need for a partnership to file a separate tax form, like a corporation would.

When profitable and well-functioning, the default partnership rules seem to be wonderful. However, without a partnership agreement there are some major downfalls that should be noted. Mainly, each partner shares equally in the debts of the company and can be obligated for the full amount for your personal assets. This is exacerbated because you are on the hook and bound by any business transactions your partners make. For example, if your partner signs for too much liability and has no assets to pay back the debt, you are on the hook for 100% of it even though you did not make that decision.

Another disadvantage to a partnership without a partnership agreement is the matter of winding things up. The default rules state that the only way to wind up the business is if the partnership goes bankrupt or if one of the partners gives notice. Under the default rules, if one partner walks out, all assets are liquidated and all debts repaid first and the rest is then split on a ratio scale for who put the most money into the partnership. There is some matter of proportional payout, but only after debts are repaid.

Limited Partnership

There are other options for partnerships. A limited partnership is a partnership where one partner contributes to the business without actually being involved in the management of the partnership. As a limited partner, you’re only on the hook to creditors up to the amount you personally invest in the firm.

To be considered a limited partner, you cannot take any part in the management of the firm or act on behalf of the company, otherwise, you become a general partner.

Limited Liability Partnership

People often ask me about limited liability partnerships. This is for groups of professionals, such as doctors, lawyers and accountants. There is specific provincial legislation for these and limits each partner’s liability to the choices they make.

Corporations

Last is the corporation. The one major difference between a corporation versus sole proprietorship or partnership is that the corporation acts as a separate legal entity, whereas the legal liability of the business of a sole proprietor or partnership is the same as the partners or owner.

Because of this, no member of the company can be held legally responsible for debts or court orders of the company. This is one of the major advantages to incorporating - less personal risk. Additionally, there are favourable tax rates for small businesses and more flexibility is available for your personal salary. As a corporation, you can choose how and when you would like to pay yourself income so you have more control. Keep in mind, however, once you pay yourself a salary from the business, you and the corporation must pay CPP and income tax. This is often forgotten and can lead to big trouble with the CRA.

Many people believe that it is in their best interest to incorporate because of the above mentioned advantages, however, incorporating is expensive to arrange and even more so to maintain. Each year the company must submit its own tax forms, maintain meeting minutes, and more.

Business owners often hire professional accountants and lawyers to ensure that they are onside with corporate laws and taxes each year. This can be an expensive pain in the butt.

Finally, the liability may not be as limited as you think. Usually banks will require personal security in order to obtain business loans; therefore, the owner is still on the hook financially.

Which legal structure is most appropriate for your business is a difficult choice to make. If there is a high chance your company will be sued, or if you have large overhead costs and payrolls, a corporation is likely an appropriate choice. If you have low overhead costs and low legal risks, you may want to consider sole proprietorship or partnership for ease and low maintenance costs.

Ownership is an adventure. The legalities can seem daunting, but once you make your choice, the exciting part begins!

Shannon Simmons is a financial advisor and founder of The Barter Babes Project. She offers professional financial advice to those who can't usually access it by providing her financial services in exchange for a bartered good or service instead of a fee.

Deep Leadership session

1. Sometimes it can be a bit overwhelming

Admittedly, as a first-time attendee at Skoll, I often found myself a tad lost, dazed and confused. For one thing, there were questions with answers not easy to find, probably since many depended on me... For example, here’s one that got me on a regular basis: Which session should I attend? They all looked so interesting and chock-full of great speakers, issues and educational value. Why were there so many good ones scheduled at the same time?? Answer: close your eyes and point. It worked every time. Truth is, it was hard to go wrong—and that says a lot about Skoll. Then there was the common journalistic concern: so many stories, so little time. How could I possibly meet all these great entrepreneurs and document their compelling stories?  Answer: Um...you don’t, you simply can’t.

But you know what? It’s okay, there’s plenty of great fodder to work with from the folks you do meet. And, besides, business cards are worthy inventions. Of course, there’s the dreaded query that still confounds: Why did I bring heels when there are so many cobblestones and the distance between venues so seemingly vast? Tip: Always, always keep a pair of comfy flats in your bag. Believe me now, thank me later.

Storytelling for Impact session

2. Sometimes it’s personal

That was the thought that kept swirling around in my head during my three-day stint. Because, when you think about it, for many of the delegates who descended upon Oxford touting their incredible, far-reaching and highly impactful organizations, what initially inspired their actions wasn’t some grand scheme, strategic political ambition, or even the desire to change the world. Their change-making endeavour came out of something that just wasn’t quite right in their microcosmic world. Personal struggle led them to take action.

Take Thorkil Sonne. When his son was diagnosed with autism, Sonne, founder of Speciliasterne and Specialist People Foundation, was suddenly struck by how unfair it was that society had no need for people like his son, tremendously skilled as he was.  So he became determined to make people see the beauty in dandelions (he uses dandelions as a metaphor, explaining how some see it as an annoying weed, in need of plucking, but the plant is actually an herb, a beautiful addition to any garden or dish). Autistic individuals may not be great team players and may lack in flexibility but they’re still skilled, loyal, have good memories, and are patient with details. “If you can take people who are left out of society because they don’t fit into the mainstream model and give them support, make them feel wanted, they can contribute knowledge and have great life,” he said. Sonne has dedicated his life to finding opportunities that allow autistic individuals to contribute and that take their needs into consideration.

Thorkill Sonne &    Dr. Victoria Kisyombe

Or Dr. Victoria Kisyombe. A veterinarian living in Tanzania, she saw her life turn upside down when her husband died and his family— following customary law— reclaimed all of their marital possessions. They did leave her one cow, however. Named Sero, the cow provided Kisyombe with the resources to help sustain herself and her family. But Kisyombe’s personal challenge demonstrated to her the value in owning land and assets, and the unfortunate reality that many women in the country weren’t able to do so.

She founded SELFINA, which helps women overcome the barrier. The organization introduced the concept of micro-leasing, which provides credit to women entrepreneurs, allowing them to become owners of leased equipment (and to then use it as collateral for future transactions). SELFINA leases a variety of assets like water pumps, computers, small tractors, sewing machines and livestock. Thanks to SELFINA, Tanzanian women have been issued credit worth $22 million USD, with 200,000 lives affected so far.

3. Sometimes it’s the little things

Sure, the bevy of insightful, formal sessions were not to be missed. And the same can be said for the organized events, dinners, etc. But the informal chats and meet-ups proved to be equally unforgettable and enriching. From a “peace and pints” lunch (which ended up being more of a networking opportunity) to an ad-hoc “drinks and canapes” gathering and every haphazard meet-up in between, chatting with a variety of unassuming, down-to-earth and fascinating folks was a most unexpected delight.

And then there were the other “little things” I wasn’t anticipating that moved me in profound ways: Listening to Peter Gabriel belt out Beko—some songs/singers are simply timeless; hearing Desmond Tutu’s infectious laugh; enjoying a fascinating walking tour of Oxford, an experience that certainly added to the auspiciousness of the Forum; feeling perpetually mesmerized by stories of audacious entrepreneurs from across the globe; and the overarching Skoll environment that somehow enabled a very affable, welcoming and inclusive experience.

Until next year, these thoughts, memories and contacts will serve quite nicely. Thank you Skoll.

The Sheldonian Theatre, Oxford. Photo Credit: Allyson Hewitt

Oxford, UK