Will Move to Dissolve the NRA Hurt Your Nonprofit?

This post is about the attempt of New York’s Attorney General to dissolve the National Rifle Association. However, this is NOT a political post. Whether or not you support the NRA, the legal fight over its future has potential implications for your nonprofit organization. Let’s take a closer look.

Doug White, a philanthropy advisor, author, and teacher, writes:

In a 169-page document made public earlier today (you can read the entire lawsuit here), [New York Attorney General] Letitia James alleges that NRA insiders have violated New York’s nonprofit laws by illegally diverting tens of millions of dollars from the group through excessive expenses and contracts that benefited relatives or close associates. The suit alleges that longtime CEO Wayne LaPierre and three other top officials ‘instituted a culture of self-dealing, mismanagement, and negligent oversight at the NRA,’ failed to properly manage the organization’s money and violated numerous state and federal laws.

The lawsuit asks for a dozen measures to be taken. The first one: ‘Dissolving the NRA and directing that its remaining assets and any future assets be applied to charitable uses consistent with the mission set forth in the NRA’s certificate of incorporation.’”

White further notes that the legal action has been filed against the 501 (c)(4) organization, and not against any 501 (c)(3) organizations related to the NRA.

So, how could the case of the NRA affect your nonprofit organization?

Erosion of Public Trust: The mere accusations against the NRA, whether or not they are ultimately proven in court, have the power to not only erode confidence in the NRA, they have the potential to erode trust in all nonprofit organizations. If that happens, it could make fundraising more difficult. A special report in 2018 from the Better Business Bureau’s Give.org found:

While the majority of respondents (73 percent) say it is very important to trust a charity before giving, only a small portion of respondents (19 percent) say they highly trust charities and an even smaller portion (10 percent) are optimistic about the sector becoming more trustworthy over time.”

Enhancement of the Public Trust: On the other hand, New York’s action could enhance the level of trust people have in the nonprofit sector. If the Attorney General can prove her case, it would show the public that government officials are exercising appropriate oversight of the nonprofit sector which could elevate the public’s confidence that their donations to any nonprofit will be used appropriately. We know there is a correlation between the level of trust people have and the likelihood they will give as well as the amount of their giving.

Impact on Support to Controversial Organizations: If New York succeeds in liquidating the NRA, it will have the power to disburse the organization’s assets as it sees fit. How will this affect support to other controversial nonprofits if donors know that their donations could be redistributed by the state? It’s possible that this could result in more cautious behavior by donors.

Slippery Slope: New York’s Attorney General is not simply seeking to punish the individuals accused of violations of the law. She is not seeking to simply sanction the organization. Instead, she is going to court in an attempt to dissolve the NRA. By contrast, when William Aramony, the head of the United Way many years ago, was accused of misdeeds, authorities only took action against him; Aramony was sent to prison, but the United Way was permitted to continue operations.

If a state government can liquidate the NRA, it could lead to other efforts to dissolve other nonprofit organizations. Even if targeted nonprofits could win in court, they would have the expensive burden of defending themselves. While the New York action is not unprecedented, it will be interesting to see if it emboldens other government entities to target other nonprofits.

Ability to Attract Talent: The situation involving the NRA could affect how easily nonprofit organizations can attract and retain talented staff and volunteer leaders. If individuals have greater confidence in nonprofit oversight as a result, then it might become easier to attract talent. However, if individuals believe the legal action is the result of a political attack on a controversial organization, it could make it more difficult for any controversial organization, left or right, to attract and retain talent. Furthermore, individuals may be less willing to take on the legal responsibilities associated with board service.

Time will tell what the fallout from the NRA situation will be. It is possible that, regardless of the outcome in court, the fallout will be limited to the NRA. However, history shows us that when a scandal hits one nonprofit organization, it can significantly affect completely unrelated organizations otherwise uninvolved by the scandal.

So, I encourage you to take the following four steps:

  • Monitor the NRA’s legal battle.
  • Build relationships of trust with supporters and staff.
  • Assure supporters and staff of your organization’s trustworthiness.
  • Take into account all possible outcomes when planning for your organization.

How do you think the NRA situation could affect your nonprofit organization, if at all?

That’s what Michael Rosen says… What do you say?

2 Comments to “Will Move to Dissolve the NRA Hurt Your Nonprofit?”

  1. We outside the USA will watch with interest.

    1. I tend not to agree with the “slippery slope” argument here. The court’s powers of dissolution which I’d like to focus on based on the allegation that the defendent (NRA)
    “carried on, conducted or transacted its business in a persistently fraudulent or illegal manner, or by the abuse of its powers contrary to public policy” (139) and
    ““directors or members in control of the corporation have “looted or wasted the corporate assets, have perpetuated the corporation solely for their personal benefit, or have otherwise acted in an illegal, oppressive or fraudulent manner.” (141).
    These are what distinguishes the alleged circumstances from the United Way contrasting example which Michael mentions.
    Of course whether the facts are proven, and if so whether a court exercises its discretion to grant the dissolution order, remains to be seen.
    However, I can see an argument that dissolving a non-profit base on “abuse of its powers contrary to public policy” might be the edge of a slippery slope.

    2. I’m not sure the point about government redirection of the NFPs resources is a fair concern (under Impact on Support to Controversial Organsations) . The remedy sought in the litigation is for the court to dissolve the NRA and make an order “directing that its remaining assets and any future assets be applied to charitable uses consistent with the mission set forth in the NRA’s certificate of incorporation”. This is not the same as the government having open discretion to redirect the funds. Of course the court would hear the Attorney-General’s submissions, if it reaches that stage, so the government is not without influence.

    3.Almost all the detail of the allegations is about the conduct and various alleged conflicts of interest, breaches of fiduciary duty and financial misconduct of the individual defendants. I guess those will occupy most of media attention in this case. Whether a court will view the sum of all the indvidual actions as establishing enough evidence about the NRA as a non-profit entity, who knows.

    4. For fundraising professionals who follow this blog, note that alleged failures to register as fundraiser (a board member) and to report in state filings about fundraising are included in the many allegations (see paras 369,548,569).

    • Roewen, thank you for sharing your thoughts. The NRA story has many potential implications. While there are the obvious implications for the NRA itself, this story will, or should, affect all nonprofits in some way. Your final point is an excellent example. The NRA story shows that state regulators are willing, and perhaps able, to go to extreme lengths to enforce laws and regulations concerning nonprofit organizations. While this move could impact the public’s trust in nonprofit organizations, it might also serve as a wake-up call for nonprofits that could lead to more effective governance. While we can’t yet know what the full impact of New York’s action will be, I think it’s safe to say it will have some effect.

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