Training Lawyers for Civil Society
Article Date: Tuesday, April 24, 2012
Written By: Steven M. Virgil
This article argues that there are valid reasons for law schools to create discrete training and course work that align with the nonprofit sector. The sector serves distinct needs in a manner that neither public (government) nor private (for-profit) sectors can, and in doing this involves activities, governance, and funding that are substantially different from these other sectors. To understand these differences, this article first defines the nonprofit sector and then explores the rationales for the sector before discussing the skills that are needed in a practice spent advising and representing nonprofit organizations. While our law schools have created discrete courses and programs for the study of law related to private enterprises and government, there are few discrete programs of study in the nonprofit sector. This is a balance that warrants consideration for change.
The Nonprofit Sector
Definitions. The nonprofit sector can be defined by statutory, tax, and functional definitions. In North Carolina, nonprofit organizations are organized under the North Carolina Nonprofit Corporations Act (NCGS 55A). This act follows many elements of the broader Business Corporations Act as to the organization of the entity, which is accomplished by the filing of articles of incorporation, meeting of the initial board, and adoption of by-laws. The key distinction between the nonprofit corporation and business corporations is that the nonprofit lacks any mechanism to distribute profits. Uniformly across the United States, and in many other countries, nonprofit corporations lack mechanisms for distributing profit. Known as the nondistribution constraint, the absence of a profit distribution mechanism defines the organizations in the sector. This constraint is organically made part of the nonprofit organization through state statutes.
In addition to state organizational statutes, the Internal Revenue Code also defines the nonprofit sector, and provides a wide range of organizations with varying tax benefits. Organizations that are found to be “Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition” (IRC 501(c)(3)) are provided with exemption from income and other taxes and donations to such organizations provide deductions for the donor. (IRC 170) Wide ranges of other organizations, including social welfare organizations, are exempt from tax themselves although donations made to these organizations do not provide the donor a charitable deduction. As will be seen, the definition of charitable organizations in 501(c))(3) reflects the historical functions of the sector.
Finally, the nonprofit sector may be defined by the role and function assumed by organizations within it. Many of the things that make our communities enjoyable places to live are provided by nonprofit, civil society organizations, and many of these activities have been historically provided by this sector. The arts, including literary events, art museums, and classical music concerts and festivals, operate in numerous forms as nonprofit organizations. Social organizations, including country clubs, fraternities, and neighborhood associations, are usually organized as nonprofit corporations that enjoy favorable tax benefits. Historically, educational institutions have operated as nonprofit corporations, as well as organizations that serve the needs of the poor. And many of the most important civil movements of the last 100 years, including those promoting civil rights and environmental protection, have been enabled through civil society organizations. All of these functions, if pursued without individual benefits running to anyone, are consistent with IRC 501(c)(3), and with a common understanding of what nonprofit organizations do.
The nonprofit sector is distinct in how organizations are formed, the tax regime that is applied to activity in the sector, and the functions played by the sector.
The Scale and Scope of the Nonprofit Sector. The number of nonprofit organizations in the national and international economy is massive. There are more than 1.8 million nonprofit organizations in the United States, and this number increases at a rate of approximately 8 to 10 percent each year. Roughly 40 percent of organizations are social service agencies, and about 25 percent are educational organizations. These entities contribute immense amounts to our national and global economies. Nonprofit organizations in the United States own assets worth more that $3 trillion, and giving to nonprofit organizations exceeded $300 billion in 2010. Globally, civil society organizations employ more than 40 million people, engage 190 million volunteers annually, and are estimated to be a $2 trillion part of the global economy.
The size and scope of civil society indicate that the sector serves legitimate needs that are not met by the public or private sectors. Understanding the differences between civil society and these sectors also explains the validity of programs of study that focus on civil society.
The Nonprofit Sector in Contrast to the Public and Private Sectors
If the public sector is that part of the economy that distributes goods through government, and the for profit sector is the part that distributes goods through private actors based on a profit motive, the nonprofit sector is neither. The nonprofit sector does not employ either the machinery of government agencies or a profit motive in distributing goods and services. The reasons for this distinct role in our society are fundamental.
The presence of the nonprofit sector can be explained by three rationales. First, civil society reflects historical preferences for how some things are done. Feeding the poor, for example, has been legally recognized as a legitimate activity outside both the public and private sectors since the English Statute of Charitable Uses in 1601, which was later repealed in 1888. This statute recognized that private wealth could be committed to public goods and sheltered from taxation, if committed to a limited number of activities. These activities included such things as providing for widows, the poor, bridges for common use, and similar benefits to society. If a landowner committed property in trust, one of the uses defined in the Statute of Charitable Uses, then the property was no longer subjected to the King’s, or Queen’s tax. For centuries before the Statute of Charitable Uses, however, traditional acts of charity included the activities sanctioned by the statute. And the historical notions of what should be conducted through charitable activity remains.
Second, the nonprofit sector is the most efficient response when providing collective goods that are desired and beneficial, but which are not provided by government. The nonprofit sector addresses the limitations of government, which cannot, and should not, provide for all citizens at all times. The nonprofit sector is comprised of private actors who are engaged in voluntary relationships. Consequently, the nonprofit sector may provide a range of goods and services free from the constraints that limit government action. Nonprofit organizations allow all people to work collectively to pursue any idea they wish. And unlike government, which must constrain its activities to the will of the majority, a small group of people can create institutions within civil society that represent even the most marginalized interests. The neighborhood association is one local example of how nonprofit organizations work in this way. It is not feasible for government to provide the police surveillance and other services that many neighborhoods desire. A nonprofit organization formed by neighbors, can.
Third, nonprofit organizations may pursue activities and goals that do not promise any profit and correct the inherent limitations of a market economy. While a market economy may be an efficient way to distribute societal goods, efficiencies are lost when collective goods are at stake. Things that are consumed individually, such as cars, shoes, etc., may be efficiently distributed by a market economy and the private sector that allows producers and consumers to first define demand and then set price. Collective goods, such as a clean environment or housing for the homeless, implicate a “free rider” problem. A free rider is someone who consumes a good without paying for it. The problem arises for public goods whose costs of production do not increase as the number of beneficiaries increases. Clean air and public radio are good examples. The cost of transmitting a radio signal remains the same whether 1 or 1,000 people are listening. Once the signal is sent, there is no incentive for any additional person to pay for it, so profit will not be realized. A nonprofit organization, however, can gather the resources and conduct the activity even for collective goods and despite these problems.
The nonprofit sector also addresses contract failures within the private sector. Contract factors include informational asymmetries where the person purchasing the good is not the person consuming the good. For example, when we donate to a food pantry we are paying one party to provide food to someone we never meet. Because of the nondistribution constraint, we are more comfortable with making the donation, and the resources flow to the person in need.
In concert with these rationales, or perhaps because of them, the nonprofit sector promotes numerous benefits to society more generally. Recent phrases describing the activities of the sector include “social entrepreneurship” and “entrepreneurial philanthropy.” As these titles suggest, the sector serves a pluralistic society that includes all voices, offers a forum for innovation and risk taking, preserves intellectual and artistic freedoms, and fosters a spirit of place and belonging.
Civil Society as a Distinct Sector Worthy of Distinct Programs of Study
As described above, civil society is a distinct sector of activities and agents set apart from both the public and private sectors. That civil society is distinct from the public or private sectors does not in itself indicate a need for distinct programs of study for law students who are interested in advising nonprofit organizations. The qualities of the distinctions, however, do.
The differences between the nonprofit sector and the private and public sectors are substantial. Nonprofit organizations embody fundamental differences in why organizations are formed, how they are funded, and the role of governance, accountability, and assessment. Accordingly, to adequately prepare law students for a practice representing and advising nonprofit organizations, a program of study must recognize these differences and incorporate them into a cohesive approach that integrates the values of our profession, the technical skills that are required of practice, and an awareness of civil society’s unique attributes.
The values of our profession. Legal education should instill in the members of our profession those foundational values that the profession recognizes. These include:
• Responsibility to Clients
• Responsibilities to the justice system, including a willingness to
advocate for greater access to justice and improving our systems
• Responsibility to the Profession and Striving to Improve the
• Responsibility to Self.
These values are readily engaged when working in the nonprofit sector. The lawyer’s responsibility to a client takes on a singular characteristic with a nonprofit organizational client. The nonprofit corporation represents a vehicle to hold and use assets for the public good. In this relationship, the organizational client is somewhat analogous to a trust in service to the public interest. While the organization’s agents are similar to agents of any corporation, the “public good” aspects of the organization are very different from private organizational clients. The nonprofit is obligated to use the assets and resources in its possession to substantially further the organization’s charitable, tax-exempt purpose. A lawyer who advises a nonprofit organization, consequently, owes a responsibility to the organization that includes advising compliance with these sometimes high-minded, charitable purposes.
Because nonprofit organizations serve the public good, they often align with the interests that promote access to justice. While we sometimes sense that representing a nonprofit organization does promote access to justice or a more just society, it is important to reflect on how this is accomplished through the representation.
The Skills Required.
Because nonprofit organizations are usually organized as corporations or associations, to be effective, the lawyers who advise such organizations must have the skills that are required to serve organizational clients who are engaged in various enterprises. These attributes include transactional skills, a firm grasp on ethics rules, client counseling skills, and contract and negotiation skills. Lawyers working with nonprofits need to know how to negotiate and document contracts, how to assess risks, and how to work with other professionals. Such lawyers must also know how corporate governance works and how boards operate. Tax law runs through nearly everything, and lawyers in this area must have more than a working understanding of the Internal Revenue Code sections and regulations that apply to charitable, tax-exempt organizations.
But in addition to the body of transactional skills that apply in common to private organizations and civil society organizations, attorneys advising civil society organizations must also develop separate skills, ones that relate to the unique qualities of civil society.
First, the representation of civil society organizations must involve an understanding of the client’s charitable purpose. This then requires effort to understand the work that is done on a very detailed, operational level. Lawyers usually understand their client’s purposes through experience. In the civil society context, this experience will involve work in the community, outside of offices and conference rooms, where the nonprofit works. Civil society organizations are often governed by volunteers, and sometimes staffed by volunteers, who work other jobs, and meetings will be held in the evening and on weekends. To work with these organizations, the lawyer must commit to regularly working outside of normal business hours.
To build an effective attorney-client relationship, a lawyer must work within the client’s culture and custom. Effective representation of any sort also requires a high degree of cultural competence. Culture refers to the integrated patterns of behavior, including language, communication, actions, customs, beliefs, and institutions of racial, ethnic, religious, or social groups. To have competency implies having the capacity to function effectively as a professional within the context of culture presented by the client’s community. Because nonprofit organizations often work with communities and groups that have been marginalized, serve the marginalized, or represent needs that are outside the dominate culture, to be effective, lawyers advising civil society organizations must exhibit cultural competency across lines of difference.
Finally, lawyers who serve nonprofit organizations often take on advocacy roles, even when they are not in a courtroom. As the client advocates for the public interest, the lawyer becomes an advocate as well, in a sense, enabling the organization to promote its charitable missions. By its very nature, civil society strives to promote justice, fairness, and morality.
In the end, the lawyers advising nonprofit organizations must strive to be a “counselor” in the fullest sense. Not just a technician, even a very competent technician, but instead a consummate professional who approaches each client’s concerns with the technical skills needed to provide appropriate and accurate advice, along with perspective, discernment, and practical advice. A counselor knows that the most appropriate result for a client is not always the result predicted by the application of rules of law or procedure. To understand the best outcome for a client, a lawyer must appreciate not only the law but also the realities facing the client. For a lawyer advising a nonprofit organization, this requires an understanding of the organization and the community it serves.
The skills needed to represent civil society organizations are in some ways the same skills needed to practice corporate law, and in other ways they are very different.
Elements of Teaching Nonprofit Law
There are valid reasons for law schools to develop programs of study for law students that are specific to the needs of civil society. What should such programs look like?
Nonprofit Courses. Because civil society is a distinct area of law and policy, it should be studied and taught as such. Courses could begin with general nonprofit organizations and build to specific courses on tax related to charitable organizations and nonprofits.
Discipline-specific courses can also be offered, including topics related to environmental protection and policy, philanthropy, and international non-governmental organizations.
Emphasize Skills and Experiential Learning. A skills-based curriculum allows law students to develop practical skills while experiencing the realities of practice.
Incorporate Live Client Clinical Programs. With live clients, in real situations, students encounter the compelling needs that are served by civil society. They are also compelled to address their own cultural competence.
Integrate a Multidisciplinary Approach. The public interests served by the nonprofit sector are multi-faceted. Business development, for example, involves not only questions of law, but also issues of community development, planning, economics, philanthropy, and civil rights. To appropriately understand the sector, students must be exposed to the multi-disciplinary dynamics influencing the sector.
The teaching of law related to nonprofit organizations and civil society should be pursued as an area of study with discrete training and courses related to the sector. The differences that lie between the nonprofit and the for-profit and public sectors are substantial and meaningful enough to support such an approach. Law schools can then provide better preparation for those students who plan to represent civil society organizations as part of their career. •
Virgil is the director of the Institute for Public Engagement and Associate Clinical Professor at Wake Forest University School of Law.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.