Nonprofit Report - June 2017

Date: June 29, 2017

China's Overseas NGO Law: Next Steps for Associations
By: Dorothy Deng

Originally published in ASAE’s Associations Now Plus.

Now that China’s new overseas NGO law is in effect, nongovernmental organizations operating there have a new set of requirements to comply with. While many provisions of the law remain fuzzy, several first steps for associations have become clear. 

China’s new law governing nongovernmental organizations—formally, the “Law of the People’s Republic of China on the Administration of the Activities of Overseas Nongovernmental Organizations in the Mainland of China”—was approved by the National People’s Congress in April 2016 and became effective on January 1, 2017. One of its main purposes is to regulate foreign NGOs that engage in sensitive political activities, such as promoting human rights, democracy, and labor rights. However, due to its broad definition of “overseas NGOs,” many professional associations established overseas are also subject to the law. 

Associations with an existing presence or planned activities in mainland China have new compliance obligations to fulfill. While some details remain uncertain, those organizations should be taking several actions now. 

Registration Requirements
The new law requires overseas NGOs to register with the Ministry of Public Security (MPS), China’s law enforcement agency. There are two registration options. 

Permanent presence. An overseas NGO with a permanent presence in mainland China must register an established representative office after approval by the appropriate professional supervisory authority—sometimes referred to as the government sponsor or professional supervisory unit (PSU). The MPS issued a list of PSUs in December to help organizations identify their appropriate professional supervisory unit, although the document currently is available only in Chinese. 

The PSU list is organized by NGO categories, such as economics, education, cultural, public health, technology, and so on. Each category contains a number of subcategories and activities corresponding to the appropriate PSUs. Convincing a government agency to act as a sponsor could be challenging, so organizations considering the representative-office registration option may benefit from reaching out to any existing contacts they have with the listed agencies.  

Temporary presence. An NGO carrying out temporary activities in mainland China must submit documents to the MPS through a Chinese partner at least 15 days before the activities begin. A Chinese partner could be a Chinese state organ, people’s organization, public institution, or social organization. For NGOs considering this registration option, it is advisable to identify reliable Chinese partners willing to submit the temporary-activities filing to the MPS. One of the required documents is a written agreement between the NGO and its partner, so the parties should set forth their obligations regarding the filing process in the agreement. 

Limited Exclusions

For overseas NGOs conducting minimal activities in mainland China that do not involve sensitive political issues, registration might not be necessary. For example, sending a speaker to a private technical-writing workshop hosted by a local Chinese professional association would probably not require registration. On the other hand, cosponsoring an international conference with 300 attendees in Beijing’s convention center downtown would likely require registration as a temporary activity. 

Some activities may be exempted from the law under Article 53, which provides that “overseas schools, hospitals, natural sciences and engineering technology research institutions, or academic organizations wishing to engage in exchanges and cooperation with schools, hospitals, natural sciences and engineering technology research institutions, or academic organizations in mainland China shall do so in accordance with relevant regulations of the state.” Foreign professional associations that have existing collaborative programs with these kinds of organizations in China should reach out to contacts and inquire if the new law’s limited exclusion provision applies.  

Conservative Approach

Several terms and provisions under the new law remain unclear, including two that are relevant to many professional associations.  

Prohibited activities. Article 28 of the new law prohibits overseas NGOs from “recruiting members/developing membership” in mainland China. Although the term “recruit members/develop membership” isn’t well defined, it implies actions that go beyond relaying information about membership. The new law does not prohibit Chinese citizens from becoming members of a foreign NGO. 

Associations should use a conservative approach, refraining from openly recruiting members in mainland China until the MPS provides clarification. Organizations might consider offering products and services as subscriptions instead of membership or using licensing arrangements to make content available in the Chinese market. 
Branch organizations. Article 18 of the new law prohibits overseas NGOs from establishing branch organizations. Again, the key term, “branch organizations,” is not clearly defined; it could be interpreted as a fully registered legal entity or a casual group or something in between. For organizations without existing Chinese chapters, the more conservative approach is to wait and see how the MPS implements and interprets the new law before taking steps to formally establish any local Chinese chapters. 

Despite the law’s general prohibitions against recruiting members and establishing branch organizations, it provides an exception when the government otherwise approves these activities. Overseas NGOs preparing to register representative offices with the MPS may want to discuss their concerns about developing membership and establishing branch organizations with potential government sponsors.  

The new overseas NGO law is not intended to target professional associations or discourage them from conducting activities in mainland China. In fact, Article 3 explicitly states that overseas NGOs may engage in activities in the areas of economy, education, science, culture, health, sports, and environmental protection, as well as poverty and disaster relief. During this transition period, however, organizations with current or planned activities in mainland China should start having conversations with established contacts to find out the appropriate next steps and make any necessary adjustments to their organizational plans.  

Registration Resources

To help NGOs with the registration process, China’s Ministry of Public Security has published the following resources online:

Guide for the Registration of Representative Offices and Submitting Documents for the Record Temporary Activities of Overseas NGOs. This handbook, available in English, provides procedural guidance concerning the registration process. Registration forms may also be downloaded here.

Online Service Platform for Overseas NGOs. The platform enables registered users to submit and update NGO registration applications, annual plans, and temporary-activity filings and reports. Press releases and other announcements are also posted here. To create a registered account and to access the platform’s e-filing features, a cellphone number issued in China is required. At this time, the platform is available only in Chinese. 

Legal Elements of Executive Succession Planning
By: Eileen Morgan Johnson

Originally published in ASAE’s Associations Now Plus.

A CEO's departure, whether planned or unexpected, inevitably disrupts the routine workings of staff and volunteer leaders. But the path to new executive leadership will be smoother if a solid succession plan is in place, addressing key legal issues from employment law and contracts to the board's role.

With more and more baby boomers retiring, more changes are coming to association C-suites. Wise association executives already have a succession plan in place, but it is never too late to develop one if your association lacks a plan. Like insurance, a good succession plan is there when you need it. From a legal perspective, succession planning involves several elements: employment law, contracts, and governance.

You can begin to develop a succession plan by thinking about possible scenarios: How would your association react in the event of a vacancy in particular executive positions? Succession planning is often thought of as applying only to the chief executive, but for business continuity purposes, an organization should have a succession plan in place for each key staff member. If there is an employee whose departure due to retirement or a more lucrative job offer would create problems for your association, then you should have a plan in place to carry on that employee's work. Every executive's annual performance review should include not only updating his or her position description but also having a succession plan in place.

In large organizations, it's more likely that current staff can assume the duties of a departing colleague, even if only on a temporary basis. Smaller organizations face the challenge of identifying someone to backfill the position. Sometimes staff can be cross-trained, but for more-senior positions or those requiring technical knowledge or skills, the solution might be to enlist an interim executive until a replacement can be hired.

Interim Executive Contracts

If an interim executive is hired, the association will likely enter into a contract with an individual or a company that provides interim placement services. In either case, the contract should clearly specify the expected duration of the engagement, payment of fees and expenses, and the interim employee's duties and limits of authority. He or she is not usually involved in the recruitment of the permanent employee but may be asked to assist with onboarding.

The contract should state that the interim executive will not be considered for permanent placement. This has a number of advantages. It keeps the interim leader focused on the job at hand and not on trying to win the position. It also allows him or her to make necessary but perhaps unpopular decisions as the association transitions to new leadership. And it opens the board to considering others who might be identified through an open search process.

In some situations, the best choice for an interim CEO may be a current staff member. In such a case, the contract should specify:

  • the CEO duties he or she will carry out during the interim period
  • the duties of the employee's regular position that he or she will continue to cover
  • changes in compensation, including any benchmarks to be met to earn a bonus
  • whether the employee may apply for the vacant position

In some situations, the interim contract will include a severance payment if the new CEO terminates the employment of the interim CEO. An enhanced severance payment might be necessary to persuade a current senior staffer to take on the interim position.

In times of change, an organization's continued success—or even its basic functioning—may depend on retaining a few key employees. A retention or stay agreement can be used to entice those employees to stay with the association. This type of agreement, which typically covers a short time period, provides for either a single payment at the end of the stated term or a series of payments on specified dates if the employee is still employed. A stay agreement does not guarantee employment through a specified date. Instead, it is a promise of additional compensation if the employee chooses to stay. The employer may still terminate the employee at any time.

Beginning the Search

Part of an association's succession plan might be to establish a relationship with a firm that can provide interim executive services and perform the search for the next CEO. An arrangement with a search firm should be in writing and clearly set forth both parties' expectations about services to be provided by the firm, the association's responsibilities, the fee, and the timing for the search. Many search firms provide some sort of guarantee that the association will be happy with its new executive, often in the form of a free or low-fee search for a replacement if the executive leaves within the first 12 months of employment. 

The association should be an informed participant in the search and recruitment process. Before providing a job description, the organization's leadership should take a fresh look at the position, identify the required skills and experience, and think about the work that the new executive will do. Rather than looking at what was needed in the past, the board should ask what the association needs in a CEO today and in the future.

While approval of the full board is likely required to hire a new CEO, you will have a better working relationship with your recruiter if you limit active participation and communication to a small search committee. The committee can brief the full board on the progress of the search and involve them at appropriate points along the way.

The Board's Role

A vacancy in the CEO position causes disruption not only to the staff but also to the board of directors. The burden of working with the interim CEO and the search firm often falls on the executive committee or the board chair. This burden can be reduced if the association already has a relationship with a firm that can provide both interim executive and search services. 

It is tempting for board members to seize control of the association's operations during a CEO vacancy, leading to an unhealthy shift from governance to management that will likely present difficulties for the new hire. The board, executive committee, or board chair might be hesitant to back away from some management tasks they had assumed, at least until the new CEO has demonstrated the ability to handle the job. This is particularly true if the previous CEO's departure was involuntary. An experienced recruiter can help to allay the board's fears and restore balance to the board-CEO relationship.

The succession plan should include a plan for onboarding the new CEO. A successful onboarding process will increase the chances that the new executive will succeed in the position. The executive committee or board chair should establish achievable goals for the first year and check in with the new CEO periodically. The search firm might provide assistance with onboarding.

Like any business plan, the succession plan should be reviewed periodically and updated as necessary so that it is ready to be implemented when the need arises.