Podcast Summary: Rules of the Road for Social Impact Organizations

Podcast: Nonprofit Leadership Podcast
Host: Dr. Rob Harder
Guest: Elizabeth “Betsy” Schmidt, Senior Research Fellow at the University of Massachusetts and author of Rules of the Road for Nonprofit Leaders
Release Date: January 11, 2026

Main Theme

In this episode, host Dr. Rob Harder sits down with Betsy Schmidt to demystify the complex legal and regulatory landscape facing nonprofit leaders. Drawing on her new book, Rules of the Road for Nonprofit Leaders, Schmidt reframes the law not as a burden, but as a versatile tool that can empower organizations to safely and effectively further their missions. The conversation moves beyond compliance, diving into best practices, governance, advocacy, and trends affecting nonprofits today.

Key Discussion Points & Insights

1. Why a Book on Legal Rules for Nonprofit Leaders?

• Betsy’s Inspiration: Years of teaching nonprofit students and advising organizations made Schmidt realize that the more people learned about nonprofit law, the more unnecessarily cautious—and at times even paralyzed—they became. They viewed the law as a series of “can’ts” rather than a framework for action.
  • “I began to realize nonprofit leaders are action oriented and want to do things, and when they’re being told what they can’t do, that can be a problem.” (05:10, Schmidt)
• Reframing the Law: The law should be seen as a supportive guide. Betsy outlines eight empowering “rules of the road” (06:02):
  • Keep the mission front and center.
  • Govern wisely.
  • Fill your coffers.
  • Do the paperwork.
  • Treat your friends and stakeholders well—but just not too well!
  • Be ready to change course if needed.
  • Advocate for your cause.
  • Engage ethically and with intention.

2. Staying True to Mission & Legal Compliance

• Most nonprofits are already compliant if they are focused on their mission and purposes as declared to the IRS and the state.
  • “If you’re really following your mission, that’s very unlikely to happen [cross legal boundaries].” (07:43, Schmidt)
• Mission Drift Alert: Regularly review your mission and confirm it aligns with current operations. Both states and the IRS allow for mission amendments as long as proper channels are followed. (08:55, Schmidt)

3. Beyond Minimum Compliance: Governance, Ethics, and Finances

• Governance and Oversight: The law sets basic standards (e.g., duties of care and loyalty) but ethical leadership demands going beyond just what’s legally required.
  • “If we’re going to be ethical leaders, we have to do more than what the law tells us to do.” (09:24, Schmidt)
• Balanced Priorities: Avoid both extremes—obsessing over mission at the cost of solvency, or focusing solely on financials and neglecting core purposes. (09:24-10:35)

4. Common Pitfalls and Legal Grey Areas

• Advocacy & Commercial Activity: Confusion prevails, especially regarding what counts as advocacy, lobbying, or unrelated business income. Even well-resourced institutions struggle to interpret IRS rules.
  • Memorable analogy: “We’re telling leaders to stay within the speed limit, and we’re not telling them what the speed limit is.” (11:22, Schmidt)
• Lack of Clarity: Over-cautiousness leads nonprofits to miss opportunities that would further their missions.

5. Rules Around Advocacy, Lobbying, and Political Activity

• Education (Green Light): Nonprofits can educate without restriction.
• Political Campaign Activity (Red Light): Strictly forbidden for 501(c)(3)s to endorse or oppose political candidates.
  • “The only red light is for opposing or endorsing a candidate for a political campaign. And so that’s actually rather narrow...” (12:56, Schmidt)
• Lobbying: Permitted within limits. Up to 20% of budgets for organizations under $500,000 (declining percentage for larger orgs); the IRS provides two ways to measure this.
  • “Lobbying is legal and if you’re beginning to do that much lobbying, lawyers would suggest getting a 501(c)(4) affiliated organization.” (15:00, Schmidt)
• Education vs. Lobbying: You can organize community events, publish op-eds, and discuss issues/bills with legislators as education—not lobbying unless explicitly encouraging action on legislation.

6. 501(c)(3) vs. 501(c)(4)

• Key Distinctions:
  • 501(c)(3): Tax-exempt, donations are tax-deductible, but limited in lobbying and prohibited from direct political activity.
  • 501(c)(4): Can do unlimited lobbying and political advocacy, but donations are not tax-deductible.
  • Separate Entities Required: If you want both, they must be separate orgs with distinct finances and governance. (19:06, Schmidt)
• Quote: “You could have overlapping boards, but the different entities with different bylaws, different articles of incorporation, different agreement with the state. And you can’t mix the funds at all...” (19:06, Schmidt)

7. Recent Legal and Regulatory Changes

• Slice through the Noise: Rhetoric and policy debates have had greater impact than actual changes in law over the past year. Many lawsuits are still pending, especially around federal funding and its conditions (e.g., DEI clauses, immigration enforcement, gender-affirming care). (20:04-22:15)
• California’s Exception: State law now allows for retention of state nonprofit status even if federal exemption is lost, potentially setting a precedent for other states. (22:36, Schmidt)
  • “If you lose, quote, your federal recognition... you can still maintain a state level recognition...” (22:45, Harder)

8. Trends and Emerging Issues to Watch

• DEI and Supreme Court: Trends point to increased scrutiny on affirmative action and DEI policies, possibly extending beyond higher education.
• First Amendment and Political Activity: Churches challenging restrictions on political endorsements as violations of free speech—a live issue pending in the courts. (24:14-26:00)
• Federal Funding Risks: Grants come with new conditions, raising the stakes for compliance. False Claims Act increases liability for nonprofits who inadvertently misstate their activities.

9. Staying Current: Resources and Practical Advice

• Where to Learn More:
  • Betsy’s site: nonprofitrules.com
  • Jonesing on Nonprofits (Substack by law professor Daryl Jones)
  • Gene Takagi’s “Nonprofit Tweets of the Week” on Twitter
• Get the Book: Available via Georgetown University Press, Amazon, Barnes & Noble, and Indie bookstores. 30% discount with code “TGUF” at Georgetown University Press.
  • “It’s written for non lawyers. It’s written for people who aren’t trained in the law. And really most nonprofits can’t afford lawyers except in emergency situations.” (28:49, Schmidt)

Notable Quotes & Moments

• Mission and Law Alignment (07:43, Schmidt):
  “If you’re really following your mission, that’s very unlikely to happen—that you’d cross legal boundaries.”

• The Ethic of Leadership (09:24, Schmidt):
  “If we’re going to be ethical leaders, we have to do more than what the law tells us to do.”

• Confusion Surrounding Advocacy (11:22, Schmidt):
  “We’re telling leaders to stay within the speed limit, and we’re not telling them what the speed limit is.”

• Clarity on Political Activity (12:56, Schmidt):
  “The only red light is for opposing or endorsing a candidate for a political campaign. And so that’s actually rather narrow.”

• The 501(c)(3) vs 501(c)(4) Dilemma (19:06, Schmidt):
  “You can’t mix the funds at all because the C3 has tax deductible funds... you have to be very, very careful about keeping them separate.”

• Practical Advice for Leaders (28:49, Schmidt):
  “It’s written for non lawyers... most nonprofits can’t afford lawyers except in emergency situations.”

Timestamps of Major Segments

• Intro & Need for Legal Literacy: 00:36–04:04
• Betsy’s Motivation & Legal Positives: 05:10–06:48
• Mission and Legal Compliance: 07:43–08:55
• Governance, Ethics, and Board Roles: 09:24–10:35
• Common Legal Pitfalls & Unclear Rules: 10:56–12:10
• Advocacy, Lobbying, Political Activity Demystified: 12:56–17:13
• 501(c)(3) v. 501(c)(4) and Organizational Structure: 17:13–19:40
• Recent and Emerging Legal Issues: 20:04–27:27
• How Leaders Can Stay Informed & Book Details: 27:27–29:43
• Final Tips for Leaders & Board Members: 29:43–30:20

Closing Thoughts

This episode delivers actionable clarity for nonprofit leaders who want to confidently navigate legal, ethical, governance, and advocacy boundaries. Betsy Schmidt’s insights and tools empower leaders and boards to use the law as a resource—not a restraint—and encourage an ongoing, mission-focused approach to compliance and ethical leadership.

Takeaway:
If you stay true to your mission, operate with intention and ethical governance, and keep learning, you’re likely on the right side of the law—enabling your organization to make the greatest impact possible.