You Can’t Pick Your Family…For Your Nonprofit Board?
“We are family!” says the Sly and the Family Stone song. People trust family and rely on those relationships. Family can be a springboard when you’re doing something big and need support, but do you want to include family on your board? Can you include family members on your board? Like most nonprofit questions, the answer to this is “yes and no”.
Right at the very beginning, when you’re completing your 1023 application for tax exemption, Part V starts asking questions about who comprises your board. Question 2a doesn’t beat around the bush: “Are any of your officers, directors, or trustees related to each other through family or business relationships? If “Yes”, identify the individuals and explain the relationship. Emphasis is the IRS’s so I’m guessing they take this pretty seriously. Questions b and c ask further drill down the relationship issue.
So why all the fuss? Well, it gets down to two things:
- Conflict of Interest in the business dealings of the organization.
- The ability of a group of individuals to band together and dominate the board’s decision-making process.
One of the tasks the IRS is undertaking when they review an application is to gauge how legitimately the organization intends to provide a charitable or educational benefit to the larger community. They are looking to ensure that people creating nonprofits aren’t trying to dodge paying business taxes, launder money, or create an opportunity to personally enrich themselves.
As one person pointed out recently, if the goal is to find people to serve on the board who will participate and deliver, wouldn’t you turn to family members for that trusted relationship? Good point. That said, if you do want to include family members, here are some things to keep in mind.
Can you justify including family on the board? An example would be starting an organization to honor a family member by working on an issue near and dear to their hearts. Perhaps Grandma never let a cat go homeless so after her passing, you create Grandma Hilda’s Home for Homeless Felines. In that case, you may want to have representation from the family to honor the legacy of Grandma Hilda and keep the organization on track to honor her.
Be careful about how many family members you have on your board. Family is like salt, you can have too much. A concern is the potential for the related persons to outvote everyone else and possibly utilize the organization’s resources to personally gain from their involvement.
For example, if your by-laws call for a board of five people, that makes your quorum three. Assuming you’re on the board and you bring on two family members, the three of you constitutes a quorum that could potentially conduct business without the other two board members. The three of you can outvote everyone else. So what happens when you guys vote to hire Cousin Lou as Executive Director, who has no nonprofit experience and pay him an annual salary of $250,000 or you award that huge IT contract to your sister Sally?
Even if everything is above board, your board is public information and too many family members on the board can make people skittish about your organization. When you apply for grants or file annual updates with the state and federal government, they ask for a list of your board members, usually with addresses. Keep in mind that even the appearance of some impropriety can have far reaching effects.
Being on a nonprofit board with family won’t magically erase all the past tension and in fact may increase it. Board service can do strange things to people and relationships so be protective about your family relationships. Nonprofits do not “belong” to anyone and you can’t guarantee your own or family involvement with an organization. Be protective of your family relationships and if you think board service might destroy a relationship, it isn’t worth it. There are plenty of individuals who can make wonderful contributions that you don’t have to see at Thanksgiving!
Family can enhance a board, but including family on boards should be done very carefully with a great deal of thought and planning to avoid conflicts of interest.
How about you? Have you ever served on a board with family members? What about being one of the unrelated members of a family board? Got anything else to add?
- Posted in: Board of Directors ♦ Governance ♦ IRS 1023 Application ♦ Nonprofit Startup
- Tagged: 1023, 1023 Application, 501(c)(3), Board, board meetings, Board of Directors, board recruitment, by-laws, governance, IRS, IRS application, Leadership, Nonprofit Startup, relationships, stakeholders, startup, tax-exempt