DATELINE: February 19, 2008, Chicago
Take a look at the nonprofit law of any state. These laws uniformly impose a duty of care and a duty of loyalty on directors of nonprofit corporations. You will be hard pressed to find a duty to fundraise or give. That’s because there is no legal duty to fundraise or give. If blogger...
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Kelly Kleiman (Nonprofiteer) had her way, every director would be required to make contributions as a consequence of being board members. Ms. Kleiman has proposed a truly bad idea. Here is why:
A. Governance. The primary function of every board is to provide oversight. We are not naïve. We recognize that many boards are fundraising boards, but we do not believe that should be encouraged by formalizing requirements that board members become donors. To focus on fundraising rather than governance reflects a belief that there is little value to oversight. Yet, time and again, we see the costs of poor governance in the form of financial mismanagement, illegal activity, and poor decisions.
B. Size. Fundraising boards tend to be large boards, often numbering 50 to 70 members. Take a look at any number of cultural institutions to see this phenomenon, which has been memorialized in the phrase “Give, Get, or Get Off.” Most governance experts will tell you the ideal board size is somewhere between 8 to 15 members. Most of the Fortune 500 boards fall within that range. As the size of the board becomes larger, many directors will look at the large number of other directors, concluding that someone will pick up the slack. This is human nature and is well recognized by organizational behavorists. Diffusion of energy upsets the delicate balance between the board and management, shifting that balance toward the executive director (and often an executive committee).
C. Diversity. Lately, we have been hearing a lot from the California legislature about diversity and nonprofits. We reject legislatively imposing diversity, but recognize that diversity brings the obvious benefit of different points of view. Requiring that directors give or raise a minimum amount of money in exchange for board member will result in boards biased in the direction of individuals with discretionary income or friends with money. Is this the bias Kleiman wants to introduce into the boardroom? So low-income people or people with young children and high expenses have no place on nonprofit boards?
D. Statutory Requirements. Some nonprofits are required by statute to set aside a certain percentage of board positions for low-income individuals or their representatives. Kleiman’s proposal would make it difficult for these organizations to satisfy statutory requirements.
E. Board Members with Knowledge. Every board should want a lawyer, accountant, financial professional, and any number of other professionals as board members. Kleiman's focus on money ignores the contributions that these professionals can make to a board. Recently some legislative bodies have recognized the importance of certain professionals to oversight, mandating that boards have lawyers and financial experts. Once again, imposing a requirement that all board members contribute money could make it more difficult for boards to find members who satisfy the statutory requirements, or more importantly, bring certain vital knowledge to the board.
F. Money Isn’t Everything. Kleinman writes:
Nonprofits attract all kinds of volunteers, but the ones who get to govern them are the ones who pay their bills.
Why is or should wealth be the determining factor? If a charity relies heavily on volunteer services, why shouldn’t the volunteers have input? If a charity serves the elderly, why shouldn’t an elderly recipient of the services be represented? If the charity receives government grant money, why shouldn't a government representative be on the board? Board members are supposed to act in the best interests of the charity. Why does having money assure that result? In our experience, giving lots of money actually reduces the willingness of people to provide the time and energy required of a board member. They bought there way onto the board, meaning that they can now go to exclusive openings and sit at the head table. They don't have to do the work that accompanies board service.
The Larger Problem: Too many people like Kleinman want to impose rules on charities. No charity can pay its executive director more than $150,000 a year. No charity should incur more than 10% in fundraising expenses. Every charity should spend 10% of its endowment each year. But one size does not fit all. Each charity’s board of directors is charged with addressing these sorts of issues. We should let boards do their jobs rather than imposing rules on them and the organizations they serve. Regrettably, if Kleiman's proposal catches on, we will need more rules imposed on charities, because the board members that Kleiman favors are the ones who often abdicate their duties to set policy an oversee the charity. That abdication makes a top-down rule-based regime necessary, but it does not necessarily result in effective charities.
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THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
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