Dear Nonprofiteer, Can a donor dictate the use of her gift? How about if she’s the Executive Director? How about if she’s also on the Board?

Dear Nonprofiteer:

I was wondering if it is ethical for an Executive Director to donate to the organization she runs, designating her donation to bonuses or pay raises for the employees that work for her.  She is not paid, thus can remain on our Board.  Seems like a conflict to me.

Signed, Wondering

Dear Wondering:

The Nonprofiteer sees a conflict of interest in the situation you describe, all right, but it doesn’t have to do with the donation.  Any donor can specify the use to be made of his/her gift, and if those terms strike the recipient organization as too onerous it can simply refuse the gift.  A donation from a foundation restricted to paying the salary of a particular staff member—or to giving salary increases to staff members across the board—would be unexceptionable, and in fact would represent a refreshing understanding by the foundation community that people who work for nonprofits need to clothe their kids and pay mortgages, too.

But.

When the donor is the Executive Director, a gift of this kind might be seen as a way of buying (as opposed to earning) loyalty from the staff.  On the other hand, who’s in a better position than the ED to know that her staff members are overworked and underpaid?

But.

It’s the job of the Board to create and implement the agency’s budget, a budget which presumably includes a line item for staff salaries.  It isn’t really kosher for the Executive Director to unilaterally override this governance decision by whipping out her checkbook.

But.

If there’s a consensus on the Board that the staff is underpaid, and/or that it’s time for a raise if only there were money,  the Executive Director’s decision to alleviate that situation (and capacity to do so) should be as welcome as a similar decision by any other donor.

But.

The Nonprofiteer doesn’t understand “She is not paid, thus can remain on our Board.”  The Executive Director, regardless of her compensation status, should serve as an ex officio member of the Board—that is, a Board member by virtue of her position and not in her individual capacity.   If the Executive Director was on the Board first, she should have resigned when she took on the duties of Executive Director.  The Board’s power is concentrated largely in its ability to evaluate, hire and fire the Executive Director, and if necessary to go into executive session to do so—that is, to kick the ED out of the room.  But if the ED remains a Board member, she can’t be removed from the room, therefore she can’t be discussed frankly, therefore she probably can’t be removed, therefore the Board has no power at all.

So the conflict is between the ED-qua-ED and the ED-qua-Board member.  These two roles cannot coexist, and the balance of the Board should demand that the ED choose one or the other.  This is why it’s not even a good idea to permit a Board member to serve as ED on an interim basis—because the “interim” tends to become the “interminable” without anybody’s noticing.

So.

Now we’re back to the question of the gift.  If the ED remains on the Board, her contribution should be counted toward her mandatory give-or-get; but first the balance of the Board should vote on whether to accept the gift with the conditions she’s attached to it.  The ED-Board member, naturally, would recuse herself from this decision on the grounds that she—what?—has a conflict of interest, in this case between her role on the Board and her role as an individual donor to the agency.

By the same token, if the ED leaves the Board but remains at the agency, the Board once again has the right (and the obligation) to vote on whether to accept the gift she’s offered with the conditions she’s attached to it.  Naturally, this discussion would take place in executive session, with the ED excused from the room.  If Board members think this is a great opportunity to enhance compensation, they should accept; if they think this is a sneaky maneuver to undermine their budget authority, they should reject; but in any case the ED has no right to have her gift accepted unless and until the Board approves it.

To review: the question of the ethics of the donation doesn’t even arise unless the Board neglects its fiduciary obligation to evaluate gifts for unacceptable conditions.  The questionable ethics here are those of all concerned—Board members and ED/Board member alike—in permitting one person to fill two roles.

Once you’ve given someone a disproportionate share of power, you can’t be surprised when she makes a play for a further disproportionate share of power, in this case by brandishing a checkbook.  But the power to prevent the gift lies in the hands of the remainder of the Board, and if they fail to exercise it, they’re the ones whose ethics are questionable.

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6 Responses to “Dear Nonprofiteer, Can a donor dictate the use of her gift? How about if she’s the Executive Director? How about if she’s also on the Board?”

  1. Laura Browning Says:

    Great expansion on a seemingly simple question. This issue can be a sidebar to “founder’s Syndrome” also.

  2. Nancy Worssam Says:

    Well done, Nonprofiteer. You over all the bases, and do it graciously.

  3. projectsforpeople Says:

    Nonprofiteer,
    I’ve been reading through your posts for the past hour, and they’re so insightful. Especially for a college sophomore like myself who’s trying to start a non profit, these problems people post to get your answers really help me see what is and what isn’t acceptable. You’re amazing!

  4. ashleytobin Says:

    Reblogged this on Notes on Nonprofits and commented:
    Can a donor dictate her gift? How about if she’s the Executive Director? — an ethical question handled very well by The Nonprofiteer.

  5. K. Sujata Says:

    Kelly, This  is a very thorough examination of the issue.  You address many items here that would otherwise not be apparent. Thanks, Sujata

      K. Sujata

    ________________________________

  6. Unmi Song Says:

    I appreciate your post and agree with your general set of arguments, but I have a few nits which complicate the particular way you have set up your comments. There are a few things you are presuming which are not always the case:

    ” But if the ED remains a Board member, she can’t be removed from the room, therefore she can’t be discussed frankly, therefore she probably can’t be removed, therefore the Board has no power at all.”

    For a number of nonprofits and foundations, as well as for profit corporations, a CEO or President is the chief executive of the organization and a board member, sometimes explicitly ex officio, but not always, and a full member of the board. That’s not to say that the board can’t have executive sessions, but being a full board member doesn’t mean she can’t be removed from the room and that the Board has no power at all.

    “By the same token, if the ED leaves the Board but remains at the agency, the Board once again has the right (and the obligation) to vote on whether to accept the gift she’s offered with the conditions she’s attached to it. Naturally, this discussion would take place in executive session, with the ED excused from the room. If Board members think this is a great opportunity to enhance compensation, they should accept; if they think this is a sneaky maneuver to undermine their budget authority, they should reject; but in any case the ED has no right to have her gift accepted unless and until the Board approves it.
    To review: the question of the ethics of the donation doesn’t even arise unless the Board neglects its fiduciary obligation to evaluate gifts for unacceptable conditions. The questionable ethics here are those of all concerned—Board members and ED/Board member alike—in permitting one person to fill two roles.”

    Not all boards require a vote on acceptance of every gift, or even of every gift that has conditions attached. I have been on several (well-functioning) boards and the ED has the discretion to accept almost all gifts. There have been parameters for size of gift or nature of condition that require board review, but generally the board does not see or review all gifts accepted.

    I appreciated the way you laid out the layer of issues.

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