Dear Nonprofiteer, How do we keep it all in the family?

Dear Nonprofiteer,

My wife and I started a small non-profit 3 years ago which has grown to have a budget of almost $200,000 per year.  When we started the organization she was made the Executive Director and the Chairman of the board and I was also a board member. She receives compensation in her full-time role as Executive Director and I volunteer my time (which is plenty). In addition to us, there are currently 3 other board members (Searching for 2 more).

This non-profit initially started as a for-profit enterprise to help women that struggle with addiction by providing transitional living services, case management, mentoring and so much more.  However, we quickly realized that if we were going to move into the treatment circles that these women belong to as well as be eligible for donations from individuals and companies, we would need to put aside our profit motivation and convert to a non-profit. After about a year of hard work we were able to make the transition.

However, it has been hard to find a number of good board members. The 3 that we have now (besides my wife and I) are great people and do sacrifice a number of hours each month for the ministry. However, I do not have any one board member that is willing to really spend a number of hours each week on the ministry.  Of course, one of the struggles we have is finding people that have a passion about recovery that do not have a lot of junk from their own past. Usually those that care the most about recovery, are in fact recovering addicts themselves.

SO…all this to say that we struggle with developing a strong board and then struggle with the idea of losing control of the Board and the organization that we have spent so much time developing.

My question is that with a recent grant award by a HUD funded city using CDBG funds, the fact of my wife being an Executive Director and a member of the board is being questioned as a conflict of interest.  Of course, if my wife resigns from the board due to conflict of interest, I will need to do so as well. In fact, we have been thinking about bringing me on board as a part time
COO of the organization to pick up the pieces where my wife is weak.  If I were to take on a day of work each week, I could handle policy development, accounting issues, maintenance and technology.

Do you have any links to official federal documentation that allows this type of scenario?

Signed,

Two Heads Are Better Than One

Dear Two Heads,

The Nonprofiteer can’t provide links to “official Federal documentation” approving your situation because there aren’t any such.  The Feds are right: if you and your wife sit on the Board that sets your wife’s salary, you are officially engaged in conflict of interest.  Especially with a tiny Board like yours (where the two of you constitute 40% of the voting power), the situation you’ve described holds far too much potential for abuse.

It appears that you still have the mindset with which you started this group as a for-profit: that you can reward yourselves for the work you do in any way that seems appropriate to you.  But as you’ve perceived, nonprofits belong not to their founders and not to their staffs but to their Boards, and those Boards are charged with making sure that, for instance, people aren’t allowed to determine their own rewards for the work they do.

(Best practice is not to put a couple on a Board of Directors together, let alone putting a couple on the Board where one [and potentially two] of them has a personal financial interest in the results of Board decisions.)

In short: you can run a family business and do as you please, or you can run a nonprofit and abide by its rules, which include Board oversight of staff appointments and salaries.  And if you’re running a nonprofit, the Executive Director should serve on the Board only ex officio (that is, as a non-voting member)–and her husband shouldn’t serve on the Board at all.

No doubt the work you’re doing is valuable and important and even in the public interest, but earning nonprofit status requires more than that.  You have to be willing to “los[e] control of . . . this organization that we have spent so much time developing.”  That’s the price for gaining access to tax-deductible donations.

You might investigate the new legal structures (currently being adopted or under consideration in many states) which permit a certain degree of profit while offering certain nonprofit-style benefits.  The Nonprofiteer knows little about these L3Cs (Low-Profit Limited Liability Companies), except that they’re designed to legitimize the profit motive in a public-interest context; but she’s sure that even in one of those, you won’t be allowed to dominate the staff and Board as you have heretofore.

Sit down and think about what you really want.  If this is your baby, organize it so it can stay that way–even if that means reversing your conversion to nonprofit status.  Gaining access to foundation grants is not reason enough to surrender control of something you love.

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7 Responses to “Dear Nonprofiteer, How do we keep it all in the family?”

  1. Ian Belknap Says:

    I think it’s worth noting and in view quite revealing, too, how interested THABTO seems in “pre-selecting” board members – i.e. people with a high degree of interest in the issue they seek to address (totally subjective), without the “baggage” associated with it (also totally subjective).

    It strikes me that with an issue as devastating and personal as addiction counseling and treatment, the likelihood that one will find people sufficiently interested/willing to serve without having suffered some level of personal impact (whether themselves or a loved one) is pretty slim. Volunteer labor is borne of great love and a high degree of personal investment. They seem paradoxically (perversely?) interested in weeding out the people who are most likely to become the most tireless advocates of their organization. Which, one man’s opinion, bespeaks a greater interest in exerting control of the organization than in being of maximum service to the issue.

    Thanks for another thought-provoking post.

    • Nonprofiteer Says:

      It’s also not at all clear that everyone interested in addiction is an addict or in close emotional contact with one. The Nonprofiteer’s brother, for example, is a scholar of drug policy (among other things) and the author of a book about the impact of both legal and illegal drugs on society, individuals and the criminal justice system: Against Excess, by Mark A.R. Kleiman. Someone like that might make an ideal Board member without having any so-called baggage.

      As with many issues in the nonprofit sector, it’s probably best to avoid multiplication of difficulties (“Oh, we’ll never find Board members because we’re too big/too small/about an issue no one cares about/about an issue that grosses people out,” etc. etc.) and to focus–as THABTO does–on what we want to accomplish and whether the structure we’ve chosen will accomplish that.

  2. Two Heads Are Better Than One Says:

    I want to say THANKS once again for your insight into our problems from last month. Partially from your astute observations, my wife and I resigned from our board of directors. Of course as Executive Director and as a non-voting member of the board, she is still actively involved. As chief volunteer, I am also still involved and we really enjoy making a difference in the lives of the women that we help.

    We had one of our board members that has a wife that would like to be involved as well. I just re-read your post and you addressed that as well. Thanks again for your help in this regards.

    • Nonprofiteer Says:

      I’m thrilled the answer proved useful to you–and stunned that anyone actually took my advice! All best to you both, and to the organization you love.

  3. Jane Says:

    This funny McSweeney’s piece reminded me of your blog subject material: http://www.mcsweeneys.net/2009/12/8cech.html

    Happy holidays, and thanks for your help and wisdom this year! — Jane

    • Nonprofiteer Says:

      This is outstanding–thanks so much for sending it along. The only thing that keeps us all from getting too discouraged to go on is the help, support and humor from the rest of us! Happy holidays.

  4. Dear Nonprofiteer, Does a staff member get a seat on the Board? « Says:

    […] members alike to earlier postings here, as the issue has come up more than once. See, for instance, “How do we keep it all in the family?” and  also the first paragraph of the Nonprofiteer’s reply to “How to reconcile Board […]

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