Dear Nonprofiteer, How many roles does it take to screw up an organization?

Dear Nonprofiteer,

Several friends and I have started a new musical arts ensemble and are seeking to incorporate as a non-profit.  There are 8 artists in the ensemble, so we are a very small organization.  Since starting the ensemble was my idea, I have been serving as “Artistic Director,” choosing music, organizing rehearsals and performances, etc., as well as being an Artist in the ensemble.

We are currently working on our Bylaws and so have been thinking about how to structure our Board.  We have decided to have all the usual positions (President, VP, Secy, Treas) plus an Artist Representative, and a variable number of at-large Board members (no more than 5).  We have a provision in our (in-process-of-being-written) Bylaws where the Board can only select or remove the Artistic Director with a 2/3 consensus of the Artists.

At this point, all of our Artists will serve on the Board in some capacity (either as Officers or as at-large members), though we want to allow for a future time when the Artists get to be just Artists and let other people run the business side of things.  The other Artists want me to have a say-so in the running of the organization since the group was formed by my “vision”.

So my question is this:  Is it legal, ethical, practical, etc., for me to serve as both President AND Artistic Director (and an Artist in the ensemble)?  Or should one of the other Artists serve as President and I (as Art Dir) be only ex-officio with no vote?

I should also mention that my husband is also an Artist in the Ensemble, and so would also sit on the Board (for now).

Thank you very much for any advice you can give.  Signed,

Wearing Many Hats

Dear Hats:

Last issue first: it is never a good idea to have a married couple on the Board of a nonprofit, nor is it a good idea for one-half of the couple to serve on the Board while the other is employed by the agency.  (I gather you’re not getting paid as Artistic Director, but if you can be selected or fired by the Board, you’re an employee.)  A husband and wife on the Board stacks the voting since more often than not they will vote together, and the more important the issue the more likely they will march in lockstep.  Majority or not, they constitute a bloc, and blocs or factions create trouble on any Board.

And if your husband’s on the Board and you’re the Artistic Director, you’ve stacked the deck in your own favor on every issue while at the same time guaranteeing the maximum damage to the Board (your husband’s resignation) in case of any disagreement.  Don’t start out your nonprofit life with a built-in conflict of interest.

Further, as you seem to realize, no staff member (including the Artistic Director) should serve on the Board at all (whether President or not) except in an ex officio, non-voting capacity.

But let me suggest that you pause here to consider why you want to create a nonprofit structure at all.  Don’t become a nonprofit because “all arts groups are nonprofit;” the Nonprofiteer did that for a client once and it was a disaster.  As soon as there’s any money involved, you’ll find yourself fighting with the Board over whether those dollars should go directly to you, as Artistic Director; to the artists, in some proportionate way; or back into the institution.  So imagine yourself confronting that question now, and build the structure that will get you the answer that you want.

It’s fine to fill your Board with ensemble members and thus guarantee complete artistic and financial control of the agency by its artists.  But if you do, an “ensemble representative” would be redundant and should be omitted from your bylaws.

You might further consider that if you’re entirely ensemble-governed, you’re missing the opportunity to use the Board for its central purpose, which is to connect the group to the wider community (and, yes, raise money from that wider community to support the work you do).   You do your art for people; perhaps some of them should be represented on the Board—not just to do “the business stuff” but to help you maintain perspective about the relationship of your work to its audience.

In other words, as the Nonprofiteer has said in other contexts: nonprofit and 501c3 status are not mere legal trivialities to permit you to collect donations tax-free.  They’re statements about the kind of organization you are, namely, one answerable to the community through its Board.  You’re trading a certain amount of freedom for a certain amount of stability.  If you’re not ready to do that, skip nonprofit status and live hand-to-mouth til you’re ready to be a full-blown community institution–or until you figure out how to support your art entirely at the box office.

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8 Responses to “Dear Nonprofiteer, How many roles does it take to screw up an organization?”

  1. Anita Bernstein Says:

    So true!

    This blog always gives food for thought. You make me wonder why nonprofit status has crowded out other alternatives for arts organizations. Being a nonprofit is great, as you say, for an entity that thinks of itself as answerable to a wider community than just its charismatic leader or governing clique.

    It ought to be respectable, however, for artists to abjure 501(c)(3) and follow a singular vision funded by box office receipts. Or by donors who get no tax deduction for whatever they give. A donor, in turn, should be free to support a noncorporate art-maker without getting cast as weird or tyrranous.

    Not every arts provider is cut out for the bureaucracy, accountability, and community connection of a registered charity. Other money & governance modes ought to be at least tolerated, if not encouraged. Sure, these alternative ventures shouldn’t get government grants, and shouldn’t be allowed to violate the law in their operations. But a little more freak-flag flying would enliven the arts scene.

    • Nonprofiteer Says:

      Absolutely. And you’ve put your finger on the primary source of “all arts organizations should be nonprofit”–the availability of government funding. Though it’s less and less available, and in smaller amounts, we now have 30-plus years of organizational thinking based on the idea that whatever form the govt. funders dictate is the form artists ought to choose.

      • Paul Botts Says:

        Government funding is much less than 10% of the revenue stream available for and realized by arts organizations; for new/small groups it’s less than 5%. (All figures are from Americans for the Arts and Giving USA.) Moreover most state arts councils do not require federal 501(c)(3) status in order to seek the small grants which are, for most small arts orgs, the only government funding they ever even apply for. So government funding, although it hasn’t particularly shrunk in recent decades, is really not much of a factor in a decision about forming into a 501(c)(3) nonprofit.

      • Nonprofiteer Says:

        Thanks for the excellent factual insight. (Amazing how often we argue without the facts!)

  2. Paul Botts Says:

    I agree with the answer given overall. Based on a fair amount of experience with these questions from various perspectives, here are a few comments:

    — “ex officio” board members are not inherently “non-voting”, that’s a common misunderstanding. The ex officio part means “of the office”, meaning simply that they remain on the board only so long as they hold that office (such as artistic director). As opposed to “regular” board members who are elected individually without regard to holding a particular office. Artistic directors and managing directors often are ex officio voting board members, that’s fine so long as it’s a decent-sized board; they shouldn’t however be allowed to also serve as board officers such as chair or treasurer, that’s asking for trouble. I’m on two arts boards right now but would never join one in which the artistic director or founder was the board chair simply because that board is very likely headed for failure.

    — grantseeking is a particularly silly reason to go through the trouble to form a legal not-for-profit in the arts, given that less than 10% of the revenues of arts organizations in this country come from foundation and corporate grants. The fraction is even lower for small arts organizations, and that’s not a new reality. Building an individual-donor base is a much better reason since that is about a third of the revenues of arts non-profits. Earned revenue, which has nothing to do with non-profit status, is more than half the revenues of arts organizations.

    — “nonprofit and 501c3 status are not mere legal trivialities to permit you to collect donations tax-free….You’re trading a certain amount of freedom for a certain amount of stability.” That’s well put and I really wish that the current conversation among arts funders and arts leaders regarding the “tyranny” of 501c3 status was so balanced. Not-for-profit status is a social contract, meaning a trade — it is neither not a right nor a privilege nor any sort of requirement. It is a trade: you give up some things to get some things. E.g. among the things you get, under nearly all state not-for-profit incorporation laws, is firm protection for all concerned from any personal liabilities such as from angry creditors or someone who slipped and was injured while attending a performance. That’s just one prosaic element, there are more-profound ones of course.

    So there are excellent reasons for arts groups to form a 501(c)(3) structure. But…I routinely advise potential donors/board members to run far and fast from an arts group whose primary stated reason to form a non-profit was “to apply for grants”. Because in the first place that answer means they don’t understand and haven’t cared to really examine the reality of building and running their enterprise; and in the second place it suggests that they haven’t actually thought about or understand the genuinely meaningful reasons to adopt that particular structure.

    • Nonprofiteer Says:

      Good point about “ex officio”–ordinarily those are non-voting members of a Board, but you’re correct that those are two separate questions. And I’m glad to know you agree about the questionable nature of nonprofit status for many arts groups. The debate has been distorted over the years by the availability of various kinds of support that depends on tax-deductibility (not just government grants but foundation and corporate support, and possibly even certain huge individual gifts). We need to restore the conversation to, “What form of organization makes most likely the creation of valuable art with the least tsuris on everyone’s part?”

  3. James Bundy Says:

    Dear Nonprofiteer,

    “Never” is one of the least useful words in arts management, especially when applied to corporate structure and the roles of artists and trustees.

    Your assertions above are belied by the history of some of the most effective arts organizations in America in the last three decades–Cornerstone Theater Company and Mabou Mines, for example.

    Organizations need to be open, anticipatory and thoughtful about board structures and artists in positions of fiduciary responsibility. That doesn’t mean that artists should never serve in a voting capacity on the board of the organization.

    Most arts nonprofits measure success by criteria that artists are well equipped to judge and promote: so many missions may well be enhanced by artists in voting positions on the board. Mission enhancement often serves the community, and the more particular the mission, the more likely it is that artists will actually NEED to be on the board.

    Disagreements, separations and changes in an organization’s structure, personnel, and board composition over time, as you suggest elsewhere, are not inherently bad. So it’s simply arbitrary to use a word like “never” in this context.

    • Nonprofiteer Says:

      “Never” may be a poor word choice, but it nonetheless remains hard to imagine how good governance is served by having two people on a Board who can be almost guaranteed to vote as one. Nonprofit Boards are supposed to be democratic structures; they aren’t improved by built-in factionalism.

      Nor is it clear why an arts organization (as opposed to the leadership of any other nonprofit) should have its chief executive in a voting position on the Board. It’s possible to arrange for the chief executive to recuse him/herself in matters affecting him/her personally, but that’s awkward and requires constant redefinition of what “affects” a leader. More straightforward to have the Board be the master in one set of areas (finance, fundraising) and the executive be the master in another (artistic decisionmaking).

      Nowhere did the post suggest that artists shouldn’t serve on the Board.

      In any case, the key issue is whether nonprofit governance is appropriate for any individual arts organization. It may well not be, for any of the artistic reasons you cite. But if nonprofit governance is inappropriate, the answer is to organize the company some other way, not to violate norms of good nonprofit governance.

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