Why It's Worth Finding Nonprofit Board Members Who Aren't Friends or Family

If friends or family sit on a nonprofit's board, could it be highly beneficial or create substantial problems?

Some of the best advice for someone starting a nonprofit is to form a diverse board of directors. This advice is also sage for a nonprofit that is seeking new or additional board members. In most instances, having board members with different backgrounds, skills, education, and experience fosters a strong nonprofit and helps the board avoid getting into hot water legally.

In addition, a diverse board typically develops healthy, positive friction in its interactions with fellow members. Board meetings populated by directors who agree with every idea and rubber stamp every action are not ideal.

Friends or family members might be the most willing board members while the nonprofit is in its initial growth stages. But they also might, due to social dynamics or for other reasons, be reluctant to offer ideas or suggestions that are counter to other board members. Robust conversations and vigorous but civil debates usually result in nonprofits generating solid ideas and being well-managed organizations.

Why Board Diversification Helps Board Members Fulfill Their Legal Duties

Board members are required to manage a nonprofit in a responsible manner. The following briefly summarizes some of their obligations:

  • Duty of care. This means a member of the board will act with the care of a prudent person in a like position. That is, when making decisions, board members must undertake reasonable care and common sense.
  • Duty of loyalty. This means putting the organization ahead of individual interests and not engaging in self-dealing (for example, by awarding nonprofit service contracts to a business owned by a member of the board of directors or another individual associated with the nonprofit).
  • Duty of obedience. Board members have an obligation to make sure the nonprofit is complying with the law and meeting its mission. This could include relying on the advice of a lawyer or other professional.

A board that’s full of insiders such as friends and family can too easily run into difficulties meeting these obligations.

For example, if a board member knows that his brother and fellow board member is occasionally “borrowing” from the donation box, is he going to feel comfortable exercising his duty of loyalty to the organization or duty of obedience? Or if a nonprofit discovers an underpriced, prime parcel of land for its new location, but one member really wants to buy the property for himself, would other board members feel pressured to vote against the purchase? Such possibilities raise serious concerns for the board members and the nonprofit.

Why Board Diversification Helps Board Members Comply With the Business Judgment Rule

Board members must also follow something called the business judgment rule. (Yes, a nonprofit is a charity, but in the eyes of the law, it’s also a type of business.) To follow the rule, a board member must exercise good faith when making decisions. For example, it would likely not be good faith for a board member to vote in favor of engaging the services of a vendor that's owned by another board member.

The business judgment rule also requires being an informed board member and making decisions reasonably believed to be in the best interests of the organization. In a board full of friends and family members, some might feel that they don't really need to attend meetings and take an active role in management decisions, for example.

A board member who does not follow the rule could potentially become personally liable, or create other legal issues for the nonprofit.

Also, speaking of the business aspects of a nonprofit, bear in mind that one of the important roles of the board is to raise money to support the organization. The best source of funds is usually donations from people known to the organization; but if the board is already a tight-knit group that knows all the same people, it won’t have much luck casting a wide net for prospective donors.

How to Diversity Your Nonprofit’s Board

For many start-up nonprofits, it can be difficult to attract board members outside of a circle of friends or family. As such, let’s discuss some ways to diversify a nonprofit’s board:

  • Use resources such as Volunteer Match, which seeks to match nonprofit organizations with people in its geographic area who are interested in helping. As a side note, when hiring, a nonprofit should properly vet volunteers and employees.
  • Consider reaching out to local schools, volunteer organizations, and businesses, who likely have qualified and competent individuals who would be interested in serving their community.
  • Network vigorously and find people who can help. As you discuss your nonprofit's start-up plans with a lawyer, accountant, banker, and insurance agent, ask whether they know of anyone in their field who would be willing to sit on the board.
  • Put policies and procedures into place so that board members can understand, recognize, and disclose conflicts before they arises and create liability concerns for the individual or the nonprofit. For example, a board member who sits on the board of another nonprofit might have a conflict of interest. Properly vetting board members and requesting disclosure of potential conflicts could reduce the chances of a conflict.

Evaluating the composition and structure of a nonprofit’s board is crucial for the prosperity of a charitable organization. Without a board that is diverse, there is a risk of creating problems for the tax-exempt organization and liability issues for individuals.

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