You are here

Can Board accept fundraising incentives?

Your Legal Questions Answered

Can Board accept fundraising incentives?

The conflict of interest provision in our charity’s bylaws provides [in part] that “no part of the net earnings of the corporation shall benefit or be given to any board member or persons or entities closely associated with any member of the organization.”  It also says that directors shall be “sensitive to potential conflicts of interest or the appearance of conflicts of interest.”  If our board approves a donation incentive of a free ticket to our annual event for every donor who gives $500 or more, can directors who give $500 get the ticket free?  What about a family member of a director?

These two points were buried in a conflict policy that took up about 15 lines of quotation when included in the question submitted to me.  It’s one of the reasons I don’t like to see conflict policies in the bylaws.  When an organization wants to change the policy, it will have to go through the process of amending the bylaws, which might require approval of members and other time-consuming processes.  Our form of bylaws includes a requirement to pass a conflict policy but doesn’t include the full text so that the board can act quickly when the need arises.  (See Ready Reference Page: “Bylaws Constitute ‘Constitution’ of Nonprofit Corporations”)

The bylaw provision here, to the extent quoted in the question, lacks a significant provision that we include in our conflict of interest policy template.  (See Ready Reference Page: “Conflict of Interest Policies Help Avoid Problems”) We include a provision that says a director who is or is affiliated with a recipient of goods or services from the organization is not precluded from participating in the discussion or voting on policies that affect the provision of such goods or services applicable to the director and others similarly situated.

If you don’t have that type of provision, you may not get the input you want from consumers of your healthcare services who are on the board to represent the views of patients, from the residents of your community association who care about the zoning in their neighborhood, or the members of your state association who care about the level of dues the board wants to adopt.  If this organization had a $1000 annual giving expectation [requirement?], who would be able to vote on the incentive for $500 donors?

Even in in the draconian rules dealing with self-dealing for directors of private foundations, rules that are much more restrictive than the excess benefit rules for public charities, the IRS says it is not a self-dealing transaction for a director to buy or sell goods or services from or to the foundation if the relationship is the same as open to the general public.

Like most policies in the charitable area, one conflict policy does not fit all and they must be thought about carefully, with an understanding of the law and a good bit of common sense.

Tuesday, April 2, 2024

Add new comment

Sign-up for our weekly Q&A; get a free report on electioneering