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How many non-independent directors are too many?

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How many non-independent directors are too many?

Is there a percentage or number of independent members of the board that is considered best practice? I have a client with 13 independent members and 4 non-independent (listed on Schedule L). Seems high to me, but not sure if it is “too” high.

Like so many issues with nonprofits and charities, there is no absolute number of non-independent directors that would be considered “too many.”  The Form 990 merely asks for disclosure.

An “independent” director is one who is not employed by the organization or who does not personally or through a family member receive substantial other payments from the organization.  Most public charities probably have a totally independent board, with the possible exception of the paid CEO.  But there are “worker owned” charities where all of the members of the board are employees, and others who utilize multiple members of the board for specific professional or other services.  Like so much else on the Form 990, it is information for the viewer to consider in seeking to determine whether the organization looks appropriate or whether something appears improper.  You would have to know the circumstances of the situation to know if it is “too high.”

You should also check your state nonprofit corporation law to see if there are requirements for "independent" members of the board.  Most states do not have such a requirement, but a few have provisions dealing with this concept.

Monday, April 10, 2017

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