If I sit on a church Endowment Board and it has started to invest in a for-profit firm that I also sit on a board at, should I step down from one of them or is it okay to stay on both? (We’re talking about millions of dollars here.)
I am not one who says that a person should necessarily drop off a nonprofit board because of a conflict of interest. In most cases, a conflict can be taken care of with disclosure and recusal. If an organization buys its vans from the auto dealer on the board, who sells them to the nonprofit at cost, it is probably a good deal for the nonprofit that would be hard to duplicate elsewhere. An independent group on the board can determine that these are the kind of vans the organization needs and the price is a good one, with little risk of private inurement for the auto dealer director and less adverse consequence if they don’t buy again next year. This can be explained as a great advantage on the Form 990 that asks about conflict transactions.
In your case, even though the church doesn’t have to file a 990, I would not be as comfortable. (Ethical issues obviously should not be resolved on the basis that no one will know, because somebody inevitably will know.) I assume that as a board member of the for-profit, you also have stock in the business and stand to gain personally if the investment helps the firm expand and become more profitable. The investment could be a form of private inurement. It could also lead to “insider trading” charges, (against you and the church) if the church makes a trade right before some significant corporate development that moves the price. How could you prove you didn’t say anything? The media carries this kind of story on a regular basis, often based solely on speculation.
I also assume that it is not publicly traded stock, because there are probably a lot of businesses that would be at least equally attractive on the market and would eliminate the issue. Again, where is the information coming from that would justify this investment?
Even if both of these assumptions are incorrect, however, the size of the investment raises red flags. It is not like buying $10,000 worth of Apple stock. I don’t know the size of the endowment or the percentage of stock of the company. But “millions of dollars” sounds like a lot, and big enough to attract significant attention and raise significant questions, whether the investment is a good one or, perhaps especially, if turns out to be a bomb. I don’t think I would stay on both boards and try to ride this one out. It creates unnecessary risks for the church and for you.