Should a nonprofit have paid staff as voting members of the board? And, if they do, how can they avoid conflict of interest issues that may arise?
It is not illegal for paid staff to serve on the Board of a nonprofit organization, although a few states such as California may limit the number or percentage of paid staff that may serve on the Board of a charitable corporation. It is unusual for charities to have paid staff on the Board other than the paid CEO, and even the paid CEO is probably not on the Board in most cases. The concern that nonprofits can be used for the benefit of insiders is sufficiently widespread that the IRS has added a new question on the new Form 990 that specifically asks about the number of directors who are not “independent” because they have an economic relationship with the organization. (See Ready Reference Page: “New Form 990 Will Greatly Expand Reporting Requirements for Nonprofits”.)
Having said that, it may be totally appropriate to have paid staff on the Board, depending on the type and purpose of the organization. It could be appropriate with a family private foundation, or a subsidiary within a multi-unit hospital system, for example.
If paid staff serve on the Board they could avoid conflict issues by following a clear conflict of interest policy the same as directors who serve as independent contractors. (See Ready Reference Page: “Conflict of Interest Policies Help Avoid Problems.”)
Wednesday, December 9, 2009