Nonprofit Myth Busters II: How to set up a board of directors
If you're here, you're probably thinking about starting a charity and wondering – how much do you know about the board of directors?
Did you catch the first episode of Nonprofit Myth Busters and are yearning for more? (check it out here) I'm proud to say this Episode II is free of JarJar Binks (sorry, that's my Star Wars fan humor showing).
This episode is full of more myths people need to let go of when considering starting a nonprofit. Last time we talked about money myths and creating nonprofits for no good reason. In this episode, I want to talk with you about the board of directors. So, before you hand over special powers to Senator Palpatine, take a few minutes to think about whether your nonprofit board intentions are on the dark side of the force…
1. I should pay my board members or compensate them with other perks
No. No, you should not. If that is very important to you, be a for-profit. Paying nonprofit board members can destroy their limited liability. Once you are doing it for money, we like to make you responsible. So – just no. No pay, no perks, no fancy dinners or airline tickets to Cabo. So, even if you feel like you should thank your volunteer board members with some sort of compensation, don’t do it! Everybody is more protected that way.
2. I'll just put all my friends and family on the board so that I can still really control things!
This is an idea I hear a lot in my startup consultations. What you sound like is “I'm looking forward to creating my own tiny, tax-deductible dictatorship!” But, I know what you really mean is, “Giving up control of my vision to a group of people who might not agree with me is scary.”
Look, I get it. It's your idea, your vision, and you have a very specific notion about how to get there. You know that saying ‘no man is an island'? Well, no nonprofit is an island. You can't legally do it by yourself, and just stuffing the board of directors with people who will rubber stamp your every decision is an awful way to start out. Why?
First of all it's unethical. Full stop, period, the end.
Secondly, it's super unfair to your friends and family because they are PERSONALLY LIABLE for their actions on the board and you're asking them not to use good judgment or reasoning which they are required by law to do as fiduciaries (not sure about all that? I have a great piece on what it means to be a board member and fiduciary, here).
Thirdly, um, are you insane? You know you can't possibly pull off everything on your own, right? You are going to need help – help with fundraising, help with accounting, help with volunteers, help with government reporting, help with events, help with asking local businesses to sponsor you – all of it.
Don't believe me? Okay, how about if Seth Godin says it (on this great episode of Brian Clark's Unemployable podcast)? “The entrepreneur will hire the cheapest competent person [that's you]…but you can't just keep hiring [yourself] to do more and more work.” TRUTH.
Plus, I mean, think about it…do you think a bunch of people who are disengaged and just plan to rubber stamp your ideas are going to give a you-know-what about helping you with the work? Of course they aren't. They are just there to show up to a monthly meeting and say YES to all your votes.
And you? You are going to get tired – very tired. And then you’re going to get frustrated that nobody is helping you. But you’ll also know that your board members’ hearts were never in it anyway because they are just rubber stampers doing you a favor. So, you can’t blame them. It's not their fault. It’s a situation you created yourself.
So, it comes down to this – don't create a board of directors full of “yes-men” that aren’t truly invested in the mission. Spare your friends and family the agony, and recruit people who actually care about your mission and share your vision. And yes, maybe they will have some different ideas or nuances to share. But in the end, if you are aligned on the big stuff, on the vision and the mission, it should work out for the best.
All of us together are way stronger than any one of us alone. And that right there is why the nonprofit sector is beautiful. So, don't wreck it now, mmkay?
So, now what?
Are you trying to pigeon hole a for-profit into a nonprofit shape? If you want to pay board members or be the only person making decisions, that might be what’s happening here. You really need to slow down and think about things.
Lots of business ideas can be either a for-profit or a nonprofit. I help people make the decision about what direction they should take all the time (wondering about consultations? Click here). Sometimes it comes down to control, and if you can't get behind having other people involved then you are probably better off as a sole proprietor.
But, you’re correct, you can't get tax exemption as a sole proprietor or LLC. Life is not a buffet. If you want the nonprofit status you, have to allow other people onto your island. And you have to figure out the other unknown unknowns too. I created a free e-book to help you do just that!