The founder of a new nonprofit is currently the board president. There are no employees at this point, but the nonprofit is starting to grow and the founder would now like to become the executive director and be paid. However, he would still like to remain on the board. Can he stay the board president? Or should he be a board member (not an officer) and have a non-voting role? I help many start-up nonprofits and this question of moving from board president (or member) to employee with retaining a board role comes up every time!
Although there are a lot of people who disagree with me, I have never had a problem with the founder serving as president of the board and executive director. This is a matter of state law. A few states have requirements that a majority of directors must be unpaid and independent, or that the board chair may not be a paid employee, but I don't think there is any general widespread law against it.
I go even farther to recommend that the founder be the sole member of the corporation so that he/she can control the board, if necessary, to assure that the initial vision and mission are sustained. (See Ready Reference Page: “Sole Member Bylaws Can Protect Founder of Nonprofit”)
It is the founder’s vision and energy that drive the organization. (See Ready Reference Page: “The Key Question: Whose Organization Is It?”) I hate to see it frustrated by the founder’s “friends” on the board who want to do something else. The founder still has to work with the board to obtain their support and assistance, but those with far less personal stake in the organization cannot arbitrarily change the direction.
I don’t feel the same way about a mature organization that has had many changes in leadership and developed a more settled organizational culture, approach and history. There a good partnership between the board chair and CEO can expand capacity and increase the effectiveness of the organization, and I am less eager to give so much power to someone who is building on the prior work of so many others.
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I always ensure that if the founder is on the board there are at least a majority of directors with no conflicts.
I am the founder of two 501 (c) 3 foundations.
Under the new NYS laws governing non profits,
You cannot be a paid employee and president of the board. I had to remove myself as an employee of one of the organizations so I could retain my position of president of board of directors. Even this action was not frowned upon with our accounting firm and NYS.
Isn't it the role of a board of directors to oversee the Executive Director and the agency? I do not see how it is possible for the founder to lead an agency and provide appropriate oversight if they operate as their own boss. This would undermine the role of a board of directors.
Great information, some planing to start a foundation to honor my deceased mother Hasineh
I like your forum. Very insightful. I belong to a new 501 c 3 organization/ministry. Awaiting our 501 c 3 status from IRS. Very exciting and I want to be informed. I'm evaluating status of Secretary of our Board.
Just to clarify the commonly-misused terminology, there is no such title as "President of the Board" -- individuals serving on the Board are called Directors, who may choose to designate a leader as the "Board Chair."
To the contrary, officers serve the Corporation -- hence an individual may hold the title of "President of the Corporation," but referring to a "President of the Board" has no basis in law.
Using that term simply results in furthering the widespread inability to distinguish between the differing roles of a director and a corporate officer, which are critically important and largely misunderstood.
Thanks for the great forum! I can imagine many situations in which a founder or two founders would prefer a structure in which they are able to retain that final word as legal members of the corporation. However, I don't see how to get around the problem that if a founder is the sole member of the corporation (or one of two), how can she also be a paid executive director of the corporation? Even if she is not on the board or is one of five or more directors on the Board (and therefore can easily recuse herself when compensation is discussed), wouldn’t the threat of being kicked off the board by the legal member(s) mean that the board is never really independent?
This could be a problem, but there are at least two built-in constraints. The paid executive director has to keep the salary "reasonable" because an unreasonable salary is an excess benefit on which the exec would have to pay a penalty tax of 25% of the excess compensation and return the excess or face a penalty of 200% of the excess. Most would not want to take that risk.
In addition, the sole member(s) cannot arbitrarily remove directors who disagree with their decisions or the sole member(s) won't be able to get people to serve on the board and advance the goals of the organization.
We have not seen a sole member remove a director in a dispute about compensation. In the rare cases in which we have seen the founder(s) use the right to remove directors, it has not been over compensation, but only when the board wants to take the organization in a different direction from the founder. We think it is important to protect the person whose vision and energy make the organization work. If board members want to do something else, they can form their own organization to do it. They can start from scratch like the founder did. They don't need to appropriate all of assets that the founder has built up to get the organization where it is. —Don Kramer
”Board members are the fiduciaries who steer the organization towards a sustainable future by adopting sound, ethical, and legal governance and financial management policies, as well as by making sure the nonprofit has adequate resources to advance its mission.” With the founder having the vision it would make sense for them to be apart of the defined term above. I understand your view and it seems many of those that have responded are trying to eliminate all possibilities of ”shadiness”, but that would fall in the bracket of personal integrity. That's the purpose of the bylaws as well; they should be well formed for all possible situations.
Are you referring to state law? If so, what state? Or federal law? Or some convention?
These governance rules are matters of state law. —Don Kramer
I love this comment & the advice! I am a palliative care patient who created a nonprofit to advocate for other palliative care/chronic pain patients, physicians and pharmacists as well. Unfortunately, there is no "Free" way to pay for the exemption fee to register your nonprofit for the 501c3 exemption or I would have registered it by now. This topic answered one of the main questions I had for my nonprofit because of course you need it for paperwork reasons! I had no idea how to answer it so you sir are simply amazing!!
Thank you very much for posting this!
Is there a phrase that can be put in the Bylaws in which the Executive Director who is also the Founder can NOT be fired by her Board of Directors.
See Ready Reference Page: "Sole Member Bylaws Can Protect Founder of Nonprofit." --Don Kramer
Thank you for the forum. Well, l don't see any problem with Founders becoming Board Presidents and Executive Director also because it makes them be able to drive the vision the way they see it, then there after they can appoint a President to replace them while they remain board members and if they see it fit.
Thank you
Thank you for all of your information I look forward to reading more of your post .... Answered my question
Nonprofits may face a conflict of interest if the key employee of the organization, who is often called the executive director ( ED ) is also a member of the organization’s board. This is a scenario faced by many newly formed nonprofits since the founder of the organization often times serves as the board president and ED. a voting member of the board of directors, since every decision the board makes relating to budget and compensation will impact the ED. The ED would be voting on her own salary, which may be a conflict.
Your are on point as many fail to understand the commitment, passion, and resources it takes to manage and sustain a non profit. It is even more challenging when the Founder has volunteered with a long term commitment building the required human resource infrastructure. Having a founder committed to establishing the infrastructure to sustain the organization, especially for a grassroots organization committed to the needy is a blessing. It is important to remember the Founder is the why of the organization creative. Nonprofit Founders deserve better. Founders of Profits as they remain on the Board.
Nonprofit Founders should remain on the Board as many do not understand what it takes to run a nonprofit. It is not about Power and Control but Stewardship for the People.
However, when the Founder moves on, it is important they understand and work to ensure the Vision and Mission of the organization. Only then do I support the new leader not being a board member as it their responsibility to ensure the leader is committed to the vision and the mission.
Committed long-term Founders, which I agree should be on the Board of Directors, deserve a quality of life and should be protected.
This is so on point and spoken from both the inner heart while observing the law. Thank you so much for this answer. It felt so sincere.
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