VCG Governance Matters ®

April 21, 2011 -- Funders On Boards

It's the 800-pound gorilla in the room, no matter what you do. But you can deal with it.

When funders or major donors sit on the board of a nonprofit, there is a potential for conflict of interest (or the appearance thereof). There is also an opportunity for both the nonprofit and the board member to expand their knowledge.

Funders on boards also wield or are perceived to wield -- power because of their access to resources for the organization, influence with other funding sources, and the assumption by fellow board members that they will give/get significantly more than the rest.

In some cases, a generous funder feels entitled to call the shots. In other cases, the power dynamic may only be a matter of perception that self-aware funders seek to manage.

To reap the benefits and avoid the pitfalls, the roles of board members especially those affiliated with a funder must be clearly defined.

At the April 21 Governance Matters Roundtable, Funders On Boards: What The Funder And The Organization Can Learn! a panel of grantmakers discussed the advantages and challenges of funders on boards and the nature of boards themselves. The program opened with an overview of the basic responsibilities of a board and offered a framework for assessing the knowledge, interests and capacities we bring to our board roles in order to maximize our contributions there. We considered some of the benefits and risks funders weigh in making the decision to serve and the types of assumptions boards must explore when inviting funders to serve. We named a variety of advisory roles funders can play, from less formal or structured to highly formal, which a panel of grant makers then explored with case examples from their experience.

A funder on a grantee's board is critically different from a funder on the board of a non-grantee. In the first case, the potential for the appearance of conflict of interest and for favoritism is high. In the second, an exchange of knowledge without ethical questions is more likely.

Some foundations and corporations encourage their program officers to join boards to gain a deeper understanding of the operation and challenges of nonprofits, making them better at their job.

The most significant problems arise when a funder is on the board of a grantee. The expectation may be that the grantee will receive more favorable treatment by the funder or the grantee may become dependent on the advice and leadership of the grantmaker.

Board member responsibilities must match agency needs. All board members share some basic responsibilities:

Understand and be committed to the mission of the nonprofit;
Select and support the chief executive officer;
Plan the operation and growth of the organization;
Oversee the finances and ensure that all regulations are follows;
Solicit financial resources;
Advocate for the organization;
Develop and maintain the vitality of the board itself.

When recruiting a board member, the things to consider are the same whether or not the prospective board member is a funder:

Why this person?
What does he or she offer the organization?
Can and will the person provide the level of financial support expected, something that is "personally significant?"
Why does the person you are recruiting want to be on your board?
Passion for the mission? Desire to use his/her skills to do good? Desire to do something different from what they do at work?
How many other boards is this person on and will those commitments detract from the time and energy available for your board?
Is the person willing and able to make the time commitment necessary to attend board meetings, review documents, participate on committees, attend events, and reach out to his/her contacts to support the organization?

If the grantmaker cannot give this level of commitment, perhaps an advisory role is better, such as working on a short-term or ad hoc committee, or providing in-kind support on an informal basis, such as expertise or referrals.

(For a more detailed discussion of board dynamics, download the introductory PowerPoint by Lori Roth, founder of Strategic Learning Associates below.)

Change happens
Neither boards nor funders are homogeneous. The board of a small community organization will be entirely different from the board of a major nonprofit. What works for one will not necessarily work for another. A private family foundation or a venture philanthropy that plays a founding role in a nonprofit may become more involved with its grantees than other foundations do.

Moreover, boards are organic. The skills and characteristics needed on the board change as the nonprofit moves from start-up to mature, from founder-led to staff led, from single location to multi-site ... and a whole host of other changes.

The key to an effective board with or without grantmakers on board -- is clear roles and expectations. All board members must understand what's expected of them and be held accountable.

When a grantmaker is on the board, the grantee must understand that it is not guaranteed unlimited, eternal funding. Nor does it mean that the grantmaker board member is the only voice heard at meetings. Nor does it mean that the grantmaker representative is excused from personal financial contributions.

With the ground rules in place, a grantmaker on board can give an organization better insight into the funding process and provide guidance on better governance.

The grantmaker on a board learns more about nonprofit operations so s/he can fund more intelligently and effectively.

Confidentiality
The most difficult issue is confidentiality: If the grantmaker learns something negative about the grantee through participation on the board, can s/he reveal that during the next funding round?

The general consensus was "no." What happens at a board meeting stays at the board meeting unless it involves criminal actions. The best course of action when programmatic or financial problems arise is to use one's skills to remedy the problem rather than reveal it.

However, the difficulty can be avoided if ground rules are laid out in advance. The grantmaker board member can make [it] clear that information will have to be shared with colleagues at the foundation. Of course, this rule does not preclude helping to remedy the problem as well.

Other issues
While funders on boards was the main topic of discussion, questions arose about other board-related issues.

Board giving: Yes, all board members should be expected to give. How much depends on the nonprofit and on the ability of the board member and should be a personally significant amount.

Diversity: Most boards are looking to diversify their boards. While women and people of color are represented at the executive level of nonprofits, more efforts must be made to add diversity at the board level. As one audience member stated, "Public institutions should look like the public."

Board training: Board membership is a job with responsibilities. More emphasis needs to be placed on training board members about their fiduciary, advocacy, and fundraising tasks. Such training might also be used to help rectify the lack of diversity on boards.

Committees as training grounds: A person unable to give the commitment needed of a board member may be able to work on a committee. Such interaction allows the potential board member to get better acquainted with the organization and allows the board to see if the person would be a good fit.

Recruit younger people: Committee work is especially good for engaging younger people who may have time commitments to families or lack the income and connections needed for "give/get" obligations. Younger people are interested in giving back and can add new skills (especially in technology), new points of view, and potentially join the board.

So to tame the 800-pound gorilla, define roles, be open about all the assumptions and conflicts-of-interest that might arise, and make sure the person is the right person overall.

Participants:
Daniel L. Kurtz, Partner, Exempt Organizations, Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates - As Skadden's exempt organizations practice leader, Dan focuses on the specialized needs of nonprofit organizations. He has developed a national reputation in serving the full range of needs of his nonprofit clients.

Emary Aronson is the Managing Director of Education at Robin Hood. Robin Hood supports a variety of schools and education-related programs. She is a member of the board of directors of the Charter Center as well as the Center for Employment Opportunities (CEO).

Philip Li is the Chief Operating Officer of the Brooklyn Community Foundation which supports organizations working to improve the quality of life across the borough. He sits on the Boards of Philanthropy New York, Leadership Learning Community, Mid Atlantic Arts Foundation, Act Six, and Bulova Stetson Fund.

Kathleen O'Grady is President of the O'Grady Foundation, which supports smaller arts organizations in New York City. Ms. O'Grady is a Board Trustee of the Aldrich Contemporary Art Museum and has served as Chairman of the Board and Chair of the Capital Campaign. She is also a member of the Board of Trustees of the New York Foundation for the Arts and served as Board Chair from 2005 to 2009.

Lori Roth, Principal, Strategic Learning Associates is founder of Strategic Learning Associates, with 15 years of experience in executive education, both as executive director of Columbia Business School's Institute for Not-for-profit Management and a member of Columbia's Executive Education faculty. She is pursuing her EdD in Adult Learning and Leadership at Teachers College, Columbia University.

Phyllis White-Thorne is Manager of Public Information in Con Edison's Brooklyn Public Affairs Department, where she is a company liaison to community and government leaders, and not-for-profit organizations in Brooklyn. She is President of the Board of Reader's Theatre Workshop and serves on the board of Bridge Street Development Corporation, the Brooklyn Children's Museum, Brooklyn/Queens Conservatory of Music, The North Brooklyn YMCA, and NAACP Act-So.