Just like no one truly owns a beautiful forest and no one truly owns a coral reef, nonprofit organizations were not set up to be owned by any one individual. Sole ownership of a tax-exempt entity is counter-intuitive and the antithesis of the sectors’ original intention. Single person “possession” of a nonprofit entity is not what the Internal Revenue Service had in mind as the charitable sector developed alongside America’s legislative path.
Last year, about 3/4 of my way through a one-year project, it hit me like a ton of bricks. I was working with an international organization that was stuck, knee deep, in founder’s syndrome and the culture was so embedded, there seemed no way out. The board was chock filled with smart, compassionate and well-meaning professionals, but the founder held the reigns, and progress toward governance became stagnant.
It was a rather unfortunate situation, but also not my first time to encounter this enigma. Grassroots organizations often face a future of peril when founders have a false sense of their power and board members have not had the chance to fully embrace and enforce their governance responsibilities. Additionally, many founders are so highly respected by board members that a sense of complacency creeps in disguised as peace-keeping measures.
Published on The Foundation Group’s website there is this succinct statement which acts as a very short synopsis of this concept:
The nonprofit organization is not “owned” by the person or persons that started it. It is a public organization that belongs to the public at-large. The parties responsible to operate the organization for the stakeholders are the members of the board of directors. Also, a nonprofit corporation cannot be sold.
You can find this quote HERE.
In fact, ownership IS the major difference between a for-profit business and a nonprofit organization. For-profit businesses can be privately owned and can distribute earnings to employees or shareholders. But nonprofit organizations do not have private owners and they do not issue stock or pay dividends.
So why do founders get stuck in the mud on this issue? And, more importantly, why do board members let founders run the entire show, making large swooping decisions for the organization without proper consensus and discourse even when those decisions are not healthy for the longevity of the agency?
According to the Internal Revenue Service in an article documenting the history of tax-exempt entities, “The structure of tax exemption granted to the charitable and voluntary sector outlined in the United States Tax Code was developed through legislation enacted between 1894 and 1969. Over that 75-year period, Congress established the basic principles and requirements of tax exemption, identified business activities of tax-exempt organizations that were subject to taxation, and defined and regulated private foundations as a subset of tax-exempt organizations.”
This entire pdf is a very valuable resource for any nonprofit leader/board member and available here as a download:
In an apropos article published on August 30, 2018, on Nonprofit Quarterly’s website (NPQ) the author Judith L. Millesen states, “Nonprofit boards have both a legal responsibility to discharge a public benefit purpose and an ethical obligation to meet the expectations of those on whose behalf the organization exists. This means that nonprofit boards are accountable to both legal ownership and ethical, or moral ownership. By law, nonprofit ownership is vested to the community, which has granted it certain exemptions and entrusted it with scarce resources to serve a particular social need.
In his Policy Governance Model, John Carver defines a nonprofit organization’s ethical ownership more specifically with a concept he calls “moral ownership.” Carver describes moral ownership as “a special class of stakeholders on whose behalf the board is accountable to others.” Similarly John Smith, in his book, Entrusted: The Moral Responsibilities of Trusteeship, draws attention to the fact that although boards may feel as though multiple stakeholders are pulling in competing directions, it is the role of the board to sort out these conflicts in a way that is faithful to its calling and to those the organization exists to serve.”
See the full article on NPQ here.
To all you nonprofit leaders, board members and founders alike, please know that your service is so essential and important and our communities need you! But, please make sure that you lead and educate your fellow board members and advocates about their critical participation and input so that the organization’s culture remains collaborative and not centric with one individual.
Are you a fellow founder? If so, I’d love to hear your reaction to this blog post, please comment, your story is very valuable to this readership!
-grace
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