Are Your Board Members Related?

Posted on Wednesday, June 19, 2024

Are any of your board members related through a family or business relationship?

When it comes to governing a nonprofit organization, the composition of the board is crucial for ensuring effective, transparent, and impartial decision-making. While it might seem convenient or even advantageous to include family members or colleagues on the same board, this practice often leads to significant challenges that can undermine the organization’s mission and integrity.

Here are key reasons why having members of the same family or the same company on a nonprofit board is not a good idea.

Conflict of interest is one of the most pressing issues when family members or colleagues serve on the same board. These relationships can lead bias where decisions may be influenced by personal or professional relationships rather than the nonprofit's best interests.  Board members might also prioritize personal or familial benefits over the organization’s mission, compromising their ability to make impartial decisions.  Conflicts of interest can erode trust within the organization and among its stakeholders, as decisions may be perceived as self-serving rather than mission driven.

A well-functioning board thrives on diversity of thought and experience. When family members or colleagues dominate the board, it can lead to a narrow perspective.  Those individuals with similar backgrounds and viewpoints can limit creativity and innovation.  It can also create groupthink, a tendency to conform to a unified viewpoint without critical evaluation, which can hinder effective problem-solving and strategic planning.  Diverse boards are better equipped to navigate complex challenges and drive the organization forward through varied and balanced insights. 

Having multiple family members or colleagues on the board can lead to a concentration of power, in which they might dominate discussions and decision-making processes, overshadowing other members' contributions.  Effective governance requires a balanced distribution of power to ensure that all voices are heard and considered equally.

Good governance hinges on accountability and transparency. When board members are related or share a workplace, it can complicate oversight and transparency.   Holding family members or colleagues accountable for their actions can be challenging due to personal relationships.  The presence of conflicts of interest can lead to questions about the board's transparency and integrity, potentially damaging the nonprofit’s reputation.  A board that lacks accountability and transparency can struggle to maintain the trust and confidence of donors, beneficiaries, and the public.

Nonprofits must adhere to specific legal and regulatory standards regarding board composition and conflicts of interest.  Violating these standards can result in penalties, loss of funding, or even jeopardize the organization’s tax-exempt status.  The IRS and other regulatory bodies closely monitor nonprofits for potential conflicts of interest. Form 990 requires organizations to list their board members’ names and any business or family relationships between them.  It also asks if the organization has a written conflict of interst policy in place and how it is monitored.  Noncompliance can attract unwanted scrutiny and consequences.  Ensuring compliance with these standards is essential for the nonprofit’s legal and financial health.

While the inclusion of family members or colleagues on a nonprofit board might seem beneficial, it often leads to significant challenges that can hinder effective governance. From conflicts of interest and lack of diversity to concentration of power and accountability issues, these pitfalls can undermine the nonprofit’s mission and reputation.

For a nonprofit to thrive, it’s crucial to prioritize diverse, independent, and transparent board composition. By doing so, the organization can ensure robust governance, foster trust among stakeholders, and ultimately achieve its mission more effectively. Prioritizing ethical practices and governance best practices will lead to a stronger, more resilient nonprofit capable of making a meaningful impact.

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.