By Claire Guthrie Gastañaga
If we are serious about non-profits being or becoming equitable and inclusive organizations, it is time to disrupt some of the traditional beliefs about how non-profits are governed or operated.
Let’s start with the accepted belief that every board member must be a volunteer … that non-profit board members may not be compensated.
There is no law against paying non-profit board members to serve. Virginia non-stock corporation law says that "[u]nless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors." The law also says such compensation must be "reasonable."
So the requirement that directors serve without compensation is usually written into the organizational by-laws or articles of incorporation, not imposed by any outside legal mandate. And, that means that the policy can be changed by the organization consistent with requirements for amending the by-laws or articles of incorporation.
Of course, there are costs associated with choosing to pay board members in addition to the amount of compensation you pay. The most significant cost of choosing to pay board members is potential exposure of the individual and organization to financial liability. Both the federal law and most state laws now give immunity to members of boards of non-profits but only if they are not compensated. Compensating board members would mean needing to indemnify and insure against this liability.
In Virginia, for example, uncompensated directors have blanket immunity from civil suit related to their directorships. Therefore, a decision to compensate non-profit board members in Virginia means that the immunity from damages would be limited to amounts over the amount of compensation received by the director in the 12 months preceding the act or omission resulting in liability.
No one can dispute that there are also significant benefits to the organization that come from having people on the board who represent the communities that the organization serves -- people who don’t always have the independent means or paid time off from their work that allows them to donate their time to helping govern an organization.
One principle of purpose-driven boards as articulated by BoardSource is that the organization’s “power and voice must be authorized by those impacted by the work.” It is difficult to know how this can be accomplished if those directly impacted are not able to serve on the board.
Boards of non-profits that are serious about expanding their boards beyond the traditional philanthropic model of individuals able to donate their “time, talent, and treasure” and include members of the communities they serve should be considering offering to pay people to serve on their boards (and reimburse reasonable expenses) so that people who are not financially able to donate their time can still choose to contribute.
Here’s an example of a model by-law provision that could allow a board of a Virginia organization to adopt a policy of compensating board members:
Directors may receive reasonable compensation for services rendered as members of
the Board and may be reimbursed reasonable amounts for travel and other
expenses incurred in attending to the affairs of the organization as authorized
by the Board. Any policy authorizing such compensation and reimbursement of
expenses shall be set forth in a resolution adopted by a majority vote of the
Board that shall include an affirmative statement that the policy has been adopted
after due consideration of the legal and policy issues raised by adopting such
a policy including any limitation on immunity afforded by Section 8.01- 220.1:1
of the Code of Virginia or federal law.
Boards considering moving ahead with adopting such an admittedly disruptive policy should:
1) Articulate why they are choosing to compensate board members and explain how doing so will benefit the organization.
2) Review all the implications of adopting this policy change with the organization’s legal counsel, accountants, and insurance agent to ensure that the board fully understands all the legal and policy implications of the change. Clarify whether a by-law change or restatement of the articles of incorporations is needed and, if so, what procedures must be followed to make such an amendment. Ask if the organization needs to add or revise policies indemnifying board members. Review the impact of the change on the organization’s insurance. An organization can insure against any increased exposure to liability. Remember that the federal and state statutes granting immunity were mostly adopted at a time when insurance companies were charging non-profits very high premiums and the immunity provisions were intended to reduce the financial cost of directors’ and officers’ liability policies.
3) Refrain from offering compensation or expense reimbursement only to some board members whom someone decides “need” the money. Don’t make board members “apply” to be compensated (asking for reimbursement requests/receipts is okay). Some board members will accept compensation or reimbursement, some will choose not to accept, and some will accept one or both and donate the funds received back (perhaps that could be their chosen meaningful contribution for the year). Offering payment (compensation and/or expense reimbursement) to everyone preserves the dignity of everyone. Make sure that the compensation and reimbursement are reasonable. Make sure board members understand the tax and other legal implications of any compensation/reimbursement policy for both the organization and the individual board members (for example, what needs to go in a 990 and what doesn’t; how can payments be structured to avoid disqualifying a board member from public assistance programs; what are the tax consequences to the individual board member).
4) Advertise that the board has a policy of compensating and reimbursing board members and note how it impacts those willing to step up and serve who are from more diverse backgrounds and lived experiences than your board members have historically brought to your organization.
Bottom line, equity and inclusion require changing some of the “accepted” ways of doing business if the organization is truly to be a purpose-driven organization led that is “authorized” by those impacted by their work. If the organization’s lawyers reflexively counsel against adopting a compensation policy, remember that the board’s job is to decide what policy is right for the organization (having weighed the legal and “business” risks) and the lawyer’s job is to advise how the desired policy can be implemented legally.
References:
Should Non-Profits Pay Board Members?
https://charitylawyerblog.com/2019/08/26/should-non-profits-pay-board-members/
Compensating Non-Profit Board Members
https://nonprofitlawblog.com/compensating-nonprofit-board-members/
Should Board Members of Non-Profit Organizations Be Compensated?
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