The Non-Profit Founder's Dilemma: 

Tempering Issues of Control and Ownership

 

 

By Mary E. Costello © July 2007

REVISED © AUGUST 2014

Independent Non-Profit Consultant

Creative Edge Consulting

www.CreativeEdgeConsulting.org

 

 

 

 

 

 

Revisiting this article, originally written in 2007, I found it in need of update. Interestingly, it continues to be the most heavily viewed article on the Creative Edge website. And, website analytics show that Founders are extremely concerned about this topic, as indicated by the keyword searches most often used to find both the article and our website. Plus, I receive many emails and phone calls specifically asking for quick advice on these issues. Therefore, not only will I add some content to the original piece, but I will attempt to better explain some of my earlier statements, which I realized could be misinterpreted as unsympathetic to The Founder’s Dilemma.

 

 

 

 

 

 

Having had the experience of founding an organization many moons ago, I deeply relate to the personal struggles of someone creating their “baby.”  In particular, we work tireless hours to develop a new human services program, and somehow or another we hope for assurance that it will remain “ours.” Suffice it to say, this is a topic I revisit with almost every new (start-up or very young) organization that contacts me for consulting services.  

 

To begin, many new leaders approach this venture with a for-profit intent. I understand this, because I did too. The reasons are not for money in most cases, but for the illusion of maintaining control. But, in all reality, you are probably SAFER with a Board of Directors than if you had two for-profit business partners. (One may be the loneliest number, but three is downright dangerous.) Either way, the first question is why do you want to form a non-profit organization? Or... on the flip side… why do you NOT?

 

I caution anyone who is interested in doing non-profit work within the framework of a for-profit entity. With rare exceptions, you are setting yourself up for problems on many levels, in particular, funding opportunities—or lack thereof. Conversely, I have talked to many potential Founders who are only considering becoming a 501(c)(3) because they cannot keep a for-profit entity afloat, and they discover that they are ineligible for 99.9% of grant funding unless they are a non-profit. This is the wrong reason to start a charitable organization. But fear of losing a non-profit is the wrong reason, as well, for not going the charitable route. Motives matter.   

 

 

Let’s begin with addressing some very common questions and concerns of those who are interested in starting a new non-profit organization. Many of these also apply to a young non-profit that may be experiencing some early growing pains.

 

 

  1. No one OWNS a non-profit organization. It should be established to continue regardless of who is serving as administrator. Connected to this, a Founder should not refer to themselves as the “owner” of the non-profit or call it their “business.” Neither accurate nor legal (related to structure), I hear these references fairly often.

 

  1. The Executive Director (ED) is an EMPLOYEE that reports to the Board of Directors—the legal, COLLECTIVE governing body of the organization. While the ED may be (and usually is) present at Board meetings to provide information and updates on progress, they are NOT a sitting member of the Board and carry no voting power.

 

  1. If the Founder wishes to sit on the Board, they should not be the ED or involved in day-to-day operations. It is common for a Founder to serve on the Board prior to the formal hire of an ED…AND actually be the one running day-to-day operations during the start-up phase. But, if the Founder expects a salary, they need to be the ED only and will need to leave the Board when paid employment is possible. Further, Board members are volunteers and cannot draw a salary of any kind. They are, however, reimbursed for modest expenses they incur related to their service, such as travel and parking.

 

  1. There shouldn’t be any family members on the Board. Nepotism reflects poorly on your agency and suggests a Mom & Pop operation. The only exception to this is if your entity is that of a private family foundation (that provides grants and donations to other non-profits), which is very different in structure and purpose from the vast majority of people who contact me in hopes of establishing a tax-exempt organization. And, you will have conflict of interest issues if a Board filled with family members is overseeing the job performance of the Founder/Executive Director.

 

  1. It is more common to call your governing body a “Board of Directors” than a “Board of Trustees,” but you can decide which one you like better. Trustees are more common with institutions like schools and hospitals.

 

  1. Outside of regular members, your Board should have elected officers: President, Vice-President, Treasurer, and Secretary. (Some use Chairman, Vice-Chair, Treasurer, and Secretary.) You also need to be certain that you have procedural guidelines for elections and terms for ALL members, including the process for asking someone to leave if it becomes necessary to do so. (These are contained in your By-Laws, which is a legal document that dictates your non-profit governing systems.) It is important to note that a Founder who serves on the Board is subject to elections just like everyone else. And, no Board member (which includes officers) has more power than another, including the Founder.

 

  1. The primary role of the Board of Directors is to adopt formal policy, provide fiscal oversight, support the ED in whatever way they can, and fundraise. Other than their involvement in other special committees an organization may utilize, Board members should be active, but not involved in operating the organization on a daily basis. The President of the Board works very closely with the Executive Director and may communicate every week—or sometimes even every day—with this top paid staffer.

 

  1. The whole Board typically meets quarterly or three times a year, outside of committee work and involvement with fundraising activities throughout the year. Meeting monthly is pretty unorthodox unless it is a brand new organization or one in crisis. In fact, Boards that meet every 30 days are probably not looking far enough down the road and need to do some long-term planning.

 

  1. Your Board should be diverse and maintain a membership of, ideally, 10-12 members.  These folks should represent the community at-large, and include people with varied personal and professional backgrounds. It should also reflect your constituency (i.e., the population served by your organization) whenever possible, such as a member with a disability, formerly homeless person or survivor of domestic violence, or a parent of the population group you support.

 

  1. One key difference between owning a business and starting a non-profit is how salaries are determined. An Executive Director can only earn what is deemed a reasonable NON-PROFIT salary, and the Board determines their compensation and increases (if any) from year to year. You will never earn the kind of income that you might if you had a booming for-profit business. So, if your income is your main reason for NOT starting a non-profit, it is probably advisable that you do steer clear. Especially early on, most non-profits do struggle and, just like in business, many will close their doors.

 

  1. One piece of advice to a person who has not yet formed a Board of Directors is to have the structure in place PRIOR to recruiting people. It is a lot easier to offer an established  framework than to have a number of people in on development of the long-range vision and critical systems/processes. At least in the early stages of your organization, this usually means it will more closely reflect what you have in mind as Founder. Later, though, the Board CAN change this.

 

  1. If you are already having problems with your Board, you have to deal with it head on. These kind of things will NOT go away on their own. You need honest conversations about what is working and not working as a group. Clear the air and develop a plan for getting past your stumbling blocks. One bit of advice on THIS is to make sure you are talking about how it is affecting the organization rather than making this personal. (If you need help, we offer services for both Founders and Board training and development. Visit www.CreativeEdgeConsulting.org to learn more.)

 

  1. If each member on your Board of Directors has not donated CASH to the organization, you need to talk to them about it. Funders ask for a list sometimes, and if your own Board does not donate personally EACH YEAR, it is difficult to ask outsiders to support you. This is more critical than most realize.

 

  1. If you do not possess all the skills needed to serve as ED, take advantage of local and online resources to increase your knowledge base and skill-set. And, surround yourself with people who possess the expertise you lack. In the meantime, keep learning.

 

 

 

The most common reason why new leaders cringe at the thought of forming a true Board of Directors is the belief that what they worked so hard to create can be taken away from them. I won’t lie. This is always a possibility when establishing a non-profit. So, my advice is to choose (invite) your initial members wisely. This is the only time that Board composition is your sole decision.

 

In doing so, remember that the commitment of members should be to the mission of the organization, not to you personally (as their primary reason for service). They should care enough about the organization that they would still serve even if you were no longer actively involved or, God forbid, something happened to you. And, their decision-making and contributions must be in the best interest of the organization at all times. This is their legal responsibility.

 

 

 

So, as a Founder, how do you protect yourself?

 

 

 

Almost without exception, the Founders I have worked with became the Executive Director. This is really where you need more protections than if you simply serve on the Board of Directors. But, whether you are the President of the Board or you assume the ED role, you are the Founder. With that comes an assumed, long-term leadership role that likely will continue until the time you decide to leave—usually as a result of retirement or deciding, on your own, to move onto other interests! And, to be clear, Executive Directors do report to the Board, but that does not mean they are not steering the growth of the agency. Even a non-founding ED gives the Board the information and tools needed to make the best decisions about how to move forward.  

 

So, are you best suited for the ED role, and do you need this to be your full-time, paid job? Well, provided you are a competent leader and fulfill the responsibilities of the ED role with integrity and overall success, you should have nothing to worry about. And, this is determined by an established job description and other outcomes-based deliverables identified each year. I’ll also add that I have seen many organizations where the ED SHOULD have been removed from the position, but wasn’t. Generally speaking, Board members tend to treat Founders a bit differently than those (outsiders) they hired through traditional processes. I would also recommend that your organizational By-Laws include a higher voting threshold for removing a Founder from the ED position.

 

Still, it is all about relationships and communication. While there are unscrupulous people in both the private and non-profit sectors, their ability to harm you will be dependent on your other Board members and the processes you have created within your organizational framework. In my experience, the integrity of the governing body will take over and quickly remove the bad seed that can be so destructive to morale and productivity. In other words, if someone is drilling holes in the boat, the rest need to toss that person overboard. It is also another reason why having a larger Board (10-12 people) serves you best as a Founder.

 

Most importantly, a Founder cannot make (most) decisions on their own. I see MANY try to do just this, and even respond by saying (to me) that they will “fire” any Board members that disagree with them. This is a violation of non-profit norms and law. The Board must vote on all activities related to operations/policy, budgets, and so forth. Unless a Board has already delegated a certain degree of HIGHLY SPECIFIC decision-making to the Founder—such as the Board determining a pre-set budget to work with a grant writer and allowing the Founder to independently find and contract with this person—no major action can take place without Board authorization. This includes any spending. If the Founder is the Executive Director, they cannot do anything that has not been already approved by the governing body. (Normal day-to-day activities should have already been formally adopted (by the Board) with regard to official policies and procedures, annual budget, organizational structure and staffing, strategic/implementation plans, and so forth.)

 

Beyond those issues, it is important for a Founder to be mindful of their true motivations and where ego can sometimes get in the way. In particular, I am referring to the difference between what they once wanted their program to become…and the possibilities that are presented by involving the talents and ideas of others. Rarely do such contributions weaken the original program. In fact, in my experience, the mission and programs expand to something better.

 

Yet, if you do not engage your full Board and make everyone feel as though their contributions are valued, the organization will suffer. Some people will become passive aggressive, which will probably be evidenced by them missing meetings and not participating when they do show. They might outright quit. If you are a Founder that feels you are the only one devoting time to the effort, you may want to do a little self-assessment on this. You gotta be a LEADER, not just a FOUNDER. Extending “ownership” to all persons involved gives them a stake; makes them accountable. So, the culture created by the Founder is crucial. Leaders are take-charge kind of people. Yes. But the best leaders “support up” and orchestrate rather than “control.” If your Board is not actively engaged you either 1) have the wrong Board members or 2) you need to change how you are working with your team.

 

Yes, after others get fully involved, your organization may not “look” like your original framework. Direction may be altered as well. But, the question becomes that of marketability and impact. With the input of others, is your program more innovative? More far-reaching in scope of services? These are ingredients for success.

 

Although there are components of human service provision that we can “control,” much of it is outside our power as individuals. We can do the work, the planning, and the networking, but we still cannot control many of the outcomes. The sooner we recognize this, the better. And, as humans are indeed flawed, we sometimes hurt one another. Sometimes intentionally, sometimes not. This is why, as a Founder, you need to create an environment of caring, compassion, and honesty. If you create a culture where underhandedness and scapegoating are deemed unacceptable by all—you should be fine. Most people DO want to do the right thing, and are honorable folks. As a leader, model that behavior.

 

Keep people focused on the important work of the organization. The mission. Something beyond self. That is where the magic happens.

 

So, what kind of leader are YOU? The best leaders I have ever known place great value on the contributions and creativity of those around them. No one is an expert in everything, nor is there ever just “one way” to do anything. Obviously, it is impossible for a single human being to run an organization—at least, successfully. We need each other. As a Founder, you need to determine people’s greatest talents and interests, and then figure out how to harness these for the greater good. And, you also have to really listen, both to what is and isn’t being said by your team.

 

Trusting in those around you to pull their weight and add to the innovation of your program should bring you to where you truly hope to go. In fact, you very well may even EXCEED your earlier expectations. And, by extending a sense of “ownership” to all those involved, you will find people who are more energized, more devoted, and more creative than when you offer them a dark box in which to reside. Without doubt, you’ll also grow along the way.

 

Trust. I know it is not easy, but you must work to lose your fear. Be the leader they can’t be without… and serve others and the MISSION. That is the difference between being a non-profit leader on top of being simply a Founder.

 

Leaders focus on what they can give. They inspire. And, not only do other people respect that kind of leadership, but they are deeply loyal to the Founder because of it.

 

You’ll be fine. Now, get moving and change the world!

 

 

 

 

 

 

 

About the Author:   Mary E. Costello is a Social Worker by education, trade, and spirit. She is a 1987 graduate of The Catholic University of America, where she studied both Social Work and Drama. Her full-time non-profit service began in 1984, marking the start of a long and successful career in Social Work Administration—primarily in the mental health and developmental disabilities fields. In directorship roles from a young age, Mary became well-known for developing new programs and organizations "from the ground up," as well as revamping non-profits in danger of closure due to serious State licensing deficiencies. Starting Creative Edge Consulting (CEC) in February of 2005, Mary specializes in the support of start-up organizations, as well as the restructuring, improvement, sustainability, and expansion of more established agencies. Inquiries may be directed to MaryCostello@CreativeEdgeConsulting.org or you can visit www.CreativeEdgeConsulting.org for more information about her full array of services.