Terrie on
Nonprofits ©
May 2005
Foundation Boards: The Rules Aren’t Really Different Here
Q: I
just started working for a foundation after
spending my career on the charity side. The
board could use some basic information about
its roles and responsibilities and I want
to be sure it’s getting the right information. I
found some material on foundation boards,
but it’s wordy and I know I’ll never get
anyone to read it. I need some “Terrie plain-speak” to
share.
A: First,
thank you for implying that I provide user-friendly
information. That’s always my intent. Thank
you – NOT – however, for piling on the pressure!
Your
experience on the charity side will stand
you in good stead. Like directors on charity
boards, foundation trustees are responsible
for making informed decisions to further
the mission while protecting the organization
through strong fiscal and ethical management. This
includes such things as understanding the
issues, avoiding conflicts of interest, ensuring
compliance with tax, recordkeeping and employment
law, and managing the organization’s finances
and investments.
There
are several unique aspects to foundation
boards however. The most obvious is that
they are responsible for making and monitoring
grants. This means setting grantmaking
policy consistent with both the law and donor
intent. For instance, the law allows foundations
to make distributions to individuals, overseas
charities and non-charitable organizations
as long as certain rules are followed and
records kept. The law also states that foundations
must ensure that minimally 5% of their net
investment assets are distributed annually. These
laws can change. Up until now the 5% qualifying
distribution has included overhead and similar
expenses. There is talk of requiring that
the 5% be limited to grants. Foundation
trustees must stay abreast of such rulings
in order to keep their policies and practice
current.
Maintaining
a commitment to donor intent is one of the
primary aspects unique to foundation boards. On
the charity side, directors should chafe
at donors who wish to control the direction
the organization takes. On the foundation
side they are entrusted with precisely the
opposite responsibility – staying true to
the direction and values of the donor. This
can become tricky if as the world moves and
changes at warp speed traditional interests
become untenable or obsolete and the founder
is no longer around to express his/her wishes
in the face of this new reality. The trustees
must determine how best to respect donor
intent while meeting their duty of care,
that is making the best possible decisions
for the foundation.
Trustee
commitment to donor intent extends to both
the control and lifespan of the foundation. Some
founders wish control to remain within the
family or with specific trusted advisors. Some
limit the life of the foundation to a specific
number of years, generations or expenditure
of dollars. These desires limit options
but not responsibilities for current trustees. Sometimes,
these factors are not specified and trustees
are expected, along with all their other
responsibilities, to recognize when the organization
would benefit from opening the board to previously
unimagined diversity or when symptoms necessitate
splitting the foundation into splinter organizations
with different foci or closing it down altogether.
The
requirements of board service are more complex
than most people imagine. This is particularly
true in the case of foundations. I applaud
you for seeking information you can share
to make your trustees’ job a little clearer.
Terrie
Temkin, Ph.D. is an internationally recognized
governance and planning expert. She is
president of NonProfit Management Solutions,
Inc.,
a principal in CoreStrategies for Nonprofits,
Inc., and a longtime member of AFP. Contact
her at terriet@nonprofitmanagementsolutions.com,
954-985-9489, or 866-985-9489.
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