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Board of Directors/Conflict of Interest

Hello,
 
The spouse of our choir's Conductor is interested in sitting on our  Board of Directors. The question of his service being a conflict of interest came up, but in my opinion if the spouse recuses himself from votes concerning Conductor contract and salary, the conflict would be resolved. Are there any other leagal roadblocks/dangers that we might face by having a family member of a paid staffer on the Board? One more piece of info: the association does not have any employees. Any of our staff members are independent contractors.
 
Thanks,
Rob Calhoon
Replies (8): Threaded | Chronological
on June 12, 2013 3:39am

I have been on several boards and whenever this situation has arisen it has created problems.  There is no practical way to limit the purview of a board member, simply their presence in the same room as a debate on these issues serves to mute the debate, and there are many areas of potential conflict outside of salaries and contracts. I recommend that the bylaws clearly state that parents, spouses, and children of paid senior staff cannot sit on the board. This is not to say that they cannot help. Most choruses have sub committees. A spouse sitting on a fund-raising committee is probably a good idea, although committee chairs should probably be board members. I have actually heard the argument that “We can't fire “her” because “he” will quit.”

 

The director is an employee of the board, contractor or not. Spouse working for spouse is often fraught with problems.

Applauded by an audience of 4
on June 12, 2013 9:47am
If you are a 501 (c) (3) non-profit, or operate under the church's non-profit status, you can not have a paid employee or a family member of a paid employee sit on your board.  You can look to your legal council or look up the IRS statutes for whatever your IRS status is, but that should be your guide. You don't want any hint that someone may profit from the activities of the board....and this is a 'biggie' and has been a problem for many groups.  Avoid the appearance of impropriety and thank her for her interest and say no, gently.
Applauded by an audience of 1
on June 12, 2013 12:45pm
Rob,
 
Jesse and Beth speak wisely. In the broader context, not just the legal one, you just don't want to go there.  I'm not convinced that you need to state such a policy in writing; I just would not have the spouse on the board.  You need an objective body that supervises the director candidly, and having the spouse there in the room indeed is a bad idea.  I am sure there can be a diplomatic way to find the director's spouse a good role in the organization that's not actual board membership.  Such a person can serve on a key commitee that is chaired by a board member;  other committee members need not be members of the board.  How about fundraising, since the spouse probably has some enthusiasm for the mission?! :) Chorus America (www.chorusamerica.org) specializes in just these issues and is a treasure-trove of best practices. I would look at CA's book "Managing the Successful Chorus" as a handbook for such issues.
 
As a side issue, I suggest that you be careful about declaring that your staff are all independent contractors. Just because you say this doesn't mean it will hold up under a challenge. The IRS rule of thumb is that, if you tell your staff when and where to do their work (such as showing up on a particular date/time in a particular place for a rehearsal), then they generally should be construed as employees.  The State of Illinois is also pretty picky about this issue. A freelance graphic designer who works on your brochure on her own time and at her discretion is a contractor, by contrast.  I know it costs more to have people on the payroll, but it's the right thing to do. Our singers at Chicago a cappella are all employees, even though they are only at rehearsal once or twice a week. You also have more leverage over people with even a simple employment agreement.
 
Those are a few things to think about as you grow and prosper.  -- Jonathan
Applauded by an audience of 1
on June 13, 2013 7:23am
The advantage of stating it in the bylaws or other rules is that there is no question when the situation arises.  A traditional practice is hard to enforce, especially if the board member or Director spouse is popular.  If a difinative change in the bylaws is required people will be much more circumspect. 
 
Having an independent contractors agreement and providing less than half the income of the contractor will pretty much satisfy the IRS that the director or whomever is a contractor and not an employee. 
on June 14, 2013 5:35am
Jesse - I think it's quite a good bit of thinking to state it plainly in the bylaws - this way there is no confusion or the possibility thereof.  Nip a problem before it becomes a problem.
 
Ron
on June 12, 2013 1:01pm
I agree completely with the above responses and add, ....what if you discover some impropriety with the conductor;  does the spouse have a say and does the spouse then get to stay on the Board as a thorn in your side?  Of course what does the Board do when it is the spouse of the Conductor who needs to be removed from the Board?  It is one thing if the choire is a closely held family enterprise, it is quite another if it is a 501(c)(3) with a Board that is suppose to be independent.  Finally, it might be possible to have "independent contractors" working for you, but I bet they have to have a contractor number, their own insurance, their payments to Labor & Industries, pay own business and occupation taxes, and the job contract must be quite clear, etc.  The presumption is that if you pay them they are your employees and that is tough to get around. Simply claiming an employee as a contract worker does NOT make it so.   
on June 13, 2013 10:42am
James:  the situation you describe is yet another reason to avoid having a staff spouse on the board. Rob's initial idea to have the spouse recuse him/herself from any votes regarding the music director is necessary but not sufficient. The question I would pose is a broader one:  what is the reason (other than perhaps history) for having the spouse on the board at all?  The ultimate purpose of the board is to be the legitimizing link between the chorus and the wider community. The spouse can serve several roles to help form that bridge;  the chorus looks less insular and incestuous to outsiders if (1) the spouse is serving in other capacities and (2) others from the community are helping the board to flourish.  If your organization would benefit from Jesse's step of having a written nepotism policy, then go for it. Of course, some sensitive individual will have to take on the unenviable task of pulling the spouse aside BEFORE this policy ever comes up for a vote...  and letting the spouse know how important this step is and why, and to outline some other options for the spouse's participation.  Great care must be taken to maintain the spouse's buy-in over the long term, so think about how you would want to be treated if you were the spouse in this delicate situation, and go and do likewise.
on June 13, 2013 6:26pm
Thanks, everyone for your help. I believe that both the Conducor and the spouse already know that there would be too many pitfalls with his serving on the board. Onward!
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