May a Charity Require Directors to Contribute?
By Don Kramer | Nonprofit Law Group Chair of Montgomery, McCracken, Walker & Rhoads, LLP
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The piano society in the town where I live has a 501(c)(3) charitable tax-exempt status. They are requiring that you give them $1,000 if you want to be a board member. Is this legal? —From the website
It is not unusual for a charity to require its directors to make an annual cash contribution to the organization. Some people think it should be a requirement for directors to “give, get, or get off.” Although I haven’t heard that language so often lately, there were many years where commentators said a director should have to give money, get money from others, or get off the board. The question is not so much whether it is legal (I know of no law making it illegal), but whether it is wise.
Requiring an annual financial contribution, especially a substantial contribution, can skew the characteristics of those selected to serve on the board. (See our report: “Increasing Gender Diversity on the Boards of Nonprofit Eds and Meds”) In a new era of diversity, equity and inclusion, more people seem to recognize the value of diverse experience and opinions on a board. Economic status is a form of diversity that may be particularly critical for an organization to understand those it seeks to serve and for its ability to carry out its mission successfully. Requiring a substantial annual contribution is likely to reduce the number of lower income directors who can or will serve.
Consultants will often argue that funders want to see 100% participation in annual giving by members of the board. I am not sure that many grantmakers actually ask that question. (The common grant application form of the Philanthropy Network [of grantmakers] of Greater Philadelphia, for example, does not ask that question.) And even if a grantmaker does ask, an organization can respond affirmatively if everyone gives a penny. Organizations that have a larger minimum, explicit or implied, often make exceptions for those who would have trouble meeting the expectation. But simply asking for the exception can make the recipient feel like a second class director, somehow less valuable than those who have the capacity to pay.
It is traditional and fine for an organization to expect its board members to contribute financially. But that expectation should not get in the way of having a diverse board of people with many other talents and experience to contribute.
Reprinted with permission from Don Kramer’s Nonprofit Issues – A Newsletter of “Nonprofit Law You Need to Know” at http://www.nonprofitissues.com/