Is membership creating too much risk for your 501(c)3?

Governance

Does your nonprofit have general membership available to the public in the governance structure and bylaws?  General membership within the governance structure may be more of a risk than a value to an organization.

Why do nonprofit organizations have membership in their governance structure?  Back in the 1970s and 1980s, nonprofit organizations utilized a methodology for creating community and stakeholder ownership.  This was driven in part by how corporate for-profit companies were structured and run by shareholders.  The idea being that the more stakeholders had an ownership stake, the more impact could be generated community-wide.

The difference today from 30–40 years ago is that nonprofit organizations have amassed large amounts of assets, whether cash, real estate, equipment, or endowment, and these 501(c)3 organizations may have tens to hundreds of millions of dollars being governed by the board and general membership.  This puts a huge amount of influence in the hands of a non-fiduciary body.

The board of directors has a fiduciary responsibility for ensuring the governing independence free from internal or external stakeholders.  General membership could be considered a form of external stakeholders with significant influence over the governance of a nonprofit.

It may feel good to have membership engaged in your nonprofit, but does it have to be involved in the governance structure and bylaws?  The risk and influence involved with membership may need to be rethought with all 501(c)3 boards.

Applicable only to 501(c)3 entities