Board Members as Employees or Contractors?

In some organizations, it is common for board members to also be paid to do work for the organization; in others it is strictly not allowed. I was recently asked about the merits of having someone with valuable expertise fulfill both roles. It is not illegal for people who are paid to do work for the organization (for-profit or non-profit) to be board members. However, it can be awkward. That is why many organizations, especially non-profits, have policies that prohibit it. Here are several things to consider when your organization grapples with this potentially sensitive topic.

How readily available is the expertise that the organization needs?
Does your organization have enough members or does the community have enough interested individuals with various types of expertise that you can divide the duties so that different people are on the board than those who are doing the work? If the expertise and enthusiasm of people who are doing the work or serving on the board is such that them wearing both hats seems to be the best way to have progressive, insightful board leadership and to get the organization’s work done well, then consider the following.

Can the individuals in question truly change hats?
a) When they are doing staff work, do they realize that they do not have individual rights to make high level decisions? A volunteer board member who is also being paid to do operational work can only be paid for the work that he has been authorized in writing to do. This authorization will generally be in the form of a job description or a services contract. Verbal instructions make sense regarding the specifics to be done within the framework of the job description or contract. However, verbal direction is not adequate for outlining the general scope of work because of the potential for confusion of roles with someone who is serving both roles. There must be a document to which everyone can refer to clarify expectations. Staff members, even if they are board members too, must submit to the authority of the board and the senior staff person. It is important that all staff members, including contractors, report through the CEO or Executive Director who is responsible for coordinating all operational matters. When the senior staff person and the board member don’t agree on how something should be done, the board member who is being paid to do staff work must accept the senior staff person’s management decision and complete the work accordingly. One board member who is helping with operations does not have authority to make or overstep board decisions or imply that as a board member she does not have to abide by the same operational constraints as everyone else.

b) During board meetings, the board member needs to stay focused at a high level. The board develops policies and monitors operational progress, focusing on what the organization is achieving. The board does not get into how the work gets done. Someone who has both a board and staff role should not be bringing operational details to the board meeting to get the board to support how they would like the job done, thus micromanaging the operational authority of the CEO or Executive Director. If the person in question does not understand the significant difference between her board role and staff role, and is not generally able to function accordingly, then a decision needs to be made about which role she will continue to fulfill.

What is the impact on the CEO or Executive Director and other staff?
Generally, everyone involved with an organization considers board members to be board members, even outside of a duly convened board meeting. Thus, staff often defer to a personal opinion expressed by one board member, even when the board has not made a decision supporting that perspective. It is important that the CEO or Executive Director and everyone involved in operations works within the decisions recorded in board minutes, even if a staff member who happens to be a board member expresses a different view. If one person fulfilling two roles is confusing to the rest of the operational team, then a decision must be made regarding which one role the person will continue to hold. In for-profit companies where senior managers are often board members, it is important for the organization to be clear about which types of decisions will be made by the board and which by management so meeting agendas and discussion can be kept on track.

What is the impact on the individual’s legal liability?
In for-profit organizations, both board members and staff can be subject to legal liability. In some jurisdictions, including the State of Ohio, volunteer board members on non-profit boards are only subject to liability claims if they are clearly guilty of negligent or illegal behavior. Volunteer board members who have made an effort to fulfill their role in the organization’s best interests, are considered community servants and are generally protected from most liability accusations. However, in Ohio, once a board member is paid more than $500 per year by the organization, it is considered his responsibility to have appropriate expertise to make well-educated decisions and is exposed to liability risk for board decisions that may prove to have not been in the best interests of the organization or its owners. There does not have to be any wrong intent for such paid board members to be held liable; there simply has to be evidence that a board decision has materially negatively impacted the organization.

Some organizations find that the insights and energy of some individuals are so valuable that it really is in the organization’s best interests to have certain individuals fulfilling both a board and staff role. It is normal for a for-profit company to have managers sitting on the board. If you decide that it makes sense for your for-profit or non-profit to follow this practice, be sure to develop a clear policy prior to hiring any board members to fulfill staff functions or appointing staff to the board. Such policies must be clearly worded, duly approved at a duly convened board meeting, and recorded accurately in your minutes.

When considering whether to permit individuals to be board members and also be paid to work for the organization, it is important for boards to discuss the pros and cons of some people fulfilling this dual role and ensure that all who will be affected have the training necessary to address related issues professionally.

Explore posts in the same categories: Board Governance, Board Members, Boards, Business, Church Governance, For-Profit Boards, Non-Profit Boards, Team, Uncategorized

One Comment on “Board Members as Employees or Contractors?”

  1. Elizabeth Y Says:

    Is it legal or appropriate to ‘hire and pay’ board members as contractors to do maintenance, painting, or provide other services for the organization? These kinds of services have previously been bid out, or staff has been hired or contracted to perform these tasks. Board members have previously volunteered when performing these tasks. It seems like a conflict of interest that may or may not actually be illegal.

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