The Nonprofit FAQ

Can the founder of an organization also be an employee?

Michael L. Wyland of Sumption & Wyland (http://www.sumptionandwyland.com), a consulting firm in Sioux Falls, SD, wrote this response to a question in Nonprofit (see http://www.rain.org/mailman/listinfo/nonprofit) about the how a board and founder of a nonprofit should work together to assure the ongoing strength of the organization: As Executive Director under contract to the nonprofit, you would be a "disqualified person" under IRS Section 4958 "intermediate sanctions" (IS) regulations, just as board members are. Your board would have to hire and/or contract with you based on a market analysis of reasonable compensation and with due regard for conflict of interest policies that should be part of your organizational framework. As a start-up organization, though, you and your board could plausibly maintain that, as the creative force behind the new organization, you would be uniquely qualified to be its first executive. (NOTE: for more about intermediate sanctions, see http://www.nonprofits.org/npofaq/18/13.html.) Also, as executive, it would be reasonable that you would be given an ex officio seat on the board and access to all board committees. ["Ex officio" in this case means "by reason of holding office," in this case as Executive Director.] Whether or not your board position should also be a voting one (the common (mis)use of the term "ex-officio" is as a synonym for "non-voting") is a decision your board should make. (NOTE: for more about the question of whether the Executive Director should be a board member, see http://www.nonprofits.org/npofaq/03/17.html .) In fact as well as theory, you would serve at the pleasure of the Board of Directors and be subject to a contract. In practice, however, your job security comes from your status as the single entrepreneur. Without you, the organization fails (or at least suffers tremendous artistic and financial crises). You are the organization's single largest asset. If your asset value diminishes to the point where it threatens the asset -- the work -- then it would be the board's responsibility to replace you. If they fail to recognize your significant value and terminate you, you carry your asset value with you (subject to contractual limitations, of course). An entrepreneur is always looking for new worlds to conquer or new ways to succeed, so this would not be a bad thing, necessarily. Besides, an entrepreneur aspires to create, not to be a custodian. A key component of entrepreneurial success is the exit strategy. Posted 9/8/03 -- PB