Nepotism involves favoritism shown to family members or friends. Examples include having one family member reporting to another family member in an employee-employer relationship or having them serve on the same board of a nonprofit organization. It is not illegal but it does raise risks and invites questions of accountability and conflicts of interest.
Earlier this year, the San Francisco Chronicle reported that a Bay Area nonprofit group serving the Laotian American community was accused of nepotism. It was alleged that when the executive director retired two years ago, he was replaced by his daughter. He then created the position of President/CEO for himself and collected a salary. The former executive director’s son runs one of several offices with the mother serving as board secretary. Meanwhile, the daughter-in-law runs another office and the former executive director’s sister is on staff there. While we do not know all the facts, these allegations are serious and cause much harm to the community and those served by the organization.
Unfortunately, charges of nepotism are common and occur even at the largest nonprofit institutions. For example, the New York Times recently reported that the son-in-law of a major donor to Carnegie Hall was awarded a contract to design a $150 million expansion for the institution. Even though there may not be any impropriety, it does raise questions and may tarnish the nonprofit group’s reputation.
Nonprofits should have a conflict of interest and/or nepotism policy for both, staff members and board of directors. Boardsource provides samples of these policies or you may have an attorney draft one for you.
What else can nonprofits do to avoid this issue and what should board members, staff, and donors do if they suspect nepotism?
Gene Takagi, attorney for nonprofit organizations in San Francisco provides some insight:
"There are some built-in protections in the law against acts of nepotism that are not in the best interests of the charity, such as the directors' duties of care and loyalty, the 49% limitation on interested directors (of California nonprofit public benefit corporations), and the rules against self-dealing. However, compliance typically requires recognition of the applicable laws.
Capacity-building organizations and foundations should address the need for organizations to have greater institutional knowledge of the laws that affect them and best practices designed to promote greater compliance. Lawmakers must create legislation that is designed not only to stop abuses by larger organizations but also to promote greater compliance by the great majority of charities that are very small. Finally, leaders of charitable organizations must not shy away from increasing their knowledge of applicable laws based on the flawed rationale that greater knowledge creates a greater operational burden.
Ultimately, the board of directors is the protector of the public interest to ensure among other things that their organizations are acting in the public's interest and not in furtherance of the private benefit of one or more individuals in leadership positions."
