Whose Idea?

The Duty of Loyalty – that’s an old one, engraved in law and “best practices” board manuals from fifty years back.

The way I’d always heard it explained to me, it requires that board members put the interests of the corporation – the nonprofit – above all others, including their own.

Or that of other boards they’re on.

Tricky, for folks on multiple boards, if the organizations’ spheres of activity intersect at all.

I saw this come down last week, when a board member who’d been a driving force in promoting an annual Chili-Tasting Festival posited the idea that the Festival should be spun off – and he should run it.

Well he was right, the Festival had become too big an idea for the nonprofit organization to house. When it was five home cooks facing off, that was one thing. Now it was 25 chefs from around the country and growing, and producing the Festival – though profitable – was draining the resources of the hunger advocacy organization, called EAT (Everyone Advocates Together).

So here’s the dilemma. The board member proposed to run the Festival as a separate organization, and use the proceeds – the surplus – as a donation to EAT. Sounds good, right?

But there’s a few complicating factors. For one, EAT was about to see its brand equity, the sweat it had put in, the loyalty of the event volunteers, the interest of the event’s sponsors…evaporate without a value given to that. Without having EAT’s name on it, all of this intellectual property and relationships were being transferred over to the Festival without a second glance. (Here’s where a loud buzzer should sound – WRONG!)

But it was the board member’s idea and it wouldn’t have happened – or grown the way it did – without him! was the thinking.

Well, sure, but the board member had worked on the Festival as part of EAT. So his labor…and thinking…and the contacts he’d made…were under the umbrella of EAT, and remained the “property” of EAT.

This concept is clear and wide-spread when it comes to employees – what you create as part of your job becomes the property of the organization you’re working for unless agreed otherwise – but it applies to board members as well.

Let alone that if EAT were to spin this off, and the new group hired someone to run it, would this board member have been the best person for the job if there was an open job search? Maybe yes, or maybe no…

SO… the duty of loyalty. The obligation to ensure that the interests of the nonprofit corporation come first. You can see how this gets kind of messy!


PS The answer was, to have EAT co-sponsor the Festival with the new entity – and the board member stepped off the EAT board to avoid any appearance of conflict of interest (one of the other guiding tenets of board service).