Conflict of Interest or of Benefit? Family and Business Relationships on a Nonprofit Governing Board

• In Event: Nonprofit Governance

Abstract

We study family and business relationships among board members at US nonprofit organizations. In 2005, the IRS started requiring nonprofit organizations to disclose the existence of family and business relationships among board members. In 2008, the disclosures were expanded to identify the nature of these relationships among board members. We ask whether these relationships help or harm the organization. We examine director relationship disclosures in two ways. First, we examine whether funders react to the 2005 Form 990 disclosure of the existence of relationships among board members. We then explore how the more detailed 2008 disclosures influences an organization’s internal operations. Our results suggest the disclosure of the existence of these relationships do not impact donors giving decisions. We a positive association between the presence of family relationships and contributions, measured on several dimensions and a negative relationship between the presence of family relationships and program service revenues and expenses. We also find a positive association between the presence of family relationships and excessive executive compensation, suggesting that family relationships on the board can potentially be both beneficial and detrimental to the organization. Our results also suggest that board members with business relationships leverage those relationships to increase revenues beyond donations and then spend those additional resources on ongoing and new programming. Interestingly, business relationships are also associated with higher excessive executive compensation, and the association is stronger than for those with family relationships among board members. Together, our evidence supports the idea that nonprofit organizations benefit from family and business relationships among board members, at least concerning donor decision making and program spending. Close business and family ties among board members may improve organizational performance, in contrast to the concerns that such relationships may be detrimental to the organization.

Authors

• Colleen M Boland, University of Wisconsin-Milwaukee

• Erica Harris, Villanova University

• Daniel Gordon Neely, University of Wisconsin-Milwaukee