NPQ's The Ethicist

Dear Nonprofit Ethicist,

I recently worked for an emerging nonprofit organization. The founder and founder’s spouse still run the organization, but it has grown and is becoming national. The organization currently has four sites across the country, with more planned. The founder’s spouse receives about $60,000 in compensation and actively participates in senior staff meetings, yet she does no real work for the organization.

I shared my concerns with board members, who have the same concerns. But they do not seem willing to do anything about it. Recently, I was asked to resign because the founder could not work with me anymore. But I believe the reason is because I pushed on these ethical issues.

As I look for another job, I am receiving severance. Should I just move on and leave this terrible time behind me? Or is there something more I can and should do?

Fed Up

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Dear Fed Up,

You are right about this being very wrong. The hardest problem for any nonprofit is what to do with a dysfunctional founder. When a founder is dysfunctional, the rest of the organization often is as well.

Founders are complex beings. They are often brilliant visionaries but unskilled with what they consider to be “details”;? they may be unable to cope with adversity;? their talents may not grow with the organization;? or all of the above and more. In this case, the founder seems to consider obvious everyday ethics as mere details, and those around her have decided to collude. One of a board’s main functions is policing an organization’s ethics. If it is aware of a problem and won’t do its job, there is not much that others can do except complain—as you have—which will often get you ejected.

This founder has put the organization at reputational risk during a period of growth, as you describe it. And that is just plain silly in these unforgiving times. If you care about the organization, you may want to notify the IRS. The intermediate sanctions rules classify both the CEO and spouse as “automatically disqualified individuals.” That is, in IRS lingo, they are disqualified from receiving “excess benefits.”

The CEO and spouse have the burden of proof to show that the compensation is “reasonable”—in my estimation, a highly unlikely prospect—and they can be subject to stiff penalties, including the requirement to repay the organization all the spouse’s compensation from day one.

Anyone can file a complaint (a “referral” in IRS-speak). Use this link to access the form (the IRS has a form for just about everything). Unfortunately you may never learn the outcome, because the IRS can’t tell you what’s happening or even if it has pursued the case. For some, a note from the IRS might provide the wake-up call they need.


Woods Bowman is a professor of public service management at DePaul University.

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