Nonprofit Risk Management 

Tip of the Month - July 2008

playing favorites - nepotism policies re-examined

In many nonprofits it is not uncommon to have several family members on the payroll or on the board of directors. In fact, it is the rare nonprofit that has a written anti-nepotism policy these days. This is because it is not illegal to hire family members or for family members to serve on the board. However, there are risks whenever employees or board members are close personal friends or share family relationships. A nonprofit that permits employees to openly display their romantic relationships at the workplace risks being accused of violating discrimination laws on the basis of hostile environment/sexual harassment. A more subtle risk is that close friends and family members tend to share similar values but also similar points of view. A nonprofit risks a too-limited perspective if its key leaders are all cut from the same cloth. Best practices in governance include having a clearly written conflict of interest policy that is circulated annually among board and staff, and a board composed of mostly “independent” board members – meaning that board members do not receive compensation from the nonprofit and are not members of the same family. If employees are related it is very difficult to combat the appearance of favoritism, especially where one related employee is responsible for supervision of a family member. For this reason many nonprofits stop short of having an anti-nepotism policy but will have a personnel policy that prohibits family members from supervising one another. A clearly written conflict of interest policy is effective in addressing the perception that board or staff are taking advantage of their position with the nonprofit for personal financial gain. Nonprofits that hire family members or have family members or close friend or business associates on the board should be sure to cultivate a culture of transparency. Employees and the public must see that the nonprofit is not opposed to relationships, but is opposed to competing loyalties that jeopardize the best interest of the nonprofit or those it serves.

About the Nonprofit Risk Management Center:  The Nonprofit Risk Management Center (NRMC) was established in 1990 to provide assistance and resources for community-serving nonprofit organizations. As a nonprofit, the Center is uniquely positioned to both understand and respond to questions with practical, affordable suggestions for controlling risks that threaten a nonprofit’s ability to accomplish its mission.

NRMC's mission is to help nonprofits cope with uncertainty. We offer a wide range of services (from technical assistance to software to training and consulting help) on a vast array of risk management topics (from employment practices to insurance purchasing to internal controls and preventing child abuse). We do not sell insurance or endorse organizations that do. Look to the Nonprofit Risk Management Center’s regional meetings, monthly Webinars, and online Risk Management Classroom for additional training at www.nonprofitrisk.org.

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