A Guide for Muslim Nonprofit Board Members
It's not as easy as it looks.
Many of my clients (I am an Islamic Estate Planning Attorney) serve as board members for Muslim nonprofits. I have as served a board member myself a few times for Muslim and secular organizations. It's a vital community service, and we need more people willing to do this work. It is also a role that comes with peril. I have prepared this guide that I hope will help you become successful as a board member.
What We Mean by Board Members
A board of directors of a nonprofit corporation are the people responsible for the conduct of a nonprofit organization to the state, the federal government and the community at large, the people who have their names disclosed in public filings. Some organizations may use other terms, such as commission, shura member, regent, elder, trustee, or something else. Most nonprofits are organized as corporations so we will cover boards of corporations. Some nonprofits are organized as trusts or unincorporated associations. I won’t be discussing those much here.
For Muslim organizations, we often use the term “shura” since mutual consultation is how we are supposed to resolve our affairs according to the Quran. The reality is all over the map when it comes to how boards actually (dis)function.
Governing Board vs. Working Board
Most nonprofit organizations are relatively small. A Masjid, for example, may not have much staff beyond an Imam if that. The Board makes everything run. They will be out in the parking lot, making sure people are not parking wrong, fix audio issues, and clean up. For many Masjid nonprofits, board members do a lot of the nonprofit's actual work since there is little or no staff available to do these things.
Other Muslim organizations (the kind I intend to profile in my reviews) will generally have professional staff led by a Chief Executive Officer (CEO) or the equivalent. The Board hires this CEO; indeed this is one of their most important responsibilities. For relatively young nonprofits, the organization's founder often serves as both a board member and a CEO, an inherent conflict of interest I will discuss below.
The Governing board members and working board members have fiduciary duties, which can often be a fuzzy concept for many, though it is important. All “working board members” are also “governing board members”; the distinction between them is mostly one of emphasis.
Fiduciary Duties
A banker serves as a fiduciary for money you keep in a bank. A nonprofit board member serves as a fiduciary differently since donors have already given away the money. They are fiduciaries for the organization itself. Board members all owe the fiduciary duties of care, loyalty and obedience to the organization. Examples of the kinds of things board members should worry about:
Oversee Executives: Board members (or a designated committee) can approve pay scales and executives' compensation in addition to hiring and firing executive leadership.
Waste and Abuse: Nonprofits are frequently vehicles for fraud and waste, something that has long been fodder for TV shows and journalism. Don't be such an organization.
Maintaining Focus: Organizations can lose focus and attempt to be all things to all people. Does a Masjid want to be a civil rights organization? Does a civil rights organization wish to focus on foreign policy? Sometimes the availability of money from specific donors can change an organization's focus. An organization created for dawa will start a "Preventing Violent Extremism program" in public schools (this happened).
Transparency: You need to make sure the organization engages with donors and the public about how it uses the money it receives. Of course, for this to happen, you need to know the answers to these questions yourself. Organization's claims of what they do and what they actually do are often different things.
Following Laws and Regulations: Many nonprofits have no idea they need to file regular reports with the State Attorney General (or in Florida, the Department of Agriculture for some reason). Board members subject their organization and often themselves to liability if they don’t follow rules relating to fundraising solicitations, fire codes, employment law, get workers compensation insurance and various sorts of taxation and disclosures and a whole host of other things, which often depends on what a nonprofit does. The buck stops with board members.
Your Organization’s Reputation: The need to protect the organization can incline a board member towards covering up wrongdoing when they see it or hear about it. Your responsibilities as a Muslim, as a participant in society and as a human being don’t vanish because you are a board member in an organization where you discovered bad things have happened. In a crisis though, you do need to find ways to mitigate damage and protect the organization if possible. You also need to be proactive in preventing concerns from becoming a crisis.
CEO as a Member of the Board
Often, the CEO of an organization also serves as a board member. This is an apparent conflict of interest since one of the primary jobs of a board of directors is to oversee the CEO. For small start-up nonprofits, such a conflict is unavoidable. However, such a practice is looked down on for established nonprofits as a matter of best practices but is still common. For purposes of the Ehsan newsletter, this is not usually a deal-breaker though it is a sign of laxity in governance.
Often a Board will exclude a CEO from deliberating his or her performance, or there may be other guardrails.
I am often skeptical these measures are enough. The CEO's ability to dominate the Board and control the flow of information can vary from one organization to another. The mere presence of a CEO on a board is not by itself an indicator you should not support the organization. However, it is difficult for any large nonprofit to explain why their CEO gets to oversee himself or herself.
If you are on the Board of an organization dominated by a CEO, you should consider reforming this situation.
How Money Comes in, How it Goes Out
Every board member needs to know how to critically evaluate a balance sheet, review a budget, and keep an organization accountable for its spending. This is part of your fiduciary duty of care. You cannot rely on accountants to do this for you. You cannot hide behind terms like "audited" to wash your hands of the responsibility to critically review financial records. You may also need to dig deeper and look for records behind the numbers.
Most mischief is hidden in numbers, so look closely. Don't expect anyone, others on the Board, the CEO or anyone else to tell you about potential problems. When the good numbers point upwards, and your organization is doing well financially, the danger for abuse can intensify.
Say you see a dollar amount, along with a vague description of why your organization is spending that money. Get more information, know all the basics about the various line items.
Donors won't ask these questions. Even if they do, they have no real remedy to do anything about donated money being misspent. In most jurisdictions, donors do not have "standing" to sue if your nonprofit misused their donations.
The State Attorney General and the Internal Revenue Service have oversight authority over nonprofits, but that is oversight over you the board member and to look for any civil or criminal penalties against you for doing your job poorly. You don’t want to be in that position.
As a board member, you will usually be the supreme court of how your nonprofit can or should spend money. This authority is an immense responsibility, an Amanah.
Endowment Investments
People who are responsible for investing money have some special ethics and regulatory challenges. Muslim organizations will sometimes create a rainy day fund, which is not an endowment, but it still needs to be invested somehow. They may also get money from bequests, known as a Wasiyyah, or Islamic Charitable Planning.
Endowments and how you manage money are regulated activities as well as ethical minefields. Many states have some version of the Uniform Prudent Management of Institutional Funds Act. Trusts may also have their own rules. Such funds have the potential to become a boondoggle. People like financial advisors sometimes run up what may be unnecessary fees. You may also have people suggest "alternative investments" such as private equity, and real estate agents will want to sell you real estate. When your organization has money, there will be no shortage of ideas on what you should be doing with it.
You should be deliberative and research everyone your organization does business with. At the time of the last financial crisis, Bernie Madoff ran a pyramid investment scheme that devastated many Jewish charities. You are the last line of defense to make sure this does not happen to your organization.
Don’t Be Deferential
Your role as a Shura is incredibly valuable here. Many board members are inclined to defer to subject area experts in certain things, such as real estate, finance, law (even Islamic law), management and accounting. Don't ever defer to anyone for anything that falls into your responsibility.
You can and should hire experts in all of these fields. However, if a professional says or writes something that seems too complicated for you, that professional is not doing their job. People trying to sell you something, like an investment product, can be manipulative, not especially forthcoming and be in a rush to close a deal. Don’t ever work on their schedule and never accept anything at face value.
You need to have enough information to make a decision. You also need to have time to review the information provided to you. Don't be rushed or bullied, and do not defer to someone because of perceived expertise. Experts often hide ignorance in meaningless jargon and try to pass it off as brilliance. Become an expert in why you are making whatever decision you are making. You are on the hook for violations of fiduciary duties, not real estate agents or investment salespeople that smooth-talked you into a deal. It is you, the board member that has the Amanah here.
Handling Zakat Funds
The decision on accepting Zakat is consequential, and one the Board of every Muslim organization (except those dedicated to Zakat) must revisit. Zakat funds represent perhaps the largest slice of charity Muslims give. It should be for the poor first and foremost. You may only distribute Zakat for specific purposes outlined in the Quran. However, Muslim nonprofit organizations have looked for a more expansive definition of what is possible with Zakat, and they often don’t mind being dodgy in their policies. Unfortunately, Zakat for American Muslims has mostly become a way to transfer wealth from the affluent to the affluent. Nonprofits acceptance of Zakat sometimes looks more like a mockery of worship than the real thing.
As a board member, your role as a steward of other people's worship, a pillar of Islam, should give you pause.
Your messaging (and your organization's) education and solicitations for Zakat can be useful, or it can be dangerous and misleading. You may have an organization that is otherwise good and virtuous, and giving to it may well be an act of worship. However, giving to such an organization may be inappropriate for Zakat. Manipulatively claiming questionable Zakat-eligibility could severely damage your reputation in the Muslim community, once ordinary Muslim donors get wise to what his happening.
For this newsletter, we don't have a prescribed manner for handling Zakat funds.
Instead, you should have meaningful and well thought out standards with a view towards preserving Zakat as worship, rather than as merely enabling the nonprofit's use of Zakat for whatever it wants.
Strategic Guidance
Most nonprofits like to grow and expand:
· An Islamic K-6 school may want to add additional grade levels.
· A Masjid may want to increase programs and services.
· A civil rights organization may want to serve more cities or file specific kinds of policy-related lawsuits.
A board will often create a strategic plan for the organization. A CEO runs the organization's day-to-day operations, which includes following the strategic goals set out by a board of directors.
In its evaluation of the CEO, the board needs to look at the progress made in developing these goals. If the CEO is not a good fit for the organization, the Board may need to replace the CEO.
A Shura’s “Generative” Role
The strategic and fiduciary roles align your resources and priorities. Those are important. There is a generative part of a shura different from this. As a shura, you understand and discuss the issues confronting your nonprofit, your employees, your donors, and those you serve, and why you serve. A strategic role may involve data, what you can accomplish over a given time. The role of an effective shura is more about doing the right thing, making sure you are in the right direction irrespective of data, what certain well-heeled donors want, or what is popular.
If you are in a Shura for an Islamic organization, it is your responsibility to center the deen.
If may surprise many how little of a role Islam often plays in Islamic organizations. Indeed some Muslim organizations do outrageous things plainly prohibited in Islam, like promote fahisha or interest-based transactions, just because it's accepted that this is how you are supposed to do things. You need one person to be present and remind everyone else the basic principles they agreed to before signing up.
Different members of the Board should be present because they provide a valuable perspective that can improve the service the organization is supposed to do.
Ethics
Board members in nonprofits come from many fields outside the nonprofit sector. Often, for Masjid boards, you may have small business owners, corporate wage earners and medical professionals who need advice on how to address ethical issues particular to being fiduciaries of an Islamic organization. One of the challenges in discussing ethics with boards of Islamic organizations is that people are often convinced their actions are above reproach. They learned from a young age the difference between right and wrong. So long as people can rationalize their actions, they are fine. Looking the other way or even trying to quiet "troublemakers" who have problems with certain actions is also fine, since it reduces fitna. Obviously this is a recipe for disaster.
As a board member, be proactive when it comes to making sure your organization has robust rules of ethics and that there is an enforcement mechanism for those rules.
Ethics and the role of fiduciaries can sometimes appear to be in conflict with each other. For example, the instinct to cover up wrongdoing and leave bad employees in place is often based on considerations like what donors would do. Nonprofit boards then end up behaving in unethical ways because that is how they need to act to allow the organization to survive.
Having a robust set of rules and an independent enforcement system will help resolve such conflicts.
Conflicts of Interest
Conflicts of interest fall into ethics, but it deserves to be separated out. As a board member, you are a fiduciary, and among your duties is a duty of loyalty to the organization.
In the Model Nonprofit Corporation Act, conflicts of interest are not prohibited per se. They need to be disclosed, documented and approved. This is done according to state law.
A Nonprofit organized as a Trust has less flexibility on conflicts of interest. The trustee must act in the interests of the charitable beneficiary. Just disclosing a conflict of interest may not be enough, since if a beneficiary complains, everything could be undone. Any charity the IRS considers a "Private Foundation"- which is a universe unto itself, has "self-dealing" rules (IRC § 4946) you need to familiarize yourself with if you are part of such an organization. You may end up being subject to “private foundation rules” even if you did not intend to get that kind of treatment. As a general rule, the more slipshod you get in how you run your nonprofit the worse the rules may end up being for you.
As I have pointed out previously, the way a nonprofit should function should go far beyond what is legally required. Muslim nonprofits should go beyond minimally accepted standards and strive for ehsan.
Leveraging Muslim Community Resources
Oftentimes, board members have "conflicts of interest" that are not defined as such legally. If a Masjid board member steers real estate business to his real estate agent daughter, that would be a problem because it is nepotism and a conflict of interest. If the board member steers the business to someone on a realtor association board and the Muslim board member wants to be endorsed by this organization for a political office- there may be no violation of any rule here.
When you have a hand in controlling a nonprofit you also have the ability to use it's resources. That includes access to it's prestige, it's facilities, its staff and its money. You should stay away from any situation where there is an appearance your personal interests play any role in your decisions.
Accountability Thy Self
You need to evaluate the organization and its salaried leadership, such as the Executive Director or Imam. What you also need to evaluate the Board itself and how effective and useful each individual member is to the organization.
Unfortunately, many board members lend their name and credibility to an organization but don't get involved. Others use the name of the organization to lend credibility to themselves but do not actively engage. Boards of Directors are often filled with dead weight.
Regular evaluations of board members should be a normal process that Muslim organizations should do annually (or pick a time period).
Improving Support for the Organization
Often Board members are expected to lend financial support to the organization as well as draw on their social circles for donations, banquet tables and so forth. Sometimes, board members are evaluated (for those that do evaluations) on their ability to draw support for the organization. Your endorsement of the organization and encouragement to donate is an Amanah however. If the organization is the kind that needs structural reforms that are not happening, your endorsement may actually be enabling the status quo.
If you critically evaluated the organization and as a result, believe in it, have confidence in the Board, the staff and the mission, you should donate and encourage everyone else to as well. However, it is folly to the point of fraud to fundraise for an organization you are on the Board of just because it is expected of you. Yes, you have a responsibility to the organization.
However, you should never fulfil this responsibility by breaking a trust with your friends.
Thankless, Frustrating and Necessary
Being on a board of directors can be frustrating. You will (and should) be blamed when things go wrong. Indeed, board members of nonprofits can and do to jail. You usually won't get credit when things go right - that goes to the founder, CEO or other employees. You are there to offer your wisdom to a Shura, to oversee how donor funds are spent and to make sure the service being provided by the nonprofit in done with excellence. A nonprofit board member holds the kite strings, and the nonprofit is the kite. To the uninitiated, the person holding the kite strings appears to be restricting the kite from reaching its potential, but the opposite is true. The person holding the kite strings helps a kite soar. You need to stay on the ground. That should be just fine for you.