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Nonprofit Board of Directors Term Length: How Long is Too Long?

Hourglass and gavel on table

In a few weeks, your nonprofit is having its next board meeting.  It just happens to be the annual meeting in which officers and directors are elected.  You’re the founder and have been President and a board member since the organization was founded in 2006, and your current term is up.  It’s a foregone conclusion that you will be elected to a 6th three-year term.  The question is:  Is that OK?

No Prohibition on Concurrent Terms

The good news is that there are no legally prescribed term limits for board service on a nonprofit, at least not at the IRS level.  Most states require there to be a set term in number of years (1 year, 2 years, 3 years, etc).  But even with the requirement that there be terms, virtually no state sets a limit on the number of consecutive terms.

So far, so good.  The better question to ask, then, is whether it is in the best interest of your nonprofit to serve in perpetuity?

Best Practice According to Nonprofit Community Leaders

Some the following comes from BoardSource, which is a fantastic resource for nonprofit boards of directors.  Foundation Group is a corporate-member, and we regularly refer to their materials for best practice guidance.  We don’t 100% endorse everything they produce, but on balance, it is excellent material you should be acquainted with.

According to the linked article, 72% of nonprofits have term limits.  The most common setup is two consecutive terms of 3 years each.  I recently rolled off a board that had this very setup.  Many other possibilities will work.

So what are some pros of term limits?  From BoardSource:

  • Provide opportunity for the board and organization to work with talented community members who can devote only a few years to board service
  • Make it easier to diversity your board, which brings new ideas and new perspectives to the board and its decision-making process
  • Enable you to avoid stagnation, tiredness, boredom, and loss of commitment that can sometimes set in when board members serve long terms
  • Enable you to avoid the perpetual concentration of power within a small group of people and the intimidation of new members by this dominant group
  • When staggered, provide a built-in balance of continuity and turnover
  • Allow for rotation of committee assignments
  • Raise awareness of and provide opportunities to change and improve group dynamics
  • Provide a respectful and efficient mechanism for the exit of passive, ineffective, or troublesome board members
  • Enlarge your circle of committed supporters as members rotate off the board
  • Enable the board to easily adjust its membership to reflect the organization’s changing needs

I think the above list would make sense to most people involved in nonprofit board service.  But are there any cons to term limits?  To quote the BoardSource article:

  • Potential loss of expertise or insight that has benefited the board and organization over time
  • Potential loss of organizational memory
  • Need for the governance committee to dedicate more time to the identification, recruitment, and orientation of new board members
  • Need to dedicate additional time to building the cohesiveness of the board as members rotate on and off the board
Other Considerations

Another thing to consider is just whose board membership we’re talking about.  There are organizational types where longer terms, even those in perpetuity, make a lot of sense.

Churches

There are quite a few different church governance models:  congregational, elders and/or deacons, board of trustees, or hierarchal (e.g., centrally controlled groups like Catholic or United Methodist).  There can also be governance types that involve multiple elements such as these.

For example:  In a church controlled by elders, you often see those elders serve as the equivalent of board members.  Because of the way most churches define eldership as a spiritual or pastoral leader, these individuals rarely serve terms.  It is far more common to see them serve for as long as they remain in the position of elder.

Micro-Charities

It may come as a surprise to many, but nearly 2/3rds of charitable nonprofits in the US generate less than $50,000 in gross revenue each year.  We tend to label these nonprofits as micro-charities.  In an organization this small, board turnover tends to happen far less due to a very limited set of potential candidates for service.

The small size of the organization does not necessarily negate the negative aspects of perpetual board service, and in fact, may enhance it to the point that growth is stymied.  That’s not always the case, of course, but it can become a self-perpetuating problem.

Entrepreneurial Nonprofits

This final category we’ll consider is the domain of the dominant founder(s).  I don’t mean “dominant” to be pejorative, though that can be the case.  Most of the time, however, a nonprofit like this has a unique purpose or program that is highly dependent on the vision and expertise of the founder.  As such, it functions much like an entrepreneurial small business would, minus the ownership factor.  In many such nonprofits, the founder serves perpetual terms as board president or chair.  Often, this is codified into the nonprofit’s bylaws…or, the nonprofit may be set up as a sole member organization.

Unfortunately, this scenario is also the one most likely to fall into the trap of founder’s syndrome.  Should your nonprofit decide to create a perpetual board seat for a founder, make sure a sufficient number of other independent voices are on your board.  In addition, consider a “trap-door” clause that would allow for removal of this individual from the board for cause.  Most often, a clause like this will call for a unanimous vote in order to trigger the removal.

Conclusion

The answer to the question, “How long is too long?” really depends upon the situation.  Many nonprofits will benefit long-term from a healthy rotation of talented and engaged individuals occupying the board room.  Others, by virtue of what they do or how they govern, will find board rotation to be rare.  Either way, the health of your board will determine the health and success of your nonprofit.  Choose your board structure and its members with care.

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Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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