Sunday, January 4, 2015

Family Foundations: Compensation, Governance and Regulation

Does compensation for directors of family foundations rob those individuals of the “selflessness that sanctions their work” or is it a valid incentive to get family members to participate?

This thought-provoking article from Wealth Management addresses the many factors involved in the decision to financially compensate directors of family foundations.

While there are glaring differences between the legal regulations of these matters in the U.S. and Canada, the questions surrounding the motives and principles of doing so remain the same.

The article provides great examples of how sound governance can help to clarify any conflicts of interest around director compensation and provides examples of several high-profile cases in the U.S. in the early 2000s which depict the opportunities for mismanagement and the tendency toward the abuse of funds.

With the total holdings of U.S. family foundations sitting at more than $200 billion, or 41 percent of all foundation holdings in the country, and family foundations giving away $13 billion in grants in 2004, the opportunity for abuses to take place is only growing.

Part of that problem could be a result of the current U.S. law on this issue. The Internal Revenue Service (IRS) appears to offload the responsibility of such decisions by simply requiring that it be “reasonable” under the “prudent judgment” of the foundation board, while the Canada Revenue Agency (CRA) is quite clear in saying that “directors may not be compensated for acting as directors of charitable foundations” (in the province of Ontario) and that regulation in other provinces is “silent” but also typically considered voluntary.

Regardless of regulations, the author includes guidelines and recommendations from non-profit organizations (including the fiduciary duties of care; loyalty; candor and obedience) and encourages family foundations to heed those rules. This article is absolutely worth a read for those interested in the governance practices of family foundations, regulation around compensation for foundations or non-profits, and the IRA’s laws around this issue.

You can find the article here:


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