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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