Founderitis Is Not a Flower
Pop quiz:
“Founderitis” is . . .
a sickness suffered by trans-oceanic sailors in the 19th Century. (“Argh, Captain! We got nigh eight hands down with the founderitis, we ‘ave.”)
a flower you vaguely recall as one of your grandmother’s favorites (“Granny loved when the hellebore and founderitis bloomed.”)
a term coined by the IRS to describe a common condition suffered by nonprofit founders whose swollen egos interfere with corporate governance best practices. (“The fact that Wayne kept referring to the organization as “his nonprofit” was a clear sign of founderitis.”)
If you picked anything other than “3”, I’d like to know how you ended up reading this article.
A quick look back over the agendas of nonprofit conferences over the past 20 years reveals that “founderitis” is a very common topic. The reason is simple: it is not only a common malady that affects nonprofit founders, but is also the most common challenge for nonprofits to overcome to achieve good corporate governance.
The fact is the IRS asks a lot from nonprofit founders: come up with an idea for nonprofit; find at least 3 people to serve as volunteer directors and officers; find funding; develop programs; and, if it survives, hand over complete control of the organization to the board of directors. Many founders view this as akin to a Sophie’s Choice scenario.
This IRS requirement reflects a key distinction between for-profits and nonprofits: unlike for-profits, nonprofits must exist to benefit the public at large and not individuals. To ensure personal benefit – particularly of the founder – does not happen, the IRS requires all nonprofits to be controlled by an independent board of directors.
For handoff of control from the founder to the requires one of two things: an unusual lack of ego from the founder or an unusual willingness of a volunteer board to confront a founder unwilling to run over control. If neither of these two things exist, the path of least resistance is for the founder to remains the de facto leader of the organization, and the board to defer to his or her desires and directives. Thus, a timely and well-performed handoff of control to the board is the exception, not the norm.
Depending on the founder, the effects of founderitis can either be mildly problematic or outright disastrous.
Symptoms may include the founder’s:
chairing the board (particularly if they do not roll off),
exerting control over who is invited to serve on the board,
throttling the growth or development of the board,
disregarding the bylaws or amending them to benefit him ,
serving as the chief executive and dictating her compensation,
bullying directors who do not rubber stamp his directives,
developing factions within the board who ally with her,
insisting on his serving as the face of the organization and featured prominently on the website, at events, and all marketing materials,
using nonprofit funds without following policy and/or to benefit herself or her friends.
Founderitis presents a particular dilemma when it becomes apparent that the organization has outgrown the founder’s skills. This is a difficult irony that many directors must face: the skills necessary to start a nonprofit are often not the same skills necessary to run a nonprofit after it achieves success. Founders tend to be creative visionaries – not pragmatic business people.
Nonprofit history is strewn with examples of very ugly scenes of boards having to confront this reality and, if the founder lacks the magnanimity to step aside, oust them. The founder and his supporters view this as a cruel betrayal and a coup d’état that can reach Fleetwood Mac: Behind the Scenes levels of drama.
But be clear about one thing: founderitis can infect individuals — not just founders — who attain power within an organization and use it for their personal aggrandizement. In such cases, the individual can exhibit the same symptoms as a founder with the condition.
The key to preventing founderitis is for directors to know what it is and to act proactively to prevent it from developing. Many times this sis a simple matter of ensuring that the bylaws are structured to prevent power from consolidating in any individual. Other times, however, it requires directors to resist th path of least resistance and step forward to fix it. It certainly can be uncomfortable, but nonprofit directors owe the highest duty imposed by law — fiduciary duty — to make sure all decisions are made in best interest of the nonprofit, that no one utilizes the nonprofit for personal gain, and that the nonprofits assets and reputation are protected.
Sometimes that means you gotta break a few eggs.
Hopefully, this helps you understand the issue better. As always, if you need help, please reach out to me at tmckee@tmckeelaw.com or 615.916.3224.