On July 11, 2023, Fiscal Sponsor Conversations (“the weekly form for fiscal sponsors”) focused its discussion on governance for fiscal sponsors.
What role does your Board of Directors play in your organization’s fiscal sponsorship work? How is it working? What could be improved? As with most things in fiscal sponsorship, there isn’t one single “right” way to involve your Board, but rather lots of variety across the sector (with varying amounts of success!). So please bring your experiences and questions and let’s talk!
For purposes of this post, reference to fiscally sponsored projects (FSPs) will be to comprehensive or Model A FSPs, which are those in which the FSP’s assets, liabilities, rights, obligations, employees, and volunteers are all the fiscal sponsor’s, and the FSP is run as an internal and integral part of the fiscal sponsor. For more on fiscal sponsorship, see Fiscal Sponsorship: Key Resources For Sponsors And Projects.
Consistent with the framing questions and comments above, there is no one way that Boards of fiscal sponsors must act in relation to their FSPs. But there are some general principles for Boards to consider in their governance.
- Under state laws, the activities and affairs of the fiscal sponsor corporation are to be managed and all corporate powers are to be exercised under the ultimate direction of the board
- Board members must meet their fiduciary duties of care and loyalty in directing management of the corporation with respect to its activities and affairs, which includes (1) exercising appropriate oversight over all aspects of the corporation – financial, programmatic, administrative, and legal and (2) setting the course for the future, including through budgets, reviews of the mission and vision, and continual and adaptable planning.
- Boards are unlikely to review multiple lengthy FSP applications before every Board meeting, particularly if they collectively would not represent a significant part of the organization’s total activities.
- Boards expect staff to diligently review FSP applications and make (1) the approval or (2) the recommendation for approval decisions upon which the Board will largely rely.
- Board members could face negative consequences (legal and PR) if the organization is audited and it is found that (a) the Board did not participate in the approval of any Model A FSPs, (b) Board members do not know anything about any of the organization’s FSPs, and (c) they did not adopt any policies regarding the entry into fiscal sponsorship agreements and the termination of fiscal sponsorships.
Minimally, Boards may want to have access to the names of all of their FSPs and some basic information about each of them, including:
- its purpose statement,
- its core activities,
- its annual gross revenues; and
- its special characteristics and risks (if any).
This information might be entered on database or even on a spreadsheet that simplifies the included information. For example:
|promote mental health
|create and share educational materials
|phone app; IP issues
Such entries might first be presented to the Board as prospective FSPs the staff has approved or recommended that the Board approve. Additionally, it may be helpful for Boards to have everyday access to such information, possibly through a file securely stored in the cloud and with links to additional information about each FSP, including its website.
Delegating Additional Oversight
If a fiscal sponsor has a large number of FSPs, the Board might sort the FSPs into groups and have each Board member take on greater responsibility for the group assigned to their additional oversight. They might spend some time reviewing the work and the impact of their assigned FSPs and occasionally share selected highlights with the Board (perhaps at a meeting or within an online group channel). Such review could also reveal certain risks that the fiscal sponsor’s staff may have not previously identified.
In my idealized scenario, I imagine gamifying such groupings so Board members compete in amplifying some of their assigned FSPs’ works within their own networks. But of course, there may be potential harms and risks that could preclude such competitions, and this should not distract Board members from meeting their core legal duties.
Depending on the circumstances, this additional responsibility might mean that each Board member will be regularly expected to spend an additional hour in preparation for the next Board meeting. For some fiscal sponsors, much less or much more may be expected.
Board members must meet their fiduciary duties to act in good faith with reasonable care in the best interests of the organization. For fiscal sponsors, particularly those in which fiscal sponsorship is their primary activity, Board members should know something about individual FSPs. Generally, the bigger the FSP and the greater the risks posed by the FSP, the more individualized attention and diligence are required.
It would be difficult for a Board to tell a charities regulator (e.g., IRS, Attorney General) that they know nothing about an FSP that may have engaged in activities threatening the fiscal sponsor’s ability to fundraise or operate or one that caused some liability to the fiscal sponsor greater than the restricted fund for that FSP can cover. While personal liability is rare for charity Board members absent self-dealing, embezzlement, fraud, excess benefit transactions, unpaid payroll taxes, or egregious circumstances, a failure to exercise reasonable care can be a reason for Board members to be held personally responsible for harm to the charity.
Systems that evidence Board members reviewing major programmatic activities, including certain specific FSP activities, can provide evidence that reasonable care is being exercised.