John M. Bradley
As the calendar is turned to a new year, embrace the moment and resolve to address some important issues facing nonprofit boards of directors in 2018.
1. Strategize to deal with new tax law ramifications. The Tax Cuts and Jobs Act, which is now law, will have a number of consequences for nonprofits. Nonprofit boards need to engage management early in the year to understand the implications and enact a plan to ensure fiscal health.
The expected shift of most tax filers from itemized deductions to the standard deduction is projected to shrink charitable giving significantly. An estimate from the Indiana University Lilly Family School of Philanthropy puts the annual loss to charities at $13 billion. The increase in the estate tax exemption is similarly projected to reduce charitable giving, to the tune of $4 billion less in 2018.
Additionally, changes to the unrelated business income tax (“UBIT”) mean that many nonprofits will need to pay tax on income that was previously zeroed out due to related expenses. On the other hand, if your organization was already paying significant UBIT taxes, the lower corporate tax rate may result in a lower tax bill.
Finally, some nonprofits will have to pay excise taxes for the first time. Colleges and universities with sizable endowments will face a 1.4% tax on net investment income, and any organization that pays compensation in excess of $1 million to any of their five highest paid employees will have to pay a 21% tax on that compensation.
The effect of these changes to the tax code on any individual nonprofit will vary. The board and management should engage in strategic conversations to project what adjustments they may need to make, for both the short- and long-term: do fundraising projections need to be adjusted downward? Can and should you shift to new revenue sources to make up for any projected loss in giving? How will you adjust your expenditures to ensure the organization's financial health?
2. Be intentional in recruiting new board members. Sixty-five percent of nonprofit executives and 41% of board chairs reported being dissatisfied with their board’s racial and ethnic diversity in BoardSource’s 2017 survey. For many nonprofits, this dissatisfaction is appropriate: the survey revealed that 84% of those nonprofit board members are white. But despite recognizing the problem, relatively few respondents intended to make improving their board leadership pipeline or strengthening board recruitment a top priority.
By failing to address the problem, boards are resigning themselves to underperformance. When boards lack diversity in demographics, skills, and backgrounds, decision-making suffers. Valuable insights are not voiced, groupthink is more likely, and strategic errors are more common.
Make this the year that you create new ways to identify and develop potential board members (e.g., young professionals advisory board; community task forces), recruit creatively, and develop an ongoing, trackable plan to bring changes to your board makeup.
3. Create a spark. Every board has areas for growth. Whether you are a board member, board chair, or CEO, commit yourself to creatively approaching one challenge. Maybe you need to reinject life into the board’s meetings by changing the agenda structure, appointing a devil’s advocate, or beginning with a silent start. Perhaps board members would gain a new perspective by participating directly in the organization’s programs or having a meet-and-great with beneficiaries. If you don’t have the power to do anything else, then promise yourself that you’ll raise a question the next time you are confused about what is being discussed. Create a necessary spark in your board, so that 2018 is not an opportunity lost, but, rather, the beginning of a great new era of impact for your board and organization.
John M. Bradley is the Principal of Broadfield Insight, where he provides governance education, advising, and consulting to boards of directors and nonprofit leaders. He can be reached at firstname.lastname@example.org and at www.broadfieldinsight.com.