An employee can serve on a company’s board of directors, but there are important considerations. While it is not common practice, CEOs or executive directors often serve on the boards of their organizations.
There are no federal laws that directly prohibit elected officials from serving on nonprofit boards. However, potential "conflict of interest" provisions in federal and state laws may be relevant.
Board members are usually outside experts serving in a non-employee capacity. They can be compensated for their consultation services. Board terms are typically set between two and five years, differentiating the governance of the organization from its management.
Individuals may choose to join a nonprofit board because they believe their skills can make a positive impact and facilitate change. Nonetheless, compensating board members might invite scrutiny from the IRS.
501(c)(3) board membership often includes rules such as not being a paid employee, being committed to the mission, and volunteering time monthly.
Bylaws should outline the rules of board membership and detail the process for removal of a member if necessary. It’s possible for one individual to serve as both President and CEO; however, a structure should be defined to delineate authority clearly.
Effective boards must balance their relationship with the CEO, ensuring no single director, including the chair, has undue influence. Directors provide services and receive compensation, but they are not considered traditional employees.
The size of the nonprofit can dictate whether the board employs staff, with working boards taking on various roles including programs, fundraising, and administration.