A Coalition of leaders from the fields of higher education, healthcare, philanthropy, law and nonprofit governance has asked the Internal Revenue Service to require large public charities to make public the composition of their governing boards.

In an Open Letter, the Coalition for Nonprofit Board Diversity Disclosure specifically asks the IRS to include on the annual Form 990 tax return a question about “the gender and racial/ethnic demographics of their boards, based on how board members self-identify.”  It further supports “including LGBTQ+ and disability disclosure.”

More than 140 organizations and individuals interested in the governance and operation of nonprofit organizations and committed to the value of diversity throughout organizations have joined in the submission.  Nonprofit Issues® editor Don Kramer is one of the signors.

The Open Letter emphasizes that gender and racial gaps persist in nonprofit board rooms, including those of some of the country’s largest universities and hospitals.  It also reveals the difficulty that even researchers have obtaining data about nonprofit boards.  The IRS, the letter asserts, is best positioned to collect and make public this data because it already asks questions about nonprofit boards and governance practices.  The letter clarifies that requiring institutions to be transparent would not require them to change their boards; however, asking the question conveys a message that the IRS stands behind diversity as a good governance practice.

Citing more than 15 years of “mainstream and highly visible organizations and publications, and countless studies and reports” on for-profit boards that show that diversity is a commonly accepted standard of good governance, the Coalition points to Nasdaq’s model, approved by the Securities and Exchange Commission, that requires its listed companies to report aggregate board composition data.

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Board diversity in the nonprofit sector has not generated the same degree of interest and advocacy, the group says, although a 2020 report “Increasing Gender Diversity on the Boards of Nonprofit Eds and Meds” shows that nonprofits also benefit from board diversity.  The 2020 report was jointly published by Nonprofit Issues and Women’s Nonprofit Leadership Initiative, a Philadelphia group that has been instrumental in developing the Form 990 proposal and creating the Coalition.

The open letter is five pages long and contains 11 footnotes of citations to other studies.  In addition to laying out the importance of the issue and the difficulty in accessing the relevant information, the letter also points out that data collection for the charities could be a simple one-time request as new people join the board and that the question would reinforce the public commitment of the IRS to “ensuring equity, diversity and inclusion are integrated in [its] policies, procedures and practices.”

The letter asks only that the question be applicable to public charities that file the full Form 990 (usually having revenue of more than $200,000 a year) and not for smaller ones that file only the 990-EZ or 990-N.  The question would not be asked for (c)(4) social welfare organizations, (c)(6) trade associations, (c)(7) social clubs or the various other organizations that also file a Form 990 or for private foundations that file a Form 990-PF.

To read the whole letter, see who has already signed, sign the letter, or simply learn more, go to coalition-4-nonprofit diversity.

YOU NEED TO KNOW

The value of having a diversity of opinion in the room and at the table when decisions are being made has become increasingly important in recent years.  When most people come from a similar perspective, other critical points of view may be disregarded or unexpressed and decisions can be made without significant relevant factors being considered.  Diversity can provide an important contribution to risk management. 

When the University of Southern California had to pay more than $1 billion to settle claims of sexual abuse by a longtime campus gynecologist in 2021, one of the survivors was asked by Judy Woodruff on the PBS Newshour how it could have happened.  The survivor blamed “the people that were making the bad decisions….  There weren’t women.  There weren’t stakeholders.  There wasn’t diversity.  There wasn’t a voice,” she said.  “They’re going to have to have to diversify their board.  And the makeup of the people that make the most important decisions.”

The question would be consistent with the basic Congressional division between public charities and private foundations.  Congress has long allowed greater leeway for the activities of public charities than those of private foundations on the theory that public charities are subject to public scrutiny and accountability. 

When the IRS began to ask charities whether they had a conflict of interest policy on the Form 990 in 2008, charities that never thought about the issue began to adopt policies and put some of the principles into practice.  Like the conflict of interest question, adding a demographic question to the Form 990 would not require any particular response by the organizations.  But it would likely cause them to think about diversity in a way they hadn’t before, and it would allow those who support the public charities to make their own judgments of what should be appropriate.