Why Board Training Matters

Family foundations often begin with an emphasis on relationships, trust and shared values. Many founders create these institutions not only to pursue a charitable mission, but also to bring family members together, foster a sense of generosity and carry forward a philanthropic legacy. In that context, informality can feel natural, even appealing.

But informality has limits. A foundation is still a legal entity entrusted with public resources in the form of tax-advantaged dollars, and its board members carry significant responsibilities. When those responsibilities are handled casually or without adequate preparation, a foundation can unintentionally cross legal redlines or diminish the likelihood of the funds achieving their greatest impact. This is why board training matters. It equips family members with the knowledge and skills needed to steward the foundation effectively, protect it from risk and maximize the good it can do.

This need for training becomes clearer when we look at the framework in which foundations operate. Private foundations are governed by a detailed set of federal tax rules that shape almost every aspect of their work. These rules govern how the foundation invests its assets, how it meets its minimum annual payout (generally 5 percent), the procedures it must follow to make overseas grants and the extent to which family and board members may receive any personal benefit.

Consider a few examples. Donald Trump’s foundation was penalized for purchasing a painting at a charity auction that Trump hung in Mar-a-Lago, because the purchase provided him with a personal benefit. A more everyday situation arises when a foundation pays for a table at a charity dinner. Here, family members attending the dinner need to reimburse the foundation for the cost of the meal. For family members who serve as paid staff, the rules for demonstrating the reasonableness of the salary become very important.

Beyond complying with the federal law, there are state obligations on board members that require them to pay close attention to the operation of the foundation generally, and conflicts of interest in particular.

All foundation board members should get a basic education on the legal requirements, and ambitious foundations will help their board members grow in other ways. Board members should have job descriptions that identify their obligations, and they should have have training to enable them to perform their jobs.

Great foundation board members are trained in:   

• Developing strategy
• Implementing grantmaking guidelines
• Reviewing proposals
• Conducting due diligence (noting red and yellow flags)
• Preparing grant agreements that provide ongoing protection and leverage for the funder
• Reviewing reports, making site visits and helping add value to the funded project
• Considering renewals and exit strategies
• Avoiding common mistakes
• Annually assessing board functioning and foundation impact

In staffed foundations, some of this work is performed by professional staff, but the buck still stops at the board level. It is easy to give a way money; it is much harder to do so effectively. Zalman Bernstein, the founder of the great money management firm Sanford C. Bernstein and Co., once wrote, “The business of business is much easier than the business of philanthropy.” The science and art in effective philanthropy is not transmitted with mother’s milk. The best foundation boards have invested time in learning and applying best practices.

If you would like to explore training for your board, please email Yossi Prager at yossi@jfunders.org.