Nonprofit Coup d’Etat

Nonprofit Coup d'EtatWe are used to hearing about hostile takeovers of for-profit companies but a lesser known phenomenon is the hostile takeover of a nonprofit organization.

Nonprofit takeovers can occur anytime factions develop within a nonprofit. Sometimes incumbent board members are removed in favor of new board members with a different policy agenda. In other cases, a donor or charismatic leader convinces a majority of the board to take the organization in a drastic new direction.

Struggles for control of nonprofits are common and are reported in the media from time to time. One such case includes the well publicized struggles at the Sierra Club. In the Sierra Club dispute, a faction developed that supported an anti-immigration agenda offensive to many of the Sierra Club's longtime supporters and allies. The anti-immigrant faction encouraged its supporters to send in their $25 dues payment so that they could gain the right to vote at the annual meeting. In the end, the incumbents were successful in fending off the takeover attack. The Sierra Club case was unusually high profile; however, similar scenarios regularly play out in nonprofit boardrooms across the country.

Nonprofits that, like the Sierra Club, have multiple voting members are especially vulnerable to hostile takeovers. This vulnerability is exacerbated when the membership admission requirements are minimal.

As non-stock corporations, non-profits generally cannot be “owned” in the sense of owning shares. However, there is always an element of control. Unless a nonprofit organization is privately funded and classified as a private foundation, the IRS will typically reject a private party's attempt to exercise legal control over an exempt organization.

The only thing that can make a nonprofit truly unhijackable is broad participation by passionate stakeholders who are deeply engaged in an organization's mission. Hildy Gottlieb and Dimitri Petropolis, two leading edge nonprofit thinkers, are conducting a fascinating governance experiment designed to do just that. They are founding a nonprofit known as “Creating the Future.” Hildy and Dimitri are essentially crowdsourcing all of the key decisions, including governance decisions, for Creating the Future in an attempt to build a large network of passionately engaged community stakeholders.

In addition to gaining the incredible wisdom of such a large and engaged group, I expect another potential benefit of their approach will be to thwart hostile takeovers. Presumably, an attempt by a faction to steer Creating the Future off course will meet with a  powerful  stakeholder backlash that will help the organization to self-correct.  Only time will tell if Hildy and Dimitri's crowdsourcing experiment will be successful, but in the meantime, nonprofits boards and founders should consider whether their organizations are vulnerable to the nonprofit takeover phenomenon and consider whether there are changes in the organization’s structure, governance approach, or community engagement that could make it less so.

One thought on “Nonprofit Coup d’Etat

Comments are closed.