In today’s increasingly complex social and political landscape, nonprofit organizations are under pressure to strengthen their governance practices—and one key area of focus is board diversity reporting. Diverse boards, made up of individuals with varying backgrounds, races, genders, and perspectives, are essential to ensuring that nonprofits fulfill their mission of serving diverse communities effectively.
However, achieving and maintaining diversity on nonprofit boards can be a challenge, particularly for large institutions.
Why Diversity in Governance Matters
Diverse boards are more likely to make decisions that reflect the needs and priorities of the communities they serve. Nonprofit boards that fail to incorporate diversity risk missing out on crucial perspectives, especially when addressing issues of race, gender, and socioeconomic inequality.
Moreover, diverse boards foster innovation and improve problem-solving, creating a more inclusive and forward-thinking governance structure.
The Intersection of Diversity and Fiduciary Duties
Board members of nonprofit organizations are held to two primary fiduciary duties: the duty of care and the duty of loyalty. The duty of care requires board members to act prudently and in the best interest of the organization, while the duty of loyalty demands that they avoid conflicts of interest and prioritize the organization’s mission.
Diverse boards are better equipped to make informed, thoughtful decisions that reflect the interests of a broader range of stakeholders. When a board includes individuals from different racial, gender, and socioeconomic backgrounds, it can draw on a wider array of experiences and perspectives, leading to more well-rounded and effective decision-making.
For example, having women and people of color on a board can enhance the organization’s ability to address racial and gender disparities in its programs and outreach efforts.
The Push for Board Diversity Reporting
Recently, there has been a push for the IRS to require nonprofits to disclose the demographic makeup of their boards on Form 990. For example, in 2023 in an Open Letter, the Coalition for Nonprofit Board Diversity Disclosure specifically requested that the IRS include on Form 990 a question about “the gender and racial/ethnic demographics of their boards, based on how board members self-identify.”
It further supported “including LGBTQ+ and disability disclosure.” The rationale is that board diversity is an important indicator of an organization’s ability to serve its community efffectively.
By requiring nonprofits to report on the diversity of their boards, the IRS could promote greater accountability and encourage organizations to ensure their leadership reflects the people they aim to help.
Why Board Diversity is Important
For nonprofits, board diversity is about more than just checking a box—it’s about improving governance and making decisions that reflect the communities they serve.
Transparent reporting on board diversity could have several benefits.
- First, this kind of transparency could lead to more equitable and effective governance in the nonprofit sector. Diverse boards are more likely to identify and address disparities in service delivery, ensuring that the organization is truly meeting the needs of all its beneficiaries.
- Second, it would allow stakeholders—such as donors, members, and volunteers—to assess whether an organization is aligned with their values in terms of inclusivity and representation.
In an era where equity and inclusion are at the forefront of public discourse, nonprofits that prioritize diversity in their governance will be better positioned to maintain the trust of their stakeholders and fulfill their mission effectively.
Steps Nonprofits Can Take
Nonprofit organizations that want to reflect the people they serve should be proactive in diversifying their boards. This includes:
- setting diversity goals,
- actively recruiting board members from underrepresented groups, and
- creating an inclusive board culture where all voices are valued.
Nonprofits can also benefit from ongoing education and training on the importance of diversity and inclusion in governance
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.