Open Letter to the IRS

The Coalition is a group of leaders from across the United States from the fields of higher education, healthcare, philanthropy, law, and nonprofit governance. They are interested in the sound operations of nonprofit organizations and committed to the value of diversity as a standard of excellence for good governance and risk reduction.

In an Open Letter to the Internal Revenue Service (IRS), the Coalition is asking for the addition of a new question about board composition on the Form 990 tax return filed by large nonprofit public charities. This simple, new requirement would provide public disclosure of how the total number of directors self-identify by race, ethnicity, and gender. The Coalition also supports including LGBTQ+ and disability disclosure.

Diversity on boards is a commonly accepted standard of good governance in the for-profit corporate sector. Its value is supported by years of research. More recently some national and regional studies have shown that good governance of nonprofits also requires board diversity.

Board diversity leads to better decisions and reduced risk. Boards need a variety of perspectives and lived experiences to consider the needs of the people they serve, their employees and members of the surrounding community.

There is little public awareness about the lack of diversity on the boards of many of the largest nonprofits, such as healthcare systems and colleges and universities (meds and eds). These public institutions have not received the scrutiny or stakeholder pressure that for-profit entities have. Although some reports on the total population of nonprofit boards of all sizes suggest that nonprofits overall have substantial percentages of women, in recent years, reports from Philadelphia and Boston, where there are large concentrations of med and eds, show that the boards of the most powerful and influential nonprofits continue to be dominated by white men. Further, researchers have found that gathering accurate data is challenging and sometimes impossible; and they have called attention to the need for boards to disclose this information.

In the for-profit sector, Nasdaq has placed a priority on the public disclosure of demographic data for its listed companies and now requires these companies to report annually aggregate board composition. The SEC approved this requirement. There is no such requirement for nonprofits to be transparent about board composition, so it is hard for those who are stakeholders and have an interest in the well-being of the institutions to hold these public charities accountable for the composition of their boards.

The Coalition is not asking the IRS to require nonprofits to have diverse boards. However, requiring disclosure will likely cause these institutions to assess whether the composition of their boards is consistent with their missions as well as who their stakeholders are.

The IRS Form 990 already asks for a list of board members and about several governance practices. This additional question provides a simple, straightforward and consistent way to gather information that will be publicly disclosed annually. Large public charities such as universities and healthcare systems benefit from their IRS designation. They are supposed to serve the public interest, yet they face no requirement to make public the composition of the boards that govern them. No other entity can require public charities to do so.

Transparency of board composition will provide all stakeholders who have an interest in the well-being of large nonprofit institutions such as meds and eds, the information needed to hold these entities accountable for the composition of their boards.

The IRS has authority to modify Form 990 to include board demographics and encourage board diversity on its own. Such a modification requires no legislative action and is in line with requesting information about other policies and practices that the IRS deems important to good management and governance.

Collecting this information would not impose much of a burden on the nonprofits or those who prepare their tax returns. The boards would simply need to ask new board members how they self-identify and then report the aggregate numbers.

The Coalition has compiled the data for quick reference – see The State of Nonprofit Board Diversity by the Numbers.