It is not uncommon for commercial real estate professionals to serve on a nonprofit board. But in my experience, because of our professional backgrounds, it is extremely tempting to jump in and contribute our expertise when a commercial real estate need arises by performing the necessary work ourselves. However, beware that this may be creating a conflict of interest you did not intend.
As a board member, you are serving in a fiduciary capacity on behalf of the organization. Your role should be to help facilitate the board’s understanding of the real estate transaction, as well as to assist the executive director in supervising outside professionals. By acting in this manner, you are responsible for providing valuable technical expertise to the board, offering objective evaluations of the proposed transaction, and providing guidance to the executive director. You cannot effectively act in a dual capacity as board member and service provider, regardless of whether or not you are donating your services. To do so means you are compromising your ability to serve as an objective resource to the organization.
While there is an obvious conflict in retaining the relative of a board member to provide services to an organization, many boards do not hesitate to ask a board member to provide those same services in real estate on a pro bono basis. And this isn’t limited to brokerage, as I see it all the time with attorneys, architects, appraisers, and other real estate related professionals. This places the real estate professional in a very uncomfortable position.
So how do we approach the board and staff when the situation arises? I explain that real estate transactions are seldom simple. An organization can reasonably expect several proposed leases or purchases to fall apart after the expenditure of substantial time and effort by the real estate professionals, board members, and staff.
One scenario is that a board member who is providing free services may have an important, paid real estate-related assignment or personal project that needs his or her priority attention. This can make it difficult for the board member to objectively advise the board on a proposed transaction. This situation happens quite frequently because nonprofit transactions typically take much longer to complete than business-client transactions. What is in the best interest of the organization may no longer be in the best interest of the unhappy board member who doesn’t believe he or she can easily resign or reassign the project to someone else.
Another scenario that may occur is an even more difficult one. The executive director and board can take prompt action if they feel an outside professional is not performing adequately, but it is not so easy if the poor performer is a board member. Firing a board member who is providing free, professional services is extremely awkward and can quickly derail an important transaction for the organization.
If we want to provide pro bono or paid services, we should offer them to organizations where we do not serve on the board. However, for those organizations where we serve as a director, the organization really needs us to fulfill the duties of a board member, and nothing more. We can provide extremely valuable services as chair or as a key member of the real estate/facilities committee charged with overseeing the transaction. And in this role, we are serving in our fiduciary capacity as a board member and not overlapping responsibilities.
Eliza Solender is the president of Solender/Hall Inc. a commercial real estate brokerage firm that specializes in representing nonprofit organizations. Contact her at [email protected].
