Have you recently been asked to become a board member for a nonprofit? Does the concept have you excited, but also a bit confused? Let me give you a few pointers on some important things to know.
First of all, let’s look at the duties you should be aware of in your role as a board member. There are three basic duties, and they are the duty of care, the duty of loyalty, and the duty of obedience.
The duty of obedience requires that nonprofit board members and directors ensure the nonprofit is abiding by all laws and regulations that apply to a nonprofit organization. Additionally, the board and director should ensure they follow the organization’s mission, meeting necessary tax requirements, and following the governing documents and bylaws. This is a fairly complex duty. Often, it will be necessary for a board to bring in outside experts (such as lawyers and accountants) to assist in knowing what laws and regulations must be complied with, and specifically how to meet the IRS filing requirements for nonprofit organizations. It is not recommended, though, that a board simply delegate this out to an expert and hold no knowledge themselves. Board members and directors should educate themselves on the laws affecting nonprofits, the relevant tax codes and filing requirements, what the mission of the organization is, and where the funds are being utilized. Claiming they were unaware will not get them a pass with the courts should something inappropriate occur.
One thing board members and directors can lose sight of in the day to day operation of a nonprofit is the mission of the organization. It is important that this not happen. The mission of the organization should be a focal point for all those in governance positions with the nonprofit. In all decisions made on behalf of the organization, you must ask whether the decision will further the mission of the organization. If not, it would be a breach of the duty of obedience to implement that decision.
The board members and director of a nonprofit organization must always have the best interest of the nonprofit in mind and ensure that the organization is operated free of conflicts of interest. Decisions must be made independent of coercion and interested parties. Board members and/or directors of an organization should not utilize their position to their personal benefit. It is important to note that even the appearance of a conflict can create problems. Those governing should always act in good faith with the organization and put the nonprofit above their desire for personal gain.
One way to fulfill the duty of loyalty is to have a clear conflict of interest policy. As we will discuss in a minute, this is something that should be a part of the application for 501(c)(3) status anyway. Board members and directors should be able to clearly understand their duty of loyalty from perusal of the conflict of interest policy. The National Council of Nonprofits encourages adopting a candid disclosure policy, where board members and directors are asked to disclose any potential conflicts, record those potential conflicts in the board meeting minutes, and preserve for future perusal if necessary. If there is an issue brought before the board that a member or director feels they are conflicted with, they should recuse themselves from any discussion or vote on the matter. To take things a step further, some boards have developed a questionnaire that collects information about potential or existing conflicts of interest a board member or director may have. It may be beneficial for boards to periodically present hypothetical conflict of interest situations and discuss potential resolutions. This would further clarify what may arise and offer ways to handle such situations as they arise.
The duty of care is a broad duty, including board responsibility for keeping the organization in business, whether this is through fundraising, ensuring correct operations, and following up on possible misconduct. A concise way to put this is that board members and directors must be “active participants in making the decisions that steer the organization.” This entails making independent decisions. If one board member has knowledge of a particular subject area, the other board members may listen to their opinion, but should take it upon themselves to research and form their own opinions relative to their own research and the opinions they’ve heard. Also, board members cannot allow a director to act without question, and vice versa. As in the duty of obedience, it is important for board members and directors to keep the mission of the organization at the forefront and hold all proposed activities up to this before approval. Board members and directors should ensure correct bookkeeping and verify transactions are appropriately made. Board members and directors should also ensure that appropriate actions are taken when there has been a report of misconduct. Misconduct can have devastating effects on a nonprofit organization, and therefore should be treated seriously. If the misconduct is such that it requires an audit, or the help of someone with a higher level of expertise, the board or director should look to hire an independent individual or company to assist with said audit or investigation of allegations of misconduct.
One interesting note to this duty. If an action is brought against board members or directors of a nonprofit, courts do not typically look at the correctness of a decision. In the nonprofit context, the “best judgement rule” is utilized. If a board member or directors has made a decision by informing themselves to the best of their ability, without a conflict of interest and in good faith, the courts will not pursue an inquiry. This is true even if the decision was detrimental to the organization.
So in closing, be sure to keep these three duties at the top of your mind. Staying in alignment with these will help ensure that you are serving the nonprofit organization in an above board and sufficient manner. Stay tuned for additional blog posts discussing this topic in a bit more detail.