Part II: Legal Considerations
You have been asked to serve as a director on the board of directors of a nonprofit corporation – congratulations! Perhaps the cause is something that is near and dear to your heart. Maybe you are hoping to make some professional connections. Or maybe you are just looking for ways to beef up your resume. Whatever the reason, jumping into any organization without first understanding your duties could get you in trouble. The responsibilities of serving on a board cannot be taken lightly. The last issue of Network Magazine focused on the financial aspects of serving on a board. Today we will look into some of the legal considerations.
Most boards take a “big picture” view of the organization, hiring a director to handle the organization’s day-to-day operations. In doing so, board members have three primary legal duties, which are known as the “duty of care,” the “duty of loyalty,” and the “duty of obedience.” What does that mean to you as a board member?
The “duty of care” is an overall responsibility to ensure that the nonprofit’s assets are used in a prudent manner. Including not only monetary assets, but also the organization’s people, its physical assets, and any other assets that represent the organization, including its name and its goodwill. This duty requires the board to look to the organization’s future to ensure that its actions work toward the sustainability of its mission. In doing so, a board member must make sure that he or she has the needed facts and details so that he or she can make informed decisions. If the provided information is incomplete, board members are responsible for asking questions and/or doing research before making any decisions.
The “duty of loyalty” is very straightforward – a board member is responsible for acting in the best interests of the organization and not in furtherance of his or her personal goals. When acting on behalf of an organization, a board member must set aside his or her own personal and professional interests and take actions to better the organization. To put it simply, the nonprofit should always come first.
The “duty of obedience” requires all board members to follow the rules. Each board member is responsible for understanding the laws applicable to that organization and acting in accordance with those laws. In addition to the general policies outlined herein, different types of organizations may have specific laws applicable to them. The duty of obedience also requires each board member to undertake his or her duties in an ethical manner. This involves board members following the mission and purposes of the organization in undertaking their duties.
Most organizations maintain directors and officers liability insurance, which would shield individual board members from personal liability. However, if it is shown that a director acted improperly in carrying out his or her duties on behalf of the organization, such insurance would not protect that director and he or she may be held personally liable for his or her actions.
In addition to legal obligations applicable to members of all nonprofit boards, potential members should also be sure to educate themselves on the specific obligations imposed by the organization. In addition to attending board meetings, many nonprofits expect their board members to make financial contributions at a specified level, attend events held by the organization, and contribute to the organization through other means. While serving on a board is a rewarding experience with countless benefits, members must remain cognizant of their duties and responsibilities to the organization.