Board members of nonprofit organizations often do not fully appreciate their responsibilities. Trustees/Directors serve on boards to provide governance, and that job has very specific duties under the law. A board exists to fulfill the mission of the organization, help ensure its financial stability and protect the public interest.
The board is responsible for all aspects of nonprofit operations. Nonprofit organizations are legally required to have a board, and officers with the powers of a president, treasurer and clerk. Board members are most often designated as trustees or directors, but may have other titles such as governors or vestry members.
In practice, governance includes mission achievement; strategic planning; financial oversight; fundraising; program implementation; and selection, evaluation and setting the compensation of the Chief Executive Officer or the Executive Director.
Governance does not mean performing staff functions, or getting mired in day-to-day management or administrative details.
There are three duties of board members that are legally required and defined:
Let’s look at each of these duties more closely.
The duty of care: A board member must act in good faith and in a manner he or she reasonably believes to be in the best interests of the organization and with such care as an ordinarily prudent person in a like position with respect to a similar organization would use under similar circumstances.
Translation: This means a board member must act with honesty and common sense in carrying out the mission of the organization. Board members must keep themselves aware of all the issues facing the organization. They need to prepare for, attend and participate in all board meetings, to the extent possible.
The duty of loyalty: Board members must act with the strictest good faith in governing the organization and may not unfairly profit, directly or indirectly, from the organization, and must respect the confidentiality of the organization’s affairs.
Translation: This means a board member must always put the organization first. If there is a conflict of interest, such as entering into a business transaction with the nonprofit organization which may benefit the board member, or where a board member learns about an advantageous opportunity, the board member must disclose the conflict, and have the transaction independently approved by the rest of the board. This is an important issue for both the Internal Revenue Service and the Attorney General’s office. Confidentiality means a board member must keep confidential all matters involving the organization that are not public information.
Duty of Obedience: Board Members must perform their duties in accordance with the organization’s nonprofit purposes, governing documents and applicable laws.
Translation: This is a duty that is not explicitly mandated by Massachusetts law or courts. However, the Attorney General’s office has indicated that the duty of obedience may apply to nonprofit boards and it is legally mandated in other states. The underlying concept is that the board members will use donated funds to fulfill the organization’s mission, as expected by the donors.
To learn more about board governance, and the responsibilities of those who sit on boards, please feel free to click here: http://hembar.com/pdf/sitting-on-a-nonprofit-board-a-guide-for-directors-of-nonprofit-organizations