Many well-intentioned people join nonprofit boards. They may share a passion with the nonprofit’s mission or they may have friends on the board. They may have been told, perhaps by a nominating committee member, that they will not have to do much, “It’s just a couple of meetings a year. No sweat.” Too often, they do not understand the role of nonprofit boards and what duties and responsibilities they, as board members, have as directors. The following is a brief summary — a cheat sheet, if you will — of corporate governance concepts for nonprofit directors:
Good board members monitor, guide and enable good management.
Duties of directors: Due care, loyalty and obedience
Duty of due care: A director must take the care and exercise the judgment that an ordinarily prudent person would use when making decisions. Directors who are acting with due care are attentive, diligent, thoughtful, active, informed and participating.
Duty of loyalty: A director must act in the best interests of the organization, to advance the organization’s interests and not the director’s private interest.
Interested directors must disclose their interest in a matter or transaction to the other directors and then recuse themselves from deliberations. The remaining directors must analyze the matter or transaction for fairness to the organization, consider alternatives, including obtaining competing bids, and document the review and process undertaken by the board in considering the conflict and matter or transaction.
A duty of confidentiality is an inherent part of the duty of loyalty.
Duty of obedience: A director must adhere to the organization’s mission, articles of incorporation, bylaws, and applicable laws, rules and regulations.
Good faith: A director has an overarching obligation to do what he or she truly and sincerely believes to be in the organization’s best interests.
Rights of directors: Directors have the right to information (e.g., financial and other corporate records), notice of meetings, adherence to quorum and unanimous consent requirements, and a record of their dissent.
Recap — How to avoid trouble as a director:
- Attend board meetings
- Adhere to articles of incorporation and bylaws
- Review meeting minutes and committee reports
- Promptly disclose any conflict of interest
- Ask that experts be retained as and when necessary
- Review the financial statements
- Review the IRS Form 990
- Insist on annual budgets, internal accounting systems and controls, and frequent financial reports
- Review audit reports and management letters prepared by independent auditors
- Foster an atmosphere of openness in the organization
- Insist on compliance with all applicable laws
- Beware of the one-person show
— Melanie S. Tuttle
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