Three Legal Responsibilities of Nonprofit Board Members

10 Jul Three Legal Responsibilities of Nonprofit Board Members

Let’s assume for a moment that you have formed or are going to serve on the board of a nonprofit organization. If you are doing so, you have three legal duties that can’t be ignored.

If you are a Game of Thrones fan, this the bending of the knee. You must remain loyal to the organization.

The three legal duties of any nonprofit board are the following:

1. Duty of Care
2. Duty of Loyalty
3. Duty of Obedience

Each board member is independently required to adhere to these three duties. It may sound scary, but it is not hard to do it.

The Duty of Care

The duty of care means that the individual board member must put some effort into what is going on. They have an obligation to make independent judgement calls. A board member must apply a reasonable level of care that a person would apply in a similar situation. While it may sound a little formal (of course if you’re on a board you care about the work, right?), that is the legal approach.

How do you make sure you’re fulfilling this duty of care?

1. First and foremost, make sure you are going to the board meetings regularly. If there are committees that you serve on, make sure you go to those meetings regularly also.
2. You are expected to practice independent judgement. If you don’t know something, you’re expected to ask.
3. You must keep on top of what the organization is doing — in its day-to-day and its strategic plan, ongoing programs, etc. You don’t need to know the details about everything that is going on, but you should know what the organization is generally doing.
4. If you are in doubt as a board member, you are expected to seek reliable outside advice. That advice could come from experts in a particular field (such as an accountant or an area specialist). If you are unsure of a decision that needs to be made, you are expected to seek out this reliable advice. To be clear, this advice is only advice, it does not need to be followed.
5. Delegate tasks responsibly. If you are going to take on a task, you should take it on as a serious commitment.

In summary, the duty of care is showing a reasonable effort to participate, be informed, and act with care in order to advance the interests of the nonprofit.

Duty of Loyalty

The duty of loyalty means that you do not put your personal, family, or business interests ahead of those of the organization. It does not mean that the nonprofit is the #1 priority of your entire life. What this duty means is that when it comes to the operation of the entity and your input as a board member, you’re expected to put the interests of the organization first in those circumstances.

You should not be using the information you learned from your service on the board for personal gain. For example, if you know that the board is getting ready to lease an office space, you should not tell your buddies that lease offices about your process.

This goes without saying, but do not make personal use out of organizational assets. This doesn’t just mean you can’t embezzle money. The organization may have other property or valuable information — you should not make personal use of those assets.

You should avoid conflict of interests, which is “when a person’s friends, family, or business interests conflict in some way with the interest of the nonprofit.” If one of those arises, you are expected to excuse yourself from any decision making around that conflict. The board may still seek out your advice, but you should not record a vote.

You should avoid self-dealing. You should not be promoting yourself and your professional services.  For example, as an attorney I am ethically prohibited to engage my law firm to advise the nonprofits that I serve on. But the rules on attorneys are bit more complex. But assume you are a graphic designer, you can, as a board member, provide graphics work for free as a service to the nonprofit. But you should not be bidding on paid work for the nonprofit and the Board should not award you such a contract.

In summary, the duty of loyalty means that you put the wants and needs of the organization before your own.

The Duty of Obedience

Lastly, the duty of obedience. This means that you stick to the mission of the organization.

Let’s say the nonprofit’s mission is to provide food for poor students in schools, you should not be trying to change the mission and the nonprofit’s activities without having serious talks with the board.

If the mission of the organization does change, the board has to go through the process to update all documents.

You should also be obedient to the organization because you as a board member have an obligation to the donors. Those donors are relying upon the stated mission of the organization with the assumption that it is being run properly. Typically, this means that you have to be very clear as to what the mission is and that it is well-documented.

When you represent the organization, you should only be representing the organization. Many people who serve on nonprofit boards often serve on more than one board. When you are networking and speaking with various professionals, you should be very clear as to who you are there representing. For example, if I am at an event for one nonprofit, I should not be trying to conduct business for another nonprofit while at that event. You can invite folks to another event, but really you should limit your activity to that extent for another organization. You should always be focused and committed to the mission of the organization that you are representing.

These three duties of care, loyalty, and obedience. These are the legal requirements for any board member. Care should be taken to uphold all duties, and that you understand these duties before you even begin to serve.

Want to keep reading? Check out these posts on how to register a nonprofit or what joining a nonprofit board entails.