Insights: Article

Serving on a Nonprofit Board of Directors

By Lisa Chaffee

June 05, 2011

The reasons why people choose to serve on a nonprofit board of directors are as diverse as the people on the board. Some of the reasons people choose to serve include the following:

  • Civic duty
  • Charitable service
  • Parental obligation
  • Personal interest in the organization’s cause

Before agreeing to serve on a board, a person will want to familiarize themselves with the organization, its history and its current operations. Specific items that may assist in this process are the articles of incorporation, bylaws, mission statement, policy manual, published periodicals, budgets, vision and goals, and financial statements.

Once an individual accepts a position on a board, they have inherently accepted certain fundamental responsibilities, in addition to a commitment of time and accountability to the organization. The key responsibility of the board is to monitor the organization on behalf of the members or the public that it serves. Bear in mind, the board possesses ultimate legal responsibility for the organization.

Laws relating to directors vary from state to state. Directors should become familiar with the laws for the state relating to the board on which they serve.

Board duties that may be included in state law for nonprofit organizations include:

Duty of care
A director must act in good faith, in the best interest of the organization and as an ordinarily prudent person would in a similar situation. Directors are entitled to rely on information presented to them by board officers, executive employees, legal counsel, public accountants and other knowledgeable professionals.

Duty of loyalty
A director possesses a fiduciary duty to the organization. A director has accountability for the organization’s assets and resources. They may not use their position on the board to advance their own private interests. Related party transactions between a director and the organization are not prohibited but are subject to greater scrutiny and should be evaluated carefully.

Directors should review the organization’s conflict of interest policy on a routine basis and sign a conflict of interest statement.

Duty of obedience to purpose
A director must concentrate on the charitable purpose, goals and vision of the organization. The directors should regularly assess the organization’s effectiveness in achieving its mission.

Protections for a director also vary from state to state. Directors should become familiar with the laws for the state relating to the board on which they serve. Protections that may be included in state law for nonprofit organizations include the following:

  • The director was acting in good faith within the scope of their duties as a director.
  • The act or omission did not constitute willful misconduct or gross negligence on the part of the director.
  • The director did not receive or expect to receive compensation and/or payment of expenses or reimbursement of expenses in excess of a specified dollar amount.

It is good practice for the organization to cover its directors under its errors and omission insurance. If the directors are not currently covered under the policy, it should be discussed as part of a board of directors meeting.

Now, more than ever, it is important for the directors to manage the board and organization properly. Each director should take the time they personally need to consider their decisions and use their own independent judgment. Directors also need to be prepared to address adverse actions against the organization.

A website that provides a wealth of information for nonprofit board of directors is www.boardsource.org. While the rules relating to directors of nonprofit companies will vary from profit organizations, being familiar with rules that relate to directors of nonprofit organizations is good knowledge for serving on any board.

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