Is There a Risk? Volunteer Directors' Standard of Misconduct

Nonprofit directors often ask if they can be held personally liable for their board actions.  The somewhat unsettling answer is probably not, but maybe.  In other words, state statutory immunity and indemnification protections generally apply to a volunteer director’s misconduct, but subject to certain exceptions for misconduct.  More specifically, a director may have heard that he or she may be personally liable for “gross negligence” or “intentional or reckless misconduct.”[1]  What do these terms mean?  The following guidance addresses how nonprofit laws define the type of misconduct that triggers personal liability for volunteer directors and discuss additional safeguards such as indemnification and directors’ and officers’ insurance. 

Willful or Wanton Conduct – Explained.

Most states’ statutes provide a limited level of immunity for volunteer directors serving on nonprofit boards.  By way of background, directors and officers owe fiduciary duties of care, loyalty, and obedience to the corporate mission.  Under these statutory provisions, a director will not be personally liable for damages resulting from their actions carried out in furtherance of such fiduciary duties, so long as these actions do not rise to a certain level of misconduct.  This level is often described as “gross negligence” or “reckless misconduct.”  The Illinois General Not-for-Profit Corporation Act (the “Act”) uses the classic legal phrase “willful or wanton conduct.”  The federal Volunteer Protection Act (“VPA”), which protects volunteer directors at the federal level, uses similar language.  (Notably, a lower legal standard of “ordinary negligence” typically applies to paid directors and officers, so payments of stipends or other modest compensation may likely be inadvisable.)

So, what exactly does “willful or wanton conduct” mean?   Willful or wanton conduct means a course of action which either “shows an actual or deliberate intention to cause harm” or which, “if not intentional, shows an utter indifference to or conscious disregard for the safety of others or their party.”  

Great Board Expectations

Serving on a nonprofit board presents great opportunities for meaningfully contributing to a worthy cause.  But board service also involves significant responsibilities that may feel burdensome at times.  How can current board leaders effectively equip newly-recruited board members for successful board service?  In a nutshell, it’s all about a good fit, clear expectations, and safeguards.

A. Who is the right person for the job?

Nonprofit boards need leadership from individuals who share a passion for the organization’s mission.  To help potential leaders understand this mission, make sure that the nonprofit’s corporate purpose statement clearly and accurately articulates the organization’s mission.  Ask prospective board members to read the corporate purpose statement.  Then ask them to consider the following question.  Is this mission something that I believe in, and is it worth committing my best efforts?

B. What will be expected of board members?

Board leaders often speak in terms of “time, treasure, talents” or “wealth, wisdom, work” parameters.  These phrases may be helpful to show that board members should expect to contribute some of their time, some of their money, and some of their skills or expertise.  But better yet:  develop a one or two-page “Board Expectations” document that helps new board members to understand more clearly how they are to contribute meaningfully.  Also consider assigning seasoned board members to mentor new board members in their new responsibilities.

A “Board Expectations” document could include the following elements to inform new board members about their roles.

How Good is Your Nonprofit Board?

We live in the Post-Enron world, where regulatory oversight of corporate governance is a significant legal issue.  The IRS oversees section 501(c)(3) public charities, along with each state’s Attorney General office.  Apart from its recent tax scandal, the IRS’s Exempt Organizations Division has increasingly focused on public charities’ corporate governance and related business practices, as a reflection of their likely compliance with directly applicable legal requirements.  (See for example, the