Board service can be extremely rewarding, challenging at times, and beneficial to many. The following guidelines are intended to help nonprofit board members understand their responsibilities and to serve with excellence.
1. Who’s in charge? All directors and officers have fiduciary duties, which means they are entrusted with responsibilities to govern the organization. Under Illinois and other state laws, these fiduciary duties fall within the following three categories: (1) duty of care (or diligence); (2) duty of loyalty; and (3) duty of obedience (to the mission).
A. The duty of care can cover extensive areas of responsibility, such as governance over personnel, finances, real estate, and tax-exempt activities. At a minimum, it means that board members show up to meetings, require and review financials, handle problems as they arise, and otherwise actively participate in governing the organization. The directors may delegate responsibilities to others, such as for accounting, legal, and investing advice. Ultimately, however, the proverbial buck stops with the board.
B. The duty of loyalty, broadly speaking, means that each director and officer must put the best interests of the organization first. Directors often may wear additional “hats,” such as business owner, relative, or board member of another organization. But when it comes to evaluating and deciding what the nonprofit should do, each director either must (a) put the organization’s interests first or, in the event a conflict of interest arises, (b) excuse themselves from any related decision-making process and vote. For pervasive conflicts of interest, the board member may need to resign.
C. The duty of obedience simply means that the board should pay attention and hew to the organization’s mission. This should be stated in the organization’s current corporate documents, such as articles of incorporation and bylaws. In the event that the board decides to adjust the mission, then the organization’s corporate documents should likewise be updated to reflect this change.
2. Getting the work done. The board members serve as the bumper guards for a nonprofit, while the officers, executive director, or executive staff are responsible for both (a) executing the plan, i.e., taking direction from the board, and (b) being accountable to the board. The workers (staff or volunteers) typically should be responsive to the executive staff to follow directions. Sometimes - particularly in new organizations -these roles overlap, with a founding executive director exerting a strong force on the organization’s development and operation, and an “all hands on deck” approach to getting the work done. Nevertheless, by keeping these structural roles in mind, the board can be equipped to properly address and work through tensions that may arise from blurred roles in practical application.
For example, if a “worker” who is also a board member wants to take the organization in a new programmatic direction, it is the board’s job (probably without that person’s decision-making involvement, due to the resulting conflict of interest) to make a reasoned evaluation and decision in the organization’s best interests. Likewise, if the executive director is unwilling or unable to produce financial reports, and thereby demonstrate fiscal accountability, then the board must confront this very critical aspect regardless of the fact that he or she also serves on the board.
3. Keeping track of it all. The board should maintain a corporate notebook, as a repository containing key organizational documents. The board should maintain written minutes of all meetings, with recent minutes contained in the corporate notebook. The minutes need not (and probably should not) be wordy. Rather, they should serve as a memorialization of board members in attendance (including quorum requirements) board matters considered with appropriate due diligence, resolutions adopted, and action items for follow-up.
4. Making expectations clear. It’s been said that nonprofit board members are expected to contribute their time, treasure, and talents, perhaps in varying degrees. Before board members begin their tenure, it should be made as clear as possible to them what they should expect in these areas. Here are some key questions to address:
Will the new board member be part of a “working board,” where several hours of volunteer service are expected each month, or will his or her role be more limited?
Is there an expected monetary contribution amount, and/or expectation that the board member will help the nonprofit gain access to other funding sources?
How else is the board member expected to contribute to the organization’s well-being and further growth?
Is there a term length expectation or requirement?
5. Orientation. All new board members should receive information about the organization’ s corporate governance and operations. In particular, each new director should be given a copy of the organization’s current bylaws, which sets forth key governance provisions such as officer positions, board meetings, committees, financial policies. In addition, new board members should receive other information such as recent financials and board minutes, so that they can get up to speed quickly on governance matters. New directors also should be informed that all board matters, including related documents, should be considered to be confidential (as part of their fiduciary duty of loyalty) unless they are informed otherwise.
Giving new directors a copy of the organization’s corporate notebook may be an effective orientation tool. This gesture also may show them that the organization is high quality and well organized.
6. When things go wrong. One way that nonprofit governance can be impaired is when one director becomes too dominant, either by dint of his or her own forcefulness or more as a “martyr” (intended or unintended) doing most of the work. In either case, this situation is not healthy for the organization. Accordingly, it is sometimes known as “founder’s syndrome,” although it can occur at any stage in the life of a nonprofit. Left unchecked, it can lead to undue pressure on directors’ fiduciary duties (e.g., does the director simply follow the “leader” or participate more meaningfully?), board malaise, and reduced donor funding.
In addition, board members may be subject to personal liability for “gross negligence” or intentional misconduct. (Note, however, that if a board member is paid for his or her service, then the legal standard drops to “ordinary negligence.”) As an example of the first category, if a board member continually skips meetings and therefore does not exercise his or her duty of care, then he may be held personally liable for poor board decisions that result in personal injury to others. As an example of the second category, if a board member participates in an organizational decision not to pay employment taxes, then he or she may be held personally liable for IRS and state tax-related penalties.
7. Governance compliance. All boards should be sure to periodically review their organizations’ bylaws, to make sure that they accurately reflect the organization’s mission and governance structure. In addition, boards should keep tabs on applicable filing deadlines, such as for IRS Form 990s (due 4 1/2 months after the close of the fiscal year) and state annual reports (in Illinois, just before the organization’s anniversary month). Board members should also complete annual conflict of interest disclosure forms, to raise any potential conflict of interests and to properly resolve them.
In conclusion, nonprofit organizations serve vital functions in our society, and their board members are to be lauded for their service. To effectively lead their organizations, board members need to stay informed, responsible, and passionate about their organizations’ causes.