Staying True to Your Mission: The Duty of Obedience

What is your nonprofit’s mission – and does your organization follow it?  Many nonprofit leaders have a strong sense of mission, while others may stray due to lack of understanding, pressing demands from others, or the pull of funding opportunities.  Each director and officer owes a fiduciary duty of obedience to the nonprofit’s mission as part of his or her governing leadership. This is the third and final fiduciary responsibility, concluding our series on the legal responsibilities of a nonprofit organization’s directors and officers: the duties of care, loyalty, and obedience.

Where’s My Nonprofit Mission?

Before addressing the duty of obedience as a legal concept, it is critical to understand where to find the nonprofit’s mission.  A nonprofit’s mission, often known as a “corporate purpose statement” is typically found in a nonprofit’s charter documents, such as its articles of incorporation, articles of amendment, and bylaws.  Sometimes the purpose statement is updated in the bylaws but not in the articles, which is not ideal. When possible, the articles should contain the most up-to-date purpose statement.

Often, a nonprofit will have a mission statement on its website, an advertising tagline, or other PR-related communications about its mission.  These statements may be varied to some degree but should be consistent overall, springing from the core purpose statement contained in the nonprofit’s corporate documents.  (For further guidance on corporate purpose statement, pleases see our law firm’s blog article.)

Why Do We Need to Obey the Nonprofit’s Mission?

The duty of obedience is closely related to the duty of loyalty, which focuses on prioritizing the nonprofit’s interests over competing personal interests.  The duty of obedience focuses specifically on a director’s actions vis-à-vis the purpose(s) of the corporation.  Every nonprofit corporation has a corporate purpose set forth in its governing documents.  The corporate purpose statement serves as the nonprofit’s guiding compass, helping all to understand what the nonprofit’s activities are aimed at accomplishing.  The directors and officers of the nonprofit, as fiduciaries, are entrusted with the legal responsibility of ensuring the organization stays on track toward accomplishing the mission reflected in the corporate purpose. In a sense, directors and officers are like the organization’s bumper guards.

From a legal accountability perspective, the nonprofit has informed state and federal officials that it is organized and operated for specific nonprofit purposes that fall within a definite tax-exempt category under Section 501(c) of the Internal Revenue Code.  This purpose was the basis for which the organization was granted tax exemption.  To maintain legal compliance, the nonprofit thus must follow through on such representations.  If the nonprofit has informed state regulators that it will operate for primarily religious purposes as a church, through its corporate documentation and applications - such as for nonprofit status, sales tax exemption, charitable solicitation registration (or exemption) and unemployment - then it must do so.  Likewise, if the nonprofit has applied to the IRS for tax-exempt recognition as a Section 501(c)(3) public charity, then it must carry out such activities as exemplified by its corporate purpose statement and as indicated through its IRS Form 1023 application for such tax-exempt recognition. 

How Do We Obey the Mission?

Simply put, the duty of obedience requires adherence to the nonprofit organization’s corporate purpose. It’s thus critical for directors and officers to know the organization’s purpose. If one doesn’t know where he or she is going, it’s hard to get there! 

Second, directors must understand that the buck stops with the board.  Thus, it is the directors’ responsibility to know and stay true to the mission.  In practice, this may mean that the nonprofit board rejects grants or other program opportunities that are inconsistent with the organization’s stated purposes.  Likewise, for organizations with geographical limits for their activities, the board may insist on keeping funding and other resources directed at the targeted areas. 

Sometimes significant tensions may arise, such as when a strong leader wants to take the organization into uncharted territory, when changing circumstances may warrant a new direction, or when significant funding shifts occur.  New vision and innovation are to be commended, but wise directors and officers do well to always evaluate these ideas through the lens of the nonprofit’s mission – as the fundamental leaders entrusted with carrying it out.  In some cases, it may be more appropriate for another organization to develop the new project.  In other cases, the board may decide that the mission itself needs to be reevaluated.

May We Change the Mission?

The answer:  Of course, with the directors and officers playing the key role of deciding whether to do so or not.  However, changing a nonprofit’s mission should not be done lightly.  As the core foundational dimension, the nonprofit’s mission should be changed only after the board engages in careful strategic planning and a thorough deliberative process. For example, the nonprofit leadership could proceed through initial committee review, consultation with other key stakeholders, and multiple board meetings. 

As part of a potential mission change, additional legal evaluation may be important too. Care should be taken to ensure the updated purpose statement still fits within the nonprofit’s tax-exempt status and does not adversely affect any state filings.  Then, after such deliberative process, the nonprofit’s articles and bylaws should be updated to reflect any changes.  Ideally, the nonprofit board will fully embrace the updated corporate mission with accompanying staff engagement, donor support, and a strong future ahead. 

This blog post is part three of a three-part series on the fiduciary responsibilities of careloyalty, and obedience.