Governance Duties of a Not-for-Profit’s Board of Directors - Part 2 of 2
May 27, 2015
By Brian Collins, CPA
In our previous blog, we shared with you the New York State Attorney General’s announcement of a lawsuit against the board of directors of two Brooklyn-based not-for-profits alleging of gross negligence and failed management of their organizations.
Does your board of directors know its governance duties to the not-for-profit in order to avoid negative publicity?
There are three fundamental governance duties that all board members must follow. These are commonly known as fiduciary duties and apply to everything that the board of directors does. If board members fail to follow these guidelines, they could be held liable for any negative consequences of their actions.
- Duty of Care —This is defined as “the amount of care that an ordinarily prudent person would exercise in a like position and under similar circumstances.” In practical application, this means that board members must exercise reasonable care when they make decisions for the organization.
- Duty of Loyalty — This requires that board members keep the best interests of the organization in mind at all times when making decisions (e.g., avoiding conflicts of interest).
- Duty of Obedience — This requires that board members’ actions be consistent with the organization’s mission statement, articles of incorporation, bylaws and tax-exemption documentation. In other words, the not-for-profit’s central goals must guide all board decisions and, in addition, board members must comply with all applicable laws and regulations.
It is critical to provide thorough orientation training shortly after board members are elected. Have existing board members attend, too, for a refresher. Then provide ongoing training as needed. Make sure the training covers federal and state laws as they relate to the duties of board members, as well as laws and regulations affecting the organization.