The pandemic and ensuing economic downturn have put many nonprofits on shaky ground. In crises such as these, solid board leadership is more essential than ever — critical decisions affecting an organization’s long-term survival must be made. As your board members attempt to stabilize the organization and build for a successful future, they should bear in mind their main duties and responsibilities.
Members are considered fiduciaries, or trustees, of their organizations. Their legal duties aren’t only important for the success of their nonprofits. Compliance also can preempt personal liability for board members’ actions, assuming the members are acting in good faith. Here are their three primary duties.
1. Duty of care
Board members must devote reasonable care and attention to provide the requisite oversight of your nonprofit. Among other things, they must ensure the prudent use of all assets including funds, facilities, staff and goodwill. This means that they need to be familiar with your organization’s financial status. It’s not enough to know whether your group has a budget surplus or deficit — members should know how to read and interpret budgets, financial statements and other critical documents.
Board members must ensure the prudent use of all assets including funds, facilities, staff and goodwill.
The duty of care also requires members to attend meetings (at least virtually) and read reports. And they must exercise sound judgment when making decisions, accounting for all relevant information rather than simply accepting staff recommendations.
2. Duty of loyalty
Members are obligated to act in the best interests of your nonprofit and its stakeholders. They should see that all of their activities and financial transactions are designed solely to advance your organization’s mission, not their own interests.
The duty of loyalty requires your board to identify and disclose all conflicts of interest. Board members also should abstain from discussions or votes on matters that could benefit them or people close to them. For example, a member should disclose that he holds an ownership interest in a vendor business under consideration for a contract. Such a contract could constitute inappropriate self-dealing and provide an “excess benefit.” That could happen if your nonprofit paid more for the service than another customer would — or more than you’d pay a different vendor for the same service.
3. Duty of obedience
This duty relates to legal compliance. Board members must confirm that your organization follows all applicable federal and state laws, rules and regulations, as well as its own bylaws and other governing documents.
Board members also should confirm that your nonprofit files all required federal and state information and tax returns. They should ensure that your organization abides by the purpose of activities (or mission), identified in its applications for tax-exempt status, too, to avoid revocation of status.
Beyond the fiduciary
Of course, board members also have more granular responsibilities. New members, for example, might not realize that they’re expected to evaluate and set your organization’s executive director’s salary. Or they might not know how actively they’re expected to participate in fundraising, which is particularly important during the COVID-19 era.
In contrast to members who might underestimate their responsibilities, some board members could believe their duties are far broader than they are or should be. Although they should contribute to fundraising, strategic planning and oversight, the board largely must stay out of your organization’s day-to-day operations. Board members frequently may work with paid staff, but it’s up to your executive director to manage these employees.
The bottom line
Service on a nonprofit board can strike some as a cushy gig that looks good on a resume. The reality, as the turbulent COVID-19 environment has demonstrated, can prove much more demanding. When resources are threatened at the same time demand for services skyrockets, board members need to double down on the job and, perhaps, act creatively. However, their overriding duties always should guide their actions.