Nonprofit Essentials: Understanding Board Member Duties
A nonprofit’s board of directors determines the culture, direction, and ultimate success of the organization. Accordingly, nonprofits should prioritize the selection and training of the members of its board of directors. Given the extent of their impact, it is critical that every board member understands their responsibilities to the organization in their role.
The guidance below explains how remaining mindful of the three fundamental board member duties can assist board members in effectively carrying out their responsibilities and suggests steps a nonprofit can take to help its board in meeting these obligations. In considering this information, remember that the duties of a nonprofit board member are the legal standards by which board member action is judged, and board members must adhere to these duties individually and collectively. A downloadable PDF of this checklist is available here.
Duty of Care
The duty of care requires a board member to exercise the same care that an ordinary, prudent person would exercise in a like position or under similar circumstances. This duty requires board members to be reasonably informed about the organization’s activities, participate in decisions, and make decisions in good faith and with the care of an ordinarily prudent person in similar circumstances.
How can a board member fulfill this duty?
To fulfill this duty, board members should give appropriate attention to the nonprofit’s affairs, by taking action such as the following:
Ensuring the board meets regularly, and as needed, to discuss the nonprofit’s activities and operations.
Attending board meetings and appropriate committee meetings.
Working with appropriate stakeholders to establish or refine the organization’s mission and strategic plan.
Preparing in advance for board meetings (e.g., review the agenda and reports before the meeting).
Obtaining pertinent information, before voting, so that informed decisions can be made.
Exercising independent judgment.
Periodically examining the credentials and performance of the organization’s leadership. This includes selecting the Executive Director and reviewing their performance.
Regularly reviewing the organization’s finances, budget, and financial policies; accepting or approving financial documents, as appropriate.
Reviewing the Nonprofit’s IRS Form 990 before it is filed and paying careful attention to Part VI (which includes information concerning the board and policies relevant to it) and Part VII (concerning compensation of the nonprofit’s leaders and other highly compensated employees and contractors).
Establishing compensation policies and guidelines to help ensure that compensation paid by the nonprofit is reasonable.
Duty of Loyalty
The duty of loyalty requires a board member to exercise their power in the interest of the organization and not in their own interest or the interest of another entity.
How can a board member fulfill this duty?
To fulfill this duty, board members should be loyal to the nonprofit above all other concerns when acting on the nonprofit’s behalf, by taking action such as the following:
Adopting and following a conflict-of-interest policy.
Avoiding the use of opportunities made available by service on the board for personal gain or benefit.
Maintaining the confidentiality of information about the organization.
Duty of Obedience
The duty of obedience requires a board member to comply with pertinent laws and adhere to the organization’s rules and policies in furtherance of its mission.
How can a board member fulfill this duty?
To fulfill this duty, board members should observe laws, policies, and the nonprofit’s mission when acting on the nonprofit’s behalf, by taking action such as the following:
Ensuring compliance with all regulatory and reporting requirements, such as filing the IRS Form 990 and paying employment taxes.
Reviewing and understanding the nonprofit’s governance documents, such as the bylaws.
Making decisions in alignment with the nonprofit’s mission and governance documents.
How can a Nonprofit Help Board Members Satisfy their Duties?
Nonprofits can establish procedures and policies to help board members, who are often some of an organization’s hardest working volunteers, meet their duties. For example, a nonprofit should consider:
Adopting a board member agreement that incorporates the duties outlined above and describes how staff and others will assist board members in fulfilling their duties.
Establishing a board calendar, specifying when certain board responsibilities (such as review of the IRS Form 990 and review of the Executive Director’s performance and compensation) will be conducted.
Creating a board member onboarding process and a mentorship relationship with an established board member to assist the new board member in understanding their duties as well as the structure and operations of the organization.
Including the organization’s mission statement on materials easily accessed and reviewed during each board meeting.
Providing board members with meeting agendas and relevant documentation in advance of each meeting to ensure that board members can adequately prepare.
Offering board member training periodically to board members and appropriate staff, which can include topics specific to a nonprofit board as well as others such as public relations, the organization’s work, or financial literacy.
Working together, board members and nonprofit staff can use the required board member duties as a roadmap to help board members excel in their roles, which, in turn, should ultimately set the nonprofit up to succeed and thrive.
This update is for informational purposes only and does not provide legal advice. Every legal situation is different and must be independently analyzed by an attorney. Please consult with an attorney for specific guidance.
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