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The Legal Responsibilities of Board Members

In addition to the standard roles and responsibilities of nonprofit board members, there are legal responsibilities. These are essentially the same for both nonprofit and for-profit boards. They also apply to most elected and appointed government officials. The legal responsibilities of board members fall into three categories:

• Duty of Obedience
• Duty of Care
• Duty of Loyalty

Duty of Obedience This refers to the board’s responsibility to ensure that the organization operates according to state and federal laws, its own rules and regulations, and in a manner consistent with its purpose and mission. Board members should:

• Attend meetings
• Conduct meetings of the board and committees consistent with the by-laws.
• Participate actively in board meetings and evaluate their effectiveness.
• Review and amend bylaws on a regular basis.
• Help recruit and retain qualified and appropriate board members.
• Nominate and elect qualified officers and committee chairs.
• Fulfill all of the IRS and state nonprofit reporting requirements related to taxes, FICA, annual reports, UBIT estimates, and IRS code.
• Establish policies related to personnel and program and monitor their compliance.
• Search for and hire the executive director.
• Evaluate the executive director vis à vis his or her job description and the organization’s strategic goals and plans.
• Expect staff to provide information and reports an all program and administrative areas.
• Listen attentively and read information from the staff.

Duty of Care The duty of care is an even higher standard. Board members should conduct themselves and make decisions according to what an “ordinarily prudent” person would. For example, if a pre-school program has an electrical problem, the board should ensure that a qualified and certified electrician is called (rather than a director’s uncle who is “handy around the house"). The duty of care also includes conducting business “in good faith” and acting at all times “in the best interest of the corporation” (rather than personal or individual interests). Duty of Loyalty A higher standard than that of duty of care, it refers to the fiduciary responsibility to act with unequivocal allegiance to the corporation. This is the area that deals with the issue of conflict of interest and confidentiality. Most conflict of interest can be avoided when:

• There is prompt and full disclosure of the existence or appearance of a conflict to the other board members.
• It is presented by a disinterested director.
• The “interested” director abstains from voting. (Actually, the director can vote, but the vote should not be counted.)
• The other board members respond with “care” and “candor”.
• There is approval by more than a majority.

Conflict of interest issues that trigger IRS sanctions relate to the following:

• Unlawful distributions of funds (do not make loans or guarantee loans to directors).
• Private inurement to directors or small group of “insiders.”

Confidentiality is another important area.

• Donor lists.
• Innovative program strategies developed for grant applications.
• Marketing plans.

Paying attention to legal responsibilities is an excellent way to keep your nonprofit “on track.”

Lynn Shelby Kickingbird in Growing Effective Boards
©Kickingbird Associates, 1998