Is it a simple matter of lending your name? Opening your wallet? Going to a few meetings a year? Or does it have a hidden liability that you want to avoid? Can you be sued if something goes wrong, even if it’s not your fault and you may not have even known about it? What if the organization runs into financial problems? Might the Board or others look to you for a bail out? What should you do or not do if you think the organization is going in the wrong direction? And what if a director becomes nasty or antagonistic to everyone else on the board. Finally, what if the executive director forgets there is a board…
The word “Governance” has become ubiquitous today… It is used everywhere for everything. But what really should it mean to you as a director? The rules are quite clear – in fact, they serve as guardrails to prevent bad behavior and protect the director who takes the “job” seriously.
Three fiduciary duties are demanded of a director: (1) Duty of Care; (2) Duty of Loyalty; (3) Duty of Obedience. How do those legal terms translate into real life?
- The Duty of Care requires attention – to meetings; minutes; reports (yes, even financial reports); day to day operations of programs and initiatives.
- The Duty of Loyalty requires that you put aside your own personal interests and be faithful to the organization you serve. Matters discussed at meetings are confidential. You may not promote your own business or financial interests instead of that of your organization.
- The Duty of Obedience simply means that you must respect the legal rules which guide a nonprofit organization. In Pennsylvania our guide is The PA Nonprofit Corporation Law which spells everything out in detail – and two regulating bodies: The Office of Attorney General and the Internal Revenue Service. In the event you serve on a religious board, there may well be faith-specific rules to respect and if you serve on a professional board there are rules of licensure and practice.
Everything hinges on an organization having an effective and committed board. A well-run organization will make every effort to build a LEADERSHIP TEAM that looks to the future. Does a director have an obligation to investigate if he or she suspects something is amiss? Must that director become a detective? Pennsylvania has a realistic standard of good faith -a director should act in good faith – as a reasonable man would under similar circumstances. That may mean calling the Board’s attention to a problem or objecting on the record to an act the director simply cannot endorse.
Unfortunately, there are numerous instances where directors simply do not perform admirably. It may be that the organization’s environment does not empower the director or that the director blanches in the face of a hijacked board. To prevent such occurrences, many organizations have created policies to guide the board and individual directors, as well as an audit committee to carefully monitor the internal controls of an organization. An organization’s future depends on getting it right.