My personal experience serving on the board of a nonprofit organization for the past few years has been both challenging and rewarding. I have spent many hours in board meetings and on conference calls, working to establish the organization’s objectives and the strategies to achieve them, and defining each board member’s roles and responsibilities.
I am proud of the work I have done, but I know firsthand that serving on the board of a nonprofit organization is not a decision to make lightly. Doing so involves serious commitment and responsibility, and if you are short on time or lack a passion for the work, I would advise against serving in this capacity. Many professionals may mistakenly think that a position on a nonprofit board is simply a show title, but in a functional organization, board members actually do a great deal.
Though duties may vary depending on the organization’s size and scope, in general board members are responsible for the nonprofit’s overall management, strategy and direction. They work to ensure the organization is accountable to its donors, as well as to regulators. Effective boards serve as fiduciaries, offering a high standard of care in managing the organization. They also set the nonprofit’s long-term strategic direction and work to identify and solve issues confronting the nonprofit. As these duties suggest, a board member will need to devote substantial time and energy in order to do the job well.
A board member’s duties may also depend on how the nonprofit is organized. Under state laws, nonprofits may be organized as corporations – the most common choice – or as trusts, limited liability companies or unincorporated nonprofit associations. Board members for a nonprofit corporation are called directors; board members for a trust serve as trustees. Historically, nonprofit directors were held to more or less the same strict legal standards that govern trustees, but in recent decades, the courts have applied less stringent standards. A trust’s organizing document may also lay out more rigidly defined roles for the organization’s trustees.
Deciding To Serve
People join nonprofit boards for a variety of reasons, perhaps the most obvious being that the nonprofit serves a cause near and dear to them. These directors may be the alumni of an educational institution, members of a religious faith or people whose lives have been personally touched by the nonprofit’s area of focus.
Other board members may lack this connection to the nonprofit’s mission, but may know someone who is already involved. The organization may have reached out to such individuals because they offer skills, knowledge or experience that will add value to the board as a whole. Still others may see serving on a nonprofit board as an opportunity to network with other board members and a way to foster business development.
These motivations are, of course, not mutually exclusive, and all of them are valid. But whatever your personal motivation, you must approach serving on a board with a realistic understanding of the amount of work involved.
As a director or trustee, you will need to regularly attend board meetings, and possibly committee meetings. You should review minutes from these meetings to make sure you have an accurate record of what was discussed. In addition, you will need to stay familiar with the board’s overall business plan and strategy for the organization, and regularly review the nonprofit’s budget, fundraising results and financial statements. Board members will supervise agents carrying out delegated work, and create policies to govern the nonprofit’s employees and volunteers. And, as in a for-profit company, a nonprofit’s board is typically responsible for selecting, supporting and evaluating the organization’s chief executive.
Given the amount of work involved, the most successful nonprofit board members will work with an organization they are truly passionate about. A personal link to the cause is always good, though not necessarily essential. The important thing is that you have a personal stake in the organization’s results, which will keep you committed and focused.
In addition to understanding the responsibilities of serving on a board in general, you should always perform full due diligence on the specific organization you are considering. Don’t be afraid to ask a lot of questions, both before and after you accept a position. For instance, find out how often the board meets, and whether such meetings require attendance in person. Ask if there are any expectations regarding board members’ financial contributions to the nonprofit. Find out what policies are in place regarding conflicts of interest. Look at the most recent account statements, in order to verify that the organization has adequate resources to meet its obligations and adhere to its current budget. The more you know going in, the less likely you are to be blindsided by the discovery that your organization of choice is shoddily run or in real financial trouble.
Protecting Your Organization And Yourself
Once you accept a position on the board of a nonprofit, you should stay alert for potential legal or ethical pitfalls.
One of the most common traps for professionals serving as nonprofit directors or trustees is the danger of conflicts of interest. Any transaction in which board members are asked to make decisions that could directly or indirectly benefit them, their family members or their businesses can qualify as a conflict.
This is yet another area where a nonprofit’s structure can make a big difference in the board member’s responsibilities, risks and available protections. Nonprofit corporations usually require a duty of loyalty – that is, board members must place the interests of the nonprofit above their own when acting in their capacity as a director. That said, when potential conflicts of interest arise, a director who properly makes the board aware of that potential conflict may be able to proceed if the rest of the board agrees and creates safeguards to minimize any potential problems.
Trusts, on the other hand, often lack this flexibility. By their nature, trusts tend to be more restrictive and, as a result, potential conflicts of interest are more legally perilous. According to the Uniform Trust Code (UTC), trustees must “administer the trust solely in the interest of the beneficiaries.” Trusts offer a much slimmer margin of error.
These rules apply to all board members, but are especially hazardous for certain classes of professionals. For instance, an attorney serving on a board may run into trouble if he or she also represents that organization; in fact, the American Bar Association’s “Model Rules of Professional Conduct” includes a section specifically outlining ethics guidelines for attorneys serving on nonprofit boards. Similarly, an investment manager serving on a nonprofit board may have been approached specifically for his or her financial expertise, but must be careful to preserve both the appearance and the reality of objectivity.
Beyond simply avoiding conflicts of interest, most board members are subject to a duty of care. This means they must participate in governance activities, provide appropriate oversight to both operations and policy creation, and exercise care when making decisions on the organization’s behalf. In short, board members should be prepared to offer their best efforts, both in the energy they put into the organization’s workings and the judgment they offer in planning its future.
When you serve on a nonprofit board, you should also understand the state laws and requirements regulating your position. While these vary from state to state, most regulations are based on some combination of the UTC (for trusts), the Model Nonprofit Corporation Act (for corporations), the Uniform Prudent Investor Act and the Uniform Prudent Management of Institutional Funds Act. For instance, most states have adopted some variant of the UPIA’s “prudent investor rule,” which requires board members to exercise the care that “a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances” and that fiduciaries “exercise reasonable care, skill and caution.” State attorneys general are responsible for representing and protecting charitable interests in the state, as well as enforcing the state’s laws pertaining to such organizations.
At the federal level, nonprofits are subject to scrutiny from the Internal Revenue Service. While the IRS mainly concerns itself with organizations’ tax-exempt status, in recent years the Service has demonstrated that it may occasionally consider a nonprofit’s governance as well. In some instances, directors and trustees may have a formalized duty of obedience to preserve the organization’s purpose and properly supervise its employees; board members who fail to do so may jeopardize the organization’s tax exemption.
In the past, legal liability mainly applied to the nonprofit itself, but after high-profile scandals such as William Aramony committing fraud during his tenure as the CEO of United Way or Jerry Sandusky involving his charity, The Second Mile, in his misdeeds, the individuals in charge of nonprofit organizations have faced increased scrutiny from prosecutors and regulators alike.
In this environment, board members are wise to take steps to protect themselves. This begins with good recordkeeping, including detailed minutes of meetings, and detailed policies and procedures in all areas that pose potential liability risks. A nonprofit board does not typically handle day-to-day operations, and detailed policies offer some protection in a case where something goes wrong.
This caution should also extend to ample insurance. Most nonprofits carry general liability, commercial property, and directors and officers insurance. Directors and officers insurance, especially, is designed to protect directors against claims resulting from errors in judgment or omission, much like malpractice insurance for medical professionals. Intentional and willful violations of the law are generally not covered. In general, corporations provide greater liability protection for board members than other sorts of nonprofits; regardless of what type of organization you work with, take the time to fully understand what coverage the nonprofit already has in place.
Some board members may want to consider obtaining or increasing personal umbrella coverage in addition to any insurance the nonprofit provides. While directors are generally not liable for informed decisions made in good faith that later turn out to be wrong, there are circumstances – such as one board member suing another – where greater coverage may be warranted. For more information on umbrella insurance, consult my article “How Much Liability Insurance Do You Need?”
It is worth mentioning that a nonprofit board seat, unlike a diamond, is not forever. Some board seats may come with built-in durations, while others may depend on the board member’s continued ability and inclination to meet his or her obligations. Moreover, if you are a board member and you come to feel that, despite your efforts, the organization does not live up to its duty of care – to those it serves, its donors or both – you can and should walk away.
Serving on a nonprofit board can be an enriching and rewarding experience for those willing and able to devote their time and energy to a worthy cause. By understanding the workload involved and the potential pitfalls before you begin, you will maximize the chances that both you and the organization will make the most of your involvement.