Community service can be one of life’s most rewarding experiences. With any position of leadership – be it professional or community – comes a greater necessity for responsibility, accountability and integrity. As a board member with a community benefit organization, you are expected to act ethically and failing to do so can result in personal liabilities.
Simply put, you can be held legally responsible for the decisions made in the board room if they are not in the best interest of the organization. Therefore, it is important to understand these three basic duties of fiduciary responsibility for board members.
- The Duty of Care. When making decisions related to the nonprofit organization, board members need to remember to follow the rule of an ordinary prudent businessperson and make sure that they feel comfortable with the decisions that have been made by the organization. Decisions must be made in good faith and you must be reasonably comfortable that they are in the best interest of the organization. Making decisions without demonstrating the proper duty of care may result in personal liabilities for the board member.
- The Duty of Loyalty. There should be no conflicts of interest between the board member and the organization. If there are any business dealings between the board member and the organization, they must be disclosed to the full board. Business dealings are allowed, as long as they are fair to the nonprofit; however, they will be subject to much scrutiny. Self dealing or when a board member takes advantage of his or her position within the organization to enter into a transaction that benefits them more so than the nonprofit organization are not allowed and could subject the board member to significant personal liabilities.
- The Duty of Obedience. A board member must understand and act in accordance with the organization’s articles of incorporation – the bylaws – and the organization’s exempt purpose. In addition, board members are expected to follow any applicable state and federal laws and regulations. As a board member, take the time to ensure you have developed a working understanding of these rules to prevent potentially costly mistakes.
Whether you’re a new or seasoned board member, it’s always in your best interest – as well as the organization’s – to enter into the role with clear expectations to maximize your positive impact on the organization and your community.
Want to learn more about RKL’s services for Not-for-Profit organizations? Visit our Not-for-Profit Services page or contact me at (717) 843-3804 or dberman@rklcpa.com.
