essays – Nonprofits

I Will Do My Duty

I have suggested that nonprofits get the boards they deserve.

What I mean by that is organizations set themselves up for good boards and not so good boards by how they establish their operations and management of boards.

Key to having a board that successfully supports the mission of a nonprofit is understanding what role the board should actually play for an organization.

Both for-profit and nonprofit board members act as trustees of the organization’s assets. They must exercise due diligence and oversight to ensure that the organization is well-managed and that its financial situation remains sound.

There are some key differences for nonprofits, though. As stewards of public trust, they must act for the good of the organization rather than for the benefit of themselves.

In general, nonprofit directors must supervise and govern the organization’s efforts in carrying out its mission. This does not mean that directors are required to manage the day-to-day activities.

But, directors must be active, informed, and engaged, as they are considered fiduciaries — a term used for individuals who are in a position involving trust.

In general, nonprofit boards have three fundamental areas of legal and fiduciary responsibility.

Duty of Care:

The duty of care requires that a nonprofit board member actively participates in governance and oversight of the organization’s activities.

It includes:

✔ Attending board and committee meetings

✔ Reviewing & understanding the organization’s financial documents.

✔ Helping to frame strategic plans (managing risks & opportunities)

✔ Advancing the organization’s mission and goals.

Duty of Loyalty:

Directors have an absolute duty of complete, undivided loyalty to the organization. The duty of loyalty requires that a nonprofit board member acts in the best interest of the organization at all times.

It includes:

✔ Identifying & disclosing potential conflicts of interest

✔ Avoiding personal benefit (Inurement)

✔ Making decisions based on the organization’s needs

NOTE: This applies to service on other nonprofit boards, too. That means if they serve other nonprofits, they still need to make decisions for your board based on its best interests.

Duty of Obedience:

The duty of obedience requires that a nonprofit board member works to ensure that the organization carries out its purpose and does not engage in unauthorized activities.

It includes:

✔ Compliance with laws and regulations

✔ Following the organization’s governing documents

✔ Acting in accordance with its mission

👉 Understanding board responsibilities is key to making sure nonprofits operate well.

I’ve seen a number of nonprofits that fall short by having issues with their boards, and much of the time it’s due to either the staff or the board members not understanding what the board role actually should be.

❓ Which responsibility do you think is the hardest for nonprofit boards to fulfill? Do they even know they have these responsibilities? If not, whose fault is that? ❓