Interest in not-for-profits’ governance practices from lawmakers, watchdog groups and the general public has been growing in recent years. If your board hasn’t reviewed its roles and responsibilities recently, now is a good time.
3 primary responsibilities
Nonprofit board members — whether compensated or not — have a fiduciary duty to the organization. Some states have laws governing the responsibilities of nonprofit boards and other fiduciaries. But, in general, a fiduciary has three primary duties:
Board members who violate these duties may be held personally liable for any financial harm the organization suffers as a result.
Conflicts of interest
One of the most challenging components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when an organization does business with:
To avoid even the appearance of impropriety, your nonprofit should also treat a transaction as a conflict of interest if it involves a board member’s spouse or other family member, or an entity in which a spouse or family member has a financial interest.
The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.
The rules concerning the liability of fiduciaries are complex. But your board members can meet their obligations by acting in good faith, putting the organization’s best interests first, making informed decisions and disclosing any potential conflicts of interest. Contact us for more information.