An individual must fully understand the duties and responsibilities that accompany being a director and/or an officer of a nonprofit organization. Directors and officers have fiduciary responsibilities to steer the organization towards a sustainable future, to adopt policies that are sound, ethical, legal, and to ensure the organization complies with the required laws and regulations. The directors and officers are responsible to ensure that the nonprofit has adequate resources to advance its mission.
Directors and officers are held to the standard that they will act in good faith, and will use the degree of diligence, care, and skill which a prudent person would use in their similar position and under similar circumstances. Directors and officers are expected to comply with the three (3) fundamental areas of legal and fiduciary responsibilities including the duty of care, duty of loyalty, and the duty of obedience.
Duty of Care
The directors and officers are required to participate in the governance and oversight of the organization’s activities. Directors and officers are required to specifically uphold the following duty of care requirements:
- To attend board and committee meetings regularly;
- To review and understand the financial documents and reports;
- To help develop a strategic plan that identifies and helps to manage risk;
- To take all necessary steps to advance the organization’s mission goals;
- To take reasonable steps to ensure the organization is compliant with all of the applicable laws and regulations;
- To read the minutes and reports from prior meetings including meetings that were missed;
- To approve the process for fundraising, professional fees, compensation, and construction contracts;
- To ensure the board minutes reflect any dissenting votes or actions that are taken;
- To read all of the literature on the organization’s programs;
- To make sure that monthly financial statements are available, that they are clear, and communicate the proper information;
- To ensure that all policies are written, safeguarded and are used to protect the organizations assets. The polices must be updated regularly;
- To ensure background checks are done on employees;
- To determine the amount and level of director and officer liability coverage;
- To encourage diversity within the board members; and
- To be involved in the selection and review of the Chief Executive Officer and any other key employees involved in the day to day operations of the organization.
Duty of Loyalty
The Duty of Loyalty requires officers and directors to act in the best interest of the organization at all times. Directors and officers need to ensure that all potential conflicts of interest are identified and disclosed prior to joining the board. New York State specifically requires that all nonprofits have a written conflict of interest policy. The policy must be resigned each and every year by the directors and officers. Specifically directors and officers must:
- Be able to identify circumstances that render conflicts of interest;
- Be involved in setting forth procedures to disclose conflicts of interest;
- Ensure the organization documents and resolves each conflict;
Duty of Obedience
The Duty of Obedience requires that directors and officers work to ensure that the organization complies with all applicable laws and regulation, ensure that the organization complies with its own policies and ensure that the organization is carrying out their mission. Directors and Officers have a duty to ensure that the organization is complying with the requirements to maintain their tax exempt status by filing the appropriate forms with the IRS and the Attorney General.
Before joining the board, make sure you complete your due diligence. You should research the expectations of board members, governance responsibilities, the time commitment, the regularity of board and committee meetings, fundraising obligations, the current board of directors, the leadership style of the board, the number of employees, and the organizations policies. In addition, you should verify that there are no pending regulatory investigations or any other pending investigations. You must review the organizations by-laws and verify that the organization has directors and officers liability insurance coverage.