What are the basic responsibilities of a board and the legal duties of board members?
The board is legally responsible for the operation of the nonprofit organization for which it serves. In fact, individual members can even be held personally liable for improper conduct if they breach their duties. So, pay careful attention to the law and board duties. Doing so will help you minimize risk and ensure your organization is the best it can be.
Standards of Conduct
Under the law, each board member must meet certain standards of conduct. These standards are typically described as duty of care, duty of loyalty and duty of obedience.
- Duty of Care
board member must exercise “reasonable care” when he or she makes a decision for the organization. In this case, “reasonable” is what a prudent person in a similar situation might do.
- Duty of Loyalty
board member must never use information gained through his or her position for personal gain. This means each member must always act in the best interests of the organization.
- Duty of Obedience
A board member must be faithful to the organization’s mission. This means he or she cannot act in a way that is inconsistent with the organization’s goals.
In addition to standards of conduct, as a governing body, the board has a responsibility to support management and staff, and ensure operations run smoothly and in accordance with the law.
Following, are 10 responsibilities of nonprofit boards:
- Establish mission and purpose.
- Select the executive director.
- Support and evaluate the executive director.
- Set policies and ensure effective planning.
- Monitor and strengthen programs and services.
- Ensure adequate financial resources.
- Protect assets and provide proper financial oversight.
- Build a competent board.
- Ensure legal and ethical integrity.
- Enhance the organization’s public standing.
Source: Ten Basic Responsibilities of Nonprofit Boards, Second Edition, by Richard T. Ingram (BoardSource 2009).
Laws and Guidelines Governing Boards
In 2002, the U.S. government passed the American Competitiveness and Corporate Accountability Act (a.k.a. the Sarbanes-Oxley Act), which regulates the financial controls of corporate boards.
The Act itself doesn’t apply to nonprofits, but there are a number of provisions you might want to adopt voluntarily, particularly as they relate to board oversight and committees, disclosure, document retention, whistleblower policies and audits. We’re not alone in this recommendation. In its publication, Compliance Guide for 501©(3) Public Charities, the Internal Revenue Service recommends that nonprofits consider whether such governance practices are necessary to ensure sound operations and compliance with tax law.
It’s also important to note that Sarbanes-Oxley may be relevant to your nonprofit in that it inspired a number of state laws that govern nonprofits, such as the California Nonprofit Integrity Act of 2004, which addresses registration of a charity, financial reporting, auditing and other areas relevant to a nonprofit’s finances and management. And remember, state laws vary, so it’s important that you become familiar with relevant legislation in your area of operations.