A cornerstone of corporate law is that a member of a board of directors owes fiduciary duties to the corporation he or she serves. One of these fiduciary duties is the duty of loyalty.
The duty of loyalty requires board members to act in the interest of the corporation and not in the directors’ own interest or in the interest of another person or organization. In exercising their duty of loyalty, directors must act in a manner they believe is in the best interests of the nonprofit corporation without taking their personal interests into account. Directors should not use their corporate position to make a personal profit or gain or for other personal advantage.
Another important component of the duty of loyalty is a duty of confidentiality. The duty of confidentiality is essentially a duty not to speak about board matters to non-board members or share board materials without non-board members unless authorized to do so.
Similarly, the presence of staff and other guests at board meetings can chill Board member communications. Open dialogue is crucial to board deliberations. If Board members do not feel that their conversations are private or that the confidentiality of their discussions will be respected, they may feel pressure to avoid certain topic areas or to hedge their comments in a way that doesn’t serve the organization’s best interests.
To avoid breaches of the duty of confidentiality, Boards should consider adopting a confidentiality policy and having new directors and officers sign a commitment that they understand and will follow the policy. This by no means ensures compliance, but it can help to emphasize the importance of maintaining the confidentiality of board deliberations and ensures all directors and officers are aware of their duty to protect confidential Board information.
Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.