In the majority of nonprofit organizations, Board members are unpaid volunteers. They are often selected to serve because of their professional skills and prominence in the community. While these traits make them attractive Board members, a resulting challenge is often that their available time is limited. Since Board members have fiduciary obligations to the organization that take precedence over other concerns, it can be challenging for them to find time to contribute to market research, strategic initiatives, and other time-intensive projects. One solution that some nonprofit organizations have found is creating Board committees for these projects and staffing them with volunteers who are non-board members. While there are certainly some benefits to this method, there are some important considerations that nonprofit leaders should keep in mind before taking this step.
Confirm That State Law Permits Non-Board Members to Serve on Board Committees
As an Arizona-based law firm, many of our nonprofit organization clients are domiciled in Arizona. We have discussed why Arizona is a great place for nonprofit corporations to make their home, and this is another example of Arizona’s nonprofit-friendly statutes. Arizona statutes provide for the establishment of committees for nonprofit corporations and state that committees made up exclusively of Board members are permitted to exercise the authority of the Board when the Board formally delegates their authority to the committee (note that the statute identifies five specific governance action items that cannot be delegated to a committee: authorizing distributions, recommending action to members, filling vacancies on the Board of Directors, adopting/amending/repealing bylaws and setting compensation for members of the Board of Directors).
Arizona law does not discuss the establishment of committees that are not permitted to exercise the authority of the Board of Directors. As the law is silent, it is likely that these types of committees are permitted and they are in fact commonly used by Arizona nonprofit organizations. Such committees are commonly referred to as “advisory committees.”
The laws governing nonprofit organizations in states other than Arizona may be more restrictive and nonprofit leaders are encouraged to review the applicable law for their domicile state prior to deciding to establish an advisory committee staffed with non-Board member volunteers.
Advantages of Staffing Advisory Committees with Non-Board Member Volunteers
In addition to the benefit of making up for gaps in Board members availability as mentioned above, there are several other advantages of staffing Board committees with non-Board member volunteers.
Increase the technical knowledge base of the Board
By bringing in non-Board members to serve on certain advisory committees, the Board can increase its knowledge base without increasing its membership. There may be experts in certain areas who are not a good fit for Board membership but who can advise the Board in technical areas and help the Board make more informed decisions.
“Trial Runs” for potential new Board members
Committee membership can be an effective way to recruit, train and assess potential Board members in a more interactive manner than a formal application process. By participating in an advisory committee, someone with Board aspirations can demonstrate their strengths and level of commitment to the organization. Similarly, it can give prospective Board members insight into the inner workings of the organization to which they would not have access as an event-based volunteer to help them decide whether Board membership would be a good fit for them.
Increase representation of the organization’s constituents
The events of the last several years have emphasized the lack of diversity, equity and inclusion throughout American institutions, and nonprofit organizations are no exception. This is particularly evident in Board membership, which rarely reflects the race, age, gender or socioeconomic status of the constituents that the organization serves. While it’s crucial to strive to improve the diversity of Board membership, one initial step that may be easier to implement is inviting community members to participate in Board advisory committees. The best solutions to challenges in a community can usually be found among members of the community itself. An important consideration in inviting community members to participate in Board advisory committees is to only invite them when the Board is truly ready and open to hearing and implementing their feedback. If the Board’s collective mentality remains fixed and focused on how things have “always been done,” inviting under-represented community members to participate in Board advisory committees can feel like tokenism or “checking the box” in an attempt to appear more diverse. These invitations should only be extended after the Board has made a genuine commitment to diversity, equity and inclusion and has acknowledged the need for organizational change.
Important Considerations in Staffing Non-Board Members on Advisory Committees
Just as there are benefits to asking non-Board members to participate in advisory committees, there are potential drawbacks that the Board should consider.
Potential Impact on Exercise of Fiduciary Duty of Care
Members of a board of directors are required to exercise a standard of care equivalent to that of an ordinarily prudent person in the performance of their duties. In the event that the Board of Directors relies on advice from outside the Board itself, whether from an expert or from a committee of the Board, the Directors are required to assess the strength of the advice and are ultimately responsible for how the advice is put to use and for the decisions that it affects. Under Arizona law, with respect to a committee appointed by the Board of Directors, a director that is not a member of that committee may only rely on the advice of that committee if the director “reasonably believes the committee merits confidence.” Even outside of Arizona, this is a good standard to follow (though directors should check the law in their organization’s state of domicile to confirm the required standard). Individual directors are ultimately responsible for oversight of the advice given and actions taken by non-Board member advisory committee members, and directors can be held liable for violations of the duty of care if this oversight is not conducted properly.
Possible Liability Not Covered by Insurance
Although, as discussed above, the Board members are ultimately responsible for the actions of non-Board member advisory committee members, it is possible that such advisory committee members could take action for the organization which could create liability, either for the organization, for the directors, or for the non-Board member advisory committee members themselves. The organization’s Director & Officer Liability insurance coverage may or may not cover liability created by non-Board member advisory committee members. Before non-Board members are allowed to participate on advisory committees, the organization should thoroughly review its insurance policies to determine whether any liability that could be created by their participation would be covered. Board members should also be sure to provide continuous oversight of the non-Board members and educate them on what actions they are permitted to take as part of the committee.
Board Participation Issues
Although non-Board members’ participation in advisory committees can help distribute the work and ease the burden on Board members, it can also mask potential problems with the participation level of Board members. If non-Board members take over a large amount of committee work and leave Board members with little to do, it is possible that Board members, whose participation is vital to the organization, may lose interest in the Board.
Loss of Control Over the Organization’s Brand
It is important to limit the scope of what non-Board member advisory committee members are permitted to do on behalf of the organization. While Board membership is generally thoroughly vetted and it is likely that any of the Board members would be satisfactory representatives of the organization to the community at large, it is possible that non-Board members who participate on advisory committees may not be scrutinized as closely, and thus their behavior may not be of a level that reflects as well on the organization. The Board members serving on committees with non-Board members should supervise the activities of the non-Board members to ensure that they do not have the opportunity to represent the organization in a negative light.
Advisory committees with non-Board member participants can be a valuable tool in helping a nonprofit organization achieve its mission so long as the committees are structured correctly and the Board remains thoughtful and vigilant in its oversight.
Jen Ward is an attorney with Caritas Law Group, P.C. Jen advises nonprofit and socially responsible businesses on employment, corporate, and tax matters. Jen is licensed to practice in Arizona. Jen advises clients on federal employment and tax matters nationwide. To schedule a consultation with Jen, call 602-456-0071 or email us through our contact form.