Fiduciary duties, as codified in state law, board bylaws, and common practice, are quite simply a set of rules to ensure that boards are run effectively, lawfully, and with the best interests of their mission in mind. Here, we’ll look beyond the legal jargon to distill the legal and ethical responsibilities of board members to oversee the management of and ensure accountability to your nonprofit organization.
Think back to the last time you had to (or at least wanted to) confront your boss about micromanaging your work. Now imagine having ten bosses instead of one. You’ve just stepped into the shoes of your nonprofit’s executive director. While we might all like to cast aside the possibility of an overreaching board member in our organizations, even the most well run nonprofit boards will deal with difficult board members at some point. Boards are full of, well, humans, who have a unique set of personal experiences, emotions, and motivations that influence on their job as a director. Sometimes, that can lead to conflict that is uncomfortable, unproductive, and even contrary to the organization’s best interests.
Delegating activities to committees and other qualified individuals can be helpful for nonprofit boards that are short on the time or expertise needed to carry out certain functions. For example, nonprofit boards typically delegate the day to day management of the organization to officers such as the C.E.O./Executive Director. Boards also delegate specific tasks to committees who can devote more time to particular matters.
Technology now offers businesses and boards many advantages, including the ability to meet via teleconference, video conference, or even conduct discussion and voting via electronic communications, such as email. But while email is commonplace among many organizations for its ease of use, especially for busy and geographically diverse volunteers sitting on nonprofit boards, there are several reasons to think twice before using email for your next important nonprofit board vote.
Nonprofits are increasingly subject to growing regulatory burdens and high expectations from donors, clients and the public. One way nonprofit […]
A nonprofit embezzlement incident is emotionally devastating, causing nonprofit leaders to question their own judgment and management ability. It erodes […]
The recent high-profile ouster of Southern Poverty Law Center CEO and Founder Morris Dees, and the resignation of Board Chair Richard Cohen, show how things can go awry when a board does not provide appropriate oversight.
The board collectively, and directors/trustees individually, owe fiduciary duties to the nonprofit organization they serve. In essence, exercising fiduciary duties means that board members have a duty to act with care and in the best interest of the organization and remain loyal to its mission, as opposed to acting in their own interest or the interest of the CEO/Executive Director they supervise.
A nonprofit’s board of directors is legally responsible for exercising the care an ordinarily prudent person in a like position would exercise in overseeing the organization’s operations. This includes the organization’s finances and legal compliance.
Rubber stamp boards tend to take a hands off approach to their duties and simply approve everything put in front of them by management without actively participating in deliberation and debate. This approach is dangerous for the nonprofit and the directors.
If I could point to the one decision my clients almost always end up regretting, it’s the decision to enter into a comprehensive management contract. Some management companies prey on nonprofits, taking control over the nonprofit’s operations and charging unreasonable fees for services of questionable value.
Foundations are required to expend approximately 5% of their assets for charitable purposes each year. The other 95% is invested to generate distributable income for future years. Historically, foundations have struggled with the idea of making riskier investments that further their charitable purposes, but do not qualify as a PRI because a significant purpose of the investment is the production of income or the appreciation of property.
Going into effect January 1, 2015, the Arizona benefit corporation statute will enable entrepreneurs to form a corporation unlike anything Arizona has seen before. Benefit corporations enable social entrepreneurs to create a corporate structure requiring the corporation to create a general public benefit. As with anything new, its details are untested and some confusion surrounds it. Below we dig into the statute and detail what you will and will not be able to do in 2015.
At the end of each year we like to look back at our most popular posts to evaluate what our readers are finding most interesting and useful on the blog.
The Washington Post has identified over 1,000 nonprofit organizations that have reported a “significant diversion” of assets. Its important to note that there are over 1,616,000 tax-exempt nonprofits in the U.S. today; thus, these filings represent less than 1% of tax-exempt nonprofits. It’s also interesting to note that a quick review of Arizona’s list includes only 21 organizations – most of which reported the diversions in a clear, transparent, and confidence inspiring manner.
It seems like a new story breaks every week about a charity being exploited by an insider. Charities lose an estimate of 7%-13% percent of their annual profits to theft, embezzlement, or fraud, to the tune of approximately 40 billion dollars a year.
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 which includes a duty of confidentiality.