Many executives offer their expertise
to the community by serving on the
boards of nonprofit organizations.
While CEOs might be skilled and experienced with board interface from their
responsibilities as chief executives, a different level of expertise is required when the
roles are reversed and CEOs find themselves sitting in a board member’s chair.
“It’s important that board members
understand their respective roles,” says
Greg Moser, partner with Procopio, Cory,
Hargreaves & Savitch LLP. “It isn’t unusual
to find that board members, particularly in
nonprofit organizations, have no previous
board experience, so they need to be
trained and educated to make sure they
know how to support management and
execute their roles as policymakers and
don’t become micromanagers. In addition,
board members have fiduciary responsibilities and the potential for personal liability,
so it’s vital to understand both your role
and your responsibilities when serving as a
board member.”
Smart Business spoke with Moser about
how nonprofit board members should support management and execute their roles
and responsibilities.
What constitutes a board member’s fiduciary
responsibilities?
The fiduciary duties of a nonprofit director are the duties of care, loyalty and financial oversight. Breaching any of those
duties can subject the nonprofit board
member, even an unpaid volunteer, to personal financial liability. Most commonly, an
ex-employee or third party with a claim
against the corporation will name directors
in their suits. Directors will generally have
immunity and be entitled to indemnification from the corporation as well as
defense from their directors’ and officers’
liability insurer, unless they have breached
one of their duties.
While there are no shareholder suits,
oversight of nonprofits is provided by the
state attorney general and often the nonprofit’s parent organization. Additionally,
the nonprofit corporation can pursue individual board members who have violated
their fiduciary duties.
What are the board member’s primary roles
and responsibilities?
Board members are accountable for
selecting auditors, overseeing the compensation of the organization’s executives and
making strategic decisions, such as decisions to expand the organization either by
acquisition or by devoting time and
resources to a new service offering. In larger nonprofits, it’s the responsibility of the
board to establish a compensation committee as part of their fiduciary responsibilities.
The duty of loyalty includes both an obligation to keep proprietary information confidential and to avoid conflicts of interest.
Board members also play a key role in labor-management relations by setting the tone
and the philosophy for approaching
employee relations and how the organization will be positioned in the marketplace
relative to similar organizations, which has a
profound impact on employee turnover.
How can board members support the organization’s management team?
The board should help decide the strategic
direction of the organization, while the business plan should be crafted by the management team. By conducting a SWOT analysis,
which stands for strengths, weaknesses,
opportunities and threats, the board can
provide an outside view of the organization
and help management decide where to take
the organization in an effort to optimize its
strengths and minimize its weaknesses.
Besides having the benefit of knowing how
the organization is perceived externally,
board members are often the best source
for new board members, and having those
recommendations come from the board
reduces conflict of interest concerns for
management. Board members should hold
management accountable for the execution
of the plan, but they should not be involved
in the details.
How can board members get the requisite
training?
Initial training for new board members
should be conducted by management, who
will provide an orientation, a tour of the facility and a general overview of board duties as
well as the goals and history of the organization.
Retreats offer an ideal setting to conduct in-depth board member training and to work on
the strategic plan. High-functioning boards
will use an outside facilitator and take the
opportunity afforded by the retreat to build
relationships and to set expectations of one
another because regular board meetings generally aren’t conducive to this type of interface. Boards should use information from the
SWOT analysis to conduct crisis management and contingency planning, which might
be required to survive unanticipated changes,
such as a major cut in funding. The strength
of the board really shows through when they
are faced with a crisis and are called upon to
lead the organization through difficult times.
If the board has merely been rubber stamping things and going through the motions, it
won’t be effective under crisis conditions. If
the board members trust one another, understand their roles and can work together as a
team, they’ll be able to lead the organization
through any challenge.
GREG MOSER is a partner with Procopio, Cory, Hargreaves & Savitch LLP, advising a wide variety of nonprofit organizations, including hospitals, schools, and other charitable organizations and foundations. Reach him at (619) 515-3208 or [email protected].
