Duties of Board Members

Traditional Duties of Board Members – the Three Ds

The duties of the board of directors of a nonprofit organization can be encapsulated in the three Ds: Duty of Care, Duty of Loyalty, and Duty of Obedience. Defined by case law, these are legal standards against which all actions taken by directors are held. They are collective duties adhering to the entire board and require the active participation of all board members. Accountability can be demonstrated by showing the effective discharge of these duties.

Duty of Care: The Duty of Care requires that directors of a nonprofit organization be reasonably informed about the organization’s activities, participate in decisions, and do so in good faith and with the care of an ordinarily prudent person in similar circumstances. In short, the Duty of Care requires the board — and individual board members — to pay attention to the organization’s activities and operations. The Duty of Care is carried out by the following acts:

  • Attendance at meetings of the board and appropriate committees
  • Advance preparation for board meetings, such as reviewing reports and the agenda prior to meetings
  • Obtaining information, before voting, to make good decisions
  • Use of independent judgment
  • Periodic examination of the credentials and performance of those who serve the organization
  • Frequent review of the organization’s finances and financial policies
  • Compliance with filing requirements, particularly annual information returns

Duty of Loyalty: The Duty of Loyalty requires board members to exercise their power in the interest of the organization and not in their own interest or the interest of another entity, particularly one in which they have a formal relationship. When acting on behalf of the organization, board members must put the interests of the organization before their personal and professional interests. In practice, the Duty of Loyalty is carried out by the following acts:

  • Disclosure of any conflicts of interest
  • Adherence to the organization’s conflict of interest policy
  • Avoidance of the use of corporate opportunities for the individual’s personal gain or benefit
  • Nondisclosure of confidential information about the organization

While conflicts of interest are not inherently illegal — in fact, they are quite common because board members are often affiliated with many different entities in their communities — how the board handles them is important. Conflict of interest policies can help protect the organization and board members by establishing a process for disclosure and voting when situations arise in which board members may potentially derive personal or professional benefit from the organization’s activities.

Duty of Obedience: The Duty of Obedience requires that directors of a nonprofit organization comply with applicable federal, state, and local laws, adhere to the organization’s by-laws, and remain the guardians of the mission. The Duty of Obedience is carried out by the following acts:

  • Compliance with all regulatory and reporting requirements, such as filing the annual information return (usually, IRS Form 990) and paying employment taxes
  • Examination of all documents governing the organization and its operation, such as the by-laws
  • Making decisions that fall within the scope of the organization’s mission and governing documents

Generally, if a director carries out his or her duties faithfully, and in adherence to the three Ds, the director will not be found personally liable. Unfortunately, however, there cannot be any guarantees in this regard. Remember, though, individual responsibility and the responsibility of the board, as a whole, overlap. The demarcation can often be indistinct and, in legal action under certain circumstances, an individual board member may end up paying the penalties.

Questions & Considerations

  • Does the board regularly have a quorum at board meetings?
  • What do the organization’s by-laws say about missing meetings?
  • Do board members regularly receive and read information in advance of board meetings?
  • Can every board member recite the organization’s mission statement without any reminders?
  • Has every board member visited the organization’s office and been introduced to the staff?
  • If the organization has a website, does every board member know what is posted there and periodically visit the site?