To serve on a board is a great honor, but it is more work than liberty. The law defines board members as fiduciaries—individuals who hold a position of trust and are legally obligated to look out for the best interests of the organization, its members, and the public.
Fiduciary responsibilities boil down to three primary duties:
1. The Duty of Care
The Duty of Care involves making decisions based on reasonable information. It is your obligation to "do your diligence." This includes:
- Actually attending meetings and participating. You cannot govern if you are not in the room.
- Being thoroughly acquainted with the documents that govern the organization, including monthly financial reports.
- Asking questions to get at information that is not always provided in staff-prepared materials. This is known as the Duty of Inquiry.
2. The Duty of Loyalty
Loyalty means caring about the organization more than yourself when there are conflicts. You must put the interest of the organization above your personal, professional, or financial interest.
- Corporate Opportunities: If you discover a business opportunity (such as a discounted land purchase or donation) in your capacity as a director, that opportunity belongs first to the corporation. You cannot divert it to your private business.
- Conflict of Interest: Never participate in an action or vote by the board in which you or your family members have a personal financial interest.
3. The Duty of Obedience
The Duty of Obedience requires directors to ensure the organization remains true to its stated charitable purpose, and complies with all applicable federal, state, and local laws. You cannot authorize the organization to engage in activities that violate its Articles of Incorporation or the Internal Revenue Code.
The Business Judgment Rule
Fortunately, the law does not expect directors to be infallible. Under the Business Judgment Rule, you will not be held personally liable for a decision that turns out poorly, provided you acted:
- In good faith.
- With the care of an ordinarily prudent person.
- After making reasonable inquiry under the circumstances.
Crucially, you are legally permitted to rely on others whom you reasonably believe to be reliable and competent—including executive officers, independent CPA auditors, legal counsel, and committees of the board.