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Board Members Fiduciary Responsiblities - Made Simple!

By Ann Lehman, adapted from Board Members Rule: How to Be a Strategic Advocate for Your Nonprofit

Board members, often called trustees, are fiduciary guardians of their organization. As a board member you are entrusted with the responsibility to act for the good of the organization. The American Heritage dictionary defines fiduciary as follows: an agent, such as a director, who stands in a special relation of trust, confidence or responsibility in certain obligations to others. Board members have an obligation of trust to the public. You can generally fulfill this trust by following these basic precepts:

• Show Up: Attend meetings and read materials beforehand

• Study the Basics: Be familiar with the organization’s mission, programs and services, structure, and staffing; read your board manual, articles of incorporation, by-laws, IRS Form 990s, audits and evaluations

• Ask for Help: Ask questions or get training on what you don’t know

• Act Reasonably: Exercise sound judgment when making decisions, as you would do for your own affairs

• Put the Organization First: Be honest about conflicts and remember your decisions are not about you; they are about the organization

Three Fiduciary Requirements for a Board Member

There are three operating standards that a board member must meet in carrying out his or her responsibilities. These focus on the conduct and consideration given to handling the business matters of the nonprofit. As a reasonable person, you are expected to make prudent decisions in the best interest of the organization, even if these conflict with your business or personal concerns; see “The Three Fiduciary Duties” below.

The Three Fiduciary Duties

Duty of Care. The “duty of care” is the caution an ordinary and prudent person, in similar circumstances, would use to handle his or her own affairs. This means that a board member must exercise “reasonable care” when he or she makes a decision as a trustee of the organization. It also assumes board members will be informed about the matters that come before the board.

Duty of Loyalty. The board owes a “duty of loyalty” to represent and act in the organization’s best interests. As a board member, you must subordinate your personal interests to the welfare of the organization, which means that you should not compete with the organization or take advantage of privileged information for your own benefit. A board member should always be honest and above-board when a conflict of interest arises, and be excused from certain decisions if necessary. (See conflicts of interest below for more details on this issue.)

Duty of Obedience. As a director you must ensure that the organization complies with all state and federal regulatory requirements, such as registering with the state attorney general, filing all tax returns, paying all taxes and fees honestly, and being accurate in financial reporting. The “duty of obedience” also requires that board members be faithful to the organization’s mission/purpose. For example, the public has the right to assume that donated funds will be used to fulfill the organization’s mission (the public benefit articulated when the organization was formed). When board members are not scrupulous, they put the organization as well as themselves at risk.

Copyright 2015 Zimmerman Lehman.

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