What Every Prospective Nonprofit Board Member Needs to Know

Farella Braun + Martel LLP

You have been asked to serve on the board of a nonprofit organization. Should you accept? Prospective board members should carefully consider an invitation to join a board. Before accepting, a potential board member should understand the responsibilities and duties of board membership. In addition, it is important for a potential board member to conduct due diligence regarding the organization’s structure, programs, key staff positions and financial status.

Roles and responsibilities.
While the board is not typically involved in day-to-day activities of a nonprofit, it is charged with overseeing the organization and making key decisions, such as adding or removing board members, hiring and firing key officers and employees, engaging outside professionals and authorizing significant financial transactions, policy changes and new program initiatives.

In carrying out these management and decision-making functions, board members have important legal and fiduciary responsibilities that require a commitment of time, skill and resources.

First and foremost, a board member must attend meetings and read materials provided at, or in advance of, meetings. A board member must also be familiar with the organization he or she represents, including its mission, activities, organizational structure and key staff positions. In addition, a board member should have a basic working knowledge of the reporting obligations and primary tax laws and that affect the organization. You should ask yourself whether you have the time and inclination to meet these threshold requirements before accepting a board seat.

One key responsibility of the board is to ensure that there are adequate resources to carry out the organization’s work. Flowing from this, most nonprofit organizations expect their board members to actively participate in fundraising, including by making personal financial contributions that are generous in light of each board member’s personal circumstances.

Protection from liability.
Recent, publicized scandals remind us that nonprofits can be ripe for embezzlement and other financial improprieties. This may cause you to wonder whether board members may be subject to personal liability. The short answer is, in some cases, yes.

Board members can minimize their risk of personal liability through their own actions, for example, by making thoughtful and deliberate decisions, creating a “paper trail” to show due diligence, completely avoiding even the appearance of a conflict of interest and engaging legal counsel and other professionals as necessary.

Insurance can also offer protection. As a potential board member, you should ask not only about the existence and types of insurance (e.g., D&O, fraud, forgery), but also about the level of insurance. Coverage should be in amounts sufficient to encompass both defense costs and liability exposure. You might consider requesting a copy of the organization’s insurance policies to further analyze their extent, scope and any exclusions.

Look before you leap.
Here are some things to consider in determining whether you want to become a member of a particular organization’s board:

  • Is the organization registered and in good standing in all jurisdictions where it is operating?
  • Who are the current board members and what are their affiliations?
  • When, where and how often are board meetings held? How long do they last? What is a typical agenda?
  • Is there a formal orientation and manual for board members?
  • What are the standing committees and what do they do? How are committee members elected or appointed? Will you be expected or able to serve on a committee at some point?
  • Are there any conflicts of interest that you think you might have?

The organization should supply you with the following documentation pertaining to the operations of the nonprofit:

  • IRS 501(c)(3) Tax Exemption Determination Letter
  • Statement of Mission or Purpose
  • Bylaws, or other internal governance rules
  • Federal Information Returns (e.g., Form 990)
  • Most recent financial statement and annual report, if one exists
  • Minutes of the three or four most recent board meetings
  • Current, board-approved budget
  • Conflict of interest, whistleblower and document retention policies

If the organization resists providing these materials, or says it does not have them when it should, this is a warning sign and you should think carefully before joining the board.




DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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