People are typically drawn to serving on a nonprofit due to their passion for the mission. You certainly need this to be an engaged board member. But a board member’s duty to the organization goes beyond just bringing this passion, they have to be active and informed.

This article, the fourth in a series of articles on nonprofit governance, highlights one of the most important responsibilities of a board which is to comply with legal and ethical obligations. The nonprofit board and its members have three fundamental fiduciary duties: duty of care, duty of loyalty and duty of obedience.

Duty of care requires board members to carry-out their responsibilities with diligence and attention. This means that board members attend board meetings and actively participate, they seek information to make informed decisions, and ensure the organization is managed effectively and fulfilling its mission. A key component to fulfilling this duty is effective communication and a strong partnership between the CEO/Executive Director and the board.

The second is duty of loyalty, which requires board members operate in the best interest of the nonprofit and not use the organization or their position for personal gain. As required by the IRS, none of a nonprofit’s net earnings may inure to the benefit of any officer, director or key employee. The board needs to beware of potential conflicts of interest and ensure everyone is following the organization’s conflict of interest policy.

The third duty is duty of obedience. This requires board members to comply with local, state and federal laws and regulations as well as the organization’s governing documents. In Wyoming, all nonprofits must comply with the Wyoming Nonprofit Corporation Act, which you can find here under Title 17, Chapter 19. Governing documents include the organization’s articles of incorporation and bylaws. It is important that the board review their bylaws on an annual basis to ensure compliance and to consider amendments as needed.

Obviously a board cannot, and should not, have oversight of day to day operations. To assist in complying with these fiduciary duties, the board works with the CEO/Executive Director in policy formation. Policies provide a means for consistent decision making and is also how the board delegates authority. Some common policies include personnel, financial, fundraising, conflict of interest, code of ethics and operational policies specific to the program and services provided.

Fiduciaries are defined as “a person to whom property or power is entrusted for the benefit of another”. At a fundamental level, all board members must understand that they are entrusted with the mission and oversight of the organization and they are ultimately responsible for the actions and inactions of the organization.

Jody Shields
Align Vice President