Having made a career for over three decades cleaning up the legal messes of nonprofits whose board members didn’t take even fifteen minutes to understand their rights and duties, I could not resist the invitation of NBGR Editor Mary Hiland to write about this topic.
So, here are fifteen minutes worth of shock treatment. I’ll assume that you’re serving on a nonprofit board, because, in my experience, nonprofit practitioners often do. Even if not, chances are you advise boards, or at least know someone who serves on one.
A word of warning: I’m not going to pull punches. Better send the kids out of the room.
Ready for a gut check? Let’s start with your role. You are a board member. Think about that. A board member! Do you feel the weight of that? The responsibility?
You should. In the eyes of the law, the assets of the organization are held in trust, and you are a trustee. Have you ever heard the term “board of trustees”? It’s not just another way of saying “board of directors.” It’s literally true. Board members are trustees, whether the board is called “board of directors,” “board of trustees,” or “board of aardvarks.”
Let me reiterate, because it’s a critical point. Even if your organization calls your board the “board of directors,” and refers to you as a “director,” you are in the eyes of the law a trustee, with all of obligations of a trustee of a trust. Now do you feel the weight of your responsibilities? If not, there’s something wrong with you. Resign now. Join the golf or gala committee.
As a trustee, you are a steward. You and those who take up space next to you at the board table are ultimately responsible for the management of the affairs of the organization. That means that if you are, literally or figuratively, taking dictation from the chief executive rather than exercising your own judgment, you don’t understand your role. Resign. Or, if most or all of the board members sitting next to you are taking dictation, resign.
I’m not kidding about resigning. If you do not fully understand and take seriously your legal responsibilities as a board member—a trustee of the trust—you have no business serving on a nonprofit board. And if the majority of other members don’t understand their responsibilities, bad things can and will happen—and you do not want to be there when they do.
Still on the board? Okay, let’s continue.
You and the other board members, though ultimately responsible for the governance of the organization, are not expected, under normal circumstances, to manage the day-to-day activities of the organization. If you’re on a board that dictates the day-to-day affairs to the chief executive, or, worse, simply bypasses the chief executive in managing daily activities, you are quite possibly on a board that is failing to understand anything at all about healthy governance. Yep, you guessed it: resign. (Note: I’m not talking about teeny tiny new nonprofits that don’t have sufficient resources even to hire a chief executive; I’m talking about organizations that can and do have chief executives but simply fail, out of ignorance or design, to allow the board to function correctly.)
Since you are a trustee, you have a duty to at least understand the charitable purpose of the trust—the charitable trust, actually—that you oversee. Okay then, what, exactly, do the articles of incorporation say about the purpose? If you can’t pretty much quote it from memory, you’d better get a copy and take a look. If this is too much trouble, you’re not fit to serve on the board. Resign.
Still there, on the board? Okay then. Now that you have a firm handle on the organization’s charitable purpose, another gut check: Is your organization operating for the charitable or public purpose for which it was created? Or is it essentially operating as somebody’s business? Some of the most troublesome cases I’ve handled have been de facto family businesses organized as exempt organizations. If you are on a board that’s dominated by family members, resign.
Still there, on the board? Okay, let’s keep going.
Do you know how much your chief executive and other senior management staff members are being paid in total compensation—salary, bonuses, and benefits? If not, find out. As a trustee, it is your job to be a full participant in setting the CEOs compensation. You must ensure that it is reasonable in the context of the demands on the person, and that it is comparable to other similarly situated executives. If you encounter ANY insurmountable resistance to obtaining this information, resign.
Your Rights as a Board Member
As a trustee, to do your job, you have certain rights. The chief among them is access to information you need in order to make informed judgments about the organization and its operations. You may reasonably rely on information provided by the organization staff, board committees, and advisers such as its lawyer, accountant, investment advisers, and so on.
You have the right to be able to contact senior management and to review the organization’s books and records. You also have the right to contact and discuss organizational affairs with the organization’s principal advisers, including its lawyers, accountants, and auditors. The board on which you serve has a right, at the nonprofit’s expense, to engage the services of outside advisers when needed.
If you find yourself encountering resistance in your requests for information along these lines, and your reasonable attempts to explain why you are seeking it don’t resolve the issue, you are being prevented from doing your job. Resign.
In Part 2, I will look at the other side of the coin: your duties as a board member.
And please forgive me for having to state the obvious, but neither I, the editors, the staff or volunteers, nor CharityChannel LLC are rendering legal advice in this article, and no attorney-client relationship being formed. I have written in generalities, and I will tell you that there are plenty of exceptions to some of what I’ve written as facts and circumstances vary widely. You should consult with an attorney competent in the law of tax-exempt organizations on any important questions of law as they pertain to you or the organization you serve.