When you join a board, you become a fiduciary for the organization. That’s great, but what does it really mean?
In a practical sense, being a fiduciary means you are taking responsibility for the health of the organization and its adherence to its mission.
There are three duties of each fiduciary.
The duty of care
This means that you are conscientiously doing your part as a board member. Your job is to make informed decisions.
o Attend board meetings.
o Review the materials.
- Ask questions.
- Vote your conscience.
- Participate in board orientation and strategic planning sessions.
- Do not share confidential information.
- Ensure the organization has the resources to support its mission.
- Engage in best practices.
The duty of loyalty
When participating as a board member, your first loyalty must be to the organization and its mission.
- Disclose conflicts of interest.
- Understand and support the mission of the organization.
- Contribute – money, time, connections and/or resources.
- Decide what is best for the organization – despite what is your personal preference.
- Support board decisions, even if you don’t concur.
The duty of obedience
Organizations must comply with the law. It is the job of board members to be sure this happens. Unless a board is all volunteer, the legal matters are generally handled by staff. The board, however, has ultimate responsibility to ensure that these duties are carried out.
- File IRS 990 tax returns – incorporated nonprofits must file a 990 return. (Those with income under $50,000 per year file a 990 N, which is a very simple online form. Those between $50,000 and 250,000 per year must file a 990 EZ, and those with income over $250,000 file a regular 990.)
- Keep in good standing with the state. While states differ in the types of forms and filing dates, they all want to keep track of their nonprofits requiring the submission of an annual form.
What can go wrong?
At NWG we do our best to ensure our client boards take their fiduciary responsibilities seriously. We have, however, had potential clients come to us with a variety of fiduciary lapses. Here are a few common problems.
The duty of care
- Board members who don’t come to board meetings and, if they do, they don’t read the materials.
- Board members who skipped the orientation and the retreat and then complain that they don’t know what’s going on.
- Lose track of the mission and make bad decisions.
- Opt-out of getting any directors’ and officers’ insurance.
- Confuse ensuring adequate resources with not spending money.
Duty of loyalty
- Failed to disclose conflict of interest.
- Voting to protect the interest of another organization.
- Breach of confidentiality.
- Failure to support board decisions.
Duty of obedience
The good news is that most organizations are relatively resilient. A committed board and good management can go a long way toward resolving these issues. Boards rarely go astray intentionally. Recovery can be swift and decisive. The best approach, however, is to simply be a good fiduciary.
- Failure to file 990 returns.
- Loss of good standing with the state.
- Breaking the law.
