Serving as a nonprofit Board member is so much more than giving advice, attending a few meetings, or writing a check—it also includes a number of liabilities and responsibilities. Yet many Board members have a limited understanding of what is expected of them or how they are accountable to an organization (and the law). This article outlines considerations for effective Board leadership and steps that nonprofits can take to prepare their Boards, including training as part of ongoing orientation.
The three legal duties: care, loyalty, and obedience
Board members must ensure good use of a nonprofit’s assets while simultaneously advancing its mission and ensuring the organization follows all bylaws and state and federal laws. Generally, this entails developing and following a conflict of interest policy, hiring and setting compensation for the organization’s CEO/Executive Director, and making decisions in the best interests of the nonprofit. It also includes preventing gross negligence (e.g., making necessary property repairs), following IRS regulations for nonprofits and social enterprises, and ensuring that programs are operated for tax-exempt purposes only.
Board members are expected to declare personal and professional conflicts of interest, remain aware of the organization’s activities and operations, and protect the organization’s mission through decision-making. While Board members have fiduciary obligations to a nonprofit, once a nonprofit is incorporated, they generally cannot be held personally accountable for the organization’s debt or liabilities unless foul play is involved.
One of the biggest areas of confusion and concern for Board members regards a nonprofit’s finances. The Board is responsible for creating a framework that guides sound financial policies and prevents error and fraud. These policies can include separation of duties for financial transactions, a code of ethics, and a whistleblower policy to protect individuals reporting violations of practices or laws. In addition, the Board must review and approve the organization’s annual budget. Finally, the Board is responsible for ensuring a nonprofit’s financial stability, which includes reviewing regular financial reports (monthly or quarterly), tax filing documents and audits, and conducting strategic financial planning.
Board members should be versed in basic financial management concepts and terminology. Some members may already be adept in these concepts and able to provide an introduction for others. In addition, consultants like The INS Group offer a variety of half- and full-day trainings and online webinars and workshops designed to acquaint Board members to orientation procedures, necessary skills and talents, members’ responsibilities, and overall structure. For organizations with limited resources, BoardSource and the National Council of Nonprofits are two excellent free online tools.