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Description: Fiduciary Duty: What's That? | Board Training | Conflicts of Interest | Confidentiality | Personal Liability
Volume 9 Issue 2 March 2015 The Legal Side of Board Service You ve agreed to serve on a nonprofit Board of Directors and it seems fairly straightforward about the expectations of your service. You have been asked to serve because you possess knowledge and skills that will help to advance the mission of the group. You re a volunteer who is willing to commit your time and energies to promoting a cause or organizational agenda. Did you know that along with that service comes a set of legal responsibilities that can impact both you personally and the organization that you serve You can be held responsible for failing to meet those obligations and responsibilities. According to the Association Law Handbook Third Edition by Jerald A. Jacobs Officers directors This Leadership Letter is dedicated to exploring the issue of the legal obligations of non-profit board members and we ll give you the basics so that you can make sure that your board is working in a professional and responsible way. We ll explore these three (3) major areas of legal responsibility for Board members as well as provide you with some information on the personal liability that you accept when you agree to serve. The three major areas are 1) Fiduciary Duty 2) Conflict of Interest 3) Confidentiality These areas apply not only to members of the governing board of an organization but also to chairpersons or other persons in positions of responsibility such as the chair of a task force or committee. These legal obligations of asso- The Leadership Letter and other volunteers who serve associations in positions of responsibility although they are not compelled to serve and are not compensated for their service nevertheless have certain legal obligations to the associations. They are not free to do anything they want because of the absence of compensation. Volunteers have a fiduciary duty including the duties of care and loyalty. Volunteers must avoid conflicts of interest. Volunteers are required to maintain the confidentiality of association information. SOUTHERN EARLY CHILDHOOD ASSOCIATION ciation volunteers may be enforced by the association itself by members of the association or even by nonmembers who are injured by the failure of association volunteers to honor their obligations. Let s get started Source Association Law Handbook 3rd Edition by Jerald A. Jacobs (1996) ASAE www.asae.org Inside this issue Fiduciary Duty What s That Board Training Conflicts of Interest Confidentiality Personal Liability 2 2 3 3 4 Leadership Commission Members Jeff Leffler MS Anita Dailey GA Marti Nicholson OK Susan Barnes VA Suzi Brodof WV Fiduciary Duty What s That That word keeps coming up. What exactly does it mean Fiduciary An individual corporation or association holding assets for another party often with the legal authority and duty to make decisions regarding financial matters on behalf of the other party. Source http www.investorwords.com 1932 fiduciary.html financial review to determine if the finances of the association have been properly managed. association before your best interests and that you will act on behalf of the association to promote its integrity and mission. This isn t the fun part of your board position but it s a critical one. Be sure to commit the time and effort to learning about and managing the business of the association. You ll find that a well managed and prudently operated association will ensure that the reason you joined the board (to make a difference) is the end result of your service. You ll find more information on the Legal Aspects of Associations and Non-profits on the SECA website. This training module includes an informational document and a PowerPoint presentation that can be used to train your Board. A second module The Board of Directors Structure Activities provides more information on these topics. Participating in an annual review to determine if the organization s goals have been met for the year and if the finances of the association have been directed toward the accomplishment of the goals and objectives set forth by the board. As a member of a governing board you re responsible for Monitoring monthly financial reports and assuring the integrity of the financial system within the association. Adopting an annual budget and adapting that budget as circumstances dictate. This adaptation requires keeping abreast of financial trends (revenue expenditures investments etc.). Reviewing an annual audit You re also responsible for exercising reasonable care in the performance of your duties which means exhibiting honesty and good faith. This is particularly important when you are conducting activities making comments or otherwise representing the association as a volunteer. What you say and do in that capacity reflects on the organization as a whole and it s your responsibility to accurately reflect the mission and goals of the association. It s also assumed that you will promote the best interests of the How Would We Know It s All in the Training Your board meets only a few times a year and it s challenging to conduct the business you need to complete and provide training at the same time. We know you need training that can be used when you have 5-10 minutes at the beginning or end of a meeting. These modules have an information Activities document a series of questions 5B Board of Directors Training and a PowerPoint that can be utiRecruitment lized for a brief training session. 6 Volunteers Employees 1 Association Non-profit Basics 7 Tax Compliance 2 Legal Aspects 8 Finances Fundraising 3 Articles of Incorporation 9 Political Activities On the SECA website you ll find a By-laws series of Training Modules that are 4 The Executive Director Click here to access the accompadesigned to support these efforts. nying PowerPoint presentations. 5A Board of Directors Structure Page 2 T H E L E A D E R S HI P L E T T E R Conflicts of Interest Avoiding Problems One of the major duties of a board member is loyalty to the organization. This means that the board member acts in the best interests of the organization rather than realizing personal gain from actions taken. Conflicts of interest can arise in many different ways. Many of our associations find this to be a particular challenge because of limited resources and professional interests that coincide with association business. For example conflicts of interest can arise when A board member is asked to Perhaps the board member serves in a training consultant role for that vendor. In this case the relationship should be divulged prior to any discussion or action. The association is considering est be reported on the audit and any compensation paid to the individual disclosed to the entire board.) Actions undertaken by a board vote on a vendor contract and the member has some type of professional relationship to the vendor that would predispose them to vote a certain way. hiring a spouse or relative of a board member to perform certain administrative duties for the association. In this case the board member should recuse themselves from the vote. Hiring someone in this capacity can be done successfully by a board if the related board member announces the conflict of interest and removes him herself from the initial vote and any review evaluation of that person s performance. (NOTE Audits re- member result in personal gain such as purchases from a company owned by the board member. The minimum requirement of board service in this instance is disclosure of the conflict of interest. More serious conflicts of interest must be reviewed by the board and could ultimately lead to resignation by the affected board member. Remember The key is to ensure the integrity of the association and transparency in all its business decisions and actions. quire that this conflict of inter- Who Told You That CONFIDENTIALITY We ve all known board members who didn t take this seriously. They either the volunteer completes board service. Didn t understand that certain things should remain confidential until the board took action or They disagreed with the board s action and chose to put the issue out for public review. Either action can have serious negative consequences and the volunteer does not have the right to overrule the board s decision to maintain confidentiality. Additionally the responsibility to maintain confidentiality does not end when VOLUME 9 ISSUE 2 in many instances and members have the right to request inforAssociations can maintain confidenti- mation. Minutes of board meetality in certain instances. Examples ings the 990 tax form and audits should all be available to any include member of the association and Opinions or information provided cannot be deemed confidential. by legal counsel. However discussions that occur Proprietary information such as within the board on sensitive ismembers contact information un- sues may be deemed confidential less the member allows it to be and members are expected to released. maintain that confidentiality. Executive sessions in which per- Your role is to support the association in conducting business in an sonnel evaluations and reviews ethical and legal manner. Use are conducted. your best judgment on when and Because our associations are nonhow to share the association s profits we are subject to disclosure business. PAGE 3 Resources to Help You Navigate the Legalities Association Law Handbook (5th Edition) by Jerald A. Jacobs (2012) American Society of Association Executives (ASAE) SOUTHERN EARLY C H I L D H O OD A S S O C I A T I O N www.asae.org ISBN 978-0-88034-349-7 1123 S. University Suite 255 Little Rock AR 72204 1-800-305-SECA (7322) Fax 501-227-5297 Email info southernearlychildhood.org Legal Responsibilities of Non-profit Boards (2nd Edition) by Bruce R. Hopkins (2008) Board Source www.boardsource.org. Available in both print and as a PDF. Article Legal Duties of the Non-profit Board www.grantspace.org (includes a list of resources & websites) Promoting Quality Care and Education for Young Children and Their Families SECA is a Voice for Southern Children This newsletter is written and produced by Glenda Bean Executive Director. www.southernearlychildhood.org Your Personal Liability You ve agreed to serve in a Board role within your association and are that dedicated committed volunteer. Did you have any idea that your service on the Board can potentially subject you to personal liability claims For most of us this isn t something we consider when making a decision to serve. However it is something that your Board needs to consider particularly if you have staff and financial resources that you are managing. We ve already discussed the issues of fiduciary duty conflicts of interest and confidentiality. These are the areas which are most likely to subject you to personal liability as a member of the Board. For example have been mismanaged (or in extreme cases embezzled) and the Board has remained oblivious. There is the potential for personal liability in this case particularly if funds received by the association were designated for certain purposes and have been utilized inappropriately. (These might be grant funds that weren t spent on the authorized purposes in the grant agreement.) Conflicts of interest have occurred within hiring decisions without full disclosure and the Board has allowed the hires to be maintained. minimized The best way is to act in good faith using ordinary diligence and care. Additionally consider these strategies. Purchase E & O (Errors and Omission) insurance that covers the liability of your Board. This is standard practice for professionals and associations. Make sure that you are receiving and monitoring monthly financials and take time to review any audits or financial reviews. Be an engaged board member. Don t be afraid to ask questions. All activities within the association and the office should be transparent and open to review. It comes to light that funds So how would you ensure that your personal liability is