As a new board member, you are energized and excited to give back to your community by positively contributing to an organization that aligns with your values. Your job starts on day one as you’re entrusted as a fiduciary with duties of care, loyalty, and obedience to the organization you serve. And it doesn’t stop there, here are four other areas you should be aware of to maximize your positive impact.
Time and Expertise
A board should be well-balanced in terms of its expertise, covering areas including legal, accounting, investment, and philanthropy. It may be helpful for prospective board members to learn what the composition of the existing board looks like and what training might be provided to new members. It’s also important to understand what sort of time commitment is required. Will there be responsibilities for fundraising? Is personal giving expected and how much? Also, as a board member, know that you are not expected to be an expert in everything.
Action Item: If expertise among a board is lacking in certain areas, it’s your duty to prudently select, monitor, and evaluate third party experts to assist you. Few boards have the expertise that investment advisors, attorneys, or accountants provide, which is why boards members must be selective in choosing and monitoring these professionals.
As a board member and fiduciary, know that you will be exposed to personal liability for any breach of conduct. Co-fiduciary liability is the concept that you may also be held liable for the acts of other fiduciaries on your board. Many organizations and states have provisions for indemnification, or protection, from liability, especially for volunteers.
Action Item: It’s important to be familiar with what’s applicable to your organization but know also that these protections almost never apply to deliberate acts of willful misconduct.
Conflict of Interest
Be sure to carefully consider any potential conflicts of interest. Some conflicts such as financial self-dealing are easy enough to identify – and hopefully avoid. Others are much more of a gray area. For example, serving on multiple boards, sharing loyalties with your time and fundraising efforts, or being a member of the constituency that your organization seeks to serve. It may be impossible to completely avoid all conflicts, so they should be managed and disclosed as best as possible.
Action Item: An organization’s conflict of interest policy is the first place to start to become familiar with policies and processes to find out what’s required in terms of disclosure and settlement of conflicts.
The main laws affecting non-profits and foundations are the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), state-by-state corporate governance laws, and regulations from the Internal Revenue Service. UPMIFA is a model law that’s adopted on a state specific basis. It covers a broad array of items regarding the management of donor restricted endowments, but is primarily focused on provisions for investments, withdrawals, and modifying donor restrictions.
Non-profit corporate governance laws have only been adopted in some states (New York’s Non-Profit Revitalization Act is one example) and generally regulate the formational, organizational, and policy requirements with which non-profits must comply. Definitions, board size/composition, and fiduciary duties are also covered.
And lastly, IRS regulations specify a whole host of items for maintaining the tax-exempt status of an organization. There are filing requirements, provisions on excise taxes, compensation standards, and restrictions on activities. Taken together, these laws create a complicated regulatory framework.
Action Item: New board members should, at a minimum, be familiar with their main requirements and know where to go for more information and advice.
At the end of the day, as a board member you are contributing to a deserving cause that is near and dear to your heart. Awareness of these areas can help you with a smooth transition into your new role, and ultimately help you better serve your organization.
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The information in this paper is not intended as legal or tax advice. Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.