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Nonprofit Directors’ Legal Duties and Responsibilities (Part 1)

You’ve been asked by a close friend to join her nonprofit board.

You have high respect for your friend. You believe in her mission and are inclined to say “Yes”.

But what should you know before you accept?

What questions should you be asking? What documents should you review?

In legal language, what due diligence should precede your commitment? What duties and responsibilities will you be stepping into?

Treat your time and reputation with at least as much care as you do your checkbook. Commitment to a well-functioning nonprofit board will require significant investments of all three.

Here are questions to ask before proceeding:

  • What are the nonprofit’s vision, its values, and its mission?

These should in writing, clearly and succinctly stated, and you should be able to embrace all three easily and earnestly.

  • What are the criteria for selecting board members, and who are the other board members?

The composition, qualifications, and commitment of the board are some of the key factors in the organization’s success. Knowing and being comfortable with the community you will join will contribute to your engagement and the board’s effectiveness.

  • How often does the board meet?

The boards of a large organization may meet 3 or 4 times a year; and generally, at least twice a year to meet best practices for an active board. Large organizations often have an executive committee that meets more frequently between board meetings. The boards of smaller nonprofits may meet monthly because they may be fulfilling some of the duties that, in a larger nonprofit, would be handled by the executive leadership team.

  • What are the term limits and how long has each current board member served?

Here you are looking for a balance between high turnover and “deadwood.” Term limits are not required, but nonprofit best practices tend to be moving toward setting term limits (for example terms of 3 years, with a limit of 2 to 4 terms.) You’re looking for a board that is active, engaged, representing a diversity of experience and background that are appropriate to the community being served, a good balance of experience, and fresh recruits.

  • Is there a Board Notebook?

A board notebook typically contains all the key documents that bring a new board member quickly up to speed and is a handy reference manual for all board members.

Typically a board notebook would include:

  1. Corporate and founding documents, including latest versions of the articles and bylaws (or equivalent documents)
  2. Vision, values, and mission
  3. Current strategic plan and outcome metrics
  4. Board member bios & contact info
  5. Board member job description
  6. Agendas and board minutes for at least the last 2 years of meetings
  7. A calendar of board and committee meetings and key organizational activities
  8. Current and prior year financials and budgets
  9. A description of the composition and function of each board committee
  10. Board governance and recruitment policies
  11. All other board policies and key organizational policies
  12. Key marketing material
  13. Most recent organizational financial audit
  14. Most recent organizational legal audit
  15. Most recent IRS Form 990
  16. A status list of all current legal actions or inquiries not reported above.

Increasingly such important reference documents may be available in eFormat on a password-protected section of the nonprofit’s website. If these are not offered or available in hard or soft copy, you should ask for this basic entity profile information.

  • Is there board training?

The commitment to train new board members is often a good barometer to the clear understanding of the important scope and limitations of board authority and the health of the nonprofit.

Discovering the answers to the questions covered above provides the specific factual context for understanding duties you would step into as a new director. But two equally important elements of helping to steer a nonprofit organization are the duties of care and loyalty.

In next week’s Alert, we’ll look carefully at those two crucial areas.