GPSolo Magazine - July/August 2004

Get on the Board Lawyers and Nonprofits

By Benes Z. Aldana

One of the best things about being a lawyer is the opportunity to use our skills and knowledge to serve our community or organizations we care about. Aside from pro bono service, we find ourselves serving on the board of directors of our favorite nonprofit or community organizations. For me, it was serving as president of the board of my homeowners association. Along with the honor associated with being elected or appointed to serve on a board come the responsibilities and the potential pitfalls. However, with awareness of what you need to know and what is expected of you as a board member, your experience need not be overwhelming or fraught with problems.

Remind Others of Your Role at the Outset

As the only lawyer in the room, I am often asked for legal advice. The question asked is normally, “is this action legal for us to take?” or “will we be liable?” For most of us, the temptation to provide legal advice may be difficult to resist. I, myself, initially succumbed to such temptation. I did everything I could to learn about community association law. Although the exercise was beneficial, my advice is to resist the temptation. Remember, you are on the board as a member and not as legal counsel. At the outset, the other board members should be reminded that you are not there to provide legal advice. Most organizations have hired or pro bono counsel. They should be the ones to provide legal advice to the board. This does not mean, however, that you cannot use your legal training to identify potential issues and provide your general assessment of problems. After all, one of the strengths we bring to the table is our legal perspective.

Know Your Legal Duties

As the governing body of the organization, the board is charged with overseeing the mission and the financial health of the organization. Boards appraise how well the organization is fulfilling its mission and ensure that any assets it holds in trust are used properly. On a more basic level, the board is legally responsible for the actions of the organization.

The power and decision-making authority lie with the full board. As an individual board member, you have no power or authority apart from the board. Board members are required to act within their authority. They must perform their duties with due care, loyalty, and obedience—acting primarily for the organization’s benefit. These duties apply to everything that the board does. Board members must keep these duties in mind when making decisions or taking action for the organization. Breach of any of these duties could result in liability.

The standard of care to which nonprofit board members are held is similar to those of for-profit boards. However, a new board member should check state law regarding the duties and responsibilities of directorship specified under the law. Obviously, the best way to avoid liability is to perform your duties and make sure the rest of the board does as well, in accordance with the standard of conduct required of a director. In most cases, this is where “a lawyer on board” makes the difference in ensuring the board fulfills its duties and makes sound decisions in the best interests of the organization. Below are specific practical rules for board service.

Duty of care. Exercise reasonable care when making a decision for the organization. Take an active and informed role in decision making by reviewing written materials prior to meetings. Attend board meetings on a regular basis and be actively involved in those meetings. Ask questions about matters that are unclear. Make independent decisions based on information or recommendations provided by others, including committees, management, staff, or outside experts. Defer decisions if information to evaluate pros and cons is insufficient. Monitor the organization’s finances on a regular basis.

Duty of loyalty. Act with loyalty to the organization. Keep the best interests of the organization in mind at all times when making decisions on behalf of the organization. Never put personal priorities or opportunities ahead of the organization’s interests.

Duty of obedience. Be faithful to the organization’s mission. Your actions must be consistent with the organization’s mission statement, articles of incorporation, bylaws, and tax-exempt documentation. Your decisions must be guided by the organization’s central goals. Comply with all the applicable laws and regulations.

Before accepting an invitation to serve on a board, you should familiarize yourself with the mission statement, organizing documents, budget, and programs. Also, familiarize yourself with the basic laws and regulations affecting the organization (tax exemption, fund raising, employment, etc.).

Know Your Potential Liabilities

A nonprofit board member faces several kinds of liability. One is liability to the organization itself, to its members, and to the general public. Another is liability to third parties, such as a contractor who provides services to the organization. Board members are also subject to statutory liability. Another basis of liability action against a board member is the existence of a conflict of interest. For example, a board member may be liable when he or she receives an improper or undisclosed personal benefit as a result of the organization’s action. As a new board member, you should make sure that your organization is carrying directors’ and officers’ (D&O) liability insurance to cover board members from legal liability. Some states have adopted statutes that offer legal protection for nonprofit board members.

Make a Realistic Time Commitment

It is no secret that doing volunteer work such as board service not only enhances the overall image of lawyers, but also helps your practice in building goodwill, trust, and connections within your community. The time commitment for the most part is not substantial; however, it is important to keep it in mind as you weigh the conflicting demands on your time. Time constraints from your practice could deter- mine whether you are able to fulfill your obligations as a board member. On the other hand, time constraints could be a death knell to your practice if you spend too much time on your board duties. However, if you plan ahead, understand the time commitment required, and serve an organization you care about, service on a board could be meaningful and a boon to your practice.

Lieutenant Commander Benes Z. Aldana is a judge advocate in the U.S. Coast Guard currently assigned as a trial attorney in the U.S. Department of Justice in Washington, D.C.

 

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