September 13, 2019

Lawyers’ Service on Nonprofit Boards: Fiduciary Duties, Best Practices, and Ethical Issues

With many nonprofit organizations, there has been a tendency to select members of the board of directors on the basis of the prestige these directors will lend to the organization. Many directors respond by regarding the position as an “honorary” or “figurehead” type of position, rather than actively participating in the direction and oversight of the organization.

Also, a number of nonprofits have boards that are self- perpetuating, and thereby seem to become a law unto themselves. Directors serving on this type of a board may fall into the trap of thinking that they can do whatever they desire with the corporation even if such activities are not in the best interests of the organization. This is often true when the founder retains power and considers the organization his or her own.

Neither view is correct. Director must actively oversee the operation of the organization. By law, they are subject to certain fiduciary obligations. Depending on state law, the standard of care applied may be the “prudent person” standard, or it may be the higher fiduciary standards applicable to the trustee of a trust.

This analysis examines the questions that should be asked by directors in determining the scope of their responsibilities and how these responsibilities should be fulfilled. Although other questions may be relevant in specific situations, directors who follow the approach outlined below should be well on the way to fulfilling their legal commitments to the organization.