Many employers encourage employees to seek community leadership positions so as to enhance the company’s public profile. Indeed, for some senior executives, this can be an employer expectation. But does this “doing good” present some employer risks?
It can. For example, a prominent employee’s service on a non-profit board can identify the employer with the mission of the non-profit, which may or may not suit the company’s business strategy. That is why many employers require a senior executive to obtain prior approval before accepting a non-profit board membership.
Also, a senior employee on a board of a non-profit that is a customer or client of the employer may run into conflicts of interest issues that could result in the employer losing the non-profit’s business. Or worse, the failure to make proper disclosure could expose the employer to the enforcement powers of the Attorney General or IRS, both of which keeps a close eye on conflict abuses. That is why a policy underscoring the importance of compliance with conflict disclosures when serving on non-profit boards may be an important protection for the employer.
And what if the non-profit becomes involved in a scandal or litigation? Can a senior executive membership on the non-profit’s board expose the employer to risks? Normally not, since the non-profit is a free-standing corporation. But one can conceive of scenarios (such as when a company itself “appoints” a board member; or in a company-sponsored foundation, or service as trustees of charitable trusts) in which there could be a potential legal complications or exposure. One important safeguard in Minnesota is the state law that provides immunity from any claims of negligence for non-profit directors who are uncompensated. That is why making sure there are no unusual ties between the employer, employee and the board is an important policy. There should also be a policy on any compensation earned for non-profit service.
Takeaway: There are good reasons for an employer to consider carefully an employee non-profit board service policy since good intentions do not count for everything. Legal counsel can be of material assistance in this regard.