Many individuals asked to join a board of trustees or board of directors of a nonprofit organization are prominent members of the community whose experience, community relationships and, often, financial support are sought by that organization. These individuals are generally honored to have been chosen and, at times, even view this position as somewhat "honorary" and not involving any significant commitment of time or heavy lifting in terms of responsibilities.
However, trustees or directors of any nonprofit institution are, in fact, under applicable law, "fiduciaries" of that organization, with fiduciary responsibilities to be satisfied by each individual trustee or director, not unlike the fiduciary duties of directors of publicly held corporations.
Trustees and directors of nonprofit organizations need to be aware they have three basic fiduciary duties that must be satisfied in their role and capacity as trustees or directors: the duty of care, the duty of loyalty and the duty of good faith.
Duty of Care
The duty of care requires each trustee or director to obtain and consider all significant and available information related to the matter being considered by the board and to take adequate time to review that information in connection with a board decision on a matter. The same holds true for each member of a committee of a board that is considering a particular matter or making a particular decision.
In short, trustees and directors must act on an informed basis, be diligent in obtaining and reviewing relevant information, act in good faith, and act in the best interests of the organization and all of its constituents.
Trustees and directors can rely on a variety of sources in informing themselves, including information provided by the organization's management or by outside financial advisers or legal counsel. Such reliance, however, cannot be "blind."
In order to meet his or her fiduciary duty, each trustee or director must at all times remain actively involved and actively participate in the consideration of the matter to be acted on and retain the authority and willingness to say "no" if the circumstances require.
Duty of Loyalty
The duty of loyalty requires that each trustee or director place the interest of the organization and its constituents above any personal interest.
If a trustee or director has a personal interest in any transaction or other matter involving the nonprofit organization, the organization and its board, as well as the individual trustee or director, need to adhere to and satisfy clear conflict-of-interest policies and guidelines, which generally involve both full disclosure and action by independent decision-makers so the integrity of the particular transaction or decision, and of the organization, are fully protected.
Duty of Good Faith
No court, either in the private company sector or with respect to nonprofit organizations, has precisely defined what constitutes a violation of a fiduciary duty to act in "good faith" by a trustee or director. It is clear, however, that a trustee or director could be found to have ignored his or her duty to act in good faith if the trustee or director consciously and intentionally disregards his or her responsibilities in the face of a known duty or consciously fails to monitor or oversee the particular matter subject to decision-making or oversight of the trustee or director -- adopting a "we don't care about the risk" attitude by reason of a failure to exercise proper oversight.
In observing each of these fiduciary duties, trustees and directors, first and foremost, need to ensure proper processes are followed by the board and by the particular nonprofit organization. Meetings need to be held and attended; significant or important decisions need to be fully vetted, considered and approved; finances and financial matters need to be vigorously overseen and tested; and information concerning all matters needs to be free-flowing and made available to trustees or directors.
Being a trustee or director is never simply an honorary role.