by Guest Blogger Laura Solomon, Esq.
This Post-Hershey, Post-Penn State world is enough to make a thinking person nervous about serving on a nonprofit Board. And, if you read the newspaper reports about the abuses in the charitable sector and the attention paid by regulators in Harrisburg and in Washington, you might be overwhelmed by the myriad of laws and penalties that apply to organizations that are supposed to be doing charitable things.
So, what’s a Director or Officer to do? First…….relax. The law hasn’t changed. Regulators are just paying more attention to it. Second, get a grip……on fiduciary duties, with the below cheat sheet, and third, use common sense.
Three Fiduciary Duties
There are three principal fiduciary duties: care, loyalty, and obedience. They’re obvious and make good, common sense.
First, use the care that an ordinary, reasonable person would. You don’t need to be or become all things to a charity, but you need to use the skills that you have. You can also rely on experts and their advice – so choose good, experienced professionals, and rely on their expert advice. Second, act and be loyal to the mission of the organization over your own personal interests. Your organization probably has a Conflict of Interest Policy (and if it doesn’t, it should!) that requires that you disclose and vet the Board conflicts of interest annually. The duty of loyalty is the reason for that policy. Third, govern the organization in a way that is “obedient” or consistent with the organization’s mission and the law.
The Common Sense Part
Fiduciary duties aren’t just legal theories. They are guiding principles that help you answer basic questions, and they are important touchstones to refer back to in times of crisis.
For example, Directors often ask me if they should review their organization’s Form 990. Well, just as you (I hope!) review your own personal tax returns, the duty of care would dictate that you should also review the Form 990 before it’s filed. In fact, the Governance, Management, and Disclosure Section of the Form 990 (Part VI, B. 11a-b) specifically asks whether Directors received the 990 before it was filed.
Unfortunately, Directors sometimes forget to return to these core concepts in times of crisis, when when they matter the most. Imagine you discover that your organization’s CFO stole money from the organization. What should you do? Well, if you think about your duties of care, loyalty, and obedience as a reasonable person would, it becomes clearer. Take care and report it to the insurer, and investigate to determine exactly what happened (e.g. by hiring an independent accountant). Be loyal to the organization by taking reasonable steps to safeguard the organization’s assets (e.g. financial controls) so it won’t happen again. And, exercise your duty of obedience by disclosing it on the Form 990 and reporting the situation and steps taken in response to the police and the Attorney General’s office.
And lastly – thank you. The charitable sector is better because of your valuable contribution of time and wisdom.
Laura is the founder of Laura Solomon, Esq. & Associates, a law firm devoted to the representation of nonprofit, charitable, and other tax-exempt organizations. Learn more about Laura at http://www.laurasolomonesq.com/.