Nonprofit Board Member? Here’s what you need to know.

 In Blog, Corporate, Taxation

Sherrard Roe Voigt & Harbison attorney Carolyn Schott was recently interviewed by Kayla Barrett, CEO of Organization Impact, a company that helps companies identify talent, skills and strategies to drive success and profitability.  Kayla interviewed Carolyn and produced a podcast about leaders serving on nonprofit boards.  Listen to the podcast here and read the summary below.

Nonprofits need guidance and oversight in every area – governance, compliance, legal, tax, human resources, strategy, fundraising and program operations.

Q:        Carolyn, you represent businesses—both for profit and nonprofit—in all kinds of corporate, tax and compliance matters.  Let’s talk more about nonprofits.  What is one of the biggest issues you see nonprofits face?

A:        Under nonprofit law, the board of directors is the managing body of the organization – a lot of people don’t realize that the board of directors of a nonprofit is just as important, or maybe more important than the board of directors of a for profit business.  The reason is that nonprofits don’t have shareholders to answer to – the board of directors of a nonprofit is steering the ship, taking care of the passengers and making sure that the destination is always at the forefront of everything the organization does  — the destination for a nonprofit is not revenue generation – it’s fulfilling the entity’s charitable mission or organizational purposes.

Q:        This is a great topic for our listeners.  Many of our leaders are often asked to serve as board members.

A:        Yes, business and community leaders are attractive board members.  Nonprofits need guidance and oversight in every area – governance, compliance, legal, tax, human resources, strategy, fundraising and program operations.

Q:        What questions should you consider if you are asked to serve on a board?

A:        It’s important to consider several things:  Why does the organization want you? Do you have the time that they need from you?  Something as simple as how often does the board meet and is that a time that you can get away from work to attend board meetings regularly?  What is the financial health of the organization and how much debt does it have?  What is the structure of the paid leadership of the organization and how long have those employees been in place?

Q:        What are the primary responsibilities for board members?

A:        The overarching message I give to board members is that they need to carry out two primary obligations: the duty of care and the duty of loyalty.  These two standards guide all actions a director takes.

A:   The duty of care is the call to the director to act in a reasonable and informed manner with respect to the board’s decisions and the organization’s management.  This means being informed about wblog_schott_organizationalimpact_pichat’s going on and making decisions in good faith that a prudent person in the same position would believe to be appropriate for the circumstances.  To be informed means attending meetings regularly, exercising independent judgment, asking questions, judging what is in the entity’s best interest, offering guidance.

A:   The duty of loyalty means that a director exercises authority as a board member always in the best interest of the organization, not to any personal advantage, for him or herself, or any other individual.  The duty of loyalty is one that always keeps the mission of the organization in the forefront.

Q:        Are there limits to the questions a board member can ask a non-profit?

A:        Absolutely not – it’s actually the opposite.  The board member needs to be informed.  That means that it is completely reasonable to ask for agendas, committee reports, financial information and status of fundraising.  Information about the organization should be provided to board members in advance of board meetings so there is plenty of time to review the material and be informed before being asked to make decisions pertinent to the organization’s operations and carrying out of its mission.

Q:        Is there a defined connection back to the leader’s place of business?

A:        Every organization – whether nonprofit or for profit – needs checks and balances.  A business leader serving on a nonprofit board is reminded of all the compliance and governance principles that are the mark of good business – the avoidance of conflicts of interest, respect for confidentiality, accurate record keeping, notice of procedure.  The list goes on.

Q:        As we wrap up our conversation, what are the major takeaways for leaders on this topic?

A:        Serving on a nonprofit board highlights the old adage “With great privilege comes great responsibility.”  A director is important and board service opens up many opportunities to meet other leaders and influencers in the community; the role is serious and important too – a director is responsible to make sure that a nonprofit is healthy, properly governed, and true to its nonprofit mission.

Carolyn Schott is a tax attorney concentrating in the area of business operations & governance.

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