DUTY OF CARE: Board Members and members of committees must perform their duties in a manner they reasonably believe to be in the best interests of the corporation using the same degree of care, skill, caution and diligence that a person of ordinary prudence would use under similar circumstances. Decision-makers are required to make reasonable inquiries when analyzing contracts, investments, business dealings, and other matters. An individual who is acting in conformance with this standard will:
• attend and participate in board meetings on a regular basis;
• attend and participate in committee meetings when the individual is a member of the committee;
• diligently read, review, and inquire about material that affects the corporation;
• keep abreast of the affairs and finances of the corporation; and
• use independent judgment when analyzing matters that affect the corporation.
Decision-makers may rely on information provided by their employees, committees, attorneys, public accountants and qualified professionals as long as the decision-maker reasonably believes that the information provided is reliable. Decision-makers must use their own independent judgment when evaluating information. Individuals who fail to meet the prescribed standard may be personally liable to the corporation if their actions cause financial harm. Board members, trustees and senior management have a fiduciary responsibility when handling finances and investments. That simply means, they must exercise the degree of care, caution and diligence that prudent persons would exercise in handling their own personal investments and finances. Individuals who have or claim to have special knowledge or skills in the area of investment will be held to a higher standard. Fiduciaries who carelessly or negligently invest funds may be personally liable for any losses sustained.
DUTY OF LOYALTY: Board members must always perform their duties in good faith with the best interests of the organization in mind. This means that they must not seek to derive private gain from business transactions that involve the nonprofit corporation or advance their own interests at the expense of the corporation. Acts of self-dealing constitute a breach of fiduciary duty which may result in personal liability to the nonprofit organization. Board members, trustees, and management should avoid conflicts of interest and even the appearance of impropriety. Individuals who take advantage of corporate opportunities to make profits for themselves at the expense of the corporation may be liable for the profits they received at the organization’s expense.
CONFLICT OF INTEREST: Board members have a duty to avoid potential or apparent conflicts of interest. To avoid the appearance of impropriety, it is important for individuals to be open and honest with their fellow managers and board members at all times. It is particularly important for board members to disclose the following facts:
• whether they have a potential conflict of interest with respect to any transaction, business decision or other matter in which the organization is involved;
• whether they have a financial, business or personal interest in an entity with which the nonprofit organization is or will be doing business;
• whether individuals related to them have a financial, business or personal interest in an entity with which the nonprofit organization is or will be doing business; or
• whether they serve as a director, member or employee of either a competitor of the corporation or a corporation with which the nonprofit organization is or will be doing business. The board should proceed with caution when any of the above facts are present because there may be a conflict of interest. An individual who has a potential conflict with respect to a particular transaction should disclose it to fellow managers and board members and abstain from participating in the negotiations and decisions surrounding that transaction. To avoid the appearance of impropriety, the individual who has the conflict of interest should not be present in the room during any discussions that relate to the transaction.
COMPENSATION FOR BOARD MEMBERS AND SENIOR MANAGEMENT: The determination of whether or not to compensate individuals for their services is generally made by the board unless the bylaws provide otherwise. In the event that compensation is received, the amount must be reasonable based upon the value of the services rendered; it must not be excessive. Compensation includes all salaries, commissions, bonuses, pensions, benefits, gifts, living expenses and all other perquisites and items of value of any kind. The level of compensation that is to be paid to each individual should be determined independently by the board of directors or a committee vested with the authority to set compensation. Individual employees should not be involved in setting their own compensation. In determining whether compensation is reasonable, the salary ranges of similarly situated individuals in similar nonprofit organizations should be examined. A nonprofit organization may not compensate individuals who are not providing services to the organization. An organization’s status as a nonprofit entity may be threatened if its employees receive excessive compensation or if individuals receive compensation without rendering services.
RIGHTS OF BOARD MEMBERS
• Board members have the right to receive all information that is necessary and relevant to assist them in performing their duties.
• Board members have the right to call special meetings by submitting written requests and once requested, a meeting must be held within the 60 days following the organization’s receipt of the written request.
• Board members have the right to disagree with actions taken at meetings and may ask to have their disagreement noted in the minutes of the meeting at which the action was taken. Otherwise, they may submit a written dissent to the secretary of the corporation immediately following the meeting. However, board members may not dissent if they voted in favor of the action that was taken. It is important to note that board members who fail to note their dissent either in writing or in the minutes will be assumed to have assented to the board’s action.
RIGHTS OF GENERAL MEMBERS
• The rights of general members of the nonprofit organization are governed by the organization’s bylaws