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  • G. Gomez Law

To Be a Board Member, or Not to Be a Board Member?


People sit around a conference room table and are in active discussion; there are laptops and papers on the table and a white board in the background with papers tacked to it.

Board members are fiduciaries, stewards, and advocates for the nonprofits whose board they serve on. If you are considering joining a board, you should think about the duties that are required by directors, the potential liability you might face, and whether the organization’s mission/purpose is in line with what you believe and want to promote.


In general, the Board of Directors (“Board,” “Directors,” “Members”) oversee the organization’s activities, make decisions that align with the organization’s charitable purpose, and make sure the organization is financially viable to continue that work. This service could encompass anything from researching and voting on opening a new bank account that better serves the organization’s mission/purpose, to organizing fundraisers, to reviewing rental leases and employment contracts, to balancing and approving the budget for the next fiscal year.


Duties

Board Members have a legal, fiduciary duty[i] to the nonprofit once they are voted on to the board. A fiduciary duty is an obligation to act in a way that would best benefit the organization, having its best interest at the forefront in all decisions, and making those decisions with a heightened level of attention. This fiduciary duty manifests as the Duty of Loyalty and the Duty of Care.


The Duty of Loyalty means that board members must make decisions and act in the best interest of the organization. Most people who sign up to be board members want to do their best for the organization; typically we sign up for this type of service because we want to help the organization prosper and meet its obligations under its mission statement. This duty becomes an issue when board members engage in self-dealing[ii] or where there is a conflict of interest between what is good for the organization and what would be good for the board member.


The Duty of Care requires that board members do their due diligence, gather as much information as possible, and scrutinize/analyze that information to ensure it’s adequate before taking action. Basically, you want to make sure you are getting as much information as you need to make an informed decision, and that you speak up when you think the information at hand is inadequate.


Liability

Under California law, volunteer directors have no liability based upon any alleged failure to discharge their obligations as a director as long as they perform their duties in good faith and to the best of their ability.[iii] Directors are also protected from personal liability in actions for claims of negligence involving conduct within the scope of their duties which were performed in good faith IF the organization maintains general liability or Directors & Officers insurance (D&O insurance) that covers the damages claimed by a third party; specific insurance amounts depends on the annual budget.[iv] Note that these laws only protect specific conduct and they do not cover intentional, reckless, or grossly negligent actions, or those that were outside the scope of the board member’s duties, or actions not made in good faith. There is also no protection for a board member from actions brought by the Attorney General’s office or lawsuits brought against them for self-dealing (remember that from above?).


Nonprofits may offer D&O Insurance and/or Indemnification Insurance to its board. These insurance policies provide a payment source for litigation and cover most actions as long as they meet the above criteria for liability protection: actions were made within the scope of duties and made in good faith. Also, insurance does not cover self-dealing. (Seriously, just don’t do it.)


Are You a Good Fit?

In addition to the above duties and liabilities, you’ll also want to make sure you like the organization and that you are both a good fit for each other. The best way to do this is to research the organization: check out their website and past events, check out their social media posts and the kinds of issues they support, and ask as many questions as possible from the current board members. Here are some questions to ask and documents you should consider requesting:

  • Ask to see the Board Packet. This should include the Articles of Incorporation, Bylaws, mission statement and any other documents regarding board members’ duties, responsibilities, length of service, and amount of any personal contribution expectations.

  • Ask to see the last two sets of board meeting minutes. This will let you see how the board works, what kinds of issues they are currently facing or just recently faced and how they made their decision(s).

  • Does the organization carry D&O and/or Indemnification Insurance?

  • What types of people are they looking to add to the group? Are they looking for specific skills (e.g., accounting, legal, administrative) or connections to a certain community group?

  • Ask to see last year’s financials and this year’s approved budget. Is the organization meeting its current financial responsibilities or are there gaps that need to be addressed in this year’s fundraising/grant applications?


When determining if board service is right for you, take an inventory of what skills, connections and talents you bring to the table and whether the organization you are researching is an organization whose purpose you would like to further with them.


I’ve covered a lot of the parts that make board service seem like a homework assignment, but it can also: introduce you to new friends, colleagues, and industry change makers; give you a sense of fulfillment doing work that benefits your community; and let you flex your problem-solver muscles in industries that require a lot of involvement but may not have a lot of resources. Boards can make or break an organization, and you can make a difference with your involvement!


If you’ve researched and gone through a self-analysis and board service doesn’t seem like the right way to support the organization right now, there are many other ways to support them, including financial contributions, purchasing tickets to fundraisers or events, or even volunteering or donating supplies or auction items.

[i] Cal. Corp. Code § 309. [ii] Cal. Corp. Code § 5233. [iii] Cal. Corp. Code § 5231(c). [iv] Cal. Corp. Code § 5239.