Governance Articles

Fiduciary Responsibilities Of Nonprofit Directors

The fiduciary responsibilities (legal duties) of association directors are threefold:

1. The duty of care.

2. The duty of loyalty.

3. The duty of obedience.

The Duty of Care

The duty of care requires the director to do what would be expected of any prudent person in the same position. It requires the director to read relevant documents, prepare carefully for board meetings, pay attention to what is going on, and ask questions to clarify actions that are being taken. The duty of care permits the delegation of certain responsibilities to experts, staff, committees and task forces, but requires the director to stay informed of their activities and take appropriate action when indicated.

The Duty of Loyalty

The duty of loyalty requires the director to give undivided allegiance to the organization of which he or she is a director, without regard to personal interest, business interest, or the interest of any other region or organization.

Furthermore, it is a breach of the duty of loyalty for a director to use inside information gained in the performance of his or her responsibilities for personal benefit, or to benefit his region, business or any other organization. This constitutes conflict of interest and is cause for removal from office.

The Duty of Obedience

The duty of obedience requires the director to act within the scope of legal authority, including the organization's articles of incorporation, by-laws and mission.

An association will generally hold its directors harmless from lawsuits as long as they operate within the legal bounds of their fiduciary responsibilities, e.g., the duty of care, the duty of loyalty, and the duty of obedience.

Directors are subject to lawsuits if they fail to observe their fiduciary responsibilities.

(Note: This paper is for information purposes only and does not purport to be legal advice. Consult your own attorney for the specific application of the laws of fiduciary responsibility in your own state.)

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