Fiduciary Responsibility of a Nonprofit Board

Fiduciary Responsibility of a Nonprofit Board

by Brette Sember, J.D., December 2018

The members of the board of a nonprofit organization are responsible for managing the financial aspects of the organization and making primary decisions for the nonprofit. Because they act on behalf of the organization through a position of trust, the members are called fiduciaries and have three main fiduciary duties: the duty of care, the duty of loyalty, and the duty of obedience.

Business people sitting and standing around a table collaborating

Board Members' Roles

The board makes all the decisions that direct how the organization operates and, as such, is ultimately responsible for how the organization performs. Board members manage the organization's assets, oversee fundraising, perform audits, hire and fire staff, prepare reports, disburse funds, and perform any other responsibilities required to fulfill the organization's mission and goals. They must perform these tasks with integrity and honesty.

Duties of a Board Member

Each state has different laws that govern what board of director members must do and what their roles are, but, in general, a board member has three duties to fulfill:

Duty of care. Board members are responsible for having the same duty of care with regard to the organization that a prudent and ordinary person would. This means that they need to show up, participate, remain informed about all aspects of the organization, and take appropriate actions to help the organization meet its goals and thrive. The duty of care requires them to read and understand financial reports, track spending, and participate in strategic planning. The board members are also responsible for making sure the nonprofit's records are kept accurately and preserved.

Duty of loyalty. Nonprofit board members must also be loyal to the organization itself. This means working in its best interest and not using it for their own personal or professional gain. If a board member has a conflict of interest, they must disclose it.

Duty of obedience. Board members are also required to show the duty of obedience, which means they need to be aware of the laws that affect the organization and ensure that the organization follows them. They must fully understand and follow all of the organization's own governing documents, such as the bylaws, and are also responsible for helping the organization carry out its stated goals.

While these duties may seem onerous, serving on a nonprofit board can be a very rewarding experience. Working with other board members can be fun and enjoyable as you work together to help the organization achieve its goals and make a difference in the world.

Liability for Board Members

All board members are expected to understand and uphold their duties. Ignorance of what is required is not a defense, which is why it is a good idea for boards to regularly review their responsibilities and evaluate how well they are upholding them. Board members who breach their fiduciary duties can be held personally liable, particularly where there has been abuse of fiduciary duty.

If you are interested in starting your own nonprofit, you should work with an attorney or online service provider who can help you file your articles of incorporation and fully understand the laws that will apply to your organization.