The nonprofit board of directors is the organization’s fiduciary steward and strategic leader. As such, the board is responsible to maintain public trust and assure the organization’s mission is met legally, effectively and efficiently. A board of directors can be effective in fulfilling its goals and expectations only when a clear shared understanding of its role and responsibilities is established and cultivated. Boards only have power when they speak together through a corporate motion. A nonprofit board considers the organization and its mission from a holistic perspective as it makes sense of the past, looks toward the future, provides strategic leadership, sets policy and ensures the organization has adequate resources. Board members serve complex and multiple roles; they must understand and maintain boundaries between any volunteer roles they undertake to help with direct programs or services and their board role as a member of the governing body. The board provides support, direct oversight and direction for the Chief Executive Officer and is responsible for evaluating her/his performance, as well as approving competitive compensation. A nonprofit board also has a responsibility to regularly evaluate its own effectiveness—both collectively and as individual members—according to the organization’s governing documents and board policies.
- Legal Practices are legally required of all Montana nonprofits
- Essential Practices are widely recognized as industry standards and generally expected of all nonprofits
- Recommended Practices should be considered by all nonprofits, with implementation dependent on capacity and life stage
★★★ The Legal Duties of Nonprofit Boards of Directors
Directors of nonprofit organizations are held to basic legal duties as a matter of state law, common law, and federal law. The core fiduciary duties are the duty of care, duty of loyalty, and duty of obedience to mission.
Duty of care—a director of a nonprofit organization shall discharge all his/her duties as a director, including those performed as a committee member:
- In good faith;
- With the care that an ordinarily prudent person in a similar position would exercise under similar circumstances; and
- In a manner the director reasonably believes to be in the best interests of the organization.
The duty of care entails a duty of reasonable inquiry. Each director is obligated to ask questions and demand information to allow him/her to have sufficient information and understanding to make decisions he/she reasonably believes are in the nonprofit’s best interests. This duty means that the director must make time to attend meetings, and come prepared to participate.
Duty of loyalty—Directors are obligated to exercise an undivided and unselfish loyalty to the organization they serve. Directors must exercise their obligations and powers in the best interests of the organization and its charitable mission, not in their own interests or in the interests of another person or entity (even if charitable in nature). To assure that directors are operating within the scope of the duty of loyalty they are required to complete conflict of interest disclosures annually and acknowledge any conflict that may arise during the year.
Duty of obedience—Directors are obligated to further the mission of the organization they serve; to be faithful to its purposes and goals as defined by the articles of incorporation and bylaws; to act in conformity with all state, federal and local laws; and to obey board-approved organizational policies.