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Three Legal Duties of the Board of Directors

Each Board member, in accepting a position on the Board, agrees to certain duties: the duty of care, the duty of loyalty, and the duty of obedience.

Duty of (Due) Care

This is the responsibility of Board members to ensure that the organization’s assets are properly used, and to supervise the organization’s actions diligently. Members of the Board of Directors are responsible for setting the foundation for the organization, and hence, to enable the organization to move towards greater sustainability. The duty of due care also covers the Board’s responsibility to ensure that all activities undertaken by the organization are those which help the organization move towards those future goals. The members of the Board should also make themselves aware of the affairs of the organization to be able to identify any instances of misappropriation or fraud. Under the duty of care, Board members are responsible to ensure a proper control environment exists; they take the time to understand the operations, funding streams, and underlying regulations; and they provide proper fiscal oversight.

Duty of Loyalty

The Board of Directors should always act with the best interests of the organization in mind and must not use organizational assets or information towards personal gain. Members of the Board of Directors are also responsible for hiring officers of the organization. It is the Board’s duty to ensure that those in charge, particularly the CEO, are competent and able to oversee the day-to-day operations of the organization. The CEO must also share the same principles as the Board of Directors and be expected to act within the best interests of the organization. Pursuant to the duty of loyalty, Board members are required to place the interests of the organization before their own. As such, all conflicts of interest should be properly disclosed and only entered into if they are in the best interests of the organization. Finally, it is the Board’s responsibility to evaluate the effectiveness of the CEO, and where appropriate, other key members of the organization’s management.

Duty of Obedience

The actions of the Board members should also reflect adherence to applicable laws and regulations as well as faithfulness towards the organization. This is accomplished through the adaptation of policies which emphasize a strong,

ethical “tone at the top.” It is also closely related to the other two duties of the Board, whereby the ethical policies and the motion towards future sustainability also aid the organization to act in accordance with its mission as well as any laws and regulations. Duty of obedience requires Board members to establish appropriate policies and provide appropriate governance in running the organization. Board members should have regular communication with the organization’s Corporate Compliance Officer to ensure they understand risks and exposure within the organization.

Download the full guide for Nonprofit Board Members

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