The Nonprofit Director’s Duty of Care
It is not uncommon to accept appointment to your local nonprofit’s board of directors without reflecting upon the legal responsibilities directorship entails. Failure to do so, though, is a disservice to yourself and to the organization you seek to serve.
Pennsylvania directors of nonprofit corporation stand in a fiduciary relationship with the corporation. This is a heightened legal relationship in which the director must act in the best interest of the corporation and not for personal gain.
Specifically, Pennsylvania law requires each director to:
- act in good faith,
- act in a manner he reasonably believes to be in the best interest of the corporation, and
- act after reasonable inquiry, using the skill and diligence of a person or ordinary prudence under similar circumstances
This means directors should understand the industry in which the nonprofit operates (healthcare, human services, animal safety, education, etc.) and have a basic awareness of the organization’s policies and operations.
What is a Director to do?
This means directors should be able to read and understand a financial statement and a budget. You may not be an accountant or investment advisor but you must have a basic understanding of finance. Nonprofits are a business, after all, and if the organization cannot sustain itself, it will ultimately fail.
This mean directors must have the courage the ask questions even though the questions may elicit debate or disagreement.
This means directors must always vote independently in accordance with your best judgment. Voting with the majority simply to “keep the peace” is not an exercise of your duty of care.
When accepting a directorship, be aware that you have a legal duty toward the organization and your directorship is not just a way to “give back to your community”. Acting with the duty of care and calling out your fellow directors for ignoring their duty is the best service you can provide to your organization.
So, the next time you join a board of directors, keep in mind the duty of care and always act or vote in a manner that is in the best interest of the organization, even if the decision is unpopular.