Rights, Roles, and Responsibilities of Board Members
The Charitable Activities Division of the Oregon Department of Justice provides valuable information regarding the rights, roles, and responsibilities of nonprofit board members.
Rights as a Board Member
In order for Board members to carry out the legal responsibilities of their position, they must be able to make informed decisions. The law permits Board members to rely on information from the nonprofit’s staff, its lawyer, its accountant, outside advisors, and committees.
This right to information includes reasonable access to:
- Management
- Internal information
- Principal advisors, such as auditors and lawyers
- Financial records
The Board also has the right to hire outside advisors at the nonprofit’s expense to assist with a particular matter.
Role as a Board Member
- Active participation
- A clear understanding of the organization’s programs, people, resources, and mission
- A focus on the organization’s mission
- A familiarity with the organization’s Articles of Incorporation and bylaws
- Oversight for the use of the organization’s assets to serve its mission
Responsibilities as a Board Member
In carrying out one’s responsibilities as a Board member, the law imposes three duties of trust:
1. Duty of Care: Board members must act with common sense and make informed decisions. To do so requires:
- Active participation: Board meeting attendance, report evaluation, reading of minutes, and involvement in the Executive Director’s performance review all constitute active participation.
- Reasonable inquiry: The Board has a responsibility to gather all necessary facts related to any problem that might arise; this includes thorough investigation of any and all reports of theft or mismanagement.
2. Duty of Loyalty: Decisions regarding funds and activities must promote the organization’s public purpose, rather than private interests. Potential conflicts should be scrutinized by the Board, with the understanding that the public will be skeptical of any such arrangement. A few items to consider:
- Conflicts in general: Transactions between a charity and Board members, their families, and their businesses should be avoided. However, such transactions are not prohibited and, under certain circumstances, are deemed acceptable. The Board should only approve a transaction if it is in the best interest of the charity. If challenged, the burden of proof will rest on the Board. (Consult ORS 65.361 for more information on director conflict of interest.)
- Written policy: A written policy should address disclosure of financial interests, withdrawal from discussion, and voting by interested directors. Boards might require transactions benefiting a director to be approved by a vote that is greater than majority. It is also recommended that Board members annually disclose their business involvements.
- Loans: Organizations may not lend money to an officer or director, with one exception: under certain circumstances, loans for executive relocation expenses are permitted. (Consult ORS 65.364 for more information on loans.)
- Corporate opportunity: Board members must not divert business opportunities from the organization for personal gain.
3. Duty of Obedience: All members of the Board must follow the organization’s governing documents (Articles of Incorporation and bylaws) and obey all applicable laws. Directors should be familiar with:
- Federal law: Nonprofit corporations apply to the Internal Revenue Service (IRS) for tax-exempt status. Without tax-exempt status, income is taxed at normal rates and donors may not be able to deduct donations on their tax returns.
- State law: Nonprofits must register and file an annual financial report with the Attorney General’s office. A nonprofit considering bingo, raffle, or Monte Carlo events to raise money may need to obtain a charitable gaming license. Nonprofit corporations must also file an annual renewal with the Corporation Division of the Secretary of State’s office.
- Mission and procedures: The Board must require that proper notice is given for meetings, and that regular meetings are held.
Other Duties Expected as a Board Member
Satisfactory Corporate Documents and Records
Governing documents should reflect the organization’s current mission and operating procedures. The organization is required to keep minutes of its Board meetings and a record of all actions taken by committees. (Consult ORS 65.771 for more information on corporate records.)
Safeguarding
Diversifying and avoiding high-risk investments are two ways to safeguard an organization’s assets. The Board should also adopt policies for approving large transactions.
Observing Donor Restrictions
Some donors will designate gifts for a particular purpose, and the Board is obligated to ensure donors’ wishes are observed.
Responsible Solicitation Activities
Be aware that most donors expect the bulk of their contributions to be applied to the charity’s mission. When hiring professional fundraisers, the Board members should ask for references and make sure contracts are fair from the charity’s perspective. Many watchdog standards limit annual fundraising costs to no more than 35 percent of total expenditures. (Consult ORS 128.814 for more information.)
Adequate Financial Records and Controls
With embezzlement from nonprofits on the rise, it is important that financial controls are in place before any theft occurs.
With respect to adequate financial records and controls, one of the Board’s responsibilities is to oversee the organization’s financial affairs, making sure that the organization has adequate internal accounting systems and controls. The Board should be responsible for approving the organization’s annual budget. Board members should expect to receive timely and adequate income and expense statements, balance sheets, and budget status reports from bookkeepers or accountants–and these should be received in advance of Board meetings.
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