Professional membership associations are fueled by the vision, dedication and passion of its volunteer board members. As new leaders are elected to an association’s board, each brings to their role unique personalities and new leadership styles. With routine leadership changes, it is crucial for the executive director to make sure that volunteers understand the risk involved with board leadership, how the association is structured to manage that risk, and what the association has in place to protect leaders from personal liability.
Legally, board members are required to follow the three fiduciary duties:
- Duty of Care: Requires leaders to use reasonable care and good judgment in making their decisions on behalf of the interests of the association.
- Duty of Loyalty: Requires leaders to be faithful to the association, avoiding conflicts of interest. Board members should comply with association’s code of conduct, support board decisions publicly and never use information obtained as a member for personal gain.
- Duty of Obedience: Requires leaders to comply not only with the law, but with the association’s governing documents.
During board orientation or at the beginning of the new board term, the new leadership team should be briefed on risk management as it relates to these duties and the role of the board as stewards of the organization.
Protecting the Association: Two Easy Ways
Organizational Documents: Bylaws are Key
As the association’s primary governing document, bylaws are structured to define the purpose of the association, establish the rights of members and leaders, and guide the board in its decision-making process. Following the bylaws protects the association. Both the association and the board members can be found liable if the bylaws are not being followed. Bylaws may also contain an indemnification clause identifying that the association will cover legal expenses in case of lawsuit. However, that clause may not be enough if the association doesn’t have the funds to cover or if the offender was not acting in good faith.
D&O Insurance: A Must-Have
In 1997, the federal Volunteer Protection Act was passed, which provided volunteer leaders immunity from civil liability for injuries they cause by their acts of negligence while volunteering if the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious flagrant indifference to the rights or safety of the person harmed.
Due to certain limitations within this scope, it is advised that associations carry directors and officers (D&O) liability insurance. This is insurance coverage intended to protect volunteer leaders from personal losses if they are sued because of serving as a director or an officer. Like all insurances, there are different levels of coverage available. Policies should be reviewed routinely to ensure that they are sufficiently covering the needs.
Avoiding Risk: Do’s and Don’ts
Apparent Authority: Who Speaks for the Board?
Care should be taken that board members or other volunteers do not assume the authority of the chief elected officer (such as the president) or take on authority not specifically delegated to them. Authority rests with the chief elected officer and may not be assumed by others within the association.
It is equally important that volunteer leaders serving outside the role of chief elected officer understand that others may perceive them to be speaking on the association’s behalf even when they are not intending that to be the case.
Public Records: Make Your 990’s Available
Public records requests for the association’s 990 must be made available. The 990 is an IRS form that provides the public with financial information about the nonprofit association. Board directors should always be given the opportunity to view the 990 before it is submitted.
Antitrust: Keeping Competition Fair
Antitrust violations occur when people from the same industry or profession discuss suppliers, processes, prices and/or operations. Antitrust statutes were developed by the U.S. government to protect consumers from predatory business practices. They ensure that fair competition exists in an open-market economy. Board directors should remove themselves from conversations that would change how business is conducted because of a joint agreement among competitors.
Conflict of Interest: Situations to Avoid
A conflict of interest exists when an interested person has a direct or indirect (through business, investment or family) financial or other interest in a matter that might influence, or that might be perceived to influence, the judgment or actions of that person while serving the association. It is best practice for board directors to disclose all conflicts of interest as defined and have a policy that all sign these documents annually.
By stressing the importance of minimizing risk on a regular basis and by retaining sufficient directors’ and officers’ liability insurance coverage, boards can rest assured that they are adequately fulfilling their required duties of care, loyalty and obedience to the membership and to themselves.