Some Legal Considerations for Board Members

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    Some Legal Considerations for Board

    © Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.

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    When Considering Legal Protection for Directors
    and the Organization, Consider the Following

    – Directors cannot abdicate their responsibility to be in charge
    and to direct
    – Directors must make certain the organization is operating within
    a legal framework
    – Directors have a legal responsibility for the protection of
    all assets
    – Directors must validate all major contracts by giving and recording
    formal approval
    – Directors must attend most board meetings, not just on occasion.
    Absence from a board meeting does not release the director from
    responsibility for decisions made. A pattern of absence may indeed
    be presumed to increase an individual’s liability because
    she/he cannot demonstrate a serious dedication to the obligations
    of the position.
    – There is no absolute protection against someone bringing suit
    against you. Conscientious performance is the standard. The best
    defense is a good offense: strive hard to do everything right
    and be able to show that you tried hard, then you are much more
    like to be OK.
    – Remember: The assumption in the law is not necessarily that
    you must make the correct decision, but that you must make the
    decision correctly. (It helps greatly to be able to show that
    the board made serious consideration of an action before the action
    was taken. Board minutes should reflect this care taken.) It is
    not a crime to be wrong, but did you ask the right questions and
    respond as another reasonable individual would in that situation?
    – Board members are more at risk for taking no action than for
    taking the wrong action for the right reasons.
    – While you have the right to rely on information supplied to
    you in due form, and on the accuracy and integrity of others (particularly
    in areas of special competence) you must use reasonable judgment
    in this area, too.
    – If it smells fishy, find out where it has been swimming — and
    how long it has been dead.

    Key Suggestions

    – Attend meetings
    – Read minutes and make sure they are correct
    – Record objections and ensure a debate on controversial or difficult
    issues. It is your duty to review plans and policies and how they
    are carried out, not to be accommodating to people because they
    have been around for a long time in the organization and are doing
    their best.
    – Always have comprehensive and up-to-date personnel policies
    that are reviewed by a professional, authorized by the board and
    well understood by management. If a manager’s actions are not
    in accordance with a policy, courts will usually assume the manager’s
    acts to be the official stance of the organization and to have
    superseded the policies.
    – Ensure that all employment and income taxes are paid. Understand
    the distinction per the IRS between an “employee” and
    an “independent contractor.”
    – Schedule a presentation from an insurance agent who is well
    versed in board liability matters. Have him or her explain: general
    liability, professional liability, workers compensation, asset
    protection, and directors and officers insurance. If you get directors
    and officers insurance, be sure the policy covers employee suits
    against the organization.
    – Review financial statements and insist on understanding them.
    Most boards probably should have two levels of reporting: in detail
    for a sophisticated finance committee, and in a simplified form
    for monthly reports to the rest of the board, supplying data which
    has been reviewed by the finance committee.

    Trust – But Verify!

    Additional Information Focused on Nonprofit Boards

    Should Nonprofit Board of Director Worry About Personal Liability?

    How to Protect Your Nonprofit s Board Members

    Return to Toolkit for
    Boards of Directors

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