In my last post, I discussed the function of the NPO Board, in general. In this post, I will address the role of a Board Member with specific reference to the Board Member's fiduciary duties.
Fiduciary Duty Legally, each Board Member has a fiduciary duty he/she owes the organization. A "fiduciary" is a person who has a special relationship to others involving responsibility for property or duties which do not belong to the fiduciary. A good example is the trustee of a trust, who is responsible to manage the trust and its assets for the sole benefit of the beneficiaries and not for the benefit of the trustee. Similarly, in an NPO the Board Member is responsible to manage the organization for the benefit of those who are the clients or customers of the organization, and not for the benefit of the Board Member, the Board at large, the Executive Director, the staff, or any other person except the customers or clients of the organization.
There are several components to this. First, there is a financial component. Not only is there an ethical duty on the part of Board Members to see that the organization's finances are managed for the benefit of the organization's customers/clients, but there is a legal duty to do so. Charitable organizations that give a very large percentage of their funds to pay the salaries of the highest paid executives of the organization stand in danger of having the IRS revoke its recognition of the organization as a charitable organization. The Board Members must be the watchdogs of the organization's finances. This means they must demand, and receive, adequate financial information about the organization in order to determine that the organization is healthy financially, and that the organization's finances are being used wisely to accomplish the organization's goals. This also means that Board Members should be able to read and understand various financial statements presented by the organization's CFO or equivalent.
Second, there is an operational component. The Board Members must be able to determine what the organization is doing operationally, whether the programs are actually meeting customer/client needs, and whether the organization is using "best practices." If the Executive Director is doing a good job, the Board will be provided various reports on a regular basis demonstrating whether these objectives are being met. If the Board is not being provided such information, it is the responsibility of the Board to demand such information. There are a variety of possible sources of such information--a regular analysis of inputs and outcomes; employee and customer/client exit interviews; input from partners; and feedback from the community and funders are just a few of these sources. If the Executive Director is not providing adequate information for the Board to be able to determine if operations are working well, this is almost a sure sign of deeper problems.
Third, there is a leadership component. This involves such things as what kind of culture the organization has and whether it is a "good" culture; what kind of relationships exist between the executive staff and the line staff; whether someone is looking into the future of the industry in which the organization exists and the future of the organization in that context; and what the organization is doing with its partners, donors, and the community at large. If the entire focus of information the Board receives is "this is what we did in the last three months" then there is a problem. The Board itself does not have to provide leadership on a day-to-day basis, but it had better make sure the Executive Director does. In this aspect and others, the Executive Director is the agent of the Board to the organization.
Fourth, and this is implied in all the others, the Board must have a good relationship with the Executive Director; must be able to trust him or her; must see that the Executive Director speaks the will of the Board to the organization; and must see that the Executive Director provides leadership to the organization in all facets of the organization. It is not the role of Board Members to be buddies with the Executive Director--although friendship may exist. It is the role of the Board Members to be sure the Executive Director is leading the organization in the manner the Board demands.
There are other considerations involved in a Board Member's fiduciary duty to an NPO, but these demonstrate the seriousness of that duty. Board Members must be engaged with the organization in order to fulfill this duty. It takes time and commitment to do so, and it necessary to create and maintain a healthy organization.
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