Three Important Fiduciary Responsibilities of a NFP Board Member
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Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Nicole Riley, an Audit Senior Manager and one of the faces of the PKF Texas Not-for-Profit team. Nicole, welcome back to The Playbook.
Nicole: Thank you. Glad to be here.
Jen: You know, we’ve been covering topics relevant to not-for-profit organizations, and one thing I noticed that you’ve talked about with clients are the fiduciary responsibilities of a board member. Can you elaborate on that a little bit?
Nicole: A lot of board members don’t realize that they do have a fiduciary duty, and it’s really important that they understand that, because they could be held financially responsible for the financial harm they do to an organization.
Jen: Wow, interesting. So, are there certain steps that they need to be mindful of?
Nicole: Really, there’s three primary responsibilities when it comes to being a fiduciary.
The first is really the duty of care, and that is exercising care as you oversee the financial and operating activities of the organization. A lot of times board members aren’t involved in the day-to-day activities, but it’s important they understand what the mission of the organization is, what their programs and structures are, they make informed decisions and then consult experts if they don’t have the expertise.
Jen: Interesting. Now, you mentioned three. What are the other two?
Nicole: The second is the duty of loyalty, and that is acting in the best interest of the organization. The board member should not personally gain from their activities and their duties and roles in the organization.
The third is the duty of obedience. That is acting in accordance with the mission and the bylaws of the organization as well as any federal or state laws.
Jen: Are there any challenges with these responsibilities?
Nicole: Really, the hardest and the most critical challenge is the conflict of interest. It’s trying to avoid a conflict of interest. An example of that would be: if I’m on a board, and the organization hires my company to provide services to them, that would be a conflict of interest.
Nicole: And it’s important to know that it’s not… that can be allowed, that it’s not disallowed, but it’s important to disclose that information, and the other board members should be aware of that, as well as, “I should abstain from any vote or discussion that comes to that contract.”
Jen: And there’s probably something in an organization’s bylaws that covers conflicts of interest, usually?
Nicole: We recommend having a conflict of interest policy in place and then having board members fill that out annually, as well as your executives, to make sure any conflicts of interest that are present are disclosed and everyone is aware of them on a regular basis.
Jen: Perfect. Well, we will get you back to talk a little bit more about other topics impacting not-for-profit organizations. Sound good?
Nicole: Sounds great.
Jen: To learn more about how we can help your organization, visit PKFTexas.com/NotForProfit. This has been another Thought Leader Production, brought to you by PKF Texas – The Entrepreneur’s Playbook. Tune in next week for another chapter.