Do You Have What it Takes?
Considerations when you’re asked to serve on a nonprofit board
By Paul J. Welk, PT, JD
As a physical therapy private practice establishes its name and reputation within a community, the practice and its staff will be presented with a variety of different opportunities for engagement.
As one of these opportunities, practice owners and their staff may be asked to serve as a nonprofit board member of an organization. The request to serve on a nonprofit board can be driven by a variety of factors ranging from an individual’s areas of expertise or personal causes to fundraising capabilities. The article highlights some of the obligations of directors of nonprofit organizations and reviews the level of commitment associated with accepting a position as a nonprofit board member, illustrating that you are much more than “just a volunteer.”
COMMON PRINCIPLES OF BOARD POSITIONS
While the specific obligations placed on a nonprofit board member vary by state and are driven by common law, statutes, and regulations, there are a few common principles. These general obligations relate to a board member’s fiduciary duties or responsibilities, defined in short as a commitment to act in good faith in the best interests of the organization. The fiduciary duty is to the organization and not to its members, directors, employees, suppliers, or other constituencies. Understanding fiduciary duties is important because, if a board member breaches his or her fiduciary duties, the board member could be subject to personal liability. The fiduciary duties of a nonprofit board member can further be broken down to include a duty of care, a duty of loyalty, and a duty of obedience (sometimes referred to as a duty to the organization).
In general, the duty of care requires that the board member give the same level of care to board responsibilities as an ordinarily prudent person in a like position would do under similar circumstances and to make decisions in good faith. In order to satisfy the duty of care, a board member should take such steps as being informed and involved in the board’s decision-making process, consider available reports and opinions of advisors in making decisions, be informed about the business and finances of the organization, and consider the organization’s mission and strategic plan in connection with decision-making. By way of illustration, a board member who votes on a material issue in a board meeting without reviewing appropriate background information, without considering the potential financial impact, and in contradiction to the organization’s mission could be subject to claims that he or she breached a duty of care to the organization.
In considering the duty of care, there is often reference to the “business judgment rule.” Under the business judgment rule, directors are generally held liable only for negligent acts or omissions in the performance of their duties and not necessarily the outcome of their decisions. The business judgment rule provides deference to a board member’s judgment so long as a decision is made based on a reasonable belief that he or she is acting in the best interests of the organization and in good faith. Stated another way, a decision does not have to be the “correct” decision to satisfy the business judgment rule, but rather a decision made in good faith and without negligence. By way of example, if in early 2020 (i.e., pre-COVID-19) a board voted in good faith after careful consideration in favor of opening a new facility for a nonprofit organization and subsequently the pandemic eliminated or materially reduced the business need for the facility, this decision would likely not raise concerns of a breach of the duty of care despite the outcome.
The duty of loyalty is a board member’s responsibility to act at all times in the best interests of the organization and to hold the interests of the organization ahead of his or her own. A board member can act consistent with the duty of loyalty by taking steps to not make decisions for personal gain, disclosing conflicts of interest, and maintaining the confidentiality of the organization’s information. For example, if a practice owner serves on the board of a nonprofit athletic association and votes in favor of awarding an athletic training contract with the association to a company owned by the practice owner without disclosing this potential conflict, concerns could arise as to whether the duty of loyalty was breached. In this example, a better course of action would have been to disclose the potential conflict to the full board, offer to recuse himself or herself from discussion on the issue, and abstain from voting on the issue.
Finally, board members may be subject to the duty of obedience, which in general requires that the organization abide by applicable laws, rules, and regulations and not make decisions inconsistent with the organization’s goals and objectives. As noted earlier, having a good working knowledge of the organization, its mission statement, strategic plan, and the laws to which it may be subject will assist board members in complying with their duty to the organization.
DOING YOUR DUE DILIGENCE
By satisfying fiduciary duty requirements, board members can mitigate risk associated with serving an organization. In addition, when presented with an opportunity to serve, it is reasonable due diligence to inquire as to whether the board on which you are asked to serve has directors and officers’ liability insurance, which may help cover liabilities arising from claims against the nonprofit organization. Also, it is reasonable to review the organization’s bylaws, articles of incorporation and applicable policies and procedures to determine what protections the organization may provide to board members when acting on behalf of the organization.
Paul J. Welk, PT, JD, is a PPS member and an attorney with Tucker Arensberg, P.C. where he frequently advises physical therapy private practices in the areas of corporate and health care law. He may be reached at firstname.lastname@example.org or 412-594-5536.
Please note that this article is not intended to, and does not, serve as legal advice to the reader but is for general information purposes only.