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DUTY OF CARE, LOYALTY AND OBEDIENCE
Discussion
Most states have codified nonprofit board responsibilities under three main “duties”:
Duty of care, loyalty and obedience
Duty of care is a standard that requires a board member to exercise the same
care that an ordinary, prudent person would exercise in a like position or under
similar circumstances. It means that board members should attend board meetings
and be informed about the activities of the organization in order to be able to
make informed and independent decisions when voting. State laws differ on the
degree of care required of board members.
Although duty to the VA may be the purpose of VA representation on the board of directors, when acting in the capacity of a director for the NPC, state law would require that duty to the NPC must take precedence. For example, if a VA research program had a sudden funding crisis, the board may be asked to consider a motion to allocate a substantial portion of the
NPC's liquid assets to meet the VA shortfall. However, if this would impair the NPC’s ability to meet payroll or would drain its reserves, approval of such a motion might violate the duty of care. Hopefully, the board could work with NPC management to come up with a way for the NPC to help out the VA without jeopardizing the financial health of the
NPC.
Duty of loyalty is a standard that requires a board member to act in good
faith, be faithful to the organization and pursue of the organization’s best
interests. It means that board members must be dedicated to the organization’s
mission and put the interests of the organization above self-interest.
A breach of this standard would be considered self-dealing. To eliminate the risk of self-dealing, directors should provide full disclosure of any issues that could cause a potential conflict of interest. If potential conflicts of interest occur, the affected board members should not attempt to unduly influence the rest of the board and should recuse
themselves from voting on the matter.
Duty of obedience requires the board to act in accordance with the organization’s rules and policies, and in furtherance of its goals as stated in the mission statement, articles of incorporation and bylaws. In addition, the board must comply with state and federal laws. The duty of obedience forbids acts outside the scope of corporate powers.
Helpful resources:
See
Standards of Ethical Conduct for Employees of the Executive Branch, subpart E -
Impartiality in Performing Official Duties, §2635.501 and §2635.502 for
federal conflict of interest regulations.
http://www.usoge.gov/pages/forms_pubs_otherdocs/fpo_files/reference/rfsoc_02.pdf
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