Login To Your Account
Print

Duty of Care, Loyalty and Obedience

Most states have codified nonprofit board responsibilities under three main “duties”: 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 to the nonprofit. It is to be hoped that 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 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 discussing and 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.

Basic Responsibilities

The board has specific responsibilities that are separate and distinct from the day-to-day management of the NPC. According to BoardSource, all nonprofit boards should:

  • Determine the organization’s mission and purpose
  • Select the chief executive or executive director
  • Ensure effective organizational planning
  • Provide proper financial oversight
  • Ensure adequate resources
  • Ensure legal and ethical integrity and maintain accountability
  • Ensure effective organization planning
  • Recruit and orient new board members and assess board performance
  • Enhance the organization’s public standing
  • Determine, monitor and strengthen the organization’s programs and services
  • Support the chief executive and assess his or her performance

"Ensuring adequate resources" is generally construed as an expectation that board members will be actively engaged in fundraising for the nonprofit.  NPC boards are allowed - and in NAVREF's view should be encouraged - to conduct general fundraising to supplement revenues derived from research projects and educational activities.  An OGC advisory verfies that NPCs may engage in charitable fundraising (see OGC Advisory 23-93).

However, NPCs should be aware of the federal ethics regulations found at 5 CFR §2635.808 Fundraising activities (insert link to regulation). Also, general NAVREF guidance on fundraising is found at (caveat document). Because it would be almost impossible for senior medical center personnel, such as the director, to separate themselves from their VA positions sufficiently to eliminate the possibility of confusion by the general public, NAVREF recommends that the statutory VA board members (director, chief of staff, ACOS R&D and ACOS Education) should not be directly engaged in general fundraising for an NPC.  Other VA board members may participate in a manner consistent with the federal regulations, and of course non-VA board members and NPC-paid staff may conduct fundraising.

Oversight

Providing oversight is a consistent theme in board responsibilities. As a result, at a minimum, the board should review and approve:

  • Financial policies and procedures, including internal controls
  • Annual operational budget for the NPC (not individual projects)
  • Audit
  • Employee handbook (outside legal review also strongly recommended)
  • Policies and procedures that govern NPC operations such as travel, reimbursements, transfer of investigator funds, etc.
  • Insurance
  • Bylaws
  • Mission statement


The board should review and re-approve all of the above at least once every three years and then document their approvals in the meeting minutes.

 

Helpful Resources

BoardSource Governance Series available from the bookstore – http://www.boardsource.org

© National Association of Veterans' Research and Education Foundation. All Rights Reserved.