Protecting Yourself While Serving on a Nonprofit Board
June 24, 2024
When serving on a nonprofit board, you should consider your vulnerabilities. Both boards and their members can be sued.
When serving on a nonprofit board, you should consider your vulnerabilities. Both boards and their members can be sued.
So, you’ve been invited to serve on a local charity board or you’re thinking about running for your school board. Serving on a nonprofit board is a great way to give back and make new connections by sharing your professional skills with the community. However, you should consider your possible vulnerabilities, too. Both boards and board members can face lawsuits. But there are steps you can take to protect yourself before that happens.
Board members make decisions that can have far-reaching effects, influencing the success and direction of the organization. They have fiduciary responsibilities to ensure the organization’s assets are managed effectively and ethically. Furthermore, members are held accountable for the organization’s activities. Their role is crucial in maintaining the integrity and sustainability of the organization.
Specifically, nonprofit board members generally have three areas of duty:
Duty of care: adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. This is the first element that must be established to proceed with an action in negligence.
Duty of loyalty: the principle that directors and officers, in their capacities as corporate fiduciaries, must act without personal economic conflict.
Duty of obedience: making sure the nonprofit is abiding by all applicable laws and regulations and doesn’t engage in illegal or unauthorized activities.
In addition to these standard duties, the nonprofit should also provide a job description to outline what you are personally accountable for. Be sure to stay engaged by attending meetings, thoughtfully reviewing materials and voting intelligently. You may even have to advocate for transparency to ensure you’re able to carry out your duties. This might involve requesting access to necessary information, promoting open communication among members and encouraging a culture of accountability.
Even if you perform your duties completely and ethically, there are still ways you can inadvertently expose yourself to tremendous risk. Board members are often among the first people that employees, patrons, vendors and community target when they feel they’ve been wronged.
Take the homeowners association (HOA), for example. A resident slips and falls near a pool and blames the HOA for failing to ensure the area has a safe surface. The resident then sues the board members who voted against the safety measures, claiming negligence and demanding compensation for their injuries and hardships.
Other common areas of exposure are:
In addition to carrying out your nonprofit board member duties, it’s crucial to ensure that you have proper insurance in place to manage your risk. These policies can protect against potential liabilities and unforeseen events that could impact not only you, but the organization itself. Providing these precautions will help to safeguard the nonprofit’s mission and dedicated work of its board members.
D&O policy: Larger nonprofits may have a Directors and Officers policy that covers you.
The Volunteer Protection Act: This federal act aims to promote volunteerism by limiting, and in many cases eliminating, a volunteer’s risk of tort liability when acting for nonprofit organizations or government entities. Keep in mind, however, that it only applies if the nonprofit is an official 501(c)(3). It also will not protect you from actions based on your willful, criminal, negligent or reckless conduct.
A personal umbrella insurance policy: You may think you don’t need one or that the price is out of your reach, but that may not be the case. You can get $1 million or $2 million in personal umbrella liability coverage for as little as a few hundred dollars a year. Costs depend on the amount of coverage chosen, along with the number of assets you have. Your risk profile, credit score and location also affect the cost.
A holistic strategy that incorporates wealth management and insurance coverage can ensure board members are protected from unforeseen financial and legal challenges. By addressing potential risks and liabilities, you protect personal assets and can be confident in your decision-making. For more information on ways to keep yourself protected while serving on a nonprofit board, reach out to a trusted advisor.
