The days are long gone when it was common for an NFP board to consist solely of well-meaning amateurs. However, there are still smaller community organisations whose directors have little or no experience of governance – and they are all subject to more-or-less the same legal duties and obligations and the directors of a corporation.
There are four main legal obligations or duties that all board members must understand and observe.
- The duty to act in good faith and for proper purposes. You must act honestly, fairly and loyally in furthering the best interests of your organisation.
- The duty to act with care, skill and diligence. You must take your role of board member seriously and give sufficient time, thought and energy to the tasks you undertake and the decisions you are required to make. You must keep up to date with developments in the organisation’s business and ask for any extra information you need. Where necessary, you must engage professional skills or advice. You must also keep track of finances – most importantly, you must ensure that the organisation isn’t trading, or in danger of trading, while insolvent.
- The duty not to use your position, or information acquired in the role, dishonestly. You must use your position to benefit the organisation, not yourself.
- The duty to avoid conflicts of interest. Conflicts of interest are common and don’t necessarily signify a breach of duty. However, board members do have a legal duty to manage them as they arise – for example, if you could benefit from a particular decision you must disclose the conflict. The chairman might then instruct you to leave the room when the matter is being discussed and voted on.
To view the Better Boards article in full, click here.