Our Guide for Board Members
Charitable organizations vary greatly in size, structure and mission, but there are a number of principles that apply to all nonprofits. We distribute a guide to assist board members in understanding these principles.
Although it is not meant to address how board members should act in every situation, this guide will help you understand the roles, rights and responsibilities associated with board participation.
Copies are available online via the link below, or by calling 971-673-1880.
Understanding Your Role as a Board Member
Board members are recruited for a variety of reasons. Some are talented fundraisers. Others bring credibility and prestige. Whatever the reason, the board member’s principal role is stewardship. Proper nonprofit stewardship requires:
- active participation.
- a clear understanding of the charity’s programs, people, resources and mission.
- a focus on that mission.
- a familiarity with the organization’s articles of incorporation and bylaws.
- that the organization’s assets be applied to its charitable mission.
It is the board’s job to hire the chief executive officer. It is not the board’s job to manage day-to-day operations. The board should periodically review the chief executive’s performance, and has the authority and responsibility to replace the CEO if necessary.
Part of CEO oversight requires setting CEO pay. Compensation should be reasonable for the job and compare favorably to similar executives. The CEO’s salary, and the salaries of key executives, may be important to donors, beneficiaries and the community-at-large. Compensation will be reported and will be publicly available.
Understanding Your Rights as a Board Member
In order to carry out your legal responsibilities as a board member, you must be able to make informed decisions. The law permits you to rely on information from the charity’s staff, its lawyer, its accountant, outside advisors and committees.
Your right to information includes reasonable access to:
- internal information.
- principal advisors, such as auditors and lawyers.
- financial records.
The board has the right to hire outside advisors at the charity’s expense to assist with a particular matter.
Understanding Your Board Responsibilities
In carrying out these responsibilities, the law imposes three duties of trust:
Duty of Due Care
You don’t always have to be right, but you must act with common sense and make informed decisions. To do so requires:
- Active participation: Attend board meetings, evaluate reports, read minutes and review the performance of the executive director.
- Reasonable inquiry: The board has a responsibility to gather all necessary facts related to any problem that might arise. Reports of office or employee theft or mismanagement must be investigated.
Duty of Loyalty
The nonprofit comes first. Decisions regarding funds and activities must promote the organization’s public purpose rather than private interests. Potential conflicts should be scrutinized by the board with the understanding the public will be skeptical of any such arrangement. A few items to consider:
- Conflicts in general: Transactions between a charity and board members, their families, and their businesses should be avoided. But they are not prohibited and, under certain circumstances, are acceptable. The board should only approve the transaction if it is in the best interest of the charity. If challenged, the burden of proof will be the board’s. Consult ORS 65.361 for more information on director conflict of interest. ».
- Written policy: A written policy should address disclosure of financial interests and the withdrawal from discussion, and voting by interested directors. Boards might require transactions benefiting a director be approved by greater than a majority vote. It’s recommended board members annually disclose their business involvements.
- Loans: Organizations may not lend money to an officer or director – with one exception. Under certain circumstances, loans for executive relocation expenses are permitted. Consult ORS 65.364 for more information on loans. »
- Corporate opportunity: Do not divert a business opportunity from the organization for personal gain.
Duty of Obedience
Follow the organization’s governing documents (Articles of Incorporation and bylaws) and obey all applicable laws. Directors should be familiar with:
- Federal law: Charitable corporations apply to the Internal Revenue Service (IRS) for tax-exempt status. Without tax-exempt status, income is taxed at normal rates and donors may not be able to deduct donations on their tax returns.
- State law: Charities must register and file an annual financial report with the Attorney General’s office. A charity considering bingo, raffle or Monte Carlo events to raise money may need to obtain a charitable gaming license. Nonprofit corporations must also file an annual renewal with the Corporation Division of the Secretary of State’s office.
- Mission and procedures: Require that proper notice is given for meetings, and that regular meetings are held.
Other Duties Expected of Nonprofit Officers
Satisfactory Corporate Documents and Records
Governing documents should reflect the organization’s current mission and operating procedures. The organization is required to keep minutes of its board meetings and a record of all actions taken by committees. Consult ORS 65.771 for more information on corporate records. »
Adequate Financial Records and Controls
With embezzlement from nonprofits on the rise, it is important that financial controls are in place before theft occurs. Board members should expect timely budget reports. Large organizations should employ an independent auditor.
Diversify and avoid high-risk investments. Adopt policies to approve large transactions.
Observing Donor Restrictions
Some donors will designate gifts for a particular purpose. The board is obligated to ensure donors’ wishes are observed.
Responsible Solicitation Activities
Be aware that most donors expect the bulk of their contributions to be applied to the charity’s mission. When hiring professional fundraisers, ask for references. Make sure contracts are fair from the charity’s perspective. Many watchdog standards limit annual fundraising costs to no more than 35 percent of total expenditures. Consult ORS 128.814 for more information. »
Your Personal Liability as a Member of a Nonprofit Board
To encourage citizens to serve as board members for charities, the law cloaks volunteer board members with qualified immunity. They cannot be sued for negligent acts. They may, however, be subject to lawsuits alleging that a loss was due to their gross negligence, or willful or fraudulent acts.
Note: The IRS may hold directors personally liable if the organization violates federal tax law. The most likely situation is the failure of the organization to perform mandatory payroll withholding. Because there is some degree of risk, including the cost of defending a frivolous claim, directors should discuss with the organization’s attorney the prospect of purchasing directors and officers (D and O) liability insurance, and/or including indemnification provisions in the organization’s governing documents.
Suggested Resources for Nonprofit Officers
Oregon Department of Justice
100 SW Market St.
Portland, OR 97201-5702
Nonprofit Association of Oregon (NAO)
5100 SW Macadam Ave., Ste. 360
Portland, OR 97239
Information & Referral Helpline: 503-233-9240
Website: nonprofitoregon.org »
Pacific Non-Profit Network Southern Oregon University
1600 N. Riverside, Ste. 1094
Medford, OR 97501-5939
Institute for Nonprofit Management Portland State University
P.O. Box 751
Portland, OR 97207-0751
Center for Nonprofit Stewardship
Nonprofit Organization Board Training
119 S. 16th Street
P.O. Box 1600
Philomath, OR 97370
National Center for Nonprofit Boards
1828 L Street NW, Suite 900
Washington, D.C. 20036-5104
Website: boardsource.org »
The Oregon Nonprofit Corporation Handbook by Cynthia Cumfer and Kay Sohl is available for purchase from TACS ». You may also call 503-239-4001 for a copy.