First and foremost, a board member must attend board meetings and read materials provided at, or in advance of, meetings. On average, nonprofit board members spend eight to 10 hours per month on board activities, including meetings. CEOs should ask themselves whether they have the time and inclination to meet this threshold requirement before signing on.
CEOs should also be prepared to make personal financial contributions to the organizations whose boards they join, as this is an expectation of most public charities.
Recent, publicized scandals—such as those involving Karen Alameddine (Hereditary Disease Foundation) and Clarke Howatt (Finance Authority for Nonprofit Corporations)—remind us that nonprofits can be ripe for embezzlement and other financial improprieties. This may cause CEOs to wonder whether board members may be subject to personal liability. The short answer is: in some cases, yes.
Board members can minimize their risk of personal liability by making deliberate decisions, creating a “paper trail” to show due diligence, avoiding conflicts of interest, and engaging legal counsel and other professionals as necessary. Insurance can also offer protection. In 2014, 96% of nonprofits carried directors and officers liability insurance, up from 87% in 2007.
Look before you leap
Here are some things to consider in determining whether you want to become a member of a nonprofit organization’s board:
- Is the organization registered and in good standing in all jurisdictions where it is operating?
- Who are the current board members and what are their affiliations?
- When, where and how often are board meetings held? How long do they last? What is a typical agenda?
- Is there a formal orientation and manual for board members?
- What are the standing committees and what do they do? How are committee members elected or appointed? Will you be expected or able to serve on a committee at some point?
- Are there any conflicts of interest that you think you might have?
The organization should supply you with the following documentation pertaining to the operations of the nonprofit:
- IRS 501(c)(3) Tax Exemption Determination Letter
- Statement of Mission or Purpose
- Bylaws, or other internal governance rules
- Federal Information Returns (e.g., Form 990)
- Most recent financial statement and annual report, if one exists
- Minutes of the three or four most recent board meetings
- Current, board-approved budget
- Conflict of interest, whistleblower and document retention policies
If the organization does not want to give you these materials, or says it does not have them when it should, that is a warning sign and you should think carefully before joining the board.