Appropriate Roles for Staff vs. Boards of Directors De-Mystified

Contact: Ingrid E. Cummings, APR Rubicon Communications, LLC
Phone: 317-873-0651

Indianapolis, August 1, 2003

Appropriate Roles for Staff vs. Boards of Directors De-Mystified

Local Attorney Ruge Explores Boundaries, Liabilities

As the number of nonprofit organizations and individuals serving on volunteer boards of directors rises, so does the importance of understanding the duties of nonprofit directors. In order to maximize a board's performance and an organization's success, a clear understanding of directors' legal responsibilities and of the relationship and responsibilities between directors and employees is essential. Directors of nonprofit organizations have three basic legal responsibilities. These responsibilities are commonly referred to as the duty of care, the duty of loyalty and the duty of obedience.

Duty of Care – The duty of care requires directors to act in a reasonable and informed manner when participating in the management of the corporation and making board decisions. This includes setting sound policy and oversight of the organization's finances. "Attending all board meetings, allowing adequate time to prepare for meetings and exercising independent judgment are just a few ways to ensure the duty of care is being met," explains attorney Thomas Ruge, a partner with Lewis & Kappes.

Duty of Loyalty – The duty of loyalty requires directors to act in the best interest of the organization. Directors must execute their powers in good faith and put the interests of the organization before their own interests or the interests of another individual or entity. The duty of loyalty requires the awareness of potential conflicts of interest between the organization and a board member. Having a clear conflicts of interest policy and ensuring proper disclosure of potential conflicts help to fulfill the duty of loyalty.

Duty of Obedience – The duty of obedience safeguards the mission of the organization by requiring directors to remain faithful to the organization's purposes. Directors should not act in a manner that is inconsistent with the organization's goals or in a manner that may undermine the trust of the public. The duty of obedience can be facilitated by enforcing the organization's Articles of Incorporation and Bylaws, revising the mission or purpose of the organization as may be necessary and conducting board effectiveness evaluations.

Many nonprofit organizations hire paid employees to carry out the day-to-day functions of the organization. "All nonprofits must comply with federal and state laws regulating labor and employment," says Ruge. "A board of director's ability to properly oversee employee relations without engaging in micro-management is essential to the success of an organization."

Most organizations employ a Chief Executive Officer ("CEO"). The CEO should report directly to the board of directors and should be responsible for managing the day-to-day operations of the organization. With the assistance of a clear job description and effective performance evaluations, which include both board and employee input, the CEO should be able to efficiently serve as a liaison between the board of directors and employees.

Ruge says problems arise when individual board members try to deal with issues relating to the organization without first obtaining full board approval. This is particularly true where employee relations are concerned. A board member who expresses sympathy to an employee who has a complaint may be committing the organization to a position on the matter that is unfavorable or harmful to the organization.

Ruge says, there are several mechanisms that can be used by the board of directors to assist with clearly defining these roles. Establish a well-written, board-approved employee handbook. This will familiarize the employee with the organization's operations, goals and policies while memorializing the board's expectations. Clearly state the proper chain-of-command. This informs the employee of the reporting structure within the organization and can set up the framework for an effective employee grievance procedure. Require board-approved job descriptions that ensure employees know exactly what the board expects and desires from various job positions.

With proper planning, organization and documentation, nonprofit organizations can carry out their missions with the proper balance of board control and employee involvement.

For additional information and board training, contact Attorneys Thomas R. Ruge Lewis & Kappes, P.C., at 317-639-1210.