Nonprofit organizations are non-equity structured entities, which means there are no owners or shareholders in the organization. Rather, nonprofits are governed by and through a body of appointed individuals called the Board of Directors.
Good governance of a nonprofit is critical to fostering public confidence and donor trust, the underpinnings of any sustainable charity.
Tovella Dowling advises its clients on governance matters, including board functions and authorities, fiduciary obligations, corporate governance documents, policies and procedures, legalities associated with membership rights, including membership terminations and voting privileges, directors elections, observance of corporate formations, including conducting board meetings and maintenance of corporate records, including minutes, unanimous written consents, legalities associated with calling and conducting meetings of the Board of Directors and membership, Board committee charters, roles and operations, director and membership rights, including inspection rights, and governance disputes.
Nonprofit Fiduciary Duties
Directors and officers of a nonprofit organization are fiduciaries of the corporation. As fiduciaries, such corporate actors must discharge their duties according to three broad principles: (1) the Duty of Care, (2) the Duty of Loyalty, and (3) the Duty of Obedience.
Duty of Care
The standard of conduct for directors of nonprofit corporations requires that a director discharge their duties in good faith and a manner that the director believes to be in the best interests of the corporation.
Board members must exercise due care in all dealings with the organization and its interest. This includes careful oversight of financial matters and observing corporate formalities.
Directors are expected to raise attention to issues that are of concern to the organization and to remain informed about the operations of the nonprofit by attending and engaging in scheduled meetings of the organization’s governing body.
The duty of care extends to the Director’s duty to make reasonable inquiries, as an ordinarily prudent person in a like position would use under similar circumstances.
This means that a director may not ignore concerning conduct carried out by agents and representatives of the nonprofit, and if put on notice by suspicious circumstances, they may be required to exercise their power under this authority.
This duty of inquiry may also arise where a director or the Board relies on the opinions or reports of others.
Duty of Obedience
Obedience to the organization’s central purposes must guide all decisions. The Board must also ensure that the organization functions within the law, including both state and federal law, and its bylaws and other policies.
Duty of Loyalty
The Director must administer his or her corporate powers for the common benefit and act in a manner that he or she believes to be in the best interests of the corporation and all its members. Conflicts of interest, including the appearance of a conflict of interest, must be avoided.
This element of the fiduciary standard articulated in the Corporations Code is commonly referred to as the “duty of loyalty”. This duty extends to personal conflicts of interest or conflicts with other organizations to which a Board member is connected.
The overriding objective of a nonprofit corporation is to advance and achieve the corporation’s purposes as stated in its governing documents, rather than to advance the interests of individuals.
In the context of charitable organizations, that constituency is deemed to be the segment of the public that the charity is intended to serve, according to its stated purpose.
Nonprofit Governance Policies
Adopting and implementing governance policies fosters higher internal ethical standards and practices and safeguards against the misappropriation of charitable assets and other regulatory violations.
Maintaining robust governance policies and procedures signals to community constituents, sector partners, donors, and beneficiaries that transparency, ethics, and governance are a priority.
Maintaining such policies not only allows an organization to disclose to the public that it carries out best governance practices on its publicly disclosed compliance filings but also mitigates reputational, operational, and financial risk.
Tovella Dowling assists in the drafting and implementation of various governance policies, including the following:
- Conflict of Interest Policy
- Whistleblower Policy
- Document Retention and Destruction Policy
- Executive Compensation Policy
- Gift Acceptance Policy
- Endowment Policy
- Investment Policy
- Spending Policy
- Expense Reimbursement and Accountable Plan
- Ethics Policy
- Joint Venture and Strategic Partnerships Policy
- Delegation of Authority Policy
- Fiscal Management Policy
- Procurement Policy
- Grantmaking Policy
- Fundraising Policy
Board Trainings for Nonprofits
Nonprofit boards are comprised of volunteers serving to advance the mission of the organization. Board members may be appointed for various reasons such as dedication to mission, expertise in a particular area, or standing within the community.
Notwithstanding, service appointment to a nonprofit board does not always require prior nonprofit board experience or understanding of the unique nuances associated with board service.
For this reason, Tovella Dowling frequently engages in Board training aimed to equip directors with the tools and resources necessary to uphold their fiduciary duties and comply with applicable nonprofit laws and regulations.
Our attorneys provide education, training, and counsel on matters such as the legalities of properly noticing, calling, and conducting board meetings, techniques for drafting minutes and resolutions of the Board, legally structuring standing, and advisory committees of the board, empowering executive officers to carry out authorities defined and delegated by the Board of Directors and other critical aspects of board service.
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