Question

You are a nonprofit consultant who has been asked to advise the Board of Drivers-R-Us. Drivers-R-Us is a 501(c)(3) whose mission is to provide rides for seniors to medical appointments. The nonprofit, Drivers-R-Us, has been run very well by the Executive Director (ED) for many years. In fact, the board members, who are mostly retired seniors themselves, have done little but show up and approve whatever the ED suggested. But, lately the ED has been poorly prepared for meetings, fundraising has declined, and the employees seem dissatisfied. Even some of the seniors have complained about rides that never materialized causing them to miss appointments. The board members have no clue how to run the organization as the ED has always done that, realize they need help and fast! So, the Board hires you to provide them with advice on governance. Tell me what you would do. Included in your advice to the board instructions about their legal responsibilities. Identify and define the three concepts that summarize the legal responsibilities of a nonprofit board. Explain why these are important and relevant to this case.

Answer 1

The board acts as trustee of the organization's assets and ensures that the nonprofit is well managed and remains fiscally sound. In doing so, the board must exercise proper oversight of the organization's operations and maintain the legal and ethical accountability of its staff and volunteers.

The main legal responsibilities of a nonprofit board are often summarized in the "three Ds":

Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.

Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.

Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

In addition to its legal responsibilities, the board acts in a fiduciary role by maintaining oversight of the nonprofit's finances. Board members must evaluate financial policies, approve annual budgets, and review periodic financial reports to ensure that the organization has the necessary resources to carry out its mission and remains accountable to its donors and the general public. The board must also ensure compliance with federal and state regulations.