What a charity board does

This guide is for anyone who has joined a charity board, or is about to, and wonders what they've actually signed up for. Many board members are asked to join because they're kind and committed, and nobody explains the job. After reading, you'll understand your three legal duties in plain words, know what a good board meeting looks like, and be clearer about what the board should and shouldn't do.

The board is responsible

A nonprofit corporation is governed by its board of directors (some charities call them trustees). The board is legally responsible for the organization. Even if the charity has a paid director and staff, the board holds the final responsibility for the charity's money, its legal compliance and its direction.

The New York Attorney General's guide for directors, Right from the Start, puts it this way: the board must make decisions crucial to the life and direction of the organization, such as hiring and firing key officers, engaging auditors and authorizing significant financial transactions. In doing that, board members owe fiduciary duties to the organization and the public it serves. A fiduciary duty is a legal duty to act in someone else's best interest, here the charity's and its mission's.

Those duties are commonly called the duties of care, loyalty and obedience. State laws differ in the details, so check your own state, but these three ideas are widely used.

Duty of care: pay attention

The duty of care means taking your role seriously and making informed decisions. Right from the Start describes it as being familiar with the organization's finances and activities, taking part regularly in its governance, and acting in good faith with the care a prudent person would use in a similar position.

In practice, that means:

• Go to meetings and take part.
• Read the materials before the meeting, and write down questions.
• Read the minutes and the financial reports. Ask until you understand them.
• Make sure the charity has effective internal financial controls. See our guide on financial controls.
• Check that the budget is followed, with differences explained.
• Know whether the charity has directors' and officers' liability insurance, and what it covers.
• Take part in hiring and reviewing the chief executive, if there is one.

If you disagree with a board decision, Right from the Start advises making sure your dissenting vote is recorded in the minutes.

Duty of loyalty: put the charity first

The duty of loyalty means acting in the charity's interest, not your own or a friend's or family member's.

The main tool is a conflict of interest policy. A conflict of interest is a situation where a board member, or someone close to them, could benefit personally from a board decision. Say the board wants to hire a printer, and one director's brother owns a print shop. That's a conflict. It doesn't mean the charity can't use the shop, but it must be handled properly.

Right from the Start says New York law requires nonprofits to have a written conflict of interest policy, and lists what a good one includes:

• what counts as a conflict,
• how to disclose one,
• that the person with the conflict doesn't take part in the discussion or vote,
• that each conflict and how it was resolved is documented, and
• that directors sign a statement every year listing their possible conflicts.

Even if your state doesn't require one, adopt one. IRS Form 990 asks whether you have a written conflict of interest policy, whether people must disclose interests every year, and whether you monitor it. The IRS notes these policies aren't required by the tax code, but your answers are public.

Duty of obedience: follow the mission and the law

The duty of obedience means making sure the charity sticks to its mission and follows the law and its own rules. Right from the Start lists examples:

• using the charity's resources for its mission,
• not taking on activities outside its purposes,
• registering and filing required reports with the state, and filing IRS returns,
• paying payroll taxes when you have employees, and
• following your own bylaws and policies.

It also warns that board members may be personally liable for failing to pay employees' wages and benefits, or for failing to pay over taxes withheld from employees' pay. If your charity has employees, the board must know payroll taxes are being paid.

What a good board meeting looks like

• Materials go out ahead of time, ideally a week before: agenda, last meeting's minutes, financial report and any proposals to vote on.
• A clear agenda with times. Big decisions first, when people are fresh.
• A quorum is present. A quorum is the minimum number of board members your bylaws say must attend for decisions to count.
• Conflicts are declared at the start.
• The financial report gets real attention, not a two-minute nod.
• Most time goes to the big questions: strategy, money, risks, the mission.
• Decisions are clear. Every vote has a clear motion and the result is recorded.
• Minutes are kept, short and accurate: who attended, what was decided, any dissent. IRS Form 990 asks whether the board's meetings were documented at the time.
• Time without staff present, when there's paid staff, as Right from the Start suggests.
• It ends on time, with action items, owners and dates.

What boards should and shouldn't do

The board should

• Set the mission and direction.
• Approve the budget and watch the money.
• Hire, support and review the chief executive, if there is one.
• Approve key policies, such as conflicts of interest, whistleblower protection and document retention.
• Make sure legal filings are done.
• Help raise money and open doors.
• Represent the charity well in the community.

The board shouldn't

• Manage daily work when there's paid staff to do it. Boards that micromanage drive good staff away.
• Let one person, often the founder, make all decisions without discussion.
• Approve things it hasn't read.
• Treat the charity's money or property as its own.

In very small charities with no staff, board members often do the daily work too. That's fine. Just be clear when you're wearing your "volunteer" hat and when you're wearing your "board" hat, and make big decisions together, at meetings.

Before you join a board, ask

• Can I see the last Form 990 and the latest financial report?
• Is there a conflict of interest policy, and will I sign it each year?
• Does the charity have directors' and officers' insurance?
• Are all state and IRS filings up to date?
• How often does the board meet, and what's expected of me?
• Are there any lawsuits, debts or problems I should know about?

If you want an experienced board member to talk things through with, ask a member charity for help through the Exchange.