Governance is Governance

Board of DirectorsRoles and Responsibilities

November 2011

Fiduciary Duties of Board MembersThe Texas Nonprofit Corporation Act (now part of the Business Organizations Code) states the following:Sec. 22.221. GENERAL STANDARDS FOR DIRECTORS. (a) A director shall discharge the director's duties, including duties as a committee member, in good faith, with ordinary care, and in a manner the director reasonably believes to be in the best interest of the corporation.(b) A director is not liable to the corporation, a member, or another person for an action taken or not taken as a director if the director acted in compliance with this section. A person seeking to establish liability of a director must prove that the director did not act:

(1) in good faith;(2) with ordinary care; and(3) in a manner the director reasonably believed to be in the best interest of the corporation.

OK, but what does that mean?The Board of Directors manages the affairs of the nonprofit, unless limited by the articles of incorporation or bylaws. Directors are required to perform their duties:

• In good faith. Good faith is shown by honesty and faithfulness to duties and obligations and whether there is an intent to take advantage of the nonprofit.

• With ordinary care. Ordinary care is the use of good judgment and common sense. Directors should devote a reasonable amount of time and attention to their responsibilities, attend meetings, and review and understand material submitted to them. They should ask questions, if necessary, to obtain enough information to fulfill their responsibilities. Ordinary care may differ from director to director based on their background and experience and the role they play in the organization.

• In the best interest of the nonprofit. A director acts in the best interest of the nonprofit if the director reasonably believes that the action will benefit the nonprofit. The director should have a proper motive and base the belief on sufficient information. Hindsight is not the test, even if the action turns out badly, as long as the action was taken with the best interest of the nonprofit in mind at the time the vote was made to approve the action.

From “Nonprofit Legal Toolkit”(http://www.texascbar.org/content/legal_library/pubs/downloads/legal_toolkit_sec1.pdf)

Governance is not Management• Executive = CEO/President.

– Board chair is NOT the lead executive of the organization. – Board is NOT the management of the organization.

• Boards have a tendency to fill management gaps – should instead focus on helping executive fill management gaps

• Board members are to support, encourage, challenge, stimulate, and help that professional executive whom we pick to lead our endeavor

• Board members should see to it that the organization is well managed, rather than managing it yourself

• Board sets policies, management implements and executes, board monitors results

• Board chair = primary interface between board and executive

Adapted from “Governance is Governance” by Kenneth Dayton

Director vs. Volunteer

“… trusteeship involves helping the CEO in whatever way is requested of you and that you possibly can do. Here I am talking about the volunteer side of my directorship, and it has nothing to do with the governance responsibility I hold as a director. … I hope you will keep those two roles of a trustee—governing and volunteering—very separate in your minds…” Kenneth Dayton in “Governance is Governance”

Another way to look at it

• Governance = authority (from bylaws)• Management = responsibility to

execute (which includes asking board members and others to take on specific volunteer tasks)