Agenda Gems: Legal Duties of the Board of Directors
What is a board?Some organizations are governed by administrative or ‘hands-on’ boards while others are led by policy-governing boards. Both boards may be called a board of directors, a board of governors or a board of trustees.
The responsibility of an organization’s board is to:
Provide leadership and direction to the organization; and
Govern the affairs of the organization on behalf of its stakeholders or members
What is a director?
A director is an individual who is a member of a governing board of an organization.
Directors of non-profit organizations are volunteers and are rarely paid for their services. As a rule, directors are elected or appointed to their positions on the board. They may also be officers, where an officer fulfills certain corporate roles and functions (such as those duties of a ‘president, ’‘treasurer’ or ‘secretary’ of the organization). Officers can also be senior staff persons, and in rare circumstances, staff persons can also be directors.
Regardless of the name, size, or type of organization, the role of the director remains fairly constant. Directors and officers of non-profit organizations are responsible for governing the affairs of the organization on behalf of its members. Directors and officers have a relationship of ‘trust’ with the members of the organization, and it is from this trust relationship that certain important legal duties arise.
What are the legal duties of a director?
The basic responsibility of directors is to represent the interest of the members in directing the affairs of the organization, and to do so within the confines of the law. This legal duty is described in statutes and has been expanded and interpreted in the common law.
In representing the members of the
organization and acting as their ‘trustee,’ directors have three
basic duties: Diligence, Loyalty, and Obedience (See next page
for more detail).
What are the liability implications of these duties to directors?
A director who fails to fulfill his or her duties as outlined above may be liable. The term ‘liability’ refers to the responsibility of directors and organizations for the consequences of conduct that fails to meet a pre-determined legal standard.
A Discussion Paper on Legal Liability, Risk Management and the Role of Directors in Non-Profit Organizations informs board members about their legal responsibilities and provides practical suggestions for managing risks and minimizing personal liability.
Developed by Volunteer Canada (2002)
Full document available at
http://www.volunteer.ca/volunteer/pdf/LiabilityEng.pdf- Summary of the Legal Duties of the Board of Directors here.
Go here for a great summary you can share with board colleagues. It summarizes board responsibilities and important annual agenda items.
