“A local nonprofit organization has asked me to join its board of directors. It’s a real honor for me, and a cause I believe in, but I’m just a little nervous about my legal responsibilities. Could you tackle those at some point?”
A lot of nonprofit startups are looking to build their boards right now; I have even received some invitations. Joining a nonprofit’s board of directors can be both an honor and a terrific opportunity to network with the powerful and influential people that usually join nonprofit boards. If you want to hobnob with those individuals who are considered the 1 percent, find out which charities they support and get involved.
But as with all business related activities, there are some risks.
The first question you need to ask yourself is: why are you being asked to join the board? There are three possible reasons you are being invited:
–Your skills. Nonprofit startups look for people with business experience, a history of philanthropy and leadership skills.
–Your contacts. As a board member, you will be expected to help with fundraising activities — how deep is your Outlook contact list?
–You are fresh. The organization has reached a stage where the only board members are worker bees and outside directors are required, by law, to approve matters such as employee compensation and transactions between the organization and its other directors. As an outside director, your vote on these matters will be critical.
The next question you should ask is: What level of time commitment will be involved? Nonprofit organizations are notorious for demanding much of your time. Unfortunately, this demand is also known to take place during inconvenient times of the year, when business and other activities that generate revenue must take priority.
Another question you should ask yourself is: Why do I want to do this? Some common motives are:
–Belief in the organization’s mission.
–A desire to network with the other directors and wealthy donor.
–Interest in a public relations opportunity that may help promote other undertakings you are involved in.
Another question to ask: Is the image I will gain by joining this organization consistent with the other activities in which I’m involved? For example, if you are a local politician known for your conservative political opinions, you may want to think twice about joining an organization that tends to support left-leaning causes. Choose your affiliations wisely.
If you are joining an organization that promotes a cause that will hurt the interests of your current employer or your own business, think long and hard before joining. You may be choosing between your values and your finances.
Last but not least, you must ask three, specific questions regarding the organization’s leadership.
–Does your state exempt volunteers from liability? Virtually all states have a statute that exempts volunteers of charitable organizations from legal liability of any kind. But some of those statutes have fine print and you need to know what the limitations are. For example: If the statute protects you from liability if you are negligent in the performance of your duties, will you be protected when someone sues you for gross negligence of your duties?
By definition, a volunteer does not receive compensation of any kind from the organization. If you are receiving any sort of fee for serving as a director, you are no longer a volunteer and may be liable for your actions. Also, look out for expense reimbursements. If you are required to fly to Washington, D.C., to testify on behalf of your organization before a Congressional subcommittee, and the organization is reimbursing you for your travel expenses, does that affect your position as a volunteer under the exemption statute?
Will the organization indemnify you from lawsuits? In the unlikely event that the volunteer board members are sued individually due to something the organization may have done as a whole, will the organization pay your legal expenses and any judgment that is rendered against you? Again, state laws vary as to when an organization is obligated to do this or not.
Is there insurance to back up that indemnity obligation? If the organization is just starting up, it probably won’t be able to afford liability insurance for its directors and officers (D&O coverage). This insurance is expensive; many organizations will try to convince people that as volunteers, they have nothing to worry about.
Get that promise in writing, along with a written commitment from the organization to purchase Directors and Officers insurance as soon as possible.