Cleveland | Columbus | Indianapolis | Philadelphia | Shanghai | White Plains | Wilmington Legal Responsibilities of Not-for-Profit Board Members November 12, 2014 Martha J. Sweterlitsch, Esq. and T. Ted Motheral, Esq.

Roles and Responsibilities of the Board Three broad areas of responsibility: Planning and policy development Community and organizational development Fundraising and support development

Roles and Responsibilities of the Board Planning and Policy Development Determine the mission and vision that charts the future direction of the organization Develop policy in response to major issues Monitor the performance of agency programs, products and services

Roles and Responsibilities of the Board Community and Organizational Development Broadening the organizations base of support in the community Interacting with the community to bring new issues, opportunities and community needs to the attention of the organization Maintaining accountability to the public, funders, members and clients Training and developing current and new leaders

Roles and Responsibilities of the Board Fundraising and Support Development Giving personal time and money Developing donors, members and supporters Leading and supporting fundraising campaigns and events Maintaining accountability to donors and funders

Barriers to Board Effectiveness Temptation to micro-management Ineffective nominating committee No plan for rotation Failure to remove unproductive members

Barriers to Board Effectiveness Too small Lack of functioning committee structure No strategic plan No plan for orientation of new and old members Lack of diversity –opinions, experience, culture

The Board Development Process Recruitment and nominations Have a board recruitment and nominations process Have a long-range plan for board leadership development

The Board Development Process Long-range Plan Questions Who will be serving on and leading the board over the next five years? What is the plan to scout board leadership talent for the future? How will you go about fostering and developing future board leadership?

The Board Development Process Characteristics of long-range process Year-round committee Link to the strategic plan Profile of the current board Focused recruiting priorities Written member job description (Clarifies board responsibilities and should periodically reviewed and updated by the Directors)

The Board Development Process Key responsibilities Consistent attendance at regular board meetings Participation as an active member on at least one committee Participation in fund-raising activities Preparation in advance before regular board meetings by reading and studying materials regarding key actions board is expected to take at meeting Attend annual board planning events

The Executive Committee Executive Committee consists of four executive officers of the board President Vice-president Secretary Treasurer Sometimes other members of the board are included

The Executive Committee Three critical roles of Executive Committee Planning the agenda of board meetings Meet regularly before board meetings with the Director to develop agenda Making decisions on behalf of the full board Make decisions that cant wait for next regular meeting or matters board has delegated to Executive Committee Serving as a communication link with other members of the board

The Committee Structure Committees do the bulk of the work of the organization. Elements of committee effectiveness: Written committee description Effective committee chair Members thoughtfully appointed Accountability to the board Well run meetings

Annual Board Self-Evaluation Process Effective process includes: Annual process Two-way communication Follow through Board member accountability

Just-in-time Board Orientation Training and orientation Provided in a timely manner to be effective Detailed information about the organization The workings of the board Expectations for individual board members Other vital information Board orientation will also focus on the strategic plan

Duties of Directors Duty of Care – pay attention Duty of Loyalty – organization interests come first Duty to Maintain Accounts – understanding the financials Duty of Compliance

Duty of Care Attend Meetings Be Active and Contribute Stay Informed Act with Diligence and in Good Faith

Duty of Loyalty Act in the best interest of the charity Interest of the public, takes precedence over the board member's personal interests. Loyally and without self-interest, further the charitable objectives of the organization

Conflict of Interest Disclose the existence of the financial interest in entity with which organization does business Extends to immediate family members of director or staff Board to determine if conflict exists Manage the conflict

Managing Conflict of Interest Interested party may present to Board then leave discussion Investigate alternatives to proposed transaction –due diligence Is there a more advantageous arrangement that would not give rise to conflict? If no, majority vote of disinterested directors

Duty to Maintain Accounts Board members are responsible for assuring the financial accountability of the charity Regular financial reports Procedures be established to keep the organization fiscally sound and insure that it operates in a fiscally responsible manner. Proper use of any restricted funds

Duty of Compliance Be faithful to the organization's purposes and comply with the charity's governing documents. Be familiar with the laws that apply to the charity and seek to comply with those state and federal laws that relate to the charity and its business operations

Good Faith Director is entitled to rely upon the following: Representations, reports, etc of other directors or employees who director reasonably believes are reliable and competent in the matters prepared or presented; Counsel of public accountants or other persons as to matters the director reasonably believes are within the person's professional or expert competence; A designated committee of directors.

Standard of Proof of Breach of Good Faith Clear and convincing evidence Unless Articles or Regulations state otherwise, a director is not liable in simple negligence for damages for acts or omissions. Act must be undertaken with deliberate intent to cause injury or in reckless disregard for the best interests of the corporation.

Who Enforces Charitable Trusts? Ohio Attorney General enforces “charitable trusts” All 501(c)(3) organizations are charitable trusts AG responds to complaints Breach of fiduciary duty Use of funds Conflicts of interest and self dealing Donor restricted contributions

IRS IRS has sample conflict of interest policy New 990 asks more questions about directors and conflicts Exemption application form poses more questions about Directors and Conflicts IRS is actively enforcing excess benefit transaction laws IRS is communicating with State charity regulators

Other Sources of Liability Negligence Directors and officers can be held liable for their own negligent or intentional acts or omissions that occur in the course of performing duties for the charity and that result in harm to third parties

Liability (cont) Tax and Exemption Issues. Anyone who participates in the decision not to pay over the withholding taxes timely assumes personal responsibility for the debt including penalties and interest. If there is more than one person involved, the liability is joint and several. There can be personal liability in the area of excess compensation to officers or employees of the charity

Volunteer Immunity State law immunity is limited Protects volunteer from claims arising out of the actions of other volunteers, officers, employees, or directors as long as the volunteer does not ratify those actions and as long as the volunteers supervisory or corporate services are not willful, wanton or intentionally tortious acts

Volunteer Immunity (cont) Volunteer has immunity from claims for damages based on his own non supervisory or non corporate services to the charity as long as his conduct is not negligent, willful or wanton or intentionally tortious What else remains?

Federal Volunteer Protection Act Civil liability protection for non-profit or government volunteers if: volunteer was acting within the scope of his/her responsibility; volunteer was properly licensed, certified or authorized to engage in the activity or practice and those activities were within the scope of the volunteer's responsibility;

Federal Volunteer Protection Act (cont) Harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct or a "conscious, flagrant indifference" to the rights or safety of the individual harmed by the volunteer; and Harm was not caused by the operation of a motor vehicle, aircraft, or other vehicle for which an operator's license or insurance is required by the state.

What to do to Protect Volunteers? Indemnification Insurance Directors and Officers General liability and casualty Professional Liability if appropriate

QUESTIONS Martha J. Sweterlitsch, Esq. Telephone: (614) T. Ted Motheral, Esq. Telephone: (614)