New
Mexico Guide To Board Members of Dear Board Member: Thank you for serving as a board member of a nonprofit charitable organization. The generosity of New Mexicans funds crucial programs provided by arts and cultural organizations, churches, environmental groups, schools, hospitals, and other social service agencies. Our quality of life is dependent upon the many volunteer directors who are willing to give their time and talents to govern these charitable organizations. Although charitable organizations vary greatly in size, structure, and mission, there are a number of key principles that apply to board service for all charities. This guide is provided by the Attorney General's Office to assist board members in understanding and performing these important duties. But this is only a guide and cannot suggest the exact manner in which board members must act in all situations. Specific legal questions can only be answered with the assistance of a competent attorney working on behalf of the organization. Nevertheless, I believe this guide will give you the big picture view of what your legal duties are as a board member of a charitable organization. Active participation in charitable causes, both as a donor and as a board member, is critical to improving the quality of life for all New Mexicans. On behalf of the public, I appreciate your dedicated service. PATRICIA A.
MADRID DIRECTOR OR
TRUSTEE: Charitable organizations recruit board members for a variety of reasons. Some individuals are talented fundraisers and are sought to help raise money. Others bring credibility, prestige or expertise to an organization. Whatever the motivation of the individual or the charity, joining a board of trustees is a decision not to be taken lightly. The principal role of the board of directors is to act as the steward of the charitable assets. The charitable assets are a "public trust" placed in their "private hands" to be used only for the charity's approved mission. The charity may not be operated for private benefit. The board of directors is legally responsible for the management of the affairs of the charity. Stewardship requires active participation. People who do not have the time to regularly participate should not agree to be on a board. One of the most important functions of the board is to keep the resources and efforts focused on the charity's mission. This requires the board to have an adequate understanding of the organization's programs, people and resources available to achieve the organization's goals. As a starting point, every board member should be familiar with the organization's articles of incorporation, its bylaws, its IRS Form 990 and its financial statements. BOARD OF
DIRECTORS The board of directors is not expected to manage the day-to-day activities of the charity. For those duties the board should hire an executive director. However, it is the board's responsibility to oversee the executive director's work to see that the charity is fulfilling its mission. The board has a duty to review and assess the executive director's performance. If it becomes necessary, the board has the authority and the responsibility to fire the executive director. The board of directors sets the executive director's compensation. Every board member needs to know what the executive director is paid and must participate in the final decision to set the level of compensation. The compensation needs to be reasonable for the services rendered and compare favorably to executives in organizations in a similar situation. The board should remember that the executive director's compensation, as well as that of other key executive officers, may be important to donors and the general public. The compensation information must be reported on the IRS Form 990, which is accessible to the general public. The board of directors for an all-volunteer organization takes on the added responsibilities of the day-to-day activities of the charity. THE STANDARD OF CARE The New Mexico Charitable Solicitations Act defines the standard of care at Section 57-22-10 NMSA 1978 as:
THE LEGAL DUTIES Trustees and directors of a charitable organization, whether or not the organization is formally incorporated as a nonprofit corporation, have specific legal duties to the organization. The primary duties are:
THE DUTY OF CARE The duty of care requires active participation in the charity's affairs by attending board meetings and meetings of committees on which the trustee or director serves. Each board member must stay informed to determine if the board's policies are being followed and to understand how the charity is functioning. Boards may establish committees having the authority of the board and may rely on information, opinions, or reports of these committees as the basis for a formal board action. However, the committees remain subject to the direction and control of the board. As a result, individual board members are responsible for the work of the committees. The duty of care must be discharged diligently and in good faith. Board members must act with knowledge and after deliberation, and should carefully establish policy and regularly oversee its implementation and administration by a competent staff. Unfortunately, some board members simply don't do their jobs. Board members who are regularly absent from meetings, are inactive, or who fail to conduct adequate research prior to making decisions, have breached their duty of care. Neither the individual board member nor the charity benefits from this kind of "service." Board members must conduct themselves with the level of care, skill, and diligence exercised by "prudent persons" in the handling of their own affairs. Generally, a board member who knows the facts, analyzes the probable result of an action, exercises sound judgment, and keeps reasonable records, acts prudently and fulfills this important duty of care. The following are specific actions board members should take to ensure that their duty of care is being fulfilled:
THE DUTY OF LOYALTY The duty of complete and undivided loyalty requires that the interest of the charity and, as a consequence, the interest of the public, take precedence over the board member's personal interests. A trustee must, loyally and without self-interest, further the charitable objectives of the organization by acting fairly and in the best interest of the charity. Trustees may breach the duty of loyalty when they engage, directly or indirectly, in transactions between themselves as trustees and themselves as individuals or with family members or businesses in which they hold an interest. Board members should not engage in any transaction that is adverse to the charity, engage in any competing enterprise to the detriment of the charity, divert an organizational opportunity for personal gain, or derive any kind of secret profit or other advantage in dealing with or on behalf of the charity. Caution should be exercised in entering into any business relationship between the organization and a board member, and should be avoided entirely unless the board determines that the transaction is clearly in the charity's best interest. The following are specific actions board members should take to ensure that their duty of loyalty is being fulfilled:
THE DUTY TO MANAGE ACCOUNTS Board members are responsible for assuring the financial accountability of the charity. Procedures need to be established to keep the organization fiscally sound and ensure that it operates in a fiscally responsible manner. Care must be taken to use any restricted funds properly. Trustees need to oversee the executive director and determine that the charity's purposes are fulfilled without waste. Preparation of a budget is important to provide clear directions for spending and translating program and management goals of the board into financial projections. The organization needs to be able to demonstrate the wise use of its funds. Accurate records of all income, expenditures, transactions and activities must be maintained. Accurate minutes of board meetings should be taken in order to demonstrate board approval of certain expenditures and investments and to show that informed decisions were made with regard to these transactions. The following are specific actions that board members should take to ensure that their duty to manage accounts is being fulfilled:
THE DUTY OF COMPLIANCE Board members have a duty to be faithful to the organization's purposes and comply with the charity's governing documents. They are also under a duty to be familiar with the laws that apply to the charity and to comply with those state and federal laws that relate to the charity and its business operations. The following are specific actions board members should take to ensure that their duty of compliance is being fulfilled:
IS IT WORTH IT? YES. A board member who feels that his or her position as trustee is merely honorary is in for a rude awakening. When you agree to serve on a charity's board, you accept stewardship responsibility for the funds donors have contributed. Donors are placing their trust in you, the public who benefits from the charity's services is depending on you, and regulators are watching you. These responsibilities need not frighten off any prospective board member. Board members need only be active and involved, use sound judgment, responsibly, and in fairness to the charity, and always have the charity's best interests foremost in all actions. For board members who take their responsibilities seriously, the rewards of voluntary service are immeasurable. SUGGESTED RESOURCES: Internal
Revenue Service National
Center for Nonprofit Boards Internet
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