Tag Archives: board-of-directors

Serving on Community Service Boards

Many business people give back by serving on community service boards. This is a great way for worthy organizations to gain from your enthusiasm, skills and talent. It also helps grow your network of advice and support people.

Board members of community service organizations have legal responsibilities just like for-profit corporate boards. If you want to be effective, learn the rules. For most service organizations the rules are laid out in the constitution and applies to formal board members or “committee” members. Too many people don’t look at this document until it’s too late. I’ve seen active Not-For-Profits that have not held an Annual General Meeting for 3 years because the board blindly followed what the previous guys did. But someone forgot to have an AGM.

Some constitutions are hard to read, in that case consider updating the constitution to plain English. The existing constitution should have provisions for making changes.

Take the time to familiarize yourself with the contents of the constitution.

I am advising a non-profit organization on a internal members dispute. That’s one advantage of my background in Alternative Dispute Resolution and consulting. Sadly it means I spend too much time with people who are in the middle of arguments. Getting the emotion and heat out of a dispute is the best way to win a satisfactory resolution. That outcome may be Win-Win, Win-Lose or even Lose with damage mitigation.

This nonprofit organization had to spill its board but encountered two problems. Firstly most board members relied on their Chairman to explain this board removal process outlined in the constitution. Not enough of them checked the details themselves. Secondly the process they followed was mostly right. Had they read the constitution, they could have quoted the clause under which they acted and worded their resolutions better. Now they’ve got a vocal and unhappy minority who are threatening legal action because of some unclear wording.

Risks of serving on a board of directors

Directoship Risk was a question asked and answered by a LinkedIn connection of mine – the erudite Dr. Earl R. Smith II Executive Director of Longview. Actually Dr Smith covered more than risk, he laid down some Board of Directors – Basic Principles and included great perspectives on Director compensation. He also invited comments on the risks of serving on a board. I replied…

Keep detailed minutes of the meeting and if there is an error or over-simplification move an amendment before adopting the minutes of the previous meeting.

I am aware of a board currently trying to deal with a decision that was not properly minuted. An executive director overstepped her delegation but the minutes of the relevant meeting did not spell the limitations out. But every board member remembers the discussion and the limits placed on the delegation. When the deal came unstuck 12 months later the board have a major problem with their process.

Directors in common law countries have a duty of care to ensure they are adequately informed. Directors are expected to make their own enquiries to ensure they are receiving accurate information from the executives reports.

Some risks haven’t been mentioned.
Sarbanes-Oxley Act (SOX): Directors have significant and onerous obligations even if they are on the board of a small public company.

NEWS ALERT: SOX could apply even if your company is not domiciled in the USA. If you do business in the USA there is the potential to be within that jurisdiction.

This includes selling products to a USA domiciled customer especially if you sell FIS, CIF or C&F. As the risk and title of the goods does not pass until the goods are in the USA a case can be made that you are trading in the USA.

If your email or webhosting is in the USA an argument can be made that you have a US presense and are subject to SOX.

This is a stretch but ignore it only if you never intend to set foot in the USA. They’ve arrested hackers on tourist visas in the past. Google Jon Lech Johansen (DeCSS) and Dmitry Sklyarov.

Secondly boards of non-profits in receipt of government funding must not only be aware of their fiduciary duties (including duty of care and duty of loyalty, but also to avoid conflict of interest), there are laws for the jurisdiction or the funding body that carry civil or criminal penalties.

Thirdly in some jurisdictions your personal credit history/score includes an evaluation of the companies where you are a director. This happened to me when I agreed to attempt a turnaround that did not succeed. The company was liquidated and I still have to explain I was a non-executive director (sometimes banks even listen).

Insurance policies can be void in the event of fraud or malfeasance.

As a result of my experience I only serve on boards that I am passionate about. It also means I am more conservative in my board role than I am with my own money.

As for suing directors for breach of duty? If there is fraud or malfeasance then let the ambulance chasers loose. Sadly all other cases highlight the move of the Common Law world from one of responsibility to a world of blame and entitlement. An unfortunate by-product of the oversupply of lawyers.