Nonprofit board members are more likely to serve on boards with missions close to their heart, or with an organization of which they are professionally connected. Board members serving at clubs are no different in that they serve with the clubs they are most personally connected with as well. No matter what type of board you serve, two major responsibilities are in order: to serve as a dutiful member and to raise future board members.
In spite of attempts by management to provide sufficient facts and structure to the decision making process, many clubs make decisions based on anecdotal evidence of what is happening in the club or, even worse, at the club down the street. Although club managers have made tremendous strides in running a club like a business, making decisions based on fact rather than opinion or emotion is not always the norm. Anyone who has been a member of a club board certainly has an understanding of and appreciation for the dynamics in the boardroom. As is so often the case in the larger world, the most persuasive person or loudest argument is not necessarily the right one.
Over the last 20 years, clubs have taken great strides toward operating as a business. In well operated clubs, professional managers run the club and the board of directors provides the strategic direction. However, this is not the case with all clubs. Particularly with the impact of the recession, many boards started taking a more hands-on role in the club operations which, generally, may not be the best course. The members are the lifeblood of any club. The members elect a board of directors to facilitate the operations and direction of the club. While many board members are very successful in their own careers, the operation of a club is a different animal all together. It is critical that all board members understand their role.
In the larger world, as individuals, we are all free to make decisions in a manner consistent with our own personality. We are not bound to make decisions in any particular manner when acting in our own self-interest. Yet what manner is required when we step into a fiduciary role? A club’s board is the central decision making body of the club. Members elect the board and expect the board to represent and act in the best interest of the club as a whole, not a particular segment. Members of boards in clubs are also fiduciaries. Life and death may not be at stake (but you cannot always tell that from the passion brought to some issues), however, there is still an expectation decisions will be made in an objective manner with the necessary diligence. As a fiduciary in any walk of life, there is an obligation on the part of the fiduciary (board member) and an expectation on the trusting party (membership at large) that decisions will be made in an educated manner based on thought and diligence and that the right decision will be made based on all the facts available.
A board member also has a potential liability if he or she fails to uphold these duties. According to the Midwest Center for Nonprofit Leadership, from a legal perspective, a nonprofit board and its members individually have three fundamental fiduciary duties: duty of care, duty of loyalty and duty of obedience.
Duties of Boardroom Members
Duty of Care
The duty of care means that the board member actively participates, attends board meetings, is educated on the industry, provides strategic direction and oversees management. Some clubs take this to an extreme and the board attempts to micromanage management. This is not the responsibility of the board. The responsibility is to provide the strategic oversight to ensure the success of the club in the future. They are required to educate themselves and make decisions based on facts and not opinion and emotion
Duty of Loyalty
The duty of loyalty requires the board member to operate in the best interest of the club and not to his or her personal agenda. Clubs should have and should enforce a conflict of interest policy to ensure that board members (or their families) do not financially benefit from their position on the board. Failure to follow these provisions can make the board member, and the board as a whole, personally liable for such decisions.
Duty of Obedience
The duty of obedience requires the board to know the applicable state and federal laws. In addition, for a tax exempt entity, this also entails the regulations and guidance issued by the Internal Revenue Service. It requires knowledge of the operating documents (by-laws, rules, board manuals) and an understanding of the difference between the terms “may” and “must” contained in those documents. Finally, the board cannot act outside the scope of the organization’s legal documents.
At the board level in a club, decisions are made by a group of people. The individuals in the group come to the table with a diverse set of personalities and experiences. Some are charismatic, some are introverted. Some are penny wise and pound wise, others are penny foolish and pound foolish. But all are charged with a common duty. Each board member is charged with acting with diligence on behalf of the membership of the club. Those meeting the standards of a fiduciary cannot make decisions based solely on their own emotions or opinions. Decisions are expected to be made based on data and fact. Once a decision is made, it must be supported by the whole board, regardless of the disagreements leading up to it. Nothing is more damaging to a club than to have a member of the board undercutting a decision made by the board as a whole. Basing controversial decisions on facts makes it easier to support a decision a board member once opposed.
I may have scared off half the readers from serving on the board of a club. In fact, because of the time commitment and issues raised above, many clubs are finding it more difficult to get members to serve. However, that is one of the responsibilities of the board; to groom those individuals coming after them. The good news is that clubs that have solid governance policies and an educated and committed board generally are the most successful. Given the importance of club governance, The National Club Association (NCA), in conjunction with the NCA Foundation, provides many resources to assist club boards. Among these are: The Board Toolkit: Club Leadership Essentials and Club Governance Guidelines: A path to organizational excellence. Both should be required tools for any board.
As published in Boardroom Magazine, September / October 2017 Edition by Kevin F. Reilly, JD, CPA, CGMA
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