In many cases, the standard of care for public and private entities is applied to directors and officers of nonprofit organizations. Therefore, selection of individuals to serve on the board is critical at any stage of the organization's existence. Here's advice for nonprofits on how they can pick their board members:
Size: More is not necessarily better. Nonprofits should seek management and financial experts who can help achieve goals and objectives with a balance of diversity, business expertise and independence.
Independence: Nonprofits should seek individuals who will provide independent advice, have no conflicts of interest, and will make decisions that are in the best interests of the organization and its members. Ideally, the majority of the directors should be from outside the organization.
Education: Each board member must have an understanding of the environment in which the entity operates, as well as the laws and regulations that apply to operations. The education of board members should be an ongoing process, along with a review of the laws governing the activities of directors. That review should include anti-trust activities, intellectual-property protection, employment practices, pollution, fraud and governmental contracts.
Bylaws and Procedures: Review the corporate charter and bylaws so they adequately define the purpose and scope of the organization. Particular attention should be paid to the indemnification provisions--they are one measure to protect the directors and officers personally and attract quality members to the board.
Guidance and Advice: Guidance in developing or revising the bylaws should be sought ideally from outside counsel, along with advice on sound risk management practices, to ensure the most protection for those serving on boards.
November 1, 2006
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