Lexington, KY - If the fallout from the recent spending scandal at the Blue Grass Airport caused people sitting on public and nonprofit boards to think twice about the liabilities associated with giving the time to serve, the March meeting of the Lexington Forum gave those concerned plenty to ponder.
"The first thing you need to realize is you are a fiduciary when you become a board member of a charity," said panelist Foster Ockerman, who is an attorney focusing much of his work on tax-exempt entities. "It boils down to this: the primary duty of a fiduciary is to put the interests of the organization ahead of your own. That's a little contrary to the way we conduct ourselves on a day-to-day basis, but that's what it means. When you become a board member, the first thing you are doing is putting that organization first in your mind and your activities."
The best job description of a nonprofit board member, according to Ockerman, came from the late director of the Lexington Opera House, Dick Pardy: "Give it, get it, or get off."
The "it," of course, is money. Board members are responsible for raising it and ensuring it's being spent properly. But Ockerman and fellow panelist, Danielle Clore, director of UK's Nonprofit Leadership Initiative, fear too many people take spots on boards for the prestige, not for the cause, and are unprepared or unwilling to assume the commitment.
"Nonprofits traditionally downplay the time commitment that it takes to be a board memberÖ potential board members need to make that decision: Do I have the time to give to this organization? Not just monthly meetings, but committee meetings, fundraising - (It's) all involved in the organization," Clore told the Forum. "A lot of that happens during recruitment; you have a buddy who says it's not a big deal, it won't take a lot of time."
And a lackadaisical attitude when it comes to duties of a board can lead to great folly, Ockerman said.
"The guy I'm most scared of is the one that comes in two minutes before the meeting is about to convene, glad-hands his way around the table, sits down, is talking with his buddy next to him," Ockerman said. "The chair calls for approval of the minutes, and he says, 'So moved.' He hasn't read them. They came in the mail a week ahead of time and he didn't read them. They're on the table in front of him and he hasn't read them."
While approval of the minutes from the previous meeting is often seen as a mundane formality, Ockerman said it is the last chance for the board to catch a mistake that could lead to ambiguity or worse - litigation.
"This is one of the incidental tasks that is absolutely critical to the operations of a corporation, because a corporation only speaks through its written documents. If there is ever a question, the minutes will say what the group actually did," he said.
Concerns of politesse should be thrown out the window when it comes to being a board member and acting as the conscience of the board, Clore said. "A board member's number-one task is to ask tough questions. You may think that you're the annoying board member always asking questions Ö but you have the taxpayer's faith in front of you on a public board and the donor's faith in front of you on a nonprofit board. Those are the folks that have put their trust and dollars in your hands."
One such area that could get a board in trouble if a member doesn't speak up is when another member offers their good or service to the organization. While the member is probably acting in good faith and offering the good or service at a rate lower than the organization would be able to get elsewhere, it is incumbent upon the board to perform due diligence to ensure that fact and show that due diligence was done by putting the price offered by the board member in the minutes, compared to the price others would charge the organization. This will help if an audit ever questions the flow of money from an organization to a member of the board.
In general the job of serving on a board is taken very casually, which is a mistake, because while rare, individual board members can be found liable in civil litigation as a result of their actions. Less rare, Ockerman said, is a board and its individual members being sued. While there may never be a judgment levied against the members, they could have to pony up for their legal defense.
"Make sure the board has an officers' and directors' insurance policy," Ockerman said. Any lawsuit will result in legal fees, and this will pay those fees. However, Ockerman warned, people acting within the realms of their profession in their capacity as a board member will not be covered by the officers' and directors' insurance policy, nor will their professional malpractice insurance cover them, because the board is not considered a client.
"If you don't have a personal general liability policy, or the organization has not identified somebody as its lawyer (or other licensed or specialized professional) Ö you've got no coverage; both policies will deny," he said.
These are just some of the many issues Ockerman and Clore touched on at the March Lexington Forum meeting. For more, including board retreats to help train board members, visit Clore's Nonprofit Leadership Initiative Web site at www.kynonprofits.org.
April's meeting of the Lexington Forum will be held on April 2 at Keeneland, where Keeneland's Nick Nicholson will talk about the state of the horse industry.