Protecting Those Who Serve:
Minimizing Personal Liability Risks for Nonprofit Board Members
Some people might be deterred from serving on a nonprofit board from fear they may be putting their personal assets at risk should the organization become involved in a lawsuit. While the risk of personal liability is low, there are ways to better manage it to reduce the exposure of board members to legal claims and judgments.
- Discuss the board’s responsibility to disclose conflicts of interest. Conflicts of interests are often unavoidable. And while they aren’t necessarily a bad thing, board members should understand the organization’s policies on identifying and addressing current and potential conflicts of interest.
- Establish an onboarding process. It’s important for organizations to establish an orientation process for new board members that clearly outlines the responsibilities of the position. The process should include a review of all board policies, legal duties & responsibilities, and governing documents.
- Communicate important developments to board members. To do their job effectively and reduce exposure to personal liability risks, board members must be kept informed of organizational developments and changes, such as new contractual relationships, staffing and stakeholder issues, fundraising forecasts, and threatened or ongoing claims and litigation. Important updates can be discussed at board meetings or through regular updates.
- Hold board members accountable for their assigned duties. Board members should understand the responsibilities and commitments that come with the position during their term of service. Failing to follow through with required tasks such as attending meetings, submitting required reports and supporting the committees they lead can put them and the organization at risk.
Finally, it’s important that executive directors and board leaders know that the organization they’re helping to support has taken steps to safeguard them from legal liabilities. A directors and officers (D&O) liability insurance policy protects the organization and its directors, officers, and trustees against actual or alleged wrongful acts in the areas of governance, fiduciary and employment practices liability. Organizations should ensure that critical documents such as the bylaws and D&O policy can be easily accessed by executive directors and board members as needed.
Conclusion
Board members who act in good faith and with diligence and care are unlikely to be held personally responsible for their actions on a nonprofit’s behalf. Organizations can effectively manage this risk by taking the necessary steps to reduce potential liabilities.
At Charity First, we’re committed to offering markets and products that meet the very unique needs of the nonprofit community. For information on D&O liability insurance or any of our other nonprofit insurance programs, contact us at 800.352.2761 or email cfsubmissions@charityfirst.com