This article, written by attorney Jason Gregoire, was originally published on seacoastonline.com and the NHBR and can be found here.
New Hampshire is home to thousands of charitable organizations that provide essential services and resources to those in need such as food, shelter, healthcare, and education. Although many support charities by serving on their boards of directors, not all are aware of the legal duties that apply to their board service. The Charitable Trusts Unit of the NH Office of the Attorney General’s Guidebook for New Hampshire Charitable Organizations (5th ed. 2022) (the “Guidebook”) explains these legal duties in detail and is essential reading for new and experienced board members. This article summarizes the three primary legal duties of charitable board members as described in the Guidebook.
Duty of Care: The duty of care requires board members to be active and well-informed in order to make decisions that are in the best interests of the organization. To satisfy this duty, among other things, board members must attend board and committee meetings; read board materials, agendas, minutes, and documents; engage in board discussions and votes; and make decisions based on their independent judgment. In addition, board members must engage in the budget process to ensure that the organization is operating in a fiscally-responsible manner in compliance with state and federal law, and the charity’s internal policies and procedures. Suffice it to say, appearing at board meetings without having read the agenda or understanding the issues to be addressed does not satisfy the duty of care.
Duty of Loyalty: The duty of loyalty requires board members to always act in the best financial interests of the charity and to avoid conflicts of interest that may result in personal financial gain unless pecuniary benefit rules are followed. In other words, a board member should not enrich themselves at the expense of the charity they serve. Each charity should have a conflict-of-interest policy and associated conflicts questionnaire that requires new and existing board members to disclose any existing or potential, direct or indirect, conflicts of interest and to actively monitor and disclose future conflicts.
If the charity is contemplating entering into a transaction in which a board member has a financial interest (e.g., charity contracts with a company owned by the board member), the board member should recuse themselves from the board discussion and voting processes and the charity should disclose the transaction to the Charitable Trusts Unit and the public in accordance with RSA 7:19-a, New Hampshire’s pecuniary benefit transaction law. The dollar amount of the transaction governs the charity’s reporting obligations and voting procedures. Because the pecuniary benefit law will be triggered based on “direct and indirect” financial interests of board members, those serving on a board should carefully review their organization’s conflict of interest policy and timely disclose conflicts to avoid violating the duty of loyalty.
Duty of Obedience: The duty of obedience requires board members to ensure that the charity fulfills its mission, complies with all applicable laws and reporting obligations, and honors donor restrictions on donated funds. Board members should scrutinize uses of funds that do not support the mission or purpose of the organization as stated in its foundational documents (e.g., Articles of Agreement). Board members should also educate themselves on the laws and reporting obligations applicable to their organization and monitor compliance (e.g., IRS Form 990 filing, NH nonprofit report filing). Ultimately, if laws are violated or mandatory reports are not filed, the board—not the organization’s executive director—will be required to answer to legal authorities. Ask questions, educate yourself, and speak up if you see something wrong.
Service on a charitable board can be a rich and rewarding experience. Before joining a board, honestly assess whether you have the time necessary to fulfill the important duties described above. If not, do not join the board and support the organization in other ways like donations, volunteering, or service on a board committee. If you join the board, comply with these legal duties as explained fully in the Guidebook, which can be accessed at https://www.doj.nh.gov/charitable-trusts/documents/guidebook-non-profit-organizations.pdf. The Charitable Trusts Unit, the NH Center for Non-Profits, Guidestar, BoardSource, and other organizations have free online resources covering these and other charitable and non-profit governance topics for those looking to become better informed, more effective board members.