Practice 3A: Board Responsibility

A nonprofit corporation’s board of directors has the ultimate responsibility for its operations and fiscal management. Board responsibilities include oversight of finances, fundraising, administration, programs, long-range planning, staff and volunteers and public relations. The board sets the mission and strategic direction of the organization and establishes the governing policies that guide its work.

The tasks involved in board service may differ depending on an organization’s stage of development, size, personnel capacity and culture. For example, the board of a small, all-volunteer land trust typically takes on many of the day-to-day program and operations tasks, while the board of a large staffed organization will focus on setting overall policy, financial management and oversight of the executive staff. For purposes of expedience, most boards delegate some of their functions and work to committees. Regardless of size, a board that understands and meets its basic responsibilities provides a firm foundation for the land trust, builds public confidence, paves the way for financial success and is able to focus on accomplishing its land conservation mission. A strong and informed board leads to a strong and effective organization. 

The legal standards for board members of nonprofit organizations vary from state to state. Most states, however, generally require directors to embody the following as a legal obligation of nonprofit board service:

1. Duty of care

2. Duty of loyalty

3. Duty of obedience
   

These duties legally require directors to serve with honesty, good faith and reasonable diligence. They are firmly grounded in statutory and case law and regularly used to judge nonprofit organizations on legal questions of fiduciary responsibility. Board members who fail to fulfill their fiduciary responsibility may lose the protection accorded to them by state and federal law and be held liable for financial loss and damage.

A board member owes what in legal terms is called a duty of care to the land trust in the actions or decisions they undertake on the land trust’s behalf. The duty of care concerns the competence with which board members serve the land trust.

Prudent Person Rule

The third edition of the Model Nonprofit Corporation Act, published by the American Bar Association in 2008, states that a board member shall discharge their duties “with the care an ordinarily prudent person in like position would exercise under similar circumstances.” Many state laws employ this standard.

Ordinarily prudent person means that board members are expected to possess and exercise sound, practical judgment, to employ common sense and to reach reasonable, informed conclusions. Even the most reasonable decisions occasionally result in undesirable outcomes. Under the prudent person rule, board members cannot be held personally responsible for decisions made with full information and exercising reasonable prudence. 

Considerations for Varying Circumstances

The phrases in like position and under similar circumstances are intended to allow consideration of a variety of factors. Like position refers to how a board member at a similar organization would act. Under similar circumstances reflects the setting in which the board members make decisions. Thus, allowances may be made, for example, for a board member who has been invited to participate primarily in the land trust’s fundraising and who is less well-versed in transactional matters. The phrase also takes into account the size and complexity of the organization, the urgency of a decision and information available at the time of decision. The courts do not, however, make allowances for a nominal board member – such as one whose only involvement consists of making a single large donation each year.

Staying Informed

At a minimum, the duty of care requires that board members be attentive and stay informed. The Model Nonprofit Corporation Act provides that a board member is entitled to rely on information, including financial statements and other financial data, if prepared or presented by officers, employees, competent volunteers or professional advisors or committees of the board. However, board members must review materials provided to them, request additional materials if necessary and make their own special inquiries into reports or explanations that appear incomplete. 

The following list contains some of the most important areas in which board members must stay informed to manage the land trust’s affairs:

• Financial. Board members have a fiduciary responsibility to the land trust. Some states apply a heightened standard for investment of assets.

• Tax-exempt status. The protection of a land trust’s tax-exempt status is crucial to its operation (see Practice 2C for further discussion).

• Land trust programs. The programs of the land trust should be in direct pursuit of the purposes stated in the land trust’s corporate charter.

• Property ownership. Board members should learn as much as they reasonably can about a property before approving a transaction and keep abreast of emerging stewardship issues.

• Staff. The employment of staff involves legal issues and requirements relating to personnel policies, benefits and income tax withholding.

• Volunteers. Land trusts need to appropriately train and supervise any volunteers. 

The land trust can take a number of steps to help ensure board members are informed.

• Provide written expectations for board service to all directors, preferably prior to their election to the board. See Practice 3C1 for discussion and examples of board expectations documents.

• Provide a board handbook or orientation package, containing all pertinent documents, policies and procedures.

• Orient new members (see Practice 3B3).

• Provide additional resource materials and training opportunities, such as the Land Trust Alliance’s webinars, online learning center, national Rally, state or local land trust conferences and workshops on land protection or nonprofit management.  

(See Practices 3B and 3C for further discussion on how to ensure informed participation.)

The fiduciary duty of loyalty requires that board members act in the best interests of the organization and faithfully pursue the interests of the land trust over their own personal interests, financial or otherwise, or the interests of any other person or organization. Board members must act in good faith, which generally means acting with honesty, openness and fairness.

The duty of loyalty requires undivided allegiance to the organization’s mission. It bars a board member from using their position or inside access to information concerning the land trust or its property to secure a pecuniary benefit for themselves or to serve an interest other than that of the organization. Most of the court cases that have arisen on account of alleged violations of the duty of loyalty deal with property transactions, investment or use of corporate assets to promote personal businesses of board members or those of related third parties and appropriation for personal gain of opportunities suitable for the organization. While proper disclosure of a conflict and authorization by disinterested decision makers acting for the organization can help mitigate the potential for undue influence, a board member must, at all times, put the land trust’s interests ahead of their own. Board policies governing disclosure and management of conflicts of interest help guide decision-making consistent with board members’ duty of loyalty (see Standard 4).

The duty of obedience requires board members to adhere to the land trust’s purposes as set forth in its charter, bylaws, organizational communications and public communications. Board members must understand the land trust’s mission and act in its pursuit, as opposed to taking action in pursuit of unrelated purposes. Deviation from the land trust’s purpose creates legal and practical risks. A land trust’s ability to raise funds and conduct its operations depends on the confidence and support its donors and members have in those who direct the use of those funds (see Practice 1B for more on mission and purpose).

Board members may be held liable for breaching the duties—care, loyalty, obedience—that they owe to the corporation if, because of the breach, the land trust has been injured. The duties are enforceable only by the corporation or one acting on behalf of the corporation, including other board members, officers and members, and the state attorney general, in protection of the state and public interest in the corporation.

Many states have enacted laws to add some protection from personal liability for board members of nonprofit organizations, so long as they uphold their fiduciary duties. This additional protection shields board members against claims of injury to persons or property, except where gross negligence on the part of the board member is involved. Most of these statutes apply in suits for monetary damages only, not suits for equitable relief, such as an injunction. Board members should investigate their state’s law to ascertain if they have this legal protection. Immunity applies only in the case of a tort claim against a board member (for example, a landowner claim against an individual board member for a board decision or action they disagree with or a former staff person alleging wrongful termination); courts may still find directors liable for other claims, such as negligence in business matters, fraudulent actions or failure to comply with statutory requirements.

Many land trusts include an indemnification clause in their bylaws, in effect providing for the organization’s defense of board members in the event they are sued in connection with actions taken in the course of their board duties. In addition, most land trusts carry insurance, including directors and officers liability insurance (often referred to as D&O), covering legal costs in the event a lawsuit is brought against the organization. Having such coverage is good risk management, but does not relieve board members from upholding their legal duties. (For more information, see Practice 6E.)

In staffed organizations, it is the board’s responsibility to hire, supervise and evaluate, at least annually, the performance of the executive director or chief staff person and to provide guidance and support for the executive’s role and position. The executive director may hire additional staff or recruit program volunteers who work to implement the land trust’s programs and provide ongoing supervision and evaluation of these additional workers.

Who

In practice, a single board delegee (such as the board president) or a small committee of the board may best accomplish hiring and supervision, including evaluation. This committee then communicates with the board, including making recommendations as appropriate for board action, such as hiring, wage and other work-related decisions. Because board members may have a limited perspective, evaluation may incorporate feedback from those within (or external to) the organization who work most closely with the executive, such as staff, volunteers and funders. A so-called 360 evaluation can be helpful in identifying areas for improvement.

When

Typical executive evaluation models use periodic evaluation (annually, semi-annually) to provide feedback to the executive. It is critical that boards provide regular evaluations of executive directors, not just when boards are unhappy with performance. Because the executive director acts both directly and indirectly through others to manage the organization, evaluating the executive director’s performance is intrinsically linked to evaluating the land trust’s performance as a whole. Therefore, many boards incorporate evaluation of the executive director into the annual review of organizational performance and goal setting for the coming year. However, the board does not have to wait until yearend to provide feedback. Regular check-ins can help prevent minor problems from developing into big problems. This type of continuous feedback and evaluation throughout the year is often referred to as a performance management model. The HR Council for the Nonprofit Sector in Canada has published more information about how to create and implement such a process. For land trusts with new executive directors, check-ins at three or six months are important to make sure they are starting off on the right foot.

How

There are many different ways to conduct a staff evaluation. For example, see the sample survey form from Blue Avocado that provides a basic platform for executive evaluation by a board. There are other models which allow for more input by the reviewed employee (the employee completes a self-review that the supervisor reviews). Choose a model that speaks to your organizational culture and be consistent with its application over time. It is also good practice to ask your executive director how they would like to receive feedback.

Feedback is most useful when it is descriptive, not evaluative; specific, rather than general; and directed toward voluntary behavior. For example, rather than tell someone they were “disrespectful,” describe the behavior you interpreted as disrespectful: “When you interrupted me and rolled your eyes, I felt you were not interested in my contribution to the conversation.” Instead of telling someone that she always misses deadlines, point out that the report due last month was three days late and the financials you requested in advance of a meeting were handed to you as you walked into the room. Leaders who do these things well with staff and volunteers will also do them well in other key relationships: relationships with community partners, funders, policymakers and so forth.

Key to a good evaluation is a written job description. Document what you expect of your executive director. Distribute this information to board members and the executive director so everyone will know what to expect. Use the job description as the basis for performance evaluations. See Practice 7E1 for examples of job descriptions for land trust staff, including those for executive directors. 

Whatever the process, the evaluation should be documented in writing. Documentation may take the form of an assessment report, signed and dated by the executive and the reviewers. Land trust boards can also document the fact that they conducted the executive evaluation in board meeting minutes, while keeping the actual findings confidential.

A board may find that they are unsatisfied with their executive director’s performance. In such a case, it is important that the board address the situation and not sweep the matter under the rug, vaguely hoping that things will get better. The first step is for the executive committee of the board to identify where the executive director is falling short. Is the problem significant to the position – something that must be changed for the land trust to be successful or meet its mission? Is it something that can be addressed by training or coaching? In consultation with the executive director, the executive committee should lay out a plan to resolve the problematic behavior. The executive committee or a specially created ad hoc committee should oversee the executive director’s work, providing support as needed. The committee should document the executive director’s steps (or lack thereof) to solve the problem to create a record that can be used in the event of litigation.

The executive committee should also take a hard look at the executive director’s goals to determine whether they are realistic and achievable. It may be that no one, no matter how good, could possibly achieve the goals. In such a case, the executive committee, in cooperation with the executive director, should rework the goals so they are challenging but achievable.

In any case, the board should set a three- or six-month check-in to determine if the executive director is meeting the new goals or has changed their problematic behavior. If the executive director’s performance hasn’t improved, the board should take action. First, the board should consult with its legal counsel to ensure it follows any applicable employment laws. The board may want to offer the executive director the opportunity to resign to avoid the messiness of a termination. Whatever action is taken, the board should document its actions, including any severance pay, in the board minutes.

Of course if the board believes the executive director has committed illegal acts (embezzlement, sexual or other harassment and so forth), the board must take immediate action to investigate and remedy the situation, in consultation with its legal counsel.

Committees are common tools used to improve a board’s effectiveness, extend its reach and capacity and better engage people in the work of the land trust. Committee work happens outside of the boardroom, allowing for more continuous, focused attention to distinct questions or aspects of the land trust’s work in between board meetings.

In most cases, the board delegates to committees specific responsibilities for aspects of the organization’s work, short of the authority to make decisions on behalf of the board. Accordingly, committees report to the board at regular meetings, making recommendations for board action (votes), as appropriate. This is a matter of practice, however, and committees may be delegated the authority to make decisions and act on behalf of the board on certain matters. Boards must document such delegations to committees with board-adopted policies. See, for example, Practice 3D regarding board delegation of decision-making authority on transactions (in contrast, many organizations specifically limit, within their bylaws, the ability of the board to delegate decision-making on transactions to committees). 

Committees may be specifically limited by state law or within organizational bylaws from taking certain types of action, however. For example, the third edition of the Model Nonprofit Corporation Act limits committees from authorizing distributions, approving or recommending to members dissolution, merger or the sale, pledge or transfer of all or substantially all of the corporation's assets; electing, appointing or removing directors or filling vacancies on the board or on any of its committees; or amending the articles of incorporation or bylaws.

The authority to appoint or elect committees is usually delineated in the land trust’s bylaws (see Practice 2B). Some organizations delegate the naming and constitution of committees to the board chair or president, but most ultimately require the board’s vote to ratify committee formation. The entire board should periodically review its committee structure and evaluate the performance of committees to ensure the board has adequately and appropriately defined, empowered and constituted them. Practice 3C4 has more information on board evaluation.

Longevity

Committees differ in terms of their expected longevity (standing versus ad hoc, for example) and in their function (governance versus program).

• Standing committees. When the board wants to sustain the work of a committee over time, it will likely need to appoint a standing committee. Financial management and fundraising are examples of functions that continue month in and month out and, therefore, need a standing committee. Boards often decide standing committees as part of an organizational development process, and the bylaws may list them.

Common land trust standing committees:

1. Finance and Audit

2. Fundraising

3. Governance

4. Land Acquisition Committee

5. Stewardship Committee

• Ad hoc. If a committee has a responsibility that is fixed in time and will become unnecessary sometime in the near future, it may be more appropriate as an ad hoc committee. Ad hoc committees are often an outgrowth of a particular discussion or challenge. A bylaws committee is a perfect example of an ad hoc committee. Some other examples include committees for a specific fundraising campaign, to carry out specific fundraising events or to conduct capacity-building functions, such as organizational assessment or strategic planning.

Function

• Governance. Governing committees support core purposes on which every board should focus, including strategic direction, financial accountability, leadership development and resource development.

• Program. Program committees support program planning and implementation functions (often outlined in the strategic plan), which might include land protection, stewardship, education and advocacy.

Descriptions

Effective committees must have a clear written mandate that they are expected to fulfill. A committee description should clearly delineate one committee’s roles from those played by other committees and from the roles played by staff. See, for example, committee descriptions from the Whidbey Camano Land Trust.

Membership

Committees should have a chair or leader who is responsible for coordinating the committee, setting agendas and leading meetings, following up on details as needed and reporting to the board. Most committees have at least three members, including the chair. Oftentimes organizational bylaws or policies mandate that a board member chair committees.

Board versus Non-Board

Land trusts need not limit committee participation to members of their boards. Many volunteers have expertise, connections and passion for certain aspects of land trust work and are willing to support the work of a land trust through participation on a board committee. Participation on a committee (rather than in the full breadth of issues facing a board) is less intimidating and often easier for those just beginning work with a land trust. It allows those who have substance to contribute, but limitations on their time, to pick a particular focus and “go deep” in that area. On the land trust’s part, welcoming non-board volunteers to committee service allows the land trust to become familiar with people who may be future board candidates. A smaller board may find it difficult to constitute a full spectrum of committees without non-board volunteers.

Work Plans

Board committees often follow a work plan, setting forth goals and action steps, aligned with the land trust’s strategic plan. A work plan defines the tasks, identifies who will complete the tasks and determines an expected timeline for completion. This planning may be done annually and is useful, at year-end, for evaluation and continued planning. The work plan should also align with the budget for those goals and actions with associated expenses.

It is not uncommon for land trusts to form an executive committee made up of its officers and one or two at-large directors. The board charges the executive committee with managing the detailed affairs of the board by helping prepare for board meetings and appropriate follow-up. This work may include:

• Coordinating and managing board committees

• Providing oversight and input to the executive director

• Ensuring issues and decisions coming before the board are “ripe” and ready for board action

• Handling routine and administrative responsibilities on behalf of the board

• Making emergency decisions on behalf of the board when there is no reasonable or timely means to pull the board together for a decision

Land trusts must be careful to ensure that the executive committee does not usurp the authority of the full board. If an executive committee is making the important decisions on behalf of the board (ostensibly because it is a more efficient means to action), the board is disenfranchised and ineffectual. Even if they agree and would have voted consistent with the executive committee’s actions, board members in this situation begin to disconnect with the land trust and degenerate into apathy.

Some land trusts open their executive committee meetings to the full board. It is also a good rule of practice for the executive committee to notify the full board immediately upon taking any emergency action and to obtain ratification of the action at the next meeting of the board.