As a board / committee member on a not-for-profit (NFP) organisation you have a great capacity to do some good for the organisation and the community at large.
Your main focus will be on the objectives of the organisation.
This article seeks to outline your legal obligations, what you should do when making a decision to protect yourself and the organisation if the decision turns out to be the wrong one.
You have a fiduciary relationship with the organisation – what does this mean?
The organisation has put special trust in you. You have a duty to always act in the organisation’s best interest. This is regardless of your own or other’s interests.
This is regardless of whether:
- you are a volunteer or are paid; or
- attended the meeting where the decision was made or not.
Duty to act with reasonable care, skill and diligence
A board or committee is made up of various people with different skill sets. It is important that each member use their individual skill sets to advise the board / committee to assist in making decisions.
It is important to:
- Be informed in relation to any decisions to be made – ensure you read the documents necessary to make an informed decision.
- Genuinely believe that the decision is in the best interest of the organisation – once again go back to the core values and purpose of the organisation.
- Ensure that the organisation is managing its finances properly – you must keep informed as to the organisation’s financial state.
- Seek external specialist advice when necessary and obtain this advice in writing – such as accountants / lawyers / builders etc.
Like with any organisation, not every decision is going to be the right decision. For example, the decision to fund a new program.
If, however, you make the decision to fund the new program and it is reasonable, based on:
- the available facts at the time;
- it adheres to the organisation’s core principles;
- you do not have a personal financial interest in the program;
- the organisation has the ability to fund the program; and
- you have sought any necessary accounting or legal advice;
then even if the program doesn’t turn out as planned, it is likely that you will have performed your duties.
The Court allows for the business judgment rule.
Essentially a Court will not go back in time and second guess decisions made in good faith at the time if, in the circumstances, the decision was reasonable.
If you are at all concerned, it is sensible to seek legal advice.
Catherine Ballantyne regularly acts on behalf of not-for-profit organisations and is well placed to advise as to any potential liability.