The Role Of Association Boards

GAWDA examines nonprofit board leadership.

By Nancy R. Axelrod

The official definition of an association from the IRS is “a group of persons banded together for a purpose.” People and organizations voluntarily join the over 86,000 trade associations, individual membership organizations or professional societies organized under Section 501(c)(6) of the tax code because they want to work together on a common cause or interest. While most people might not be surprised that association members log an estimated 173 million volunteer hours each year, they might not realize that a considerable amount of volunteer time is provided by individuals who serve as board members.

Board Responsibilities
An overriding responsibility of an association governing board is fiduciary, which requires a duty to act for the good of others. The Internal Revenue Service recognizes the tax-exempt status granted to nonprofit organizations based on the broad concept that they operate for the benefit of the general public. Unlike the governing board of a for-profit corporation, which is accountable to either the owners or the shareholders of the corporation, the nonprofit association board is accountable to a variety of stakeholders, including its members, the profession or industry it serves, the government agencies whose laws the organization must comply with, the staff members and the public at large. Over the last few years, well publicized scandals and allegations of improper practices have lowered public trust and heightened scrutiny of nonprofit as well as for-profit organizations. In all of these cases, a common lament is, “Where was the board?” That is because the public expects the board to provide responsible oversight, ensure that the organization complies with the law, act with financial integrity, and operate effectively and ethically.

The principal legal requirements that apply to nonprofit boards can be found in the fiduciary responsibilities developed from well-established principles of nonprofit corporation law and the provisions imposed by state statutes, federal laws and legal documents such as articles of incorporation and bylaws. What they share in common is the premise that the board is ultimately responsible for ensuring that the organization it governs fulfills its mission. Board members are expected to serve as stewards to protect the assets of the organization and make sure that it operates in accordance with applicable laws.

Standards of Conduct
While state requirements vary, in general board members are held to three standards of conduct:

1. The duty of obedience
2. The duty of care
3. The duty of loyalty.

The duty of obedience requires board members to be faithful to the organization's mission, and to act in a way that is consistent with the central goals of the organization and applicable federal, state and local laws. The duty of care requires board members to exercise reasonable care by staying informed, participating in decisions, and acting in good faith when they make decisions on behalf of the organization. The duty of loyalty requires board members to put the interests of the organization first when making decisions affecting the organization. This means that each board member must act on behalf of the good of the association and the industry or profession as a whole, rather than the special interests associated with the organizations that employ them in their day jobs.

Effective boards are more than competent stewards. They also continuously engage in strategic thinking to help the chief executive officer shape the organization's direction and priorities. While it is tempting for some board members to focus on administrative issues, boards add the greatest value when they ensure that the organization is well run by management rather than trying to run it themselves. Exceptional boards are active with management in following internal and external forces that drive change, and in framing and assessing the strategic plan.

How Can You Serve?
Association members who wish to become board candidates should ask themselves the following questions:

• Do I understand the legal and fiduciary requirements of board service?
• What competencies and experiences can I offer to help this board serve as a strategic asset in advancing the goals and priorities of this association?
• Do I have the appetite and the experience to operate effectively as part of a collective governing body acting on behalf of the association?
• Do I have the time and the commitment required for board meetings and activities that will be expected of members?
• Am I prepared to put the interests of the organization above all else when making decisions as part of the governing board?

It's hard to argue with the proposition that if the individual members of a group draw information from multiple sources, tap into the joint expertise of their peers and make decisions in the best interests of the organization, the group will make better decisions than any one member could. Beyond their legal necessity, this is fundamentally where nonprofit boards can add the greatest value. But the collective wisdom that can emerge from a high performing group is a function of the way in which the board chooses to act, as well as the kinds of individuals who serve as its members. Are you a good candidate for board service?