What are the fiduciary duties of private foundation board members?
Private foundation board members are the ultimate stewards of the organization and they must ensure the foundation meets its ethical and legal responsibilities. Board members must act as fiduciaries for the foundation.
But what is a fiduciary? A fiduciary is a person who is obligated to act in another party’s best interest. Therefore, private foundation board members must act in the best interest of the foundation. There are three basic fiduciary duties that board members owe to the foundation—the duty of care, loyalty, and obedience.
Duty of Care
Duty of care describes the requirement to carry out one’s duties with a level of care that an ordinarily prudent person would exercise in a similar position and under similar circumstances. The board member must devote the time, consideration, and resources needed to prudently manage the business of the foundation. In a practical sense, this requires:
Engaged Participation: Board members should be engaged participants in overseeing the foundation. This includes items such as attending board meetings, reviewing meeting minutes, and examining reports. Board members should prepare for and actively participate in board and committee meetings. In general board members should remain alert to potential concerns and problems and ask for additional information as needed before making decisions. Any irregularities or questionable information should be investigated in a manner concurrent with their importance.
Meetings Minutes: Board members should ensure that written minutes are taken at every board meeting. What are meeting minutes? They are notes taken at board meetings summarizing discussions, decisions, and official actions. They are not transcripts of the proceedings. After the meeting ends the minutes should be fully typed up and distributed to the participants for formal approval at the next board meeting.
Books and Records: Board members should, as needed, review the foundation’s books and records (accounting records, tax returns, minutes, grants made, bylaws, etc.). Board members are responsible for keeping accurate records—for large foundations this likely requires an independent audit by a CPA firm and a careful implementation of internal controls. Upon request all board members should have access to all pertinent books and records.
Committees: Board members should oversee and control all committees and should routinely review committee reports and evaluate their progress.
Safekeeping of Property: Board members should safeguard, steward, and invest foundation property in a judicious manner. The foundation’s property must be used for a charitable purpose and not for the benefit of foundation insiders.
Whistleblower Provisions: Any and all allegations of mismanagement or wrongdoing should be investigated and addressed. Board members should also ensure that the foundation does not retaliate against employee whistleblowers as they are protected under the law.
Duty of Loyalty
Duty of loyalty describes the requirement to make decisions by acting entirely in the best interest of the foundation. Broadly speaking this requires board members to steer clear of using foundation resources in a manner that results in improper gain for themselves or their family members. Board members should avoid actions that result in inappropriate financial enrichment and should not permit any loans to foundation insiders. Lastly, the duty of loyalty requires that conflicts of interest must be properly identified and addressed with board members recusing themselves from decisions as necessary. To help meet the duty of loyalty, it is a wise idea to craft and follow a conflict-of-interest policy.
Duty of Obedience
Duty of obedience refers to the obligation of board members to follow all laws relating to foundations and to act faithfully towards the advancement of the foundation’s charitable goals. Board members should be acquainted with the foundation’s governing documents including the articles of incorporation and the bylaws. The governing documents should be respected and followed. Board members should be mindful of federal and state laws relating to foundations including any employment matters if applicable. Further, board members should make sure that all tax and reporting deadlines are met by filing with the IRS and state agencies. Lastly, board members should avail themselves of outside counsel in the form of attorneys, accountants, and other professionals as needed.
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