Succeeding in Your Business: Is it wise for you to volunteer to serve on a nonprofit board?

Cliff Ennico 

“A local nonprofit organization has asked me to join its board of directors. It’s a real honor for me, and a cause I believe in, but I’m just a little nervous about my legal responsibilities. Could you tackle those at some point?”

You bet. A lot of nonprofit startups are looking to “build their boards” right now, and even yours truly has received a couple of invitations. Joining a nonprofit’s board of directors can be a singular honor, a sign that you have “arrived” in your community and a terrific opportunity to network with the rich, powerful and/or influential people who normally join nonprofit boards. If you want to hobnob with the 1 percenters, find out which charities they support and get involved.

But, as with all business-related activities, there are some risks.

The first question you need to ask is: Why are you — of all people — being asked to join the board? There are three possible reasons you are being invited:

• Your skills: Startup nonprofits look for people with business experience, philanthropic giving experience and leadership skills.

• Your contacts: As a board member, you will be expected to help with fundraising activities. How deep is your Outlook Contacts list?

• You are fresh meat: The organization has reached a stage where the only board members are worker bees and outside directors are required by law to approve matters such as employee compensation and transactions between the organization and its other (inside) directors. As an outside director, your vote on these matters will be critical.

The next question you should ask is: What is the time commitment involved? Nonprofit organizations can be notorious time vampires that will make large demands of your time, especially at inconvenient times of the year for your business or other revenue-generating activities that simply must take priority.

The next question you should ask (yourself, not the organization’s personnel) is: Why do I want to do this? Is it because:

• You believe in the organization’s mission. (This is the correct answer.)

• You want to network with the other directors and wealthy donors.

• You are looking for a public relations opportunity to help promote other things you are doing.

The next question you should ask (yourself, again) is: Is the image I will have by joining this organization consistent with other activities in which I’m involved? If, for example, you are a local politician known for your die-hard conservative political opinions, you might want to think twice about joining organizations that tend to support left-leaning causes. If people at cocktail parties are asking you, “Why are you in with those people?,” your activities are probably sending mixed messages and you will need to have a pretty good way of reconciling them.

If you are joining an organization that is promoting a cause that will hurt the interests of your current employer or your small business, think hard and long before joining. You may be choosing between your value system and your financial health.

Last but not least, you need to ask three very pointed questions of the organization’s leadership:

No. 1: Does your state have a “volunteer” exemption from liability?

Virtually all states have a statute that exempts “volunteers” in charitable organizations from legal liability of any kind. But some of those statutes have fine print, and you need to know what the limitations are. For example, if the statute protects you from liability if you are “negligent” in the performance of your duties as a board member, will you be protected if someone sues you for “gross negligence” in your duties?

A “volunteer” by definition does not receive compensation of any kind from the organization. If you are receiving any sort of fee for serving as a director, you are no longer a “volunteer” and may be liable for your actions. Watch out also for expense reimbursements. If you are required to fly to Washington, D.C., and testify on behalf of your organization before a congressional subcommittee and the organization is reimbursing your travel expenses, does that make you no longer a “volunteer” under the exemption statute?

No. 2: Will the organization indemnify you from lawsuits?

In the unlikely event that the volunteer board members are sued personally because of something the organization did or did not do, will the organization pay your legal expenses and any judgment that is rendered against you? Again, state laws vary as to when an organization is obligated to do this and when it isn’t.

No. 3: Is there insurance to back up that indemnity obligation?

If the organization is just starting up, it probably won’t be able to afford liability insurance for its directors and officers (so-called “D&O coverage”). This is expensive insurance and many organizations will try to persuade you that as a volunteer you have nothing to worry about.

Get that promise in writing if you can — and a written commitment from the organization to purchase D&O insurance for you as soon as it can do so.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”

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