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Abstract: 

Organizations that have been affected by the COVID-19 crisis find themselves in extreme circumstances. In these situations, nonprofit directors’ fiduciary duties do not fall away. In fact, extreme circumstances give rise to the most important governance decisions and require that directors be fully attuned to their duties of care, loyalty, and obedience. When rising to the challenges of these times, directors must be guided by these duties above all else. Failure to meet a duty can result in truly bad outcomes: excise taxes on excess benefit transactions arising from a failure of the duty of loyalty; a state regulator’s investigation following a failure of the duty of obedience; injury and a claim against the organization when there has been a failure of the duty of care. In all cases, failure to fulfill any of the duties will dilute or distract from the organization’s mission. Unfortunately, it is not always apparent that directors in fact are meeting their obligations. Board meetings might be collegial, and the organization might be delivering positive outcomes even though directors are falling short of the mark. However, the trained eye can identify symptoms that one or more duties is not being met. This article describes some of those symptoms and offers ways to treat not only the symptom, but also the underlying failure.

Keywords: The “Controlling Hand”; Failure to Maintain and Follow Bylaws and Policies; Chasing Funds; Improper Use of Restricted Funds

Affiliations:  1: Clark Hill PLC.