Ask the legal expert ... about developing effective boards

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Attorney John Durso, Ungaretti & Harris LLP
Attorney John Durso, Ungaretti & Harris LLP

How do we make sure members of our board of directors all are pulling their weight (and also acting legally)? It seems like a lot of cronyism can be allowed and some boards get away with virtually no input.

The most efficient way to cultivate board effectiveness is to 1) fill each position with an individual who has the requisite expertise to stay abreast of compliance requirements; and 2) adopt and document policies that hold each director responsible for running an efficient compliance oversight process. 

First, the board's governance policies should embody its fiduciary duty of care to the organization, which requires each director to act in good faith, with the care an ordinarily prudent person would exercise under similar circumstances. A director acts in good faith when he or she takes reasonable steps to remain informed about various compliance issues arising within the organization.

Therefore, adopting a corporate information reporting system adequate to ensure that appropriate information will come to the board's attention in a timely manner would be a good start. 

Second, an organization's policies should dictate that each director only act in the best interest of the corporation. Consequently, no improper financial benefit should come to any director in any transaction, nor can any intent exist that takes advantage of the corporation. A robust conflict of interest policy presented to each director on a yearly basis would go a long way to fulfilling this requirement.  

Finally, it should be made clear that failure to act according to the established duty of care and duty of loyalty to the not-for-profit corporation could very well lead to consequences such as removal from the board, civil damages and tax liability.