"Corporate responsibility” is not a new concept for boards of directors.

There have been a variety of scandals in both the nonprofit world (e.g. United Way) as well as the for-profit world (e.g. Enron).  The federal government has recently responded to the for-profit scandals with Sarbanes-Oxley legislation which has become relevant to the governance of nonprofit corporations as “best practices” or even threshold expectations. New York State’s Attorney General tried to pass a Sarbanes-Oxley-type corporate governance standards initiative directed at nonprofit corporations. The IRS incorporated some of these ideas in its changed application for recognition of tax exempt status in July 2007 and more recently the IRS significantly changed the annual report for nonprofits on Form 990 starting in 2008. While these events have not yet changed the core standards of a nonprofit director’s fiduciary duties, they draw attention to the corporate responsibility environment in which nonprofit boards of directors operate.

Duties and Constituencies
Directors of nonprofit corporations, as with directors of for-profit corporations, owe important duties to the organizations they serve. These duties include: “duty of loyalty” and a “duty of care” and “duty of obedience”.

The Duty of Loyalty
This duty requires that directors place the interests of the corporation above their own and act in what they reasonably believe is the best interest of the organization. The IRS requests information about organizations’ conflict of interest policies.

The Duties of Care and Obedience
These require that directors take adequate steps to inform themselves in making decisions and also requires that each director act as an ordinary prudent person would act in the same circumstances.  The IRS is requiring that the Form 990 be signed and certified by organizations officers. It also means that directors must ensure among other matters that the nonprofit uses its income and assets for the mission of the organization and that the organization is obeying or complying with all applicable laws.

While the duties owed by nonprofit directors are largely equivalent to the duties owed by directors of for-profit entities, the constituencies to whom directors are accountable are not. Directors of nonprofits may be held accountable by any number of groups – the organization’s members, other directors of the Board, New York State’s Attorney General, the Internal Revenue Service, and city, state and/or federal contracting or investigation agencies.

Nonprofit corporations are set up to be forever.  They are to last beyond any one person’s lifetime and involvement.  The directors of a nonprofit corporation are involved in a “relay race” of stewardship.  They need to expend their time, energy and expertise to keep the nonprofit “alive and growing” and to hand on the “baton” of the health of the nonprofit to the next set of Board members. Decisions about requirements for Board members are very important to the health of a nonprofit.  The reputation of a nonprofit is in part a reflection of the make-up of its Board.