NOVEMBER 28, 2011
By SHELLY BANJO
So your best friend or business partner asks you to join the board of directors at the local art museum. You’ve attended the yearly charity galas and believe in the cause, plus the offer sounds like a prestigious honor and perhaps a good résumé booster.
Not so fast.
As government funding tightens and the economy wobbles, charities across the country continue to struggle with attracting donations and, at times, staying afloat. As a result, they’re depending more than ever on their board members for funds, time and other resources. What’s more, as state attorneys general dig deeper into the perennial occurrences of fraud and wrongdoing in the multibillion-dollar charity world, directors are sometimes unaware of the increasing risks involved with serving on a nonprofit’s board.
“Nonprofits can no longer get by only on government contracts or grants,” says Michael Davidson, who runs a nonprofit board training program for the United Way. “The pressure is falling more to their boards for both financial help and their business savvy.”
Before joining a charity’s board, here are some things to consider.
It’s a Big Commitment
Gone are the days when it was fashionable (and acceptable) to serve on a half-dozen nonprofit boards, or when bringing friends to charity events was the only requisite to fulfilling board duties. Increasingly, board members are expected to do everything from writing letters and calling donors to visiting and assessing programs the charity runs. Most charities hold more than seven full board meetings a year, which last three to four hours, according to BoardSource, a board-governance nonprofit based in Washington, D.C. In addition, members are often expected to participate in subcommittee meetings and attend annual retreats.
Trustees are also often asked to serve as the face of the organization, answering calls to the media and wining and dining potential big donors.
Kathy Boyle, a financial adviser from Bedford, N.Y., has been careful to pare her advisory board memberships down to two: the Westchester Land Trust and the American Heart Association. The owner of more than a dozen adopted pets, she still works closely with animal shelters and hosts monthly fund-raising events to benefit other charities she cares about. But, Ms. Boyle says, “everyone is stretched thin, and I want to give the ones I am involved in everything I’ve got.”
The United Way’s Mr. Davidson tells potential board members to ask themselves if the charity’s cause is so important to them that they would feel comfortable talking about it at parties, work and even the grocery store.
“To be a good board member, it takes a total commitment,” he says. “And it’s hard to devote both the time and money necessary to more than one.”
Give, Get or Get Off
Personal contributions are frequently expected, from $100 for a small charity to $50,000 for a large performing-arts center. Members typically sponsor tables and sell tickets for galas or other events.
“It’s essential to have an upfront conversation about what the charity expects and what you are willing to give,” says Marian Stern, founder of Projects in Philanthropy, a charity consultancy in Livingston, N.J. “Ask them if there’s a minimum yearly amount and any other financial commitments.”
Most nonprofits have a “give, get or get off policy,” Ms. Stern says.
You have to be comfortable raising money, whether it means handing over all your contacts, personally calling or writing letters for end-of-year requests, or serving as chairman of a gala. And you will probably be asked to tap your network for help ranging from legal and financial advice to hosting or catering a dinner.
A board member is allowed to be selfish about one thing: liability protection.
Multiple board members have been named as defendants in lawsuits filed against foundations and nonprofits that invested in the multibillion-dollar Ponzi scheme of convicted swindler Bernard Madoff. Some organizations, including the Jewish women’s charity Hadassah, were ordered to pay millions of dollars in restitution to investors with Mr. Madoff who lost money.
Such events put the responsibilities and liabilities of serving on a nonprofit’s board in sharp focus. At all nonprofits, board members are required to sign on to a fiduciary duty—a legal standard that compels them to act in the best interest of the charity—and, since it’s a tax-exempt entity, the public.
It’s a real legal responsibility that you will be held accountable for,” says Melissa Berman, president and chief executive of Rockefeller Philanthropy Advisors. Ms. Berman suggests all board members obtain liability insurance for officers and directors. As may happen in the Madoff case, board members can be held personally liable for a charity’s mismanagement, and individual insurance policies might not cover the claims. What’s more, the members would likely have to pay their legal fees themselves.
State and federal laws provide some protection with volunteer-immunity laws when a person is acting in good faith. But insurance also can safeguard board members and the organization from federal civil-rights and antidiscrimination suits, which aren’t typically covered by those immunity laws.
In addition to buying insurance, get familiar with the organization’s tax filings—often found on websites of state attorneys general or on guidestar.org, a charity watchdog site—or ask your own financial adviser to do so. Things to look at include how the executive compensation compares with that of similarly sized nonprofit groups in the same sector.
Ms. Stern, the New Jersey consultant, says it’s every board member’s responsibility to read and understand financial statements. After all, it’s the boards that set budgets, approve expenses and award compensation.
“When I start talking about finances, most people’s eyes glaze over, they think it’s someone else’s job,” she says. “But everyone should have a good understanding of an organization’s financial position.”
Ask, too, about conflict-of-interest and other ethics policies, term limits and training possibilities for board members. Says Ms. Berman, “If they refuse to share that information, that’s a very legitimate warning sign.”
Ms. Banjo is a Wall Street Journal staff reporter in New York. She can be reached at email@example.com.