Leadership's Core Duties: Duty of Care, Duty of Loyalty, and Duty of Obedience

Sue Hays Barr CBC

Duty of Care definition: In the nonprofit management world, we’ve all experienced a Director who gets on the Board of Directors and then does nothing, including not showing up for the meetings or participating in communications. This kind of a Director is violating the Duty of Care which is the duty to stay informed and to exercise ordinary care and prudence in managing the nonprofit. An important side note to this requirement is that the Director must act in a manner that he or she believes to be in the best interest of the organization, not in a manner that you think is in the best interests of the organization. Note this distinction because it can cause problems for staff and Directors from time to time.

To satisfy the Duty of Care, the staff person or Director should stay reasonably informed about the decisions they are being asked to make. Based on guidance from organizational documents like By-laws and policies to financial information, a person satisfies this Duty by attending the meetings and responding on issues. When voting, the Director should consider the consequences to the organization rather than simply voting with the majority.

As an employer, you owe all your workers a Duty of Care, which means taking reasonable steps to ensure the health, safety and wellbeing of all employees. On a broader scale, Directors, officers, executives and staff of your organization must act in the same manner that a reasonably prudent person would in their situation. This means acting with reasonably informed, good faith, and rational judgment without the presence of a conflict of interest.
 
Duty of Loyalty definition:  This Duty refers to possible conflicts of interest. As staff and as Directors, we have the responsibility to act in the best interests of our association at all times rather than for our own personal gain. There are some additional responsibilities imposed by this Core Duty, and these may apply in your organization:

• Keep confidential and not disclose or use any information you come across in your official capacity as staff or director.
• Report all conflicts of interest, whether actual or potential, real or perceived, to the Board of Directors.
• Should a conflict of interest exist, it is the responsibility of the conflicted staff person or Director to be completely transparent and honest about the situation. For appropriate strategies for handling a declared conflict of interest, please consult your legal counsel.

When you’ve heard of corporate Directors of for-profit enterprises dumping stock ahead of bad news, this is a violation of the Duty of Loyalty. In our nonprofit world, there are situations where nonprofit Directors and staff should be on the alert to watch for diverted assets of the nonprofit, awarding of contracts to family members or companies owned by staff or Directors, or entering into interested transactions without Board approval. If you encounter any of these situations, you may be dealing with a violation of the Duty of Loyalty.

Duty of Obedience definition: This Core Duty is not as well recognized as the Duty of Care and the Duty of Loyalty, yet it is still important for you to be aware of. This Duty of Obedience is our duty as staff and Directors to remain faithful to and to pursue the goals of the organization. In essence, this means we have the duty to follow the governing documents of our organization (By-laws, Articles of Incorporation, and policies), the governing laws that apply to our organization, any restrictions imposed by sponsors, donors, or the Board, and the regulatory and reporting requirements for our organization.

The Duty of Obedience may be considered unique to the nonprofit world due to our tax-exempt status. Our nonprofit exists for specific reasons and objectives, and there are generally certain activities that are necessary to achieve those reasons and objectives. To find the reasons and objectives for your organization, check your governing documents like By-laws or Articles of Incorporation.

If you encounter a situation and need to learn more about any of these Duties, consult with your legal counsel or a Board member. It’s important to get the issue out in the open and addressed. Sweeping it under the rug and pretending you don’t know about it does not remove your personal liability, which can prove to be expensive for you, your Board of Directors, and your family. If it turns out to be a big non-issue, then you can all breathe a big sigh of relief!