Lawyers often use the term good faith to describe how board members must act at all times in order to avoid lawsuits related to their duties on the board. A general rule of thumb states that as long as each board member individually meets her fiduciary responsibilities as well as she can (acting in good faith), lawsuits against individual board members for the handling of board affairs can be minimized. The board must also, as a group, understand its duty to act in good faith and operate responsibly to minimize the threat of lawsuit.
In addition, you must maintain transparency in all your financial dealings. People involved in the organization at any level should be able to see and understand exactly what you are doing and why you take the actions you choose.
Common sense should be an underlying requirement in all of your planning and in all of your actions. Many of the legal problems nonprofit organizations find themselves in result from forgetting to use common sense when working through a problem.
Try to minimize risk to the organization and its board members by creating operating policies that clearly forbid questionable activities to occur. These policies must be taken seriously.
It is impossible to guarantee that no one will ever bring suit against the group, but deliberate risk management is essential. The law does not require that your organization always make perfect decisions, but it does require that the group follow appropriate guidelines for making decisions. This is why you must have a clear set of by-laws to govern how all decisions will be made.
Your organization should clearly state how a group member should conduct herself while representing the group. Every nonprofit must make it a high priority to recruit and retain effective board leaders who accept their responsibility to do a conscientious job. Board members must do their utmost to uphold the overall health of the organization and minimize the potential for lawsuits.
The board should establish and diligently follow rules and procedures governing its operations. The minutes of the board meetings should demonstrate that the board consistently exercises due diligence and seriously considers the consequences of important actions in advance. These minutes and other important organizational documents should be organized and kept readily available for periodic reviews and updates.
To reduce the risk of lawsuit, and as a matter of personal financial security, each board member must:
Ensure that the organization is operating within 503(c)(3) guidelines.
Accept the board's legal responsibility to protect the group's assets.
Confirm all major contracts with formally recorded board authorization.
Attend board meetings and recognize that repeated absences may be interpreted as indicating a lack of serious dedication to the obligations of the position.
Require a thorough debate on controversial or complicated issues.
Exercise sound judgment even when relying on the accuracy and integrity of others (including in areas of special competence).
Avoid any conflict of interest or appearance of conflict of interest.
If a board member is connected in any way with a business transaction with a friend's group, the board must be prepared to demonstrate clearly that fairness was maintained.
Never assume that everything is acceptable because the group agreed to a particular action. Likewise, do not rely on the president of the board to know what is appropriate and what is not. As an individual member, you too must be satisfied with each action. It's that important.