Fiduciary Duties of NGO board members

Posted on 15 February, 2021 at 03:37

By Tafadzwa Kafesu

Fiduciary duties of board members these are regarded as duties based on the concept of good faith and are owed to the organisation as a result of the control that board members exercise over the assets of the organisation. These duties happen to be non-negotiable and cannot be waived in any form. Most of these duties are case-law based. Primary role is to advance and protect the interest of the organisation. Fiduciary duties imposed on board members’ duty of care and duty of loyalty lay the foundation of the behavior expected of them.

 

The principles which govern the actions of people who owe fiduciary duties have stood unchallenged in our common law for years. Where one man stands to another in a position of confidence involving a duty to protect the interests of that other, a board member is not allowed to make a secret profit at the other's expense or place himself in a position where his interests conflicts with his duty.  “The principles exposed above clearly outline what is expected of fiduciaries.A duty is an act or omission expected to be performed by one in accordance with the moral dictates of the office or position he or she holds. There are broadly three (3) types of duties common law, statutory and moral. The common law duties of the organisation’s board members are basically the - good faith, care, skill and diligence but there has been more duties added to the list.

Duty of Good faith - means board members in the organisation’s board are obliged to honestly apply their mind and act in the best interests of the organisation at all times.  For instance a board member must not place themselves in a position of conflict between their personal interests and those of the organisation this includes the duty to disclose any such personal interests to the organisation and the duty not to make secret and/or incidental profits at the expense of the organisation, duty to account for profits, and not to make secret or incidental profits.

Duty of confidentiality

This duty implies that board members have got a duty to keep organisation information confidential .It means that members of NGO board may not use confidential organisation information to interested parties who can use that information to their own benefits for example giving organisation information to another organisation in the NGO sector. The issue of confidentiality also extends to boardroom deliberations of board members for example it will be a breach of confidentiality if a board member deliberates with colleagues what the board meeting had passed before the issues are  formally made public by the responsible authorities. Unauthorised disclosure of information results in organisation information being gazetted on social media platforms to the surprise of the authorities consequently this affects the integrity of the organisation.

 

Duty of Care – means an organisation’s board member must, act with a degree of care expected of a reasonable person caring for assets of what Mervyn King calls “an incapacitated person”. The organisation is an incapacitated person. Be a good steward of the organisation’s assets.  Use of the organisation’s assets by Board members for personal interest is not allowed. Honestly apply his mind in making a decision in regard to the enterprise side of the organisation’s business operations. These moral duties find expression in the concept of “Ubuntu ngumuntu ngabantu” – “I am because you are; you are because we are”.The principles of Ubuntu/African leadership within a business context have been elaborated as community orientation, mutuality of interests, mutual accountability, spiritual collectiveness, as opposed to individualism.

Duty of Skill/ Competence – the duty to ensure that the board member has knowledge and skills required for governing the organisation effectively, which competence should be continually developed. This moral duty appears to restate the legal duty of skill which obliges a board member to apply his practiced abilities in the best interests of the organisation and to use his practiced abilities to add value to the debate around the table, especially in making a business judgment call. This means an organisation board member must, apply his/her practised abilities in the NGO’s interests. Use his practised abilities to add value to the debate around the table especially in making a business judgment call.

Duty of Loyalty- The most important fiduciary duty is the duty of loyalty.  The concept is simple: the decision makers within the organisation should act in the interests of the organisation, and not in their own interests.  The easiest way to comply with this duty is not to engage in transactions that involve a conflict of interest again as mentioned in some paragraphs above.  We often call these "self-dealing" transactions.  The concept is that the board members are dealing with themselves, and may not reach an agreement that is fair to the organisation.

Duty of disclosure - Requires board members are to act with complete candour at all times. This necessitates full disclosure to the organisation’s stakeholders of all the facts and circumstances relevant to a board‘s decision. Failure by any board member to disclose any existing relationship with a stakeholder that would hinder his/ her objectivity in making decision is a breach of the duty of disclosure. Board Members are required to present every information whether it be negative or positive in order to allow the board to make objective decisions. Public disclosure of any conflicts of interest is imperative for board members. Esser and Duplessis (2007) asserts and adds that board members therefore ought to communicate  to the board  at the earliest practicable opportunity  any information that comes to the board members  attention unless the board member reasonably believes  that the information is immaterial to the organisation or is generally available to the public.

 

Duty of Diligence – means a Board member of the organisation must, do his homework and come to the decision making table fully informed about the issues to be decided upon. Understand the issues and information given to him for example the board member must study the Board pack furnished to him to be able to meaningfully participate at the Board Meeting. King III codifies the common law duties of good faith, care, skill and diligence. The duty to diligently perform one’s duties and devote sufficient time to organisation affairs. This moral duty appears to restate the common law duty of diligence enjoining board members to do their homework and come to the decision making table fully informed about the issues to be decided upon and understanding the issues and information given to them.

Duty of Commitment – Some board members seem to accept board appointments without understanding that it requires a lot of commitment to serve on an organisation board. Some view board appointments as strengthening their standing in professional and social cycles. Others view board appointments as giving them prestige or clout or as a means of getting access to personal gains. Board members who lack commitment for instance they do not attend meetings regularly, are not willing to take extra assignments, do not actively participate in board proceedings, do not go out of their way to assist fellow board members, management and so on. Board members who lack commitment compromise the effectiveness of the board. They pull others down.

Duty of Courage – having the courage to take the decisions associated with directing and controlling a successful, sustainable NGO and also the courage to act with integrity in all board decisions and activities.

Duty of Conscience – that is board members should exceed powers, for instance. Board members may not act ‘ultra vires’ or otherwise beyond their capacity; duty to exercise their powers for the proper purpose, for example not to act for an improper or collateral purpose, to act ‘bona fide’ in the interests of the organisation and in a manner in which he/she conceives to be for the benefit of the organisation as a whole; the duty to act with intellectual honesty and independence of mind in the best interests of the organisation and all its stakeholders in accordance with the inclusive stakeholder approach. Some board members blatantly act in situations where they use their positions to make a profit at the expense of their principals through award of tenders for their private companies or having their firms being appointed to offer professional services for example legal, accounting, audit to the organisation they serve as board members.

Duty of Ethics - the central nervous system for good governance. Board members are entrusted with huge responsibilities as stewards in the organisation. Their fiduciary responsibilities as trustees require them to approach organisation with seriousness and responsibility. NGO board members should take organisation’s ethics and values seriously. Board members need to lead by example by upholding high standards of ethical behavior. They should take personal responsibility for their own actions. Every board should be guided by good organizational ethics as characterised by the following attributes: Discipline, transparency, independence, accountability, responsibility, fairness, integrity and respect. None adherence to good ethical standards leads to corruption, bribery which in turn handicaps performance and reputation of an organisation and its entire board.

Though, board members are subject to stricter standards of behavior than other fiduciaries. Organisation’s board members owe an intricate and more exacting duty to the organisation and its stakeholders. It should be understood that NGO board members, unlike other fiduciaries, are subjected to more rigorous standards of behavior. In a nutshell, board members as fiduciaries, under common law, are expected to display the following attributes. Act in good faith, protect the interests of another (principal).Duty to exercise an independent and unfettered discretion.