Risk Management Issues for Boards of Directors
- Where does control lie? With the board, a committee or executive staff?
- What are the lines of authority between the board and the executive staff?
- Does the board meet on a regular basis and do directors attend regularly?
- Are the financial statements completed independently?
- Examine whether any directors receive direct or indirect remuneration or other financial benefit from the not-for-profit organization
- Has the nonprofit given authority to indemnify its directors and officers?
- Has the board authorized the organization to acquire Directors and Officers Liability Insurance?
- Has too much responsibility been delegated to executive staff, without careful and ongoing monitoring and review?
- Consider reducing the size of the board to limit the number of people who are exposed to liability as directors
- Make use of committees as an alternate to a large board of directors
- Consider the need to receive independent legal advice due to the possibility of liability exposure
- Consider implementing an advisory board to complement the board of directors without a corresponding exposure to liability
- Is there adequate communication of board responsibilities to existing, new and future board members?
Indemnification: To cover the cost of, or compensate the director for, any loss or damage sustained as a result of the acts or omissions of the director in their capacity as a director of the organization. It is an assumption of risk and costs by the nonprofit on behalf of directors when the directors are acting on behalf of the nonprofit. It is only valuable if the nonprofit has the financial resources to be able to fund the indemnification of directors (which must be established in the bylaws in order for the nonprofit to legally transfer funds).
