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D&O Exposures: Don’t Be at Risk!

By Heather Brown
June 10, 2016

Having a board of directors in place to help properly manage the operations of your nonprofit organization is vital to maintaining the purpose and mission of who you want to serve and how you help your community. Board members are typically recruited and appointed based on their life experience and ambition to help others. Nonprofits do not always realize there are certain risks involved with having a board of directors and the steps they can take to reduce these risks.

A common insurance policy purchased by nonprofits is directors and officers insurance. This insurance protects the individual board members assets and is vital in the event there is a claim against the board of directors (not the organization) for misallocation of funds or discrimination of volunteers or other board members.

A Nonprofit can take precautionary measures to help reduce or minimize risks before they occur. Some steps that you can take include doing background checks on board members, create a definition of the expectations of a board member, develop a board member orientation/education, implement and enforce legal policies and statements, implement procedures for meetings,and implement procedures for investigations.

Background Checks
Gathering information on the board member prior to them being elected will help you and those voting have a better knowledge and understanding of where the candidate has come from. Key factors to look for include past criminal or legal violations, life experience and how this will benefit the organization, education, and their desire/passion for helping others.

Define Expectations
Defining expectations of a board member provides them with what they will be responsible for and held accountable for up front. This gives the candidate the chance to determine if they are capable of meeting these expectations and provides the same expectations for each member of the board of directors which can help to eliminate discrimination claims.

Education is Key
The board of directors should initially be educated on the purpose, mission, and vision of the nonprofit organization. This education can be presented via literature and in a structured setting by other members of the board. Members should also be educated on the legalities involved with serving on a board of directors and how to properly conduct themselves during meetings and events.

Legal Items
Board members should be presented with conflict of interest statements to sign and state there is no conflict of interest with them serving on the board. Along with this there should also be policies presented for sexual abuse and misconduct, discrimination, anti-bribery, confidentiality agreements, mismanagement of funds and anti-terrorism statements.

Meeting Procedures
To help keep your board members on task during meetings, having set expectations could be beneficial.Determine up front the length of the meeting, the agenda, who will be reporting on each topic and if non board members will be allowed to attend. Along with these items it is also vital to have meeting minutes prepared that provides a detailed overview of all items covered, who was present and voting outcomes.

Investigation Procedures
With all good risk management plans, there should also be a process in the event an incident needs to be reported and even investigated. Investigation procedures should include who or which committee the incident in question should be reported to initially.The procedures should also provide a plan for the committee to act on. The plan can include getting statements from all involved parties, conducting interviews, asking for any evidence on the matter and conducting a meeting to make a decision based on the facts presented.

Each of these items can be included in a board of director handbook. A handbook provides each member of the board a guide to reference at all times on what is expected.

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