The Duty of Obedience

The Duty

Of the three duties of Nonprofit Directors, the actions required under two are relatively straight forward. The Duty of Care requires attention to detail and the application of good judgment.  The Duty of the Loyalty requires adherence to the Conflicts of Interest expectations.  The behaviors expected, however, under the Duty of Obedience are not entirely clear.

Duty of Obedience

The board is responsible for assuring that the organization acts in compliance with its mission, By Laws and legal responsibilities. The members of the board owe a duty to keep within the powers of the corporation and within those of the board of directors

 While the requirement to follow applicable laws is relatively straightforward, the requirement to “assure compliance with the mission” is less straightforward because it is not clear how and by whom the “mission” is determined.

The Legal background

Organizations dedicated to the public good were originally formed as “Charitable Trusts.” The “Trustees” were under a fiduciary Duty of Obedience to assure that the assets of the Trust were used to fulfill the intent of the donors and to administer the trust solely in the interest of the beneficiaries.* 

Some organizations still describe their Board members as “Trustees” rather than “Directors.” This represents the idea that the Board holds the organization in trust and works jointly with management to meet the needs of the beneficiaries and other stakeholders. The emphasis on stewardship is in contrast with the approach of for profit corporations where the role of Directors  is to “direct” management.

The intent of the donors to Charitable Trusts provided clear guidelines for the Trustees. The “mission,“ however, of a contemporary not-for- profit corporation to which the Duty of Obedience is owed, is less clear.

What determines the mission to which the Board members owe a Duty of Obedience?

The powers of a not for profit corporation are defined by the Certificate of Incorporation. Certificates of Incorporation are very broad. They were drafted when the corporation was first formed to give them as much latitude as possible to grow and evolve.

Someone, mmost probably a founder, described the organization’s actual activities, goals and objectives. This became it’s “mission statement.” This statement may have evolved to reflect changes in programs and populations served.

Board Responsibilities includes “determining the mission.” There is, however, an illogic to this. The Duty of Obedience would be meaningless if the duty of the Board was simply to follow the mission it itself created.

An answer

The “public good” that organizations exist to serve is not an abstract concept. It is defined by the needs, interests and concerns of the multiple stakeholders for whom the work of the organization is important and whose engagement is central to the success and survival of the organization.

These stakeholders include the clients served, the communities in which they work, their staff, funders, contributors, corporate partners, government, collaborating organizations, etc.

While the board has the legal responsibility to adopt the mission, the process by which they arrive at this must involve engagement with, and understanding of, the multiple stakeholders who will each have different views on the priorities of the organization.

This may be messy but it is the process that will keep organizations vital and relevant.

Footnote and references

*The Duty of Obedience was, at one time, also expected of the Directors of a For Profit corporation. That expectation had fallen by the wayside.  There is, however, some movement on the part of business leaders to revive the expectation that they have a duty to stakeholders in addition to the shareholders (employees, clients, the environment, the public good, etc.)

References

Business Leaders’ Pact Foresees Return to an Era of Conscience, New York Times, Aug 20, 2019, A 15,

Duty of Obedience: The Forgotten Duty. New York Law School Review. Vol.55, 2010/11

Punctilios and Nonprofit Corporate Governance-A Comprehensive Look at Nonprofit Directors Fiduciary Duties. Thomas Lee Hazen and Lisa Love Hazen, University of Pennsylvania Journal of Business Law. Vol 14.2. Feb 21, 2012