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Blog: Ethical Rules For Nonprofit Board Members

September 29, 2014

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In addition to the fiduciary duties applicable to board members of all corporations, such as the duty of care and the duty of loyalty, there are several ethical responsibilities specific to nonprofit and other tax-exempt organizations.

Nonprofit organizations should establish and adopt a Code of Ethics that covers board members and staff and includes at least the following items: (1) the mission and purpose of the organization; (2) governance; (3) reasonable compensation standards; (4) a conflicts of interest policy; (5) financial controls and legal compliance; (6) openness and disclosure of information to the public; (7) implementation and oversight of the code of ethics; (8) inclusiveness and diversity; and (9) fundraising standards.  A board member should not act inconsistently with the organization’s tax-exempt purpose.

A nonprofit board member must follow the Conflicts of Interest policy and avoid making decisions motivated by considerations other than the organization’s best interests.  A board member should not: use the organization’s assets or information for personal gain, take a corporate opportunity, compete with the organization, or receive a gift, loan, or guarantee from the organization.  Additionally, if the nonprofit organization has sought tax-exempt status with the IRS, the board members should ensure that the organization does not run afoul of any of the prohibited activities of a nonprofit organization, including prohibited political campaign activity, private inurement of profits or funds to insiders, and excess benefit transactions.

Nonprofit and other tax-exempt organizations should seek professional advice on ethical rules and compliance issues for their board members.

This blog post is authored by Jacob Natwick and meant for informational purposes only.  It is not meant to provide legal advice in any particular circumstance or factual situation.  You should consult with an attorney prior to taking any action regarding the information contained herein.

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