Duty of Loyalty Definition: Three Ways to Be a Loyal Board Member
Members of a Board of Directors have three duties: Care, Loyalty, and Obedience. We'll look at the Duty of Loyalty definition and explore three ways you can demonstrate your loyalty to the organization.
Duty of Loyalty Definition
Being the director of a nonprofit board of directors is a high honor and a symbol of respect for you and your knowledge and skills. With this honor comes responsibilities to the nonprofit. Board members have three primary responsibilities, one of which is the duty of loyalty.
The duty of loyalty means that a board member puts the organization's needs first. This means that when acting as a director, the organization's good has priority over personal interests. This is not a task to take lightly and one to consider before becoming a board member. If an organization does not align with your personal beliefs, exercising the duty of loyalty is more complicated.
Act Honestly and with Integrity
At its core, acting with loyalty involves being honest and practicing integrity. With these two in place, the duty of loyalty follows. Take a long-term view of the organization's health and viability. All decisions are made to ensure the organization will thrive in the future.
Conflict of Interest
A board member must act in the organization's best interest. A conflict of interest occurs when a board member may receive personal gain from a board's decision. For example, if a board member owns a CPA firm, and the board is selecting a new accounting firm, this board member has a conflict if their firm has the potential to be chosen.
Conflicts can occur when:
A decision financially or materially benefits a board member or their immediate family.
A board member accepts gifts that may influence decision-making.
A board member uses confidential information to their advantage.
To mitigate potential conflicts of interest, boards implement a conflict of interest policy. This policy defines a conflict of interest and the procedure to follow if one seems to exist. A best practice is to review this policy annually and have board members sign their agreement each year.
When in doubt about a conflict, disclose the potential conflict and let the board decide. If a conflict is determined, step out of the meeting for that portion of the agenda. If this is not possible, do not participate in any discussion about the issue and abstain from voting.
Keep the Organization's Information Private
At times a board member comes into possession of information that is confidential. Board members must protect any sensitive information, whether a human resource issue or proprietary information. This maintains the trust and confidence of community partners.
Nonprofits can make determining what is confidential information because they operate in a more transparent environment. If an issue could damage the organization (e.g., an internal HR problem), do not share it with anyone, including family and friends. If unsure, ask the board president or chief executive if you can share information.
The duty of loyalty is essential for the effective and ethical functioning of the organization. Board members must understand their fiduciary responsibilities and work carefully to ensure they are acting with integrity, free from conflicts of interest, and dedicated to advancing the organization's interests.
Do you have a Board that needs help understanding its duties, including the Duty of Loyalty? Contact me for information about how I can help!