Nonprofit board members and officers owe three fiduciary duties to the nonprofit organization they serve. It’s critical to practice them in word and in deed and to make sure that their fellow board members do as well. The three fiduciary responsibilities are the duty of care, the duty of loyalty and the duty of obedience, as mandated by state and common law.

It’s vitally important that all board members understand how their duties fall into each category of fiduciary duties. Not understanding fiduciary duties — or not being well-informed about them —  doesn’t relieve board members from any obligations or liabilities they may face if they fail to fulfill these important duties.

Board members are called fiduciaries because they are legally responsible for managing a nonprofit entity’s assets. Fundraising is one of the primary activities of a charitable nonprofit organization. Board members are responsible for overseeing funds from philanthropists, donors and grant-makers, and making sure that the funds are being used for their intended purpose in financially supporting the organization. Board members who diligently perform their fiduciary duties responsibly protect the organization’s reputation, which also falls into the category of fiduciary duty.

1. Duty of Care

Duty of care means that board directors must give the same care and concern to their board responsibilities as any prudent and ordinary person would. This means board members should be actively participating in board meetings and on committees. It also means that they should be actively working with other board directors to advance the organization’s mission and goals. They can fulfill their responsibilities by overseeing and monitoring the nonprofit’s activities. Board directors should be able to read and understand financial reports and be willing to question expenditures and examine variances. They are also responsible for strategic planning and achieving the nonprofit’s short- and long-term goals.

2. Duty of Loyalty

Duty of loyalty means that board directors must place the interests of the organization ahead of their own interests at all times. Duty of loyalty means publicly disclosing any conflicts of interest and not using board service as a means for personal or commercial gain.

3. Duty of Obedience

Duty of obedience means that board directors must make sure that the nonprofit is abiding by all applicable laws and regulations and doesn’t engage in illegal or unauthorized activities. The duty of obedience also means that board directors must carry out the organization’s mission in accordance with the purpose they stated in getting qualified as a nonprofit organization.