Sunday, September 21, 2014

Association Leaders Struggle with the Duty of Loyalty

Association board members often struggle with the Duty of Loyalty. Here’s a definition from our association attorney:

  • The Duty of Loyalty dictates that officers and directors must act in good faith: A director shall avoid advancing their own personal interests in ways that may injure or take advantage of the Association. A director shall exercise honesty and must not allow his/her personal interests to prevail over the interests of the organization. The duty of loyalty has three key components: (1) the director must not usurp corporate opportunities for personal gain, (2) must avoid engaging in interested transactions without board approval, and (3) must maintain the organization’s confidential information.
During board orientations, I’ve had directors strenuously object to the concept that they have to support board actions even when they disagree with them.

  • An ongoing ASAE Collaborate dialogue provides a current example of the challenges when board members don’t follow legal and organizational rules and regulations:
  • An officer of a non-profit organization posted negative opinions online about fellow board members as well as its national organization.
  • The negative comments were posted on Facebook. The association asked that the comments be removed. The president sent a formal letter explaining the reasons why it was inappropriate.
  • The non-profit spends several hours each year in officer orientations and has confidentiality policies and code of ethics policies. 
  • Despite all this, the non-profit fears repeat offenses.   
This story illustrates two key problems (legal and public relations) with directors who do not follow the Duty of Loyalty:

1) Legal
Directors who violate the Duty of Loyalty could bring legal issues to themselves and the association:

Donna Dunn, CAE, Senior Consultant at Tecker International LLC commented on the legal issues:

  • “This is a breach of the Duty of Loyalty. While this may seem like the ‘nuclear option,’ it may be the only approach. Consult your attorney. Breach of Duty of Loyalty is a legal issue. You do a lot of orientation. Your board members should be well aware that Duty of Loyalty carries potential legal penalty. It may require a conversation between your board and the attorney followed by their conversation with this individual (note: Not you). It may require a letter from your attorney to this individual delivered by a process server. In our experience, this is a significant challenge to your organization and to you. Take your situation to your attorney and have your board aware of and engaged in the legal conversation.”
2) Public relations
When directors violate the Duty of Loyalty, they create potential “pr problems” for the association. This may be “internal” issues in that members question what is going on. But, when comments are posted on social media, they can reach the news media and/or public. Either present major public relations issues for your association.

Associations should have “crisis communications” plans.
Jonathan Bernstein of Bernstein Crisis Management, Inc. writes:
  • “Every organization is vulnerable to crises. The days of playing ostrich are gone. You can play, but your stakeholders will not be understanding or forgiving because they've watched what happened with Fukishima, Penn State/Sandusky, BP/Deepwater and Wikileaks. If you don't prepare, you will incur more damage.”
He shares 10 Steps Of Crisis Communications.

Association executives need to work with board members (either individually or in board meetings) to be sure these volunteers are aware of their fiduciary responsibilities. You can do this during orientation sessions. You may want to have them spelled out in materials provided to members interested in being a board member. You may want to consider having an attorney (who knows association law) give a presentation at a board meeting.

The bottom line: don’t ignore these issues!

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