Why You Need a Board Member Agreement
A well-written board member agreement is a crucial document for the functioning of an organization. It establishes clear responsibilities and expectations for members, outlines the voting process, and sets important guidelines for the director-director relationship. A good agreement can help facilitate smooth sailing for the organization in times of both success and struggle, acting as an effective guide to maneuver through difficult situations. In the absence of a written agreement between directors, it can be easy for members to misunderstand their role within the board and the organization as a whole – which can create miscommunication, discord, and chaos that undermines the board’s integrity .
The board member agreement also helps to unify board members behind the goals and mission of the organization through its authorizing language and composition. This is a particularly useful tool for new board members and reorganizations, where old and new strategies can be merged into the agreement to create one that best reflects the organization’s goals moving forward. The process of drafting and agreeing upon an effective board member agreement document can also force members to have meaningful conversations on how best to align their values with the organization and with each other. Thus, board member agreements do not just serve as a record of the duties of board members, but also provide a roadmap for the future of the board and the organization.
The Basics of a Board Member Agreement
When crafting a board member agreement template, it is crucial to ensure that several key elements are covered. These elements will provide a comprehensive framework for defining the roles, responsibilities, and obligations of board members within the organization.
First and foremost, the agreement should clearly outline the duties and responsibilities of each board member. This includes detailing their specific roles within the organization, such as treasurer, secretary, or committee chair. It is essential to be as specific as possible to avoid ambiguity and confusion in the future.
Additionally, the agreement should establish the expectations for participation and attendance. This means clearly stating the number of meetings they are required to attend, their expected level of participation, and any other requirements related to their engagement with the board and the organization as a whole.
Another crucial element is confidentiality. Board members are often privy to sensitive information about the organization, its finances, and its operations. As such, the agreement should contain a confidentiality clause that outlines the information that is considered confidential and the consequences for any breaches of confidentiality.
Finally, the agreement should address the legal obligations of board members. This includes their fiduciary duties to the organization, such as the duty of care, duty of loyalty, and duty to act in the nonprofit’s best interests. It should also outline any legal or regulatory requirements that board members must comply with.
By including these key elements in a board member agreement template, you can help ensure that your nonprofit organization functions smoothly and efficiently, while also safeguarding the interests of the board and the organization as a whole.
How to Draft an Effective Agreement: Templates and Suggestions
A number of organizations use pre-existing templates to help with drafting agreement that can be adapted to specific needs. While not a substitute for custom drafting, especially for smaller boards and those dealing with particularly sensitive issues, the template approach can be a good starting point. For example, this template from BoardEffect provides an overview of some of the most common provisions included in board member agreements, and this more complex template drafted by BoardSource goes into much greater detail on issues such as confidentiality, conflicts of interest, and other duties and responsibilities.
Using one of these templates as a roadmap, board members can go through a thoughtful process to draft an effective constitution that meets the needs and requirements of the organization. It’s also essential to put the rules into writing, to have the document signed by each board member, and to consult occasionally with organization counsel to ensure that the document continues to align with the provisions of both governing and regulatory documents.
Legal Factors Involving Board Member Agreements
In the creation of your Board Member Agreement template, you must consider compliance standards. For non-profit organizations, state laws dictate protocols for how board members are bound and how legal, tax, or fiduciary liabilities must be assured. For example, if your nonprofit is recognized as a 501C3 by the IRS, it has always been required that compensation agreements are implemented and updated periodically . Furthermore, with many states’ state laws allowing for tax exempt status, compliance comes from meeting further regulatory obligations. In addition to your state laws on board members, you must also comply with all federal regulations. The IRS and state allow tax exempt status to organizations – provided those charities, associations, and other not for profit organizations follow federal law guidelines.
Implementing and Reviewing Board Member Agreements
Once the template board member agreement is prepared, it needs to be properly implemented. This includes explaining the key terms contained therein to ensure everyone is aware of their rights and obligations if there is a breach of the agreement or how the terms will apply to them. It is important to create a positive environment where board members are comfortable asking questions and bringing up any concerns they may have about the agreement.
Once the board member agreements are executed, the terms therein must be periodically reviewed, probably at least every three years. Even in the absence of any material changes being made to its terms, periodic reviews provide an opportunity to reaffirm the understanding among the board members of the terms contained therein. The review should also include a process for making any changes to enhance and improve the understanding of the parties of their respective rights and obligations as set out in the agreement.
Mistakes to Avoid
Common pitfalls in creating board member agreement templates can be avoided by following some basic guidelines. One of the most common mistakes is drafting a vague agreement that does not address key issues. For example, an agreement that merely states "member agrees to serve on the Board of Directors" is not enough to provide clarity and direction. The best boards have documents that outline roles and responsibilities in detail so that each individual knows what is expected of him or her.
Another common drawback is failing to address conflict of interest issues. Many boards think about classifying board members as interested and disinterested in certain transactions with the organization. This is important for private foundations and certain public charities that receive federal grant funds, but the board should also make sure there is no appearance of conflict of interest, even if a transaction is fair and reasonable to the organization . A provision addressing conflicts will help ensure that there is not a perception that the board member is acting improperly, even if the board member is not.
Another pitfall is to fail to plan for turnover and vacancies. A strategic plan may include a succession plan, but it is also a good idea to have a transition plan that identifies who will step into a particular role, even if only temporarily. A board that has a vacancy on it can lead to inefficiencies, so it is important to have a plan in place. Having a solid plan for board member transitions will help ensure that the organization meets its obligations without missing a beat.
So what can organizations do to avoid these pitfalls? Seek help from an attorney who specializes in nonprofit law. A lawyer will help guide the organization through the process of developing and adopting the template that is right for the particular board.