Ignorance is Not Bliss

As I introduced myself at a networking event last week, I indicated that Strive! helps board members fulfill their legal responsibilities. I was both surprised and concerned at the response, “I sit on a board. I didn’t know I had legal obligations.” This reminded me of some other board experiences. When I encouraged one board to take a higher level of responsibility for the organization I was told that since the organization wasn’t large, it wasn’t important to practice such due diligence. In another situation, once the board had decided to wind down a financially troubled organization, the majority of board members resigned immediately, leaving just a few to assume the responsibility of the wind down process. Although most board members realize they have some legal responsibilities, too few understand what those obligations are. Many operate according to the maxim, ignorance is bliss.

It is important for everyone who sits on the organization’s legal board to realize that the board and all of its members have the legal authority and responsibility for making the highest level of decisions for the organization between annual meetings. The board is required to exercise due diligence – to exercise a standard of care which demonstrates loyalty to the organization’s well being and an understanding of the things which significantly impact the organization’s success. Board members are expected to be aware of the laws of the land and the trends in the industry so they can make informed decisions. It is the responsibility of board members to direct the organization in the best interests of its owners. The board leads the organization; it gives direction to the CEO or Executive Director (ED) so he can lead operations, monitors progress towards the board-approved goals, and holds the CEO or ED accountable to meeting expectations.

When an organization fails to perform ethically, the buck stops with the governing board, not with the CEO or ED. It is important that board members realize they are responsible for the organization; they are not just there to advise the senior staff person or rubber stamp her recommendations. Many board members feel comforted to know that the organization has a directors and officers liability insurance policy. However, directors and officers insurance doesn’t cover ignorance; its purpose is to protect astute board members who paid attention to the organization’s affairs but experienced a rare oversight or, despite sincere efforts, were unable to overcome a major challenge. Every board member can be held personally liable for problems which the board did not address responsibly.

Board members who are aware of their legal authority and responsibility are more likely to attend to directing the organization and protecting the owners’ interests. Ignorance is not bliss; being an uninformed board member can have serious legal consequences.

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