Fundamental Legal Obligations
Under well-established principles of nonprofit corporation law, those in positions of responsibility and authority in the governance structure of a nonprofit owe certain fiduciary duties to the organization. They are legally required to act reasonably, prudently and in the best interests of the organization, to avoid negligence and intentional misconduct, to avoid conflicts of interest that are harmful to the organization, and to abide by all applicable laws, rules, and the organization’s governing documents.
These legal standards are usually described as the duty of care, the duty of loyalty and the duty of obedience.
Duty of Care
The duty of care describes the level of competence that is expected of an Executive Council member, and is commonly expressed as the duty of "care that an ordinarily prudent person would exercise in a like position and under similar circumstances." This means that an Executive Council member owes the duty to exercise reasonable care when he or she makes a decision as a steward of the organization.
Duty of Loyalty
The duty of loyalty is a standard of faithfulness; an Executive Council member must give undivided allegiance when making decisions affecting the organization. This means that an Executive Council member can never use information obtained as a member for personal gain, and must act in the best interests of the organization.
Duty of Obedience
The duty of obedience requires Executive Council members to be faithful to the organization's mission. They are not permitted to act in a way that is inconsistent with the central goals of the organization. A basis for this rule lies in the public's trust that the organization will manage donated funds to fulfill the organization's mission.