Should You Volunteer to Serve on a Board?

You’re a business owner. You have money, experience, connections and influence. People want you, or, at least, your support and assistance. One way is as a board director — maybe for a local charity, bank or your industry association. Should you accept the invitation? Before you decide, answer the following questions:

1. Do I understand what a board of directors is and does?
2. Do I understand the important duties and obligations of a board director?
3. Do I have sufficient time?
4. Is my temperament suitable for board service?
5. What will I gain from the endeavor?
6. Is the organization a good fit for me?
7. Does the organization fit my risk profile?

An organization — whether a for-profit business or not-for-profit community service organization — is a legal entity, organized under the laws of a state. Much like an individual, it has rights and can engage in commerce. So, the organization for which you are considering serving as a board director can enter into legal agreements, raise debt and equity capital, invest, create and deliver a product or service, and sue and be sued. Who is responsible for directing its activities? Who is responsible for managing the organization’s affairs?

The Board of Directors

If you are invited to join the board of an organization in which you do not have ownership, i.e., you are a volunteer, it will likely have 15 to 18 seats (directors). You will fill one of them. Board directors are elected by the shareholders and typically serve three-year terms. Directors are not expected to devote full time to the affairs of the corporation, and they have broad authority to delegate power to persons who will run the day-to-day activities of the business (officers). The officers (president, vice-president, treasurer, etc.), in turn, can hire employees to carry out necessary tasks of the business. If an organization or its directors, officers or employees are found to have harmed others and/or engaged in fraudulent, deceptive or harmful activities, directors may be held personally liable.

Board Director Duties & Obligations

By state statute, each board director “owes” duties to the corporate entity and its shareholders. The duties are obedience, loyalty and reasonable diligence protecting the interests of the corporate entity and its shareholders. Any director who fails to fulfill these duties could be held liable. While this is true, board directors are also legally protected by what is referred to as the “business judgment rule.” In short, directors are not obligated to make smart or wise decisions, only to use care and good faith. “Care” is generally defined as “the care an ordinary, prudent person in a like position would exercise under similar circumstances.” In addition to the legal obligations, the organization you are considering serving will have (or should have) their own description of the duties and responsibilities required of their board directors. Be sure you read, understand and can fulfill them.