Presenter
Fern N. Zappala currently serves as Special Counsel to the CEO for the American
Society of Health-System Pharmacists, and handles selected legal projects for the
organization. Prior to this position Ms. Zappala was the full time General
Counsel/Vice President for ASHP for over 14 years, and has represented ASHP in
various positions for a total of 28 years. Ms. Zappala holds a Juris Doctor from
Catholic University, and a Master of Public Health and Bachelor of Science from the
University of Minnesota.
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Board of Directors Roles and
Responsibilities:
Some Legal Fundamentals
February 23, 2015
Fern N. Zappala, M.P.H., JD
Special Counsel
Think Spring and Summer!
Disclaimer
Any views or comments offered today are those
of the presenter and should not be construed as
the position of the ASHP.
This presentation is designed to provide accurate
information in regard to the topic covered. It is
provided with the understanding that I am not
providing legal services or advice. If legal
services or other assistance is required the
services of a professional person in your area
should be sought.
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Initial Thoughts
Board service is voluntary, but……. Board
members are accountable for their decisions
Unknown ?
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Objectives
Recent Trends Related to Board Conduct
Legal Overview of “Fiduciary Duties”
Selected Areas that can give rise to liability
for Directors
Strategies for Avoiding liability
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I. Recent Legal Trends for Board Conduct
Know what your governing document say
Document deliberations and decisions
 Active engagement of Board members
Demand for greater level of accountability and
transparency about governance and management
practices by the IRS, DOL and Congress
Active oversight and resolution of conflicts of interest
“Google audits”
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II. Legal Obligations
Board members must meet certain legal and ethical
standards of conduct in carrying out his or her
responsibilities to the organization (grounded in state law)
Legal Duties include :
 Duty of Care
 Duty of Loyalty
 Duty of Obedience
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Duty of Care
The Duty of Care - “Prudent Person” standard.
What would an ordinary person in a like position do?
A board member exercises reasonable and ordinary care
when making decisions as a steward of the institution.
Protect the assets/resources/proprietary information of
the corporation through sound decision making.
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Duty of Care (con’t)
You fulfill the Duty of Care by:
 Attending all board meetings, committee meetings, etc
 Reading background materials and minutes
 Participating in the process of approval of major objectives
of the Society - set the direction
 Overseeing the Society’s finances/resources, exercising
good business judgment at all times
 Recruiting/hiring the CEO
 Reliance on Experts
 Ask questions
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Case Study 1—Duty of Care
Frank, an engineer, is highly regarded and well liked among
his peers. Last year, Frank was elected to serve on the Board
of the Society of Engineers. Frank shows up to all of the
Board meetings, and is an all-around good natured guy.
During Board meetings Frank spends the majority his time
looking at his social media sites, and answering work e-mails.
Frank rarely speaks up or asks a question, but always votes
when the question is called on a given Board action.
Is Frank fulfilling his duties as a Board member?
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Yes / No
Duty of Loyalty
Duty of loyalty - be faithful to the organization and pursue
the “organization’s best interests”.
Put the interests and mission of the organization above
self-interest or other external interests.
Undivided allegiance to the organization.
Minimizing and managing conflicts of interest.
Maintain confidentiality of information.
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Duty of Loyalty (con’t)
You fulfill the Duty of Loyalty by:
 Compliance with policy and process on Conflict of Interest
 Participation in disclosures, and resolving perceived or
actual conflicts of interest
 Assessment of activities involving board members to ensure
there is no potential or perceived conflict of interest
 Maintaining the confidentiality of information discussed by
the Board
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Duty of Loyalty : Conflict of Interest
Activities that may give rise to Conflict of Interest
questions
 Participation in educational activities/programs
 Publishing opportunities
 Gifts, gratuities, and remunerations
 Requests to become board member of competing
organizations or an organization in same class of trade
 Consulting arrangements within the same industry
 Participation in external focus groups and advisory boards
 Use of Social Media!
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Case Study 2—Duty of Loyalty
John was recently elected to the Board of Directors of a the
American Society of Hair-Transplant Specialists (ASHS)
specialty society that represents hair transplant specialists.
After serving on the Board for a year John called the CEO of
ASHS to tell her that that he had been invited to serve on the
board of ACME Hair, Inc. The CEO informed John that per
Board policy this would be considered a conflict of interest.
John strongly disagreed noting that his service would help to
strengthen ties within the industry.
Is this a potential conflict of interest? Yes / No
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Duty of Obedience
Duty of Obedience : compliance with state and federal
laws, and regulations
Act only in accordance with organization’s articles of
incorporation and bylaws, board policies
Avoid negligence and fraud
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Duty of Obedience
You fulfill the Duty of Obedience by:
 Decisions or actions of the Board are consistent and lawful
with the purpose and goals of the Society
 Ensure that policies and procedures are in place to meet
legal requirements for organization’s operations (i.e. IRS,
DOL reports, ERISA, etc)
 Provide copies of tax-exempt forms, federal reports and
financial reports as necessary when requested or required.
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Case Study 3—Duty of Obedience
The Board of the American Bar Association, which is the largest
membership organization representing bartenders, approved a one time
“special assessment” for all active members in order to fund an advocacy
program to enact a piece of legislation that could impact the work
carried out by bartenders. A group of members objected to the
assessment and filed suit against the Board for violation of the bylaws of
the organization.
Does this raise concerns ?
Yes / No
What steps should the board consider in this situation?
What if the bylaws are unclear or silent about this type of assessment?
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III. Areas of Legal Exposure for Nonprofits
Apparent Authority
 Who speaks on behalf of the organization?
Use of Technology and Electronic Communications
 Social Media
Antitrust liability
Contractual matters
Maintaining Tax Exemption
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IV. Minimizing Liability for Directors
Education on roles and responsibilities as Directors
Compliance with laws and governing documents
Indemnification of Directors
Providing Directors and Officers Insurance
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Why is this important?
Ensure the proper governance and direction of the
organization
Compliance with mission/exempt purpose
Minimize risk of liability and claims against Boards for
breach of fiduciary duties
Shield members of the Board from personal liability for
actions of the Board
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Questions?
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Other Resources
ASHP website. www.ashp.org/stateaffiliates
BoardSource. www.boardsource.org
American Society of Association Executives
(ASAE). www.asaecenter.org
Association of Corporate Counsel.
www.acc.com
Association Management Tips.
www.rchcae.com/management-tips-templates
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