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The Legal Side of Board Membership

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Recently, I spoke to a group of board members from not for profit and for profit companies about the legal responsibilities that come with board membership. I focus on three topics: (a) fiduciary dut; (b) confidentiality; and (c) antitrust. My presentation are below. Let me know if you have any questions.

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The Legal Side of Board Membership

  1. 1. The legal side of board membership Shawn J. Roberts www.shawnjroberts.com
  2. 2. Role of the BoardThe board of directors is the:
  3. 3. Role of the BoardThe board of directors is the:
  4. 4. Role of the Board The board of directors is the:•governing body of the association,
  5. 5. Role of the Board The board of directors is the:•governing body of the association,•responsible for the ultimate direction of themanagement of the affairs of the organization.
  6. 6. Role of the Board The board of directors is the:•governing body of the association,•responsible for the ultimate direction of themanagement of the affairs of the organization.•responsible for policymaking,
  7. 7. Role of the Board The board of directors is the:•governing body of the association,•responsible for the ultimate direction of themanagement of the affairs of the organization.•responsible for policymaking,•Employees are responsible for executing day-to-day management to implement board-made policy.
  8. 8. Role of the Board The board of directors is the:•governing body of the association,•responsible for the ultimate direction of themanagement of the affairs of the organization.•responsible for policymaking,•Employees are responsible for executing day-to-day management to implement board-made policy.•The ultimate legal responsibility for the actions (andinactions) of the association rests with the board.
  9. 9. Fiduciary Duty:
  10. 10. Fiduciary Duty: the legal duty (responsibility) to actin the best interests of another individual www.turningpointlaw.ca/Glossary.htm
  11. 11. Fiduciary Duty: the legal duty (responsibility) to actin the best interests of another individual individual includes persons, companies, organizations and charities www.turningpointlaw.ca/Glossary.htm
  12. 12. A fiduciary duty is . . .
  13. 13. A fiduciary duty is . . .one of complete trust and utmost goodfaith.
  14. 14. A fiduciary duty is . . .one of complete trust and utmost goodfaith.a legal requirement of loyalty and care thatapplies to any person or organization thathas a fiduciary relationship with anotherperson or organization.
  15. 15. In this case, its to the . . . organization you represent and the members
  16. 16. Legally-speaking its 2 duties:
  17. 17. Legally-speaking its 2 duties: Duty of LOYALTY Duty of CARE Duty of Obedience
  18. 18. The duty of loyalty requiresDuty of that fiduciaries act solely in the interest of their clients, rather than in their ownLoyalty interest. Must not derive any direct or indirect profit from their position, and must avoid potential conflicts of interest.
  19. 19. The duty of careDuty of requires that fiduciaries perform their functions with a high level of Care competence and thoroughness, in accordance with industry standards.
  20. 20. Duty of ObedienceRefers to the board member’s obligation toadvance the mission of the organizationand also an expectation that boardmembers will act in a manner that isconsistent with the mission and goals ofthe organization.Failure of this duty can result in a loss ofpublic confidence in the institution.
  21. 21. Duty of ObedienceRefers to the board member’s obligation toadvance the mission ofthisorganization Failure of the duty canand also an expectationloss board result in a that of publicmembers will act in a manner that is confidence and the ofconsistent with the mission in goalsthe organization. institution.Failure of this duty can result in a loss ofpublic confidence in the institution.
  22. 22. Suggestions for reducing Risks
  23. 23. Suggestions for reducing Risks Being thoroughly and completely prepared before making decisions.
  24. 24. Suggestions for reducing Risks Being thoroughly and completely prepared before making decisions. Being actively involved in board meetings, commenting as appropriate, and asking questions where prudent.
  25. 25. Suggestions for reducing Risks Being thoroughly and completely prepared before making decisions. Being actively involved in board meetings, commenting as appropriate, and asking questions where prudent.
  26. 26. Suggestions for reducing Risks Being thoroughly and completely prepared before making decisions. Being actively involved in board meetings, commenting as appropriate, and asking questions where prudent. Making decisions deliberately and without undue haste or pressure.
  27. 27. Suggestions for reducing Risks Being thoroughly and completely prepared before making decisions. Being actively involved in board meetings, commenting as appropriate, and asking questions where prudent. Making decisions deliberately and without undue haste or pressure. Insisting that meeting minutes accurately reflect the vote counts (including dissenting votes and abstentions) on actions taken at meetings.
  28. 28. Confidentiality
  29. 29. ConfidentialityAll board discussions areconfidential
  30. 30. ConfidentialityAll board discussions areconfidential
  31. 31. ConfidentialityAll board discussions areconfidentialAllows a free and opendiscussion
  32. 32. ConfidentialityAll board discussions areconfidentialAllows a free and opendiscussion
  33. 33. ConfidentialityAll board discussions areconfidentialAllows a free and opendiscussionIf you are contacted aboutboard matters, refer to
  34. 34. ConfidentialityAll board discussions areconfidentialAllows a free and opendiscussionIf you are contacted aboutboard matters, refer toCEO or President
  35. 35. AntitrustThe antitrust laws proscribe unlawful mergersand business practices in general terms, leavingcourts to decide which ones are illegal based onthe facts of each case.
  36. 36. Any business or marketing plan that’sprincipal goal is to adversely affect acompetitor could be considered aviolation of antitrust law.Jodi Tuttle, “What You Don’t Know About Antitrust Can Ruin You,” IndianaREALTOR®, May 2001
  37. 37. Anti-trustish activities• Price Fixing•Division Of Markets•Group Boycotts An Antitrust Primer for Realtors®, By Henry A. Hart, Esq. http://nvar.com/index.php/law-ethics/article/an_antitrust_primer_for_realtors

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