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Special Communication  |   September 2016
Nonprofit Board Membership for Health Care Professionals: Honor or Responsibility?
Author Notes
  • From Georgetown University in Washington, DC (Dr Johnson), and the University of Pennsylvania in Philadelphia (Mr Calderwood, where he is a candidate in the Wharton MBA Program). Dr Johnson holds a master’s degree in hospital and health administration. 
  •  * Address correspondence to Joyce M. Johnson, DO, MA, RADM, USPHS (ret), 5518 Western Ave, Chevy Chase, MD 20815-7122. E-mail: radmjohnson@gmail.com
     
Article Information
Special Communication   |   September 2016
Nonprofit Board Membership for Health Care Professionals: Honor or Responsibility?
The Journal of the American Osteopathic Association, September 2016, Vol. 116, 620-626. doi:10.7556/jaoa.2016.121
The Journal of the American Osteopathic Association, September 2016, Vol. 116, 620-626. doi:10.7556/jaoa.2016.121
Abstract

Physicians and other health care professionals are often invited to serve on nonprofit boards. Although service on a nonprofit board is an honor, it carries a large responsibility. Many health care professionals are unaware of the level of commitment and involvement board service requires, particularly fiduciary boards, which have accompanying risks and legal functions. In the present article, the authors describe the activities and responsibilities of a fiduciary board member. They also provide a checklist of questions to ask before agreeing to serve on a board and discuss how to decide whether one is the right fit for a specific board position.

Health care professionals, including osteopathic physicians, are frequently invited to serve on the boards of nonprofit organizations. The invitation is typically viewed as an honor because it recognizes one as a leader in the profession or community. However, when invited to serve on a board, the time commitment and level of responsibility required are often de-emphasized by the organization, in part to persuade one to join the board. Further, health care professionals may know little about nonprofit governance and boards. 
In the present article, we describe differences between nonprofit fiduciary and advisory boards and identify the general responsibilities of fiduciary board members. We also provide a chart of due diligence, including general, fiscal, and risk assessment considerations, before agreeing to serve on a board, as well as a checklist to help decide whether one is the right fit for a specific board position. 
What Is a Nonprofit Corporation?
A nonprofit corporation is a common term that refers to a tax-exempt organization incorporated under Section 501(c) of the Internal Revenue Code. The most commonly recognized nonprofit corporation is the 501(c)(3), which includes purposes that are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”1 Other types of Section 501(c) corporations include social and recreational clubs, child care organizations, chambers of commerce, credit unions, mutual insurance companies, and veteran organizations. 
General Considerations
When one is approached to serve on the board of a nonprofit organization, he or she is likely to be honored to have been recognized as a leader in the given area with the potential opportunity to serve the community in a larger role. However, before agreeing to become a board member, one should do due diligence (Table) to ensure that the organization aligns with one’s goals, values, and aspirations. 
Table.
Due Diligence: Considerations Before Joining a Nonprofit Fiduciary or Advisory Board
Element Question or Action to Take
    General Obtain copies of basic documents (mission statement, annual reports, governance documents, etc). Review organization’s website. Confrm whether the invitation is for a fduciary or advisory board.
        Mission and Goals Do the mission and goals of the organization align with your values?
        Reputation What is the organization’s culture? Is it well regarded?
Research the organization online; talk with current and past board members.
        Leadership Are the CEO, board members, and key staff people you want to work with? How does the board regard the CEO and senior staff? What is the board member selection process?
        Commitment How long is a board term? What are the board’s activities and actual time commitments?
What are the frequency and duration of meetings? Where are meetings held (travel needed)?
Other leadership expectations? Why was I asked to join the board and what am I expected to contribute?
    Fiscal
        Financial stability Request and analyze fnancial statements and budgets. Review IRS 990s (available and growth online). Look for trends over past 3-5 years.
        Donor expectations and fundraising What are the donor fnancial expectations? What are the sources of funding?
What are the primary fundraising activities and board member responsibilities?
        Expenses Is required travel covered? Spouse travel? Other expenses?
        Compensation Do board members receive compensation, fnancial or otherwise (including travel reimbursement)?
    Risk Assessment
        Insurance Does the organization have director and offcer (D&O) insurance?
Request a copy and assess its comprehensiveness.
        Legal support Is there adequate legal support for day-to-day needs as well as signifcant legal issues, should they arise?
        Legal action Are there any pending or recent legal action, threatened legal action, settlements, or formal personnel complaints? Do any special risks from operations (eg, malpractice) exist?
If so, how are risks mitigated?
        Finances Do any fnancial or auditing issues exist? Is the organization fnancially sustainable?

Abbreviation: CEO, chief executive officer.

Table.
Due Diligence: Considerations Before Joining a Nonprofit Fiduciary or Advisory Board
Element Question or Action to Take
    General Obtain copies of basic documents (mission statement, annual reports, governance documents, etc). Review organization’s website. Confrm whether the invitation is for a fduciary or advisory board.
        Mission and Goals Do the mission and goals of the organization align with your values?
        Reputation What is the organization’s culture? Is it well regarded?
Research the organization online; talk with current and past board members.
        Leadership Are the CEO, board members, and key staff people you want to work with? How does the board regard the CEO and senior staff? What is the board member selection process?
        Commitment How long is a board term? What are the board’s activities and actual time commitments?
What are the frequency and duration of meetings? Where are meetings held (travel needed)?
Other leadership expectations? Why was I asked to join the board and what am I expected to contribute?
    Fiscal
        Financial stability Request and analyze fnancial statements and budgets. Review IRS 990s (available and growth online). Look for trends over past 3-5 years.
        Donor expectations and fundraising What are the donor fnancial expectations? What are the sources of funding?
What are the primary fundraising activities and board member responsibilities?
        Expenses Is required travel covered? Spouse travel? Other expenses?
        Compensation Do board members receive compensation, fnancial or otherwise (including travel reimbursement)?
    Risk Assessment
        Insurance Does the organization have director and offcer (D&O) insurance?
Request a copy and assess its comprehensiveness.
        Legal support Is there adequate legal support for day-to-day needs as well as signifcant legal issues, should they arise?
        Legal action Are there any pending or recent legal action, threatened legal action, settlements, or formal personnel complaints? Do any special risks from operations (eg, malpractice) exist?
If so, how are risks mitigated?
        Finances Do any fnancial or auditing issues exist? Is the organization fnancially sustainable?

Abbreviation: CEO, chief executive officer.

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The Organization’s Mission and Goals
Board members are advocates. One must learn about the organization’s mission, goals, and activities and make certain that one wants to support them—as a board member, he or she will be supporting them in terms of time and money, as well as personal visibility in the community. If the organization’s position differs on issues important to the prospective board member, that board may not be the right fit. 
The organization’s geographic reach is also important. Nonprofits with activities in several states or countries have related regulatory and legal requirements, so the board members’ responsibilities become more complex. 
The Organization’s Reputation
Although an organization’s reputation should not be the sole factor in determining whether to join a nonprofit board, it is much easier being a board member of a well-liked and successful organization than of one that is struggling for survival. Researching the organization online (starting with the organization’s website), speaking with people whom the organization serves, and visiting the organization’s offices or sites of philanthropic work can provide invaluable insights into the organization and its reputation. Hospitals and other organizations are frequently reviewed and ranked by outside groups, and those findings are often available in published sources (eg, http://www.consumerreports.org/health/doctors-hospitals/hospital-ratings.htm, http://health.usnews.com/best-hospitals/rankings). 
Leadership: Board Members and Staff
Who are the other board members? Are they people one would want to work with, in both good times and bad? What is the tenure of the other board members? Have any board members resigned recently, and if so, for what reason? Are they satisfied with the organization’s paid leadership (eg, chief executive officer, president)? Conversations with current and past board members about their experiences with the organization can reveal the benefits and drawbacks of being a board member, as well as the strengths and challenges facing the organization and the board. Also, former board members may provide insight that current board members may not want to share. 
Time Commitments
The board chair or other person “recruiting” a potential board member is usually something of a salesperson and wants the potential member to say “yes.” In that context, the actual expectations may be minimized. The responseto the question “How much time will it take?” is often measured by the frequency of board meetings—monthly, quarterly, semi-annually, etc. However, this response does not include preparation time, committee meetings, work on fundraising projects, and other activities. One should press for a comprehensive answer about time requirements. 
Fiduciary and Advisory Nonprofit Boards
It is important to understand whether the board is fiduciary or advisory. Fiduciary boards are governing boards with legal responsibilities for financial and management oversight. Advisory boards provide advice to the organization’s senior management or fiduciary board on a specific topic. 
Fiduciary Boards
A fiduciary or governing board is required of every nonprofit organization, as described in the articles of incorporation and other governance documents. These documents provide information such as the name and purpose of the organization, details regarding board membership and functioning, and other governance issues. 
Each member of the fiduciary board has certain legal and financial responsibilities for the corporation. Common law identifies several well-accepted responsibilities, including the following: 
  • Duty of care requires the board member to be knowledgeable about the board’s responsibilities and use reasonable care in board decisions (“business judgement rule”).
  • Duty of loyalty requires board member loyalty to the nonprofit and that board members be free of conflicts of interest.
  • Confidentiality prohibits the board member from sharing sensitive or private information. However, if a board member becomes aware of any potentially illegal activity, he or she has a responsibility to disclose that activity to the other board members and then to ensure that appropriate action is taken.2
Advisory Boards
Larger nonprofits may have advisory boards to provide general consultation and advice to senior management or the fiduciary board. For example, a nonprofit hospital might establish an advisory board to provide input on patient or community relations. Or, a nonprofit medical research organization may establish an advisory board to identify the most important areas for future research. 
Advisory boards have no legal oversight responsibility for financial or other corporate operations. Thus, advisory board members don’t have the same legal responsibilities (and risks) as fiduciary board members. 
Many previously not-for-profit hospitals and other health care organizations have been purchased by national for-profit chains, and many of these facilities now have local advisory boards with physician membership. Members on these advisory boards have roles and responsibilities similar to members of nonprofit advisory boards. Conversely, the role of the fiduciary for-profit corporate director has additional requirements compared with the fiduciary nonprofit board member, especially since passage of the Sarbanes-Oxley Act of 2002, the purpose of which was to increase the public’s confidence in US corporations. The Sarbanes-Oxley Act outlines extensive duties and penalties for corporate boards and board members, executives, auditors, and others.3 
Fiscal Aspects
Financial Expectations of Fiduciary Board Membership
The major role of board members is to assure organizational financial stability and growth, and to effectively meet the organization’s philanthropic goals. A nonprofit can only fulfil its philanthropic mission if it has adequate funding. Revenue may come from endowments, donations, research or other grants and contracts, and general operations. Most nonprofit organizations build revenue from a combination of these sources. Although a few nonprofits are large, multi-billion dollar conglomerates, most are much smaller. 
Fundraising, in a multitude of forms, is usually a major function of every fiduciary board member.4 In addition to hosting or participating in formal fundraising events, some boards expect members to solicit personal or corporate donations from friends and business colleagues. Donors expect organizations to be efficient and effective, to meet their philanthropic purposes, and to conform to the Internal Revenue Service (IRS) 501(c)(3) requirements to assure deductibility for donations. In our experience, most board positions also come with the expectation, either formal or informal, that the board member will make a large personal financial donation to the organization in addition to any contribution of time and energy required. For a larger, well-known organization, it is not unusual for this donation to be in the $10,000 range. However, some boards have no financial expectations from board members. Furthermore, a few of the largest and most prestigious nonprofits may pay selected board members in an effort to get “big names” that will then provide visibility in future fundraising efforts. Regardless of the financial expectations, board members are expected to foster the organization’s positive visibility in the community—a prerequisite for successful fundraising. 
Prospective board members should make certain that they have a full understanding of the financial expectations. Those recruiting board members may be uncomfortable discussing finances, or they may wait until the very end of the vetting process. However, it is best to make an inquiry early, and if the financial requirement or expectation isn’t agreeable, it’s best to decline the board opportunity at that time. 
Fiscal Strength
Many of the business aspects of a 501(c)(3) organization are the responsibility of the fiduciary board, often in conjunction with the paid staff. Although a nonprofit has an overall philanthropic mission, to accomplish that mission, basic business principles and financial documents are required.5 Many of these documents can be helpful when one is making due diligence in evaluating a potential board membership, including the following: 
  • The annual budget provides information on anticipated income and expenses. Comparing the annual budget for several consecutive years provides trend information. Also, the board votes on approval or disapproval of the annual budget. The budget is usually prepared by the paid staff. However, certain actions require additional board involvement, such as a separate board vote for a major capitol repair.
  • Financial statements provide information on the financial strength and stability of the organization. Nonprofit organizations need revenue to meet their charitable purpose and mission. Some organizations may use endowments to fund operational expenses, which is rarely a sustainable business model. Other organizations have unpaid debts and inadequate resources to pay those debts. Many organizations have annual reports that present high-level financial data and provide an opportunity to spot trends in financial health over several years.6
  • Audits are typically completed by an independent auditor who reviews the finances and prepares a letter summarizing any findings. Some nonprofits, especially larger ones, may also have an Audit Committee that works closely with the chief financial officer and the independent auditor. Review of auditor’s reports and minutes of the Audit Committee provide additional information on the adequacy of financial policies and procedures and on overall financial controls, all of which can help one to assess personal risk as a potentialboard member.7
  • IRS Form 990 is available online either on the organization’s website or at http://www.guidestar.org/Home.aspx. When compared over several years, these forms provide some indication of the organization’s financial stability. Most nonprofit 501(c)(3) corporations are required to annually file one of several versions of the IRS Form 990. A board member willlikely be expected to review and approve the completed form before it is submitted to the IRS.
The Table highlights due diligence in evaluating fiscal aspects of becoming a board member. 
Risk Assessment and Oversight
Although effective board function can mitigate some risk, fiduciary board membership has inherent risk. As part of due diligence before joining a board, one should assess the risk that may be involved with that specific organization and board. For example, personal and professional reputational risk may be increased if the mission and goals are controversial. Specific financial risks may be uncovered when reviewing financial documents and history. One must make certain that he or she is comfortable with those risks.8 
The availability of legal support must also be considered. Every board has questions from time to time that require a legal opinion. What legal resources does the organization have for day-to-day activities, as well as for more serious legal issues? Who is the organization’s legal advisor, and is the person paid or pro bono? If a board member needs legal advice, whom would he or she ask? 
Legal action, both past and present, is important to identify. One should inquire about any threatened or actual litigation against the organization related to the philanthropic mission, employment practices, fraudulent activities by employees, or other requirements or activities. Prospective board members should ask the organization to provide the current status of any legal actions, as well as any accusations, settlements, and legal judgments in the past 5 years. 
Does the governance structure, especially the committee structure, help to mitigate risk? For example, audit and finance committees can provide valuable oversight. Does the organization have formal risk management policies and procedures, and is there a formal process to identify and communicate risks to the board? 
Before joining a board, one should make certain that the organization purchases D&O (director and officer) liability insurance to protect board members. It is important to read the policy and understand what is—and what is not—insured. Some D&O insurance policies have numerous disclaimers and provide only limited protection. A fiduciary board member should make certain that the D&O policy is comprehensive. One may wish to have his or her personal attorney review the policy before agreeing to serve on the board. 
The board’s oversight is expected to result in an efficient and effective organization meeting its philanthropic goals, and without fraud or other illegal activities. It can be difficult for board members to know whether illegal activities are occurring, as such activities are typically hidden. Note that in serious situations, litigation can be initiated against the organization, and board members may be specifically named as individuals. Some organizations will indemnify board members with the assets of the organization. However, if the assets are minimal, so is the protection. 
Additional Responsibilities of Board Members
Strategic planning is another fiduciary board responsibility. The paid staff may draft a strategic plan for the board to review, discuss, and vote. Conversely, the board may establish an ad hoc strategic planning committee to develop a plan for the paid staff to implement. 
In addition, the board recruits and selects the executive director or chief executive officer; supervises and evaluates performance; and determines compensation. The board may have some say about other staff salaries through the budget process. 
Board members are often recipients of complaints about the organization. For example, if someone in the community isn’t satisfied with the organization’s performance, any board member, but most often the board chair, may be sent the complaints. 
Do I Want to Join This Board?
During the typical process of appointing a board member, the chair or another member of the board will meet with the prospective board member to discuss the organization and board position. Then, depending on the mutual interest, additional meetings are scheduled. This is the time for a potential board member to ask questions, learn about the organization, and gauge interest in board service. Once information is collected and due diligence is completed, one should complete a final assessment. The Figure provides a checklist of items to review before committing to serve on a fiduciary or advisory board. 
Figure.
Checklist of final considerations before joining a nonprofit fiduciary or advisory board. If one answers “yes” and can check most or all boxes, the position is likely a good fit.
Figure.
Checklist of final considerations before joining a nonprofit fiduciary or advisory board. If one answers “yes” and can check most or all boxes, the position is likely a good fit.
Conclusion
Serving on a nonprofit board can be rewarding, especially when the organization is well managed and its mission aligns with the values of a prospective board member. However, due diligence is essential before accepting a board position. Careful analysis of benefits and risks, including personal, professional, and organizational, is key. 
References
Exempt purposes - Internal Revenue Code Section 501(c)(3). Internal Revenue Service website. https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501-c-3. Updated June 8, 2016. Accessed July 27, 2016.
Snyder LS, Reif RD. Answering the Call: Understanding the Duties, Risks, and Rewards of Corporate Governance. 3rd ed. Washington, DC: Women Business Leaders of the U.S. Health Care Industry Foundation; 2007:13-20.
Sarbanes-Oxley Act of 2002, Pub L No. 107-204, 116 Stat 745. https://www.sec.gov/about/laws/soa2002.pdf. Accessed July 28, 2016.
Hammock DC, Young DR, eds. Nonprofit Organizations in a Market Economy: Understanding New Roles, Issues, and Trends. San Francisco, CA: Jossey-Bass Publishers; 1993:105-137.
Harvard Business Essentials. Finance for Managers. Boston, MA: Harvard Business School Publishing Corporation; 2002:1-34.
Stahl MJ, Dean PJ. The Physician’s Essential MBA: What Every Physician Leader Needs to Know. Gathersburg, MD: Aspen Publishers, Inc; 1999:116-134.
NACD Editors. Growth, governance, and guiding business forward. NACD Directorship. Mar/Apr 2014:26-32.
Warner J, DeLoach J. Board Perspectives on Risk. Washington, DC: National Association of Corporate Directors; 2014:1-15.
Figure.
Checklist of final considerations before joining a nonprofit fiduciary or advisory board. If one answers “yes” and can check most or all boxes, the position is likely a good fit.
Figure.
Checklist of final considerations before joining a nonprofit fiduciary or advisory board. If one answers “yes” and can check most or all boxes, the position is likely a good fit.
Table.
Due Diligence: Considerations Before Joining a Nonprofit Fiduciary or Advisory Board
Element Question or Action to Take
    General Obtain copies of basic documents (mission statement, annual reports, governance documents, etc). Review organization’s website. Confrm whether the invitation is for a fduciary or advisory board.
        Mission and Goals Do the mission and goals of the organization align with your values?
        Reputation What is the organization’s culture? Is it well regarded?
Research the organization online; talk with current and past board members.
        Leadership Are the CEO, board members, and key staff people you want to work with? How does the board regard the CEO and senior staff? What is the board member selection process?
        Commitment How long is a board term? What are the board’s activities and actual time commitments?
What are the frequency and duration of meetings? Where are meetings held (travel needed)?
Other leadership expectations? Why was I asked to join the board and what am I expected to contribute?
    Fiscal
        Financial stability Request and analyze fnancial statements and budgets. Review IRS 990s (available and growth online). Look for trends over past 3-5 years.
        Donor expectations and fundraising What are the donor fnancial expectations? What are the sources of funding?
What are the primary fundraising activities and board member responsibilities?
        Expenses Is required travel covered? Spouse travel? Other expenses?
        Compensation Do board members receive compensation, fnancial or otherwise (including travel reimbursement)?
    Risk Assessment
        Insurance Does the organization have director and offcer (D&O) insurance?
Request a copy and assess its comprehensiveness.
        Legal support Is there adequate legal support for day-to-day needs as well as signifcant legal issues, should they arise?
        Legal action Are there any pending or recent legal action, threatened legal action, settlements, or formal personnel complaints? Do any special risks from operations (eg, malpractice) exist?
If so, how are risks mitigated?
        Finances Do any fnancial or auditing issues exist? Is the organization fnancially sustainable?

Abbreviation: CEO, chief executive officer.

Table.
Due Diligence: Considerations Before Joining a Nonprofit Fiduciary or Advisory Board
Element Question or Action to Take
    General Obtain copies of basic documents (mission statement, annual reports, governance documents, etc). Review organization’s website. Confrm whether the invitation is for a fduciary or advisory board.
        Mission and Goals Do the mission and goals of the organization align with your values?
        Reputation What is the organization’s culture? Is it well regarded?
Research the organization online; talk with current and past board members.
        Leadership Are the CEO, board members, and key staff people you want to work with? How does the board regard the CEO and senior staff? What is the board member selection process?
        Commitment How long is a board term? What are the board’s activities and actual time commitments?
What are the frequency and duration of meetings? Where are meetings held (travel needed)?
Other leadership expectations? Why was I asked to join the board and what am I expected to contribute?
    Fiscal
        Financial stability Request and analyze fnancial statements and budgets. Review IRS 990s (available and growth online). Look for trends over past 3-5 years.
        Donor expectations and fundraising What are the donor fnancial expectations? What are the sources of funding?
What are the primary fundraising activities and board member responsibilities?
        Expenses Is required travel covered? Spouse travel? Other expenses?
        Compensation Do board members receive compensation, fnancial or otherwise (including travel reimbursement)?
    Risk Assessment
        Insurance Does the organization have director and offcer (D&O) insurance?
Request a copy and assess its comprehensiveness.
        Legal support Is there adequate legal support for day-to-day needs as well as signifcant legal issues, should they arise?
        Legal action Are there any pending or recent legal action, threatened legal action, settlements, or formal personnel complaints? Do any special risks from operations (eg, malpractice) exist?
If so, how are risks mitigated?
        Finances Do any fnancial or auditing issues exist? Is the organization fnancially sustainable?

Abbreviation: CEO, chief executive officer.

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