How to Avoid Scandals: Online Training for Trustees

To the Editor:

The Chronicle of Philanthropy and other news organizations repeatedly report stories involving conflicts of interest, financial scandals, and other abuses of fiduciary duties by charities’ board members.

My involvement with various nonprofit organizations and their boards — as a consultant, board member, and law professor — convinces me that a considerable proportion of these breaches of fiduciary duties are by inexperienced or untrained board members who have admirable intentions.

Because many charities are small, have little money for legal advice, and often have novice, volunteer board members, their board members are particularly susceptible to inadvertently violating their fiduciary responsibilities. More often than not, those board members lack a comprehensive appreciation of their fiduciary duties, relevant state (nontax and tax) and federal (tax) laws, and these laws’ application in the everyday scenarios encountered.

Although the Internal Revenue Service has tax-related information on its Web site helpful to charitable organizations and their leaders, the materials certainly are not crafted to give board members a broad and in-depth practical understanding of what they need to know to properly carry out their fiduciary duties for state-law purposes. Therefore, I have a modest proposal.

State attorneys general, knowledgeable charity leaders, academics, and practicing lawyers should join together to develop a Web-based training course providing a comprehensive package of useful lessons that board members of charities need to master to properly fulfill their fiduciary functions throughout charities’ life cycles. (Where state laws differ, a portion of the material could be tailored to account for the variation.) Development of the training course might be underwritten financially by insurance companies that provide director and officer liability policies and that stand to benefit economically in the future if more-knowledgeable board members translate into lower payouts.

The training course should be accessible online at the convenience and command of charities’ board members. State legislatures should enact laws requiring each new board member to complete the Web-based course within three to four months of appointment to a charity’s board. At the end of the lesson series, a prompter should enable each “graduating” board member to complete a form attesting to completion of the entire course. At the click of a “submit” button, the form should be submitted automatically to the office of the state’s attorney general (or other appropriate official) that has enforcement jurisdiction over the charity.

This feature would provide a clear record for accountability purposes. Any board member who merely goes through the motions of completing the course, without mastering its substance, would do so at his or her clear legal peril.

Such a prophylactic approach could result in better-informed fiduciaries nationwide. Also, over time it might help to reduce the number and severity of asserted infractions of fiduciary responsibilities.

Nina J. Crimm
Professor of Law
St. John’s University School of Law
Jamaica, N.Y.