March 4, 2011 | Read Time: 2 minutes
A deputy attorney general for the state of Tennessee, writing for The Chronicle blog The Watchdog, recently shared a cautionary tale for nonprofit board members everywhere.
Janet Kleinfelter, who oversees Tennessee’s regulation of nonprofits, discussed the case of an insolvent organization whose entire board and staff had resigned, leaving the courts and creditors to sort out the mess.
Those board members exercised an option that has probably occurred to quite a few board members of troubled organizations: walking away. After all, how much time and energy can volunteers be expected to spend bailing water from a sinking ship?
Apparently, quite a bit. “As long as the nonprofit exists, however, the board has fiduciary duties to it,” Ms. Kleinfelter wrote. “If a nonprofit is insolvent or otherwise can no longer fulfill its charitable mission, the board must ensure that the nonprofit winds down its affairs in an orderly fashion. … Board members cannot avoid these obligations by resigning and leaving the nonprofit with no leadership.”
The board members who resigned in the Tennessee case now face possible subpoenas, legal expenses, and perhaps even personal liability.
The past three years have created unprecedented challenges for nonprofit organizations, with many facing financial crisis and possible closure. It’s a challenging time to be a board member.
And in all fairness, most board members don’t jump ship when their organization hits an iceberg. As a grant maker, I’ve watched nonprofit board members dig deep into their own pockets, raise huge sums of money in record time, and implement painful cutbacks to stave off a crisis. I’ve spoken with volunteers whose role as board chair had become the equivalent of a second full-time job. Their commitment and tenacity is admirable and inspiring.
However, in some cases the iceberg could have been avoided had the board been paying closer attention and had the alarm been sounded sooner. And while admiring and respecting the superhero efforts of board members on behalf of struggling organizations, it’s hard not to wish that they had discovered their superpowers—or just used their regular powers to greater effect—earlier in the game.
Often the warning signs are there, if the board is paying attention.
When a ship is about to sink, heroic efforts to save it are necessary and admirable. But last-minute heroics are far more draining, time-consuming, and hair-raising than taking prudent early actions to avoid catastrophe in the first place.
