Satisfactory protection against liability (and loss) starts with rigorous risk management. The board’s obligation is to ensure all options have been considered and all protective measures are in place. Risk management must consider how the organization creates a secure environment for the employees, volunteers, clients, and customers; how it functions efficiently without wasting resources; how it complies with all legal requirements; and how it ensures anyone harmed by the organization’s actions receives adequate compensation.
As the board is responsible for the financial health of the organization, financial considerations are an important part of every decision. Opportunity cost plays a role in financial calculations. Not only must the board determine how and when to act but take into account what happens if it fails to act or if it chooses a different option.
Nonprofits and boards have various levels of liability protection available. Besides demonstrating vigilance in oversight and ensuring appropriate policies are in place, boards can rely on incorporation, the Volunteer Protection Act, general liability insurance vehicles, and D&O insurance to help secure their and the organization’s safety.
What to do:
- Ask questions if you do not understand something
- Keep accurate minutes of the meetings
- Review and update policies regularly
- Draft a conflict-of-interest policy
- Draft a risk management plan
- Determine appropriate protection mechanisms
- Secure adequate liability insurance