Not-for-Profit Board Members

In the post-Enron environment, directors and officers of all types of organizations—including not-for-profit organizations—are subject to greater scrutiny. Not-for-profit organizations have numerous constituents who may have standing to prosecute mismanagement claims. Every not-for-profit organization is operated for the benefit of some group of persons. Those intended beneficiaries, together with employees, creditors, customers, members, state regulators and others, are all potential plaintiffs.

Directors, officers and trustees of not-for-profit organizations face personal liability for their actions as board members. In performing their duties, individuals face greater personal risks than insurance coverage alone can mitigate. The long-term solution lies in knowledgeable governance and sound risk management practices.

An effective D&O liability loss-prevention program by a not-for-profit organization may accomplish numerous objectives, including:

  • Reducing the liability exposure not only of the directors and officers, but also of the organization to the extent the organization may indemnify losses incurred by management.
  • Improving the organization’s ability to recruit qualified directors and officers.
  • Avoiding time-consuming, distracting and potentially embarrassing claims and litigation.
  • Enhancing the defense of claims and reducing the potential recovery by a claimant.
  • Improving the organization’s ability to obtain favorable D&O liability insurance coverage at reasonable cost.

Learn about best practices to help not-for-profit organizations mitigate D&O liability risk.

Next: Securities-Related Liability