Roles

1
Roles responsibilities of new affiliate and
community foundation boards

• Richard Koontz
• Iowa Nonprofit Resource Center
• University of Iowa
• Iowa Community Philanthropy Academy, Ames, Iowa
• April 22, 2005

2
Fiduciary definition

• B had settled legal ownership on A to be used on
  behalf of B or others

3
Fiduciary Duty in other contexts

• Bankruptcy, 11 USC 101
• Wills, Estates and Trusts, IC 633
• Tax, 26 USC 652
• ERISA
• For profit Corporations, IC 490.830s
• and...

4
Fiduciary definition 2

• A person having duty, created by his or her
  undertaking, to act primarily for anothers
  benefit in matters connected with such
  undertaking.
• Blacks Law Dictionary

5
Fiduciary Duty in Nonprofits

• Duty of Care
• Duty of Loyalty
• Duty of Obedience

6
Duty of Care 1

• directors must exercise their responsibilities
  in good faith and with a certain degree of
  diligence, attention, care and skill

7
Duty of Care 2

• Directors exercise their responsibilities with
  diligence, attention, care and skill by
• Attending board meetings regularly, entering
  discussions
• Reading minutes, learning about organizations
  programs
• Careful oversight of finances
• Questioning unclear or troubling activity

8
Community foundations, investment, and fiduciary
duty

• Endowments from which growth spent are the
  essence of community foundations.
• How is investing judged?
• How is spending rate judged?
• Uniform Management of Institutional Funds Act,
  Iowa Code 540A

9
Historic dollar value, Total return, Spending rate

• Original endowment gift of 1M
• Income of 50K, 5
• Capital appreciation of 100K, 10

• 1M is historic dollar value I.C.540A.2
• 50K 100K is Total return of 150K or 15
• The full total return can be expended, I.C.
  540A.3 but

10
UMIFA standard of conduct, I.C. 540A.7

• Before deciding the expenditure from the total
  return the board must consider
• Long-term short-term needs
• Present and anticipated financial requirements
• expected total return
• price level trends
• general economic conditions

11
Delegation of investment responsibilities, I.C.
540A.6

• Is it a breach of the board members fiduciary
  duty if an investment advisor is making day to
  day investment decisions?
• No. UMIFA allows delegation to investment
  advisors and managers. I.C. 540A.6.
• Board members must regularly review the portfolio
  selected.
• Give advisor investment policy with guidelines

12
Duty of Loyalty 1

• Place the interests of the corporation before
  directors private interests
• Transactions in which the director has a personal
  financial interest
• Written conflict of interest policy
• No loans to directors and/or directors family
  members
• Corporate opportunity situations

13
Duty of Loyalty 2

• Annual disclosure process as well as dicsloure at
  time of discssuion if conflict arises.
• Board member with conflict should not
• Vote on the issue
• Participate in the discussion
• Leave the room during the vote

14
Revised Model Nonprofit Corporation Act, I.C. 504

• Act in good faith, in best interest of
  corporation, I.C. 504.831(1)
• Conflict of interest I.C.504.833
• Director can reasonably rely on information from
• employees or officers of corporation with expert
  competence
• legal counsel, public accountants I.C. 504.8312(5)

15
Duty of Obedience

• Carry out the purposes of the nonprofit
• Comply with federal and state law applicable to
  nonprofits
• Do required filings
• Comply with governing documents -- articles of
  incorporation and bylaws