Skip to main content

McKinley Carter Receives '2023 Best Places to Work' Award from InvestmentNews

Know your Role sign with clouds and sky background

Four Fiduciary Obligations Every Nonprofit Board Member Should Understand

Photo of author, Kathleen McDermott.
Kathleen McDermott
Business Development Manager and Director of Nonprofit Advisory Services

Serving on an organization’s board of directors is an honor. If you’ve been invited to serve, it’s because someone views your expertise or experience to be essential to that organization’s future. Recognizing your value as one the “mission specialists” is exciting stuff, but it also shouldn’t be taken lightly.

The majority of people who accept an invitation to serve on a board understand their basic role and responsibilities. However, for the well-intentioned minority who may be passionate about the mission but don’t quite grasp the seriousness of their obligations, it’s important to make sure everyone — prospective and current board members — fully understands their fiduciary duty. After all, in the unlikely event something “happens,” a board member’s excuse of not fully understanding his/her fiduciary duty doesn’t relieve your board from any liabilities it may face in litigation.

Let’s take a moment to define “fiduciary.” Serving as a fiduciary means a board member is acting on behalf of the organization and in the best interest of the public and the constituencies the organization serves. BoardSource, formerly the National Center for Nonprofit Boards, explains it as follows:

Fiduciary duty requires board members to stay objective, unselfish, responsible, honest, trustworthy, and efficient. Board members, as stewards of public trust, must always act for the good of the organization, rather than for the benefit of themselves. They need to exercise reasonable care in all decision making, without placing the organization under unnecessary risk.

That said, a board member’s fiduciary decision-making falls under three official categories of obligation: Duty of Care, Duty of Loyalty, and Duty of Obedience.

So, here’s what you and your board need to know about each duty of board service:

  1. Duty of Care requires a board member to be familiar with all information and facts under his or her purview, be prepared for and attend board meetings, and use his or her best judgment in decision making.

Important Reminders:

  • Attend meetings regularly
  • Ask questions
  • Make sure the meeting minutes reflect your attendance
  • Vote independently


  1. Duty of Loyalty requires a board member to place the interests of the organization above his or her own.

Important Reminders:

  • Disclose existing and potential conflicts of interest before joining a board and immediately when they arise
  • Do not use your connection with the organization for personal or professional gain
  • Maintain confidentiality at all times
  1. Duty of Obedience requires board members to comply with applicable laws, adhere to the organization’s by-laws, and remain a guardian of the organization’s mission.

Important Reminders:

  • Read the organization’s by-laws in their entirety when you join a board
  • Understand the organization’s mission
  • Make sure the majority of the organization’s programs reflect its mission and that they are regularly monitored and evaluated for effectiveness

While not specifically defined as an official duty, but definitely related to the above, the duty of financial oversight is also very important as board members are considered stewards of the public’s trust and, therefore, have the ultimate oversight of the organization’s financial affairs. So we add a fourth fiduciary obligation for board members:

4. Duty of Financial Oversight requires board members to have a basic understanding of financial terminology and financial statements — enough to judge their soundness and to recognize warning signs of financial misconduct.

Important Reminders:

  • Review, approve, and monitor the annual budget; ask questions if something appears ambiguous or unsubstantiated
  • Review and approve the annual audit and Form 990
  • Ensure clear financial policies are in place
  • Make sure donated and, most importantly, restricted funds are being used for their intended purpose
  • Make sure employment taxes are being withheld and paid
  • Conduct an annual review of the CEO or Executive Director; document all justification for compensation increases or paid bonuses

If you are a CEO or Board Member and question whether your board fully understands its fiduciary duty, it can be helpful to include this information in board orientations and trainings.

If you’re interested in learning more about McKinley Carter’s professional training programs for Nonprofit Boards, please contact Nonprofit Advisory Services Director Kathleen McDermott at kmcdermott@mc-ws.com or 866.306.2400. Kathleen has more than 25 years’ experience in nonprofit management and board governance.

For more information about what board members should understand about a nonprofit's financial "story," click here to download our Financial Oversight Checklist.

Related Insights
I Stock 1204150840 cop JAE Blog banner

SECURE Act 2.0’s Enhancements for the Charitably Minded

Chatter abounds in the world of finance law since the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 became law on December 29, 2022. Built upon the work that was started in the original SECURE Act of 2019, the sequel creates further enhancements that impact how individuals and families may prepare for the lives they envision in retirement, as well as how they navigate that dream once it is achieved.

Among the enhancements introduced in the bill are additional benefits for those retirees who are engaged in giving back to their communities through charitable gifts. Here are some new considerations that may help you increase the impact of your charitable donations.

Read More
I Stock 1283279349 JJB IPS blog USE

Nonprofits: How to Get Ready to Invest with an IPS

Every nonprofit organization knows that having more available resources equates to having a greater community impact. Thriving organizations usually empower a finance committee to act as their fiduciary and invest their excess funds. What's the best tool to help them achieve their goals? Learn how a strong Investment Policy Statement (IPS) will prepare your nonprofit for investment success.

Read More
I Stock 1368219212 KAM Endowment blog

Endowments 101: Three Most Common Endowments and How Nonprofits Use Them

The term “endowment” is often used loosely and in reference to an organization's investable assets. However, there are distinct differences among endowments depending on their purpose and use. Learn more.

Read More
Play