Your ministry may encourage its senior pastoral staff and ministry leadership to serve on the board of a community nonprofit. Serving on a nonprofit’s board fosters goodwill between your ministry and its community and opens important communication paths—but serving can present potential issues, too.
Josh Lederman, manager of casualty litigation claims at Brotherhood Mutual, emphasizes that ministries should approach these situations with a healthy amount of caution. “The main thing you’re looking for are areas that could spell trouble for the leader,” he said. “Know where liability might be an issue.”
The following three steps can help you make a more informed decision.
Before you decide to serve on a nonprofit board, look for any conflicts of interest, both professional and personal. A conflict of interest exists when a person gains benefit through “insider” connections, like serving on a board. The benefit can be real, perceived, or subtle, and can apply to the activities of spouses and children, too.
Conflicts, or “duality of interests,” may include investments, financial interests, relationships, honoraria titles, or consulting fees. A conflict also could exist if your ministry gives money directly to that nonprofit. If you discover a conflict, discuss with your ministry’s legal counsel if you should decline the invitation.
The IRS requires that 501(c)(3) charitable organizations “must not be organized or operated for the benefit of private interests” and that “none of its earnings may inure to any private shareholder or individual.”
In addition to examining your activities for a conflict of interest, ask the nonprofit these questions:
Does the nonprofit carry directors and officers (D&O) liability coverage for serving board members? It’s important to understand the function and scope of D&O coverage and how it helps protect board members’ personal assets and reputations.
Can you review the nonprofit’s financial statements? The financial health of an organization can be a bellwether of future problems.
Does the nonprofit have a leadership succession plan? Ongoing training for changes at the top is critical to a sustainable, healthy organization.
How does the nonprofit manage a conflict of interest that arises for active board members? Ask to see the written policy for how to declare a conflict and processes that follow.
Does the nonprofit include an indemnification provision in its bylaws to protect board members when acting on behalf of the nonprofit? Ask to review the bylaws for assurance that it is the policy of the organization to protect its board members from personal liability.
If the nonprofit does not offer satisfactory answers to these five questions, seek the counsel of a trusted colleague. Lack of clarity may be a sign of a disorganized nonprofit, which could pose risks to the finances and reputations of its board members.
Lederman notes that a ministry leader—such as a pastor—who volunteers to serve on a nonprofit board likely would not be covered under the ministry’s policy. “In that capacity, the pastor or leader would not be acting on behalf of and for the benefit of his or her ministry, and therefore would not be covered by the ministry’s policy,” he said.
Additionally, the leader’s personal assets may be exposed by serving on a nonprofit’s board. You can read The Risk of Leadership: 5 Problem Areas that Expose Personal Assets from brotherhoodmutual.com. Consider discussing your options with your ministry’s insurance agent as well as the agent who carries your personal lines of insurance (e.g., homeowners). Let him or her know if your ministry requires its pastors to serve on an outside board and what the nonprofit requires of its board members.
Thank you for your interest in Brotherhood Mutual. We appreciate the opportunity to provide your church or other ministry with an insurance quote and will reply to your request as soon as possible.
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