HAHN AGENCY, INC.

Delegation of Responsibility by Directors and Officers.

Board Committees.  top

The use of board committees permits a small number of directors to perform a more in-depth analysis of a particular matter than would otherwise be practicable for the entire board. Use of an executive committee permits emergency action to be authorized between regular board meetings, although the full board should review and, if appropriate, ratify the committee's interim action.

An active committee structure should be encouraged, particularly for large boards. Director appointment to the various committees should be considered in view of each director's special talents, experience or expertise. A formal program of rotating directors among committees may also be advisable.

• Formal rotating of directors may be advisable.

The board should consider periodically what committees it needs and what functions it wishes to delegate to each. The most common are an executive, audit, compensation and nominating committee. Depending upon the organization, other possible board committees include a planning, public policy, finance, technology, conflict of interest, and social responsibility committee.

Management Delegation  top

Too frequently, boards of non-profit organizations become involved in routine corporate operational matters because the organization's staff is incapable or unwilling to assume that responsibility. The board should not engage in direct management of the organization. However; the board has responsibility for monitoring the day-to-day conduct of the organization by assuring that satisfactory executive management personnel and policies are in place. Essential to the fulfillment of this responsibility is the periodic performance evaluation of executive management (particularly the chief executive officer) and the assurance that clear job descriptions and decision making procedures are implemented. Officers, in turn, have similar responsibilities with respect to their subordinates.

• Formal and clear management review procedures should be in place.

To avoid someone operating outside of the scope of his or her duties or neglecting an area of responsibility within the scope of such duties, clearly defined job descriptions should be prepared and disseminated to all management personnel. In addition, authority and responsibility as between the board and management. should be clearly documented and understood. This is especially true with respect to significant matters in which both directors and management have substantial involvement, such as acquisition evaluations, personnel policies and major capital expenditures. Similarly defined descriptions of authority and responsibility of the organization's staff and volunteers should be prepared and understood by all involved parties.

• Initiate clearly defined job descriptions.

Staff Selection and Overhead Controls.  top

For many non-profit organizations, two of the most important board functions are the selection of staff and the implementation of overhead controls. Most non-profit organizations have limited resources and a relatively small number of paid staff members to perform the day to day activities of the corporation. Accordingly it is essential that each staff member be productive, efficient and needed. Staff compensation and other overhead expenses can easily consume much of an organization's available funds without producing identifiable benefits to constituents of the organization. Directors should closely monitor the use of the organization's limited resources to ensure their efficient and effective deployment and to prevent the organizational mission from simply becoming the continued existence of a meaningless entity

Reliance Defense.  top

Directors are entitled to the so-called reliance defense, which permits directors to rely in good faith upon officers, committees or agents of the organization when making board decisions. If applicable, the defense establishes that the directors acted in good faith and with due care, although, if liability is imposed without regard to good faith or due care, the relevance of such reliance may be minimized. The following summarizes the generally recognized elements of a defense of reliance:

A person upon whom the directors or officers rely should be reasonably viewed as competent, experienced and reputable in the area of advice. If the expert has a personal interest in the subject matter of the advice rendered, his competence may be compromised. However; if reasonable inquiry by the directors would not have disclosed that conflict of interest, the directors may be able to rely in good faith on the advice given.

• Experts cannot have a personal interest.

Directors may rely on the advice of an expert only if they disclose to the expert all relevant facts known to the directors.

• Experts must be fully informed.
  

The advice relied upon must be rendered within the scope of the expert's expertise. For example, if the defense is based upon the advice of legal counsel, a legal, non-factual question should be central to the advice rendered.

• The right expert for the job.
  

Directors must follow the rendered advice in good faith and with due care. The defense is not available if the subject matter of the advice is otherwise clear or unambiguous, or the advice is clearly unreasonable or obviously repugnant to the plain facts of the case. Directors have some oversight obligation to become reasonably familiar with the advice before they are entitled to rely on it. Similar principles apply to reliance upon officers, committees or agents of the corporation.

• Advice must be clear and relevant.

Use of Legal Counsel. top

From a loss prevention standpoint, perhaps the most important advice to directors is rendered by legal counsel. Counsel should be consulted and used frequently Qualified counsel can help make board decisions as impregnable as possible. Legal advice not only helps guide directors into legally acceptable conduct, but also improves the directors' ability to defend their conduct if their actions are taken in reliance upon the legal advice.

• "Bulletproofs" decisions of the board.
  

Proper use of legal counsel can serve an important loss prevention role for officers also. For example, representations and advice by officers or staff concerning the tax, probate or other legal consequences or contributions to the corporation should be approved by legal counsel. If the organization distributes technical advice or information or publicizes potentially sensitive information, legal counsel should be consulted to evaluate potential liability exposure for rendering professional services or disseminating defamatory material.

• Important loss control measure.
  

Where possible, only qualified counsel with substantial experience and a recognized expertise in the subject area should be relied upon. The board should not feel compelled to use the same counsel for all legal issues, but should seek the most competent counsel reasonably available for the issue under consideration.

• The right lawyer for the job.
  

If a director or officer meets resistance from other members of management in seeking legal advice, the director or officer should persist in the request. Such resistance may suggest a problem exists which needs the critical review of independent legal counsel.

• Management resistance to legal advice is a "red flag"
  
  

Organization Loss Control

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