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BoardMemberLiability

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Its funny what can go through a persons mind when he or she is invited to serve on a board of directors. Apparently, people often think of the honour that it represents, the prestigious opportunities that may be associated, the influence and power they may gain. Whether these thoughts are valid or not, we suggest that every would-be director add to their thinking by considering some sobering facts: the responsibility is significant, the time commitment is more than most people think, your spouse and family may resent it, and your personal finances may be jeopardized. In a recent situation, a dozen board members are being required to jointly pay over $900,000 due to their imprudent actions. If this last point didnt get your attention, read it again. The legal obligations associated with serving on a board of directors are serious and substantial. Meanwhile, the San Antonio Business Journal reports that as many as half of all board members of non-profits do not carry liability insurance. While external directors of for-profit businesses may more commonly have coverage, it may be years since it has been reviewed and no longer be adequate. Directors and Officers Liability insurance can never be considered an alternative to a board doing its job properly. However, it is an important component in any boards risk management plan.

WhatYouCanDo
As a board memberideally before you agree to be a member on a boardit is your personal responsibility to understand the obligations and liabilities that may be involved. Ask for a copy of the organization's articles of incorporation, its by-laws, and its financial reports for the past several years. Examine these because they paint a picture of the situation for which you are assuming responsibility. If it is a charitable organization, confirm its documentation for tax-exempt/charitable status is in place. Familiarize yourself with any board policies and strategic plans that exist. Insist on procedures that will provide the board with the information it needs to monitor the organizations progress and activities, particularly pertaining to the boards financial exposure. And ensure that adequate Directors and Officers insurance is in placeit's a matter of your personal finances.

BoardMemberLiability

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