Roles & responsibilities of new affiliate and community foundation boards

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 490.830’s • and...

4. Fiduciary definition 2 • A person having duty, created by his [or her] undertaking, to act primarily for another’s benefit in matters connected with such undertaking. • Black’s 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 organization’s 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. 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 Historic dollar value, Total return, Spending rate

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 director’s 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