Last week, I had the pleasure of having lunch with association attorney Jim Seely after reading the recently published second edition of his book: The Legal Guide for Association Board Members. The Guide was designed for corporate directors of 501(c)(6) trade associations and business societies but holds important lessons for all board members of nonprofits.
The Guide consists of four principal sections: (1) The Association's Legal Structure, (2) Association Liability for Programs and Activities, (3) Legal Concerns for a New Era, and (4) The Board Member's Legal Liability. Here are some of the important takeaways:
- Antitrust laws apply to associations with exceptional force. An entire chapter is devoted to issues such as price fixing, boycotts, membership exclusion, members discipline, codes of ethics, services to nonmembers, and certification and credential programs.
- Associations must draft contracts and agreements that will meet the organization's precise needs. Seely focuses on three common types of contracts: group hotel contracts, computer contracts, and endorsements (see Seely's guest post on the Nonprofit Law Blog describing repercussions from a poor endorsement agreement).
- The most important risk management device for board members is education. The Guide recommends directors' manuals (containing pertinent legal documents like the articles and bylaws) supplemented by legal workshops and legal opinion letters.
- Board members should pay special attention to the function and structure of committees. Delegation of authority must be made with due care, reasonable limits, and adequate oversight. The Guide describes the Hydrolevel case, a U.S. Supreme Court decision that held an association liable for the acts of one of its committees.
- Ensure that the association's CEO has ample authority to use the services of legal counsel whenever the CEO determines it is in the best interests of the association to do so. This is a management function, and a board does not want to handcuff the executive from taking timely proactive and defensive measures to "head off or minimize liability to the association."
- The ability of members to generate public content [on Association-owned listservs and social networking sites] that has not been examined by association staff creates a fertile environment for potential liability. The following actions, among others, are detailed: asserting the association's ownership of the listserv or site, establishing and enforcing appropriate rules of use, and reminding users that their messages will be widely published and could subject a user as well as the association to liability.
- When a board member assumes office, he must conform his conduct to certain legal standards and must be aware of the legal obligations attached to the position. Seely discusses the applicable standard of care and issues such as conflicts of interest, Sarbanes-Oxley, the redesigned Form 990, and the dangers of acting outside the scope of one's authority.
- There are ways that associations can help their board members avoid personal liability. The Guide recommends five particular methods:
- meaningful position descriptions,
- legal workshops,
- indemnity and insurance,
- written legal opinions, and
- annual legal reports.
During lunch, I posed three questions to Seely, and he provided me with the following answers: