Duty of Obedience

Board responsibilities have been defined by case law dating back hundreds of years to the common law of England. The fiduciary responsibilities of care, loyalty (faith) and obedience have now become widely knows as the 3 “D’s”.

Duty of care is defined by the actions of an “ordinarily prudent person” in similar circumstances. When acting with care, board members: regulary attend and are adequately prepared for the board meetings; function independently; frequently review financial data and related policies.

Duty of faith involves acting in the best interest of the organization. Board members typically submit to and monitor conflicts of interest and avoid the appearance of a personal gain.

Duty of obedience is activated by compliance with corporate policies (bylaws) and procedures. Boards acting in obedience ensure compliance with all regulatory and reporting requirements, including filing tax returns and remitting required taxes.

Boards that do not exercise their fiduciary responsibility can be held personally responsible. In February the United States Court of Appeals for the Fifth Circuit affirmed a decision from a Federal District Court in Beaumont holding a board chair, the ED and the CFO personally responsible for unremitted payroll taxes and withholdings. A recent article in the Star-Telegram.com disclosed the court’s findings and the assessment.

Has your tax-exempt organization properly filed all the required tax forms and remitted the withholdings and payroll taxes on a timely basis? If you don’t know, perhaps you should ask. Board members could be held personally liable.