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Legal Updates

Be Guided By Your Mission And Pay Attention To Diversity: Massachusetts Attorney General's Office Issues Revised Guide For Non-Profit Boards

This past December, the Non-Profit Organizations/Public Charities Division of the Attorney General’s Office for the Commonwealth of Massachusetts released an updated version of its Guide for Board Members of Charitable Organizations. The new version of the Guide is available here.

Last updated in 2015, the revised Guide follows the same basic structure as the prior Guide; however, the revised Guide includes several areas of new or heightened emphasis. These revisions may carry important implications for Boards and Board members of Massachusetts non-profit organizations as they consider how to effectively discharge their duties of care and loyalty to the organization.

In particular, the revised Guide focuses on a Board member’s duty to be educated and informed, ensure that the Board member’s actions are aligned with and guided by the organization’s charitable mission, avoid conflicts of interest, and carefully focus on the organization’s financial health. The revised Guide also places great importance on diversity in all Board actions and recruiting functions. Recommendations regarding attention to diversity inform all sections of the revised Guide.

While the Guide does not have the force of law, it is reasonable to assume that the Guide will be viewed by the Attorney General’s Office – and potentially by Massachusetts courts – as describing the appropriate standard of care for Board members of Massachusetts non-profits. Implementing any or all of the policy changes suggested by the Guide – in particular, understanding what a diverse Board looks like, how it operates, and why it matters – will take effort and considered discussions on the part of each Board.

The following is a summary of some of the most relevant changes in the 2022 Guide.

I. Focus On Board Member Responsibilities

Because charitable organizations exist to further a charitable mission, the Guide explains, a Board member owes fiduciary duties to the charitable mission of the organization as much as, or in some circumstances more than, to the organization itself. The Guide therefore recommends several new action items:

  • All Board members should “evaluate [their] existing commitments and obligations to ensure that [they] have adequate time and energy to dedicate to [their] role on the Board.”
  • The entire Board should periodically complete a self-assessment of its oversight and leadership functions, taking into consideration the organization’s mission and industry.
  • The Board should evaluate the organization’s diversity, including, but not limited to diversity in leadership and representation from the community that the organization serves.
II. Educate Yourself

  • As in the prior Guide, the revised Guide recommends that each Board member be familiar with the governing documents of the organization, including the articles of organization and the bylaws, and pay close attention to orientation for new Board members.
In addition, the revised Guide provides a number of new recommendations:

  • The Guide strongly recommends that Boards maintain a manual for Board members that contains all governing documents, a copy of the most recent regulatory filings, audited financial statements, the organization’s budget, other orientation materials, and a copy of the revised Guide.
  • Board members should regularly attend training on fiduciary obligations, sub-sector specific trainings relevant to the organization, and governance best practices.

The updated recommendations also include regular trainings on diversity and equity issues, implicit or unconscious racial or ethnic biases, and other matters that impact effective Board composition and functioning.

III. Pay Close Attention To Financial Matters

The revised Guide emphasizes that the Board has an obligation to act as a responsible fiscal steward, and must regularly consider (and understand) both the short-term and long-term financial health of the organization. Among other things, the Board should ensure that all required filings with government agencies are up to date and that employee wages and withholdings are properly administered.

Furthermore, Boards are encouraged to adopt gift acceptance policies and to scrutinize restricted gifts that could impair the organization’s ability to carry out its mission. It is recommended that Boards have policies in place to prevent accepting gifts with restrictions that conflict with the organization’s values, public policy, or the public good (e.g., restrictions that are discriminatory overtly or in operation, or those that could exacerbate racial and ethnic inequities). If a Board has accepted such restricted gifts, the Board should direct management to seek modification of those terms by agreement with donors, or through judicial modification or modification through the Attorney General’s office, if necessary.

IV. Make Sure Your Board Is Vital And Diverse

The revised Guide places special emphasis on a Board’s obligation to cultivate a diversity of viewpoints and representation and to have practices that allow for rotation of Board members and officers in order to avoid apparent or actual inequities, including in access to the organization’s services. Specific suggestions for Boards include the following:

  • Institute term limits for Board members and officers.
  • Encourage a recruitment and nominating process for new Board members that invites openness and variety, expanding the pool of candidates to ensure diverse experiences and skills, as well as diverse racial, ethnic, economic, and social backgrounds that are reflective of the community served by the organization.
  • Review qualifications for new Board members, including any financial contribution expectations, to ensure they do not deter consideration of a diverse group of candidates.

V. Choose And Evaluate Leaders Carefully, And Get Involved In Setting Executive Compensation

This attention to diversity also applies to choosing the organization’s leadership. The Board should participate actively in hiring the organization’s leadership, including the Chief Executive Officer or Executive Director position, using equitable recruitment, compensation, and hiring practices to ensure representation from diverse racial and ethnic backgrounds, including representation from individuals connected to, and reflective of, the community that the organization is serving.

The entire Board is responsible for being informed about compensation decisions for the organization’s chief executive and other senior leaders and must ensure that the compensation is not excessive. In evaluating the impact that compensation may have on the organization’s reputation, the revised Guide emphasizes that the Board should take into consideration the perception of senior leadership’s compensation as a whole, including any compensation that leaders receive from positions held because of, but outside of, their role at the charity (e.g., for-profit board membership compensation).

VI. Beware Of Conflicts Of Interest

The revised Guide continues to stress the importance of a Board member’s duty of loyalty, which includes identifying and resolving conflicts of interest.

The revised Guide expands the list of potential situations that may raise conflicts of interest concerns, specifically addressing instances in which Board service conflicts with another aspect of a Board member’s personal or professional life. For example, the Guide identifies the potential conflict that may arise from Board members who serve on other Boards that may have overlapping or competing goals with the organization and its mission.

In addition, the revised Guide provides that information from the annual conflicts of interest disclosure process should be made available to all Board members, and that the entire Board (minus the conflicted Board member) should consider whether a proposed transaction that involves a potential conflict of interest is clearly in the best interests of the non-profit, including consideration of the public perception of any transaction and reputational impact on the organization.

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The revised Guide also includes links to new educational resources and assessment tools for non-profit Boards and individual Board members.

We recommend that Massachusetts non-profit Boards review the Guide carefully in consultation with counsel and consider whether any changes to their policies and practices are necessary or appropriate based on the revised Guide.

If you have any questions about the Guide or about Board governance best practices in general, including Board trainings (either in Massachusetts or in any other state), please feel free to reach out to one of our experienced non-profit governance attorneys.