Fiduciary duties of association boards

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Continuing from my August 10 column, “Traits of High-Performing Association Boards”, let me share the fiduciary duties of association boards that I learned from the extensive knowledge resources of the American Society of Association Executives (Asae), of which I am a member. These principles are universal and applicable in the Philippine association setting.

A “fiduciary duty” is defined as “a legal obligation of one party to act in the best interest of another”. In the context of Philippine associations, the elected members of the Board of Trustees (BOT) act in the interest of their members. It is the responsibility of the BOT to see to it that they collectively work for the benefit of their association and its members. Here are the three fundamental fiduciary duties of the BOT:

Duty of Care—Requires taking care and exercising judgment that any reasonable and prudent person would exhibit in the process of making informed decisions, including acting in good faith, consistent with what you, as a member of the board, truly believes is in the best interest of the association. Examples of duty of care include preparing for and attending board meetings regularly, voting independently, paying attention to organizational activities and operations and delegating only to responsible individuals and following up conscientiously.

Duty of Loyalty—Calls for consideration and action in good faith to advance the interests of the association. Simply put: board members will not authorize or engage in transactions except those in which the best possible outcomes or terms for the association can be achieved. This standard constrains a board member from participating in board discussions and decisions when they, as an individual, have a conflict of interest. Examples of duty of loyalty are putting interests of the association before personal and professional interests and divulging any conflict of interest and not participating in related transactions.

Duty of Obedience—Requires obedience to the association’s mission, bylaws and policies, as well as honoring the terms and conditions of other standards of appropriate behavior, such as laws, rules and regulations. Examples of duty of obedience are living the association’s purpose and mission, complying with all applicable laws and the association’s governing documents, and insuring that approved and valid decisions are implemented.

Under Philippine laws, associations fall in the nonprofit-organization category of the Corporation Code with distinct provisions, as opposed to for-profit companies covered within the same Code. It may help that board members study the applicable section of the law.

Being a board member is not at all about enhancing one’s biodata and increasing visibility in press releases and photo opportunities. It is a serious matter and, while being confronted with a legal case is quite remote, this is not unlikely if fraud and other malfeasance happen in the course of exercising one’s duty as a board member.

As an advocacy to strengthen association governance in the country, the Philippine Council of Associations and Association Executives (PCAAE), through its PCAAE Academy, conducts governance courses for boards of associations and other nonprofit membership-based organizations.

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The column contributor, Octavio “Bobby” Peralta, is concurrently the secretary-general of the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) and the CEO and founder of the Philippine Council of Associations and Association Executives (PCAAE). The PCAAE is holding the Associations Summit 5 (AS5) on November 22 and 23 at the Philippine International Convention Center (PICC), which is expected to draw over 200 association professionals here and abroad. The two-day event is supported by ADFIAP, the Tourism Promotions Board and the PICC.

E-mail inquiries@adfiap.org for more details on AS5.



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