by Dave Bergeson Ph.D., CAE
One of the time-honored traditions in working with association Boards is that at some time, someone will say something like this: “Now, remember, today at this meeting I expect everyone will wear their [Association Acronym] hats.” More specifically, if a member of the Board also serves on the Board of another association, he or she will often be asked to “take off their [ABC Competing Association] Hat, and put on their [Association Acryonym] hat.”
If only it were so easy. Fiduciary duties are not hats that can be removed or placed back on your head depending on where you are. When you agree to serve on a nonprofit Board of Directors, these fiduciary duties stick with you whether or not it is convenient, regardless of what setting you are in. If one insists that fiduciary duties are analogous to hats, I would suggest that they are hats that are stapled to your head, to be removed only when your term on the Board has concluded.
As an example, let’s consider the case in which a person simultaneously sits on the Boards of Directors of a chapter of an association and the “parent” association. It would be incorrect to assume that when she attends the Board of Directors meeting of the “parent association”, the duty of loyalty of the parent association somehow supersedes or takes priority over the duty of loyalty of the chapter. Both are there and are fully in effect. This is often termed a duality of loyalty. Duality of loyalty is just one kind of conflict of interest but has the potential to put affected Directors in a terrible position.
Let us imagine a case in which the parent board is considering an action that will be not in the best interests of her chapter – a withdrawal of their charter, for example – that is clearly appropriate from the perspective of the parent association. If she votes with the parent, one could argue that she fulfills the fiduciary of the parent association, but fails the fiduciary of the chapter. It is a no-win situation.
Another common example is a Director who serves on Boards of potentially competing associations. If she learns of the strategy of one association, and knowledge of this strategy would help the competing organization, she is duty-bound to report it to the competing association. She is also duty-bound to not report it to the competing association, because of her duties to the first association. Again, a no-win situation.
The resolution to this issue, of course, is to not place this Director in a no-win situation in the first place. A common way to do so is to ask her to leave the room when this issue is discussed. This is illustrative of a popular misconception around the practice of asking Directors to leave the room. It is often assumed this is done because the Director may be influenced by her position on the other Board, and thus cannot be trusted to have an unbiased, “clean” opinion. Asking a Director to leave the room because you don’t trust her is a terrible reason to ask her to leave the room; she should not be on the Board if you do not trust her. Asking a Director to leave the room because of perceptions of others regarding her participation in the debate around the issue is a better reason to ask her to leave the room. The best reason to ask her to leave the room is to not put her in a terrible position, in which she would be violating one set of fiduciary duties in order to conform with another set of fiduciary duties.
Perhaps the best way to avoid a duality of loyalty issue is to have a strong nominating committee and a strong vetting process. Smart, capable, hard-working people will be in demand to serve on Boards. Excluding people from the Board on the basis of a potential conflict of interest, or duality of interest, is not a reflection of a lack of trust in these candidates. Rather, it should be done so out of respect for this candidate, to avoid putting them in a no-win position of violating one fiduciary for the sake of another.
Wearing hats for your association is fine and good but remember that it’s not a good look to wear two hats at once.
Dave Bergeson is Vice President of Client Relations of Association Management Center in Chicago, and in that role provides consulting on governance, board self-assessments and effectiveness. In addition, Dave serves as Executive Director of the Association of Pediatric Hematology/Oncology Nurses.