Professional Documents
Culture Documents
GUIDE FOR
FOUNDATION
BOARD MEmbERS
TYPEs OF FOUNDATIONs
Foundations may exist in various forms, but
most commonly they are organized either as
a nonprofit corporation or as a testamentary
or inter vivos trust. A nonprofit corporation is
created by filing articles of incorporation with the
Ohio Secretary of State. A trust is formally created
when a donor, through a trust agreement or via
the donor’s will, gives legal title to property to
one or more trustees to hold and manage for the
benefit of another — in the case of a charitable
trust, for the charitable beneficiaries.
Whether a foundation is organized in corporate
or trust form, and whether its managers
are referred to as directors or trustees, Ohio
foundation board members are required to fulfill
specific duties. Although you may consider the
foundation with which you are associated a
private entity, it is important to remember you
are administering charitable assets for the benefit
of the public. Further, public benefits have been
bestowed on the foundation and its donors, in the
form of tax exempt status for the foundation and
charitable tax deductions for its donors.
Foundations rely heavily on volunteers to govern
them and enable them to fulfill their charitable
mission. The foundation has every right to expect
its volunteers to serve in a serious and
thoughtful fashion. Foundation board members
have a concomitant right to expect ready access to
information and resources to ensure that they can
fulfill their legal and ethical duties.
Whether you are considering joining a
foundation’s board or are already serving on
one, you have probably not received any formal
training for the job. Unlike most other jobs, it is
often assumed that either no training is required
or that everyone knows what is expected of them.
To the contrary, there is a shared responsibility
of the volunteer, the volunteer’s peers on the
board and any foundation staff to request and
provide the training necessary for board members
to more fully understand and carry out their
responsibilities. This booklet provides foundation
board members with a basic understanding of
their responsibilities. In addition to this booklet,
Ohio Grantmakers Forum (OGF) offers training
and resources for foundation boards. Please check
the OGF Web site — www.ohiograntmakers.org
— frequently for upcoming programs.
OHIO GRANTMAKERs FORUM
GUIDINg PRINcIPLEs FOR MEMBERs
Ohio Grantmakers Forum adopted the following
statements in November 2004, to which all
OGF members must commit as a condition of
membership.
1. Adhere to the highest standards of ethical
behavior in all foundation activities.
2. Operate with an active governing board
that sets and regularly reviews all
organizational policies, including those
related to governance, conflict of interest,
grantmaking and finance (including
audit).
3. Have basic information readily available
regarding programs, funding priorities
and application requirements.
4. Maintain constructive relationships with
applicants, grantees, donors and the
public based on mutual respect, candor
and confidentiality.
5. Strive to include the perspectives,
opinions and experiences of the broadest
possible cross-section of people to
inform the organization’s grantmaking
and contributions, governance and staff
structure and business practices.
6. Support continuous learning by trustees,
staff and grantees.
7. Honor donor intent through thoughtful
deliberation in the context of changing
social conditions.
8. Fulfill all fiduciary and legal
responsibilities.
LEgAL DUTIEs
Under common law and the provisions of the
Ohio Charitable Trust Act, the Attorney General
is empowered to investigate charitable trusts to
determine whether property held for charitable
purposes is being properly administered in
accordance with fiduciary principles. The
Attorney General may bring an action to enforce
the performance or restrain the abuse of a
charitable trust.
In Ohio law, a charitable trust is defined as any
fiduciary relationship with respect to property
arising under the law of this state or of another
jurisdiction as a result of a manifestation of
intention to create it, and subjecting the person
by whom the property is held to fiduciary duties
to deal with property within this state for any
charitable, religious or educational purpose. This
broad definition includes nearly every person
or entity that holds funds for some charitable
purpose, whether formally organized as a trust
or some other type of entity, such as a nonprofit
corporation, association or foundation. A
foundation recognized as a 501(c)(3) organization
is a charitable trust under Ohio law.
Individuals who have the authority to conduct
the affairs of the foundation (directors, trustees
or officers) are charged with certain fiduciary
duties under statutory and common law. These
fiduciary duties recognize and reinforce that, in
taking actions for the foundation, these directors
are not acting on their own behalf, but on behalf
of the charitable trust, that is, the foundation and
its charitable beneficiaries. The legal duties of
foundation board members are separated into
four categories:
• The duty of care.
• The duty of loyalty.
• The duty to maintain accounts.
• The duty of compliance.
THE DUTY OF CARE
The duty of care requires that a foundation
director participate actively in the foundation’s
affairs, be familiar with its finances and active
in its governance. In fulfilling the duty of care,
directors must act in good faith, with the degree
of diligence, care and skill that a prudent person
would use in similar positions and under similar
circumstances. For those foundations that are
organized in trust form, trustees are required to
conduct themselves with the level of care, skill
and diligence exercised by ordinarily prudent
persons in the handling of their own affairs. For
foundations that are organized in corporate form,
the legal standard of care is set forth in Revised
Code Section 1702.30(B), as follows:
A director shall perform the duties of a
director, including the duties as a member
of any committee of the directors upon
which the director may serve, in good
faith, in a manner the director reasonably
believes to be in or not opposed to the
best interests of the corporation, and with
the care that an ordinarily prudent person
in a like position would use under similar
circumstances.
In order to fulfill their duty of care, a director
should attend all board meetings and meetings
of committees on which she serves. The director
should participate actively in the discussions
and decision-making process at those meetings.
A director needs to prepare for each meeting
by carefully reading and understanding reports
and other materials distributed for the meetings,
and by asking any questions that the reports
raise. If a board member does not understand a
particular report, he should ask for clarification
or explanation until he is comfortable that he
fully understands its content.
Often times directors — especially those without
accounting or bookkeeping training — have a
fear of financial reports, perceiving the columns
and pages of numbers as indecipherable. New
directors may feel embarrassed if they do not
completely understand a financial report. Rather
than asking questions, the director may simply
accept the statements of the treasurer or financial
officer with respect to the report. It is extremely
important that directors take the necessary steps
to understand the financial documents. This
does not mean directors must obtain accounting
degrees. However, they can seek training and
information, looking to foundation staff, peers
or Ohio Grantmakers Forum for opportunities to
build their financial literacy skills.
Directors are also responsible for establishing
organization policies with respect to the
governance of the foundation, management of
its finances and grantmaking activities. Boards
should provide clear direction on the process
for approving substantial obligations, such as
compensation arrangements and professional fees.
However, compliance with the duty of care is not
achieved by merely establishing policies. Directors
should regularly review the foundation’s policies
and activities to determine whether established
policies are being followed, whether the policies
remain relevant in the current environment and
whether policies need to be revised.
SUggEsTED POLIcIEs AND PROcEssEs
• Conflict of interest policy.
• Financial controls.
• Background checks for staff.
• Process for approval of compensation.
• Process for hiring professionals.
• Process for approval of major
expenditures.
• Document retention policy.
• Spending, investment and asset
allocation policies.
• Eligibility for service — criteria and
terms for board members.
• “Whistleblower” protection policy.