Fear Not: Understanding the Risk of Personal Liability
Estimated Reading Time: 4 minutes
By Melanie Lockwood Herman
Executive Director
The risk of personal criminal or civil liability on the part of individual public entity leadership members is small but difficult to quantify. And it is important to note that exercising poor judgment, relying on an expert whose advice is later determined to be faulty, or making a decision based on incomplete information rarely lead to personal liability. This means that entity leaders who act in good faith and with diligence and care, are unlikely to be held personally responsible for their actions on the entity’s behalf.
There are, however, a number of specific situations that create or increase the exposure to personal liability. These include:
- Actions that intentionally cause injury, harm or damage to persons or property
- Personal participation in the tortious conduct of an entity’s employees (tortious conduct is conduct that subjects the actor to civil liability under the law)
- The knowing approval of criminal acts or active involvement in criminal activities by the organization
- Personal involvement in a contract tainted by fraud
Personal Liability Risk Tips
Recognizing that a volunteer role doesn’t necessarily mean “free,” many prospective board members will inquire about their exposure to personal liability before agreeing to serve. And although the risk of personal liability is low, there are steps every board member can take to reduce the risk from low to negligible. Share these tips to help prospective and current leaders minimize their exposure to personal liability:
- Serve for the right purpose: Never agree to serve on a public entity leadership council as a personal favor to a friend. The sense of satisfaction that service offers comes with a price tag. The cost of service includes the willingness to put personal interests aside while voting on issues before the board. Service also requires an investment of personal time and other resources to support the mission of the entity.
- Pause before accepting a leadership role: Give careful thought prior to volunteering to serve as an officer or Committee Chair, recognizing that these important roles require additional time and focus in support of the organization’s mission.
- Come to board and committee meetings fully prepared to share your questions and perspective: Carefully review background material provided in advance of board meetings and prepare thoughtful questions for which you seek additional information or clarification. Remember that the legal duty of care applicable to every member of the board requires the care and concern of an ordinarily prudent person. Ask: Would I be comfortable making this decision if it required the expenditure or commitment of personal funds? What additional information do I need to feel confident the board is making the best possible decision at this time?
- Vote “yes” only when you’re confident it’s the right thing to do: Never vote “yes” on a matter before the board if you are unclear about the implications of the decision, if you believe that a “yes” vote is not in the best interests of the entity, or if you are convinced that further study or reflection is needed on the issue before the board.
- Be courageous: Always vote “no” (versus abstaining) if you disagree with the proposed action before the board. Take the opportunity to explain why you are voting “no” during the comments or questions period.
- Listen to the small voice telling you to speak up: Never tacitly or openly endorse an action you believe is wrong. Always speak up if you believe the organization, or any of its paid or volunteer leaders, are acting in a way that is illegal, unethical, fraudulent or violates regulatory requirements to which the entity must adhere. Speak up if you believe a conflict of interest should be disclosed and discussed prior to a vote on a matter before the board.
As guardians of an entity’s mission as well as its assets, the board has a special responsibility to deliberate and act with care. Doing so not only increases the quality of the decisions made by the board, it also reduces the organization’s exposure to legal claims. Armed with the resolve to be adequately prepared for committee and board meetings and the courage to speak up, every member of the board can also reduce the less likely, but still present risk of personal liability.
Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your comments and inquiries at Melanie@nonprofitrisk.org or 703.777.3504.
“First let me congratulate you on a conference well done. I had a great time at the Nonprofit Employee Benefits Conference and walked away with some valuable tools and questions that we’ll need to be addressing in both the short and long term. Thanks to you and your staff for all you do to provide us with quality resources in support of our missions.”
— Scott Brown, Mohonk Preserve
“BBYO’s engagement of the Center to conduct a risk assessment was one of the most valuable processes undertaken over the past five years. Numerous programmatic and procedural changes were recommended and have since been implemented. Additionally, dozens (literally) of insurance coverage gaps were identified that would never have been without the work of the Center. This assessment led to a broker bidding process that resulted in BBYO’s selection of a new broker that we have been extremely satisfied with. I unconditionally recommend the Center for their consultative services.
— Sidney Abrams, BBYO
“Melanie Herman has provided expert, insightful, timely and well resourced information to our Executive Team and Board of Directors. Our corporation recently experienced massive growth through merger and the Board has been working to better integrate their expanded set of roles and responsibilities. Melanie presented at our Annual Board of Director’s Retreat and captured the interest of our Board members. As a result of her excellent presentation the Board has engaged in focused review which is having immediate effects on governance.”
— Pamela Mattel, Basics Promesa Systems Inc
“The Nonprofit Risk Management Center has been an outstanding partner for us. They are attentive to our needs, and work hard to successfully meet our requests for information. Being an Affiliate member gave us access to so many time- and money-saving resources that it easily paid for itself! Nonprofit Risk Management Center is truly a valued partner of The Community Foundation of Elkhart County and we are continuously able to optimize staff time with the support given by their team.”
— Jodi Spataro, Community Foundation of Elkhart County
“The board and staff of the Prince George’s Child Resource Center are extremely pleased with the results of the risk assessment conducted by the Nonprofit Risk Management Center. A thorough scan revealed that while we are a well run organization, we had risks that we never imagined. We are grateful to know that we have now minimized our organizational risks and we recommend the Center to other nonprofits.”
— Marti Worshtil, Prince George’s Child Resource Center
Great American Insurance Group’s Specialty Human Services is committed to protecting those who improve your communities. The Center team has committed to delivering dynamic risk management solutions tailored to nonprofit organizations. These organizations have many and varied risk issues, hence the need for specialized coverage and expert knowledge for their protection. We’ve had Melanie speak on several occasions to employees and our agents. She is always on point and delivers such great value. Thank you for the terrific partnership and allowing our nonprofits to focus on their mission!