Fiduciary responsibility: At the heart of Board service


From On the LeaderBoard Volume 1, Issue 2

Trust is the root of the word fiduciary. In Latin, the word fiducia means trust and it’s from this root that the word fiduciary comes into use for good governance today. Maybe “into use” is a bit strong since the word fiduciary doesn’t come into play in most Board conversations. In fact, when we talk about it, we usually pair it with the word responsibility, as in “Board members have a fiduciary responsibility.”

Yes, Board members do have a fiduciary responsibility. It starts with a fiduciary relationship, meaning that the Board is the group of individuals identified by the state (where the organization is incorporated) as the governing body. Board members, in accepting the role, enter into a fiduciary relationship with each other, the organization, and the organization’s general public as well as the state. In fact, this fiduciary responsibility is intrinsic to every aspect of being a Board member and is not limited to the Board member’s financial decisions on behalf of an organization.

The Board as fiduciary has the power and obligation to act for the ministry under circumstances that require total trust, good faith, and honesty. Legally, a fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual businessperson. The Board as a whole is the fiduciary, and each member individually has his or her own fiduciary responsibility. As such, Board members must avoid "self-dealing" or "conflicts of interests" in which the potential benefit to the fiduciary conflicts with what is best for the organization that they govern. In legal terms, absence from a meeting or pleading ignorance does not relieve a Board member of responsibility for actions of the Board.

Charitable, non-profit Board members and staff in the U.S. specifically need to be aware of and comply with the three fiduciary duties related to their work that have significant legal ramifications: the Duty of Care, the Duty of Loyalty, and the Duty of Obedience. Though this is drawn from U.S. law, it originates in common or English law, which has also been influential in the law of other countries of the former British Empire. Heartbeat’s GOVERN Well manual covers these duties and gives examples of how these duties are embodied in good governance. Each duty is important in its own right and will be discussed separately in future issues of On the LeaderBoard.