Oftentimes in forming an industry collective such as a not-for-profit alliance or consortium, your Founders will comprise your initial governing entity. Governing entities can take the form of a Board of Directors, a Steering Committee, a Steering Group or so forth. And your governing body will schedule meetings, prepare agendas, vote on initiatives and lead your organization. However, did you know that there are certain rights and obligations for governing entities under State Law and best practice that require adherence? No?
For that reason, it’s good to have a refresher on what those specific rights and obligations are:
Governing entities such as Boards manage the general affairs, property and interests of a not-for-profit alliance such as those managed by ISTO. They set policies, adopt management initiatives, authorize/approve major transactions, and delegate implementation and operational activities. Delegation of authority can be made to alliance subcommittees and task forces, alliance officers and leaders or designated third party professionals.
It’s important to note that individual Directors have no power or authority to act independently. Only the collective Board has the authority to act by a vote of the Directors attending a meeting where a quorum has been met.
While the Board operates as a collective, individual Board delegates due have some liabilities:
- Actions which result in loss of tax exempt status
- Antitrust violations
- Breach of fiduciary obligations
- Other statutory liabilities (withholding taxes, environmental liabilities, etc.)
By virtue of being a director of an ISTO Program for example, a Delaware nonstock corporation under the IEEE-ISTO, each director owes fiduciary obligations to the Corporation and its “members.” Since directors can be subject to personal liability for breaches of these duties, it is important that directors understand what is required. Directors have fiduciary obligations that are known as the Duty of Care and the Duty of Loyalty.
Duty of Care
For ISTO Programs and any other consortia under Delaware law, a director must employ the duty of care when making decisions or acting on behalf of the alliance and requires that Directors act:
- in good faith
- with the care an ordinarily prudent person in a like position would exercise under similar circumstances and
- in a manner you reasonably believe to be in the best interests of the alliance.
Duty of Loyalty
The duty of loyalty requires that Directors exercise their powers in the interests of the alliance and not in their own interest or in the interest of another person or entity (such as a Director’s employer). Each Director must support the collective decisions of the governing entity. Directors are subject to conflicts of interest rules and laws. Conflicts of interest for Directors may arise when a Director’s employer’s interest is represented rather than the interest of the alliance. Similarly, a Director representing an interested class of members whose interests diverge from the alliance’s interests has a conflict as well.
As Directors in breach of their duty of care or their duty of loyalty may be liable for monetary damages, it’s worth repeating that Directors owe a duty to their organization and all of its members, not just a certain group or Member.
Other Director Duties
Other duties of a Director include:
- “Duty To Comply with the law”
- “Duty of Oversight” duty to oversee the management and employees of the Corporation
- “Duty of Disclosure” duty to communicate honestly and to make full and fair disclosures.
Guidelines to Keep You and Your Directors Adherent to Your Duties
- Be Prepared and Study Relevant Information. You should insist on being supplied with sufficient information to properly understand a proposed Board decision and its effects on your alliance. You should carefully read all of the documents presented to the Board and analyze the issues carefully and thoroughly before taking any specific action.
- Be Involved and Ask Hard Questions. You should attend and actively participate at all Board or Steering Group meetings. It is important to be involved in all deliberations at meetings, commenting and asking questions where reasonably prudent.
- Evaluate and Disclose any Conflicts of Interest. You should carefully consider all decisions of the Board in light of potential conflicts of interest with respect to each of the members of the Alliance Board. You should be careful to disclose even potential conflicts of interest and should refrain from voting or participating in the deliberation of any matter in which you are conflicted.
- Establish a Record. Your Alliance should establish a record of the deliberative process. Meeting minutes should be sufficiently detailed to establish a record indicating that all procedural business judgment requirements were satisfied and all substantive points were adequately considered. Minutes should accurately reflect the vote counts (including dissenting votes and abstentions) on actions taken at meetings.
So, there you have it…the Dos and Don’ts to serving as a compliant and high-functioning governing entity. ISTO provides orientations for members of governing entities and professional Secretariat support to ensure that guidelines for alliance governing entities are understood and adhered to by its member Programs. If you are currently serving as a Director of an ISTO Program or similar technology alliance, please consider these… and thank you for your service!