Dear Governance Matters,
My service club has 140 members and properly organized as a tax-exempt nonprofit foundation (with funds of about $1 million). The board governing the foundation is the same board that governs the service club.
I recently joined the board and learned that board members believe the general membership "should not be informed" about value, investment results, etc. of the because it could lead to "micro-management" on the part of the board of directors and /or members.
During the last two meetings, I have tried to find out the total value of the foundation and the management fees we are paying to our investing advisor (who is a current member of the service club), to no avail. The treasurer claims that a report is being prepared, that an effort is being made to find out what fees we are paying, etc.
At the last meeting, when I raised the issue again, I got lukewarm support from one board member out of 10. After the meeting, two members told me they agree with me 100 percent but did not voice their support in public.
I am not concerned at all about anybody's honesty; that's not the issue. I am concerned that as a director, I cannot discharge my fiduciary duties without having all the information normally given on a monthly brokerage statement. We also owe the membership quarterly reports as, in effect, every member is part owner of the club and the foundation.
Your problem has serious legal ramifications so we asked an attorney to provide a response:
New York law requires every nonprofit corporation to keep, at the principal office of the corporation, correct and complete books, records of accounts and minutes of board meetings. Members have a legal right to access and inspect this information, which should include investment information. The board of directors has no legal basis to withhold financial information about the organization from the members and I would say that would be a bad practice.
You and all members are entitled to financial information. If the treasurer is preparing a report, ask for a deadline as to when the information will become available and have that recorded in the minutes.
As to the board members who are reluctant to speak up, you might remind them that board members of nonprofits owe a legal, fiduciary duty of care to the organizations they serve. They can be held accountable. One function of board meetings is to provide vital financial information to the board so that issues can be discussed and debated, and members can fulfill that duty of care.
If directors are not demanding financial information then an argument can be made that they are abdicating their fiduciary duty of care, which is most problematic.
If the board continues to be dysfunctional and vital information continues to be withheld, you might consider resigning from the board of this organization. As long as you are a director, you have potential liability if any mismanagement comes to light.
Best of luck,
Governance Matters "Ask the Experts"