Abstract

The nonprofit sector and matters of nonprofit governance have been in the national spotlight much of late. One area of heightened interest is directors of healthcare entities regularly serving on the board of more than one healthcare organization. Even when board membership of related entities is relatively independent, one corporation's business plan frequently is affected (or even controlled) by the business needs of a separately incorporated parent, affiliate, or other related organization. Very little case law addresses "interlocking" directorates for nonprofit board members, and the case law that does exist tends to address narrow, fact-based state law interpretive issues rather than elucidating the nature and scope of fiduciary duties. The result is that the doctrine in this area is severely underdeveloped. State statutes and supplementary guidance documents such as the Revised Model Nonprofit Corporation Act provide little insight as well. Within this vacuum, considerable tension exists between the modern reality of overlapping boards, which often occur due to integration of healthcare entities into "delivery systems," and the traditional doctrine of fiduciary duties, which contemplates that directors will serve only one corporation. It is a long-standing principle of corporate law that directors owe fiduciary duties to the corporation(s) on whose boards they sit. Nonprofit directors' fiduciary duties are threefold: the duty of care, the duty of loyalty, and the duty of obedience. The duty of care requires directors to act in an informed, careful manner in their decision-making. The duty of loyalty commands directors to act without self-interest, in good faith, and in the best interests of the corporation at all times. The duty of obedience obliges directors to ensure that the charitable mission of the corporation is carried out and to obey laws relevant to the organization. While the duty of care and the duty of loyalty are well established, the duty of obedience is a more recent development and not fully incorporated into the canon of nonprofit fiduciary duties.

Document Type

Article

Publication Date

2007

Notes/Citation Information

Nebraska Law Review, Vol. 85, No. 3 (2007), pp. 681-734

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