What can be learned from corporate boards?
In their article, The Corporate Board, attorneys Mark Waxman and Edouard LeFevre describe three governance standards: Duty of care, Duty of loyalty, and the Judgment rule. These concepts break down a board’s particular duty to ensure that it meets fiduciary governance standards.
Three Governance Standards:
The attorneys describe the Duty of care as the duty to use the care of a reasonably prudent and informed person in the exercise of board responsibilities. They describe the Duty of loyalty as a duty to act in the best interest of the organization, subordinating personal and other interests to those of the organization. They also describe the Business judgment rule as a presumption that in making a business decision, a director acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interest of the organization.
These concepts are obvious to some and are not always helpful when faced with business decisions critical to the short and long-term success of an organization. However, they lay the important groundwork for the keys to successful board governance.
The Duty of loyalty leads a board member to identify what their “customers” need and to focus on it. Association and non-profit boards may find it difficult to spot exactly who the “customer” is, but even if your association or non-profit does not sell anything, they still have a customer and must ensure that these people or entities are identified. With each association or non-profit, the real people or customers who are the intended recipients of the benefits of the organizations and who “consume” its offerings.
Waxman and LeFevre state, “When faced with difficult decisions, a good litmus test is for the board to ask, ‘Who are we serving, and what decision would be in their best interest?’” This may seem obvious to many, but in every decision, board members must recognize their bias and past experiences and how they may be affecting their current decision-making process.
