Church leaders owe their organizations and each other a range of special obligations. Some of these obligations are moral and ethical in nature, but some also have a legal character. Anyone who joins a California church’s board of directors should take the time to understand the fiduciary responsibilities that come with the position.
In its broadest sense, a fiduciary duty is an obligation owed by a person in a leadership or management role within an organization to the organization itself and its members. A director or officer who breaches their fiduciary duties can face personal liability to the organization and others for damages caused by the breach. Although the term often comes up in the context of for-profit businesses, it also applies in the nonprofit and religious sectors. Fiduciary obligations arise regardless of whether an individual is paid for their work.
Fiduciary obligations apply to directors of unincorporated associations as well as incorporated churches. Directors of California religious nonprofit corporations have obligations defined under Section 9241 of the California Corporations Code. Under the statute, a director’s fiduciary obligation is to perform his or her duties in accord with three distinct requirements:
- A director must act in good faith. In the context of religious organizations, “good faith” specifically includes acting within the scope of what the director believes to be the religious purposes of the corporation and the tenets of the religion itself. A director is entitled to rely upon the advice of experts, church managers, and religious advisors. Examples of bad faith include failing to disclose a personal interest in a transaction (such as a third-party service contract) or making an unauthorized disclosure of confidential information.
- A director must act in a manner that the director believes to be in the best interest of the corporation. For purposes of this requirement the important thing is the director’s belief at the time the decision was made, not the decision’s outcome. An offshoot of this rule is that the director must not direct the church to engage in transactions that unduly benefit the director or the director’s family (self-dealing).
- A director must act with such care, including reasonable inquiry, as is appropriate under the circumstances. Directors often get into trouble by failing to pay enough attention and do what’s needed to gather necessary facts before making decisions. Bear in mind that a decision may involve significant risk for the church even though it doesn’t involve a financial component. For example, directors should conduct adequate background checks before hiring managers to run the day-to-day affairs of the church, lest a candidate’s significant criminal history not come to light before it is too late.
The Church Law Center of California can answer directors’ questions
The Church Law Center of California provides counsel to religious and secular nonprofit clients. If you have questions about your fiduciary obligations as a member of a church board please give us a call to discuss your situation. We’re available at (949) 892-1221 or reach out to us through our contact page