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Fiduciary Duties

Under state statutory and common law, officers and board members are fiduciaries and must act in accordance with the fiduciary duties of care, loyalty, and obedience.

A fiduciary is someone who has special responsibilities in connection with the administration, investment, monitoring, and distribution of property—meaning, the charitable or public assets of the institution, as well as intangible assets such as its reputation and role in the community.

Good governance practice mandates that all board members be informed of the legal meaning and obligations of their fiduciary role and provided practical examples of issues that the board is likely to face and that require careful attention to the balancing of interests necessary to carry out the fiduciary role.

In the American higher education system of shared governance, governing boards share governance duties with the president and the faculty, while respecting academic freedom and soliciting input from a broad campus constituency. However, under the law, only governing board members and officers hold fiduciary responsibility. Fiduciary responsibility entails three particular duties to the institution, commonly known as the fiduciary duties of care, loyalty, and obedience. Taken together, they require board members to make careful, good-faith decisions in the best interest of the institution consistent with its public or charitable mission, independent of undue influence from any party or from financial interests.  (See the AGB Board of Directors’ Statement on the Fiduciary Duties of Governing Board Members for a more complete explanation of these duties, illustrative questions, and guidelines for implementation.)

The duty of care generally requires officers and governing board members to carry out their responsibilities in good-faith and using that degree of diligence, care, and skill which ordinarily prudent persons would reasonably exercise under similar circumstances in like positions. Accordingly, a board member must act in a manner that he or she reasonably believes to be in the best interests of the institution.

The duty of loyalty requires officers and board members to act in good-faith and in a manner that is reasonably believed to be in the interests of the college or university and its nonprofit or public purposes rather than their own interests or the interests of another person or organization. The fiduciary must not act out of expedience, avarice, or self-interest.

A third fiduciary duty, which is arguably an element of the duties of care and loyalty, is the duty of obedience. This is the duty of board members to ensure that the college or university is operating in furtherance of its stated purposes (as set forth in its governing documents) and is operating in compliance with the law.

Guidelines for Implementing the Duties of Care, Loyalty, and Obedience

  • Implement a year-round director-recruitment program in which a pool of prospective candidates is developed and vetted, and in which candidates have an opportunity to learn more about the institution.
  • Engage in thoughtful and advance planning regarding board development and composition to avoid conflicts of interest, ensure adequate independence of board members, and secure an appropriate balance of skills and experience among board members.
  • Establish meaningful orientation programs for new board members (and a refresher for long-serving members) that include, among other topics, an explanation of fiduciary duties and a discussion of the institution’s mission, vision, and strategic plan.
  • Develop and implement an up-to-date conflict-of-interest policy.
  • Ensure appropriate communication between the governing board and college or university legal compliance officers and programs.
  • Secure on a timely basis the advice of knowledgeable experts who can increase the level of understanding and competence of board members on key issues.
  • Commission board committees to regularly assess, through self-evaluation and review of board-member conduct, the effectiveness of the board in adhering to its fiduciary duties.

Does the board understand the elements of the duty of care, the duty of loyalty, and the duty of obedience? How is our board educated on these principles?

Do board members understand how their fiduciary duties relate to their particular responsibilities in overseeing the college or university? How does our board discuss these matters?

Do board members understand the ways in which they could be exposed to personal liability for breaching their fiduciary duties? What areas of liability exposure are of greatest concern to our board members?



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