A Director's Duty Is to Act Prudently
The vagarious notion that volunteer directors, and the organizations they serve, generally underperform has no more credibility than the contention that greater financial rewards for individual directors is the driving force and significant difference between healthy, thriving corporations and failed corporations.
Director compensation, or lack of it, neither imposes nor cancels regulatory performance requirements for individual directors. Whether a director serves voluntarily or receives some compensation, the exercise of wisdom and ethical conduct in all his and her fiduciary duties, responsibilities and regulatory obligations to stakeholders is paramount.
Too many organizations have been victimized by both volunteer and paid directors who are either asleep at the helm, rubber-stamping management reports and proposals, or otherwise engaging in matters of self-interest. Examples might be the golf and country club where directors with the lowest handicaps and largest egos run the enterprise into bankruptcy. Or the church choir that appropriates limited church funds to finance gowns, expensive musical instruments and dominate church services.
The prudent man rule, (based on common law) generally instructs that a prudent person is one who exercises the degree of skill, care and diligence that a reasonably prudent person would exercise under the same or similar circumstances. The contemporary application and interpretation of prudent man rule applies to all directors, whether paid or unpaid, and regardless of the legal nature, size or type of business enterprise, its products and its commercial transactions.
A volunteer is generally thought of as a person who undertakes a task or role, acting gratuitously on his and her own volition and free will, and performed without any promise of monetary reward or other consideration. Volunteerism is an intentional, purposeful, deliberate act neither prompted nor constrained by the prospect of position, power or profit. While volunteer positions in democratic organizations are often the result of an election process, in others there might not be any formal process for aligning people with available positions. Regardless, in today's growing self-fulfillment society, volunteer contribution does not always mean free, competent or altruistic. Far from it.
Consequently, many volunteer organizations have significantly raised the qualification standards for selecting volunteers, including signed conflict of interest declarations, related-party transaction declarations, required skill-sets and mandatory orientation events as well as required education and training certification. There are a host of other prerequisites, including a comprehensive annual director appraisal and evaluation process. Directors and officers liability insurance is expensive and provides some protection for the stakeholders of the organization, but the many exclusions involving imprudence, malfeasance, misfeasance and unfaithful performance of duties can leave both directors and the organization vulnerable.
The nominating committee's role, function and importance should be raised to equal status with the organization's audit committee and finance committee. Simply finding enough warm bodies to fill cold board room chairs no longer works. The nominating committee of progressive organizations is in volunteer recruitment mode 12 months of the year-identifying, qualifying and securing potential volunteers for upcoming positions.
The view that good volunteers are in short supply is just not true. What is true is that organizations need to be assertive in their recruitment efforts. They need to clearly articulate the contribution volunteers are expected to make, the methods and tools available to volunteers, the results expected and the rewards that might result from volunteer contribution.
Not everyone is driven by financial reward. Many people want an opportunity to sit in the seats of power, to influence corporate policy, to make a difference, to make a worthwhile contribution to a worthwhile cause or activity. And some are just waiting to be asked by someone they respect and trust. Those are the people who should have a place on the corporate governance committee.
Ray Bauschke serves on the board of directors of Cambrian Credit Union, Winnipeg, Manitoba. He can be reached at 800-665-7776 or