A board directorship comes with multiple personal, professional, social and philanthropic benefits — but you should go in with eyes wide open. Photo: pedrom97.
It’s a scenario many well-meaning volunteers never consider: in an act of community spirit, you’ve put your hand up to join the board or a committee of a not-for-profit, local school or sports club, not realising you’re stepping into a complex legal and governance landscape where good intentions aren’t always enough to keep you — or the organisation — out of trouble.
According to MV Law partner Massimo Di Maio, many directors don’t realise directorships, even voluntary ones, come with serious responsibilities — and sometimes, financial and legal liabilities.
Part of the confusion, he says, stems from how often the terms “board” and “committee” are used interchangeably.
“A board is the primary governing body of an organisation that oversees its strategy, direction and performance. A committee is a subset of that board, delegated to carry out a specific task,” he says.
“While committees can include board members, they often also include external stakeholders such as community members or independent experts.”
But while the committee must report back to the board, ultimately, the decision, responsibility and accountability always roll back up to the board.
For incorporated not-for-profits and charities, the obligations are very real and very enforceable. Directors’ duties are governed by the Corporations Act 2001, and for registered charities, by the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act).
In both cases, directors must act in good faith, with care and diligence, and in the best interests of the organisation. They must disclose existing or potential conflicts of interest, avoid misuse of their position or inside information and prevent the organisation from trading while insolvent.
“Even if a finance committee is required to provide insight into the organisation’s financial wellbeing, the board is collectively responsible for the financial health of the organisation, including members who don’t form part of that committee,” Massimo says.
The risks are no joke, either.
“If there’s a breach of directors’ duties, you might be personally liable for the debts of the organisation or consequences resulting from a breach, omission or decision by the organisation,” he says.
“That can include payment of fines, damages for compensation or disqualification from acting as a director of any organisation. In serious cases such as fraud, imprisonment can apply.”
MV Law partner Massimo Di Maio says directorships come with real risks — but real reward, too. Photo: Liv Cameron.
Massimo says every board and committee member must be across the purpose, strategic direction and financial health of their organisation.
He also recommends understanding the organisation’s structure, role descriptions, legal responsibilities and applicable policies and procedures.
And if something doesn’t feel right, speak up.
“Your first step should be to seek clarification about any decisions you’re not comfortable with. Question the rationale and supporting facts and figures with the organisation’s responsible officers, committees or board members,” Massimo says.
“If concerns remain, raise them with the board chair and full board, referencing relevant documentation, procedures, laws and any proposed alternatives. If needed, recommend the matter be escalated for independent advice — and make sure any dissent is recorded in the minutes as evidence of acting in good faith.”
For complex or borderline issues, legal advice is often essential.
“Directors may be experts in their occupational fields — and that diversity is good for boards — but they’re not necessarily legal experts. So they come to us to check their proposed decisions are sound and compliant,” Massimo says.
This is especially important in areas such as education, where compliance missteps can lead to crippling funding consequences.
“If a school acts without full knowledge of the limits and there is a breach, it may prohibit further grants by the education minister — and even allow the minister to call back previous grants.”
Many directorships for NFPs, charities and community organisations are volunteer, effectively exposing themselves to big risks without financial compensation.
The personal, professional, social and philanthropic benefits however, can outweigh those risks.
“Directorships are often the best opportunity for an individual to give back to their communities and help shape the direction of causes and industries they care about,” Massimo says.
“It’s also a decisive step towards career development, because directorships are well-regarded, especially when stepping into senior executive roles. They expose you to leadership and decision-making, enhance your visibility, recognition and influence and broaden your network and contacts.
“There’s risk in everything, but you can minimise this by being actively involved. Commit 100 per cent — and when in doubt, get advice.”
