Emil Ford Lawyers

ACNC Governance Standards - To act in the best interest of your charity and for a proper purpose

In our article last month we examined the first significant duty of board members of registered charities; that is, the duty of board members to act with reasonable care and diligence.

We discussed how this duty, together with the others listed below, make up one of the five governance standards for charities established by the Australian Charities and Not-for-profits Commission (ACNC). The particular standard states that board members or other responsible persons owe a fiduciary duty to their charities. This is one of the highest standards of care imposed and means that board members must not put their personal interests before the interests of the charity or profit from their position, unless the charity consents.

In the months to come we will deal with the remaining four duties. These state that board members have a duty:

  • not to improperly use information or their position;
  • to manage financial affairs responsibly;
  • to disclose and manage conflicts of interest; and
  • not to allow a charity to operate while insolvent.

The topic for this month is the duty of board members to act in the best interest of the charity and for a proper purpose. But what does this look like?

Put simply, those acting as board members must make decisions that are in the best interest of their charity and which further its charitable purpose.

The Business Judgment Rule

On the positive side, the courts will respect the judgment of board members in business matters (that is, matters relevant to the business operations of the charity) if they:

  • make the judgment in good faith for a proper purpose; and
  • do not have a material personal interest in the subject matter of the judgment; and
  • inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
  • rationally believe that the judgment is in the best interests of the charity. The belief that the judgment is in its best interests is a rational one unless the belief is one that no reasonable person in that position would hold.

Representative or nominee of another organisation

If a person is on a board as a representative or nominee of another organisation, they will generally have to make decisions that are in the best interest of the charity. In other words, they cannot make decisions that are in the best interest of the organisation that nominated them.

Conclusion

It is therefore important that board members ask themselves: ‘is this decision in the best interest of my charity and does it further its charitable purpose?’ This will help board members to uphold their fiduciary duty and, in turn, ensure that the charity complies with one of the five ACNC governance standards. Next month we will deal with the duty of board members not to improperly use information or their position. If you would like further information please contact .

 

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