DO YOUR BOARD OFFICERS AND DIRECTORS POSE A LIABILITY? RISK MANAGEMENT

By Lindy Korn

You have a comprehensive handbook.

You treat your employees in accordance with the best practices in the workplace.

Your officers and directors are the best in the industry.

So how could one of your employees sue for sexual discrimination?

Good risk management warns us to expect the unexpected. One out of every 25 companies will be involved in a lawsuit alleging mismanagement of some type. Wrongful termination and sexual harassment claims are on the rise and are expensive to defend.

Board Members: An Audit

The following incidents are accounts of actual problems that board members have caused, creating risks and liabilities for the organizations they serve. Consider the following problems and the policies that could help prevent them.

A board member has encouraged staff to bring complaints directly to him instead of following complaint procedures and reporting to the CEO.

*Do you have a mechanism to permit the board to discipline itself? One board member was involved in the termination of an employee who later requested a meeting with the full board, which opened up a can of worms that took months to remedy and resulting in two board members resigning.

*Have your board members received training as to the parameters of their responsibilities?

An executive director reported to a hotline that a married board member and a staff member are having an affair and other board members are hearing unfavorable comments not only to the community, but from the organization's funding sources as well.

*Is there a code of ethics for board members to follow?

A board hotline reported that a few board members were struggling with hiring an openly gay staff member due to conflicts with personal values?

*Do you have a zero tolerance policy for board members? Can board members apply for positions that they have learned about through their position as board members with the organization? This is precisely what happened in one Midwestern nonprofit.

*Does your board have any rules regarding conflicts of interest or codes of conduct?

The Rule of the Day

It is essential, with the increase in employment litigation, that a board have in place certain board policies or by-laws upon which the case for corrective action is based. Sample codes of ethics, rules of conduct and by-laws providing for removal of board members are a few such safeguards for an organization.

The insurance industry has responded to the recent upsurge in litigation against officers and directors by creating improved products combining D&O liability insurance and employment practices liability insurance in a single policy. Such protections can enable an organization to attract the high quality board members they seek.

In a recent case involving a co-op board, indemnification was not allowable by law for punitive damages awarded in a civil rights action based on racial discrimination and retaliation. These bad faith actions of a board member resulted in a large punitive damages award where public policy precluded indemnification (Biondi v. Beekman Hill House Apt. Corp., 275 AD2d 76).

Diversity training for board members is a proactive mechanism that can create an awareness of appropriate behavior of board members, and an understanding of how their actions impact the philosophy of the board and the organization.

Lindy Korn is president and CEO of Diversity Training-Workplace Solutions, Inc., in Buffalo.