Standards of Conduct for Directors of Nonprofit Corporations

Abstract

This Article analyzes the standards of care and loyalty that should apply to directors of nonprofit corporations. It suggests that the movement toward corporate law principles neither reflects the differences in the types of nonprofit corporationsd nor provides a coherent rationale for the conduct regulated. The "trust law"-"corporate law" distinction has often centered upon the label to be applied rather than on an analysis of the principles involved. Too often the selection of the label has determined the result. At other times, the label has been used as a convenient rationalization of a socially desirable conclusion. This Article will attempt to develop a framework for applying a particular standard – corporate, trust, or other. The author contends that corporate law standards of directors' conduct are too low in certain situations. Instead, he maintains that there should be shifting standards, the application of which depends upon the type of nonprofit corporation and the nature of a director's conduct and interest in a particular transaction. This Article concludes that if high standards of conduct are clearly articulated, they will be adhered to by most directors and thereby lessen the problem of fiduciaries abusing their power or ignoring their responsibilities. High standards widely communicated to the nonprofit sector will provide the. most cost-efficient monitoring of directors' behavior.