Governance: Duty of Loyalty

An interesting lesson arises from California where public pension fund trustees could be criminally liable if they approve a contract that provides them a personal benefit.

From June 2008 Governing we learn that "public employees, retired employees and even management appointees on public pension boards could be liable if they approve a contract that provides them a personal benefit.  The inherent conflict arises because fiduciaries are responsible for a duty of loyalty, which precludes them from putting themselves and their personal financial interest ahead of those of the plan and the trust.....  Public officials establishing such trusts should build conflict-of interest safeguards into their founding documents."

The duty of loyalty and conflicts of interest clauses are sometimes but not often referred to by nonprofit boards, but here's an example as to why the conversation should occur more regular -- at least once a year if not when the duty is plainly violated.

For more about the article go to governing.com/xtras (Pension Board Dilemnna).