Fundamentals
Fiduciary Duties
What
Members of a nonprofit hospital’s governing board assume three core fiduciary duties upon taking office: the duty of care, the duty of loyalty, and the duty of obedience. The duty of care requires members to exercise informed, independent judgment and reasonable diligence in overseeing the organization. The duty of loyalty requires members to act in the hospital’s best interests, protect confidential information, disclose conflicts of interest, and refrain from improper self-dealing or using their position for personal benefit. The duty of obedience requires adherence to the hospital’s charitable mission, governing documents, and applicable law, including restrictions on private inurement.
Why
Together, these duties require the board to ensure that the hospital’s resources and decisions advance its charitable purposes rather than private interests.
A board that doesn’t understand or exercise these duties puts the organization’s tax-exempt status, legal standing, and public trust at risk, and exposes individual board members to personal liability.
Important Considerations
Informed oversight: Review materials, ask questions, and seek additional information or expert advice when needed to exercise sound judgment.
Mission adherence: Ensure that major decisions and the use of hospital resources support its charitable mission, governing documents, and legal obligations.
Conflicts of interest: Disclose actual or potential conflicts promptly and follow required procedures for recusal, review, and documentation.
Personal benefit: Do not use board authority for personal gain. Scrutinize transactions involving insiders for improper self-dealing or private inurement.
Confidentiality: Protect confidential board, patient, personnel, and business information, while honoring required disclosures and reporting obligations.
In Practice Example
A board member arrives fifteen minutes late to a meeting, having missed the previous two, and asks to be caught up on the spot and to add a new topic to the agenda. As the meeting continues, she asks questions the rest of the board already worked through in the pre-reading and at the last meeting, and the board runs out of time to decide the matter it convened to address. Afterward, the chair has a private conversation about preparation and attendance — not as a scolding, but because showing up unprepared is itself a duty-of-care problem, not just a courtesy issue.
Governance Questions
- Could every board member explain, in plain language, what the duties of care, loyalty, and obedience actually require of them?
- Does the board’s conflict-of-interest process function year-round, or does it exist only as a form signed once a year?
- Is confidentiality about board deliberations understood and respected once people leave the room?
- Do members of advisory or subsidiary boards understand which of their responsibilities are genuinely fiduciary, even if the board isn’t called a “governing” board?
Resources & Reads
- Fiduciary Duties Self-Check for Trustees
- Fiduciary Duties: Board Discussion Scenarios
- Conflict of Interest Policy
- Confidentiality Policy
Witalis LLC is a national healthcare governance consulting firm specializing in governance design, board effectiveness, strategic planning, and board retreat facilitation for hospitals, health systems, medical groups, and other healthcare provider organizations.