Another high profile case which has been in the media recently should sound a warning bell for Trustees and Board members to assess their potential exposure to liability in their role within a governing body. The case referred to involved a significant amount of money being syphoned out of the Māori organisation by and to the employee in sole charge of the finances.

While the wrong-doing was carried out by the employee, in circumstances such as these the Governors of the organisation (such as trustees or board members) can sometimes also be in the firing line.

In particular, Governors may be personally liable where they have failed to identify and manage risks which causes financial loss to the organisation.

A governance role involves more than attendance at Board meetings. Those in governance roles must remain vigilant, keeping an eye on the big picture, while drilling down to the detail where required.  This involves identifying and managing risks in important areas of the organisation, including the finance area but also in areas such as Health and Safety, employee grievances and other activities being undertaken by the organisation.  Where risks are identified Governors should put in place plans to manage them, to ensure they meet their obligations.

An organisation’s governing document (being its Trust Deed or similar) can include provisions to restrict Trustees’ exposure to personal liability. It can also indemnify Trustees or officers against legal action being brought against them personally in certain circumstances.  However, this form of protection is only as good as the value of the assets of the organisation, and in circumstances where the organisation cannot financially protect the Trustee, the Trustee can sometimes still be pursued personally.  Equally these limitations on personal liability often have exclusions.  Does your governing document help to protect you?

Insurance can also help to protect Trustees.  Does you organisation have insurance policies in place to protect its Trustees?

It is vital that those in governance roles are aware of their legal obligations, both for the governing body itself, and personally.