Legal Responsibilities: A Guide for NSPE and State

Society Officers and DirectorsPrepared by:

Arthur E. Schwartz, CAENSPE Deputy Executive Director & General Counsel

January 2005NSPE Winter MeetingSan Diego, California

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Board Responsibilities

Operates at a policy (governance) versus operational (management) level by establishing policies that guide the association to run:– Effectively– Legally– Ethically

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Board Responsibilities

Ensures development of a multiple-year strategic plan that is updated annually.

Links meeting agendas and decisions directly to the strategic plan.

Ensures that all components of the association are charged appropriately and are working in alignment toward implementation of the strategic plan.

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Board Responsibilities Ensures the financial integrity of the

association– Setting financial policies tied to

programmatic goals– Developing and approving an annual budget

linked to the strategic plan– Monitoring financial outcomes and

performance– Viewing finances and resource development

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Board Responsibilities

Ensures that individual board members participate responsibly by:– Committing the necessary time and coming

to meetings well-prepared– Doing appropriate board-level work

between meetings– Keeping politics in perspective– Supporting board decisions and association

policies to members and others.

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Board Responsibilities

Maintains a strong partnership with the chief staff executive by:– Setting guidelines for authority,

responsibility, and accountability– Nurturing open, frequent, and honest

communication in both directions– Providing a mutually supportive

environment

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Board Responsibilities

Evaluates each of these on an annual basis:– Association policies– Financial performance– The staff executive– Board performance– Performance of all components of the

organization

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Board Responsibilities

Legal Obligations– Duty of care– Duty of loyalty– Duty of obedience– Duty to avoid conflict of interest– Duty to respect confidential information

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Duty of Care

Ordinary, reasonable care– Honesty– Acting in good faith– Reasonable inquiry– Exercising business judgment– Reliance on experts

• Good faith reliance on attorneys, CPAs, etc.• Worldcom, Enron boards teach lessons.

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Duty of Loyalty

Board members must:– Remain faithful to the organization– Act in best interests of entire organization,

not to a region, state, or practice area.• Board members learn from constituency but

vote what’s best for whole association

– Make personal business, professional, financial interests secondary to organization.

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Duty of Obedience

Board members must act in accordance with:– Constitution– Bylaws– Policies and procedures– Laws and regulations

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Duty: Avoid Conflict of Interest

Board members must:– Disclose any apparent and real conflict of

interest.– Recuse themselves from voting on issues

with conflict of interest or pledge to remain objective or neutral.

– In some cases, resign from the Board to avoid a very serious conflict.

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Duty: Avoid Conflict of Interest

Board members must (cont.):– Avoid expropriation of programs/activities of

the association.– In all cases, come forward and disclose

conflict• The Board can then decide appropriate action.

Conflict of interest standards can also be enforced for committees, practice divisions, etc.

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Duty of Confidentiality

Board members must keep confidential:– Legal opinions– Member information– Disciplinary action– Employment information– Information marked as confidential– Executive session

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Antitrust for Associations Associations bring competitors together,

making antitrust an issue. Both federal and state law govern. Sherman Antitrust Law very broad.

– Every combination, contract, or conspiracy in restraint of trade or commerce is illegal.

– Penalties are high• $10 million for corporations, associations

• $350,000 for individuals

• 3 years in prison

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Antitrust for NSPE and State Societies

Potential liability:– You– Your company– NSPE and State Societies

NSPE historical antitrust problem areas:– Restrictions on advertising– Restrictions on competitive bidding

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Antitrust for NSPE

What’s legal in seeking contracts:– Individual engineers/firms can individually

refuse to bid.– Clients are not required to seek bids.– State and local qualifications-based

selection (QBS) laws are valid.– NSPE, state societies can lobby for QBS

laws.– State licensure board laws/rules are valid.

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Sexual Harassment Sexual harassment is an important, serious

issue for associations and its volunteers. Moral imperative

– Obligation to members and employees to be treated fairly and respectfully.

Financial imperative– Liability for volunteers and NSPE; serious

threat of financial damages– Reputation of Board, NSPE, State Societies

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Sexual Harassment Difficult to always draw a bright line. Two types of sexual harassment.

– Quid pro quo - Beneficial condition of employment is premised on employee’s submission to sexual advances.

– Hostile work environment - An environment is so pervasively hostile that it materially alters the terms/conditions of employment.

• Much more common than quid pro quo.

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Sexual Harassment Examples of hostile work environment:

– Jokes– Suggestive remarks– Physical interference (blocking one’s path)– Pictures, cartoons– Derogatory comments– Physical contact

Intent is immaterial– Commentor may think it is a compliment

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Sexual Harassment One occurrence is generally not enough

for legal liability.– Repeated conduct generally necessary– But some comments may be so severe that

they can result in liability. The “reasonable woman” standard rules. Best policy is to avoid all comments,

email, WWW, etc., that might in any way result in liability.

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Sexual Harassment Physical contact can be sensitive issue

– Hugs can be misunderstood. NSPE Professional Policy 151 on sexual

harassment:– “It is the policy of NSPE to comply strictly

with all applicable federal, state, and local laws, which strictly prohibit sexual harassment, in the conduct of any NSPE sponsored business or social activities.”

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Sexual Harassment NSPE procedure for reporting sexual

harassment:– Bring occurrence to the attention of either

the NSPE President or the Executive Director for investigation, as necessary.

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Board Member Liability Personal liability for Board members is rare,

but the exposure exists. Board members may be held personally liable

for:– Disclosure of confidential information.– Antitrust violations– Sexual harassment– Etc.

In absence of bad faith or fraud, it is difficult to find liability.

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Board Member Liability

NSPE Operating Policy 27:– “NSPE shall defend any suits or claims

asserted against its officers, directors, committee/task force/board members, and staff, past or present, in connection with their authorized activities on behalf of the Society, and shall indemnify and hold harmless individuals so involved.”

NSPE carries insurance to cover defense and potential damages.

Arthur E. Schwartz, CAEDeputy Executive Director & General Counsel

National Society of Professional Engineers1420 King Street

Alexandria, VA 22314-2794(703) 684-2845 - Phone

(703) 519-3763 - Faxaschwartz@nspe.org - E-mail

www.nspe.org - Web site