The Relationship between Formalization and Awareness of Fiduciary Duties of Board Members of Nonprofit Organizations

The purpose of this study is two-fold: firstly to examine the position of the Chairperson and the Executive Director regarding the awareness of board members of nonprofit organizations of their fiduciary duties, and secondly, to explore the impact of formalized organizational procedures and role definition on promoting awareness of fiduciary duties among board members. Data was collected from 161 nonprofit organizations in Israel and included interviews with executive directors and chairpersons. The results showed that most board members are aware of their fiduciary duties. The findings also showed that fiduciary awareness is significantly positively correlated with formalization, age of organization, number of board committees, and attendance rates at board meetings; i.e., the older the organization the more formalized it is and the more written rules, bylaws, and other written materials the greater is board members’ awareness of their fiduciary duties. Similarly, the higher the level of perceived fiduciary awareness among board members, the more board committees and higher rates of board meetings attendance there are. The positive correlation between formalization and the levels of awareness of fiduciary duties proves the need to establish a board’s working procedures through legal arrangements.