Legal Responsibilities: A Guide for NSPE and State Society Officers and Directors Prepared by: Arthur E. Schwartz, CAE NSPE Deputy Executive Director & General Counsel January 2005 NSPE Winter Meeting San Diego, California

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

3 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. Schlegel & Associates

4 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

5 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. Schlegel & Associates

6 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 Schlegel & Associates

7 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 Schlegel & Associates

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

9 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.

10 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.

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

12 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. 

13 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.

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

15 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

16 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

17 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.

18 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

19 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.

20 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

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

22 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.”

23 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.

24 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.

25 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, CAE Deputy Executive Director & General Counsel National Society of Professional Engineers 1420 King Street Alexandria, VA (703) Phone (703) Fax - - Web site