24 September 2018

Duties and Liabilities of NGO Directors

Michelle Chow
Consultant | Hong Kong

Social welfare services in Hong Kong are supported by the government, as well as a variety of non-governmental organisations (NGOs).

NGOs are instrumental in providing education, healthcare and elderly care services and protecting rights and interests of the public.

Currently, more than 9,000 NGOs are granted tax exemption by the Hong Kong Inland Revenue Department.

The board of directors, executive committees and board of governors of these NGOs are voluntary and therefore not remunerated. However, voluntary participation does not mean that directors are not liable for their actions.

Any person whose duties fall within the definition of a ‘director’ under Hong Kong's Companies Ordinance assumes legal liability. According to the Audit Commission's report in 2017, 74 per cent of NGOs in Hong Kong are incorporated as companies, while the rest are organised as trusts or societies. The company directors, charitable trustees and office holders of these NGOs are legally responsible for the charities they serve under the ‘3D’ principle:

1. the Duty of care – Directors must exercise a duty of care by attending meetings and reviewing documents in order to make informed decisions, and to carry out their duties in a reasonable and responsible manner;
2. the Duty of loyalty – Directors owe a duty of loyalty to make decisions in the best interest of the NGOs they serve, and;
3. the Duty of obedience – Directors owe a duty of obedience to the NGO’s mission.

There has been a pressing demand from the general public for better supervision and stricter requirements for NGOs in Hong Kong. It is the board members' duty to ensure policies and employee conduct are lawful and in line with the NGO's mission. They should make sure that all documents are duly executed, and that all employment, services and procedures undertaken by the NGO are in compliance with the relevant laws. All board members must actively participate in the decision-making process.

Being a passive member may result in breach of duty – innocence is never an excuse to shun responsibility.

The work of NGOs requires government funding, donations and social welfare, and therefore it is only reasonable to establish good governance, in order to guarantee sustainable development in society and effectively serve the public.

A version of this article was first published on the Hong Kong Economic Journal.

Michelle Chow Consultant | Hong Kong

Category: Article