D&O Insurance for Non-profits: Unique Challenges & Solutions

Working as the Director or Senior Officer in a South African non-profit organisation (NPO) comes with unique challenges and rewards. It puts you in the position to make decisions that could change the lives of those who need it most, but it also comes with strict regulatory and legal concerns that you must navigate to do so ethically and responsibly. To ensure you can continue to make a positive impact without encountering costly and time-consuming hurdles, investing in D&O Insurance (Directors and Officers Insurance) from 1st for Women is highly recommended. 

Non-profit organisations in South Africa: what you should know

NPOs (which can include non-governmental organisations, community-based organisations, faith-based organisations and civil society organisations) are trusts, companies or associations established for a public purpose that typically generate an income through grants and donations. As of 2023, South Africa had an estimated 270,313 registered NPOs, providing employment for a million people. They operate in sectors including education and training, poverty relief and healthcare delivery, traditionally areas of great concern for women. In addition, in South Africa, NPOs play a crucial role in advancing women’s rights and empowering them to create a society that is more equitable for women.

NPOs must register under the Nonprofit Act and comply with its regulations or risk being deregistered, thereby missing out on funding opportunities or being unable to enter into certain contracts and partnerships. This means that ultimately, the community being served will suffer. There are many elements of the Act, which include submitting regular financial statements and professional accounting reports. One major reason for this is to crack down on potential money laundering and terrorist financing.

Another key aspect of compliance is how the NPO is set up and registered. This is governed by the Directorate of the Department of Social Development, and different types of NPOs might need to comply with different laws and follow specific legal structures.

These are just some of the critical factors an NGO must negotiate to continue operating successfully – and it’s an ongoing process. Even if you do remain on top of these obligations, there are still other risks and challenges you could encounter. This is why Directors and Officers Liability Insurance is critical to protect the leaders in your organisation.

4 non-profit challenges D&O Insurance can help with

The best way to show you the value that D&O Insurance can offer is with practical examples of the common hurdles faced by NPOs. Here are a few examples.

1. Reputational Risks & Defamation Claims

While NPO donors don’t benefit directly financially from assisting NPOs, they often do so with an expectation that they’ll benefit in other ways. Donations to NPOs can positively impact a brand and improve its reputation, leading to improved customer engagement and loyalty. Suppose an NPO is suspected of using the funds allocated to it in illegal ways or acting in a manner that attracts negative public attention. In that case, the backlash for brands can be massive, and the donor may undertake legal action via a defamation claim to recover their losses. Directors and Officers Liability Insurance can cover this.

2. Breach of Fiduciary Duty

An unfortunate reality of being an NPO Director or Senior Officer is that you might be held accountable for the actions of others, even if you weren't involved. Fiduciary duty is one example of this, as it’s the expectation that NPO members will act in the best interest of the NPO in all its dealings. Here’s a brief example of how Directors and Officers Insurance can offer protection against a breach of fiduciary duty.

Imagine that a board member of a youth education programme needs to supply 30 underprivileged but high-performing grade 11 learners with laptops to assist in their final year of school. The board member selects his cousin as the supplier without following proper procurement procedures and without disclosing to his fellow board members that they’re related. Additionally, his cousin’s quote is 40% higher than those of other bidders. Although the other directors were unaware of these irregularities, they’re still held liable. Fortunately, Director’s Insurance will cover the legal costs.

3. Employment Practices Liability

NPOs are often informally structured when it comes to employment practices, as they rely on volunteers who work without compensation and therefore aren’t governed by standard employment laws. However, they’re still entitled to fair treatment and a safe working environment. If they experience what they feel is a wrongful termination, discrimination or harassment, they might escalate matters outside the NPO, on platforms such as the CCMA (Commission for Conciliation, Mediation and Arbitration). Even if their claims are unfounded, the associated legal costs can still be high.

4. Regulatory Compliance & Investigations

 The consequences of not complying with legal requirements, such as reporting, can have major consequences. Here is an example: 

Emma joins an NPO as a Director. A month later, she is served a deregistration notice. Shortly afterwards, a major donor threatens to withdraw funding as they cannot support a non-compliant NPO. Emma later learns that because the organisation was consistently understaffed, it had failed to submit its annual financial reports to the Department of Social Development.

Luckily, a friend had recommended that Emma take out Director’s Insurance when she first started working at the NPO. She can use this cover to help fix the NPOs compliance issues and pay outstanding fines. 

Get a Directors and Officers Insurance quote

Whether you’ve been in the NPO space for years or are gearing up to step into a Director or Senior Officer role for the first time, it’s obvious that D&O Insurance is critical for any NPO that wants to make an enduring impact on South Africa and its people. 1st for Women is ready to customise a quote for you, so apply for a Directors and Officers Insurance quote today to cover your NPO.