Nonprofit law scholars have increasingly recognized that state fiduciary law developed to govern for-profit corporations does not readily translate into the nonprofit sector. A substantial body of literature has sought to strengthen nonprofit governance by modifying for-profit fiduciary law to better fit the needs of the nonprofit sector. No one has answered, however, the fundamental question of to whom nonprofit boards and directors owe their fiduciary duties. Without understanding whose interests fiduciary law should protect, attempts to strengthen it are premature.
Directors and officers of for-profit corporations owe their duties to shareholders. Nonprofit corporations lack shareholders but could theoretically be accountable to donors, beneficiaries, customers, the state, or their charitable purpose. This Note argues that nonprofit corporations in fact have no appropriate principals, and thus fiduciary law is a poor governance mechanism for the nonprofit sector. The legal toolkit available to reform nonprofit governance is thus more limited than has been previously acknowledged. In the future, legal efforts to reform nonprofit governance should focus on creating targeted rules to address specific abuses and on creating conditions that allow market-based governance mechanisms to flourish.