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Did the nonprofit board’s Resolution pass?

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Did the nonprofit board’s Resolution pass?

The bylaws of a nonprofit corporation state the following: "The Chief Executive Officer may be an ex-officio member, with voice and voting privileges, of the Board of Directors and not subject to term limits.”  The CEO is listed as a director on the organization’s website but there is nothing in the minute book about appointing the CEO to the board and, of course, nothing to say that the CEO has a vote.  A critical Resolution was recently passed 8-7 with the CEO voting yes.  Did it actually pass?  

The English language is wonderful.  Let’s take the second issue first.  Did the CEO have the right to vote? I can read the bylaw provision as saying that the CEO may be a member of the board with voice and voting privileges, but cannot be a member of the board without such rights. I could argue that if the CEO is a member of the board, the CEO has to have voting rights because that is the only option included in the bylaws. Of course, I could also argue that if the CEO is selected to be a member of the board, whoever made that decision would have to say at the time of the selection whether the CEO has the right to vote or not.  I think the first argument is better, but not conclusive.

As for looking for an entry confirming the appointment in the minute book, it would be nice to find it, but I am not surprised there isn’t one there.  It is the kind of thing that is very likely to be overlooked by directors who know exactly what they mean to do but don’t bother to write it down.  If there is no minute of the selection, you will have to look to extrinsic evidence to see it that helps. Including the CEO on the board list, (and presumably having had at least one meeting where the CEO is listed as a board member in minutes that were approved by the board) is probably sufficient to show that the CEO was deemed to have been appointed. But whether that would actually be sufficient to answer your question may ultimately be up to a judge or jury to decide.

It would be so much better to decide whether the CEO is always to be a member of the board or whether they want the appointment to be optional. If they want it to be automatic, the bylaws could be revised merely to substitute “shall” for “may.”  (Using the word “may” in bylaws is generally not a good idea.)  If they want the appointment to be optional, they could leave the whole provision out of the bylaws, but would have to follow the ordinary processes for selection of directors. They might also have to deal with the term limit if the CEO serves a while, but they could anticipate that issue by providing in the bylaws that the term limit provision does not apply to the CEO if the CEO is serving on the board.

It is bylaw provisions like these that can tie an organization up in litigation for years if there is a dispute. It is so much better to be clear than to create ambiguities that can be litigated.  (See Ready Reference Page: “Bylaws Function as ‘Constitution’ of Nonprofit Corporations.”  You can hear more about critical drafting issues in our recorded webinar on Bylaws: “The Art and Science of Making Them Work” in our Store.)

Tuesday, November 24, 2020

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