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May management dictate how nonprofit board must vote?

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May management dictate how nonprofit board must vote?

I've served on both local and national nonprofit boards for 20 years and have not come across the situation expressed within my questions, until now.  Does management have the power to demand, within a company policy, how the board will vote on a particular issue?  And does a current board have the power to demand, within a company policy, how a future board will vote on a particular issue?  Would your response differ for a for-profit board? 

I have worked with nonprofits for more than 40 years and have never been asked your first question, so you should not feel as though you were missing something.  Each member of the board has a personal fiduciary duty to act in good faith as that director believes to be in the best interest of the corporation.  That is normally written in the state nonprofit corporation law and is a personal duty.  No one can tell you how you must fulfill your fiduciary duty or force a decision upon you.  (See: Penn State Trustees May Review Source Material of Freeh Report, Nonprofit Issues®, 9/15.)

In making a decision, a director can normally rely on the recommendations of management, staff, outside professionals, and board committees so long as the director has no reason to believe that they are unreliable.  But I would take the position that a manager who demands that you vote in a certain way doesn’t understand your duty under the law and is unreliable.  I don’t know what policy you might be referring to, but if the policy would result in detriment to the corporation, the board probably has the power to change the policy and probably should.  In any case, if you think a proposal would harm the corporation, you should have the right to vote against it.

The issue of a current board seeking to bind the vote of a future board is a more difficult one.  Boards frequently try to make it difficult for a future board to change a current policy (such as a bylaw provision) by requiring a super majority vote to change it, perhaps two-thirds or three-quarters of the full board to approve the change.  In my view, it is misguided — and maybe even a breach of fiduciary duty — to require unanimous consent to change a policy.  That would give an irrational or delusional person the power to prevent change that everyone else thinks is necessary and appropriate for the benefit of the organization. I definitely don’t recommend it.  Times change and policies should be able to change with the times.

Fiduciary duty is essentially the same for nonprofit and for-profit corporations.  When I serve on a board, I bristle if anyone tries to tell me how I must exercise my fiduciary duty.  

Tuesday, February 1, 2022


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