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Should CEO be ex officio on the board?

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Should CEO be ex officio on the board?

A nonprofit organization has given its CEO an employment contract that makes the CEO a member of the board, although there is nothing in the bylaws about the CEO serving on the board.  The board is now asking whether they should change the bylaws to provide that the CEO serves ex officio.  Do you think they should change the bylaws?  Does it make a difference if the exec has a vote or not? 

If you assume that an ex officio director has the right to vote (which isn’t always clear and should be spelled out in any bylaws having ex officio directors), I don’t think it makes a great deal of difference whether you amend the bylaws at the moment or not.  I generally don’t think it’s necessary to have the CEO on the board so changing the bylaws to have the CEO as an ex office member would make a decision for future boards and CEOs unless the bylaws were to be changed back to eliminate the automatic appointment.  Changing the rules later could be off-putting to the new CEO.  If you want the flexibility, you would not put it in the bylaws.

But if you don’t put the ex officio position in the bylaws and you fire a CEO who has been separately elected to the board, that person remains on the board until you go through the process for expulsion, with its required notice period and opportunity to be heard.  In an orderly transition, the CEO would probably resign unless the board wanted to keep the CEO on the board for some reason, but in a termination case it could get ugly.

If the CEO is deemed to be a member of the board without a vote, does the CEO count towards the quorum?  I would consider a “director” without a vote merely an invited guest who wouldn’t be counted towards the quorum. But that could be a great piece of litigation if it isn’t stated anywhere how to measure the quorum.  It also isn’t entirely clear what other rights (or obligations) of a director this person might have or not have.  Of the three situations, this seems the least attractive because its uncertainty could easily lead to litigation if a dispute arose when the CEO’s presence or absence determined the outcome of a controversial vote. 

Tuesday, April 5, 2016

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Comments

Mr. Kramer,
I would like to suggest that your reply to the Point Question of the Week is overly legalistic and narrow, and fails to address the real issue in situations where the CEO is a member of the Board—whether a voting member of not.  I speak from the perspective of an nonprofit attorney and consultant with over thirty years of experience.  The nonprofit laws of many states, including CA, where I practice state that one of the most important duties owed by a director is the duty of loyalty.  Experts in nonprofit governance best practices have long advocated that a CEO or Executive Director should not be a board member in any capacity because there is an inherent built in conflict of interest---actual or apparent—in an employee such as a CEO serving on a board because the employee cannot serve two masters, or wear two hats.  The role, duties and responsibilities of an employee—even a CEO---differ from the role of a board member and there should be a clear separation between those two roles.

Otherwise, as  I have heard from countless board members over the years, a CEO or ED serving as a board member significantly blurs the line between the differing roles and responsibilities and often results in an unhealthy deference to the CEO, as well as a “chilling effect” on the part of board members to “cross” or disagree with the CEO who is a member of the Board.

I hope you will consider supplementing your reply to include these important points.

I don't feel as strongly as you do that having the CEO on the board is a bad idea, although as I said, I don't think it is usually necessary.  Pursuant to the Standards for Excellence for governance of nonprofit organizations, originally promulgated by Maryland Nonprofits and now replicated in several other states (including by the Pennsylvania Association of Nonprofit Organizations), CEOs are not prohibited from serving on the board. 

Since there are a lot of organizations that do include the CEO on the board, as did the organization that was described in the question, my answer focused on the confusion that can result from not handling the situation adequately in the bylaws.  Any organization that lists ex officio directors should specify whether those directors have the right to vote (and presumably the full rights and obligations of all other directors), or, for any directors who don't have the right to vote, what rights or obligations they do have and whether they are counted towards a quorum.   It isn't hard to provide clarity in the bylaws, but it can be very contentious when the bylaws are not clear.

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