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Why should directors be removable “without cause”?

Your Legal Questions Answered

Why should directors be removable “without cause”?

Your form of bylaws for a nonprofit corporation includes a provision authorizing directors to remove other directors “with or without cause.” (See Ready Reference Page: “Bylaws Function as ‘Constitution’ of Nonprofit Corporations”) Why do you think that is important?

In my view, this is one of the most important provisions of the bylaws.  Without a provision spelling out the power to remove a director, the state law may be very unclear and may limit the power to situations in which the director is convicted of a crime or is declared mentally incompetent by a court.  Even if the statute allows removal for “cause,” the definition of “cause” is almost always debatable.  It would pretty clearly be “cause” if the director stole from the organization, but what if the director merely failed to show up very often, or regularly disparaged the organization in public?  Do you really want to get into litigation, probably lasting longer than the director’s term, trying to determine whether you had grounds for removal?

My view is that if a majority of all directors (not a majority or-two thirds of a quorum, which would normally be less than a majority of all directors) thinks the person is overly disruptive, non-contributing, or undermining, they should have the power to remove such person and find a replacement who will help advance the mission of the organization.

Removal of a director is a rare event.  In more than 40 years of practice with nonprofits, I have seen this provision actually used only once, and that was a case where the board had clear statutory authority for removal and didn’t need the provision.  The real value of the provision, in my view, is the leverage it gives the leadership to go to an underperforming director to ask the person to resign.  Faced with the likelihood of an adverse vote, most people are likely to step aside.  Even those who want to stay and continue their disruption may want to avoid the embarrassment of a removal vote.

For more information on Bylaws, see our Ready Reference Page: Bylaws Function as ‘Constitution’ of Nonprofit Corporations”.

Monday, September 21, 2015

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