A nonprofit's success is often tied to the zeal of its primary representative: the executive director. The ED is typically the face of the organization and manages its day-to-day affairs. When the executive director is also the organization's founder, it can seem that the ED has unlimited power over the organization. However, the executive director is just an employee of the nonprofit who holds the position subject to the approval of the board of directors.
State Laws Govern Nonprofit Organizations
A nonprofit organization is a corporation organized under state laws for a purpose that does not include generating profits for private owners. As with for-profit corporations, many state laws require nonprofits to establish a board of directors that has a fiduciary duty to manage the corporation on behalf of others. A for-profit board manages the corporation on behalf of shareholders, while a nonprofit board manages the corporation on behalf of the public, since a nonprofit does not have private shareholders.
Duties and Responsibilities of the Board
While each state has its own authorizing statute that allows individuals to form nonprofit corporations, the basic duties and responsibilities of nonprofit board members are largely uniform across states. A nonprofit's board is responsible for planning and decision-making to ensure that the organization can effectively carry out its mission. Under the law, it is tasked with managerial and financial oversight, which typically includes selecting and hiring an executive director, establishing the ED's compensation, evaluating the ED's performance and firing the ED, when necessary.
Firing an Executive Director
A nonprofit's board of directors generally has the authority under state law to fire an executive director at will, unless the ED has an employment contract that says otherwise or the nonprofit's bylaws establish a special procedure for firing the ED. The board of directors typically acts through majority consensus, so a majority of the directors can vote to replace the ED for a specific reason or just to make a change. The board's decision is final, and there's no higher authority that can overrule the board as long as it follows all decision-making protocols established by the organization's bylaws and operates in the best interests of the organization.
Read More: Does a Nonprofit Board Have to Approve Contracts or Can the Executive Director Do That?
Keeping the Mission in Mind
While a nonprofit's board of directors can fire the executive director at will, it's always best to proceed cautiously with major personnel changes. Nonprofits typically rely on the goodwill of the public to raise money and garner support. Acrimonious staff upheavals can undermine confidence in the organization, especially when the situation involves the organization's most recognizable employee. It is sometimes smarter to convince an executive director to resign gracefully than to use a heavy hand and potentially create a public relations disaster.
- Pro Bono Partnership: Corporate Governance FAQs
- National Council of Nonprofits: Roles and Responsibilities of Nonprofit Boards
- The Harvard Law School Forum on Corporate Governance and Financial Regulation: Nonprofit Corporate Governance -- The Board’s Role
- Grant Space: Where Can I Find Information on a Board’s Legal Duties?
- Internal Revenue Service: Governance and Related Topics -- 501(c)(3) Organizations
Terry Masters has been writing for law firms, corporations and nonprofit organizations since 1995, specializing in business topics, personal finance, taxation, nonprofit issues, and general legal and marketing content creation for the Internet. Terry holds a Juris Doctor and a Bachelor of Science in business administration with a minor in finance.