A vital part of your nonprofit checklist is to elect a board of directors and assign clearly defined officer roles. Unfortunately, it's common to see confusion between the two different roles, especially when you might have a scenario where a person serves as both a director and an officer.
Generally, under state corporate laws, “a director is a member of the board of directors and has a vote on each matter before the board.”
“Individually, a director has the right to vote, to inspect the corporation's documents and properties, to receive certain reports, and if needed, sue the corporation and other directors.”
Examples of the board of director responsibilities are:
- Approving the budget
- Ensuring sufficient resources
- Strategic governance policies
- Establishing the nonprofit's strategic plan toward its mission
A director has substantial responsibilities to contribute to the board's control of the nonprofit's affairs and activities. It's always important to understand that each state might have different stipulations for the board of directors. For example, in Missouri, three board members are required. In Kansas, only one board member is required. It's important to vary the board members, specifically avoid having all of the board members being related to each other. The IRS prefers a well-rounded and diverse board.
WHO DECIDES WHO THE OFFICERS ARE:
First, it is important to understand that there are essentially two types of officers for nonprofits. First, are Board-level officers, such as President/Chairperson, Treasurer, and Secretary. These are almost always volunteer positions that are often, though not always, filled by board members. In this situation, the board members also serving as officers wear two hats, so to speak. Volunteer board-level officers are appointed by the board.
On the other hand, there are officers who run the day-to-day operations of the organization and serve as the executive officers of the nonprofit. The board typically hires the Executive Director (or CEO), while the ED/CEO then hires the other officers such as Chief Financial Officer, Chief Development Officer, etc. These executive officers are typically compensated positions.
SO, WHAT'S THE DIFFERENCE?
The main difference to understand is that the board of directors delegates a specific scope of authority to the organization's officers, who then, in turn, carry out the day-to-day activities.
Additionally, a director acting alone does not really have the power and authority to do much of anything. Directors of the nonprofit must vote as a group according to the organization's articles, bylaws, and any governing law.
The president of the organization or CEO is typically given the authority to sign off on contracts, proposals, etc on behalf of the group and up to a specific dollar amount. This type of authority is important for a nonprofit to run independently and smoothly. In a scenario where a nonprofit doesn't appoint and delegate authority to one or more of its officers, every action would then in turn require a vote from all of the board members. Eventually, this could inherently restrict the idea of efficiency within your organization.
CAN YOU BE A DIRECTOR & AN OFFICER?
Absolutely! In fact, this happens quite often, though this most commonly occurs when a board member also serves as a board-level officer such as Secretary or Treasurer. Occasionally, the President/Chairperson will also serve as the Executive Director/CEO of the organization. This most often occurs in new organizations where the founder is serving in multiple roles. As the organization grows and matures, the President/Chairperson and ED/CEO roles are often then split between two individuals in order to create more accountability and reduce conflicts of interest.
It is critically important that the duties, roles, and authorities of your hired officers, volunteer officers, and directors should be clearly defined in your bylaws, meeting minutes, and/or job descriptions so that you can avoid any type of confusion with overlapping roles and responsibilities within the organization.
A review of a nonprofit's bylaws for legal compliance and compliance with actual practices can help uncover these types of issues and is generally recommended every few years or whenever the board becomes aware of a significant change.
The organizational structure of your nonprofit directly involves the board of directors and elected officers. This is why it's so important to keep not only all of these definitions but the separation of responsibilities in mind when thinking of your nonprofit. Mission Counsel is ready to assist any nonprofit with reviewing your bylaws, compliance, and more! We take away the headache of the legal stuff so that you can focus on your mission. Call us today to set up your FREE consultation.