Should an executive director be a member of the board?

Summary:

Consider the drawbacks as well as the advantages.

Answer:

Jan Masaoka, Executive Director of the CompassPoint
Nonprofit Services (http://www.compasspoint.org/), offered this advice in 1995:
Here's a scenario:

You're hiring a new executive director and your first choice wants to be a member of the board. She feels board membership will give her the stature she needs to represent the agency in the community. Some board members are against the idea, while others (mostly corporate folks) think it's fine. Should the executive director be a member of the board? If you grant her wish, your new executive director might regret being a member of the board. If, for example, your board is split on an issue, her vote would mean voting against half her board.

State laws vary on this. In California, for instance, the law permits staff members to be on nonprofit boards as long as 50% or more of the board members are neither staff nor "interested parties" (such as relatives of staff). Most for-profit corporations have their CEOs (Chief Executive Officer) as the Chair of the Board. Organizations with board members familiar with that corporate model, and organizations that expect their directors to lead the board, are more likely to have executive directors on the board.

Before agreeing to board membership for the director, the board should discuss the impact on sensitive matters such as performance review, salary and contract negotiation, and board-staff relations. There may be other ways to give the new executive director the stature she feels she needs: perhaps a series of coffees introducing her to community leaders, a more significant role in working with the board than the previous director experienced, or a printed announcement of her selection. What ever you decide, you and the director should review and reconsider the decision in a year.

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An active discussion in April 2001 on the cyber-accountability list produced this (lightly edited) exchange:
A reader asked in cyber-acc (a service of CharityChannel :
[A local organization] proposes to hire a new Executive Director, then amend its by-laws to make her a member of the Board of Directors, rather than reporting to the Board as has been traditionally done. An objection has been raised that giving the ED a vote is not desirable for a number of reasons. What is the current thinking on combining the ED with the Board?

Alan Bergstedt responded: on April 17, 2001:
I have been the Exec. Dir. (i.e. CEO) who reported to the Board. I never asked to be on the Board as the ED with a vote, although I attended and participated in all the Board disc. except at closed sessions discussing my performance and salary increase. Why would I want to have a vote? Would I ever want to vote against the majority of the Board? Would my voice not be enough to persuade the Board about my position? So my advice is for the ED to NOT be a member of the Board, but to attend with voice.

Harriet Bograd suggested:
For a discussion that compares for-profit and nonprofit corporations, see William G. Bowen's book, Inside the Boardroom: Governance by Directors and Trustees. He has a chapter that plays with the question of whether the chief executive should be a board member or not. [Order Inside the Boardroom from Amazon.com; a royalty will be paid that assists with the maintenance of this site.]

Chip Watkins provided this note:
To the best of my knowledge, in the US, it is nowhere illegal, nor unusual (especially among smaller and newer charities), for the paid CEO to concurrently serve, usually ex officio, as a voting director or trustee of a charity. As organizations mature, and years pass after the founding and visionary CEO is no longer on the scene, the trend is for the CEO not to serve as a voting member of the governing board. I emphasize the word "trend" because I don't believe it is possible state a universal rule. However, I think that you would find that the likelihood of the CEO serving on the board diminishes with the age, size, and organizational maturity of the charity.

The law in the UK, and perhaps other Commonwealth nations, is different. There, no trustee may receive compensation from the charity, even if he or she is clearly serving substantially and valuably in another capacity.

Lisa Runquist noted:
In California, a majority of directors of a public benefit corporation must not be employees. However, that means that 49% may be both directors and employees.

Putnam Barber added:
In Washington state, nonprofits with more than eight board members none of whom is a paid employee or relative of a paid employee are exempt from state taxes that might otherwise be due. This exemption is of particular importance to organizations that contract with the state or other government as service providers.

Peter Dobkin Hall supplied this historical note:
Although there are authorities who find the practice objectionable,the practice of having the chief executive of an organization sit ex officio as a member of the board and all standing committees is a common one. Most commonly, they serve as non-voting members, however. I know of no instance in which the practice of a an ED serving as a voting member is specifically forbidden by statute.

Carl Zollman's American Law of Charities (1925; out of print), surveying the statutes and court decisions over every state up to that time, states that "there is no general limitation which prevents. . . persons who are under no legal liabilities from becoming trustees." He goes on to say that judges and attorneys general who might be called upon to "act in the matter of the trust on behalf of the state" should not serve as trustees, but does not suggest that there were, at the time, any specific legal prohibitions against their doing so.

History seems to bear Zollman out. Harvard's and Yale's presidents have always been members of these institutions' governing boards. In the Episcopal Church, the rector has always been a member of the Vestry.

My own experience as a member of boards of churches, museums, historical societies, and day schools in Connecticut is that the ED normally serves as a non-voting board members.

Howard Oleck's Nonprofit Corporations, Organizations, and Associations (ed. 1998) is silent on the issue. [Order Nonprofit Corporations, Organizations, and Associations from Amazon.com; a royalty will be paid that assists with the maintenance of this site.]

On the other hand, Barbara A Burgess Soltz's article. "The Board of Directors," in Tracy Daniel Conners, ed., The Nonprofit Handbook: Management (Wiley, 1997), says that "typically, nonprofit boards do not include staff or chief executive officers as voting members of the board, . . . although in some states it is legal to do so. Frequently the chief executive officer is an ex officio member without voting power." [Order The Nonprofit Handbook: Management from Amazon.com; a royalty will be paid that assists with the maintenance of this site.]

H. C. Sonny Covington of I CAN! America, LLC, offered further observations:
This is certainly not any trend we have seen across the several states we have served.

Due to conflicts in individual state nonprofit law and Federal law and IRS regulations, in over twenty years we have NOT recommended this nor have we seen responsible nonprofit counsel approve this type of organizational development.

Actually, we have seen more development of the Executive Directors position as a well defined Employment Contract (2 to 3 year renewable terms) rather than an integration of the ED position into the Board Structure.

Most grant contract documents also have a clause that prohibits the payment of salaries or fees to Board members.

The Executive Director is *the fulcrum* (or the proper balance point) of "Board Policy & Governance" and "Management of Staff, Daily Operations & Implementation of the Board instructions." In this regard, the ED should always have voice and reporting responsibilities and attend all Board or Board Committee meetings, except those portions that discuss the position or performance of ED itself.

Where an ED has a voting position on a Board, that ED is partially self-employed and the Board and the ED is at the most difficult place we can imagine. The definition of the Position of Executive Director needs to be in the actual bylaws of the NPO in all cases and if not, the ED has almost unlimited power and can be a real danger to a modern NPO.

The ED is employed and reports to the Board and the balance of staff and contractors are employees of the state chartered nonprofit corporation and report only to the Executive Director and the staff management structure enacted by the ED under Board authority.

Jane Garthson, of Mills Garthson & Associates, Toronto, Canada, (http://www.millsgarthson.ca) responded to a query about this topic in ARNOVA-L (see http://www.arnova.org/listserve) on April 8, 2005:
You have two issues here, one being the role of a founder and one the
relationship between Board and ED. For the first, start with Hildy
Gottlieb¹s article Founder¹s Syndrome? Who Me? at
http://www.help4nonprofits.com/NP_Bd_FoundersSyndrome_Art.htm

Second, consider that a critical job of the Board is to hire, manage and
evaluate the ED. I do not believe it is possible to perform that job
adequately, let alone well, with the ED as chair or president. IMHO, the
senior role on a nonprofit Board should be filled by an elected volunteer,
and many potential supporters will run if it is not. Knowledgeable ones
will also run away if the chair and ED are related.

The leadership partnership with the Board requires that the ED be present
and participating in all board meetings, except for an in camera session at
least once a year where ED performance and compensation are discussed. But
no effective ED needs a vote at the Board table in order to influence good
decisions.

Where I live, it is not legal for a charity to have the ED as a board
member. The issue still comes up in nonprofits that are not registered
charities.

Martti Muukkonen continued the conversation in ARNOVA-L from Finland with:
This model of executive leader in the head of a board is somewhat
comparable to that of a bit older organisations, like royal courts (kings
and his advisors), armies (general and his staff) and churches (bishop and
chapter). However, in those cases, the role of the board has been
different. It is not a decision-making body but an advisory body. It works
but it works differently to that of normal democratic systems.

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Revised 4/17/01; 4/8/05 -- PB