Many nonprofit boards have executive committees. Under North Carolina law, these committees may be charged with exercising the authority of the board. If your board has an executive committee, you might want to consider exactly what authority that committee has, what authority it exercises, and what responsibilities, and possible liability, you have as a board member and not a member of the executive committee.
Despite statutory permission to delegate to an executive committee broad power, no committee has unfettered discretion to do whatever it chooses on behalf of the board. For example, the creation of a committee must be approved by at least a majority of all the directors on the board. Only the full board has the authority to delegate its authority to a subgroup of the board. An executive committee may not create a board committee and delegate authority or power to it.
Further, no committee of a North Carolina nonprofit board, including an executive committee, may do any of the following: authorize distributions; recommend to members or approve dissolution, merger or the sale, pledge or transfer of all or substantially the nonprofit’s assets; elect, appoint or remove directors, or fill vacancies on the board or on any of its committees; or adopt, amend or repeal the nonprofit’s articles of incorporation or bylaws.
Given those limitations, are there other restrictions on executive committee authority that might be merited?
North Carolina nonprofit law not only permits creation of committees with broad board authority but also provides that the creation of the committee, delegation of authority to it, and action by the committee do not relieve the other directors of their statutory standards of conduct. The non-committee members remain obligated to act in good faith, with due care and in a manner reasonably believed to be in the best interests of the corporation. How does one reconcile the right to broadly delegate authority with the retention of possible liability for failure to meet these standards? To what extent may directors rely on the executive committee members?
The statute gives one answer: A director may rely on a board committee of which he or she is not a member if the director reasonably believes the committee merits confidence. But, what does it take to merit confidence?
In many cases, it makes sense to delegate responsibility to a smaller group of directors with special expertise in the relevant area. For example, including directors with solid knowledge of accounting and finance on the board’s audit and finance committees is prudent. It is reasonable for a director whose strengths lie elsewhere to place reliance on the more financially literate directors. Individuals with human resources experience are natural choices for personnel or compensation committees.
The executive committee, however, generally does not rely on any particular expertise or skills. On many boards, the executive committee serves as a “mini-board,” addressing matters that may, and should, be handled by the full board.
There are appropriate purposes for an executive committee. It may serve to set the agenda for full board meetings. It may also act as liaison between the board and staff, permitting the executive director a sounding board before matters are brought to all the directors. The executive committee may also act in truly urgent situations where timing is such that the full board cannot be convened on short notice and act effectively on the matter. Beyond that, there is real question as to what purpose the executive committee serves. It should not be a substitute for full board oversight of the nonprofit organization.
If you serve on a board with an executive committee, you would be wise to make sure that the executive committee’s authority is limited to the purposes described above and that it reports to the full board the actions it has taken, if any, between board meetings. In this way, the executive committee may merit your confidence and you, while retaining authority to address important oversight and transactional matters, may adhere to the standards of conduct required of you as a director.
If your board has an executive committee that persists in taking actions that are appropriate for the entire board and no true emergency exists, consider whether your board is too large or whether you want to continue to serve on the board. Risking liability without having the ability to fulfill your duties as a director is foolish.
Directors should hold their fellow directors accountable and ensure that the full set of skills present on the board is brought to bear in governing the organization. No subset of directors should have more authority to act and deliberate than others. Unlike the animals on Orwell’s farm, no directors are more equal than others.
— Melanie Tuttle
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