Can a Nonprofit Board Fire the Executive Director?

By Terry Masters

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.

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.

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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.

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.

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Does a Nonprofit Board Have to Approve Contracts or Can the Executive Director Do That?

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Organizational Structure of Nonprofits

Generally, a nonprofit is another term for a 501(c)(3) organization. These groups are IRS-approved entities that are regulated by states and have a charitable, educational, religious or public safety purpose. This status exempts the organization from taxes and allows people who donate to these groups to deduct their gifts from their taxable income. These organizations can control a sizable amount of assets, so having the right structure to help manage those resources is key. There is no single organizational structure that works for all nonprofits; the structure must be adjusted to the specific needs of each organization. Generally, a nonprofit's organization is based on the type of work it does and the resources it has to pay staff.

Nonprofit Code of Conduct

Many nonprofit organizations create a code of conduct for the organization, not only to address common workplace issues, but also to maintain goodwill and a positive reputation essential to any thriving nonprofit. Nonprofit organizations may navigate many different areas of law, from employment law to tax regulations, and a code of conduct may help the organization stay on track. While not mandatory, a code of conduct can help to set standards and avoid problems that may derail the organization's mission.

What Is the Difference in the Board of Directors and the Stockholders of a Corporation?

A corporation with many owners functions similarly to the American government in that it would be almost impossible for all the company's shareholders to meet on a daily basis and decide what is best for the company. Therefore, the shareholders elect a governing body, known as the board of directors, to act as their representatives. Understanding the difference between a corporation's shareholders and the its board of directors helps investors better understand their role in the company.

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