Can the Board of Directors Fire the CEO of a Nonprofit Company?

By John Cromwell

The board of directors can fire the CEO, otherwise known as the executive director, of a nonprofit company. It is the responsibility of the board to appoint and oversee the officers of a nonprofit. Those duties necessarily grant the board the ability to dismiss the executive director. There are numerous grounds to dismiss a CEO, but the process will be defined by the nonprofit’s contract with the executive and its bylaws. Although a board is able to dismiss a CEO, there are circumstances in which the termination gives the dismissed director grounds to sue the nonprofit for wrongful termination.

Reasons for Dismissal

Grounds for dismissal for cause include embezzlement, sexually harassing a subordinate, and other unethical behavior. An executive director can be dismissed if the board feels she fails to meet her responsibilities. An executive director of a nonprofit company is responsible for running the day-to-day operations of the nonprofit and carrying out the strategy established by the board. The board is obligated to closely monitor the performance of the nonprofit’s officers. If the CEO fails to meet her responsibilities, the board should be in a position to document her shortcomings and determine if she is unable to competently fill the post.

CEO Contracts

The responsibilities of the executive director may be defined by the CEO’s contract. Contracts between nonprofits and executive directors are becoming increasingly popular, with 60 percent of active CEOs under contract in some nonprofit sectors as of September 2008. Often the contracts differentiate between termination “with cause” and “without cause.” “With cause” terminations are defined within the contract and normally include events like felony convictions or embezzlement. If terminated with cause, the executive is normally given no severance. All other instances of termination are classified as “without cause.” If terminated without cause, the CEO is normally granted some sort of severance package.

Ready to form a nonprofit? Get Started Now

Nonprofit Bylaws

The bylaws of the nonprofit are the company’s rule book. The bylaws define how the business is run, how the property is used, and the responsibilities of different positions in the organization. The bylaws may provide two important bits of information regarding a CEO’s dismissal. First, it may define the role of the CEO. If the CEO is under contract, the bylaws and contract should be harmonized prior to the candidate joining the organization. The bylaws may also define the procedure for terminating a CEO, including when a vote on a CEO’s future can be taken and how many votes are necessary to dismiss the executive director.

Wrongful Termination

Although a board can fire a CEO, the reasons for the dismissal may leave the nonprofit open to a lawsuit. If the discharged CEO can demonstrate that the board dismissed her because she was part of a protected class, she may sue the nonprofit for wrongful termination. Examples of protected classes include race, age, sex, national origin, and disability. Executives dismissed because they reported illegal actions by the nonprofit or because they participated in legally protected activities, such as filing a worker’s compensation claim, may also sue under wrongful termination.

Ready to form a nonprofit? Get Started Now
California Non-Profit Bylaws


Related articles

Requesting a Nonprofit Board Member to Resign

Asking a nonprofit board member to resign can be an awkward task, especially if the director has been involved with your organization for a long time. Ideally, the board can base its request on rules that are in your nonprofit's bylaws, prompting the director to withdraw voluntarily without the need for official board action. Directors are typically your nonprofit's most valuable volunteers, so it's often best to end the relationship on a positive note.

Liability of the Directors of a Nonprofit Corporation

When a nonprofit corporation loses a lawsuit or otherwise owes money, the general rule is that individual members of the board of directors are not personally responsible. However, there are several exceptions to this rule. It is essential that the directors understand their roles and responsibilities before accepting a position on the board. In addition, many nonprofits, particularly larger organizations with more exposure to possible liability, purchase directors and officers liability insurance to further protect the board.

Can an Owner Be a Manager in a C Corporation?

A C Corporation is an independent, state registered legal entity used to organize businesses. It is also an organization that has a very formal and regimented control structure. The shareholders own the business, but they do not necessarily control the day-to-day operations of the business. Instead, the corporation’s operations are directly controlled by managers and officers. A shareholder can hold a managerial position in her company, but the process of obtaining that position may be more complicated than if she had applied for the job as a non-shareholder.

Doing the right thing has never been easier.

Related articles

California Law Regarding Nonprofit Board of Directors

In general, a nonprofit may adopt a set of written bylaws that govern the number, selection, management duties and ...

How to Remove a President From Office in a Non-Profit Organization

If the president of your nonprofit organization is ineffective or unwilling to provide dependable leadership, removing ...

How to Remove an Officer of a Corporation

The individuals charged with making important strategic and financial decisions for a corporation must act based on the ...

The Right to Sue a Board Director

Although the board of directors of a corporation wields considerable authority over corporate affairs, shareholders are ...

Browse by category
Ready to Begin? GET STARTED