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.

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.

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.

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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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Conflict of Interest Policy for 501(c)(3)

Tax exempt nonprofits serve to promote a particular public good. Sometimes, however, individuals involved with the organization may choose to use their position of authority to gain personal benefits at the expense of the nonprofit. This is referred to as a conflict of interest, and having a policy in place to properly handle a conflict when it occurs can help your organization maintain compliance with the Internal Revenue Service.

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.

What Is the Difference Between a Nonprofit and a Mutual-Benefit Corporation?

When you think of a "nonprofit," you likely envision an organization that provides a public service, such as feeding the hungry, and accepts tax-deductible donations. However, this is only one type of nonprofit entity. A mutual-benefit nonprofit is a type of nonprofit corporation that works for the betterment of a select group of members, rather than for the benefit of the public.

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