Five Nonprofit Bylaws Issues That Are Often Overlooked
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All nonprofit organizations should regularly review and assess their Bylaws to ensure this key governing document complies with the law and is optimally aligned with the organization’s governance needs and operational practices. Below are five key issues, related to Board vacancies, term limits, voting outside of a meeting, ex officio Board members, and Board committees, that are often overlooked.
1. Clarifying how Board vacancy appointments relate to regular Board term cycles
Bylaws typically address the length of each Board term (not to be confused with term limits, which some but not all nonprofits include in their Bylaws). Consistently tracking and apply Board term lengths is important to avoid uncertainty about when Board members are scheduled to roll and/or be reelected.
At times some Board members may unexpectedly leave before the end of their current term, and new Board members will be elected or appointed to fill the vacancy. The Bylaws of some organizations don’t address how these vacancy appointments relate to the regular Board term cycles, i.e., whether a vacancy appointment starts a new full Board term or whether the new Board member serves for the remainder of the term of the person being replaced.
Failure to have clear language on this issue can potentially cause confusion related to the Board’s normal election cycle. This confusion can be exacerbated for organizations that have term limits, where it is of the utmost importance to know whether and how vacancy appointments are counted towards the newly appointed Board member’s term limits.
2. Addressing how term limits are applied
Organizations that choose to implement Board term limits often fail to address several key interpretive issues in their Bylaws. For example, a typical term limits provision might provide that “[a] Director shall not serve more than three (3) consecutive two-year (2-year) terms”). However, this language does not, by itself, clarify frequently raised questions such as the treatment of partially served terms, the issue of non-consecutive terms, or when (if ever) a Board member who has “termed out” may be eligible to rejoin the Board.
These issues come up more often that you might think. Suppose a new Board member has a health issue that requires the person to temporarily step down from the Board after only 6 months of service. Should the 6 months that this Board member served be considered a “term” that counts towards the term limit if this person rejoins the Board? What if there were only 2 months left in the person’s Board term?
Similarly, will multiple term limits be considered “consecutive” if there is a 3-month break in service between one term and the next? In general, it would be more in the spirit of a term limits provision to require a break in service of at least a year or two (or, for example, the length of a full Board term) for terms to be considered non-consecutive, but the question will not have a clear answer unless the Bylaws address the issue.
And does the organization wish to allow “termed out” Board members to be eligible to rejoin the Board after a certain period of time? Many organizations find that allowing individuals to be elected back to the Board after a break in service equal to the length of a full Board term strikes the appropriate balance, helping to maintain the flow of new Board members while giving the most enthusiastic Board members a way to return. However, this is an important decision that requires careful thought.
There is no one approach to these issues that works for every organization, but any organization that uses Board term limits should consider and address these issues.
3. Making “Action without meeting” consistent with the law
State nonprofit corporation statutes typically permit Boards to take action by written consent in lieu of a Board meeting if certain requirements are satisfied. Often (but not always) these statutes require that such actions have the unanimous written approval of all Board members rather than the mere majority approval that is usually sufficient at a Board meeting. These statutes also sometimes require that each Board member sign a written consent describing the action to be taken.
Some organizations, understandably eager to streamline decision-making and lighten the load on Board members, include “action without meeting” language that is too informal and may not comply with the applicable laws. For example, some Bylaws state that majority vote is sufficient and/or that the Board is permitted to “vote by email” or by answering a poll or questionnaire. These provisions might or might not be consistent with the law, and it is important to review the applicable state nonprofit corporation statute closely to avoid any controversy about whether an action had valid Board approval.
4. Specifying whether “ex officio” Board members are voting or non-voting
As we discussed in Q&A #34, the term “ex officio” is widely misunderstood and misapplied in the nonprofit community. Many people incorrectly assume that “ex officio” is synonymous with “non-voting. However, “ex officio” simply means “by virtue of office or position.” The term does not, by definition, address whether a Board member has a vote or not.
So, for example, if the Bylaws provide that the organization’s Executive Director is an ex officio Board member, this means that the person appointed as Executive Director automatically has a Board position by virtue of assuming the Executive Director role. If the organization intends this ex officio Board seat to be non-voting (as is often the case), it must say so explicitly in the Bylaws.
5. Distinguishing between Board and advisory committees
Committees are an essential component of effective Board governance. Committees can take many forms, including standing committees (i.e., permanent committees of the Board typically named in the Bylaws), ad hoc committees, advisory committees (sometimes called advisory councils or advisory boards), and other less formalistic structures like task forces and working groups.
A key distinction that must be addressed, particularly for standing committees that are referenced in the Bylaws, is whether a committee is authorized to exercise Board-delegated powers or is only authorized to give advice and make recommendations to the Boards. This distinction has major legal implications relating to the composition of the committee, recordkeeping requirements, as well as how certain questions in Part VI of the Form 990 are answered. Many organizations overlook this important issue or use language that is too ambiguous.
Planning Tip – When reviewing and assessing your organization’s Bylaws, legal compliance and fine-tuning to support current practices is only part of the process. You should also consider future governance needs and changing operations. Specifically, evaluate whether the organization’s Bylaws and current governance structure adequately address new projects and activities that are planned or under consideration, for example, launching new international activities, relocating or decentralizing the organization’s headquarters, adding a certification program, or entering into new joint ventures.
There are, of course, many other issues that should be considered when reviewing your organization’s Bylaws, but the three issues discussed above tend to be common oversights for many nonprofit organizations.
