Q&A #157 – What are the legal limits of an Executive Committee’s authority?
Question: I serve as the Treasurer of a nonprofit organization, and I also serve on the Board of Directors and Executive Committee. Our Executive Director recently reached out with a request that the Executive Committee approve additional insurance coverage above what was planned in our budget, as required by the venue owner for one of our upcoming events. Our Bylaws say that “The Executive Committee may exercise any of the powers of the Board of Directors as needed in between Board meetings,” but our Board has been responsible for approving material deviations from the budget in the past. Can the Executive Committee approve this transaction, and are there any limits to the Executive Committee’s authority?
Answer: Executive Committees are often granted wide-ranging authority to the to act on behalf of a nonprofit organization and exercise the powers of the Board of Directors in between Board meetings. Absent additional, clarifying language in the Bylaws, committee charter, or Board resolutions, there are generally few legal limitations on an Executive Committee’s authority. However, there are some explicit and implicit limits that are important to consider.
As we recently discussed in another article, it is crucial for nonprofit organizations to thoughtfully assess the purposes and roles of an Executive Committee. Ideally, an Executive Committee’s authority should be carefully crafted to align with these purposes and roles and written into the Bylaws, the committee charter, Board resolutions and/or similar Board-approved documents. Consulting these documents should be your first step in determining the powers of the Executive Committee, including any limitations.
Many organizations have Bylaws that use broad language delegating wide-ranging authority to the Executive Committee to “exercise all powers of the Board of Directors as needed in between Board meetings,” or similar language. In this case, the main legal limitations will likely come from the applicable state nonprofit corporation statute.
Most state nonprofit corporation statutes set forth certain powers that no committee, including the Executive Committee, may have or exercise. For example, these prohibited powers often include the power to fill vacancies on the Board of Directors or other committees that exercise Board powers, approve amendments to the Articles of Incorporation or Bylaws, approve the dissolution or merger of the organization, authorize transactions that are prohibited by state law, or (in the case of membership organizations) approve or propose actions that are required to be approved by the organization’s voting members.
Planning Tip – An Executive Committee is almost always considered a “Board committee,” i.e., a committee that is granted the authority to make decisions on behalf of the Board or exercise one or more Board-delegated powers, and which is therefore subject to more stringent formalities as discussed in Q&A #132. To avoid any doubt or confusion about this often-misunderstood concept, the Executive Committee’s charter or other authorizing language should state clearly whether or not the Executive Committee is considered a “Board committee” for legal and tax compliance purposes.
First, the Executive Committee should avoid taking action in a way that might appear to be an encroachment on the power of the Board. Thus, aside from matters that are explicitly delegated to the Executive Committee, the Executive Committee might wish to reserve its authority for actions that would be impractical to deal with through the full Board or too time-sensitive to wait until the next Board meeting.
Additionally, since a core part of an Executive Committee’s role is to act “in between Board meetings,” there is an implied responsibility to fully inform the Board about all actions taken by the Executive Committee and provide the Board an opportunity to ratify these actions at each Board meeting.
And the Executive Committee should avoid exercising powers that the Board has clearly delegated to other committees and/or officers (for example, hiring the organization’s audit firm when that responsibility has been delegated to an audit committee).
In the case of your organization, it appears that the Bylaws have granted wide-ranging authority to the Executive Committee, and that the matter of approving additional insurance is one that is too time-sensitive to wait until the next Board meeting. Therefore, this would probably be considered a proper matter for the Executive Committee so long as the Executive Committee properly documents its approval and reports the action to the full Board of Directors at the next Board meeting.
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