When forming a new nonprofit corporation, one important consideration for incorporators is whether or not term limits should be imposed on members. Additionally, incorporators need to consider whether or not terms should be successive or staggered. There are many pros and cons for both sides of these arguments. However, in our experience, there are more advantages to term limits in the vast majority of cases. Also, we tend to favor staggered terms.
In the first years of a new nonprofit, it may seem counterproductive to implement term limits for board members. Serving on the board of a start-up nonprofit that lacks resources is rarely prestigious and is typically labor intensive since most start-ups lack staff. It can be difficult to find qualified directors who possess the requisite passion for the cause, understanding of the mission, and willingness to work. Another disadvantage of term limits is that the organization will spend more time and resources to recruit and educate new directors and will lose the group cohesion that comes with directors who have worked together for a long time. Additionally, the organization may lose directors who are fervent supporters of the organization and the mission. While these points may lead incorporators to create a board without term limits, it is important to remember that there are also many positive aspects of term limits that may outweigh the negative aspects.
For example, an organization with term limits may be better able to attract active and involved members of the community who are not able to make a long term commitment to the organization. Term limits allow busy executives and community leaders to serve the organization and bring fresh new ideas that they may not otherwise have been able to share had they been required to make a longer term commitment. Additionally, BoardSource’s Nonprofit Governance Index 2007 reveals that board with term limits are rated by chief executives as more effective that those without term limits. This could be due to the fact that there is no perpetual concentration of power within a small group; the group dynamic is constantly changing and new people and ideas are constantly being introduced which prevents stagnation resulting from a lack of change in board members. Also, recruiting new members may become easier with a board that is fresh and new. New members will feel less threatened by the old boys club of older members who may shut out new people and ideas. Moreover, it will be easier to remove passive, ineffective or troublesome board members and replace them with active and motivated new members. Finally, term limits allow for an enlargement of the circle of followers; old directors will be replaced by new ones, but will be able to stay active in the organization which creates a balance of continuity and turnover.
The most compelling argument against term limits is that with a constantly changing board, new members need to be trained and the board loses continuity. However, this problem is easily corrected with a staggered board. Staggered boards with term limits allow for continuity and change at the same time. A staggered board increases stability and continuity because not all board members are subject to reelection each year thus, at any given time at least some of the directors are experienced and familiar with the organization while at the same time new members with fresh ideas are introduced into the organization. This allows new board members to benefit from the experience of experienced board members while the organization benefits from the influx of new energy, ideas and passion.
Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.