Nonprofits run more effectively with a well-functioning Board of Directors and clearly defined officer roles. Yet there a can be confusion between the two positions, especially where an individual serves as both a director and an officer. Understanding the two can help eliminate confusion and avoid conflicts of interest.
Board of Directors
Nonprofit corporations are generally managed by a Board of Directors. The Board’s primary role is to oversee the high-level legal, financial, and operational management of the organization. The Board establishes the nonprofit’s mission, goals, and policies, and oversees critical activities such as approving the annual budget, hiring executive-level personnel, and strategic planning.
Subject to the rules set forth in the nonprofit’s Bylaws, directors have a vote on significant matters that come before the Board. The Board has significant authority and is responsible for making key decisions for the nonprofit. Examples include:
- approving the annual budget;
- ensuring the nonprofit maintains sufficient resources;
- entering into major transactions (such as mergers, acquisitions, sales of assets, purchasing property, etc.); and
- setting governance policies.
Directors are selected according to the nonprofit’s Bylaws and are subject to the rules, restrictions, and procedures provided in the Bylaws.
Officers
Officers are individuals carrying out the nonprofit’s day-to-day business. The officers manage lower-level employees (or volunteers) and ensure the Board’s decisions come to fruition.
Officers typically manage certain areas of the nonprofit’s business. For example, generally, the President manages the nonprofit’s operations, the Secretary manages the nonprofit’s records, and Treasurer manages the nonprofit’s finances.
Officers are typically selected by the Board of Directors, although some nonprofits who have members allow the members to select officers. Similar to director roles, the nonprofit’s Bylaws should state the rules, restrictions, and procedures for selecting and removing officers. The Bylaws should also provide a brief description of the officers roles to avoid any confusion or doubt about each officer’s responsibilities and area of authority.
As a nonprofit grows and its operations become more complex, the Board of Directors may decide to hire additional officers, such as a Vice President or Chief Operating Officer, to manage certain other areas or split responsibilities among existing officers to ensure smooth and efficient operations.
Directors vs. Officers
The Board of Directors is not focused on running the nonprofit’s day-to-day operations. Rather, the Board delegates a specific scope of authority to the nonprofit’s officers, who actively carry out the Board’s decisions.
For example, the Board may approve a high-level decision like purchasing a plot of land to build the nonprofit’s new facilities. The nonprofit’s officers are charged with conducting all activities necessary to achieving that purchase of land. The President would be authorized to hire a land inspector, surveyor, and/or appraiser, engage with lawyers to draft a land sale agreement, and execute the land sale agreement. The Treasurer would be tasked with freeing up resources to make the purchase. The Secretary would be responsible for keeping track of all records pertaining to the purchase.
This type of arrangement is critical for a nonprofit to run smoothly. If the Board did not appoint or elect officers and delegate authority, every corporate action would require a vote by the Board of Directors.
Dual Roles: Serving as a Director & an Officer
Many nonprofits have individuals serving as both a director and an officer, which can cause confusion. As an officer, the individual will play a more active role in the nonprofit’s daily operations, such as signing contracts or hiring employees. Yet, when acting as a director, the same individual will be looking at the larger issues related to the nonprofit’s mission, policies, strategic goals, and financial obligations.
Serving in a dual role can often lead to a conflict of interest. For example, if the same person is a director and the Treasurer, the person will likely be conflicted when the Board votes to approve the annual budget. This is because the Treasurer is normally directly involved with preparing the annual budget. Proper procedures should be in place so the nonprofit can navigate conflicts when they arise.
Conclusion
To ensure a well-functioning organization, it is crucial for the Board of Directors and officers to understand their roles and how the positions complement each other. It is especially critical for individuals serving as both directors and officers to understand the scope of responsibilities attendant to each position. Having clearly defined roles helps to minimize the risk of conflicts of interest and ensures smooth operations.
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Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.
Kyler Mejia is an associate (bar admission pending) with Caritas Law Group, P.C. Kyler counsels nonprofit and socially responsible businesses on corporate, trademark, tax, and fundraising matters nationwide and advises donors concerning major gifts. To schedule a consultation, call 602-456-0071 or email us through our contact form.