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Lewis and Roca LLP
“We have so many board members, we’re having trouble reaching decisions.”
The time it takes to reach consensus on a board of directors is often directly proportional to the size of the board. It’s simply more efficient to present, review, discuss and decide as a group when the number of members is manageable.
Ironically, a nonprofit that succeeds in recruiting a large number of board members with a passion for its mission can reach a point of diminishing returns, notwithstanding the valuable input each board member brings, because the time needed to give each member a say on every major decision lengthens (sometimes in an agonizing way) the time needed to reach those decisions. One way organizations can improve this process, without reducing the size of the board and the participation of its constituents, is by forming an executive committee.
An executive committee can be given the authority to act on behalf of the board only between meetings of the full board, or might be tasked with considering important matters prior to their presentation at the regular board meeting. Another option is to give the executive committee authority to act with the full power of the board in emergencies.
Whatever the structure and purpose, a clear statement in the bylaws or a resolution by the full board is needed to provide definition and guidance. Here is an example:
Creation of executive committee:
As permitted by the bylaws of the corporation, the board of directors hereby establishes an executive committee consisting of at least _____ or more directors. Members of the executive committee shall serve at the pleasure of, and may be removed with or without cause at any time by, the board of directors. If a vacancy occurs on the executive committee, the vacancy may be filled only by the board of directors. The executive committee shall have the authority and may exercise the powers of the board of directors, but shall not take any of the actions set forth in A.R.S. Section 10-3825.E or any successor or amended statute. The board of directors may further restrict the power and authority of the executive committee.
Some other needed details include notice requirements for executive committee meetings, the number of members needed for a quorum, and who is appointed to the committee.
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Several other considerations are important:
- Make sure your existing bylaws allow the creation of an executive committee. If they don’t, or if they define its membership differently than your vision, amend the bylaws.
- Define the powers of the executive committee. First, be aware that Arizona imposes limits on what an executive committee can do: A.R.S. 10-10-3825.E states that an executive committee may not authorize distributions, adopt, amend or repeal bylaws, or fix the compensation of board directors, among other restrictions. Within these legal constraints, you may define other powers, and limits on the powers, of the executive committee, such as when it may or may not act on behalf of the full board, whether it is restricted to decisions of a “routine” nature and whether it has authority to act in emergencies. A clause may be added reserving the right of the full board to impose limits later as well.
- Ensure clarity regarding the number of executive committee members needed to take action. Normally, the bylaws state that a majority of a quorum is needed, but the executive committee can also act by written consent without a meeting as long as all members sign the consent.
- The selection, appointment and removal of executive committee members should be spelled out, including the process of filling a vacancy. There might be a requirement that the president is always a member. Note that Arizona law allows the designation of one or more directors as alternate members of any committee, to act as a substitute when necessary.
- Committee members should be provided the same indemnification as regular board members.
A final note of caution: the full board is ultimately responsible for oversight of the organization, including the actions of the executive committee. (10-10-3825.F. “The creation of, delegation of authority to or action by a committee does not alone constitute compliance by a director with the standards of conduct described in section 10-3830.”)
Forming an executive committee can be a great way to increase the efficiency of nonprofit governance. Ensuring the committee is created according to both corporate bylaws and state law is crucial and seeking legal counsel during this process may help avoid trouble down the road.
Scott DeWald is a partner, and a leading attorney in Lewis and Roca’s Corporate, Tax and Securities Group. He practices in the areas of corporate, securities, mergers and acquisitions, lending and other commercial transactions. He has particular emphasis on counseling nonprofit corporations and the legal needs of high-tech, e-commerce, emerging and limited liability companies.
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