Nonprofit Conversations recently posted the article What's in a Name? Benefits of the President/CEO Title.  The article, written by Professor Emeritus Eugene Fram, encourages nonprofits to consider changing the title of "executive director" to "president/CEO" in order to "obtain some subtle but useful organizational benefits."  While I agree that this matter deserves the board's consideration, there is a related, more serious legal issue for many nonprofits:  Who is identified as the chief executive officer of the organization – the executive director or the board chair?

In California, the Statement of Information filing to the Secretary of State requires filers to identify the CEO and asserts that the corporation must have such officer.  As a side note, the California Nonprofit Public Benefit Corporation Law does not support such assertion and instead requires that the corporation have either (1) a chair of its board (who may have the title chair, chairperson, chairman, or chairwoman, of the board) or (2) a president.

Many organizations identify in their bylaws that the board chair or president is the chief executive officer and do not list the executive director as one of the officers.  This may be appropriate in the case of an all-volunteer organization without an executive director.  However, if the organization has a paid executive director who is tasked with operational leadership and the board chair is a volunteer who is not active in management of the organization's operations, the CEO designation should be given to the executive director.  Nonprofit boards should (1) review their bylaws to understand how their management structures have been established, and (2) amend them, as necessary.

Some volunteer board chairs (or presidents) may not want to give up the CEO designation to the executive director.  This may be the case where an organization has a very active board chair or where the board chair is the organization's founder.  In such circumstances, the board should determine what is in the best interests of the organization.  

It must not be overlooked that whoever has the CEO title may face increased exposure to liability for failure to meet his or her duties.  Any CEO should be very familiar with the organization's current financial position, programs, legal compliance issues, and overall strengths and weaknesses.  Imagine a judge's or jury's reaction to a CEO who claims not to have reviewed the financials for several months or failed to take any steps to help ensure that the operations of the organization were compliant.  Such reaction may be very different if it were the volunteer board chair's liability that was being considered and the organization had a separate executive director designated as the CEO.

CEO
Some takeaway points:

  • If you have a paid executive director, consider identifying the executive director as the CEO.
  • If you have a paid executive director/CEO, it may be advantageous to have a separate volunteer board chair or president (either title works).  If you'd rather have a paid president/CEO, that's fine too, but you'll still want to consider a separate volunteer board chair.
  • The identification of the CEO may be limited to applicable governmental filings; you may choose not to use the CEO title for marketing or other purposes (while I agree with many of Professor Fram's points advocating use of the CEO title, his article doesn't discuss some of the negative connotations associated with the title when used by charitable nonprofits).
  • Make sure your bylaws are consistent with your decisions.

Comments

  1. Dien Yuen says:

    Thanks Gene. I always wondered about the distinction but never had the time to research it. Many thanks for sharing this.

  2. Gene Takagi says:

    Thanks, Dien!
    I was asked by one reader about the “negative connotations” associated with the CEO title. Here is my response:
    It has been my experience that many charitable nonprofits, particularly grassroots organizations, shun the use of the title CEO because of their belief that their stakeholders may associate a CEO with a large for-profit corporation.  They believe that the term “CEO” may trigger perceptions of corporate greed and profit-motivation instead of charity and public benefit.
    Anybody else with thoughts on this issue?

  3. Amy Carr says:

    I am the incoming volunteer board chair of a local non-profit. We’ve just hired a new CEO and have been told by him that if we designate him as CEO he has a vote on the board but ED does not. This doesn’t make sense to me if the by-laws clearly state that he doesn’t not matter what we call him. It doesn’t seem right to me that someone would have a vote on the board that hired him. Need some help here. Thanks

  4. Gene Takagi says:

    Amy, unless your organization’s governing documents (articles and bylaws) state otherwise, a CEO is not automatically a director on the board. It is possible, however, for some organizations to provide in their bylaws that the CEO (who might also go by the title President and/or Chairperson) is an ex officio director. Ex officio means that by virtue of being such an officer, he or she is also a director.
    Bylaws may also provide that certain officers must be directors. If they are not ex officio directors, the election of such officers would be open only to directors who are otherwise qualified to take on such officer roles. Such persons, if elected, will wear two hats with two different roles: one as a director and one as an officer.