The governance structure in a corporation, whether nonprofit or for-profit, consists of an executive who reports to a board of directors. The executive and the board have distinct responsibilities: management and governance, respectively. But there are areas in which those responsibilities blur, and that can result in tension and potential conflict. This dynamic can be particularly challenging when an executive also serves as a (voting) director on the board.
In the best case scenario, every member of the board is an individual invested in the organization's mission, effectiveness, and efficiency, who engages in independent decision-making in the best interests of the organization. Including the executive on the board may strengthen the organization by allowing the board to be better informed of the day-to-day operations, while treating the executive as a true partner rather than a subordinate whose voice is given reduced significance. As a result, the board may make better, more effective decisions.
In addition, a charismatic and reputable executive/board member may heighten the board's attractiveness in recruiting other board members, particularly when the organization is young and championed by the executive. Finally, the executive/board member may help to prevent other board members from intruding on management issues.
On the other hand, having an executive/board member may trigger consequences such as diminished checks and balances and a struggle for control of the organization. For example, the executive may seize responsibility for determining which issues the board addresses in meetings and shape the discussion in a manner that supports the executive's view. A board may easily become a rubber-stamp board when such an executive/board member possesses the power to frame the discussion and sway the outcome. This is particularly true if the executive concurrently serves as chair of the board.
Additionally, with an executive/board member the board may find it difficult to evaluate the executive's performance. Conducting an annual review of an executive is imperative in meeting the board's duty of oversight and for confirming that the board and executive remain on the same page about the objectives and priorities of the organization. If the executive is also a board member, the open and honest discussions required for such a review are not as likely to occur. This executive/board member may even have the ability to influence the election of directors to build a board dominated by allies who place their allegiance to the executive above the interests of the organization, further complicating the necessary board/executive power balance.
Another point to consider is how effective the executive will be as a board member. Tough decisions such as cutting programs or laying off staff may be even more challenging for the person who manages operations and works closely with staff. Further, it may be difficult for an executive to be impartial with respect to decisions to increase revenues even if they cause mission drift because higher revenues may help justify retention of the executive and/or paying her a higher salary.
In deciding whether to elect your executive to the board of directors, here are additional points to consider:
Regardless of whether the executive is included as a board member, consider a policy of having her abstain from voting about her own performance review or salary to help avoid private benefit issues (See Private Benefit Rules Part I, Part II, and Part III). Note that under state laws, all board members may have the right to vote on every board action whether or not they have a conflict of interest in such vote. But that doesn't mean they have to, or necessarily should, vote on matters in which they have a conflict of interest.
- As an alternative to including the executive as a board member, consider providing the executive with a right under the bylaws to attend and provide a report at all board meetings (except when the board goes into executive sessions). In this case, the board will receive the benefit of face to face discussions regarding the management of the organization, but will also retain the ability to review the executive's performance and salary, and other sensitive matters, without potential conflict.