Boardroom Lessons

I found a law school exam blue book among my papers recently. It was for the final exam in Non-Profit Law and Management 102. I should have gotten an A.

Question 1 (20 points): Identify the legal issues presented by the facts.

Question 2 (80 points): Propose a practical course of action for the president of the non-profit organization.

These were the facts: A woman was elected to the nine-member volunteer board of her child's non-profit, day-care facility after being told, "It isn't any work--just a few meetings a year." She became president a year later, just as the executive director's employment contract was up for renewal. A black mold was discovered in the building where about 65 pre-school children spent their days. Two of the children and one of the 15 faculty members developed breathing and skin problems, which they reported to the executive director. Not only does the school not pay rent for the building, it doesn't have a written lease with the landlord. The executive director, a man with 25 years experience in early childhood education, was friendly with and enjoyed the support of many parents, some of whom were also board members or former board members. Yet, some of the faculty complained about the executive director's management style and favoritism toward his friends' children.

Last year the treasurer discovered the executive director was paying himself more than the board had authorized and had handed out unauthorized bonuses to favored faculty members. The treasurer also discovered that the executive director had written several checks to himself, claiming they were reimbursements for his purchases on behalf of the school. At first he refused to provide receipts, but then he apologized and returned some of the money. The treasurer wrote up these facts for a presentation to the board's annual meeting, but several members were so upset with her for revealing the information they voted to prevent her from giving her report. The treasurer quit on the spot.

Meanwhile, a few parents told the president that the executive director had been fired from his two previous day-care jobs and security from his last job escorted him out of the building. When she called his prior employer she was told nothing because "that information is subject to a confidential settlement agreement." When the president asked the executive director for detailed information about his previous job, he refused.

The board then refused the president's request to learn more about the executive director's background before renewing his contract, because it would be "unfair" for them to "go sneaking around" on him. One board member said an investigation would be irrelevant because "he was doing a good job now" and besides, "that is old information," referring to his prior jobs. Another member dismissed the information about the confidential settlement agreement saying, "If it is confidential, the employer was probably in the wrong too." Finally, another said, "Our job is to support the executive director, not micromanage him." The board voted 7-2 to renew the executive director's contract with a raise in pay.

Answer to Question 1: There is no time to enumerate all the legal issues. This non-profit organization with a volunteer board has too many serious problems to waste time on paperwork. See my answer to Question 2 below.

Answer to Question 2: For godsakes! Quickly hire an attorney experienced in non-profit governance. Make sure the attorney has plenty of gray hair and ample gravitas. Then call a special meeting of the board for a presentation from your new attorney. He or she should give a forceful lecture about the legal duties of directors of non-profits, preferably with legal horror stories that will scare the board into realizing their volunteer positions come with serious responsibilities. Ask for resignations from those unwilling to accept those responsibilities. Call for another vote on the executive director's contract. Pay the lawyer without asking for a non-profit discount.

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Bruce Collins is the corporate vice president and general counsel of C-SPAN.

Contributing Author

Bruce D. Collins

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