Boards & Bylaws
Join colleagues from management consultants Plan A Advisors and law firm Carter Ledyard & Milburn on a lively exploration of nonprofit boards and bylaws. This two-part series will help nonprofit executives and board members consider revisions and amendments to make your bylaws more congruent with the way your nonprofit actually operates, improve governance, and ensure compliance with current law.
This series is designed to offer principles of broad applicability, but laws vary by state, and what is best for your organization will depend on your unique circumstances. We encourage you to consult with an attorney who practices law in the state of your organization’s incorporation. This series is not legal advice.
NOTE: In general, this series is aimed at non-membership organizations, meaning organizations with boards of directors but without a separate class or classes of voting “members.” In a membership organization, the members have certain governance rights, such as the right to elect directors and officers or to amend the bylaws. If yours is a membership organization, some portions of this series may not be applicable to your organization.
All About Bylaws
Bylaws are rules. Organizations must have bylaws, and those bylaws need to reflect current law. Bylaws are the primary rules which govern the operation of a nonprofit organization, institution or agency. They determine the roles and powers of a nonprofit’s board of directors (or trustees) and its officers, as well as the mechanics of governance such as how to call a board meeting or hold elections. In membership organizations with voting members, bylaws serve as a kind of “contract” between the organization and its members, enumerating members’ roles and powers. And bylaws reflect the requirements of the law of the state in which a nonprofit is incorporated.
Compliance matters. Bylaws create certainty, transparency, and clear expectations around the way a nonprofit is governed. They also promote compliance with law. Bylaw provisions that are inconsistent with law (or a nonprofit’s Certificate of Incorporation) are not valid or enforceable. Similarly, if a nonprofit’s practices (e.g., elections, meeting notices, board actions outside of a meeting) are inconsistent with its bylaws, those practices could be challenged as invalid. In times of peace, an organization might get by with old or outdated bylaws, but if ever there is a fight, your bylaws can sit in the crosshairs.
Make them known. It’s the board secretary’s job to keep a current copy of the bylaws accessible – ideally a “certified” copy, meaning one that ends with a certification by an officer that those bylaws have been duly adopted and remain in effect as of the date of the certification. As a matter of practice, every board member should have an up-to-date copy and every new board member and new executive hire should be asked to read them. Bylaws need not be posted publicly, but nonprofits file them with the IRS as part of their application for federal tax-exempt (e.g., 501c3) status, and are required to provide members of the public with a copy of that application upon request.
Keep them current. Bylaws should be tailored to an organization’s needs and will likely need to be amended from time to time as the organization evolves or as the law changes. If you are forming a new nonprofit, or your bylaws feel archaic, you should work with a nonprofit lawyer who can give you a model set of nonprofit bylaws, tailored to your needs. Alternatively, there are “off-the-shelf” examples you can build from – but be sure to pick a template specific to nonprofit organizations in the state in which your organization is incorporated since bylaws for for-profit organizations are very different and nonprofit law can differ markedly from state to state. Be mindful that states amend their nonprofit laws from time to time, so your bylaws need to be reviewed periodically for compliance with current law. And if your current practices are inconsistent with your bylaws – like board communications, the meeting calendar, election procedures, officers, or committee structure – it’s also time to amend your bylaws.
Mission and Board Role
Mind your mission. Mission is a statement of purpose, the reason why your nonprofit exists: to address a challenge, meet a need, make a difference. State law requires that an organization’s Certificate of Incorporation set forth the purposes of the organization. While statements of mission and purpose are sometimes repeated in the bylaws, bylaw provisions that are inconsistent with the organization’s Certificate of Incorporation are not valid or enforceable. (Your Certificate of Incorporation trumps your bylaws as a legal matter.)
Make them match. Make sure you’ve got your Certificate of Incorporation in front of you when you undertake a review of your bylaws. Amending your bylaws may require that you first amend your Certificate of Incorporation. There may be discrepancies or contradictory statements in the two documents – for example, the size of the board, the frequency of board meetings, or the date of your annual meeting. If you have updated your mission, make sure to update it wherever it appears, which may require an amendment to your Certificate of Incorporation or bylaws or both.
Be clear on roles. Your bylaws should reinforce the proper role of a board. Board members are “fiduciaries” of the nonprofit they serve; they owe it the duty of care and the duty of loyalty. “Care” means overseeing the organization in good faith and with reasonable diligence, guidance and skill. Board members need not be expert in every area (e.g., IT, finance, cybersecurity), but they do need to keep reasonably informed of the organization’s affairs, ensure that adequate information-sharing and reporting systems are in place, and they can’t ignore red flags. “Loyalty” means adherence to the mission and best interests of the nonprofit with undivided allegiance, subordinating any individual or private interests to those of the organization.
Manage doesn’t mean management. In general, the board: 1) establishes strategic vision and policy and evaluates impact; 2) hires and evaluates executive leadership; 3) listens to internal stakeholders and strengthens external relationships; and 4) provides financial oversight and secures resources. By law, your board “manages” the overall affairs of your nonprofit. In practice, this may look different from one organization to another, depending on size and complexity. The board’s role is really oversight; the chief executive officer (or ‘executive director,’ ‘director,’ paid ‘president,’ ‘executive vice president’…) has management responsibility on a day-to-day basis. Boards generally delegate responsibility for day-to-day management to the professional leader they select and should then give those leaders the space to lead. In times of turbulence or scrutiny, or when weaknesses or red flags arise, board members need take a more active, hands-on role than they would in normal times.
Board Membership and Terms
Size matters. Your bylaws (and your Certificate of Incorporation) set the size or your board, either as a fixed number or as a range. But what is ideal? In general your board should be big enough to populate every needed board committee so that each committee has a minimum of three unique board members, and so that no board member be required to serve on more than one committee. Of course, in practice, board committees may have more than three members and some board members may choose to sit on more than one committee. Here’s a simple formula to determine minimum size of board: # OF COMMITTEES X 3 UNIQUE MEMBERS. Additionally, your board should be big enough to accommodate the diversity of expertise, skills, community representation, connections and financial wherewithal that you need to operate optimally.
Quorums count. Bylaws indicate “quorum” size – which is the minimum number of board members who must be present at a meeting to make the meeting valid and to allow decisions to be made. The quorum threshold is different from the voting threshold: typically, a Board takes action by the affirmative vote of a majority of the board members present at the time of a vote, if a quorum is present at that time. Quorums may typically be set as a majority of current board members, but smaller boards may consider setting the quorum as three-fifths or two-thirds so that consequential decisions are never made by too-small a group. While big boards can have certain advantages – particularly when most members make significant financial contributions – they can be unwieldy because it can be challenging to keep every member meaningfully engaged in board and the nonprofit’s business. Big boards with a sizable number of less-engaged members may also have difficulty achieving quorums.
Terms of engagement. Bylaws set terms for board members, typically two- or three-years per term. Some bylaws limit the number of consecutive terms an individual may serve before they must step off the board with a gap (typically one year) before they are eligible to be re-elected. Some bylaws create “classified” boards with two or more classes, each with staggered terms so that the board can always maintain a healthy mix of members with institutional knowledge and new members. Some states limit the maximum number of years per term.
Limited engagements. Term limits can prove exceptionally effective in keeping a board fresh because they force a board to renew itself. New members tend to bring new perspectives, talents and resources. Retiring board members of exceptional value to the nonprofit can be kept engaged on committees that allow non-board members to serve, and then can be reelected when eligible. Bylaws can also allow for exceptions to term limits such as allowing board members to serve beyond those limits if they are also elected officers.
Removal. Some states permit removal of board members with or without cause, whereas other states permit removal only with cause. Bylaws often explicitly provide that failure to attend a certain number of meetings is cause for removal, since that board member’s absence inequitably burdens fellow board members and makes it difficult for the absent member to fulfill their fiduciary duties. In general, an organization should be able to remove board members for cause if they are underperforming, or in circumstances when a board member’s behavior in or outside the board room can be compromising to organizational function or reputation. However, it’s a good idea to consult with counsel if you are contemplating removing a board member for cause; in addition to ensuring proper notice, quorum, and voting thresholds are satisfied, removal for cause generally requires due process.
Make meetings count. No board member should mind going to board meetings if they are lively, engaging, and productive. Though some bylaws call for more, effective nonprofit boards can operate with as few as three-to-four regular meetings per year – or even fewer for certain organizations, such as some small family foundations – particularly if committees are active in between. Special meetings of the board may be called at other times when pressing decisions need to be made or actions taken between regularly scheduled meetings. (Actions can also be taken by unanimous written consent in lieu of a meeting, if permitted by law and your bylaws.) Particularly where management is thin in lean-running nonprofits, fewer board meetings allows professional leadership to spend less time on meeting preparation, organization and follow up, and more time leading. Key updates can always be emailed to board members between meetings to keep them abreast of material developments.
Why an annual meeting? Some states’ laws require or imply that there be one meeting each year designated as the “annual meeting.” Typically, at the annual meeting, board members and officers are elected or re-elected; some states also require – and good practice dictates – that a financial report be circulated or presented to the board. The annual meeting is also a good time to discuss goals and budget for the upcoming year, and for each board member to sign and submit their annual statement acknowledging receipt of the organization’s Conflict of Interest Policy and disclosing any potential conflicts of interest.
In-person vs. video. To the extent permitted by your state’s law, bylaws should explicitly allow participation by electronic means (i.e., videoconference) for board meetings, or hybrid meetings that allow and encourage full participation of members. A good practice is to require that all cameras be “on” so facial expressions can be read, and presence is assured. In general, most states permit participation by electronic means so long as everyone can hear each other clearly and participate in real time, including the ability to propose, object to, and vote upon any actions. Make sure a board or staff member assisting with the meeting understands the security, hosting, voting, and chat features of your video conferencing software; and make thoughtful decisions about the list of individuals (if any) other than board members who will receive the meeting link, whether to require that the host admit each attendee, and whether to record meetings (and obtaining consent to do so).
e-Mailing it in. Boards may take formal actions in one of just two ways: either at a meeting (whether in-person or by electronic means) by voting to adopt a resolution, or outside of a meeting by unanimous written consent to the adoption of a resolution. Unanimous written consent means that every member must vote affirmatively in writing. Why unanimous? Because the board is taking action without live discussion and debate. Some states permit unanimous “written” consent by email but may specify exactly how that email vote must be done in order to be valid (e.g., the proposed resolution must be pasted into the body of an email, each board member must reply to that same email with their vote, and the resolution and all consents thereto must be filed with the corporate records). If getting everyone to agree or respond in a timely manner is unlikely, it may be preferable to call a brief special meeting by phone or videoconference and take a vote rather than to ask for votes by unanimous written consent.
Minutes vs. minutiae. Bylaws don’t typically specify the meeting agendas, or the contents of the meeting minutes that a board must approve as a record. Moreover, outside of a few specific scenarios (e.g., conflicts of interest), state laws don’t typically prescribe how detailed minutes must be or what information they must contain. As a result, many organizations are unsure of how much detail to include. At a minimum, minutes must reflect:
- the board members who were present during the meeting, to establish that a quorum was present;
- the vote tally for each resolution voted upon by the board, or that the vote was unanimous, to establish that the required voting threshold was met;
- the specific resolution voted upon, to document the specific action taken; and
- any recusals on account of conflicts of interest and any other procedures or actions taken to comply with applicable conflict of interest laws or policies.
A dissenting board member should also ensure that the minutes reflect their vote against the measure, particularly on matters that have possible legal or financial consequences for the organization.
Beyond these basic rules, recording minutes tends to be more of an art than a science. The level of detail will depend on the facts and circumstances, and can vary widely across organizations, or even within the same organization at different times. Many organizations simply take the approach that meeting minutes should reflect any material matters covered, so that an absent board member can get up to speed on what they missed. Well-crafted minutes can be quite brief while highlighting the most important points in a debate and statements or comments that materially change the tenor of a conversation without extraneous detail. In certain scenarios or transactions, the information and level of detail to include in minutes may be a strategic decision with legal implications, which warrants a conversation with your counsel or inviting your counsel to join the meeting to record the minutes. Following each board meeting, minutes should be circulated in draft form to the board for review and approval at the outset of the next board meeting (or sooner if necessary).