Josh Wagner, Principal
413 Western Drive #15
Santa Cruz, CA 95060-3078
ph 831-423-two-3-two-3
fax 831-401-one-zero-eight-two
joshwagner@aol.com

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    Saturday
    Feb262011

    Exec Director's Powers

    Here's an exchange I had with a student who attended one of my seminars:

    Hello Josh,

    I attended your class back in October on how to start a nonprofit. I had a couple of questions come up in developing the bylaws for our nonprofit.

    One of the partners wants to know if you have to give the authority for determining salaries of all employees to the Board of Directors. She wants to give the Board authority over the Executive Director's salary and then give the Executive Director authority over the salaries of lower level employees. Is this acceptable?

    Also, we want to know if the treasurer can designate an employee (like the Executive Director) to sign checks and make deposits on behalf of the corporation. The bylaw template I'm working with says that the Treasurer will sign all checks and make deposits for the corporation.

    I appreciate your offer to help with questions. Please let me know what you think.

    Thank you,

    Kori S

    MY RESPONSE:

    Hi, Kori.

    Thank you for writing.

    Keep in mind, of course, that I'm not an attorney, so I'm unable to give legal advice. That being said . . .

    Corporations Code 5210 says, in part:

    " . . . The activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management of the activities of the corporation to any person or persons, management company, or committee however composed, provided that the activities and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board."

    Thus, I do believe that the Board of Directors can delegate to the Executive Director the authority to determine the compensation of lower level employees . . . or, should I say, I'm not aware of anything that says they CAN'T do that.

    But keep in mind that the Board of Directors is still responsible for the actions of the Executive Director.

    The Nolo Bylaws say the following:

    "It shall be the duty of the director to appoint and remove, employ and discharge, and, except as otherwise provided in these Bylaws, prescribe the duties and fix the compensation, if any, of all officers, agents and employees of the corporation . . . "

    But that's just Nolo's version . . . state law seems to give the Board a wider latitude to delegate.

    I'm curious as to why this arrangement is desirable? Are there too many employees for the Board to consider each one of them? Or are the Board members too busy with other things to spend time on this issue?

    But, when all is said and done, if the Executive Director is an experienced, trusted employee, the arrangement you're talking about might work out.

    And, yes, the Board and the Treasurer can delegate check signing authority to the Executive Director, for example.

    But just be careful that too much power is not concentrated in the hands of one person. It may streamline things but it could lead to disaster.

    As far as depositing checks: Sure, any trusted employee or volunteer can be empowered to do that.

    I hope this has helped.

    (As an afternote, if it's the Executive Director who is clamoring for all this power, I would be very wary. Nonprofits must operate in a transparent fashion and by their nature are subject to lots of oversight. No one should try to shortcut these features.)

    I hope this has helped a little.

    Best wishes,

    --Josh