By law, the interests of a nonprofit organization must take precedence over a director’s personal and business interests. There is often a debate as to whether a CEO can also be a board member? There is no clear answer to this question. If the CEO has been hired by the company and is paid for his work, then being a board member, the director may have a conflict of interest. This article will look at this situation from all angles and find the answer to whether a CEO can be a board member.
Potential Conflict
Board members are the people who represent the interests of the organization, shareholders, and the public and are fully legally accountable for doing so. To faithfully perform their role, they must be independent of the company and free from conflict of interest. However, one may still arise if the CEO is also a board member with voting rights. This is quite a common cause because, in newly established nonprofit organizations, the CEO is also the company’s founder and the board of directors’ president. The main conflict is that the CEO, unlike the other board members, receives a salary from the company. Therefore, when the committee makes certain decisions about the budget and financing, it will directly affect the CEO. He will act more in his interests than in the company, so a conflict of interest arises.
How do you resolve a potential conflict?
There are several ways to avoid or resolve conflicts of interest:
- Put the CEO in a guest role at meetings rather than a full member with voting power. The CEO’s presence at meetings is very important because he plays an important role in shaping the organization’s work, so he should not be completely excluded from the meeting
- Another solution is to keep the CEO out of budget and compensation matters but to leave them on the board with a voice and board membership
As mentioned earlier, having a CEO on the board is not uncommon for a nonprofit organization. It helps improve the organization, and it can be difficult for such companies to find a subject matter expert with experience in their particular mission.
So can a CEO become part of the board of directors?
It all depends on the type of organization where this question is posed. So, in commercial companies, this question is not a problem often. The CEO and the chairman of the board are the same people, but for a nonprofit organization, it is undesirable to allow the same. The main task of a board of directors of a commercial company is to protect the company’s interests and provide maximum benefit from investments. For a nonprofit organization, the public interest is a priority, and so most such organizations separate the two positions. But, again, each case is strictly individual. The rest of the board may agree to an outcome where the CEO is also a board voting member if they truly separate their two positions and act as befits the rules. Many nonprofits operate on this principle because they believe the CEO has the inside information they need to guide the board down the best strategic path. And it won’t be a problem for them if they suddenly notice that the CEO is starting to act in his best interest because they can easily Vote to remove him from that position.