“Do we have to do what the By-Laws say?” asked the board chair while discussing one of his nonprofit’s governance issues.
I should have been more surprised, but this was the same chair who – along with the ED – said at an earlier meeting they had never seen their By-Laws and weren’t certain if they could find a copy.
While an extreme example, I’ve found over the years that most board members are not familiar with their By-Laws and that few board officers and EDs are conversant with and are guided by them. It’s one of those situations where either the By-Laws are out-of-sight and thus out-of-mind or everyone assumes someone else is minding the store.
Even highly-regarded sources of information and guidance about nonprofit board roles, responsibilities, policies and practices fail to include a single reference to By-Laws awareness and their role in governance.
WHAT EXACTLY ARE BY-LAWS AND WHY ARE THEY IMPORTANT
What makes this so unusual is that By-Laws are required components of corporate documentation and are expected to play an important role as the board fulfills its duty of care. “A corporation’s By-Laws typically address, at a minimum, fundamental provisions related to the management of the activities and affairs of the corporation. By-Laws should provide guidance to the board and reassurance of sound governance practices to government authorities, funders, and other interested stakeholders.”1
Simply put, By-Laws are ground rules which nonprofits are required to establish and follow to guide certain aspects of their governance and management.
Thus, board officers in particular, along with senior management, should be conversant with the content of their By-Laws and should conduct themselves accordingly. Failure by boards and their members to meet that standard is failure to fulfill the legally mandated duty of care and exposes themselves and their organizations to substantial risk and potential liability.
Furthermore, if you are a board member or an ED, chances are you expect, indeed require that your financial staff adhere to established accounting principles and practices, that your fundraising staff comply with professionally accepted ethical standards for raising money, that everyone respect and follow rules and regulations for employee conduct, etc.
Since you expect everyone else in your nonprofit to play by their rules, aren’t you morally, as well as legally, obligated to set an example and play by your own rules?
Let’s be frank: When it comes to By-Laws, boards, trustees and EDs have only two viable options:
-They can play by their rules or,
-They can change their rules.
Ignoring their rules is willful negligence and not a viable option.
1“How to Start a California Nonprofit”, California Association of Nonprofits, 2015.
Note: For a more detailed discussion of the risks of disregarding or contravening By-Laws and a suggested cure, please see the related commentary, “Risks and Prevention of By-Law Negligence”.