Gene Takagi at the always enlightening Nonprofit Law Blog links to a two part entry on why the title of the senior leader of a non-profit should transition from Executive Director to President/CEO. The argument made in the pieces is that the person in that position gains credibility within and without of the organization.
Takagi only touches upon this very briefly because his greater concern is who is legally the CEO of the organization, the executive director or board chair. I voraciously consumed the post because I have dealt with organizations where the dynamics were such that one was clearly in a dominant position. I often wondered to whom people would look for leadership in a crisis–versus who was ultimately responsible for the decisions that were made during that time.
Takagi’s advice is-
“However, if the organization has a paid executive director who is tasked with operational leadership and the board chair is a volunteer who is not active in management of the organization’s operations, the CEO designation should be given to the executive director. Nonprofit boards should (1) review their bylaws to understand how their management structures have been established, and (2) amend them, as necessary.”
Acknowledging that the board chair may not want to give up the CEO title in this case, especially if said person is the organization’s founder or the board is very active, Takagi suggests the board seriously think about what is in the best interests of the organization. There are legal repercussions the nominal CEO may face.
It must not be overlooked that whoever has the CEO title may face increased exposure to liability for failure to meet his or her duties. Any CEO should be very familiar with the organization’s current financial position, programs, legal compliance issues, and overall strengths and weaknesses. Imagine a judge’s or jury’s reaction to a CEO who claims not to have reviewed the financials for several months or failed to take any steps to help ensure that the operations of the organization were compliant. Such reaction may be very different if it were the volunteer board chair’s liability that was being considered and the organization had a separate executive director designated as the CEO.
I did a quick read of other sources to see if Directors and Officers Insurance and Errors and Omissions Insurance would cover this sort of negligence and my results were inconclusive. Different insurance companies offer different coverages which contain different exclusions. Some seemed to imply this was the sort of thing you buy the insurance to guard against. Others said the insurance companies will look for any blatant omissions to use as a pretext to deny a claim.