It’s not easy to remove a board member. It often is accompanied by bad feelings, ongoing grudges, lost support, and reputational harm. But sometimes, a board has to do what it has to do.
Board members (directors, in legal parlance) have fiduciary duties to act with reasonable care, in good faith, and in the best interests of the organization. If a board member is failing to reasonably observe their duties, they should not be a board member. This doesn’t mean that they can’t continue to serve the organization in another way and receive the respect and gratitude for such support. But they should no longer be a fiduciary who can be exposed to personal liability for harm to the organization caused in part by their failure.
Sometimes, a tactful discussion with a board member unable to meet their duties can result in their resignation, possibly accompanied by a shift to a different role (e.g., advisory committee member) or a public acknowledgment (e.g., official thanks for their service or a designation as an honorary or emeritus board member).
Sometimes, however, the removal is prompted by a serious failure that does not lend itself to a continuing relationship with the organization. Perhaps the board member in question has failed to attend most of the board meetings or otherwise provide expected fiduciary support. Perhaps they have been disruptive at meetings or interfered with the executive’s or staff’s management of the organization without authority. (Note that a board member generally has no individual authority to manage staff or programs.) Or perhaps they have participated in some unethical or unlawful action impacting the organization, like unjustly enriching themselves through a diversion of charitable assets (e.g., self-dealing) or publicly badmouthing the organization and its leadership.
Where a removal becomes necessary or appropriate, it’s critical that legal requirements for such removal be fully met. And the governing documents of the organization must not contain procedures that conflict with these requirements. While this may seem obvious, it’s all too common to see bylaws that conflict with applicable laws on removal actions.
California Nonprofit Public Benefit Corporation Law – Removal Provisions
The California Nonprofit Public Benefit Corporation Law (the “NPBC Law”) provides for a removal of a director without cause. This allows for a removal of a director without having to state a specific reason why or prove that a stated cause for removal was true and accurate. In contrast, a removal with cause might lead to a lawsuit by the removed individual if they assert that the cause was not true or not the real reason behind the removal.
While the absence of an authorizing provision in the NPBC Law for a general removal of a director with cause leads some persons to conclude that such a removal is not possible, I disagree. If a director physically and severely assaults a fellow director at a board meeting, I think the board can immediately vote to remove him for that reason. If, however, an alleged assault was merely a touch of the arm that was not witnessed and could not be confirmed by anyone other than the directors involved, and they disputed the nature and intent behind such undesired touch, a removal with cause might become very contentious and even lead to claims of defamation. In such case, a removal without cause, if a majority of directors were in favor of such action, would be the better course.
A removal without cause does not mean that there were no underlying reasons behind the removal. It is an action that is permissible without having to state or prove any underlying reasons. Accordingly, the minutes detailing such action should not contain a list of any reasons for the removal without cause.
Section 5222(a) provides the following ways a director can be removed without cause, subject to some specified exceptions:
- In a corporation with fewer than 50 members, the removal is approved by a majority of all members.
- In a corporation with 50 or more members, the removal is approved by the members (typically, a majority vote of members in attendance or represented by proxy at a duly held meeting at which a quorum has been established).
- In a corporation with no members, the removal is approved by a majority of the directors then in office.
The first two provisions apply to nonprofit public benefit corporations with voting members, generally those who have a vote in the election of directors.
The most common exception to the above removal provisions is where a director has been designated by a designator rather than elected by members or the board. In such structure, unless otherwise provided in the articles or bylaws, the designator has the right to remove their designated director without cause. In addition, for any removal of a designated director by the members or the board, the designator of that director must consent in writing for the removal to be effective.
The other exception is described in Section 5222(b) and involves only corporations with more elaborate membership voting provisions.
Declaration of a Vacancy
The NPBC Law provides that the board of a nonprofit public benefit corporation may declare vacant the office of a director who has been declared of unsound mind by a final order of court, or convicted of a felony, or been found by a final order or judgment of any court to have breached any duty under Article 3 (which generally describes a director’s fiduciary duties and required standards of conduct). A declaration of a vacancy still requires a board action, but it’s different from a removal. This distinction may be helpful when it comes to a director who has a board meeting attendance problem.
Section 5221(a) of the NPBC Law provides that the board may declare vacant the office of a director if (1) at the time the director was elected, the bylaws provided that a director may be removed for missing a specified number of board meetings; and (2) the director fails to attend the specified number of meetings. This may be confusing because the board action required is the declaration of a vacancy, but the board can only take such action if the bylaws give it the authority to remove a director for missing a specified number of board meetings. So, the bylaws must empower the board to remove a director for this reason, but the board doesn’t need to remove the director for such reason; instead, the board can declare the office vacant. This may be a politically and culturally more preferable way to separate from a director who can’t attend a required number of board meetings, perhaps due to very understandable reasons deserving of compassion. In contrast, a removal sounds much more like an admonishment.
I generally like including the provision to allow for a declaration of a vacancy for missing a specified number of board meetings because it’s also protective of the absentee director if they never formally resign. The declaration of vacancy means that the individual can’t be held responsible for failure to meet a director’s fiduciary duties for actions or omissions occurring after their position has been declared vacant. That might be very valuable if all the directors on the board are sued by some other party for gross negligence and failing to meet their fiduciary duties many months after the absentee director had their office declared vacant since the absentee director might otherwise not have much of a defense if they were inattentive to meeting their duties during their absence.
Finally, Section 5221(b) generally provides that the board may declare vacant the office of any director who fails or ceases to meet any required director qualification that was in effect at the beginning of that director’s current term of office. Accordingly, if a nonprofit public benefit corporation’s bylaws have long provided that all directors must meet qualification X to be eligible to serve as a director, and a recently elected director who originally met such qualification no longer meets it, the board could (and possibly should) declare that office vacant, meaning that such individual would no longer be a director.
Court Action
A removal of a director with cause is also possible through court action. Although rarely invoked, Section 5223 of the NPBC Law provides:
(a) The superior court of the proper county may, at the suit of a director, or twice the authorized number (Section 5036) of members or 20 members, whichever is less, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation or breach of any duty arising under Article 3 (commencing with Section 5230) of this chapter, and may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action.
(b) The Attorney General may bring an action under subdivision (a), may intervene in such an action brought by any other party and shall be given notice of any such action brought by any other party.