Board Leadership: Apparent Authority vs. Actual Authority
By Paula Cozzi Goedert, Partner, Chicago Office of Barnes & Thornburg LLP
When you are a newly elected officer of an association board of directors and have a title such as “chair” or “president” in front of your name, it is natural to assume that a certain level of authority is attached to that role. After all, by definition, the title “president” implies that he or she is ultimately the one in charge. Right?
Wrong. While it is human nature to attach authority to an individual, operating an association board like that can be a recipe for trouble. The board, working as a collective body, is in charge. The officers serve the board. They are elected by the association members, serve at the discretion of the board — and they also can be removed by the board.
Sometimes, officers assume they can independently make rules and decisions based on their title. But legally, all officers are servants of the board. Their individual authority is actually very limited. For example, officers should not speak individually on behalf of the association without first seeking the input and support of the board. Nor should officers independently direct staff members without first making a request through the board. Bylaws or resolutions may expand an officer’s authority, but short of something specific, the board retains all authority.
Outside parties are entitled to rely on a title in assuming that an officer or director has the right to speak for an association and to legally bind it. This is called “apparent authority.” A vendor, for example, needs not inspect bylaws and resolutions before accepting a contract signed by an individual with the title “president.” Given that an individual’s words or actions can bind the association even if board approval was not obtained before acting, it is crucial to educate all officers and directors about the precise limits of their authority.
Here is an example:
An association is completing its annual meeting at a hotel it had contracted with for the first time. The meeting goes well, and some association staff and board members make informal comments about how pleased they were with the service the association received from the hotel. When checking out, the newly elected chairman says to the hotel’s general manager: “You and your staff did a great job for us. We will be back next year.” Was the chairman acting beyond his authority? Yes. The staff had not made a recommendation to the board regarding a venue for the next meeting, and the board as a whole had not discussed or voted on such a recommendation. As a result, when the hotel’s general manager approached the association staff one week later asking to renew the contract, the association staff — and the board — faced a dilemma.
Governing Authority: Getting It Right
Difficult situations like this can be avoided if all board members fully understand the limits of their legal authority. Here are some simple suggestions that any board can implement to ensure an appropriate application of governing authority:
Educate New Board Members
Board Members Should Work Collectively, Not Independently
- Ask your association’s legal counsel to provide training and onboarding for any new board members. In addition, staff should be aware of the content shared during these processes.
- As part of the onboarding program, new board members should review and understand their association’s bylaws and policies, in addition to the governing authority law for the state in which the association is headquartered. In most states, this will be called the “Nonprofit Corporation Act” and can be located through a simple Google search.
Lack of clarity about governing authority can quickly disable a board and potentially inhibit its ability to serve members. In my experience as a lawyer for associations, most board officers are not being malicious when they act beyond their authority. They are usually well-intentioned and simply unaware of the limits of their authority.
- Refrain from engaging with third parties or speaking on behalf of the board unless you have been authorized by the board to do so.
- Go back and check with the board when unsure. Do not get ahead of the board.
- Use the executive committee for interim instructions, if permitted by the association’s bylaws and resolutions.
On the other hand, association boards that are intentional about educating new members on their legal authority will be better suited to ensure they are always representing the best interests of the association’s members. And that is exactly what a board is elected to do — as one collective body, working together.
||Paula Cozzi Goedert is a partner at the Chicago office of Barnes & Thornburg LLP, where she chairs the associations and foundations practice group. She concentrates her practice on the representation of nonprofit organizations, including professional societies, trade associations, public charities and private foundations. Goedert was listed as a 2015 Leading Lawyer in Association and Non-Profit Law by Leading Lawyers Network. Since 2007, she has been listed in The Best Lawyers in America® in nonprofit/charities area. She has also been named an Illinois Super Lawyer® every year since 2005 in the nonprofit, business/corporate and tax practice areas.
OCTOBER 2015 EDITION
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