Voting Requirements: Why They Matter
By Frank DeVito
At first glance, the voting requirements in a nonprofit’s bylaws may not seem an exciting topic. Most nonprofits have not seriously considered their bylaws, perhaps because they have inherited old bylaws, copied the bylaws of another company, or even originated their bylaws from a quick internet search! If any of these scenarios applies to your organization, your organizations’ bylaws may include director voting requirements not tailor-made to your preferences or the specific needs of your organization. Taking just a few minutes to read and think through some key provisions within your bylaws may save you from major issues down the road.
Understanding the Terms
Bylaws generally contain the voting approval requirements for certain actions to occur within the organization; in the legal world, the voting approval requirements are often referred to as the “manner of acting.” Your bylaws will have provisions stating what percentage of the board of directors must vote to amend the bylaws, remove a board member or officer, etc. for the action to be adopted on behalf of the organization. A manner of acting provision will call for either a majority vote (50% + 1), some kind of supermajority (⅔ or ¾ are common), or a unanimous vote.
Why It Matters
The threshold approval required for “manner of acting” may seem to be an unimportant detail, but there are situations where this “manner of acting” provision becomes the difference between a simple action and a serious headache.
One key consideration is that some states may have laws requiring a minimum manner of acting requirement. For example, Illinois has a law that certain emergency actions of a board may never be approved by less than a majority of the voting members.1
Additionally, the manner of acting requirement can have important governance implications. For example, one key area to review in your bylaws is the manner of acting requirement to remove a director or officer of the nonprofit.
You should do some research and consult an attorney to see if any special rules apply in your state. In the absence of a legal mandate, the manner of acting requirement will be the standard your organization chooses to set in your bylaws. A realistic hypothetical explaining some common bylaws pitfalls will help illustrate the importance of getting this provision right.
Imagine you serve on a nonprofit board composed of seven directors. Recently, a board member, Mary, recommended a friend who is a finance professional, John, to fill a vacancy. The board voted to elect John to the board of directors, but, after a few months, the board realized something was wrong. Maybe John is disruptive to the board culture and doesn’t get along with the other board members; perhaps John is actually engaging in serious financial misconduct unrelated to the nonprofit. In any case, the board concludes it needs to remove John from the board. You check your bylaws and find they read as follows: “To remove an officer or a member of the board of directors from the Company, the Company must call a special meeting of the board of directors. The board of directors must vote to remove the officer or member. To successfully remove the director, there must be a unanimous vote of the board of directors. The member who is the subject of the motion for removal may not cast a vote.”
In the above scenario, John does not get to vote on his own removal. But his friend Mary does, and you need a unanimous vote. What if Mary disagrees that John is a problem? What if she refuses to believe the allegations of misconduct about her friend? The organization now faces a situation where John cannot be removed from the board of directors if he has even one friend or ally on the board. There would be other ways to remove John, but they may require legal action. This is potentially a tremendous waste of time, energy, and resources on what should be a straightforward issue.
In this case, a unanimous vote to remove a director or officer is likely too high. A simple majority vote may be too low—this could encourage a clique to remove people they don’t like too easily. Each nonprofit will have its own thoughts and unique circumstances, but some kind of supermajority manner of acting (⅔ or ¾) is likely a good starting point. Because of the jurisdiction- and fact-specific nature of bylaws voting requirements, a one-size-fits-all solution, such as “always use a ⅔ majority manner of acting to remove a board member,” is not appropriate. The best solution, rather, is for your organization’s leadership to spend a few minutes reading through the bylaws, looking at the manner of acting for various board actions, and reflecting on whether they fit your organization’s needs. If they do not, it may be time to consider amending your bylaws. But that is a discussion for another blog post!