Under the Not-for-Profit Corporation Law (“NPCL”) it is relatively clear that (i) any committee with corporate authority must be comprised only of trustees, and (ii) committees must be appointed by the board, and not, for example, by the chair (other than special committees). (The foregoing may not apply if otherwise provided by the certificate of incorporation.)
The NPCL currently distinguishes between (i) the executive committee and other standing committees, on one hand, and (ii) special committees, on the other hand.
Executive and standing committees must be appointed by a majority of the entire board pursuant to Section 712(a) which provides, in part, that “the board, by resolution adopted by a majority of the entire board, may designate from among its members an executive committee and other standing committees, each consisting of three or more directors, and each of which, to the extent provided in the resolution . . . shall have all the authority of the board, except . . . .” (Emphasis added.)
Pursuant to Section 712(c), special committees of the board may be authorized by the bylaws, and the members of special committees may be appointed by the chair. (Emphasis added.) Thus, under the current law, the chair may appoint the special committees, and some corporations have used special committees in lieu of standing committees for all committee work in order to afford the chair greater control.
The statute also provides in Section 712(e) for “committees of the corporation” which are neither standing nor special committees. Such committees are elected or appointed in the same manner as officers of the corporation. The current NPCL does not specifically address whether such committees of the corporation possess corporate authority. However, the Non-Profit Revitalization Act of 2013 (the “NPRA”) (effective July 1, 2014) amended Section 712(e) by adding “no such committee shall have the authority to bind the board.” Under general principles of law it is likely already the case that the NPCL does not grant “committees of the corporation” any corporate authority, but the NPRA now leaves no doubt.
In addition, the NPRA deleted Section 712(c), eliminating special committees. The amended statute still provides for the selection of committee members by a majority of the entire board. Thus, following the NPRA, the chair is no longer empowered to appoint any committee members under the NPCL.
Some corporations may invite subject matter experts in the community to participate on board committees in which their expertise is useful (e.g., accountants, actuaries, financial professionals), even if such individuals are not directors. Such participation is often beneficial, but such individuals, if not trustees, should not have a vote in any proceedings of the applicable committee. Those individuals are not fiduciaries of the corporation in the same manner as directors, and their participation would likely not meet requirements for governing board action. Any prior action which should have met specific approval requirements might therefore be ineffective, at least as a technical matter. In most circumstances, in which a board or committee acts by consensus, this is not likely to have any practical impact. However, for close questions or disputed matters, it may often be essential to ascertain that a particular action was properly approved. All corporations should review their committee membership and appointments to ensure that statutory requirements have been followed.