August 20, 2014
Guide to removing an officer for ‘cause’

This article first appeared as "Removing an officer for 'cause'" in Association TRENDS.

By STEVEN JOHN FELLMAN, ESQ.

Have you ever thought of what you would do if you received a report that your president-elect had been convicted of a felony?

“Transparency” has become increasingly important as a requirement in non-profit corporate governance. To deal correctly with situations where nondisclosure of relevant information could call into question the qualification of the member to serve as an officer or director, association executives must be familiar with their corporate bylaws and policies.

During the Bush and the Obama administrations, we have seen instances where after individuals were nominated to serve in high government positions, the nominations were withdrawn when further investigation or press reports indicated some issue that either directly related to the nominee’s abilities to perform his or her office or created an appearance of impropriety that raised sufficient questions that the President asked the nominee to withdraw.

Unlike the federal government, trade associations and professional societies do not normally undertake significant background checks of individuals nominated to be officers or directors of the association. Usually, a prospective nominee for an association officer or director position is fairly well known in the industry and has actively participated in association committees and functions. But what actions would your association take if, after the election of officers or before the time that the new officers were sworn into office, facts came out that raised questions as to whether an officer was qualified to serve the association?

Assume that you received a report that the president-elect of your association had been convicted of a felony some 30 years ago. What, if anything, should the association do regarding the allegation that one of its elected officers had a felony conviction?

The question involves both legal and ethical issues. From a legal standpoint, you must look at the association articles of incorporation, bylaws, conflict of interest statements, code of ethics, and any other policy documents that govern conduct of officers and directors. You must also examine the not-for-profit corporation statute in the state in which the association is incorporated. Hopefully, these documents will provide guidance as to the authority of the board to act and the procedures that the board must follow.

Association executives should review the bylaws of their organizations to determine if there is a procedure for removal of officers and directors. The bylaws should define when an officer or director can be removed from office and establish a procedure to be followed for removing an officer or director from office. The procedure should be consistent with the articles of incorporation and the laws of the state in which the association is incorporated. Although the legal issues are certainly fascinating (especially for lawyers), they will be decided based on language in the bylaws, articles of incorporation or the statute.

Having reached that conclusion, under what circumstances does an individual have the right not to disclose? Unfortunately, there are no clear answers. There are only very hard questions. There are many instances where an individual will conclude that an action or event that occurred 30 years ago would not be relevant to that individual’s current prospective service as an officer or director of an association. At the same time, although the individual might personally believe that there is no reason to disclose, if that individual recognizes that disclosing the facts may cause some individuals within the association to question his or her qualification to serve as an officer and director, there is good reason for arguing that the disclosure should be made. Therefore, in addition to recommending that association bylaws include a provision regarding removal of directors and officers, nominees to the position of an association officer or director should be asked to sign a normal conflict of interest statement as well as a statement such as:

“In accepting the nomination as an officer or director in the association, I hereby state that there is nothing in my past, which if fully disclosed, would actually or apparently adversely affect, or be perceived by others to adversely affect, my ability to fully and impartially represent the interests of the association and its members.”

That is the theory. Now, let me ask you a question.

Assume that I have been asked to run for the office of president of a national association. Thirty years ago, I was convicted of a felony. I received a suspended sentence.

For the past 25 years, I have served as a licensed member of my profession and as an industry leader. I have served on the board of my national association. Do I have an ethical duty to disclose my felony conviction to the association nominating committee prior to accepting the nomination?

Fellman is a partner at GKG Law, Washington.

Association TRENDS