The Importance of Keeping Records of Board and Officer Terms

Corporate recordkeeping is an area where nonprofit organizations often fall short of best practices. One common pitfall is the failure to maintain a list of the current Board member and Officer terms of office with precise start and end dates. This oversight seems small but can have very significant consequences, especially when an internal dispute arises.

All organizations should keep a list showing when Board members and Officers were elected, when their term of office started, and when their current terms are scheduled to expire (along with up-to-date contact information, which can be important for satisfying notice requirements under the Bylaws). Whether the list is kept as a spreadsheet or in another format is a matter of preference. The important thing is to make sure the list easily accessible, up-to-date, and backed up by meeting minutes that clearly document the results and timing of these elections.

The following are a few of the ways that the failure to abide by these best practices can lead to problems for an organization.

First, these records become extremely important in the event of a dispute about who is rightfully on the Board. This happens more often than you might think, especially in cases involving one or more disgruntled former Board members who are unhappy about the direction of the organization and/or its leadership. Without clear records, these situations can lead to bitter controversies and even litigation.

Second, failure to keep clear records of Board and Officer terms provides a possible angle to contest the validity of corporate actions. This type of dispute usually arises in the context of controversial transactions such as a major asset sale, merger, or acquisition. The parties contesting these actions (again, usually disgruntled former Board members) typically look closely at whether properly seated Board members approved the transaction and were appropriately provided with advance notice of the relevant meeting. The absence of clear records can give rise to arguments that the organization failed to follow its Bylaws and similar attempts to invalidate the Board action.

Planning Tip – A common source of confusion regarding the start and end dates of Board and Officer terms involves the failure of an organization to hold Board and Officer elections at the time contemplated in the organization’s Bylaws. For example, suppose a Board member’s term is scheduled to end in March, but the next Board election is not held until June. This situation can lead to ambiguity about a Board member’s status during the interim period. For this reason, the Bylaws should generally include “holdover” language providing that Board and Officer terms continue past the end of the scheduled term until the next Board/Officer election is held and the successors are seated.

Finally, lack of adequate records can lead to ambiguities about whether Board members or Officers are covered by the organization’s D&O insurance and have rights to be indemnified by the organization under state nonprofit corporation law. However, this is usually less of a concern since D&O policies and indemnification statutes are typically drafted broadly to cover past, present, and sometimes future Board members and Officers.