Do boards set a dollar limit on the president/CEO’s fiscal discretion?
The chief executive should have complete discretion as long as he or she works within the budget and budgetary guidelines. However, if any major changes are needed, the board must approve them. For example, if the president/CEO finds resources budgeted for capital improvements are not needed, he or she cannot simply move these funds to the salary account without board approval.
Many organizations need to borrow money on a short-term basis to meet cash-flow requirements. The CEO needs to have complete discretion to act quickly in such situations. Consequently, the board needs to pass a formal resolution authorizing a fiscal limit for bank borrowing. In practice, this limit is typically dependent upon the needs of the organization and the level of confidence the board has in the CEO.
Source: Eugene Fram with Vicki Brown, Policy vs. Paper Clips, Third Edition, 2011, pp. 225-226.
See also: Eugene Fram & Bruce Oliver, Want to Avoid Fraud? Look to Your Board, Nonprofit World, September/October 2010, pp. 18-19.