What Are Nonprofit Directors’ Duties During Merger, Acquisition or Being Acquired?
By Eugene Fram
Craig Leonard, Morrison & Foerster, LLP has a comprehensive article in the February 25, issue of Board Member.com covering director duties of for-profit organizations when a takeover occurs. Many of his topics listed also can be applied to nonprofits, especially in this time when many nonprofits are struggling
financially , and mergers, acquisitions or being acquired may be the only routes to survival.
- Directors Duties – “Must seek the transaction offering the best value reasonably available “
- Duty to be informed – Need to be informed of all material issues related to the transaction.
- Duty of oversight – Needs to be highly involved with the transaction. Can’t delegate to management or outside financial personnel.
- Duty of disclosure – Must be candor with all stakeholders involved with the transaction, e.g., who will be CEO, how staff will be initially reorganized.
- Duty of loyalty – Board members should not be in conflict of interest in any way, e.g., be serving of the boards of both organizations or have self-interest in the transaction.
- Special committees – “Although a board is not required to form a special committee…when considering a proposal, the special committee can help show that the board satisfied its duty to be informed and act with due care. “
- The CEO can be involved in the transaction, but the board must be sure that it carefully supervises the CEO.
- Board deliberations – Directors need to be prepared to have a number of long meetings to show proper attention to the transaction
- Director’s personal liability – Bottom line. “Directors can be held personally liable for breaching their duties… (in these transactions).”
Reading Leonard’s article can be a good review of duties for any nonprofit director, whether or not he/she is currently involved a current transaction.
My blog site: http://bit.ly/yfRZpz