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.

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