J.C. Penney Board Flap: A Lesson for Nonprofits!
By: Eugene Fram
The Penney board wanted to fire one its leading directors. The Wall Street Journal reported that the board “… accused him of breaching his board room duties by disclosing confidential information about the CEO search and financial condition.” The director, William Ackman, initially refused to resign. It was only after days of tense negotiations and details hammered out by lawyers that a resignation agreement was forged, finally ending the flap. *
What Nonprofit Boards Should Learn.
• It is difficult, if not impossible, to dismiss an elected director even if he or she commits an egregious act similar that executed by Ackerman. Some nonprofits believe if a director violates the attendance regulation cited in many bylaws or other bylaw regulations, the board majority can unilaterally dismiss a director. Before taking such a step, the board should review the action with its legal counsel, since state laws vary greatly.
• In the Ackman case, the Penney board, with its huge legal power, could only wait until his elected term was over before refusing to reelect him. Such an occurrence in the nonprofit environment would significantly impact the organization’s reputation. Penney’s stock dropped 3.7% when the resignation was announced. While the nonprofit’s reputation can’t be measured in such a quantitative manner, it needs to plan to take protective PR actions should it find itself in such a difficult position, such as the Penney case. (more…)