When a board of directors has grounds for removing a CEO of a nonprofit, they may choose to dismiss them. However, a board of directors needs to have documented the reasons why the CEO was removed in order to prevent a wrongful termination lawsuit.

If a CEO's hiring contract or the bylaws of the nonprofit prohibit the board from firing the CEO or provide a different process of dismissing the CEO, these documents must take precedence.

A CEO’s contract will often specify the duties and responsibilities they are expected to live up to, and violations of those duties may be grounds for dismissal. A CEO may also be dismissed if they have a record of ethical violations that puts the organization at risk.

The Board of Directors

Using the typical definition, the board of directors is any group elected to represent shareholders. Within this context, the board is meant to make decisions, establish policies and provide oversight so that a corporation succeeds. The board of directors takes any acts necessary to generate the best returns for shareholders. However, even when an organization is private or nonprofit in nature, it can still have a board of directors.

In a nonprofit organization, the board doesn’t act out of concern for shareholders, since there aren’t any. However, a nonprofit board still has to act out of concern for the organization’s greater good.

The board of directors governs the nonprofit and ensures that its actions help fulfill the organization’s mission. To accomplish this, the board will meet at least annually, with all members present.

Within a nonprofit, the board will typically consist of at least three officers. The president, who may also serve as the CEO, supervises all the board’s affairs. The secretary keeps the board's minutes, tracks the nonprofit’s activities and makes sure actions taken by the organization are consistent with its mission. Finally, the treasurer keeps track of the organization’s financials, including receipts and disbursements.

The Chief Executive Officer

The CEO of a company occupies its highest ranking position and is charged with making major decisions for the organization. The CEO manages the company’s operations and resources and communicates those decisions with the board of directors. Within a company, a CEO is often the face of the company.

Nonprofits, which also require oversight of their resources and operations, may also have a CEO.

Just as with a for-profit company, nonprofits require the talents and skills of aCEO. This individual needs to be able to set a vision for the organization and identify strategies that will help accomplish that vision. CEOs need to be able to assess people, assets and property when creating strategies and making decisions critical to the organization.

As such, it’s important for CEOs to be able to critically assess complex conditions and circumstances that the organization faces.

CEOs can also be a significant fundraiser for the organization. For nonprofits, the ability to raise funds is a particularly critical skill, since nonprofits require significant donations to help accomplish their mission.

Nonprofit CEOs also need to be able to mobilize volunteer efforts and drive interest in the organization. The biggest difference between nonprofit CEOs and CEOs of for-profit companies is that the former must be able to lead fundraising efforts and motivate individuals to volunteer to help the organization.

Powers of the Board

The powers held by a board of directors are significant, since they are responsible for providing oversight for an organization. Traditionally, the board of directors work with for-profit companies by setting dividend and options policies, hiring or firing senior executives and setting compensation for executives. That's just a small sample of what duties a traditional board may fulfill, since both the structure and powers of the board are set in the company’s bylaws.

Within a nonprofit, a board also enforces oversight of the organization, but it doesn’t serve for the same purposes or possess the same powers. One of the most important duties of the nonprofit board is to establish a policy addressing conflicts of interest. These policies often ask board members to disclose potential conflicts they have and also prevent board members with these interests from voting on organization policy.

Conflict-of-interest policies are critically important because if these conflicts are not appropriately managed, there can be financial penalties levied against the organization.

The nonprofit board is responsible for reviewing the organization’s actions and ensuring that the use of resources and assets is prudent and in keeping with the stated nonprofit purpose of the organization.

If not, the board can take the actions necessary to address the misuse of resources. In some cases, this may include dismissing the CEO of the nonprofit, though this requires a specific process to accomplish.

Grounds for Removing a CEO

A board of directors can fire a CEO under certain circumstances. The board first must have grounds for dismissal, though what constitutes these grounds may vary from one organization to another. Typically, a CEO’s contract will outline their duties and responsibilities to the organization. A CEO fired by the board of director​s​ without appropriate grounds may file a lawsuit for wrongful termination.

There are some common reasons for dismissing a CEO, including embezzlement, sexual harassment of a subordinate and various types of unethical behavior. These are the most severe grounds for CEO dismissal, though a board of directors may also part with a CEO under less severe circumstances.

A CEO who is not a good fit for an organization and doesn’t support its core values may be removed for lack of fit, however, a board of directors needs to be specific in its reasons for dismissing a CEO and ensure that the dismissal is justified under the CEO’s contract.

In March 2019, the Southern Poverty Law Center fired its founder and chief trial counsel Morris Dees, though the organization was not forthcoming about the reasons.

Lack of fit may manifest in several ways that provide grounds for dismissal. Ongoing lack of performance up to organization standards, an inability to lead effectively or a lack of willingness to implement strategies that the board has agreed on can all be reasons a CEO is dismissed.

However, before deciding to dismiss a CEO a board should carefully consider whether it really wants to do so, since the process can be exhausting to all those involved. It also may go against the provisions of the CEO's hiring agreement or state law. A simple review of the hiring document and bylaws of the nonprofit will make it clear.

A Wrongful Termination

Unfortunately, replacing a CEO can become a time-consuming process that may also get expensive. Even when a board has grounds for removing a CEO, it may want to prepare for a retaliatory lawsuit filed by the former CEO.

If the former CEO feels he or she has been wrongfully terminated, they may decide to sue the company that dismissed them. Because of this, the board of directors may want to prepare a legal response.

A former CEO may file a lawsuit if they feel they have lived up to all the details of their contract, or if they feel they’ve been fired for a discriminatory reason including age, race, gender or national origin. A former CEO may also file a lawsuit if they feel the given reason they were fired was merely an excuse meant to hide the real reason.

For all these reasons, the board of directors should make sure they have documented the reasons why the former CEO was dismissed, perhaps through the use of a “CEO termination” checklist that specifies the violations made by the former CEO.