The Case for Non-Governing Directors in Not-For-Profit Companies

Abstract

This article argues that not-for-profit companies should be permitted to nominate some of their directors as “non-governing directors”, who would be under no positive duty to contribute towards the governance of the company. The arguments in favour of permitting companies to adopt such an arrangement lie principally in the greater efficiency of the board's operations, and the likely beneficial effects upon the selection of directors. Curiously, it is now widely accepted (and in both for-profit and not-for-profit companies) that a division of labour amongst board members can be beneficial, as evidenced by the distinct roles of executive and non-executive directors, and the creation of board “sub-committees”. However, the logical conclusion of those arguments—that some directors should be free to divest themselves entirely of governance responsibilities—is still resisted. This article argues that the reasons typically advanced for this resistance are unconvincing. The article concludes by addressing the extent to which company law itself currently precludes the creation of non-governing directors.