Fiduciary Duty of Electric Cooperative CEOs, CFOs, and Other Nondirector Officers

In addition to a president, vice president, secretary, and treasurer who serve on an electric cooperative's board of directors, many cooperatives have a chief executive chief financial and other Usually, these other officers are not members of the board. They are officers. A nondirector officer is an officer, usually an employee, who does not serve on the board of directors. While directors owe a fiduciary duty, do these nondirector officers owe a fiduciary duty? If so, is the duty more extensive than the duty owed directors? As discussed below, the answers are probably yes and yes. Many nondirector officers of electric cooperatives, however, are unaware of this duty. Historically, few courts or legal commentators addressed the fiduciary duty of nondirector To the extent courts addressed the fiduciary duty of officers, the cases usually involved officers serving as directors also. In response to recent misconduct, much has been written, legislated, and litigated regarding the fiduciary duty of directors. Very little, however, has addressed the fiduciary duty of nondirector (1) While educators and attorneys often remind directors of their fiduciary duty, they seldom remind nondirector The fiduciary duty of nondirector officers, however, is an important part of, and a potential source for improving, governance and avoiding misconduct. Importantly, lawsuits alleging that nondirector officers violated their fiduciary duty will probably increase. Today, some legal commentators even suggest that attorneys are obligated to advise nondirector officers of their fiduciary duty. (2) In performing their duties and responsibilities, nondirector officers of electric cooperatives should be educated about, and should remember, their fiduciary duty. In addition to loss of employment, demotion, or decreased compensation, neglecting or breaching this duty may result in personal liability. Some electric cooperative employees may question the advantages and disadvantages of being a nondirector officer. The advantages seem to be increased prestige, recognition, and responsibility; potentially increased indemnification (3) and liability insurance coverage; (4) increased compensation; and increased ability to act for and bind the cooperative. The disadvantages seem to be increased expectations and increased risk of personal liability. While agency is helpful in addressing the fiduciary duty owed nondirector, employee officers of electric cooperatives, corporate is probably more helpful. (5) To the extent it is not inconsistent with an electric cooperative act, general law usually applies, directly or indirectly, to electric cooperatives. (6) General law includes, among others, the American Bar Association's Model Business Corporation Act (Model Act) and its Model Nonprofit Corporation Act (Model Nonprofit Act), the Fletcher Cyclopedia of the Law of Private Corporations (Fletcher), and the American Law Institute's Principles of Corporate Governance (ALI Principles). Definition of Nondirector Officer Before addressing the fiduciary duty of a nondirector it is important to define an officer. While specific statutes or regulations define an officer for specific purposes, (7) law is probably most helpful in defining an officer for fiduciary duty purposes. Electric Cooperative Acts Many electric cooperative acts state that: (1) a cooperative's officers shall consist of a president, vice president, secretary, and treasurer, each of whom is elected by and from the board of directors and (2) the board of directors may elect or appoint other officers it deems necessary or advisable and shall prescribe the powers and duties of these other Model Acts As amended in 1999, the Model Act states that a corporation has the officers described in its bylaws, or appointed its board of directors in accordance with its bylaws. …