Should a South Carolina nonprofit director vote to hire their spouse as executive director in 1995?

Official title

Regarding whether a member of the board of directors of a 501(c) corporation is required to refrain from voting to appoint an executive director where one of the candidates for the position is the husband of the board member.

Requester

The Honorable Kenneth Kennedy, Member, House of Representatives

Plain-English summary

A representative asked whether a director of a nonprofit corporation should refrain from voting on an executive-director appointment when her husband was a candidate. The 1995 informal opinion advised recusal and abstention from any participation in the actual selection process. It relied on a South Carolina decision treating nonprofit directors as fiduciaries and holding a self-interested property transaction voidable. The author approved the board member’s earlier decision to stay out of candidate screening and suggested checking with authorities responsible for the corporation’s public funding about any additional rules. The letter did not determine that a particular tax exemption or grant would be lost.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did the AG advise the director to cast the deciding vote? A: No. The author advised recusal and abstention from participation in the selection process.

Q: Did stepping back from initial candidate screening resolve the issue? A: The letter called that recusal wise but also advised abstention from the final selection.

Q: Did the opinion find an automatic loss of tax status? A: No. It raised that concern and suggested checking the applicable funding authorities for specific rules.

Background and statutory framework

The letter cited a South Carolina decision addressing fiduciary duties of a nonprofit director who voted on a transaction benefiting himself. The author applied that concern to a spouse’s candidacy for executive director.

Citations and references

• The South Carolina nonprofit fiduciary decision reproduced in the original text, cited on a voidable self-interested transaction.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/june-16-1995/
• Original PDF: https://www.scag.gov/wp-content/uploads/2013/12/95june16kennedy.pdf

Original opinion text

The State of South Carolina

OFFICE OF THE ATTORNEY GENERAL
CHARLES MOLONY CONDON
ATTORNEY GENERAL

June 16, 1995

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The Honorable Kenneth Kennedy
Member, House of Representatives
Route 1, Box 277
Greeleyville, South Carolina 29056
Re: Informal Opinion
Dear Representative Kennedy:
You have asked my advice regarding whether a member of the board of directors of a 501 ( c) corporation is required to refrain from voting to appoint an executive director where one of the candidates for the position is the husband of the board member. I am enclosing a copy of Gilbert v. McLeod Infinnary, 219 S.C. 174, 64 S.E.2d 524 (1961) which establishes the standard of conduct for directors of an eleemosynary corporation. In Gilbert, the Court held that where a member of the board of a non-profit corporation participated in the vote of the Board to convey to himself certain property of the corporation, such action was voidable. The Court stated: "Undoubtedly the directors of a corporation in the management of the corporate affairs occupy a position of extreme trust and confidence and exercise great power for good or bad over the corporation and its shareholders." 64 S.E.2d at 528. By voting on the matter, the Court held that the trustee's "... conduct failed to measure up to the high standard required by the law of one in .his fiduciary relation to the hospital." Supra at 531.

REMBERT

c. DENNIS BUILDING

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POST OFFICE Box 11549

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COLUMBIA,

s.c. 29211-1549

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TELEPHONE:

803-734-3970

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FACSl~llLE: 803-253-6283

The Honorable Kenneth Kennedy
Page 2
June 16, 1995

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It is my understanding that the member disqualified herself from participation in the screening of candidates to avoid the appearance of a conflict of interest. This recusal was wise, and I believe warranted in view of the stem language and holding of Gilbert stated above. Certainly, the corporation would not want to jeopardize its 50l(c)(3) status, nor the receipt of federal and state funds, and it would thus be prudent to check with those persons who exercise authority over the corporation's receipt of those funds with respect to any specific prohibitions or guidelines regarding the appearance of conflicts of interest. In any event, it would be my advice, consistent with Gilbert, that recusal and abstention from any participation would be appropriate in the actual selection process. This letter is an informal opinion only. It has been written by a designated Assistant Deputy Attorney General and represents the position of the undersigned attorney as to the specific questions asked. It has not, however, been personally scrutinized by the Attorney General nor officially published in the manner of a formal opinion. With kind regards, I am Very truly yours,

Robert D. Cook
Assistant Deputy Attorney General

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RDC/an
Enclosure