Presidential Appointment of the Board of Directors

of Radio Free Europe/Radio Liberty, Inc.

Statute conditioning further funding of Radio Free Europe/Radio Liberty, Inc. on the President’s 

selection of its Board of Directors would not underm ine the public purposes of this nonprofit 

corporation, and it is therefore unlikely that the Delaware courts would strike it down under that 

state’s laws.

August 31, 1982

MEMORANDUM OPINION FOR THE CHAIRPERSON, BOARD FOR 

INTERNATIONAL BROADCASTING

This responds to your request of July 12, 1982, for our opinion whether 

Delaware law would prohibit a proposed amendment to the certificate of incorporation of Radio Free Europe/Radio Liberty, Inc. (RFE/RL) and confirms the 

oral advice I gave you on this subject in July. RFE/RL is a nonprofit company 

incorporated under Delaware law with a private Board of Directors. The Board 

for International Broadcasting Authorization Act for Fiscal Years 1982 and 1983, 

Pub. L. No. 97-241,96 Stat. 273,295 (1982), which was signed last week by the 

President, requires RFE/RL, if it is to receive any future federal funding, to 

amend its certificate of incorporation so that its Board of Directors would be 

selected by the President of the United States, with the advice and consent of the 

Senate. For the reasons set forth in detail below, we believe that it is unlikely that 

the Delaware courts would strike down such an amendment to RFE/RL’s certificate of incorporation.

I. Background

Although RFE/RL is a private corporation, it currently receives over 99 

percent of its operating funds from congressional appropriations' and is subject to 

numerous federal restrictions on its operations as a condition for this funding. 

This unusual hybrid of private and public control is largely an historical artifact. 

Over 30 years ago the Office of Policy Coordination, and later the Central 

Intelligence Agency (CIA), established and secretly funded two separate, nonprofit corporations, Radio Free Europe and Radio Liberty, which were the

1 According to your letter, its current budget request is for more than $95 million, although private contributions 

have never exceeded $200,000 per annum since 1975.

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historical antecedents of RFE/RL.2 In 1973, after Congress had by legislation 

directed that all connections between the CIA and the two corporations terminate, Congress created the Board for International Broadcasting (BIB) to oversee 

the funding and operation of these two radio stations. See Pub. L. No. 93-129,87 

Stat. 456 (1973), 22 U.S.C. §§ 2871-2879. Subsequently, Radio Free Europe 

and Radio Liberty merged to become RFE/RL, over which the BIB retained 

funding and oversight authority.

As provided in the 1973 Act, as amended, the BIB is composed of five 

members appointed by the President with the advice and consent of the Senate. 

The BIB has general authority to assure that RFE/RL is operated efficiently and 

consistently with the broad foreign policy objectives of the government. See 22

U.S.C. § 2873 (1981). Pursuant to this authority, the BIB has promulgated 

regulations which make RFE/RL “ responsible for assuring compliance of its 

operations with the policy guidelines” established by the BIB and which provide 

for any remedial action the BIB determines is necessary because of violations of 

these guidelines. 22 C.F.R. § 1300.6(c)-(f). The Chairperson of the BIB may 

also veto any nomination made by the RFE/RL nominating committee for a 

position as an officer of RFE/RL, and, under the by-laws of RFE/RL, as a new 

director.3 Finally, the regulations require that RFE/RL obtain the approval of the 

BIB before it amends its certificate of incorporation. See 22 C.F.R. § 1300.13(c).

These overlapping lines of authority have resulted in continuing disagreements 

between the BIB and the Board of Directors of RFE/RL over the goals and 

operation of RFE/RL. The Board of International Broadcasting Authorization 

Act for Fiscal Years 1982 and 1983 would resolve these conflicts by granting the 

BIB absolute authority over RFE/RL. Under § 403(a) of the Act, RFE/RL is 

required, as a condition for future funding from the BIB, to amend its certificate 

of incorporation so that the members of the BIB serve as RFE/RL’s Board of 

Directors.4 Since the Board of Directors of RFE/RL are also the members of 

RFE/RL, see RFE/RL, Inc., By-laws, § 2.1, this would give the BIB complete 

control of the corporation. Moreover, the Board of Directors of RFE/RL would be 

appointed by the President of the United States and would be removable by the 

President at his pleasure.

In response to this legislation, RFE/RL solicited an opinion from its Delaware 

counsel whether Delaware law would permit the continued incorporation of 

RFE/RL were this amendment to RFE/RL’s certificate of incorporation to be 

adopted. You have provided us with a copy of that opinion. See Opinion of Potter,

2 Radio Free Europe, Inc. was incorporated under New York law, while Radio Liberty Committee, Inc. was 

incorporated under Delaware law

3 The regulations provide that the Chairperson shall serve as an ex officio member of the Board of Directors and as 

a voting member of the nominating committeeforthe nomination of officers.See 22C FR . § 1300.9(b). Becauseall 

nominations must receive the unanimous consent of the members of the nominating committee before they may be 

presented to the Board of Directors, the Chairperson can veto any nomination for an officer's position in the 

corporation. The by-laws of RFE/RL also provide that the Chairperson of the BIB shall serve as a voting member of 

the nominating committee for all purposes, thereby permitting him to veto any nomination for director as well. See

RFE/RL, Inc , By-laws, § 3.l3.1(b)(i)

4 The Act would also increase the number of BIB members to ten, nine of whom would be appointed by the 

President The tenth member, who would serve ex officio without voting rights, would be the chief executive officer 

of RFE/RL. See Pub. L. No. 97-241, 96 Stat. 273, 296 (1982).

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Anderson and Carroon, dated May 28, 1982 (Delaware opinion). The Delaware 

opinion states that it is a “ fundamental concept” of nonprofit corporation law that 

directors or members of nonprofit corporations may not delegate to outsiders 

those duties that lie at the heart of the management of the corporation. Since the 

selection of a corporation’s directors is one of the most important decisions 

regarding the operation of the corporation, the Delaware opinion concludes that 

Delaware law does not permit the directors of a nonprofit corporation to be chosen 

by the “ holder of an office,” such as the President of the United States, “who is 

neither associated with nor interested in the operations of the corporation and 

whose decision[s] would be governed by considerations different from and 

potentially adverse to the best interests of the corporation.” Delaware opinion 

at 5.

II. Dtelegatnoim of Corporate DecnsDoms

The analysis in the Delaware opinion is based on the traditional doctrine 

restricting directors of for-profit corporations from delegating management decisions to outsiders. See Del. Code Ann. tit. 8, § 141(a)(1974). Under the 

Delaware opinion’s reasoning, the Delaware courts would extend this doctrine to 

prohibit the directors of RFE/RL, a nonprofit corporation, from delegating the 

selection of new directors to the President of the United States. As the Delaware 

opinion recognizes, however, the organization of and laws governing nonprofit 

corporations are different from those governing for-profit corporations. The 

Delaware General Corporation law, which regulates nonprofit corporations as 

well as for-profit corporations, specifically states that the certificate of incorporation of a nonstock corporation “ may . . . provide that the business and affairs of 

the corporation shall be managed in a manner different from that provided in this 

section.” Del. Code Ann. tit. 8, § 141 (j). The Delaware General Corporation law 

also provides that the certificate of incorporation of a nonstock corporation may 

alter the general rule that each member shall have one vote. Del. Code Ann. tit. 8, 

§ 215. Thus, nonprofit corporations have greater latitude under Delaware law in 

their organizational structure than for-profit corporations, although the absence 

of relevant case law leaves unclear what limits the Delaware courts would 

ultimately place on the organization of nonprofit corporations in a particular 

context. Accordingly, in reviewing the proposed amendment, we will examine 

the underlying purpose of the restriction on managerial delegations and attempt 

to assess how the Delaware courts would apply this restriction to a nonprofit 

corporation like RFE/RL. We will then consider the relevance of the two cases 

relied on in the Delaware opinion.

A. Delegation c f Managerial Decisions in a For-Profit Corporation

The restriction on the delegation of managerial decisions is derived from Del. 

Code Ann. tit. 8, § 141(a), which states that “ [t]he business and affairs of every 

corporation organized under this chapter shall be managed by a board of direc514
tors, except as may be otherwise provided in the other provisions in this chapter 

or in its certificate of incorporation.” By providing that a separate group such as 

the directors manage the corporation, the section furthers two objectives. First, it 

assures that the business affairs of the corporation are not managed by the equity 

owners of the corporation. See Abercrombie v. Davies, 123 A.2d 893, 899 (Del. 

Ch. 1956), rev’d on other grounds, 130 A.2d 338 (Del. 1957).

Second, the provision assures that the group which manages the corporation, 

the directors, is nevertheless responsible and accountable to the stockholders. 

This would not be true if an outsider were delegated management duties. In this 

regard, the directors are the agents of the stockholders and owe a fiduciary duty to 

exercise their best judgment in coordinating the affairs of the corporation. See

generally 2 W. Fletcher, Cyclopedia of the Law of Private Corporations, 

§§ 295-296 (rev. perm. ed. 1982). If an outsider or a stockholder were to run the 

management affairs of the corporation, that person would be acting without the 

authority of the stockholders and therefore would necessarily be undermining the 

directors’ “ duty to use their own best judgment on management matters.” 

Abercrombie v. Davies, 123 A.2d at 899. See generally Clarke Memorial

College v. Monaghan Land C o ., 257 A.2d 234 (Del. 1969); Lehrman v. Cohen,

222 A.2d 800 (Del. 1966).

This section, however, does not require that directors make all corporate 

decisions. It obviously would not preclude the stockholders as a group from 

selecting the directors. The selection and removal of directors is not a management decision which must be made by the directors themselves, but a right 

normally vested in the equity owners of a corporation to choose the management. 

See, e.g., Campbells v. Loew’s, 134 A .2d 852, 857 (Del. Ch. 1957). Similarly, 

this section would not prohibit stockholders from selling their stock to individuals who were previously outside the firm, or, subject to the requirements of 

Delaware’s voting trust statute, delegating their choice of directors to outsiders 

while retaining their equity interest in the firm. See Del. Code Ann. tit. 8, § 218. 

See generally Adams v. Clearance Corp., 121 A.2d 302 (Del. 1956); Ringling

Bros. v. Ringling, 53 A.2d 441 (Del. 1947). Finally, under the modem view, 

§ 141(a) would not prohibit the directors from delegating most management 

decisions to outsiders when specifically authorized by the stockholders in an 

amendment in the certificate of incorporation. See Lehrman v. Cohen, 222 A.2d 

at 808. In such a case, the principal (the stockholders) has expressly authorized 

the agent (the directors) to delegate his authority. See 2 W. Fletcher, Cyclopedia 

of the Law of Private Corporations, § 496 (rev. perm. ed. 1982).

B. Delegation c f Decisions in Nonprofit Corporations

Application of § 141(a) to a nonprofit corporation is complicated because the 

provision is intended largely to regulate the operation of a for-profit corporation 

comprised of equity stockholders and a separate board of directors. A nonprofit 

corporation such as RFE/RL, however, has no stockholders. It is managed and

controlled by a self-perpetuating Board of Directors charged with furthering the

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public goals in its certificate of incorporation. In light of these differences, we 

believe that the proposed amendment to RFE/RL’s certificate of incorporation 

would not violate § 141(a) as that provision would be applied to nonprofit 

corporations.

First, it is important to recognize that the proposed amendment would not 

delegate a management decision from the directors of the corporation, but rather 

would delegate the selection of who may make the management decisions. At 

least with respect to for-profit corporations, however, § 141 (a) is intended to limit 

only the delegation of management decisions, not the selection of management. 

Under the proposed amendment, the directors of RFE/RL still would have 

authority over the management of the business affairs of the corporation. They 

merely could be replaced if the President were dissatisfied with their decisions or 

performance, just as the directors of many for-profit corporations can be replaced 

by the stockholders. SeeEverettv. Transnation D eve I. Corp., 267 A.2d 627 (Del. 

Ch. 1970).5

Second, delegating the selection of directors to a person outside a nonprofit 

corporation raises different issues than directors delegating management decisions to outsiders in a for-profit corporation. A director is prohibited from 

delegating a management decision to an outsider largely because this would 

allow a person not selected by the stockholders, for whom the corporation is run, 

to manage its business affairs. In effect, it takes control of the corporation away 

from the stockholders. A nonprofit corporation, however, is operated to pursue 

the public objectives in its certificate of incorporation. Delegating the selection of 

directors to an outsider in a nonprofit corporation such as RFE/RL does not 

remove control of the corporation from the group in whose interest it is operated. 

Rather, in the case of RFE/RL, it merely transfers control from a selfperpetuating Board of Directors, each of whom also holds another institutional 

position, to a person who technically does not hold an institutional position in 

RFE/RL.

Finally, in the unusual facts of this case, placing control of RFE/RL in the 

hands of the President is as likely to protect the public goals of RFE/RL as 

selection by an internal self-perpetuating Board. For all practical purposes, the 

President is an insider for purposes of selecting the directors of RFE/RL. The 

President has prime responsibility for formulating the foreign policy of the 

United States and is specifically charged by statute with selecting directors of the 

BIB “ distinguished in the fields of foreign policy or mass communications.” See

22 U.S.C. § 2872(b)(2).6 He is “ chief executive officer” of the “ organization” 

which supplies essentially all of RFE/RL’s funds. Moreover, if the Delaware 

courts refused to uphold the change, RFE/RL might very well cease to exist, at 

least as incorporated in Delaware. Finally, the existing certificate of incorporation, which the Delaware opinion does not suggest violates Delaware law, already 

gives the President significant control over the operation of RFE/RL through the

5 The distinction between management and the selection of management is inherent in § 141(a), at least in the 

context of for-profit corporations. See Abercrombie v. Davies, 123 A 2d at 899.

6 Under the proposed amendment, no more than five members of the Board may be of the same political party.

516
regulations of the BIB, whose members he selects. Indeed, the BIB itself 

presently exercises, as pointed out above, veto power over the selection of the 

membership of the Board of Directors, a power that the Delaware opinion does 

not suggest to be inconsistent with Delaware corporation law.

In addition, we note that nonprofit corporations incorporated in other states 

have directors chosen by public officials. Many state-related universities in the 

Commonwealth of Pennsylvania, which are incorporated under its nonprofit 

corporation law, have a percentage of their trustees selected by the governor 

pursuant to state law.7 Similarly, members of the Board of Directors of the 

National Science Foundation, incorporated under federal law,8 are chosen by the 

President. Thus, selection of the directors by an elected official does not necessarily, or in our view, even presumptively, undermine the public purposes of a 

nonprofit organization.

Of course, it can be argued that the President may not be as sensitive to the 

journalistic independence of RFE/RL as would be the private Board. Whatever 

policy arguments might be made in favor of an autonomous board, we doubt that 

the Delaware courts would hold this independence to be a requirement for 

RFE/RL to retain its corporate status under Delaware law. Not only are there 

many advantages to presidential selection, as described above, but selection by 

the existing Board does not assure to any greater degree that the public goals of 

the corporation will be faithfully pursued. Unlike equity stockholders in a forprofit corporation, the directors of a nonprofit corporation have no financial 

incentive to make decisions to further the stated goals of the corporation. As the 

Senate report on the Board for International Broadcasting Authorization Act for 

Fiscal Years 1982 and 1983 observes of RFE/RL’s Board, it is a “ self-appointed, 

largely self-perpetuating board of private directors.” S. Rep. No. 7 1 ,97th Cong., 

1 st Sess. 31 (1981). For all of these reasons, we believe that transferring authority 

over selection of directors from the members to the President does not undermine 

the public goals of RFE/RL, and therefore that it is unlikely that the Delaware 

courts would find that it violates § 141(a).

III. Case Law

Finally, we note that the two cases relied on by the Delaware opinion for its 

conclusion are clearly distinguishable because in both cases the delegation raised 

a substantial possibility that the public goals of the nonprofit corporation would 

be undermined.

The first case, In re Osteopathic Hospital Association cf Delaware, 191 A .2d 

333 (Del. Ch.), affd, 195 A.2d 759 (Del. 1963), dealt with an unusual nonprofit 

corporation— the Osteopathic Hospital Association of Delaware. The association’s by-laws allowed only osteopathic physicians to be general members of the

7 See Mooney v. Temple University, 292 A.2d 395,399-400 ( f t 1972) (describing selection of university trustees 

by Governor)

8 See National Science Foundation Act of 1950, Pub. L No. 81-507, § 4, 64 Stat. 149, 150, as amended, 42 

USC. § 1863.

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Association, although the members could elect laypersons to serve on the Board 

of Trustees. As it turned out, a majority of the Board was made up of laypersons. 

Because the Board had authority to amend the by-laws, it voted to make all the 

trustees members of the Association. The chancery court struck down the 

amendment on the ground that “ a change of so fundamental a character in the 

structure of this rather unique organization could not validly be carried into effect 

by the unilateral action of the trustees taken here,” but rather must be achieved by 

submitting the issue to the members as an amendment to the certificate of 

incorporation. See 191 A.2d at 336. The Supreme Court of Delaware subsequently affirmed for the same reasons. See 195 A.2d 759.

In re Osteopathic Hospital Association is distinguishable on two grounds. 

First, the chancery court only held that a fundamental change such as this must be 

achieved through an amendment to the certificate of incorporation ratified by the 

members. See 191 A .2d at 338. The court did not hold that the members could 

not give lay trustees the authority to make decisions on membership.9 Had the 

members specifically amended the certificate of incorporation to allow the 

trustees to make this decision, as the members of RFE/RL would amend its 

certificate of incorporation to permit presidential selection, the amendment 

would, we believe, have been upheld under the court’s analysis.

Second, the chancery court specifically relied on the fact that the delegation 

presented a “ real” “ possibility of abuse.” 191 A.2d at 336. Because the 

Osteopathic Hospital Association was a professional association, there was a 

divergence of interests between the lay board and the professional osteopathic 

members. Thus, the amendment “ seriously impaired a valuable right of these 

[association] members under circumstances suggesting opposition by at least a 

majority of such ‘members.’ ” Id. at 338. In contrast, RFE/RL does not serve any 

private membership interests which would be seriously undermined by presidential selection. It is specifically charged with “ engag[ing] in independent, professionally competent, responsible broadcast journalism, and shall thereby promote 

the right of freedom of opinion and expression . . . .” RFE/RL, Inc., Articles of 

Incorporation at 2. The President stands in a far different position from the 

potentially self-serving lay board in In re Osteopathic Hospital Association.

The second decision on which the Delaware opinion relies, Chapin v. Benwood Foundation, Inc., 402 A .2d 1205 (Del. Ch. 1979), a ffd sub. nom.

Harrison v. Chapin, 415 A.2d 1068 (Del. 1980) (per curiam), involved a 

challenge to a voting agreement among the trustees of the Benwood Foundation. 

Two of the four members of the Board of Trustees of Benwood were officers of the 

Thomas Corporation. The stock of the Thomas Corporation was the sole asset of 

the Foundation. The two other Board members were directors of a Tennessee 

bank with which the Thomas Corporation had close dealings. The trustees 

entered into an agreement whereby each trustee would select his own successor, 

or, in the event he should fail to name a successor, the directors of the institution

9 In affirming the chancery court, (he Supreme Court of Delaware found that the members had “ retained for 

themselves under the 1955 by-laws . ultimate control over the Board of Trustees on the question of who would be 

admitted into the Association " 195 A 2d at 764-65 (footnote omitted).

518
with which he was associated would pick his successor. The arrangement was 

intended to maintain a balance between the officers of the company, who would 

be most knowledgeable regarding the value of the Foundation’s only asset, and 

the bank directors, who would possess an independent perspective on its financial affairs. The arrangement continued in operation through several changes in 

the Board. After the Thomas stock was sold, however, three of the trustees agreed 

to abolish the procedure because the original rationale supporting it had ceased to 

exist. The agreement was subsequently challenged in court.

The chancery court struck down the agreement on the ground that it constituted an improper delegation of the duties of trustees. It gave two reasons in 

support of the decision. First, the justification for this delegation—to keep an 

even split of the institutional backgrounds of the trustees on the Board— had 

ended, and therefore there was no continued need for the arrangement. Second, 

the ratification of this plan by all of the trustees (who were also the “ members” of 

the Benwood Corporation) did not render the agreement valid. Because the 

trustees were not stockholders with an equity interest in the corporation, the court 

reasoned that they could not sanction this fundamental change in the operation of 

the corporation.

It is possible to interpret certain language in the opinion of the chancery court 

in Chapin as prohibiting any delegation of corporate responsibility by a nonprofit 

corporation. We believe, however, that the decision should be limited to its 

facts—that is, a situation in which there is no indication that the delegation would 

serve the public goals of the nonprofit corporation.10 In this regard, we note that 

the Supreme Court of Delaware affirmed the chancery court solely on the ground 

that there was no longer any justification for the agreement, and expressly refused 

to reach “ the other matters argued by counsel.” 415 A.2d at 1069.

IV. Conclusion

We believe that there is no absolute prohibition against members of nonprofit 

corporations delegating decisions to individuals who do not hold office within the 

firm. While there may be restrictions on such delegation in individual cases, the 

delegation proposed in this case would be as likely to protect the public goals of 

RFE/RL as selection by a self-perpetuating Board of Directors. Finally, the cases 

relied on in the Delaware opinion are distinguishable. Accordingly, in our view, it 

is unlikely that the Delaware courts would strike down the proposed amendment.

L a r r y L . S im m s

Deputy Assistant Attorney General

Office of Legal Counsel

10 In its conclusion, the chancery court emphasized that the directors’ agreement could lead to abuse. “ To commit 

themselves in advance— perhaps years in advance—to fill a particular Board vacancy with a certain named person 

regardless of the circumstances that may exist at the time that the vacancy occurs, is not the type of agreement that 

this court should enforce . . .” 402 A .2d at 1211.

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