Importance of a good current constitution
By Keith Roberts, Consultant, NFP Analysts Pty Ltd
Recently, several organisations sought help from us for strategic initiatives only to find that achieving those initiatives had been made more difficult because of their constitutions.
Problems included:
• An organisation’s plan to save costs by linking its board election to the mailing of its regular magazine was complicated because under the constitution the board did not control the closing date for nominees who could submit after the mailing date for the magazine, forcing a duplicate mailing.
• Two organisations were frustrated in their efforts to build the capacity of their boards because their constitutions allowed nominations from the floor of the AGM for any vacancies on their boards meaning persons irrespective of their experience and appropriateness could finish up on the board.
• An organisation with a growing membership base faced a disenfranchised membership because under the constitution the board was appointed by unrelated organisations.
• A user-group established for a community voice to providers was, because of vague definitions in its constitution, open to providers becoming members alongside the users.
• An organisation limited the number of proxies any individual could hold but did not in the constitution exclude the Chair from this limitation. Hence the growing community practice of members appointing the Chair as their proxy because the law requires the Chair to exercise the proxy vote in a poll could see a ‘Catch 22’ of their proxy vote being negated but having to be exercised.
Good practice is for managers and boards continually to be referring to their constitution to guide their actions. Disturbingly, too many organisations appear rarely to refer to their constitutions so is it any wonder they have problems and run into major difficulties when trying to implement strategic initiatives.
Common problems with constitutions arise because:
The law changes – as an example, recent court decisions have indicated that constitutions cannot restrict who can be appointed a proxy thus raising questions with the many constitutions that require proxies be members of the organisation.
Errors, omissions and lack of clarity emerge – usually these arise from poor drafting but a common cause is where amendments are made without their impact on the rest of the constitution being assessed.
Strategic needs change as organisations evolve over time. Some changes may occur periodically like adjusting the size and composition of the board. Other changes may be more once-off like, the growing tendency for federations to move to single entities.
Good practices change and should be reflected in what the constitution allows as, for example, is occurring at present with the growing popularity of direct voting to allow members to express their opinion at general meetings directly rather than through proxies.
Constitutions are critical for Not for Profits. They are the fundamental legal mortar that binds members, directors and the organisation and are vital for securing various tax benefits. Because of the rate of change of legislation, of good practices and of community expectations, increasingly there is a need routinely to review constitutions to ensure they continue to work for the benefit of the organisation, not to its detriment.
The examples above, all of which come from constitutions introduced in recent years, show that when reviewing constitutions you not only need advice from someone who understands the relevant law, you need advice from people who have direct experience with, and can guard against, the peculiar complications that can arise in Not for Profit constitutions.
NFP Analysts is a member of Associations Forum, for more information please contact Keith Roberts, kroberts@nfp.net.au.
Constitutions are critical for Not for Profits. They are the fundamental legal mortar that binds members, directors and the organisation and are vital for securing various tax benefits. Because of the rate of change of legislation, of good practices and of community expectations, increasingly there is a need routinely to review constitutions to ensure they continue to work for the benefit of the organisation, not to its detriment.
Recently, several organisations sought help from us for strategic initiatives only to find that achieving those initiatives had been made more difficult because of their constitutions.
Problems included:
* An organisation’s plan to save costs by linking its board election to the mailing of its regular magazine was complicated because under the constitution the board did not control the closing date for nominees who could submit after the mailing date for the magazine, forcing a duplicate mailing.
* Two organisations were frustrated in their efforts to build the capacity of their boards because their constitutions allowed nominations from the floor of the AGM for any vacancies on their boards meaning persons irrespective of their experience and appropriateness could finish up on the board.
* An organisation with a growing membership base faced a disenfranchised membership because under the constitution the board was appointed by unrelated organisations.
* A user-group established for a community voice to providers was, because of vague definitions in its constitution, open to providers becoming members alongside the users.
* An organisation limited the number of proxies any individual could hold but did not in the constitution exclude the Chair from this limitation. Hence the growing community practice of members appointing the Chair as their proxy because the law requires the Chair to exercise the proxy vote in a poll could see a ‘Catch 22’ of their proxy vote being negated but having to be exercised.
Good practice is for managers and boards continually to be referring to their constitution to guide their actions. Disturbingly, too many organisations appear rarely to refer to their constitutions so is it any wonder they have problems and run into major difficulties when trying to implement strategic initiatives.
Common problems with constitutions arise because:
The law changes – as an example, recent court decisions have indicated that constitutions cannot restrict who can be appointed a proxy thus raising questions with the many constitutions that require proxies be members of the organisation.
Errors, omissions and lack of clarity emerge – usually these arise from poor drafting but a common cause is where amendments are made without their impact on the rest of the constitution being assessed.
Strategic needs change as organisations evolve over time. Some changes may occur periodically like adjusting the size and composition of the board. Other changes may be more once-off like, the growing tendency for federations to move to single entities.
Good practices change and should be reflected in what the constitution allows as, for example, is occurring at present with the growing popularity of direct voting to allow members to express their opinion at general meetings directly rather than through proxies.
The examples above, all of which come from constitutions introduced in recent years, show that when reviewing constitutions you not only need advice from someone who understands the relevant law, you need advice from people who have direct experience with, and can guard against, the peculiar complications that can arise in Not for Profit constitutions.
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