BETTER BOARDS 2014

RIP THE NFPMEMBER?

Brian HerdCRH LawLevel 10, 193 North QuayBrisbane Qld 4000

P: 07 3236 2900E: bherd@crhlaw.com.au

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What If?

Your members were abducted by aliens?Would your organisation notice if they

were gone?Would anyone pay to get them back?Would anyone notice if they did come

back?

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Slightly Different What If?

Your members were abducted by aliens the day before your AGM?

Would your organisation notice if they were gone?

Would anyone pay to get them back?Would anyone notice if they did come

back?

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The ‘Members’ Menu

• The NFP Member Landscape– Who are we talking about– What are we talking about

• What is happening with membership of NFP’s• The signs of decline• The perils of members• The power of members• The future

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‘Members’ – the Who

• Not talking about

– ‘Members’ of the Board

– Staff

– Others eg donors & supporters

• Are talking about

– People who pay their annual subscription to be a member

– Entitled to attend AGM and vote

– Entitled to vote for & be Board members

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‘Members’ – the What

• Types of NFP’s

– Clubs

– Pastimes

– Passions

– Causes

– Virtuals

– Peaks

– Professionals

– Community Businesses

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‘Members’ - the What (cont)

• NFP’s missionary position

– Raison d’etre is to either:Serve the members

eg clubsServe the community

eg aged care

Serving the Communitythrough a Community

Business

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The Community Business

• A ‘reaching out’ organisation– extroverted not introverted– needy services to the community– in the ‘helping’ sphere– self funded/govt funded– held in high public esteem (generally)– denominational, ethnic or community driven– from microscopic to massive in size– infiltrated throughout the country– have ‘history’– The three ‘C’s’ cleavage - commerciality/christianity/community– can’t do without– Members – what & who are they?

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The Community Business

• Legal Structures– Unincorporated association– Incorporated association– Letters patent– Cooperative– Company limited by guarantee

• They all have members!

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The Common Community Business

• The Incorporated Association

– Each state and territory has legislation

– Prescribed structureMinimum number of members between 5 & 7 (except

Tas & SA)Committee of ManagementConstitution

• A form of democracy?

• A sense of ownership?

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Common Community Business (cont)

• The Company Limited by Guarantee– Corporations law– Prescribed structure

Minimum number of members - 1Board of DirectorsConstitution

• A form of democracy?• A sense of ownership?

The State of Members in the NFP World

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But First – A Comparison

The For Profit World•Public & private companies•Member (shareholder) ascendancy

– Increasing hegemony and power– Democracy (sort of), ownership & financial investment

•Board paranoia– Accountable to members – Increasing trend for members to sue boards in class or derivative actions

•Members not just passive dividend recipients anymore– They’re part of the ‘shareholder activism’ movement

•Arise the Age of the For Profit member!– The age of member rights (& retribution)– Board responsibility & accountability

The NFP Member?

Obsolescence & Obscurity

(planned & unplanned)

The signs are that NFP’s are ignoring or discounting the role and value of their

members

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NFP Member Obsolescence

The Signs

•Membership decline

•Converting legal structures

•Variations on the NFP model

•Growth in ‘clayton’s’ members

•Social media

•Govt emphasis on commerciality (outcomes) not community (altruism)

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Sign - Member Decline

• Membership of NFP’s is declining

• Because

– ‘Joining’ is redundant to contributing

– Shift in how to effectively participate

– From active to passiveCheque book members

– A hibernating role

– Member engagement a lost art and cause

– Hijacked by the ‘just find me the money’ mantra

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Sign – Conversion Rates

• Lawyers have shown us the light!– best way to quell pesky members is to reduce their

numbers• How?

– Convert from Inc Assoc to Coy ltd by GuaranteeOnly need 1 member at best

• Increasing trend for conversion

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Sign - Variations on the Model

• The Self Perpetuating NFP– Two hats

Members are the BoardBoard are the members

– Board members aren’t elected (really) they’re recruited– Bare minimum membership– Commercially nimble

• Organisation has a big head– and a little tail; &– little formal accountability

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Sign -Variations on Model (cont)

• The NFP Subsidiary– usually coy limited by guarantee– only needs one member

the parent NFP– established to operate separate service– remits ‘gifts’ to parent NFP

• No democracy• Only one ‘owner’• Disconnects & distances services from member involvement• All head and no tail

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Sign - Variations on Model (cont)

The For Not for Profit For Profit•NFP establishes a Pty Ltd company

– To operate some commercial business– NFP is sole shareholder– Funds parent NFP by dividends

•Encouraged by court decisions re ATO– Word Investments case

•Members of NFP are disenfranchised •No control over for profit entity

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Sign - Claytons Members

The Morphing of Membership

•Member competitors

– Supporters

– Donors

– Volunteers

– Partners

– Followers

– Bequesters (“Thinking of dying then…)

– Involvers

– Eventers

– Granters of wishes

•Donations and physical support

– beats the $10 annual membership subscription fee any day

•It’s about ‘just show me your money or your time’ not your subscription

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Sign - Claytons Members (cont)

Don’t believe me?•Alzheimers Australia Qld Web Site

“Get involved – Qld–Here are some ways you can help:

Become a regular giver Make a one-off donation Make a gift in memory of a friend or relative Celebrate a special occasion Leave a bequest Fundraise for us Become a sponsor” The ‘ABBA’ ethos – money money money But, excuse me, can I become a member?

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Sign - Social Media

Internet – Social Media•The new currency of interest for the interested

– not membership•NFP’s are not chasing members

– They’re engaging twitter followers•Internet used to be a controlled one way information and messaging service

– Now you can exchange & converse with millions– You can join a conversation without joining an org’n

•Nothing special about being a member when anyone can:– Access your favourite NFP on line– Read your annual report on line– Express views on line

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Sign – Government Expectations

What does Government think of Members?•Government is crucial to your survivability in many cases•It:

– assesses you against standard criteria for doing the job– puts expectations on you in funding contracts

•When was the last time your saw the following criterion in a Tender document or Funding agreement:

– Must have active member engagement program•It’s not relevant to ‘outcomes’ or to the target market – the community

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Sign – The Killer Question

LIST 5 REASONS WHY I WOULD BENEFIT FROM BECOMING A MEMBER OF YOUR ORGANISATION

AND YOUR IMMEDIATE ANSWERS ARE?

1

2

3

4

5

WHY WORRY?WHAT’S THE FUSS

BRIAN?

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Why Worry – What’s the Fuss?

• If they’re surplus to an NFP’s efficient requirements does it matter that members are moribund?

• After all:– The Board is a benevolent oligopoly – The Board is usually made up of members anyway– The Board is accountable to the law

why do they have to be accountable to members as well– The Board knows best (look at their corporate governance manual on that shelf over

there)– Members have no idea

They just get in the way – they’re trouble (see later slides)– Boards do better looking forward with both eyes

rather than looking with one eye on the future and one eye on their members

Message

Ignore your members at your Peril!

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The Perils of Ignoring Members

• Beware

–They are compulsory

–The power of membersBoard aversion therapy

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Compulsory Members

• You can’t avoid having them• Even if they are just members of the parent NFP:

– they can still influence what happens in subsidiaries• Many NFP’s have to live with historical membership

rights created when the organisation was more engaging– Example – where members are Directors, volunteers

and clients– Makes change difficult

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Power of Members

• Traditional powers re:

– Their one day in the sun – The AGM

– Electing Board members

– Challenging Board decisions

– Sacking the Board

– Converting legal structure

– Changing the Constitution

– Approving ‘restructuring’

– Winding up

• All of these can massively impact on the operations of an NFP

• PS – they can also be a pool of talent for the Board

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Power of Members (cont)

• Practical power of members

“Bugger, they’ve got members!”

(Quote from a CEO of an acquisitive NFP when it was discovered the target NFP had 123 paid up

members)

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Power of Members (cont)

• Commercial power– Fact

Merging, amalgamating or takeovering only way for many NFP’s to survive in future

– FactCan’t usually happen without unequivocal support of the members

• Your future is nothing if – the members are not on board with the Board when it’s time to face reality

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Power of Members (cont)

Example 1 – Membership Trading•Takeover of small rural NFP aged care provider by bigger NFP•Strategy was to keep target in place & not wind up

– but replace Directors and Members with reps of the acquirer NFP•Required all 24 members to resign their membership

– 15 agreed and 7 did not•Only way dissidents would agree was if allowed to become members of the acquiring NFP

– UGLY

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Power of Members (cont)

Example 2 – Boomerang Members•Takeover of one NFP by another in a regional home care sector•Target had been around for over 50 years

– They were a household name in the community•Members agreed to takeover

– but only after the acquiring NFP signed a Deed Poll•Deed Poll

– Provided that if the new NFP ceased operating in the region it: must transfer the name to another entity which operated a similar community service in the area; and Must pay a sum of money equivalent to the current market value of the old NFP’s real property to the similar

community service provider

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Power of Members (cont)

Example 3 – Members Bite•Takeover of one NFP by another •Target’s Constitution allowed staff to be members of organisation•Board sought approval of members to takeover and wind up•Lost the vote at a GM as staff members

– Concerned for their jobs– ‘did their homework’ & got supporting members to meeting– AND put up a successful motion as well to sack the Board and replace them with their own

nominees see s203D of Corporations Act

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Should we be concerned?

• There is a perfect storm brewing:– Members power to change or obstruct the course of an organisation’s future

COMBINED WITH– The need for organisations to make formative decisions about their future like never before

• Intelligent and sensible decisions cannot be made unless the members are on side• They are crucial to your future success or failure

– THEY CANNOT BE IGNORED– MAYBE TIME FOR SOME MEMBER ENGAGEMENT; or– JUST GET RID OF THEM (or most of them)

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Ponder This

If after hearing this presentation you believe that:

“Active members are the lifeblood of any organisation. It does not matter if the organisation’s purpose is business, social, political, advocacy or any other goal.

Without active members an organisation will die.”

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Then Don’t Do This

Minute of a Board Meeting of a healthy lifestyle organisation (USA):

“Item 6

Membership

It was discussed that, as advocates for and believers in a healthy lifestyle, members should be seen as good examples of such a lifestyle.

Resolution

It was resolved that a motion be put to the next general meeting of the organisation to amend the Constitution so that a qualification for all members to be, or remain, a member is to have a body mass index (BMI) no higher than 22”

The Fate of your Future could be in the hands of your Members not your

Board Brian HerdCarne Reidy Herd LawyersLevel 10, 193 North QuayBrisbane Qld 4000

P: 07 3236 2900E: bherd@crhlaw.com.au