BETTER BOARDS 2014 RIP THE NFP MEMBER?

1. BETTER BOARDS 2014RIP THE NFPMEMBER? Brian Herd CRH Law Level 10, 193 North Quay Brisbane Qld 4000 P: 07 3236 2900 E: bherd@crhlaw.com.au

2. 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?

3. 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?

8. 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

9. ‘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

10. ‘Members’ – the What • Types of NFP’s • Clubs • Pastimes • Passions • Causes • Virtuals • Peaks • Professionals • Community Businesses

11. ‘Members’ - the What (cont) • NFP’s missionary position • Raison d’etre is to either: • Serve the members • eg clubs • Serve the community • eg aged care

12. Serving the Communitythrough a Community Business

13. 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?

14. The Community Business • Legal Structures • Unincorporated association • Incorporated association • Letters patent • Cooperative • Company limited by guarantee • They all have members!

15. The Common Community Business • The Incorporated Association • Each state and territory has legislation • Prescribed structure • Minimum number of members between 5 & 7 (except Tas & SA) • Committee of Management • Constitution • A form of democracy? • A sense of ownership?

16. Common Community Business (cont) • The Company Limited by Guarantee • Corporations law • Prescribed structure • Minimum number of members - 1 • Board of Directors • Constitution • A form of democracy? • A sense of ownership?

17. The State of Members in the NFP World

18. 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

19. The NFP Member?Obsolescence & Obscurity(planned & unplanned)

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

21. 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)

22. Sign - Member Decline • Membership of NFP’s is declining • Because • ‘Joining’ is redundant to contributing • Shift in how to effectively participate • From active to passive • Cheque book members • A hibernating role • Member engagement a lost art and cause • Hijacked by the ‘just find me the money’ mantra

23. Sign – Conversion Rates • Lawyers have shown us the light! • best way to quell pesky members is to reduce their numbers • How? • Convert from IncAssoc to Coy ltd by Guarantee • Only need 1 member at best • Increasing trend for conversion

24. Sign - Variations on the Model • The Self Perpetuating NFP • Two hats • Members are the Board • Board 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

25. 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

26. 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

27. 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

28. 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 moneymoney • But, excuse me, can I become a member?

29. 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

30. 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

31. 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

32. WHY WORRY?WHAT’S THE FUSSBRIAN?

33. 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

34. MessageIgnore your members at your Peril!

35. The Perils of Ignoring Members • Beware • They are compulsory • The power of members • Board aversion therapy

36. 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

37. 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

38. 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)

39. Power of Members (cont) • Commercial power • Fact • Merging, amalgamating or takeovering only way for many NFP’s to survive in future • Fact • Can’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

40. 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

41. 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

42. 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

43. 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)

44. 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.”

45. 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”

46. The Fate of your Future could be in the hands of your Members not your Board Brian Herd Carne Reidy Herd Lawyers Level 10, 193 North Quay Brisbane Qld 4000 P: 07 3236 2900 E: bherd@crhlaw.com.au