Committees and the Power of Society Members

What is the issue? A question reasonably frequently asked of me is whether a general meeting of members can over-rule decisions of a society’s executive committee or direct the committee to do something.  Such questions are not capable of a definite answer, and before trying to respond to them I always look at the society’s constitution which may or may not provide an answer (as the relationship between the executive and a general meeting may be prescribed in the constitution). General principles There are some relevant general legal principles, covered in my Law of Societies text (footnotes are omitted, but case references are inserted): 6.2.3      General meetings of a society and its executive The relationship between the members in general meeting and the executive needs to be clearly understood, as some members of an executive act as if they are laws unto themselves. This can, unfortunately, become part of the culture of a society, but should not, as the executive must always be subservient and accountable to the membership at large through general meetings of members. This point is illustrated by [a] decision involving companies [Re South British Insurance Co Ltd (1980) 1 BCR 286 at 288] — with the quotation adapted to societies: An annual meeting of the [members of a society] is an important event. Not only is there a statutory obligation on the [society] to call such a meeting, it contracts with its [members] by its [rules] that it will do so. It is the one occasion in the year when the [members] have a right to meet the [executive] and to question them on the...

Prudent Charitable Trustees

Prudent trustee obligations In Re Mulligan (Deceased) [1998] 1 NZLR 481 a trustee company, along with the executors of a widow trustee’s estate, were held liable for the financial consequences of failing to preserve the capital value of the testator’s estate and ordered to pay the estate’s residuary beneficiaries the estimated losses: The testator died in 1949 leaving his widow a substantial legacy and a life interest in a farm with nephews and nieces as residual beneficiaries.  The trustees of the estate were a trustee company and the widow.  The farm was sold in 1965 and the estate invested in fixed-interest securities until the widow died in 1990.  Between 1965 and 1990 different trust company officers tried to persuade the widow to invest shares to counter inflation but she adamantly refused to agree or allow direct contact with beneficiaries by the trust company.  The widow bought a rental property in 1965, her own home with a rental flat in 1972 and (unknown to the trust company) owned significantly valuable shares.  At the widow’s death, the capital of the testator’s estate was in real terms a small proportion of what it had been in 1965. The well-known principles arising from this case are: The “duty of trustees to act with due diligence and prudence in the discharge of their duties,” The separate responsibility of each trustee, it being “elementary that a duty of diligence rests on each trustee,” and The “duty of impartiality”, it being “elementary that a trustee must act with strict impartiality and endeavour to maintain a balance” between the interests of different beneficiaries or, “Put another way,...

The “Pecuniary Gain” Conundrum in Society Law

Statutory provisions Section 20(1), Incorporated Societies Act 1908, provides that “No society shall do any act of such a nature that if the doing thereof were one of the objects for which the society was established the members of the society would be deemed to be associated for pecuniary gain within the meaning of sections 4 and 5 hereof.”  Those sections relevantly read as follows (emphasis added): 4.  Incorporated societies— (1)  Any society consisting of not less than 15 persons associated for any lawful purpose but not for pecuniary gain may, on application being made to the Registrar in accordance with this Act, become incorporated as a society under this Act. 5.  Pecuniary gain— Persons shall not be deemed to be associated for pecuniary gain merely by reason of any of the following circumstances, namely: (a)  That the society itself makes a pecuniary gain, unless that gain or some part thereof is divided among or received by the members or some of them: (b)  That the members of the society are entitled to divide between them the property of the society on its dissolution: (c)  That the society is established for the protection or regulation of some trade, business, industry, or calling in which the members are engaged or interested, if the society itself does not engage or take part in any such trade, business, industry, or calling, or any part or branch thereof: (d)  That any member of the society derives pecuniary gain from the society by way of salary as the servant or officer of the society: (e)  That any member of the society derives from the society any...

Governance Propriety for Not-for-Profits

Beyond just conflicts of interest I discussed the management of conflicts of interest in societies and charities in an earlier article.  Apart from conflicts of interest, there may be conflicts of loyalty arising from the other activities or commitments of people in governance, and these also need to be recognised and managed.  Both types of conflict also need to be considered in the wider context of the legal and moral obligations of those in governance. Duties of those governing a not-for-profit Those “… duties have often been broadly described as the duty of care, the duty of loyalty, and the duty of obedience” (Joining a Nonprofit Board – What You Need to Know, Epstein and McFarlan, 2011, and other quotations in this article come from this source).  Three core responsibilities in realising a not-for-profit’s purposes are to develop and oversee delivery of the mission, being accountable for mission performance and financial sustainability, and evaluating the performance of senior staff. While realising the purposes and mission are the key drivers for both for-profits and not-for-profits, there are key differences: For-profit entity: Realising the purposes (mission) produces cash Success in realising the purposes (mission) is measured in cash earned,   and retaining and growing the customer base Without cash the entity fails Not-for-profit entity: Realising the purposes (mission) consumes cash Success in realising the purposes (mission) is measured in the services   provided and the numbers of “clients” served Without cash the entity fails A not-for-profit’s purposes are primary and must be at the forefront of all governance thinking and actions, but financial skills are also critical in providing and managing resources to realise the...