The very mention of the Constitution in a board meeting is usually met with dread. It typically means either that a conflict has risen to the point where the Constitution must be consulted, or it means that someone is pointing out an area of noncompliance that has gone unnoticed for years. This Checklist points out some of the necessary elements in a Constitution.
Because regulations about nonprofit Constitutions are different from State to State and are also dependant on whether you are operating in a Public Company or Incorporated Association structure, there is quite a bit of variation. It’s important to obtain the applicable organisation structure laws and make sure that your Constitution is in compliance.
Three overall guiding principles for nonprofit Constitutions:
Don’t put too much in the Constitution. If you specify a board committee in the Constitution, for instance, and there hasn’t been such a committee in a few years, someone could claim that you are in violation of your own Constitution. Or, along the same lines, if the Constitution states that meetings will be held on the third Wednesday of each month, you can’t change to Thursdays without a change in the Constitution.
Remember that if trouble erupts — such as internal conflict or attacks from others — the Constitution will become very important. So make sure they are reviewed approximately every three years. Because board officer terms make it hard for the board to keep track of Constitution revisions, have this duty included as a responsibility of the CEO or Company Secretary.
Immediately attach any changes made to the Constitution to the master copy kept by the CEO or Company Secretary, and make sure that ASIC is informed if your organisation operates as a Public Company. Too often everyone forgets about changes to the Constitution.
Here is a checklist to ensure some of the most important provisions (which are often absent) are included in your Constitution.
Indemnification. A statement that limits the personal liability of board members.
Details about the organisation members and, what their rights are. For example, in a true membership organisation, members have the right to elect officers. Even if you don’t have members with legally enforceable membership rights such as voting rights, you can still have people called “members,” but the distinction should be clarified in the Constitution.
Minimum and maximum number of board members. Example: minimum of four and a maximum of twelve board members.
The number required for a quorum. A quorum is the minimum number of board members who must be present for official decisions to be made. For example, if an organisation currently has twelve members, and the Constitution state that one-third of the members constitutes a quorum, then official decisions can only be made at board meetings where four or more members are present.
Terms and term limits. Example: two years, with term limits of three consecutive terms (making a total of six years); after a year off, a board member may be permitted to return. Similarly, terms can be staggered so that, for instance, one-third of the board is up for re election each year.
Titles of officers, how the officers are appointed, and their terms. Example: appointed by majority vote at a regular meeting of the board; an officer term is for one year with a maximum of two consecutive officer terms.
Procedure for removing a board member or officer. Example: by majority vote at a regularly scheduled meeting where the item was placed on the written agenda distributed at least two weeks ahead.
Conflict of interest policy. Alternatively, many Constitutions simply state that there will be a conflict of interest policy but keep its exact wording out of the Constitution.
Minimum number of board meetings per year. Example: four, with one in each quarter.
How a special or emergency board meeting may be called.
How a committee may be created or dissolved.
What committees exist, how members are appointed, and powers, if any. It may be easiest not to specify committees in the Constitution at all; instead, permit the board to create and dissolve standing and temporary committees as it sees fit. As a result, the Constitution need not be changed each time a committee is created or changed.
Conference calls and electronic meetings. Example: votes by e-mail or web forum are prohibited. Meetings may be held by conference call if all members can simultaneously hear one another. As Internet usage grows, some boards are adding sections to the Constitution that describe how to hold a board meeting on the Internet, or whether and how decisions can be made by e-mail or circular resolution where 100% of the directors vote in favour of a resolution or the matter must be moved to a regular meeting for discussion.
Include a Statement of Beliefs or Faith if your organisation is faith based and require that all board members and staff actively live consistently with this statement. This is particularly important if your organisation has charitable status as a religious organisation.
Each board member should be given a copy of the Constitution. Some organisations also post their Constitution on a password-protected section of their website.
Every few years, review the Constitution. Occasionally, individuals are invited to join boards without much scrutiny and are later found to be disruptive and destructive. Too often the board looks to the Constitution to see how to remove such a person, only to discover that the Constitution was written twenty years ago (and seldom looked at since) and have no such provision. Appropriate changes to the Constitution should be recorded in the board minutes, added to copies of the Constitution, and, in some cases, reviewed by a legal firm experienced in nonprofit law.