Bylaws — Helpful or Hurtful?

From a legal standpoint, an organization’s bylaws are one of the most important, if not the most important, document there is relating to the organization. It contains the legal description of what the organization is, how it is organized and how it operates. More importantly, failure to follow the provisions of the bylaws can have devastating legal consequences for an organization and perhaps even for individual board members.

Surprisingly, despite their importance, bylaws are often neglected or misunderstood. For many nonprofit organizations, the bylaws are just some old document, hidden away in a book on the executive director’s desk. They are not read, the provisions are not known, and if they do happen to be read, they are written in such legalese that the normal person cannot understand them. If this description sounds like your organization, then let this be your wake up call!

It is imperative that Board members know what the bylaws say and then work to ensure they are followed by the organization. They should also be reviewed periodically to make sure they are consistent with the corporation law in your state and they accurately reflect the way the organization operations. Do not do this without legal help! As mentioned, bylaws are a legal document. Moreover, they are subordinate to the corporation law of the state – which can change. I recommend that any bylaws review be conducted by a board committee in conjunction with the organization’s legal advisor. Do this annually or no less often than every two years.

As a general rule bylaws should be written with four basic guidelines in mind. The first is consistency. Bylaws must be consistent with Federal, State and local laws and with the provisions of the organization’s articles of incorporation (if you can find them). They must also be internally consistent. Nothing creates more confusion than to have bylaw provisions that conflict. The second guideline is permission, not requirements. Avoid specific requirements in the bylaws and such things as specific structures, activities, and deadlines. These only create problems if they are not followed. Write bylaws in a way that permits actions but does not require them. The third guideline is importance. Keep the bylaws at a level that reflect the most important activities and rules for the organization — do not bog them down in details or minutia like meeting management procedures, etc. The fourth general guideline is currency. Make sure the provisions of the bylaws are current with the mission and activities of the organization and with the changing realities of time and law.

The internet is full of advice from experts on what to include and what to avoid in bylaws. Here is my take on some of the specifics that are important to consider in preparing or reviewing your bylaws.

1. Mission. Do the bylaws reflect the current mission of the organization? You would be surprised at how many times an organization’s mission as stated in the bylaws does not coincide with actual practice. Sometimes missions become outdated or sometimes an organization moves away from its original mission. It is not a good situation when the organization’s espoused mission is not congruent with what it is actually doing. It may even lead to problems with tax exempt status if the original mission stated in the bylaws is also the basis of the organization’s tax exemption and that is no longer what the organization stands for.

2. Members. Nonprofit corporations are not required to have members, but if you do have them, you need to ensure that the rights of the members are clearly delineated and that the rights are not being ignored or abused by the board. Boards have been known to have members sue them for violating their rights and/or benefits.

3. Rules of Order. If yours is one of the thousands of organizations whose bylaws adopt Roberts Rules of Order for the organization, you should understand that when you adopt Roberts, you have just added hundreds of pages of parliamentary minutia to your bylaws. In the last year, I have either read or heard a number of recommendations from attorneys that organization move away from Roberts Rules of Order and create their own procedures which are simpler, more understandable and more straightforward.

4. Adverse Actions. Boards occasionally face situations that call for adverse actions of some sort, including director or member removal. It is imperative that procedures in the bylaws specify how such adverse actions will be conducted and how they will incorporate any due process required by your state. Then the organization must follow the procedures specified. If not followed, bylaws create the basis of a legal challenge to actions taken. At the same time, don’t make these rules so detailed and cumbersome that no one wants to undertake an action that should be taken simply because it is too hard to do. The rule ought to be “simple but fair” when dealing with bylaw provisions concerning adverse actions.

5. Officer Duties. Make sure the descriptions of the officer duties are accurate and current. Do not include a bunch of extraneous duties to make the positions sound important and do not include duties that the officer really does not do. For example, I found one set of bylaws that stated that the Treasurer would deposit all checks. The organization had a full accounting staff, and the Treasurer had not deposited checks in over 50 years. So why keep that language in there? If there is a prescribed duty, and it is not being done, someone may challenge the performance of that officer. Also spend some time accurately describing the job responsibilities of the senior volunteer vis-a-vis the senior member of the staff. Some organizations like to designate the senior volunteer as the chief executive officer of the corporation when in reality that individual does not have the skills, time or wherewithal to carry out the assigned responsibilities. This can lead to poor relations between the ceo and the board chair if duties are not appropriately defined.

6. Committees. To the extent possible don’t create a lot of committees in the bylaws and define their activities and responsibilities. There may changes over time and committees might even become obsolete. Instead of defining and requiring committees, the bylaws should authorize the board to create committees as circumstances require and define their responsibilities and, if appropriate, their life span. Another key area to watch is assigning an Executive Committee too much power. Most states have laws that require the full board to act on certain matters. Do not assign powers to the Executive Committee if such authority is not permitted by state law.

7. Bylaw Changes. Think carefully about how the bylaws may be changed. Bylaws need a sense of continuity, so they should not be changed willy-nilly. At the same time, don’t make change requirements so onerous that a small minority of directors can block adoption of new bylaws provisions and changes.

8. Term Limits. Most organizations define director terms, but not all of them set a maximum number of terms that a director can serve. The prevailing thought today is that some form of term limits are needed to keep a board fresh and revitalized. The argument against term limits is that organizations do not want to lose expertise. While this is a real consideration, it is both possible and important to balance the need for continuity and expertise with the beneficial effect or new thinking and new energy.

9. Director Performance. Many boards suffer because there are no provisions in the bylaws to remove a director who is not performing. This can include excessive absentee, breaches of director legal duties, or failure to perform up to expectations in any other way. Most experts agree that boards are better served if they have provisions in the bylaws for director removal. Opinion is split, however, as to whether these removal actions should be automatic and defined in the bylaws or whether they should be permitted in the bylaws with the specifics defined periodically by the board. I have heard some attorneys argue that putting automatic removal procedures in the bylaws makes them fairer and cleaner, while others argue for maximum board flexibility. But I think all agree that some statement about removal authority for directors not fulfilling expectations is appropriate in the bylaws. Again such removal procedures should reflect any due process requirements specified in state law.

10. Quorums. Quorums should be set high enough that a small group of directors (or members, if appropriate) cannot hijack the organization, but not so high that it is impossible to do any business because quorums cannot be achieved. As is the case in many areas, state law may have a say in establishing quorum requirements. These must be consulted before decisions on quorums are finalized.

11. Notice. All bylaws should contain procedures notifying directors or members about upcoming meetings and the topics to be addressed. Certainly it is good practice to allow sufficient time for directors or members (if appropriate) to prepare for the matters to be addressed. However, many state laws will not allow actions to be taken if appropriate notice has not been given. It is therefore important that notifications requirements are reasonable, balancing the positive effects of preparation against the possibility of restricting the boards ability to act in the event of an emergency.

12. Electronic Actions. There is no doubt we have moved away from a paper-based business world to one of electronic actions. Unfortunately many state laws contain restrictions against electronic board actions. Those that do permit electronic actions often have very detailed requirements about how actions can be decided and verified. For example there may be provisions permitting electronic meetings. Or there may be provisions that say such electronic meetings are only permissible if members can hear all the discussion and participate in debate. Likewise if electronic votes are permitted in the state, there may be requirements that the vote must be unanimous or even about how the vote of a director may be verified. At the risk of sounding like a broken record, this is an area that needs legal expertise and guidance to help compliance with state law.

13. Indemnification. Indemnification is a very important part of director and officer protections. You certainly want to protect directors and officers from legal actions, particularly ones that are unfounded. At the same time, indemnification should not be so automatic that the organization ends up paying for the legal fees of an individual the organization itself is taking action against. Another consideration is whether the indemnification process has to wait until all legal decisions are made or whether advance payments may be authorized by the board to help the director/officer in question defend again legal actions. Decision regarding indemnification should only be made after a careful review of possibilities and consequences with a qualified risk management specialist.

In closing, remember bylaws are important. They should guide actions and purpose within an organization. It is essential that organizational leaders ensure that their bylaws are positive and helpful to the organization and not prohibitive or harmful impediments that get in way of organizational progress or expose them to legal challenges either from inside or outside the organization. Remember that the first document an opposing attorney will ask for when attacking an organization’s actions or decisions are the bylaws. Don’t find yourself caught short by taking actions not compliance with the bylaws!

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6 Comments on “Bylaws — Helpful or Hurtful?

  1. Mitch: Very clear and helpful article. Exactly what is a member’s right to address bylaws violations by a Board that resulted in sanctions (suspension of the ability to play for a certain period at a tennis club) against members? Is there a legal case to be made on the suspended members’ behalf. Like to hear your thoughts. Thank you. Bob

  2. Let me start by cautioning that bylaws are legal corporate documents and any inquiries into potential violations of bylaws and any approrpiate redress should be discussed with a qualified attorney. I am not an attorney, but I can offer a layman’s thoughts on the subject.

    In my experience most bylaws, particularly those associated with membership associations, have a “due process” procedure that must be followed before imposing sanctions. The first question that needs to be asked is whether the due process was indeed followed. I have seen situations where an organization has a defined due process, but then jumps to judgment and imposes sanctions without following the defined process. If the self described process was not followed, there may indeed be procedures that can be followed to rectify what you deem to be an inappropriate action. Included in the options would be a law suit; however, before I took that step, I would write to the board chair and point out the lack of diligence in excecuting the due process. See if this prompts a review or reversal of the decision. If this does not work, you may want to consult an attorney to examine formal legal options.

    If there is no defined due process, I would consult an attorney to detemine if your state’s corporatation code has language that mandates a due process for any sanction of if the code has wording that states there is an expectation of due process for any adverse action. Perhaps language that includes the right of an accused to defend themselves against any allegation.

    Finally, I would want to ensure that the board acted within its jurisdiction. Was the decision to take an adverse action voted on by the full board or a committee specifically empowered to act on behalf of the board. Was the vote properly recorded and documented. These actions should all be in the minutes which are discoverable document in any legal dispute. If the adverse action was imposed by an individual, what document defined that individual’s authority to take such an action. Is that delegated authority in the bylaws or in a specific delegation approved by the board. It may be that the action has no validity if an individual imposed the sanction without proper to do so.

    I am afraid that is about all I can offer. And I need to reiterate, I am not an attorney. I recommend you consult one familiar with coporate business law for nonprofits. Good luck.

    • I’m sorry it’s taken me so long to get back to you but I appreciate your taking the time to respond to my question. The situation got so bad at our Club that I (who brought the original issue to the Board—and rec’d no direct response from them) was ultimately brought before them for disrupting them in performance of their duties. I wrestled with this problem and the Board over a 10 month period. I am a former President of the Club and a long-time Board member who is completely conversant with the Club’s bylaws and saw actions that deprived two members, including me, of their rights as noted in the Bylaws. A third member, also a former President, and a 60 year plus member of the Club, was denied presentation to the membership for possible Honorary Membership status. This despite a majority vote of the Board (8 to 5 in his favor—even though this is not req’d by the bylaws); the President overruled this majority and decided on her own not to present the individual for consideration. In my case, the Board sanctioned me with a 2 week suspension because I would not sign a letter that had untrue statements about the process that I had started. Included in their letter were completely false statements about my actions and intentions. Ultimately, we elected several new members to the Board with the hopes that this kind of behavior will not be repeated. However, my goal is to look into possible legal redress against these individuals with the hope that a legal action (if only threatened) may be enough to make sure that the individuals behind these actions-AND THE MEMBERSHIP-realize the consequences to the Club of ignoring the bylaws and sanctioning members without due process. Like to hear your thoughts. If you want any add’l detail or would like to discuss this, my number is 610 543 6271. Thanks, Bob

  3. Bob, you might want to check with the office of your secretary of state to see if they have a department to deal with board abuses. They might be able to look into the bylaws infractions on your behalf. Most likely, though, there will not be such an office to deal with the sort of club you are a member of. I recently looked into an abuse case similar to yours and was told by one secretary of state office that the only recourse would be legal action in the courts. In that regard, you should consult an attorney to see what you can do and more importantly what you can expect if it does go to court. The attorney may also be able to advise you on how to word and address the initial correspondence to get maximum benefit. Unfortunately, when the discussion turns legal, I need to step aside and let those trained in such matters advise you. Good luck! I hope you are successful in righting these wrongs.

    • Mitch: Thanks for your quick response and your support. It seems to coincide clearly with what I saw as my options. I’m torn between my love for the Club, respect for most of the members and my disgust with the cavalier way this Board treated 3 of its members in ignoring their rights and sanctioning 2 of us. I’ve approached our new President ( who agrees with my view of the situation and who was elected because of the membership’s awareness of how the previous Board acted) and suggested he have one of our new Board members-a lawyer-research the issue. I’ve not heard back from him yet. While I certainly can approach a lawyer and get his view and whether it’d be appropriate to seek legal redress, I don’t want to do anything that will harm the Club. But I do want to get a message to the previous Board that this kind of action will not be tolerated, a message that the membership will also get on the need to follow the bylaws. Thanks again for taking the time to respond. Bob