By Geoff Wohlsen | Director
Having reviewed and re-written many constitutions now, we have determined the best six features that we’ve seen. Winston Churchill is supposed to have said that “democracy is the worst form of government, except for all the others”. Clubs are democratic on nature. Boards and committees are appointed or installed through a voting process of members. They’re placed in positions of trust as fiduciaries, to make decisions and act in the best interests of the organisation and the member stakeholders. But no constitution is perfect. But we’ve seen some pretty good ones that have these features:
Most older constitutions have very restrictive Objects. Services clubs, for example, are often prevented from applying funds and resources outside the RSL services environment. While that’s a noble cause, some services clubs are seeking to expand their reach to a broader range of community programs. Strictly speaking, clubs can only apply funds to the Objects that are stated in the constitution and can’t apply funds outside those Objects. The modern approach for clubs is to adopt primary and secondary Objects, where funds are applied as a priority to primary Objects and then to a range of optional subsidiary or secondary Objects.
Older constitutions will often list, in painstaking detail, all the Powers of the club and the board or committee. The more detailed the list of Powers is, the less likely the club and its board can operate outside the stated list of detailed Powers. We prefer the approach that companies limited by guarantee adopt and say that the club has “all the powers of a natural person, subject to the specific limitations provided by the Law and contained within this Constitution”.
- Two or three year rotating terms
This aspect isn’t preferred for corporate entities that are listed on the stock market. In that environment, it’s preferable for directors to have one year appointments renewable every year pending performance. That’s suitable for a corporate entity driven by shareholder value and performance and where directors are often hand-picked. It’s different for clubs. The days of the entire board or management committee having to resign simultaneously are over. Banks have long been asking clubs to implement longer rotational terms for officers. It makes sense and provides some stability and continuity.
- Restrictions on directors
It’s well established that directors and committee members mustn’t permit a material personal interest to place them in a conflict position. But modern constitutions will often state that a person becomes ineligible to sit on the board or management committee of a club if they seek to be a director of a competitive club; or if they own or have an interest in a hotel within a certain distance of the club. The same would apply for interests in casinos or online gaming.
Other restrictions that we see being introduced include staff members or suppliers not being permitted to take Officer positions; nominees for positions having to undertake baseline governance training and senior positions, such as President positions, requiring that the nominee having served on the board for at least 12 or 24 months prior.
Many clubs in NSW now have a pre-selection committee, designed to independently “vet” nominees for director positions.
- Limitations on members calling special general meetings
It’s a part of the proper process that members are able to call a special general meeting. This is often members’ only recourse against a poor, secretive or dysfunctional board. But if the members do call a special general meeting, it makes sense that the quorum should include all those who signed the petition to secure the meeting. This limits, to some extent, spurious and argumentative member activity. If you sign the petition, you need to come to the special general meeting!
- Removal of directors
For incorporated associations, constitutions can be drafted to facilitate the removal of a problematic or poor performing director behind closed doors in the boardroom. Companies limited by guarantee are different; the removal of a director must take place before the members at a general meeting and this can provide disastrous consequences including defamation actions and negative media.
Club constitutions are the contract between the club and its members. The only time most directors reach for the document is when something has gone wrong or a problem needs solving. It’s good practice to review your constitution every two years and keep up with the latest thinking.