The Importance of the Nominating Committee: How to Avoid Unnecessary Management Crises.

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The Importance of the Nominating Committee: How to Avoid Unnecessary Management Crises.

The Importance of the Nominating Committee: How to Avoid Unnecessary Management Crises.[1]

By: Fred L. Somers, Jr., Esq.[2]

In reading Harry T. Williams’s splendid biography of Huie Long[3], we are struck with the tension evinced between Long’s perception of his powers as a governor and the understanding of the Louisiana legislature of the constitutional limitations on those powers. When Huie Long was perceived to have over-reached his constitutional power, it led to impeachment proceedings.

Over the years we have witnessed instances of elected officers of nonprofit, voluntary organizations exceeding their authority under the organization’s governing documents. Sometimes this takes the form of micromanagement of the organization’s day-to-day operations specifically relegated to professional management.  Other times, it takes the form of usurpation of the paid COO’s duties. We shall use private clubs as our example of a nonprofit, voluntary organization that allows this malady of micromanagement or usurpation of professional management duties. The phenomenon also occurs in other types of nonprofits.

We recall one private club officer taking away the key to the thermostat controls from a wellness director because the officer didn’t like the temperature being set by the director.

Or, take the golf committee chair who canceled a golf staff meeting called by the director of golf. Or, consider the house committee chair’s spouse taking it upon herself to conduct table setting classes for the wait staff.

To avoid these unfortunate incidents of micromanagement and usurpation of compensated management functions, it would seem useful to provide a process for stopping their occurrence or for the removal of the offending elected officer. However, after reviewing dozens of private organization governing documents we never find any reference to impeachment per se. This is likely because corporate law substitutes removal rather than impeachment.

While a provision for recall of elected officers is something we routinely recommend when drafting or revising governance documents, the process is rarely employed. It seems the typical members and elected officers merely close their eyes to the misconduct, or they are not concerned enough about the misconduct to initiate open conflict. Possibly, this is because of the normal short term tenure of elected officers in private nonprofit organizations and the lack of willingness to undertake a touchy task.

Notwithstanding, we once witnessed a wholesale recall of an entire board of directors by a disaffected member constituency who marshaled their votes to oust the incumbent board and elect their favored candidates. Unfortunately, the result was less than efficacious; the general manager quit, and the organization fell into difficult times from which it never recovered.

State nonprofit statutes usually provide some assistance in officer or director removal. For example, the Georgia nonprofit corporate code[4] provides: “Removal of directors – Unless the corporation’s articles or bylaws provide otherwise: (1) The members may remove, with or without cause, one or more directors elected by them.” Also, another Georgia code section[5] provides:  “Resignation and removal of officers . . . (b) A board may remove any officer at any time with or without cause.” These code sections have their counterpart in the Model Nonprofit Corporation Act.[6]

However, it is unlikely without some procedure or process set forth in the organization’s governing documents, the members or directors may find it difficult to mount a removal effort.

A better path to follow is to reduce the likelihood of officers exceeding their authority by careful pre-screening of board candidates by a nominating committee. The selection of the nominating committee members themselves is of critical importance. They must be familiar with the appropriate function of the governing board and the duties of and legal constraints imposed upon individual governors or directors.[7] This principle usually translates into having former directors, particularly recently retired ones, comprise at least the majority of the nominating committee.

Excepting perhaps only the smallest nonprofits, it is a hallmark of successful nonprofit entities to have operations controlled by professional management staff consistent with policies formulated by the governing board. Because of this tenet, candidates for club and other nonprofits governance office must be cognizant of the differences between setting policy and operations procedures. The distinction requires an understanding by governing board members. Policies reflect the ultimate mission of the club while operations procedures are devised and supervised by management staff in applying the policies. Governing boards are also responsible for oversight in seeing the procedures authored by and implemented by management are consistent with legal requirements.  However, it is beyond the scope of this article to delineate the distinction further. Useful discussions of the distinction are available online.[8]

On occasion, the distinction blurs. For example, a general manager decides to significantly increase the pricing on the club dining menu. The new pricing is consistent, in the manager’s judgment, with the board’s policy to operate food and beverage at the Club on a “break-even” basis. However, the new menu prices cause an uproar among the membership and are found to be generally higher than some of the comparable clubs and restaurants in the area. In this instance, the board may be justified in requiring the manager to roll back his new prices to more acceptable ones.

Requiring board prospects to have been active voting members in good standing in the Club for a minimum of three (3) years is a start. Such a requirement provides some assurance the prospective candidate is familiar with the Club’s social culture.

Recent involvement in the Club through standing or ad hoc committee assignments is a must. This participation assures some semblance of familiarity with the Club’s governance structure. Sounding out and obtaining the candidate’s commitment and availability to attend and participate in scheduled board and committee meetings is essential. We recall one extremely qualified board member who rarely attended meetings because he was constantly traveling on his regular job. His effective contribution to the Club’s governance was zero.

Candidates should be vetted to discover if they possess a desire to preserve or formulate new policies to make the Club an ever-improving experience for the membership. Sometimes a candidate will have a personal agenda that unduly disturbs the board’s attempt at consensus. Or worse, the personal agenda will result in other board members taking a back seat to the new director who appears to or believes he “knows it all”.

For example, years back I was appointed chairman of a newly created public housing commission. However, after several meetings, I found the other members rarely contributed any ideas. I asked the county commission chair who appointed me to attend a meeting to see what the problem was that was keeping other members quiescent. After the meeting, he informed me because I seemed to know what I wanted the group to achieve, was very specific and insistent about the methods to be employed to achieve our goal, what was the point of the other members submitting other proposals?

The lesson I learned? It is that the mission of volunteer boards, commissions, and committees is to obtain collaboration and consensus of the members not only one person. When I was later privileged to chair other volunteer groups, I constantly reminded myself to continuously request ideas from the other board members first and not preempt their contributions with my personal views.

One take-a-way from my own experience is that candidates for deliberative groups should be sounded out for their willingness and ability to collaborate with other group members. How opinionated does the candidate appear to be? There is nothing wrong with persons with strong opinions if they also give the impression of desiring to hear the opinions of others.  However, QAnon adherents and Antifa believers might not make useful fellow committee members.

Board experience in the governance of other volunteer organizations is a useful attribute for board nominees. While, e.g.,  501(c)(7) organizations differ in numerous respects from 501(c)(3), and other nonprofit groups, the restrictions, and fundamentals are closely aligned. Awareness and avoidance of conflicts of interest, loyalty to the organization, maintenance of confidential information, and transparency, are principles common to all nonprofits and indeed for business, and public governance.

Allowing former board members after a hiatus of one or more years from prior service is sometimes most useful. Former board members are already familiar with how the Club functions. They don’t require a lengthy orientation and education to become effective governors.

Before being nominated, candidates should be required to state what their ideas are for fulfilling the performance of the office sought. Candidates with a predisposition to set their agenda rather than to acquiesce in the mission established by the organization should not be elected to office.

Efforts should be made by the nominating committee to identify and encourage desirable members with the attributes described, to seek the nomination. We all know persons in whom others express admiration for and have confidence, who would likely make excellent organization leaders. Yet, many outstanding members are reluctant to volunteer without being asked. Sometimes this reluctance is derived from the organization’s custom of proposing more candidates than there are vacancies to fill. The reluctant member candidate doesn’t desire to enter into what he or she perceives as a “beauty contest” only to run the chance of losing. Efforts should be undertaken to eliminate contests for office vacancies where there is no viable reason for them.

I recall the COO of a very successful nonprofit corporation and popular club member being urged to submit his candidacy for office after several of us assuring him there was no prospect of his failure to be elected. To our chagrin, the nominating committee passed him over. His supporters had to work like hell to get him to offer his services again. Gratefully, the newly appointed nominating committee approved him for nomination and subsequent election. He turned out to be an outstanding President.

Most importantly, the nominating committee should begin its deliberations and interviews as early as possible. Preferably, they might start a year ahead of the member meeting at which office candidates are elected. We have seen situations where a club couldn’t even muster enough candidates to fill vacancies because the committee began its deliberations too late to enable sufficient time to arouse interest among the members.

In summary, if a club or any private association desires to have a strong and effective governing board it must focus on its nominating committee procedures. These procedures should be reviewed annually to ensure they are meeting the organization’s aspirations for growth, or stability, and excellence.

[1] This blog is designed for general information only. The information presented at this site should not be construed to be formal legal advice or the formation of a lawyer/client relationship. The author of this blog is not certified by any state agencies or boards of legal specialization. This blog may constitute attorney advertising in some jurisdictions.

[2] The author is an Atlanta Ga. area attorney with a concentration in private clubs and trade associations. See https://www.somerslawfirm.org.

[3]  Huey Long by T. Harry Williams,  (1969  Alfred A. Knopf NY)

[4] Ga. Code § 14-3-808

[5] Ga. Code § 14-3-843b

[6] Model Nonprofit Corporation Act §§ 808 (American Bar Association 3rd ed. 2008). Its successor is presently available online for comment in a 4th ed. exposure draft. See https://www.americanbar.org/groups/business_law/committees/nonprofit/mnca/ Eight states adopted the MNPCA. The other states more or less follow the state for profit or business corporation act.

[7] These duties consist of the duties of care, i.e., discharging their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances; , loyalty, i.e., in a manner the director reasonably believes to be in the best interests of the Club; and good faith.

 

[8] See, e.g., https://Keydifferences.com/Difference- Between- Policies- and- Procedures.html; and

https://Powerdms.com/blog/What is a Policy vs. a Procedure? (powerdms.com). Notwithstanding, directors need to exercise oversight of procedures adopted by management staff to validate they are consistent with board policy and to avoid liability exposure for the club, its directors, and officers for vicarious tort claims and regulatory violations. For example, this oversight may take the form of requiring club counsel or a legal committee to review and update employment manual content; confirming OSHA guidelines compliance; requiring the independent accountants to opine as to the conformity of the club’s financial statements to the AICPA best practices and accounting standards; and to have either the club counsel or independent auditors verify operations conformity to IRC 501(c)(7) requirements, if applicable.