How Your Membership Rules Can Complicate Your Nonprofit

When you start a nonprofit organization you will find yourself staring at paperwork filled with questions you may not understand. The first few times I did this, I confess I needed to guess at some answers, but it’s really worth understanding the concepts before proceeding or you will get into trouble. Some answers are harder to undo if you make a mistake. One of these key questions concerns membership in your organization. This pops up when you’re incorporating, when you’re drafting your bylaws, and when you’re filing for tax-exempt status. It must be important, but what are the implications?

This membership issue can be confusing, since membership means different things in different contexts. When starting a nonprofit organization, it’s most important to think about who elects your board of directors. In this context a membership organization is an one that has members defined in their bylaws or other founding documents who elect the board and often have a say in motions that could change the bylaws, etc.

Now a lot of nonprofit organization have “members” that don’t get to vote. Maybe they get a newsletter or some other benefit from your organization in exchange for giving you a little money periodically or for volunteering. These people are not members in the sense that matters when you are establishing your organization’s legal form. You can call those folks members if you like, but to keep things straight it might make more sense to think of them as “supporters” or “sustainers” instead.

Your state probably defines membership more specifically, so it’s worth looking up what your state’s laws say. But in general, someone who can vote for a board seat is a member of your organization, and votes are generally taken of the whole membership.

So think primarily about how the board is selected. Is it via a democratic vote of all your members, or does the board itself make the final decision? In the first case your have a member-selected board. The other option is to called a self-perpetuating board, that is one where the current board selects any new members on its own. These days most 501(c)(3) organizations are set up as self-perpetuating.

But why?

On the surface, the membership option is appealing since it seems more democratic, but there are some “gotchas” to consider.

Is establishing a democratically-run nonprofit organization worth the effort? Click To Tweet
  • You need to define a specific membership group in your founding documents. Many organizations that value community input and democratic institutions have a tendency to create fuzzy definitions here. Depending on state law, there are requirements about keeping track of these folks. Oregon, for example, requires that you have a list of all members, and this makes sense if you need to use that to determine a quorum for voting purposes. This is one aspect of a membership organization that can eat up some administrative time.
  • You need to spell out what rights these members have, and what they do not. This includes establishing quorums and election procedures, but you also need to delineate which types of decisions are voted on by the whole membership and which by the elected board. If there are contentious issues and heated factions, not getting this right can lead the organization into legal strife.
  • Anyone who fits the definition of a member will have a say, including people that might surprise you. These folks can take your organization in an unexpected direction. For example, the Sierra Club, one of the nation’s oldest environmental organizations found itself embroiled in a struggle around the issue of immigration. Anti-immigrant activists and white supremacists organized their supporters to sign up and attempted to elect board members who could have taken the organization in a very unexpected direction.
  • Electing your board can become complicated and expensive since your organization will need to administer an election process of some sort. The membership will need to be informed about the candidates or issues they are allowed to vote on. This requires extra administrative work.
  • A disengaged membership may not participate in the process anyway. Often when an organization is founded, the co-founders are very committed to its mission, but they often overestimate how involved the membership will be a few years down the road. When the membership doesn’t participate, the organization ceases to be as democratic as the founders originally intended.
  • Elections can turn into popularity contests rather than a way to select the most qualified board member. If your organization needs board members with specific skill sets, it’s likely that your membership may not understand those requirements with the same level of sophistication as your current board members do. Rather, candidates with large political following (and often large egos) can end up dominating the board.
  • If you want to change forms, it’s a lot harder to turn a membership board into a self-perpetuating board than it is to go the other way. Because the process of changing the bylaws will require a membership vote, in situations where the membership is divided or disengaged this can be difficult to pull off. On the other hand, if a self-perpetuating board wants to convert to a membership board, only the board members need to decide to act on the matter.

It’s clear that implementing and living with a membership organization can be a tangled mess, but isn’t the fundamental principle of democracy worth the extra effort?

Perhaps, and in some types of organizations such as trade associations and neighborhood groups, this value of democracy is so important that it carries the day. In fact, most of these types of organizations are founded as membership based ones. A good rule of thumb might be that if your members have competing interests (such as a business association whose members compete for customers) it probably makes sense to organize as a membership group (and carefully anticipate the above “gotchas” when setting things up).

For many other organizations it might make sense to consider alternative democratic structures. For example, a self-perpetuating board could define various groups of stakeholders including program participants, sustainers, and so on, and these groups could be consulted before the board makes certain types of decisions. One example is an annual “town hall” style meeting that could be held before a strategic planning process. The board could also have a goal of including representatives of such groups in its own makeup. These types of solutions are numerous and are limited only by your imagination. (However, do check with state law and a legal advisor so you don’t accidentally create a membership class without realizing it.)

Also, note that any of these systems can be gamed, and there is no foolproof way to prevent politicking and faction fights (or lackluster disengagement) within your organization. This is true whether or not you choose a membership or self-perpetuating form. As Winston Churchill was fond of saying. “Democracy is the worst form of government except for all those other forms that have been tried from time to time.”

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