Dictionary corner: “Ex Offico”- what does it mean?
This (widely misunderstood) term means “by virtue of another office held” and simply means that the person automatically becomes a board member because of some other position they are in. Those who serve ‘ex officio’ are not voted on, do not resign and are not subject to terms of office, as they are in when they are in the (other) office, and out when they leave. Please note that the “ex officio” status does not mean that they are non-voting on the board. If anyone (the CEO, the CFO etc.) is appointed to the board ex officio and the board wants the ex officio board member/s to be non-voting, the founding documents will need to specifically provide for this. However, we advise that you think through this carefully. Our view is that it is inherently unfair to put someone in a position of responsibility and then not give them the tools they need (their vote) to carry out the responsibility. If the Execs at the board meetings are not to vote, then we would rather suggest entrenching in the founding document a provision that certain specific (or at least one/two senior execs) attend all board meetings (except the parts of them where their service and performance may be discussed) but stop short of having them appointed to the board. Executives are appointed by and report to the board and will, if they are also on the board, often struggle with the switching of hats required by these dual roles. The trend towards including executives on boards ex officio can be traced back to the King governance codes, which support the ‘balanced board’ idea, meaning that there is an equal number of management and non-executives on the board. In our view this is appropriate in the for-profit environment, where all directors are appointed by shareholders and the directors often are shareholders themselves, but careful thought should be given to the issues of accountability and responsibility before applying this principle of King IV to a non-profit.
Fiduciary Duty
DID YOU KNOW? Defined: Fiduciary Duty This is the general duty of trust which rests on anyone acting not for themselves but for another. Directors, trustees, committee members and employees of organisations are required to act with the level of care and diligence which could reasonably be expected of someone taking care of the affairs/money/property of another. This duty is owed to the organisation and also to its beneficiaries.
Founder syndrome
In his new article published on marcuscoetzee.co.za, Marcus Coetzee says: “ Founder’s syndrome occurs when a founder struggles or refuses to ‘change gear’ and adopt a new mindset, approach or skill set as the organization grows and as its strategic context changes. Rather than making way for a new leader to take the organization to the next level, the founder tries to hang on to power. The founder becomes unable to achieve the outcomes associated with effective leadership. The organization then becomes maladapted – inappropriately or poorly adapted to its environment”. Marcus’ insightful article diagnoses the syndrome and prescribes some treatments and also preventative measures. At ngoLAW we always advise those founding new organisations to think and build beyond themselves from the start, and we support the advice given by Marcus- read the full article here: https://www.marcuscoetzee.co.za/founders-syndrome-undermines-the-legacy-of-strong-leaders/
Governance concepts: some quick definitions-types of board members
We find that our clients are often confused by these terms- hopefully this brings clarity: Executive Those (on the board or not) who have management authority and responsibilities. The Managing Director, “Executive Director”, Chief Executive Officer, CFO, COO, etc are all executives. Non-Executive Those who serve on the board or any other structure of the organisation (advisory council, committees) who do not have any managerial responsibility for day to day running of the organisation Independent A non-executive board member who is not remunerated by the organisation for any services provided to the organisation (other than board fees, if applicable) and who has no personal connection to or financial interest in the organisation.(For contemplation: King IV states that once a board member has served for nine years, they are no longer truly independent anymore, in that they will have got too comfortable and familiar to be able to wield the sharp edge of independent perspective required) Ex Officio Those who are on the board automatically because of some other position they hold, either in the organisation or in another organisation.
Governance: Why and How
“Governance” is a word more likely to produce a (politely stifled) yawn than any excitement or interest. It does not sound like fun and many founders of organisations and those who go on to lead them treat it as an irritation and a hindrance, something that is a boring waste of time and money when there are (surely) more interesting and impactful things to do with funds and energy. In fact, good governance (which entails putting in place systems, limits and controls and a rigorous, ongoing adherence to them) is a crucial component of building an organisation which makes an impact, attracts support, draws in good board members and staff, and survives in the long term. Passion and drive are important for success but governance is the ‘yin’ to passion’s ‘yang’ – it is the foundation-stone and the central support. I may be getting a bit poetic here, but really believe that good governance is like the soft rain which falls all night, nourishing and feeding. It is hard enough to build a sustainable organisation which achieves its objects over the long term and survives in a world of ever-changing demands and pressures with good governance mechanisms in place – try to do it without a firm support structure, and you will find the work, the dreams and the people start to fray, to come apart at the seams, and rupture under strain. This view of the fundamental importance of governance is one we have arrived at after long years of experience with organisations. Over our next few letters, we will examine some of the important components of governance, and open spaces for conversation and learning. If you have any stories to share, and suggestions to make about topics and issues to discuss under the heading of ‘governance’ be sure to let us know on enquiries@ngolawsa.co.za or go to our website, and send us your suggestion in the ‘contact form’ on www.ngolawsa.co.za.
What are the limits in our founding document?
Every founding document defines the objects/mission of the organisation and 98% of founding documents will say that the efforts and the funds of the organisation may only be expended in pursuit of that defined object. This echoes the Income Tax Act requirements for tax exempt entities: activities and expenditure are strictly limited to those which further and support the objects of the organisation. The first step, then is to find your constitution/ trust deed/ memorandum of incorporation and have a close look at the objects clause. If your objects are fairly widely phrased and the new/additional work you intend falls within them, then you can go ahead. If, however, this is not the case, then you cannot proceed without first amending your founding document as those who serve the organisation are literally only empowered to do so in pursuit of the objects and any actions taken which fall outside of the pursuit of the objects will be unauthorised and could be called into question and be classed as a breach of duty by the individuals involved. Now, amending your founding document is a pretty, well, foundational thing to do, and will require: In the case of a voluntary association or an NPC with members, a vote by members and with a higher percentage of agreement required than ordinary resolutions (typically 75%); In the case of a trust, the Master will require all of the trustees to agree; and For a no-members NPC, the directors (and any other stakeholders who may be given powers to vote on this decision) will have to vote, and usually also 75% in favour is required. The practicalities of voting and signing are one current impediment, and will be dealt with in the next newsletter but a really important question is how soon is the decision effective, ie, how soon can the organisation start doing the new/added work? Nature of change When is it effective? Note: Reporting requirements Voluntary association The constitution of a voluntary association is a contract between the members of the VA. Changes are made by agreement, in terms of the rules set out in the document (notice period, quorum, votes required). The change will take effect from the date that the agreement is reached, or from any other agreed date. (Where an organisation may, by agreement of members, already have embarked upon the new work and now are following up with the formalities, the resolution to amend the objects clause could record the date upon which the members actually but informally consented to the change as the actual date of the change, if necessary) If the organisation has tax exempt status, a copy of the minutes/resolution and of the amended document must be sent to SARS Tax Exemption Unit (TEU). If the voluntary association is a registered NPO, then a copy of the amended constitution must also be lodged with the NPO Directorate along with proof of how it was validly adopted. Trust The trust deed is an agreement between trustees and named beneficiaries who have vested (enforceable) rights. Most charitable trusts do not name individual beneficiaries or, if they do, do not give that beneficiary an ongoing enforceable right to benefits. Therefore the trust deed is usually amended by the unanimous agreement of the trustees. It should be noted that, even where trust deeds record that a lower percentage of trustees may agree to changes, the Master still enforces the law on this and requires 100% vote in favour. Although the amendment to the deed must be registered with the Master, it is effective from the date agreed by the Trustees and, as with the voluntary association, that resolution could record a past date upon which consensus was actually reached and which is the effective date of the change. All trustees must sign an original amended deed and an original deed of amendment (resolution to amend) and these must be lodged with the Master of the High Court. Once the Master has confirmed that the amended deed is on record, a copy of that letter, the amended deed and the resolution should be sent to SARS TEU and to the NPO Directorate. NPC The Memorandum of Incorporation (MOI) of an NPC is a statutory document which is governed by the Companies Act. Any change to the MOI must be made in accordance with the procedures set out in the Act as well as any permitted variations from the Act which are contained in the existing MOI of the Company. The change is adopted by special resolution. The amended MOI is effective from the date that the amended document and supporting forms and documents are lodged with CIPC. Amendments to the MOI must be lodged with CIPC. It usually takes about a week or so for the amendments to be noted and registered. This notice from CIPC, the amended MOI and supporting documents should be lodged with SARS TEU and the NPO Directorate.