Tag Archives: board of directors

Sociocratic Bylaws

CertificateExamples of Sociocratic Bylaws

Both two examples of sociocratic bylaws posted on Sociocracy.info are based on legally filed documents. They that sociocratic principles and practices can be specified and legally approved. The Bylaws for a Sociocratic Business are based on those of a LLC registered in Delaware. The Bylaws for a Sociocratic Organization is based on the bylaws of an advocacy organization incorporated in Washington DC.

Bylaws for sociocratic organizations and associations differ from those of sociocratic businesses only in tone and the specific provisions for each business or organizational model. Public corporations will have investors, for example, and non-profit associations will have members. Each will require specifying the rights of their stakeholders.

These examples may be adapted for associations, clubs, corporations,  intentional communities, condominiums, cooperatives, small businesses, etc. Some clauses may not apply and others will need to be amplified or added to meet the legal requirements of your county, province, or state.

The sections that specify sociocracy as the governance structure and consent as the method of decision-making, however, are usually the same. Titles may change to follow the customary practice in a particular field, but this is not a substantial difference.

Powers of the Board of Directors

People are most often concerned about the requirements for a Board of Directors that has certain powers. Typically a Board has life and death power over an organization while a sociocratic Top Circle does not. A Top Circle has unique responsibilities, as does a Board, but does not have the power to dissolve or sell the business or organization.

Most requirements for Boards can be accommodated by stating that the Board of Directors is identical to the Top Circle and by understanding that the Board may be responsible by law for certain decisions but that doesn’t mean it has to have the sole power to make them. These decisions can be delegated. The role of the Board becomes to ratify the decisions ensuring that they were made using proper process and assuming shared responsibility for the outcome.

Majority Vote

The second concern is the typical requirement of majority vote for most if not all decisions of the Board. The minimum for majority vote is usually 51% of those present and voting, or 50% plus one when 50% produces a fraction. The requirement of consent is 100% of those present and consenting. Since the 51% majority is included in the 100% consenting, this requirement is satisfied.

Part of the reason majority vote is required is to ensure that a minimum number of members have approved a decision. Some organizations require a “super majority” of 80% or even 98%. Another reason for requiring majority vote is to ensure that decisions get made. The majority can decide to move forward when there is dissension that endangers the organization.

The same conflict might occur in sociocratic organizations, but they use a different solution. When consent cannot be reached, the decision goes to an expert, one who is a member of the Board if appropriate, or to another expert capable of making an informed decision.

Legal Advice

These examples are for reference only.  Laws differ significantly between jurisdictions. Professional legal advice is required to ensure that the laws protecting your organization have been addressed and that your bylaws have been properly and unambiguously worded. A missing comma can dramatically and disastrously change the meaning.

In addition to helping you understand what is included in bylaws, these examples will help you draft your own bylaws for your lawyer and then modify them as advised. This allows your organization to make many of its decisions before becoming overwhelmed with external expectations and legalese.

Plain English

For decades, Plain English has been taught as the standard in the legal field. But because they are still in the computer, many law firms are still using boiler plate legal phrases from the mid 20th century. Insist that your documents be written in Plain English.

Plain English for Lawyers by Richard C. Wydick has been the accepted reference for over 25 years and maybe helpful.

Writing bylaws may seem like a tedious chore but it is a document that defines your organization and gives everyone a common understanding of how the organization will function.

Self-definition that is hard and that is the core of bylaws.

Outside Experts on the Board of Directors

Image from the Getty Museum of a Council of war from the 19th century.Residential communities customarily do not have board of directors members from outside the organization. Corporations normally do, but they may not be chosen by their ability to balance expertise. Non-profit organizations and independent schools often choose board members based on their ability to raise money or influence government or foundation decision-makers.

Balanced Expertise

Balanced expertise on the board of directors steers the organization from multiple perspectives. Balance can be achieved with experts on larger community issues, on financial and  legal requirements, and areas specifically related to the mission and aim of the organization. An independent school would have an expert in education, perhaps fundraising, perhaps child development, etc. A soup kitchen will benefit from experts in food service and preparation, nutrition, perhaps motivation, perhaps efficiency in service.

From Outside

Outside expert directors can bring advice and judgements that are not influenced by possible internal biases. And they contribute new information. They cross-pollinate with ideas and cautions learned from other organizations. Condo leaders to other condo leaders. An outside expert in housing would bring information from government agencies, architects, financial institutions, etc. They may be better able to identify possible risks to the organization.

Diversity of experience is as important as technical expertise. Outside experts also relax the organization. They can confirm that the organization is following best practices and any problems are, or are not, being experienced by other organizations,

On the Board

The importance of having experts on the board of directors is the synergy created by discussion. Most organizations have a lawyer on retainer, an accountant, an insurance broker, a banker, etc. When they are on the board, however, they respond to questions and issues together, not in isolation. The legal expert comments on the advice of the food service expert. Concerns by one expert about the effect of a decision on another expert’s area can be answered in the moment. The advice of one raises concerns for another that can be discussed and resolved. The concerns of one can be resolved by a solution from another.

Even though it may seem costly and time consuming in the end it saves time. Normally a board of Directors meets 3-4 times a year for 1-2 hours. For non-profit organizations, there may be no charge for this time. In businesses, these experts are often on retainers already. In the end the time saved by not having individual meetings or telephone calls. Saved time from having to repeat conversations or making costly mistakes pay for themselves. The increased value of having more informed advice is invaluable.

With Decision-Making Authority

It is important that boards are not advisory. Decision-making authority creates accountability. Decision-makers take decisions more seriously than advisors. Some fear that decision-making power will create a board-dominated organization. That the attempt to create a more democratic organization will be undermined by “outsiders” who impose negative opinions.

However, in a sociocratic system, boards make decisions within their specific domain. The domain of the board is long-term strategic planning, financial sustainability, assessing risk, and connections to the larger environment—its market or industry. The board can be asked to make a decision when another domain is unable to resolve it. Otherwise, the board should not micro-manage or make autocratic decisions except in emergencies.

As Part of a Whole System

An organization is a system with each part having a responsibility that is essential to the whole. The whole controls its parts. The board of directors is one part of a whole system, not the controller. The board has a different responsibility than the marketing department or the kitchen or the front desk but not more power.

Outside members on the Board of Directors strengthen the organization.

(In sociocracy, what most jurisdictions call a “Board of Directors” is called a “Top Circle” to emphasize that it functions according to the rules for a circle, not the traditional rules of a Board of Directors. When a Board with the traditional rights is required by law, it is formed within the Top Circle.)

Are Sociocratic Corporations Legal?

Sociocratic corporations are perfectly legal. All the laws that constrain corporate functioning can be met while applying sociocratic values, principles, and methods.

Laws governing corporations, both for profit and not for profit, are generally written to prevent abuses that corporations have committed in the past, often with investors’ or donors’ money. In writing the law, the government is presenting its solution to that problem. If you can determine what the law intended to prevent, you will have a good guide to functioning within the law and build a sociocratic structure.

For example, in the US, there is often a requirement that the Board of Directors function by majority vote. The law was intended to ensure that “at least” a majority were in favor of an action. It is a minimum standard, not a maximum standard. Consent contains within it the majority. There is no contradiction in the numbers.

Corporate legislation requires an organization to have a Board of Directors with full authority to govern the organization, but the board can delegate its authority. This is what higher circles do when they create lower circles.

The legal protection for investors and donors is that if the lower circles do not carry out their delegated duties, the Board has the authority to take control. The Board can delegate authority as long as it retains responsibility for the results. This is also perfectly sociocratic since a higher circle can decide to eliminate a lower circle that is not functioning properly.

Even if you are confronting an old law that protected someone 200 years ago, however, the worst thing you can do is to try to convince the government that they are wrong at the same time you are trying to become incorporated. Get legally incorporated, then demonstrate the superiority of the sociocratic structure. Until you have done that, no one will listen to you.

We had this problem with cohousing communities getting approved by town zoning boards. Most cohousing communities are legally structured as condominiums. There are very clear laws about “common interest” real estate in which each owner has a percentage interest. Instead of explaining how the cohousing project met all the legal requirements for condominiums and was financially sound, groups were going to banks and zoning boards talking about shared meals, consensus decision-making, supportive environments for children, changing the world, recycling, etc.

This information was distracting the banks and boards and creating uncertainty about totally sound real estate developments. Cohousing groups were routinely turned down until they found a conventional developing partner, a very sympathetic banker, or began sounding like the legally established condominium that they were.

To ensure that you are both within the law and not undermining the self-optimizing sociocratic structure, you only need a lawyer and a sociocratic consultant with the level of training required to set up a complex organization.

Full-Circle Meetings

The term for the highest circle or governing unit of a sociocratic organizations is “top circle.” The top circle has many functions of a board but is not all powerful as many corporate boards are. I have used “board” here because it is more familiar and in this context not likely to be confused with absolute power.

When sociocracy is explained the emphasis is often on its benefits for delegating decisions effectively and efficiently, extending policy decision-making down the organization to the shop floor, and eliminating long meetings and reducing the number of meetings. Decision-making is delegated to a hierarchy of subgroups circles or teams.

While cohousing and other community groups are attracted to the values of sociocracy and its ability to preserve consensus decision-making while also delegating decisions, they come full stop at not having meetings of the full membership. Their purpose for forming is not to run an efficient organization focused on producing a product. It isn’t a job in which efficiency is valued because it reduces the work and increases income. Their purpose is partly a different one and partly  the result of wanting to avoid hierarchies as they have experienced them.

Fear of Autocratic Structures

In many cohousing communities, all members of the organization are on the board. This avoids creating “condo commandos” who autocratically rule condominiums from their position on a self-perpetuating board. In sociocratic communities where people are elected by consensus and power is distributed this is not a worry. Sociocracy doesn’t have a power-over structure. It’s a circular hierarchy like rock-paper-scissors where each element has equal strength in their relationships.

The standard structure in sociocratic organizations consists of a board, a coordinating or general management circle, and department or team circles. The board does not have the power over the organization that boards of corporations normally have. It is a relatively small group that includes outside experts and focuses on long term planning and the “big picture.” How is the community doing and what would it like to do in its financial, legal, and purposeful relationship to the larger world?

In transitioning to sociocratic governance, the fear of an autocratic board could be resolved in time, but there is an even larger concern—the community’s desire to be a community.

The Purpose of Community Meetings

The purpose of a community is the desire and intention to function as one community. Gathering for potlucks or other social gatherings is not the same as working out policy decisions together, wresting with hard financial decisions, or resolving conflicts related to values and beliefs. These are things that communities want to do together and not delegate to someone else, even to a sub-group of their own members.

Typically in cohousing communities, either everyone serves on the board so they are all equal, or there is no board, or the board is very weak and decisions are made in full group meetings, by consensus.

When I began considering how to apply sociocracy to cohousing and other residential communities, the task was convincing communities to try it. Unless an established community is in crisis, it is hard to change their current governance system. Asking them to drop their full group meetings was beyond consideration. Some believed that sociocracy prohibited full group meetings.

I initially proposed a structure in which everyone served on the board. It was an attempt to adapt the current structure and practices to fit a forming sociocratic organization. Once the organization was comfortable with delegated decision-making, a normal board could be formed more naturally. This was never an ideal solution and eventually a better one surfaced. But first let’s examine why this wasn’t a good solution.

The Function of the Board

The major purpose of the board is to connect the community to its environment, the city or village. This done by having external experts serve on the board with full decision-making participation. Such experts might include a lawyer, an accountant, a cohousing expert, someone from the local neighborhood association or government, and someone related to a special interest, like ecology or gardening. Since the primary job of the board is not to deal with internal day-to-day matters, its function could easily be neglected if everyone served on the board. I think this is evident in many communities that do not have boards that serve this function.

A second major function is long term, comprehensive planning. What do each of  the experts see as possibilities or hindrances in the community’s future? How many communities have 5 and 10 year plans or have focused discussions with their expert advisors all in the same room? That’s why they need a board.

Full Circle Meetings

A better alternative to having everyone on the board is to have full-circle meetings in which all the circles or teams meet together to discuss issues and make any decisions delegated to full-circle meetings. Everyone in a community should be attached to at least one circle in order to be contributing to the work  or social activities of the community so such a meeting would include everyone. Condominium laws often require an annual meeting of the owners to approve an annual budget among other things, so this is not unusual even in standard home-owner associations.

A specific domain of decision-making would have to be defined for full circle meetings so they did not overlap with the decisions delegated to one of the circles, and the domain might include decisions on which a circle hasn’t been able to make to reach consensus and that is inappropriate to send to an outside expert.

It is important to have clearly defined domains of decision-making for each circle, and particularly in the case of a full circle meeting. Over-ruling decisions or back-seat driving is not helpful to building strong teams or responsible leadership. The full circle needs to have an aim.

So the preferred method for meeting a community’s desire to meet as one community is to have full circle meetings with a defined domain of decision-making. The meeting would be coordinated and facilitated by elected leaders, perhaps the officers of the board instead of separately elected leaders.