Legal Updates

Finding The Right Fit: What Schools And Other Non-Profits Should Know About Updating Their Bylaws

“Bylaws” is a term that may conjure up images of a dusty tome concerning archaic points of parliamentary procedure. Those who have served on the board of trustees of an independent school or other non-profit organization have likely encountered the term and may have a more complex understanding of what bylaws do, and how they relate to effective governance.

Most of the time, however, bylaws are little more than an afterthought for most trustees, the nearly imperceptible background music underlying board meetings. Few give much consideration to bylaws except, perhaps, when a committee of the board is tasked with updating the bylaws, before board elections, or when an issue arises as to the board’s authority to take a certain action.

This is, in fact, how it should be. Bylaws are designed to be unobtrusive and facilitate an organization’s smooth operation.

But this does not mean that there is one perfect set of bylaws – one magic set of provisions that can be adopted wholescale to ensure the proper functioning of your board. What is tricky about bylaws – and also makes them more interesting than they are usually given credit for – is that your organization’s bylaws can and should be as unique as your organization itself. Of course, bylaws need to fit the specific dictates of applicable laws. If they do not, board actions can be called into question, and an organization’s non-profit status may even be challenged. But, just as importantly, an organization’s bylaws need to be the right fit for its philosophy, aspirations, and actual practices.

Updates To Bylaws

It is important for every non-profit organization to review and update its bylaws periodically. The board committee tasked with this responsibility needs to have an intimate knowledge of both the organization itself and the board’s current and aspirational practices. Working closely with experienced legal counsel, the committee should strive to create a document that avoids potential roadblocks to effective governance but is also consistent with legal requirements and best practices.

Below is a non-exhaustive list of some of the most important items to consider when reviewing and updating your organization’s bylaws:

General Provisions – Non-profit bylaws usually include an introductory section with various provisions required by state law. One issue frequently addressed is whether the organization has “members,” in addition to trustees. Many schools and other non-profits choose not to have members, while others prefer to have such a dual governance structure.

The “General Provisions” section typically also addresses the organization’s purpose and non-discrimination policies. As these provisions go to the heart of a non-profit’s mission, and bear directly on its non-profit status, they should be amended only upon careful consideration and consultation with experienced legal counsel.

Board Of Trustees – Bylaws normally include a section detailing the composition and functioning of the board itself. This section addresses, among other matters, the powers and responsibilities of the board, any requirements for board membership, the process by which trustees are elected, when and how often board meetings are held, and how many trustees constitute a quorum needed for the board to act.

Updating these provisions requires careful consideration of a number of issues, including:

• The “right” number of trustees. Often, this is specified as a minimum and maximum, rather than a specific number. In general, the board should be large enough to allow for a diversity of perspectives and appropriate distribution of responsibilities, but not so large as to impede efficient governance.
• Whether to provide for trustee term limits and “staggered” board terms. Decisions on these issues can impact a board’s institutional knowledge.
• Whether the Head of School (or Executive Director) is automatically a member of the board, in a voting or non-voting capacity.

Officers And Agents – Non-profit boards typically include a number of officers, such as a chair (or president), vice-chair, treasurer, and clerk. We recommend that bylaws contain a section specifying, among other things, how officers are elected, what qualifications they must have, and what responsibilities they hold.

Resignations, Removals And Vacancies – From time to time, trustees decide to step down before their terms are up. In other cases, a board may find it necessary to remove a “problem” trustee, such as one who consistently disrupts or fails to attend board meetings. The bylaws should include a section covering such changes, including potential grounds for trustees to be removed, the board vote required for a removal (e.g., a two-thirds majority), and the process for replacing a member who has resigned or been removed.

Committees – Bylaws often provide for a number of standing committees – sometimes too many. We recommend revising bylaws to include only those committees that actually exist and are necessary for effective governance (such as an executive committee and finance committee). Bylaws should also allow for the creation of additional committees as needed, whether permanent or ad hoc.

Head Of School/Executive Director – One of the most important roles of the board of an independent school or other non-profit is the selection and oversight of the Head of School or Executive Director, who acts as the organization’s CEO. Bylaws should include a section summarizing the responsibilities of the Head of School or Executive Director and outlining his or her relationship with the board.

Compensation – Generally, trustees of schools and other non-profits are not paid for their board service. This section of the bylaws confirms that fact, and also describes the role that the board plays in establishing the compensation levels of the Head of School/Executive Director and other senior administrators.

Indemnification – Bylaws typically include a section defining the circumstances under which trustees and officers will be indemnified should they find themselves embroiled in a lawsuit stemming from their service to the organization. These provisions should be carefully reviewed by counsel to ensure compliance with legal requirements and best practices.

Conflicts Of Interest – Trustees sometimes have direct or indirect financial interests in the school or other non-profit, such as ownership of a company with which the organization does business. It is important that the bylaws include a section detailing when such potential conflicts of interest arise, and how they will be handled (e.g., recusal of a trustee from discussion and voting on matters in which he or she has a financial or other personal interest).

Amendments – Finally, the bylaws should include a section detailing how they may be amended – for instance, notice requirements for proposed amendments, and the board vote required for their approval (e.g., a two-thirds majority). State law frequently prescribes requirements for bylaw amendments, so legal counsel should be consulted on this subject.

Conclusion

In drafting and amending bylaws, there is no one-size-fits-all solution. Trustees are in the best position to understand the mission of their organization and how the board can function most effectively. As such, they are typically the key players in reviewing and amending bylaws.

At the same time, enlisting experienced legal counsel to assist in this process is critical to ensure that revisions to your bylaws protect your organization’s interests and are compliant with all legal requirements.

We frequently assist schools and other non-profits with reviewing and updating their bylaws, and we would be happy to help guide your organization through that process.