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Corporate Culture and Bicyclists: Part 3 of 3 Nonprofit Law and Ethics©

Here in Southern California, we in the bicycling community are fortunate to have a wide array of nonprofit organizations that represent our interests in a variety of ways. These groups not only organize races, rides, and other events that bring us together around our shared passion, but also provide education, information, advocacy, and support. I am a member and proud sponsor of many of these organizations.

So, in the interest of strengthening these organizations, I wanted to share some insights gleaned from my years of legal practice that will help these organizations to continue effectively serving their members and avoid some pitfalls that can sabotage their organizational goals. Disclaimer: The information in this article is for general information purposes only. Nothing in this article should be taken as legal advice for any individual, organization, case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.

I. Transparency and Recordkeeping

Corporations are required to keep detailed records of their business. This means not only financial accounting, but also keeping minutes of board meetings. The corporation must report their financial accounting regularly to the state, and they must also promptly and regularly make the records and minutes of corporate proceedings available to their members for inspection. Serious consideration should be given of publicizing these records online.

II. Removal of Directors and Officers for Cause

Depending on the method of selection outlined in the Articles of Incorporation, removal of directors has different procedures. Board-elected directors are removed by the board. Member elected directors may only be removed by member votes. This section focuses not on the procedure, but on the substantive grounds for removal for cause. Generally, the authority to remove a board member without cause is based in corporate bylaws. However, the basis for removal with cause is set forth in Corporations Code §5221. Under this provision, the three bases for removal for cause are (1) being adjudicated of unsound mind by a court, (2) conviction of a felony, and (3) a court finding that the director violated their fiduciary duty to the organization. Only after a complete and fair investigation should such action be considered. Valid evidentiary proof should be produced before such action should be taken. Hearsay or speculation should be carefully viewed with distrust. Counsel should be consulted.

III. Ratification

If you're not sure what to make of these technical sounding rules and distinctions, or how they may apply to you as a local club officer, volunteer, or member who hasn't been involved in any of the questionable activities discussed above, let me explain where the rubber meets the road for the average person. As a club officer or voting member, you can use whatever power you have under the club bylaws to either repudiate or ratify the activities described above. By taking action and repudiating the self-dealing acts of an officer or director, the club protects itself and its members from corporate liability, making clear that the bad actor was not acting on behalf of the club. But if no one acts, the club is said to "ratify" the unlawful activity. This can not only hurt the club's reputation, but subject the organization itself to legal liability for the wrongful acts of its agents. This causes economic losses to the organization, which squanders the investments made by members, donors, sponsors, and volunteers.

So it's important that the rank and file membership of the club be actively engaged and aware of the actions of their officers and directors, and that they hold them accountable. Failure to do so has the effect of making the club complicit in that person's actions, potentially affecting everyone and reducing the overall benefit the club brings to the community.

Conclusion

This information is provided as a general guide to help keep our bicycling organizations on the right path so they can continue to effectively serve the community. No one wants these clubs to succeed in their goals more than I do. But as a lawyer, I am well aware of some of the dangers that can undermine an organization's mission, and its ability to serve its members. Vigilance, transparency, and accountability keep a nonprofit organization running efficiently and focused on its mission. But failure to follow these principles can cause a club to degenerate into a club that exists for the benefit of its officers, instead of the community it purports to serve.

© 2017 Richard L. Duquette and Justin M. Nelson. All rights reserved. May 17, 2017