The New Bylaws

[Mel Turcanik]

Reply to Mark

Hi Mel,

As I understand them, the Minnesota statutes were drawn up with the purpose of providing structure to small NFP organizations like real estate development homeowners' associations, co-ops and condominiums, and small community charities. The "50 members for a meeting" rule is a prime example of this. The problem then was to adapt the statutes to the reality of the AAW which has grown far beyond the scope of the Minnesota design.

In redrafting the meetings provisions, the problem was one of balancing the AAW's need for stability against individual members' ability to voice preferences and oppose a given course of action or to remedy a perceived problem if "management" failed to do so. Not an easy balancing act, and I can understand how some would be dissatisfied with where the "bars" were set. Of course, regardless of where they were set, high or low, there were equal arguments to move them in the opposite direction.

Bylaws in most organizations are rarely consulted by members, almost never until there's a problem. The AAW is different, however, and I expect that its Bylaws will be looked at, reviewed, and used more than many. These things aren't chiseled into stone tablets, after all, so let's see how things work (or don't work).

BTW, your comment regarding "ethics" is well put, except I think your focus is too narrow. A code of ethics cannot just apply to a Board, it must apply with equal force to all AAW members if it is to be effective. Naturally, there are special provisions that would apply to fiduciaries (persons who are in positions of control of the AAW), and there will also have to be a set of rules and procedures to uniformly implement and enforce such a code's provisions. That, however, will be another large drafting task, potentially far more difficult than revision of the Bylaws, because bylaws are, as I think you know, black/white rules of procedure, whereas ethics "rules" deal, almost exclusively, in shades of gray.

Peace

Actually the provisions you refer to aren't the reason for the statutes, but were inserted into the statutes to accommodate those smaller organizations. Minnesota non-profits include AARP, United Way, Blue Cross, etc., hardly small organizations, but mostly Minnesota based. Of course, neither one of us was part of that process, so we are both speculating and once a statute is law, people will make of it what they will and use it to their benefit. Large public corporations with millions of outstanding shares allow stakeholders with often less than a couple hundred shares to put items on a ballot for consideration. Rarely are there more than 2 or 3 per year. Considering the lack of interest from the membership in this process, I would use that as an argument for a lower bar, and based on my recent experience, doubt that even that would ever be reached. But it would make me feel better.

I'm hopeful you are right about these bylaws not being set in stone.

My focus is not that narrow, but if only by opportunity, the board and management are where ethics breaches are most likely, and therefore where the focus should be. And yes, for all the reasons you stated, that's a big job.

Thanks, and yes, let's have Peace,
Mel Turcanik 7743

P.S. Mark Mandell has done some research and discovered that the corporations I listed above are not all incorporated in Minnesota. My error. I got my information from a Council of Non-Profits and did not research with his diligence the actual corporate status of the organizations I mentioned. United Way has at least two dozen corporations in Minnesota, organized at a local level. Sorry for the error, sometimes nice to have a lawyer around.
Mel

 

[Mark Mandell]

Not To Argue

But to remind, that the signature requirements in new section 402 are only there to bypass or overrule a negative board response to a proposal. Mel Turcanik or any other single AAW member can get an issue voted on by the members if he/they can convince a sitting board that the proposal should go out that way.

 

[hockenbery]

.
So while the new bylaws are progress, I still feel disenfranchised and therefore chose to abstain. I doubt that the other 13k votes that weren't cast were for a similar reason. I believe that this is not something that members, in general, care about.

Mel,
you are in a great position to participate in AAW through the St Paul Symposium. The AAW is run by a couple hundred people that care enough to role up their sleeves and work for AAW. Not much different from a club of 80 where 3-5 do all the work.
There will be 15-30 local volunteers from the St Paul area that get really involved in putting on the symposium. I'm assuming you will be one of them. Just about every year one of these Local volunteers decides to run for the Board.
Under our form of governance members have little or no control over the operation of the organization which is delegated to the board. As practical matter each member can talk to every board member on the phone at least once. Board members will return individual e-mails. So every member has a voice. Whether the voice has influence is up to the board members. A good idea presented with an action plan and a list of volunteers to carry it out will at least be put to a vote in a board meeting.

I believe your feeling of disenfranchisement will be inversely proportional to the involvement you have in running the 2011 Symposium.

hope to meet you in St Paul,

Al

 

[George Guadiane]

I'm going to try not to be hateful or hurtful, it seems to come easy to me, but I want to try to explain my point of view on the statements made.
I'm going to highlight some things (out of context?) to show that the concerns that Mel, I and probably many others have here:

Hi Mel,

BTW, your comment regarding "ethics" is well put, except I think your focus is too narrow. A code of ethics cannot just apply to a Board, it must apply with equal force to all AAW members if it is to be effective. Naturally, there are special provisions that would apply to fiduciaries (persons who are in positions of control of the AAW), and there will also have to be a set of rules and procedures to uniformly implement and enforce such a code's provisions. That, however, will be another large drafting task, potentially far more difficult than revision of the Bylaws, because bylaws are, as I think you know, black/white rules of procedure, whereas ethics "rules" deal, almost exclusively, in shades of gray.

Peace

Perhaps I don't understand, but I disagree with the idea that ethics deal or should or must deal in shades of gray. Situational ethics might, but those are often revealed to be devices to justify action rather than any real ethical stand.
I don't think our organization is so complicated that we need shades of gray to make ethical choices.

But to remind, that the signature requirements in new section 402 are only there to bypass or overrule a negative board response to a proposal. Mel Turcanik or any other single AAW member can get an issue voted on by the members if he/they can convince a sitting board that the proposal should go out that way.

And if we can't convince a member, because what we want is not in the interests of the sitting board or some more powerful/popular/"friendly" lobbyist, no matter how important it is to us? What then?

Mel,
Under our form of governance members have little or no control over the operation of the organization which is delegated to the board. As practical matter each member can talk to every board member on the phone at least once. Board members will return individual e-mails. So every member has a voice. Whether the voice has influence is up to the board members. A good idea presented with an action plan and a list of volunteers to carry it out will at least be put to a vote in a board meeting.

I believe your feeling of disenfranchisement will be inversely proportional to the involvement you have in running the 2011 Symposium.

hope to meet you in St Paul,

Al

I think Al hit the nail on the head with the first highlighted statement, and the second highlighted section reiterates the power of the BoD and the lack of power the individual rank and file members have. That's why the disenfranchised ARE disenfranchised. Whether it is by accident or design, the membership are intended to be the worker bees, carrying out the will of the BoD and the BoD makes all the decisions.
What gets heard, starting with individual BoD members, what gets voted on and whether or not it will be allowed to impact the current and/or future BoD.
As I understand it, the BoD has the ability, as things stand to exercise (near?) absolute authority over all aspects of the organization, including whether or not the Ethics Committee acts, what they act on and how they act on it, if at all.

I understand that it is a big job, and that they don't get paid, and people like me raising issues that might not currently exist beyond the confines of my mind, make the job infinitely more difficult, BUT either we pay our dues, go to conferences, buy merchandise and praise the people who the board selects to demonstrate and do the BoD's work and accept whatever they do, no matter what - or we stand up for ourselves and rais the earnest concerns that we have in an attempt to make and keep the organization the we also love as something that we can respect and admire.

TO BE CLEAR, I'm not saying, suggesting or inferring that anyone on the current BoD has done or might do anything within the organization that might be considered unethical... I am merely raising the facts that you guys seem to document that the BoD COULD behave in ways that the membership might object to, and Membership would be helpless to protect themselves, each other and/or the organization from those actions.


To demonstrate my concerns;
The BoD is very much like our Federal Government, in that they make the rules, accept or reject ideas for consideration and action in a more or less autonomous way and they could/(are?) swayed by self interested lobbyists...
Once they are elected, they answer to each other and tell the voters (members) what they decided to look at, consider, do. With this power, our Federal Government, over the decades has created for themselves a completely separate environment where they take what they want by voting on it and we, the voters (members) are helpless to stop them. Once they make a law (rule) we are hung with it and have only the Judicial system (Ethics Committee) to turn to. In Government, the Supreme Court is filled with appointees who mirror the values of the people who appointed them, not necessarily those of the voters (members).
A strong IMPARTIAL judiciary MIGHT be able to undo things like their pay raises, life time retirement after even one day in office and all of the bazillion perks they have authorized, again, over the years.
With the understanding that the NFP operating environment is legally very different from that of the Federal Government, but within the constricts of any set of laws is usually a lot of wiggle room and often a lack of oversight.

Call me a "Black Helicopter" type, but the saying is true;

"Power Corrupts, Absolute Power Corrupts ABSOLUTELY." I believe that this quote/fact gives any and all of us reasonable concern for the recent and current ByLaws and Ethics Committee's functioning.

Last Time - I am not pointing a finger AT ANYONE, I am raising what seems to me to be a reasonable concern going forward based on things as they currently stand.

 

[hockenbery]

George,

what form of governance would you put in place of a BOD?

-Al

 

[Mark Mandell]

What Then . . .

Mr. Guadiane, if you'd spent a tenth of the time it took to write your refutation to instead read the new Bylaws, you'd know the answer to your question. That answer is, of course, that you take your objection directly to members, expend the effort needed to do so, and get 10% of the AAW membership to sign your petition to put it to a vote to "impeach and remove" those directors or reverse whatever it is to which you object. If you truly have the strength of your convictions on the issue, you will, like anyone else with a cause truly important to them, put some sweat equity into your position, doing what you must to move your agenda, and use the new remedy you have now been provided. If it's really that important to you, you'll find a way to get it done. May take some time. Unlikely you'll get far sitting in front of a computer screen or talking on a telephone. But you will be limited only by your own willingness to "get out there and beat the bushes for support." Complain that having to do so is too hard and you plead the case that your issue just isn't all that important to begin with.

However, if you are unwilling to expend that much effort, or are unable to find sufficient members to support placing your issues before the membership in a vote, then, unfortunately, your last option may be to be true to your principals and simply walk away and leave the organization to which you so strongly object, as others here have done.

 

[George Guadiane]

Mr. Guadiane,
However, if you are unwilling to expend that much effort, or are unable to find sufficient members to support placing your issues before the membership in a vote, then, unfortunately, your last option may be to be true to your principals and simply walk away and leave the organization to which you so strongly object, as others here have done.

I don't object to the organization, I'm CONCERNED about the future of it. At the moment, I don't have any specific agenda. Nor do I have any specific knowledge of any activity to which I might object.

I am fully aware of the 10% needed to force a change. I was trying to point out the soft underbelly of the organization that could, over time get further from an agenda that we can all agree on.

But you're right, if I was offended by the organization, I'd walk away.
I STAY because, in spite of the issues I tried to raise in a respectful way, I have concern and respect for the greater membership.

 

[George Guadiane]

Seriously

Is it impossible to believe that I have the good of the membership and the Association in mind as I raise my concerns?
Really??

 

[steelguy]

10%

Mr. Guadiane, if you'd spent a tenth of the time it took to write your refutation to instead read the new Bylaws, you'd know the answer to your question. That answer is, of course, that you take your objection directly to members, expend the effort needed to do so, and get 10% of the AAW membership to sign your petition to put it to a vote to "impeach and remove" those directors or reverse whatever it is to which you object. If you truly have the strength of your convictions on the issue, you will, like anyone else with a cause truly important to them, put some sweat equity into your position, doing what you must to move your agenda, and use the new remedy you have now been provided. If it's really that important to you, you'll find a way to get it done. May take some time. Unlikely you'll get far sitting in front of a computer screen or talking on a telephone. But you will be limited only by your own willingness to "get out there and beat the bushes for support." Complain that having to do so is too hard and you plead the case that your issue just isn't all that important to begin with.

However, if you are unwilling to expend that much effort, or are unable to find sufficient members to support placing your issues before the membership in a vote, then, unfortunately, your last option may be to be true to your principals and simply walk away and leave the organization to which you so strongly object, as others here have done.

Mark,

As I recall you were on the By-Laws Committee. It is nice to see that George's comments seem to always hit close to home with you. I don't believe that there is any good to come from you questioning George's commitment to the organization or his work ethic. If I recall, you had to rejoin the AAW yourself in late 2009 or early 2010. Who is committed? Now a more pertinent point, since you were on the By-Laws committee, what was the rationale of the committee in raising the percentage necessary to call a meeting from 5% to 10%?

BTW, What ever happened to the old adage of "put the letter in the drawer until tomorrow, and re-read prior to sending"? Attornies used to tell me that all the time.

Jerry

 

[Mark Mandell]

Mark,

As I recall you were on the By-Laws Committee. It is nice to see that George's comments seem to always hit close to home with you. I don't believe that there is any good to come from you questioning George's commitment to the organization or his work ethic. If I recall, you had to rejoin the AAW yourself in late 2009 or early 2010. Who is committed? Now a more pertinent point, since you were on the By-Laws committee, what was the rationale of the committee in raising the percentage necessary to call a meeting from 5% to 10%?

BTW, What ever happened to the old adage of "put the letter in the drawer until tomorrow, and re-read prior to sending"? Attornies used to tell me that all the time.

Jerry

It seems to me, Jerry, both you and Mr. Guadiane appear to have read something into my post that wasn't there. I did not question Mr. Guadiane's "commitment" or anything else. He asked a question, to wit:

And if we can't convince a member, because what we want is not in the interests of the sitting board or some more powerful/popular/"friendly" lobbyist, no matter how important it is to us? What then?

That lamentable situation is what we wrote new section 402 to address, a recalcitrant entrenched board who, in a given situation, is determined to ignore members' concerns or preferences. Now, Mr. Guadiane, you, me, and any voting member of the AAW can do just what we could never do before, overrule that control group by going directly to the AAW membership. Mr. Guadiane's question seemed to completely ignore the plain text of the very provision that answered his question. The question dovetailed with Mel Turcanik's post this morning based upon his feeling that the signature requirements in Section 402 are too burdensome, so I chose to address them up front as Mr. Guadiane has expressed dissatisfaction with those same standards. My text referencing the situation of a member not being willing or able to get enough signatures had nothing to do with Mr. Gaudiane's commitment to the AAW or his willingness to stick up for his beliefs. Perhaps I should have phrased that part of my response in the context of a hypothetical member, rather than use the word "you" in order to avoid any possibility that readers could imply that I was accusing Mr. Gaudiane of laziness or lack of commitment. I was not. Perhaps my answer to his question should have been posed as:

"If a member cannot convince a sitting board to act on his/her proposal/request, and cannot convince a rather small percentage of the membership to support at least a vote on the issue, then the only options left to that member are to either leave the organization or stay and personally move past the problem without any resolution."

I could, though, looking back at his question, reinterpret it to be

"So what if the board blows us off and we can't get enough members to vote with us against them on an issue that is very important to us? What then?"

Is that a question that even needs to be asked?

I haven't questioned anyone's commitment here, Jerry, nor have I touted my own as somehow superior, nor will I, ever. My laziness in renewing my membership for 2010 until last July is really quite irrelevant here so I'm wondering why you raise it.

The rationale you seek was, in the final analysis, quite simple. "Meeting" quorums were set to the Minnesota statutory number appropriate to the size of the AAW. If the AAW was to be put through the substantial expense of a full member referendum, which is what a meeting-by-ballot following a member petition actually is, there has to be some indication that the issue being raised and placed before the members for a vote, over the objection of an elected board, is of concern to enough members that it is likely to produce sufficient participation to meet the general meeting quorum requirements. (Special meetings, especially those held by ballot, must have sufficient member responses [votes] to meet quorum requirements or the meetings are simply invalid.) That is especially applicable where the petition concerns a demand to remove an elected director which, coming from the membership, need not be for some actual "cause". Director recall votes should not be undertaken lightly; same goes for proposals that would limit members' rights. Any notice mailing to the 14,000 members entitled to vote can cost the AAW upwards of $20,000-$30,000 a pop. If the organization can be forced to go through such a referendum only to have insufficient members participate to constitute a valid quorum, the entire procedure would be a nullity, the effort in vain, and tens of thousands of dollars in dues money wasted. Thus some demonstrated minimum of member involvement and concern needed to be set, and the general quorum standard was the logical point to set it. Remember, however, that if a petition gets the required 10 percent; of members signatures but then only 500 people wind up voting on the proposal, the vote is useless and the whole effort would be wasted because the vote count didn't reach the quorum requirement for any valid meeting.

The 5 percent threshold was established to make it easier for members to get things like pet projects and matters that didn't effect elected personnel or members' rights to be more easily put out for members' decisions if a board declines to entertain them. Don't forget, however, that the number of votes cast must still meet the 10 percent quorum requirement to be a valid and binding vote.

I do hope this clarifies my comments for both of you.

PS: Looking back at this response, I find an opportunity for misunderstanding. In the meeting-by-ballot referendum situation which is how AAW membership meeting votes will now be done, members "appear" by casting their votes rather than by showing up at some physical location. Every membership meeting, whether "special" or the annual meeting at the Symposium, must meet the same quorum requirement to have the things voted on become a valid part of the AAW's make-up. This is very different from the annual election of Directors where there is no minimum number of votes required to reach a result. 500 members voting can elect directors so long as every one of the 14,000 members had the opportunity to vote, but 1200 total members voting on a special meeting or annual meeting proposal gets nothing done. This requirement is not optional, but rather is set by the Minnesota statute governing that State's NFP corporations like the AAW.

 

[George Guadiane]

George,

what form of governance would you put in place of a BOD?

-Al

Just saw this
I don't have anything against a BoD. I'm sure its a legal NFP requirement.
Aspects of the ByLaws and the seeming interconnectedness of the BoD and the Ethics Committee concern me. I'm also concerned that it seems like the Ethics committee doesn't have much actual power influence.

A little more separation of powers and a strong clear ethics standard is what I'm looking for. The report the EC presented didn't respond to the questions in a way that resolved any of the issues I had, a clearer means of responding with some precision would be an improvement in my opinion.

 

[George Guadiane]

Mark, I don't think you realize that even though we don't agree on how things are or how they should be, I appreciate and respect the work that you did. I also appreciate and respect the fact that your intention is to make the AAW an ever better organization.
These things are true.

I should note that I did feel like your comment "~be true to your principals and simply walk away and leave the organization to which you so strongly object, as others here have done." was an opening door and an invitation to leave.

 

[steelguy]

Thanks for your detailed response.

Jerry

 

[Mark Mandell]

I should note that I did feel like your comment "~be true to your principals and simply walk away and leave the organization to which you so strongly object, as others here have done." was an opening door and an invitation to leave.

But you were very mistaken. Leaving or staying is a personal choice we each make for ourselves. I do think you are being much too literal.

Interestingly, "leaving" may become less a matter of personal choice when and if a full ethics code and implementing procedures are put in place. In an organization like the AAW, ethics violations can lead to a very narrow range of results; basically either a public hand-slap or either a temporary or permanent cancellation of membership (banishment). That would have an impact on a director, but to a general member all it would mean would be that they didn't get a magazine. Not a very big range of effective sanctions there, eh? Fortunately (or unfortunately) pillories were abandoned in this country more than 100 years ago.

 

[John Van Domelen]

Had to look up pillory. The wiki on it is quite informative.

Best line on the page: "Whipping Post" redirects here. 😱😀

 

[George Guadiane]

Had to look up pillory. The wiki on it is quite informative.

Best line on the page: "Whipping Post" redirects here. 😱😀

Allman Brothers?

 

[Dale Miner]

One of their best songs.

And, at times, we all know the feeling.

 

[davidwalser]

Difference between "ethics" and "morals"

George asked a very good question above which, so far, has gone unanswered. In essence, he asked why would an AAW ethics code need to be cast in shades of gray (as suggested by Mark), can't a simple organization such as ours have an ethics code written in clear black and white rules? The answer is that "ethics code", or "ethics" in this context, is a term of art that has a meaning that differs from what someone might expect the term to mean given the common everyday usage of the word "ethics".

In common everyday usage, "ethics", "moral", and "right and wrong" have closely related meanings. Someone might say that they have concerns about the ethics of someone and we'd all understand that there was a concern that the individual was a person lacking in good moral character. Or, if someone said they were concerned about the morals of someone, we'd understand that the person was apt to be unethical.

In contrast, by "ethics code" we mean a formal set of rules that are designed to prevent "wrong" or the appearance of "wrong" activity. The legal, accounting, and medical professions are examples of professions that have very robust ethics codes. These codes prevent members of the professions from engaging in activities that, in an of themselves, might not be "wrong" or "immoral", but might allow a neutral observer to believe that the professional is doing something wrong. For example, there's nothing wrong with two willing adults to date each other. Yet, under their ethical rules, doctors are forbidden from dating their patients. (Since not all patient/doctor relationships are considered equally problematic, this is not a blanket prohibition. Instead, there are lots of exceptions to the rule -- which means it's written in shades of gray.)

As another example, there's nothing wrong with someone making an investment in a business. Yet, CPAs are prohibited from having a financial interest in a business that the CPA is engaged to audit. It's not that such an investment would prevent the CPA from rendering an honest opinion about the business's financial condition, it's that such an investment might cause an observer to reasonably question whether or not the CPA's opinion was objective. Again, because there are all sorts of direct and indirect financial relationships that a CPA might have with a business, there are complex rules describing what is permitted and what is not -- we're back to shades of gray.

So, an ethics code, by its very nature, restricts and prevents what under most circumstances would be seen as acceptable, moral, behavior. To prevent those rules from being too burdensome and too restrictive, they are written with lots of exceptions. They are often couched in the form of examples rather than clearly written rules. All this makes them gray, rather than black and white. So, when Mark says that an AAW ethics code would be complex and filled with shades of gray, he's not saying that our organization is so complex it's grown difficult for anyone to know right from wrong. No, he's saying that drafting workable rules that, if followed, would prevent the appearance of wrong doing, would be a complex task and the resulting ethics code would most likely contain a lot that is written in shades of gray.

I hope this helps.

 

[davidwalser]

Another reason for an ethics code

In my post, above, I should have discussed another purpose of an ethics code: to give rules and standards that can be enforced. For example, all of us would agree that people in our prisons and jails should be treated decently. That's a very simple concept. To put some definition around that simple concept, we've published thousands of pages of rules and regulations covering everything from how many square feet of space each prisoner should have to the minimum number of calories for each meal. These rules and regulations create the standards against which our treatment of prisoners can be measured to determine if our goal of treating prisoners "decently" has been met.

Without these standards, it would be all but impossible for our courts to adjudicate a complaint that a particular prisoner was not being treated decently. Ideally, courts need clear rules to enforce. The same is true of an Ethics Committee. If we were to say an AAW member should not act in a way that puts woodturning into a bad light, we'd be expressing a simple concept: AAW members shouldn't act disreputably. How would such a simple concept be applied? Is it disreputable to refuse to return a client's deposit? Not always. To allow the Ethics Committee to adjudicate such questions (and so members would know what is expected) we'd need a set of rules covering when deposits are required to be returned.

Note: Please forgive the typos. I was posting from my phone.

 

[hockenbery]

it makes sense to have an ethics code for members and board members.

the Forum has a small set of ethical standards that moderators enforce.

These don't seem to meet with universal acceptance. and "judgement" is involved in determining "civil" behavior

The AAW got through its first 15+ years without and ethics committee.

8 or 10 years ago there was a "conflict of interest" dispute involving an AAW board member. The board member resigned and the ethics committee was born.

When I worked for the federal Government we had clear ethical conduct with regard to our Contractors. Basically I could not profit from working on a contract for the government. I could only accept "gifts" that the contractor gave to everyone who walked through the door. If they gave everyone a pen or coffee cup, I could accept one. Tickets to the Kemper Open I had to refuse.

A similar ethics code for AAW board members would be that they not profit directly from board membership. This seems reasonable. Clearly it is not allowed for a board member or direct family member to receive any money from the AAW other than expense reimbursement.

receiving money from 3rd parties is less clear.

1. What about the Board member who gets asked to a demo while working for the Board at the AAW symposium.

2. What about a board member who gives a small group a guided tour of the instant gallery at the request of the AAW President, and during the tour a member of the tour group asks to buy a turning displayed by that board member.

these are both cases where a board member can earn money not from the AAW.
I would judge case 1 as ethically acceptable since it is likely the invitation to demo is not related to being a board member.
I would judge case 2 as a conflict of interest as it is likely the purchase is being made as result of the tour in which the board member was acting in their board capacity.

Now suppose our board member is on the EOG committee and the club with the demonstration invitation just got a $1500 EOG grant.

It isn't easy to codify from whom and under what conditions board members can accept money. About half give demonstrations for local clubs, regional, and AAW symposiums and a large majority board members have sold some of their work. Board member should not give up demonstrating or selling work. They should not doeither in situations that arise from their board membership.

this is just a simple issue where the acceptance of money defines the deed.
who judges or when to judge what is acceptable is not clear to me.

-Al

 

[Mark Mandell]

Shades

A good effort, David, although in practice your deposit example would be way more complex with a number of contract law provisions coming into play.

Let's go to a situation that could easily pop up tomorrow at the AAW.

First, we posit a rule governing AAW directors:

Rule: "No elected or appointed director of the AAW shall realize any personal compensation or profit as the result of any position held with the AAW, and shall, at all times, avoid even the appearance of a conflict of interest."

Reasoning: The IRS has a hard and fast rule in this area dealing with misuse of charities for personal gain, and it can be strictly enforced when the issue is put in their face. On a more personal level, AAW directors are volunteers whom we members assume have taken on their positions to help the field of woodturning and promote the AAW as an organization rather than to line their own pockets.

Situation:
Background: A is a professional woodturner who derives 100 percent of his income from turned wood items he makes and markets, both directly and through several galleries, plus selling a few tools he's designed and several books and videos he's made, and from fees for doing demonstrations around the country.

A gets elected to the AAW Board. A is listed on the AAW website and in the Journal as a director. When he travels for demonstrations or symposiums and shows or appears at galleries where his work is being sold, he is listed and introduced as a "Director of the AAW, the largest organization of its kind on the entire planet."

Apparently from the increased exposure A gets from his appearances and public efforts on behalf of the AAW, greater interest in his own work is generated, the demand and prices for his work rise, and more people are buying his tools and videos.

A has never exhibited an attitude that he's worth more because of his AAW position, in fact, he never mentions it when he's out and about.

Ethics Problem: Since it cannot be disputed that A has seen both his reputation and his bank account (hopefully not his ego as well) increase as the proximate result of his being elected to the AAW Board, has A violated our rule against profiting from his position?

Possible Answers:

1. The black/white version: Throw the bum out! The rule says he can't profit. He profited. He can't dispute it. Done.

2. The gray version: A has done nothing that violates the rule because, while his activities as a Director may have increased his business income, he has never marketed or promoted himself or his work as that of an AAW director or as being worth more because it was made by an AAW Director. The gain that occurred is an unavoidable consequence of a professional turner being elected to the board, and we have no rule that prohibits professionals from serving as directors. The man cannot be expected to terminate his only source of income for three years while he serves as a volunteer with the AAW.

Slightly different scenario:

Assume all of the above plus: At the beginning of A's third year on the Board, an eminent collector of wood art contacts the AAW office seeking a reference for an AAW member who specializes in a particular form, method, and type of work to take on a prestigious and lucrative commission. An AAW secretary happens to have several segregated mailing lists of AAW professionals, one of which sets out who would be qualified for the collector's commission. Unthinkingly, with a couple of clicks of the keyboard, the secretary sends the inquiry to the dozen or so people on that list, including our guy A.

A, along with some of the others, responds to the collector like any businessman would, and winds up with the commission.

Result? No "gray" on this one, A is in clear violation of the rule because when he took on the director's job, he gave up the right to receive anything of value directly or indirectly from the AAW. Although he was a competitive "bidder" on the commission just like any one of the others, his position as a director may have been used to an improper advantage and profit, and his actions have placed the entire AAW in jeopardy with regard to its status by violating the IRS rule. If he doesn't resign, he must be discharged, and he may even be called upon to donate all monies he received from the commission to the AAW.

Secondary Result: The AAW will have to promptly and properly train its office staff to make sure that there is no repetition of the incident, and a knowledgeable employee who violates the rules would be subject to being discharged as well.

PS: Al, to respond to your questions, I think you have analyzed the two situations correctly. Your Director-Tour Guide is acting in his official capacity during a symposium and may not benefit through that hypothetical sale. We can, however, relieve him of the potential conflict, which could arise in the instant gallery or anywhere during the Symposium, by simply establishing that Directors may place their work in the IG but will be precluded from selling their work through the IG or any piece to an attendee at or during the Symposium. Thus, if asked by a potential customer, the boardmember would be required to state that he is prohibited from transacting business at or arising from his role at the Symposium. That prohibition would probably extend to handing out his business card as well, since he would place himself in a conflict of interest with regard to all the other members who put items for sale in the IG. Sounds like a pretty tough rule, I know, but maintaining high standards is much easier than trying to clean up the mess later.

 

[Mark Mandell]

Harder Question

I received an inquiry from an AAW member about my hypothetical about Mr. A, the professional turner/Director, and thought it a valid point to put into this thread.

The question posed was "What if Mr. A doesn't know that the collector was referred to him by the AAW Office? What if the secretary just gives the list to the collector who then makes "cold calls" to the people on the list without telling them where/how she got their name? Is A still the bad guy in this scenario?

Tougher question, by far.

A has not knowingly violated our rule because he has simply responded to a potential customer's inquiry about his services and work; an everyday occurrence, and very different from the original AAW office notice to A to call the collector. However, there is still a technical violation of the rule, caused, in this case, by the office employee who should have removed A's name from the list before giving it out to the collector.

So, what must be done in this situation and how can we prevent its recurrence? Job No. 1, it would seem, is to "purge" the violation of the rule. Although not his fault that might require A's resignation or discharge, it would appear that the only way to enforce the rule is to require him to give up all monies he received from the collector. That money might go to the AAW as a donation, but this raises something of a conflict between the AAW and its Director, Mr. A, since the office employee caused the violation and A is now being asked to give the money to the same organization that created the problem. We can avoid that conflict by having the funds donated to another public charity. While A will still be justified in holding some hard feelings toward the negligent employee for costing him both time and money, lets remember that the prestigious commission in our example carried a lot of intangible benefits which A will retain. A has also learned an important lesson about his position as an AAW Director.

How then to prevent this kind of thing. We could, of course, fire the employee, but unless there is actual bad faith in the employee's actions, that won't solve anything, and the AAW may lose an otherwise valuable staff member. The first line of defense here is in establishing proper office procedures and staff training to prevent such occurrences. For instance, all Directors names must get removed from referral lists while they are directors, and all office staff must, as before, be trained not to refer such inquiries to any Director. The second line of defense will have to be with A, our Director. While he is a director, we must place a burden on him to inquire about how the collector learned about him and his work. Thus, a simple question like "How'd you get to me?" posed by A to the collector would have revealed the office referral and A can then simply say, "Since I'm an AAW Director, I cannot accept your proposal while I'm in office. Please call the other members on the list you were given." This simple avoidance procedure can be built into the Director's Handbook and reinforced during the initial orientation of all newly elected directors.

This becomes another example of a situation that is much easier to prevent than clean up after-the-fact.

 

[davidwalser]

From Mark's last couple of posts, it's plain that it would be very difficult to administer a rule prohibiting a director from receiving any indirect financial benefit from the AAW. I don't think such a rule need be absolute nor need it be applied without reason. (For an example of a rule that's been too often applied without reason, see the "zero tolerance" plans adopted by many school districts. Under such plans, elementary school kids have been suspended because they brought a toy soldier to school or drew a picture of a gun during art class. "What part of 'NO WEAPONS ALLOWED' are you kids not understanding?!")

From a tax perspective, I don't think we need go nearly as far as Mark has suggested. (Mark's suggestion might be good policy. Some members have suggested members of the current board serve because they hope their status as directors will result in more sales of their work and greater demand for their services as demonstrators. It might be good to have a very strict policy to avoid this impression. I'm NOT discussing the policy question here.)

As a general rule, the tax law and regulations prohibit a director (the law uses the terms "disqualified person" or a "foundation manager") from engaging in transactions that financially benefit the director. However, the law and regulations provide several exceptions to this general rule. Under one of these exceptions, a charity may pay reasonable compensation to a disqualified person or foundation manager. For example, a charity may choose to hire a director to provide legal services and, as long as the director charges no more than his or her usual fee for such services, there has not been a tax law violation. Similarly, a charity may hire and pay a director to manage the charity's investments. On the other hand, under no circumstances may a director sell anything to the charity (or buy anything from the charity) -- no matter how fair the price. Any sale between charity and director is strictly prohibited.

Where does this leave us with the hypothetical referral by the AAW of a collector to a turner who happens to be a director? In and of itself, such a referral would not violate any tax rule. (A problem might arise if the directors were to require that ONLY directors receive referrals from the AAW. That's NOT the fact pattern we're discussing.) Suppose, while Rumpelstiltskin were serving as director, that a collector were to view AAW's collection. Enthralled with a miniature spinning wheel found in the collection, the collector demands to know who the artist was. Tax law would not prevent the AAW staff member from truthfully telling the collector that the turner was a current director, Rumpelstiltskin.

Another example of a permissible indirect benefit: A local grocery store's charitable foundation may support the theater company. Prominently displayed in the theater's promotional materials will be the name and logo of the grocery store's charitable foundation. Since the name and logo of the foundation are substantially similar to the name and logo of the store, the store will indirectly benefit from the foundation's sponsorship of the theater company. You've all seen something like this. Again, it's not a per se violation of the tax rules. (It would be a violation if the primary motivation for sponsoring theater company were to benefit the store rather than the theater company.)

 

[Mark Mandell]

Let's Not Stray

David,

I know better than to debate tax regs with a CPA, but I think you're mixing hypotheticals. While it's true that NFP's can hire and pay directors (many charities do), the AAW does not, and the original rule posited prohibited both profit and conduct with even the appearance of conflict of interest. This is not a case for excess benefit to an unqualified person. Once our guy knows that the referral came from the AAW office, he's prohibited by Our Rule [perhaps/perhaps not by the IRS] from taking the collector's job. Since he also, one way or the other, knows that he's "competing" with other AAW members, the conflict of interest boogyman raises its ugly head with the mere appearance of misuse of the position of director to unfair advantage over the others on the referral list.

Since in both main scenarios A is properly receiving intangible benefits from his position that he can't divest himself of, we're not talking about "zero tolerance" situations here. OTH, if you think I'm applying the rule too strictly, we would need to decide on how to apply it so that it's not "swallowed by the exceptions." The danger I see here is that it becomes too easy to sidestep the rule by laying the blame on someone else, like the hypothetical office employee in my examples.

A big issue with establishing an ethics code will be enforcement. With money changing hands, anyone who is willing to violate a rule is unlikely to care whether or not they get the next issue of the Journal. The AAW doesn't have a licensing or certification program like some Associations have to promote their members with the public.