Local Democracy at Risk?

Nicola M Drayton-Glesti, Community Lawyer (Legal Entities Project)

Since 2010, Community Law Wellington and Hutt Valley (CLWHV) has run a Legal Entities Project (LEP) to assist community groups (NGOs) with setting up, running and winding up their organisations. The work we undertake includes advising on structure, preparing constitutions, leases and employment contracts, assisting NGOs run their meetings, employment mediations and numerous other issues arising within this project. The LEP also provides education workshops, creates legal resources and works on specific law reform with the current review of the Incorporated Societies Act.[1]

Over the years many NGOs have sought advice from CLWHV on which structure is best suited to their organisation. While there are a number of structures an NGO can choose,[2] the main choices are an Incorporated Society (society) or a Charitable Trust (trust).

A society is a member based organisation[3] where supporters are actively involved in running the organisation through the Annual General Meeting (AGM) and where appropriate, Special General Meetings (SGMs). A society is a democratic model allowing realistic participation from members. Depending on the precise wording of the NGO’s constitution the members can elect the board or committee, raise motions and issues, speak to issues, vote, call for SGMs and even call for the removal of a board member.

A trust operates quite differently. First, there is no requirement for members or supporters. The decision making is made by the trustees on behalf of their beneficiaries. By law you can have a minimum of a single trustee, although it is usual to have at least two and many trusts have more.[4] The trustees are appointed by themselves without an election.

Traditionally in Wellington, societies were plentiful.[5] However, CLWHV is noticing an increased interest in setting up trusts due to a wariness of societies.  When consulting with NGOs regarding the best structure for their organisation, we are receiving feedback that a trust is preferable because of the view that a trust allows ‘easier’ decision making.  Horror stories are brought forward of societies experiencing difficult and ineffective AGMs as a result of the behaviour of some members such as arguing every possible point, trying to remove office holders from the board, ‘dominant’ members trying to control proceedings, personality clashes and verbal abuse. A trustee recently told me they had chosen the trust structure because of issues with factions in their membership and consequent problems with governance and management structures. They believed that a trust would solve their issues.

The distinction between a trust and a society can become blurred when NGOs with active members make the decision to use a trust. They often feel under pressure from their members to incorporate some aspect of a society into their trust.[6] Sometimes a trust will allow supporters to attend some of their meetings, have AGMs or report to their community about what the trust is doing. I have heard of trusts having supporter’s groups and even agreeing to elect their trustees. I have seen a number of Charitable Trust deeds that contained a curious mixture of clauses that would not have looked out of place in either an Incorporated Society or a trust deed.

There is no denying that trusts have their place. They usually work best with a small group (10 members of less) with a charitable purpose,[7] identified beneficiaries and few, if any, members.

I believe that a more serious problem arises when larger groups (over 15 members) decide to operate as a trust. One of the most important functions of the membership of a society is electing the board. From my experience attending numerous AGMs, I note that elected boards usually reflect the community that has elected them. Thus if the NGO resides in a multi-cultural area, the members will tend to elect people they know within that particular community.

Conversely, a problem identified with trusts is that trustees are appointed either by whoever had the idea for a trust at the first trustee meeting or, for subsequent trustees, by the then current trustees. Current trustees tend to choose people similar to themselves and this does not necessarily reflect the community they are trying to help. For instance, a recent group from a multi-cultural part of Wellington had an all white, middle age and male trust board who had appointed themselves. While it is also important to have skills based appointees for both societies and trusts, when an NGO has a proper membership base, democracy is best served via local elections for the board.

Democracy is also best served when members can fully participate with the running of the organisation including suggesting changes and initiating new policies. While trusts can allow members to participate in the running of the trust, they can also change their mind to dictate that only appointed trustees can make decisions. The trustees may change the trust deed themselves without the need for an AGM or any other mechanism to include members.[8]

I have certainly seen messy and drawn-out AGMs and SGMs where members did indeed shout at each other, create factions and try to remove each other from their boards. Thankfully, I have also seen the way local democracy can work where members have a chance to speak to their community, raise their issues and vote. Local democracy is important for the wellbeing of our community and adds value and quality to NGOs and to our lives.

The way to sort out messy governance structures for society’s is not just to “change into a trust”, but to get help for the NGO. Help can include one-on-one legal advice and assistance, education workshops on how to run meetings and accessing the legal resources available online and through Community Law.[9] I hope that local democracy in the form of societies continues to flourish and we all learn to handle, rather than avoid, challenging members for the enrichment of our lives and the communities we live in.

[1] A new act for Incorporated Societies, Law Commission, June 2013.

[2] Such as a company structure, Industrial and Provident Society, Māori Land Trust or an unincorporated group.

[3] A minimum of 15 members are required, section 4, Incorporate Societies Act 1908.

[4] Trustees Act 1956, Charitable Trusts Act 1957 (Part 1).

[5] For example, the Legal Needs Survey organised by the LEP in 2010 showed double the number of Incorporated Societies in Wellington than Charitable Trusts, but it was a sample survey only.

[6] We are referring to a Charitable Trust and not a Charitable Society sometimes confusingly referred to as a Charitable Trust Board.

[7] Relief of poverty, advancement of education or religion, or any other matter beneficial to the community, section 5, Charities Act 2005.

[8] Most trust deeds specify that charitable objects are protected when changing the trust deed.

[9]  To download free information resources for NGOs (including the Community Law Manual, Chapter 2: Community Organisations and the Law and Managing a Community Centre: Best practice Guidelines) visit the Wellington website www.wclc.org.nz or the Community Law national website: www.communitylaw.org.nz. For legal advice or assistance visit the Wellington website or call (04)460 4466. Legal Seminars for Community Groups are usually run in September and October each year.

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