[Eg-oversight-board] Fwd: Evergreen ByLaw Comments

[Holly Brennan]

You are correct, Mike. I just arrived back to work within the hour. Thanks for the extra time to read and respond.

-Holly

From: eg-oversight-board [mailto:eg-oversight-board-bounces at list.evergreen-ils.org] On Behalf Of Mike Rylander
Sent: Monday, May 7, 2018 9:36 AM
To: Gagnon, Ron
Cc: eg-oversight-board at list.evergreen-ils.org
Subject: Re: [Eg-oversight-board] Fwd: Evergreen ByLaw Comments

All,

I see now that with the conference last week, mid-day today may not have been enough time for everyone to digest two important threads and get their thoughts together.  As such, and because we have some initial information from the MOBIUS lawyers, I'd like to extend discussion for a few more days.  Please, if you have a chance and any concerns, do weigh in.

In particular, I would appreciate feedback on the Indemnity section.  Having gone back and re-read both the proposed by-laws, the by-laws we use at EOLI, and Karen's input, I think this needs more that just my input.

Last but not least, Ron, thanks for your feedback.  Comments below inline.

Thanks!

-- Mike

On Mon, May 7, 2018 at 12:03 PM Gagnon, Ron <gagnon at noblenet.org<mailto:gagnon at noblenet.org>> wrote:
Mike,
Sorry to be late in responding...

Thanks for doing so!

We at NOBLE use email votes (sparingly) and they can be effective and leave a good audit trail.  I would support that capability for Evergreen.

Great, thanks.  We have always used email for this at Equinox (pre- and post-NPO), partly because the audit trail is outside the control of any individual, so I agree.

As to the Executive Committee, I would have concerns about that -- can it be larger than two for a minimum?

I don't see why not. Should it be a majority of the Board, or simply three or four?

For budget, I would go along with your suggestion of 10%.

Thanks, that's helpful.  I included a specific dollar amount outside the confines of the conference budget, with the thought being direct committee spending (outreach, etc) throughout the year.  Do you have thoughts on that, either the concept or the amount of $5k?  Perhaps that's a bit high given our revenue and assets.

Email for notice is good.
President and Treasurer should be different persons.

Agreed, that seems to be consensus.

Thanks!

Thank you!

Ron

On Fri, May 4, 2018 at 11:40 AM, Mike Rylander <miker at equinoxinitiative.org<mailto:miker at equinoxinitiative.org>> wrote:
All,

As promised, here is the initial response from MOBIUS' lawyers to Karen's direct comments and suggestions.

I said before that the suggestions were mostly rejected, but that isn't quite right.  The lawyers are starting from an adversarial position, which is understandable given their stated past experience, as opposed Karen's suggestions starting from a more amicable default.  As a practical matter, I take Karen's suggestions as an aim to streamline and simplify communication and action in the common case, whereas the MOBIUS' lawyer's apply more structure up front in an attempt to protect against "activist directors" (their words in one case).  The question before us is which do we want to enshrine in our by-laws -- my interpretation of the choice could be summed up as: do we value efficiency and assumption of good-faith over prescribed defenses against internal strife?

I can be convinced in either direction, but I tend towards the former by default.

To be clear on my position, I believe that most of Karen's suggestions (particularly on practical matters such as the use of email for certain functions) do not weaken any overall protections we have, and just avoid overhead given the way our community works.  The biggest issue surrounds indemnity, which we can discuss in more detail, but the example I provided works to limit the issues raised below by restricting indemnity to only litigation that arrises from the fact that a director was, in fact, a director.  Anyway, I would appreciate all input you care to provide.  Thoughts?

Thanks again, everyone!

--
| Mike Rylander
| President
| Equinox Open Library Initiative
| phone:  1-877-OPEN-ILS (673-6457)
| email:  miker at EquinoxInitiative.org<mailto:miker at EquinoxInitiative.org>
| web:    http://EquinoxInitiative.org<https://linkprotect.cudasvc.com/url?a=http%3a%2f%2fEquinoxInitiative.org&c=E,1,Xfi4hLKieaoXL0r8r326XA5d7Q7wvfmt0GNhKv1QXgGrr1-FA4nFuWZf0hiwtaahy2b-jatNs7Xa9ZpcZzLktV5h_PdJKqMuvUEiXcodvg9Sawj7Lw,,&typo=1>

---------- Forwarded message ---------
From: Donna Bacon <donna at mobiusconsortium.org<mailto:donna at mobiusconsortium.org>>
Date: Thu, May 3, 2018 at 9:13 AM
Subject: Evergreen ByLaw Comments
To: Mike Rylander <miker at equinoxinitiative.org<mailto:miker at equinoxinitiative.org>>


Mike,

See the comments below from our attorneys.

Most of these comments relate to the committees permitted under the bylaws.  While it is standard to contemplate such committees being formed in the corporate documents, as a practical matter, entities of this size actually forming sub-committees is rare and it is much more common for the whole board to oversee the operations.  Please see our comments in red below.

Section 3:15 Actions By Board Without A Meeting

Under the draft bylaws all decisions must be taken in a meeting, or otherwise the only mechanism is by unanimous written consent. The bylaws are silent as to whether email constitutes proper written consent. You may want to make this looser so that a majority of the board can vote by email without a meeting. This has been a major pain point for other orgs I've worked with.

Generally speaking we do not recommend email as sufficient for unanimous written consent due to the record keeping requirements for corporate entities.  How Evergreen has described its decision-making process is that the board will make a decision, likely via internet chat and without a formal meeting, and then document that decision in a resolution that is circulated and signed by all of the board members.  That final, signed resolution then goes into the corporate record book.  This avoids questions as to the final language that was approved, makes it easier to ensure all signatures are obtained, and is a best practice for the statutorily-required record keeping.

Section 4:1  The Executive Committee.

The executive committee section is very strong, which is ok if you're careful (the board can appoint a committee of only 2 people to do almost everything the board does). So I wanted to flag that.

Does Evergreen want to change this?  Note, as written the board has discretion over whether to even form an executive committee and which powers to give it.  There are carve-outs explicitly listed for certain actions the board cannot designate.  As written, this gives flexibility to the board on whether to create the committee and whether to give it very limited or very broad powers.

Section 4:2 The Finance Committee.

This says that any major change in the budget must be approved by the Board. This is vague and is silent as to materiality. It may be better to give the committee a little bit of clear flexibility in case you do form a finance committee.

Does Evergreen want to change this?  Note, as written the board has discretion over whether to even form the financial committee.  To keep controls on the committee, its powers are limited to exceed or change the budget, which is left in control of the board.  This is fairly standard.

Section 4:5 Meetings of Committees.

You may want to amend this to permit the use email for notice.

We generally do not permit email for required statutory notices as the Missouri statutes do not specify the effective date for electronic notice absent proving the email was received.  If there is a dispute between the corporation and a board member, this can be difficult.  With mail, the statutes specify the effective date based on the mailing without requiring proof of receipt.  Moreover, any regular meetings of the committee do not require notice; notice only applies if there is a special meeting outside of the normal schedule.  As most decisions will likely be made outside of official meetings, those will be evidenced by a resolution signed by all members and waiving the notice requirements.

Section 5:1 Officers.

The bylaws don't permit the President and Vice Chairman to be the same person, which is I'm sure consistent with state law, but some states require that the president and treasurer not be the same person, so that there is some level of fiscal controls. You might want to consider adding that in this case.

There is no such restriction as to the president and treasurer being the same individual under Missouri law, and therefore we do not add such a limitation in the bylaws.  The authority of the president and treasurer are controlled by the board, which is how the bylaws address this issue.  If you want to add additional restrictions, let us know.

Section 5:2  Appointment and Term of Office

There's a 1 year term limit on officership. You might want to leave those limits up to the board if Missouri law permits. While you do one year terms now, that might not be convenient in the future for some reason, and then you'd have to amend the bylaws.

The term of the directors must be specified in the bylaws or articles under Missouri law.  We typically specify the term in the bylaws rather than the articles as the bylaws are easier to amend.  The 1 year term of directors was requested by Evergreen.  As the officers are all currently board members, which is typical, we want the terms of directors and officers to match, otherwise an individual’s term as an officer may not be over even if their term as director is complete.  It can be changed in the future by amending the bylaws.

Section 6:2 Fiscal Year

I would let the board fix the fiscal year, with it initially as the calendar year.

The fiscal year is most commonly listed in the bylaws.  While not a statutory requirement, many banks and other institutions prefer it be listed in the bylaws.  The fiscal year as initially established is the calendar year.  If the board wants to change it, we can amend the bylaws.  If Evergreen wants to remove it from the bylaws, we can add it to the consent resolution.  However, any change to the fiscal year would still need to be approved in a resolution of the board signed by all members.

Section 6:9 Executive Director

I would beef up this section to anticipate the possibility of other employees.

This section is intentionally left vague as the board does not anticipate hiring any employees, but does plan to retain an outside company to handle its operations.  We do not recommend having two companies or individuals designated to the same “executive director” position.  The board can hire other contractors (or employees) to perform any number of functions, but we would not recommend vesting more than one person/entity with the title “executive director”.

Section 6:11 Books and Records
D. Inspection  Procedure

I would consider deleting "(c) demonstrate a direct connection between the purpose for
inspection and the requested records." I don't understand why a Director should have to explain why they want to see the records. It seems like an unnecessary bar - I think Directors should be engaged with the org.

The bylaws also note that the directors can inspect corporate records in accordance with applicable law.  We have the limitation regarding connection in the documents as we have seen litigation tactics from activist directors who are in opposition to the corporation use their inspection rights offensively in the litigation to cause the corporation to waste time and money.  For the most part, directors do not use the formal process specified in the bylaws to request information if the relationship is healthy (they just email the appropriate person and such information is provided).

Section 6:12  Indemnification and Liability of Directors and Officers
D.
A majority of the board determines whether a Director was acting in good faith, etc. in order for the indemnity kicks in. If we're at the point where this section is invoked, something has gone very wrong. Does it make sense that the majority of the board are the ones to decide if the standard is met? I could imagine situations that are very muddy. At least consider putting in a limit on the discretion of the board in that case.
This limitation is standard in most bylaws.  The limitation protects the corporation from a director seeking to take advantage of the indemnification section by invoking it to fund litigation adverse to the corporation’s interest.  We have seen indemnification sections invoked by directors that use the section to fund the director’s own litigation against the corporation.  If the majority approval is not obtained, the indemnification section will still apply if the director obtains a court order enforcing the section, so the board cannot override the indemnification provided in the bylaws.


--

Donna Bacon

Executive Director

MOBIUS

111 E Broadway, Ste 220

Columbia, MO 65203

573.268.1845

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--
Ronald A. Gagnon
Executive Director
North Of Boston Library Exchange (NOBLE)
Danvers, Massachusetts  01923
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