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

Tue May 8 13:11:14 EDT 2018

+1 to Ron's comments.

I'm unsure how the Executive Committee's decision-making responsibilities
would differ from the overall Board's decision-making responsibilities. Can
the Executive Committee consist of the entire board?

As for indemnity, hopefully it will never come to that, but it makes sense
to me that a majority of the board would be required to determine that a
director did not act in good faith.

Terran McCanna
PINES Program Manager
Georgia Public Library Service
1800 Century Place, Suite 150
Atlanta, GA 30345
404-235-7138
tmccanna at georgialibraries.org

On Mon, May 7, 2018 at 12:03 PM, Gagnon, Ron <gagnon at noblenet.org> wrote:

> Mike,
> Sorry to be late in responding...
>
> 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.
>
> As to the Executive Committee, I would have concerns about that -- can it
> be larger than two for a minimum?
>
> For budget, I would go along with your suggestion of 10%.
>
> Email for notice is good.
>
> President and Treasurer should be different persons.
>
> Thanks!
>
> Ron
>
> On Fri, May 4, 2018 at 11:40 AM, Mike Rylander <
> 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
>> | web:    http://EquinoxInitiative.org
>>
>>
>> ---------- Forwarded message ---------
>> From: Donna Bacon <donna at mobiusconsortium.org>
>> Date: Thu, May 3, 2018 at 9:13 AM
>> Subject: Evergreen ByLaw Comments
>> To: Mike Rylander <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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>> eg-oversight-board at list.evergreen-ils.org
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>>
>>
>
>
> --
> Ronald A. Gagnon
> Executive Director
> North Of Boston Library Exchange (NOBLE)
> Danvers, Massachusetts  01923
> 978-777-8844
> www.noblenet.org
>
> _______________________________________________
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