William Harper Associates

February 2008 NEWSLETTER

William Harper Associates Newsletter

This newsletter is a free service to the North American not-for-profit community from William Harper Associates. Its focus, like everything we do, is on helping organizations that do good, do better!

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In this issue:



FEATURE ARTICLE: Managing your AGM

The Annual General Meeting (AGM) is an annual ritual for most organizations in our sector. It is a subject that generates many negative reactions, ranging from mild inconvenience to outright loathing. Doing it right is vitally important, however. And, it can be a powerful communications opportunity, if approached in the right light.

Perhaps because there is a mandatory aspect to AGMs, the positive potential can sometimes be overlooked. And, perhaps because this mandatory stuff is typically pretty boring, the truly negative potential can also be overlooked. This article will focus on helping make sure that the negatives don't sneak up on you, and will try to stimulate your thinking around turning this annual ritual into a positive!

First off, avoid the negatives

The AGM is a statutory requirement for most organizations. It typically is required to elect members to the Board, to appoint auditors, and “to conduct other business as may be rightfully brought before the meeting” (or words to that effect). In a very real sense, activities at the AGM – particularly electing Board members – essentially equip the organization to function for the coming year. If the membership of the Board is not properly elected, the Board may not be properly constituted. And, if the Board is not properly constituted, its actions throughout the year may not have legal effect and authority.

Now, the particulars of Board elections depend on the type of legal entity that your organization is, its corporate objects and by-laws, and so on. And, legal advice is called for if the governing framework in these documents is not clear and actionable. But, assuming you know what is called for in these documents, the key then is to do things right.

For example, your governing legislation or by-laws may specify a required time to hold a meeting (e.g. within 15 months of the previous meeting), required notice periods for advising members, and so on. As well, your organization may have by-laws or policies that need to be adhered to in terms of procedures for holding elections, and so on. Strict adherence to these requirements is the first and single-most important step to avoiding negative consequences. Failure to do so may leave your organization exposed to later challenges that could, in the extreme, invalidate Board actions and reinstate the Board's membership to a point long since past.

Beyond these fundamental (though by no means trivial) requirements, however, there is another level of attention required. Though many organizations will run smoothly for many years without a wrinkle arising from their AGMs, some others have experienced problems ranging from annoyances to organizational paralysis, or worse. Here are some of the common concerns around Board elections:

  • suppose they held an election and nobody came? Not having enough willing members to stand for election to fill the Board can be problematic in so many ways, from difficulties in achieving quorums for subsequent meetings, to lacking fresh ideas and insights on the Board, to embarrassing the organization in front of significant donors, supporters, or government representatives;
  • or, there may be enough members standing for election, but they are doing so for the wrong reasons. Members joining the Board with personal agendas (for themselves or the organization), or with an inappropriate understanding of their role, or seeking personal gain from the organization can be devastating to the Board and organization at worst, or just an annoyance at best; or
  • in the extreme, a group of members may seek to achieve effective control over the organization, by seeking election to the Board as a block.

Of course, one approach is to simply acknowledge that the democratic process is imperfect and these are the possible results that can arise. This is the “head-in-the-sand” approach (and when your head is in the sand, you know where your other end is!). We suggest that leaving Board elections to fate is hardly in the best interests of the organization.

Better, we would suggest, to manage the democratic process, by ensuring that members called upon to vote will have a strong and clear set of choices to make. This can be done by encouraging strong people – well ahead of the meeting – to seek Board positions, and by encouraging communications so that members will understand what the motivations, positions and views of candidates are. Procedural changes can also be helpful in ensuring a fair and open electoral process, for example, by ensuring that candidates declare themselves in advance of the meeting, and provide biographies, position statements and so on for member review and consideration.

While such steps might be argued to be a restraint on member choice or a manipulation of the process (i.e. by limiting members' rights to stand up and declare their candidacy at the meeting), in fact these changes simply provide a level playing field and a fair and transparent process.

Finally, it is also important that the voting membership at the AGM be representative of the membership at large. Leaving membership attendance at the AGM to fate can be an invitation to a small, unrepresentative subgroup of members to exert undue influence. We suggest that ensuring a strong contingent of supportive members attend the AGM is simply prudent.

Accentuate the positive!

Turning to a more positive note, once you've covered your bases and ensured a smooth functioning of the mandatory portions of the AGM, take some time to consider the opportunity that is before you to meet some of your annual communications objectives. Since you have to get (at least a quorum of) members in the room anyway, why not turn your AGM into something that people might get some value out of, if not actually enjoy! Why not leverage the time, energy and cost that is required to hold your AGM and make it into something beneficial? You've booked the room; you're mailing official notices; you're all showing up ... so what additional benefits can be derived? Here are just a few ideas:

  • honour volunteers, donors and staff that have achieved certain milestones of service and support;
  • invite one or more of your beneficiaries to speak directly to the members about how your organization has made a difference to them. This is especially powerful for charities, but also can be effective for member-driven organizations like associations;
  • ask a government or political representative to speak about the work your organization does, or how it can do more;
  • turn your AGM into a fundraiser, by adding entertainment or other attractive features;
  • coordinate your AGM with seminars, conferences, or similar education programs to take advantage of events that already offer members a compelling reason to attend; or
  • outline your strategic and business plans for the coming year, so that members see and hear first hand the value that your organization brings and the difference that it makes.

Once you've settled on some good benefits to be achieved in your AGM, now your members have a reason to attend the AGM – in fact, you've probably just solved your quorum dilemma! But, don't stop there – invite volunteers and donors, prospective members, staff, government representatives, and executives from partner organizations to all attend. On top of everything else, create a networking event extraordinaire!

Summary

Nothing in this article is intended to undermine or frustrate the democratic process, or whatever process properly applies to your organization's AGM. In fact, the suggestions here all fit into the category of exercising that process in the best interests of the organization.

The future direction of your organization can be very much “up for grabs” (or at least open to undue influence) in an AGM setting. It would be negligent not to consider what forces may come to be at play at your next AGM. And, having considered that, it would be simply imprudent to not take reasonable steps to ensure an orderly progression forward for your organization. Worst case, you'll do a bit of advance work to have some peace of mind and avoid heartache, turmoil or, conceivably, much worse. Possibly, however, you might just turn your AGM into one of the most favoured events on your annual calendar!


NEWS AND RESOURCES: Top Compliance Issues from CRA

A recent presentation by Terry de March of the Canada Revenue Agency identified the top problems encountered by the CRA in registered charities' compliance with its requirements. Some of the broader issues were:

  • Incorrect issuance of receipts
  • Failure to file T3010A
  • Engaging in non-charitable activities
  • Giving gifts to non-qualified donees
  • Failure to maintain “direction and control” over foreign activities
  • Incurring excessive fundraising costs
  • Engaging in political activities
  • Inappropriate transactions with directors

CRA is increasing its outreach activities to the charitable sector in a bid to educate and encourage organizations to comply with its requirements. Don't forget, however, that it also has sanctions that it can use to make these messages stick. We encourage all charitable organizations to pay closer attention to these requirements!

To view the CRA presentation, click here.


QUICK TIP: Take good care of your employees

Finding and keeping good people a problem? Are you giving employees the opportunity to secure their place in your organization?

Paying enough to attract and keep good people in a competitive, diverse labour market is tough. But, providing secure employment isn't just about good pay (though nobody doubts the need to earn a living wage). Offering a competitive benefits package is another important component of your compensation scheme. A benefits package can: provide important peace of mind to employees, save them significant money compared to individual coverage (or being unprotected!), and promote a positive, healthy view of your organization as a good place to work and make a long-term commitment to.

The good news is that there is a plan just for our sector: OASSIS is a plan designed for community-based organizations. OASSIS was founded in 1990 specifically to overcome the challenges that the not-for-profit sector was experiencing in not being able to secure affordable benefits. OASSIS itself is a not-for-profit organization. You can find out more information and request a quote at:

http://www.oassisplan.com/


NEWS AND RESOURCES: Imagine Canada's “Leadership Perspective: Interviews with Leaders of Canada's Charities and nonprofit organizations”

There is little rigorously developed knowledge in the market about the perspectives of leaders in our sector, and even less so that is truly Canadian focused. So, thank goodness for Imagine Canada!

Their recent research report “identified seven main themes or areas that are top of mind for nonprofit leaders today:

  • issues concerning human capital and the search for talent;
  • the challenge of responding to changing or inadequate government policies and priorities;
  • the value of collaborative approaches to addressing community needs and the challenges associated with collaboration;
  • accomplishments in organizational development, strategic planning and adaptation;
  • difficulties obtaining funding to support their work;
  • interests in relationships with businesses and the potential value of business models for their work; and
  • the lack of public understanding of charities and nonprofit organizations.”

The report is well worth the read: you are sure to see comments and issues very close to your own, and some very good insights from some of our sector's leaders on how to face these challenges.


FROM THE ARCHIVE: Reduce your taxes! (from July 2007)

Because we're not-for-profit, many people - even some association executives - assume that we just don't pay taxes. But, nothing could be further from the truth! Taxes can be one of the major costs that not-for-profit's incur. In fact - and you may find this hard to believe - many NPOs pay taxes that for-profit companies don't! You read that right: charities have to pay taxes that big, profitable corporations don't! Read on if that makes your blood boil even a bit.

Now, the purpose of this month's article is not to talk taxes directly. Many of my CA colleagues earn a healthy living talking taxes, and I'm not here to compete with them. I'm actually here to tell you that you should consider talking to some of them.

But, let's start with some of the basics: what taxes do we pay? The shorter question would be "what taxes don't we pay", since the answer to this is short: income taxes. Other than that, however, we pay our share (and, some would argue, more than our share) of most other taxes. What other taxes should we worry about? GST, for sure. PST (Provincial Sales Tax, or in some jurisdictions, Retail Sales Tax), probably. Property tax, if you operate out of owned or rented space. And others in specific situations.

So, the first lesson of today's article is: don't assume that you don't pay tax, and don't assume that it isn't really a big deal. It can be a big deal. It is worth taking note of it. And, it's well worth working to minimize your tax burden.

A quick glimpse at some of our tax burdens:

  • GST - this is a biggie. To put this in its simplest terms, everyone pays GST (generally), but businesses get it all back (generally), whereas NPOs get only a portion of it back (generally). Yup, businesses pretty much get it all back (i.e. they pay no net GST), and NPOs, only a portion (about half, in the case of registered charities) - go figure! Now, in case you missed it, this is a generalization: there are plenty of variations and exceptions, and that's where those terrific CAs who actually "do tax" come in. You need to find out about the in's and out's of your GST tax burden. You need to minimize what you pay, and maximize what you recover.
  • PST - if the GST is complex, the PST is complex and archaic! It's been around for many years, and the rules around PST are not at all straightforward. Generally (remember that term?), if you are the "end consumer" of goods, you may be paying PST on those goods (a common example is printed material). There is a complicated system of registrations and exemptions to avoid (not evade!) some of this tax liability (for example, if you are buying goods for resale), but, again, you need to determine the best position to be in.
  • Property taxes - while the determination of property tax is more straightforward than GST or PST, there are also fewer ways of getting out of paying it! Some municipalities will rebate a portion of property taxes paid to registered charities - it's worth enquiring about whether any rebates are available in your area.
  • Others - watch out for other taxes and levies sneaking into your operations. Look carefully at (and get expert advice on) major transactions (e.g. buying land), and on new types of activities (e.g. if you start selling professional development books or CDs).

So, what is to be done? Some of these taxes, such as property tax, are fairly straightforward to find out about rebate programs. Others, however, like the GST and PST, really need to be looked at by people with relevant training and experience. But, will the tax savings justify their professional fees? Who is to know ahead of time?

There is a solution to this, one that may cost you more or may cost you less than a traditional professional-fee engagement, but is sure to cost you less than you will save in taxes: some tax consultants will work on a percentage recovery method, where their fee is set as a percentage of the taxes recovered. The percentage will vary, by the size of your organization and the consultant's estimate of your tax position, but you should expect to pay less than half - and perhaps as little as a third - of your recovery to the consultant. And, be sure that this fee will include the consultant advising you on how to change your accounting and other systems to avoid continuing to pay the recovered tax items in the future.

Properly managing your liability for, and exposure to, taxes of various sorts can be one of the most profitable activities you can invest in.


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