English is full of Latin words and phrases. Even though our language is heavily based on Germanic influences, estimates suggest that most English words come from Latin roots.
One of these words often comes up in governance and meeting situations: quorum. Most of us sort of know what quorum means, and we probably also think it is a largely unimportant rule. Its impact can be significant, however, especially when looking at the control or future direction of an organization. Although this can be an issue for anyone holding meetings, it often arises in non-profit corporations.
Before we get into why that is the case, let’s clarify our definition. For our purposes, quorum means the minimum number of people necessary to conduct business. It will sometimes be coded into legislation, but more often an organization’s quorum requirements are contained in its constating documents, such as bylaws.
There can be different quora rules for different parts of an organization. For example, the bylaws might require at least 20 members in attendance for a valid general meeting of the membership, while for board meetings of the same organization, the number will likely be smaller, perhaps only a majority.
Subject to legislation, an organization can usually set quorum at whatever it likes. This is often done when creating the entity, and it rarely changes after that. Some thought should be devoted to what this quorum should be, however, rather than just picking a number out of the air.
The reason for this care is because of the protective balance a quorum offers. If you set a quorum too high, there is a risk you cannot assemble enough members for a meeting to be properly constituted. Many organizations, especially non-profits where there are volunteers with busy lives elsewhere, run into a yearly scramble to pull enough bodies into attending the annual general meeting.
To avoid that problem, the entity might opt for a very low quorum requirement to ensure meetings can go ahead. But this is a huge risk, particularly for organizations where there may be factions which are not always on the same page and are working towards different objectives.
You may have already experienced this problem, but I will give an example. Suppose a non-profit corporation has several hundred members. No matter what the goals and business of the organization are, that many people almost guarantees there will be differences of opinion on some issues. There is nothing inherently wrong with that – healthy debate and dissent helps identify risks and can lead to a stronger organization overall.
If the quorum is out of balance with the number of members, though, it invites undue minority control over critical issues. Maybe the membership quorum is set at 5, for instance, just to make sure that meetings can always go ahead. This means a handful of members, if they show up at a meeting and others do not, can drive the agenda in a direction which the majority of members do not actually support. You might say that is the fault of those who did not show up, but whatever the reason, a tiny number of members could be in the driver’s seat to pass resolutions that don’t reflect the interests of the full membership.
To avoid this, you could set a high quorum. The bylaws might say that any meeting of members must have a majority present. But if there are several hundred members, that may be an impossibly high standard for any organization, apart from those with very engaged members. Anyone who has been involved with non-profit organizations, and many for-profit organizations, knows that it is hard to get more than a small subset of members or shareholders to attend a meeting unless there is something important or controversial on the agenda. Even then, if the meeting is a special one called on relatively short notice, attendance could be sparse. If attendance is insufficient to meet quorum, the meeting cannot proceed, and necessary business will remain unresolved.
A quorum provides important checks and balances: protecting an organization from unreasonable acts taken by a minority balanced with the need to make decisions and get work done. Too small, and a disaffected minority whose views are not shared by the majority will take over. Too big and it is difficult, if not impossible, to ever hold a properly constituted meeting. The proper balance must be carefully considered and implemented.
While the quorum issue exists for any organization, including for-profit businesses, it is a particular problem for non-profits. They often deal with social issues that have no obvious right or wrong solutions and reflect legitimate differences in society. There are usually many participants who support the organization but do not have the time and/or interest to be constantly involved in the minute details of governance. Plus, you are often dealing with volunteers who cannot be commanded in the same way as employees. These and other points create issues where the strategic direction of the organization can go off the rails. These issues do exist in the for-profit sector, but other factors can mitigate them, like financial self-interest.
Boards of directors are also subject to quorum requirements and similar points apply to them. But because there are usually smaller numbers involved, the problem is amplified. A quorum cannot be so small that a tiny minority of a board can ram something through which the majority does not support.
Another problem with boards and their quora is that there are usually much shorter notice periods for board meetings than membership or shareholder meetings. Although corporate legislation typically mandates at least 3 weeks’ notice for membership and shareholder meetings, it is not uncommon for bylaws to allow director meetings to proceed with notice of 48 hours or less. Combined with a low quorum requirement, this can allow a small subset of the board to take advantage of others’ unavailability and make decisions that are not shared by the majority.
The result is that quorum, despite its seemingly trivial nature, should be carefully reviewed upon creation of an organization, and always monitored to ensure it is striking an appropriate balance between protection and practicality. We have seen too many cases where organizations spend an inordinate amount of time fending off internal attacks from a small but active minority taking advantage of the rules to override the will of the majority. If you are concerned about these risks, or want to review the state of your governance structure, feel free to reach out to us.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topics discussed in this article.