Friday, January 23, 2004

My personal frame of reference for talk about corporate governance was my term of service on the board of directors of a fannish non-profit corporation. Now, the interests of this group were essentially non-economic. The idea was to run a convention, not make anybody rich, not employ anybody, not serve anybody's financial or legal interest. The corporation existed as a shield to permit the activities inherent in running a fan convention to occur without serious legal or economic risk to any of the participants. The goal was to allow the convention to run, and to continue to run, without exposing anyone to serious risk of legal liability or economic loss. The corporation, and thus the board, exists to serve these interests. There aren't any shareholders to speak of - in a 501(c)3, they're replaced by a membership, (in our case, Active Members) who don't have any serious financial interest in the corporation. The Active Members and the "members" - the attendees of the convention - pay membership dues which give them certain rights as defined in the corporate bylaws. This does not give them any claim on revenues, profits, or other financial considerations that the corporation might produce.

The "high-risk" pressure from the membership doesn't exist in the form of a profit-maximizing interest, as it would in a for-profit corporation, but rather in demands for the coolest convention possible. The "low-risk" pressure from the management of the convention - the fear of failure - is less than you would think, due largely to short management terms. The management of the convention serves at the pleasure of the president, who is defined in the bylaws as that year's con-chair. He cannot serve more than one term concurrently. Similar bylaws provide for short terms of office for the other offices - you can't hold an office for more than three years, and you can't hold a seat of the board for longer than, hrm, six years I think.

The actual conservative pressure, by the way, is expressed largely from a distinct group of Active Members, some number of which are usually representing their faction on the Board. This group is always pushing hard for a secondary priority - the creation and maintenance of a "disaster" reserve of capital equivalent to "one convention" - the resources necessary to fund and operate one year's convention, in the case of a total fiscal failure in any particular year. Think of it as a granary against cataclysmic drought. This reserve is more an ambition than an actuality, mostly because the convention and its budget keeps growing beyond what might have accumulated in the current reserve. Cold-funding a convention of 300, 1200, or even 5000 members is far cheaper than cold-funding a convention with attendance in five digits.

So far, the board has been able to avoid serious problems of self-dealing and fraud. There was a problem a few years ago, when I was the President, but the issue involved an individual who was not on the board proper. The board came together, charged the individual with returning the misappropriated property and capital, and that was that. In practice, it worked more as a shunning, than any sort of legal procedure, but it did work. At least, I haven't heard of any similar incident since then. Other convention-corporations, with much more rigid, powerful, and permanent boards, have gotten themselves in considerably deeper waters with a capital reserve. I think the difference between that case and my case is that their board was not representative of the interests of their membership, but rather acted as a permanent, interested party. Our board is rather a collection of limited-term representatives of greater interests.

Wait, no, that's not true. Rather, that board became a collection of proxies for one, particular, permanent interest, which used a nondemocratic director selection process to fill the board with influenced outsiders with no direct interest in the internal questions of the corporation/convention. An advantaged interest drives out disinterest, and fills the vacuum with its own interest, instead of negotiating with the other interests.

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