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Creating a Compliance and Dispute Resolution Policy

In many associations, particularly trade groups, members are both colleagues and competitors. Disputes among members, including claims that a member violated association bylaws or ethics rules, can lead to damaging internal conflict.

Ensure a fair, consistent process for resolving these issues by creating a formal compliance and dispute resolution policy.

An inherent challenge for many associations is establishing a practical policy that deals with disputes between members or alleged violations of the organization’s bylaws or ethics code. Without an agreed-upon policy, members can waste time at meetings discussing such problems and pointing fingers. If an allegation or dispute is serious enough, factions can form and feelings can fester, potentially undermining the association and its mission.

At the association where I served as director for five years, we successfully established a compliance and dispute resolution (C&DR) policy to help us navigate these difficult situations. I learned some great lessons in that process that I believe can help other associations come to grips with this thorny issue.

Patience and the spirit of collaboration are key attributes that should be embraced from the get-go. Here are nine essential steps to guide you through the process.

1. Begin With Agreement

Once your members realize that the organization is only going in circles as it attempts to resolve disputes, it’s time to get a proposal to create a codified C&DR policy in front of the membership for a vote. Such a proposal might include the establishment of a working group of volunteers and some basic terms of reference to guide the group. The goal is to get a majority of the membership on board with the idea that a C&DR policy is needed and to gain their support for its development.

2. Create a Compliance Framework Document

Depending on the extent of an association’s bylaws and policies, this can be simple or time-consuming. But it is important background work. We used an Excel spreadsheet to itemize all those bylaws or previously approved directives that were considered enforceable.

By “enforceable” I mean those that are measurable or definable in some way. Different members might interpret bylaws differently: Some might be seen more as recommendations than rules, and, while important, they may not be specific enough to charge a member with violating. Other provisions, while clearly measurable or definable, might be relatively minor unless violations are frequent or repeated. It’s important to get consensus on these distinctions by the working group.

3. Plan to Create a Compliance Committee

Dispute resolution and policy compliance are serious matters, and shepherding the process of resolving a dispute should be the task of a full-ranking committee of volunteer members. One of the first tasks of the working group is to consider how to create a compliance committee and to develop terms of reference that detail its structure and role.

In the structure that my association devised, the compliance committee acts as a sort of district attorney’s office, but with no legal power, of course. As the volunteers on the committee have full-time jobs, the association staff expects to do a lot of the spadework to make the committee’s task as easy as possible once the process is underway.

4. Draft the Rules of Procedure

The rules of procedure are the heart and soul of any C&DR policy. This document details the standard operating procedure for each stage of the proceedings once an allegation is made.

The rules of procedure should be as simple and straightforward as possible. The document the working group creates will inevitably evolve as it is vetted by the executive committee and, eventually, an attorney. It should avoid legalese, if possible.

Where to start in drafting your own rules of procedure? Every association will have different needs and objectives, but a few key goals should be kept in mind:

  • Ensure that the rules follow a deliberative step-by-step process and are fair and objective for all parties involved.
  • Agree that the work of pursing a complaint is feasible and balanced appropriately among the association’s staff, compliance committee, executive committee, and membership, with proper authority falling where it should.
  • Make sure the rules of procedure are flexible and accommodate a wide range of theoretical bylaw or ethics code violations, disputes, and complaints.
  • Agree on proposed general sanction categories.
  • Determine if your new rules of procedure conflict in any way with your current association bylaws.

5. Include Time Limits

Each step in the rules of procedure should include a time limit for reply by the accused member or the compliance committee. This goes to fairness for all the parties involved, as well as providing for a consistent application of the policy from one case to the next.

As the working group crafts the rules of procedure, I suggest keeping a spreadsheet that tracks the maximum number of days allowed in each step of the process, along with the running total. This will provide an overall timeline. If the process seems too long, the working group can trim time limits as appropriate to make sure the time required to complete the process is practical.

6. Protect the Rights of the Accused Member

In order for the C&DR policy to be fair, a high degree of transparency and open communication is imperative among all parties. If a member is accused of violating bylaws, he or she needs to know about it shortly after a complaint is lodged.

The accused member also must have opportunities to communicate directly with the complainant or observers of the alleged violation, association staff, compliance and executive committees, and, ultimately, the membership.

The review process also should provide the accused member with opportunities for dismissal of the complaint along the way. The vast majority of disputes and compliance issues likely will be resolved by the parties in the early stages of the review process.

7. Get Buy-In

Drafting the components of the C&DR policy can be a lengthy ordeal. While I did my best to keep the executive committee abreast of our progress, they didn’t have the time to get into the nitty-gritty of the draft language.

Although the working group is the primary body charged with drafting the policy, don’t assume that this group knows better than anyone else how to do it. Seek as much input as possible.

We did this by conducting a two-day workshop late in the C&DR policy drafting process. The workshop was open to all members, and quite a few attended. Their contributions in the final draft were invaluable. By getting involved, the workshop participants also became invested in the policy, and they were much more likely to support it when it was voted on at the next annual meeting.

8. Avoid Antitrust Pitfalls

Every industry needs healthy competition, and an association policy cannot be binding in the larger scheme of commerce. In other words, there can be no association sanctions or threats that would inhibit a member’s ability to conduct business, as such a policy would raise antitrust concerns.

Contact legal counsel with experience in these matters to review your C&DR policy components and rules of procedure, once the working group and the executive committee agree to them. Money spent at this point is money invested in the long-term viability of your policy.

9. Court Member Acceptance

Let’s face it: Most association members don’t have time to pore through detailed drafts of documents that require their approval to become new policy. So, they will rely on a good executive summary to understand and vote on the issue.

The summary should provide a brief road map tracking the membership’s initial vote to approve creation of a C&DR policy and any interim updates that kept them informed of progress. Members should not feel as if an important new policy is being thrust on them unexpectedly, particularly one that could result in their being sanctioned at some future point. Remind them that the policy has been created out in the open, with many opportunities for input.

The new C&DR process needs to be communicated clearly and concisely. Because of its step-by-step nature, a graphic flow chart is a good way to show members how the process will work. Presenting the procedure visually will go a long way in making it easier to grasp.

Trade associations are built on mutual trust and a firm belief in the organization’s mission. To achieve member acceptance and success in practice, a C&DR policy must thoroughly embrace these characteristics.

Think Big. Embrace Risk. Change the Rules.

Dan Pallotta has a message for you: You’re too timid.

It’s nothing personal. It’s just that he’s lost patience with a nonprofit culture that, to his mind, has stifled its urge to innovate and is handcuffed by legal restrictions and media misperceptions. He’s come around to this way of thinking out of frustrating personal experience.

In 1994 Pallotta launched Pallotta TeamWorks, which sponsored successful bike rides and walks to raise funds for AIDS and breast cancer research. When that organization collapsed in 2002—in part due to criticism that an overly large proportion of its revenue was dedicated to salaries and other overhead costs—Pallotta launched a second career: professional firebrand and advocate for nonprofit innovation.

His new book, Charity Case, follows up his 2008 book, Uncharitable, and his popular Harvard Business Review blog to challenge nonprofits, including associations, to innovate and make a better case for their value. And he unapologetically frames his argument in terms of some of the fiercest civil rights battles of the past century. He’s launched a Charity Defense Council that’s modeled after the Anti-Defamation League and wants a rewrite of nonprofit regulations in the form of what he calls a National Civil Rights Act for Charity and Social Enterprise.

In my mind, those were sweeping national efforts by communities that were previously disorganized.

An unfair comparison? For Pallotta, the stakes are just as high for nonprofits as for any other wrongfully treated group. “In my mind, those were sweeping national efforts by communities that were previously disorganized,” he  says. “And they’re models of what can happen when a community organizes itself on its own behalf and in its own defense and in the name of its own potential.”

So what do nonprofit leaders need to do? Here are four of his challenges to them.

1. Have the nerve to innovate.

Pallotta’s big-picture vision includes revising the IRS regulations to allow outside investment in the activities of charities and association foundations—an almost total rewiring of the system, but one that would improve the flow of funds that he says are essential to effect change.

“I absolutely do see the need for some kind of ability to trade in risk in futures of nonprofit organizations,” he says. “The risk-reward dynamic is what has built American business, and yet it’s prohibited in our sector. We’re starved for that kind of capital. If somebody is willing to put up $10 million and is willing to risk losing it and wants $15 million back, then why on earth would we not want to do that?” Pallotta imagines a “for-profit foundation” that is not tax-exempt but can deduct all its gifts from taxes. Donations would remain tax-deductible.

I’m not down on social media, but I’m down on the way we conceive of it as a free lunch.

Nonprofits could still benefit from an ambition boost, even if such a restructuring doesn’t come to pass. If an association doesn’t aspire to a bare-knuckle corporate culture, in can still aspire to corporate ambition, Pallotta says.

“If we try something big and it fails [in a nonprofit], the price to pay is steep,” he says. “People’s character is called into question, attorneys general start to want to investigate. It’s not a normal business failure. … It’s just common practice in the for-profit sector to dream big and try great things, and we just don’t do it.”

2. Stop cheaping out.

Pallotta’s Charity Defense Council, which was founded in part to respond to what he sees as public anti-nonprofit bias, intends to start test- promoting itself with an eye on the budget: It’s spending $5 million in a midsize city to send its message via TV and print advertising. He says it’s critical to recognize that an organization’s message needs some breadth and serious investment to be heard—which is why he worries that many nonprofits see social media not just as one part of a marketing plan but the whole package. “I’m not down on social media, but I’m down on the way we conceive of it as a free lunch,” he says. “It doesn’t produce tons of results when it’s free. The media is free, but you have to put resources into it to drive people to you.”

3. Build a risk-oriented board.

Board members are attracted to the responsibilities of board work for a variety of reasons—and many of them stifle change, Pallotta argues. Passive goals like enhancing a resume are bad enough, but vague ideals like “I want to do something good for the community” are only marginally better. “In the for-profit sector [the incentive for board members] is to create value for the shareholder,” he says. “There’s not really a lot of incentive for somebody on a nonprofit board to try something new. The risk of failure is way too high. Nobody wants to see it on their watch.”

The irony is that the solution to the problem is largely built into the personalities of the people nonprofits recruit to their boards. So it becomes imperative for executive directors to retain the innovative mindsets that made board members leaders in the first place.

“People do a number of things that make them successful in business, and they come into the nonprofit boardroom and they demand that the nonprofit stop doing all those things while at the same time they’re telling the nonprofit to act more like a business,” he says. “It could not be more dysfunctional.”

4. Build better storytelling into the 990.

The IRS Form 990 gives nonprofits opportunities to spell out their mission and goals but fewer opportunities to describe their progress and show that they’re an organization worth time, attention, and money. In Charity Case, Pallotta mentions an idea from GuideStar president and CEO Bob Ottenhoff that changes the 990: He would require organizations to file a three-year progress report before they are granted nonprofit status. The document would lay out not just the organization’s mission but how it has measured its progress toward fulfilling that mission.

“I think there needs to be much more opportunity to talk in a narrative sense about goals and progress,” Pallotta says. “We react in a defensive way to legislation that comes up that can hurt us. I want to excite people’s imaginations and show them what a new conversation might look like.”