Posted by: patenttranslator | December 9, 2016

Checks and balances in professional associations

The article below is published here as a guest blog post. It was  written by Catherine Howard, Maria Karra and Attila Piróth, and it was originally posted on Maria Karra’s blog:

http://sciword.blogspot.com/2016/12/checks-and-balances-in-professional.html

A society is democratic to the extent that
people in it have meaningful opportunities
to take part in the formation of public policy.

(Noam Chomsky)

In democratic structures (from associations to states), separation of powers (legislative, judicial and executive), regular elections, and diverse checks and balances ensure that no small group can obtain total control over the structure. In autocratic systems, checks and balances are dysfunctional or absent, the separation of powers is incomplete (the person/group in control of one power, e.g., legislative, is also in charge of appointing the people in control of other powers, e.g., judicial and/or executive), and often election rules are tailored to the needs of the ruling elite. Governments with autocratic tendencies are often tempted to declare a state of emergency, in which governing by decrees allows them to bypass democratic decision-making protocols (parliamentary votes). This is akin to suspending the application of the bylaws in an association, allowing the board of directors to take decisions without the regular checks and balances ensured by the bylaws.

Members of professional associations usually have a sufficiently deep understanding of the stakes of their own professional situation and the various factors that are at play. This allows them to make informed professional decisions. Taking an active role in a professional association often proves to be an emancipating experience – and also a step towards becoming an active citizen. Someone who has experience in how small democratic organizations are run will be better informed about taking an active role as a citizen. In the case of an international professional association, the experience can be particularly enriching.

States and local governments grant important privileges to associations and other nonprofits (tax exempt status, sometimes tax breaks for financial backers, free access to municipal facilities, funds, free promotion in local newspapers, etc.) because these nonprofits play a vital role in enabling collective action, creating social cohesion, etc. As a safeguard against the abuse of these privileges, governments impose external checks and require internal checks and balances.

The first set of external checks is imposed when the organization is registered. Only when the registration has been fully approved by the authorities does the organization obtain a legal personality. Tax authorities and banks (or other financial service providers such as PayPal) require proof that the organization has obtained a legal personality to issue a tax number or to open an account. Without a tax number or a bank account registered in the name of the organization, the organization can only function in a rather limited way, since regular governmental oversight is not yet in place. This limitation usually applies to all kinds of income-generating activities, including services provided in exchange of membership fees (there can be no paid service without an invoice, and no invoice without a tax number). Obtaining a tax exempt status usually requires further, even stricter checks – for which the full registration of the organization is only one of the prerequisites.

Once legal personality and the association/nonprofit status are obtained, authorities monitor the organization on a regular (often yearly or quarterly) basis. The external checks include monitoring the formal compliance of the bylaws with the relevant regulations as well as financial reporting obligations.

The internal checks and balances are set forth in the bylaws (which cannot be changed by the board of directors alone, only with the general assembly’s approval). These internal checks and balances include elections as well as publishing the financial reports to members – who understand much better than external auditors what certain projects or items cover. (External auditors can much better check formal compliance.) The financial report put forward by the treasurer needs to be approved by the general assembly of the association.

Internal and external checks and balances are complementary. Members and potential members rely extensively on external checks. If an organization is called an “association,” members and potential members take for granted that its registration has been fully approved by the authorities, it has obtained a legal personality, it has a tax number, it has bank accounts registered in the name of the association, etc. They assume that the possibility of financial checks by the tax authorities guarantees that the financial reporting obligations of the association are duly met.

Authorities, in turn, count on the general assembly of the association to ensure transparency, and if necessary, to exert pressure on the board of directors and the various committees to this end. Committees report their project spendings, the board provides a detailed list of costs related to representing the association, etc. Members of the association, whose membership fee is used to pay these expenses, are thus informed of how their money was spent and can question certain decisions. The verification and acceptance of the financial balance is a key part of the annual general assembly (and always precedes elections in election years).

To inspire further trust from members and potential members, many nonprofits voluntarily undertake external financial audits to prove their transparency. The results – as well as all relevant data – are readily available to members and potential members. This helps existing and potential members avoid the dilemma of whether they should risk the accusation of being distrustful or somehow acting in “bad faith” by asking for information that they are entitled to have access to. Likewise, national and local governments are obligated to publish key financial data for transparency and to answer questions from the public. This transparency facilitates the succession of power – without which the democratic functioning of the structure remains an illusion.

Setting up proper checks and balances in a professional association is a challenge that is crucial for its success but which many have ignored. Especially in the early days of an association, personal ties, charismatic leaders, a shared sense of mission and enthusiasm may lead the organizers and members to overlook many of the principles guaranteeing checks and balances. But, just like new nations that intend to establish democratic states, professional associations must have the vision to set up solid structures that go beyond personalities, friendships, and the fleeting emotions that impelled the creation of a new entity. Power cannot remain in the hands of the founding elite, but must be embodied in the structure and practices of the association, refracted through a myriad of intersecting, overlapping, balancing interests and perspectives. Functioning without external controls, such as formal government authorization to operate or financial oversight from tax authorities and auditors, undermines the legality of a professional association. Functioning without internal controls, such as transparency in the flow of information among the board, committees and members, shared decision making, or elections, endangers the association’s legitimacy in the eyes of its constituency. Officers holding power in a professional association cannot flaunt the need for checks and balances for long without being questioned by the authorities and its members. When such questions are finally raised, it is a healthy sign that those in power should welcome if they are truly committed to the association’s success and longevity.

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Responses

  1. Thanks for publishing this, Steve. This was originally part of a longer article we wrote for IAPTI’s Board and staff members in an attempt to point out serious problems in the way IAPTI is being run. Unfortunately, this constructive criticism was construed in the worst possible light by the Board. We will have some follow-up pieces later discussing, for example, what can go wrong if an association does not make sure it has checks and balances in place. Stay tuned!

    Liked by 1 person

  2. I look forward to the follow-ups and hope to post them here as well.

    Liked by 1 person


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