ADIA CEO drives constitutional reform

Embarking on a process of constitutional reform can distract from many organisations’ primary objectives – supporting members. Infinite meetings debating the nuances of individual clauses and opposing opinions often reduces organisational productivity.

Over a 12-month period, The Australian Dental Industry Association (ADIA) was able to transition from an incorporated association to a company limited by guarantee, a relatively short time-frame which can be attributed to one thing – a high level of trust between internal stakeholders.

ADIA is the peak organisation representing manufacturers and suppliers of over 95 per cent of all dental products used in Australia. Since 2010, ADIA has seen sustained growth – membership increased by 40 per cent, membership income by 290 per cent and net assets by 60 per cent, the latter held in a mix of cash, shareholdings and real estate.

The circumstances that required ADIA to consider legal structure change were straight forward. ADIA was a nationally operating organisation with the national office located in Sydney, yet it was incorporated under Victorian legislation, something legally possible but challenging. There were also amendments made to the Associations Incorporation Reform Act (Vic) 2012 which meant that a re-write of ADIA’s constitution was required. ADIA Directors unanimously agreed that to strengthen the organisation’s transparency and accountability as a result of growth, as well as other factors, constitutional reform was required.

When an individual organisation transfers from an incorporated association to a company limited by guarantee, the decision must be made based on the organisation’s circumstances. It was previously argued that the Corporations Act (Cth) 2001, which was in place prior to the Associations Incorporation Reform Act (Vic) 2012, placed greater compliance and reporting burden on the not-for-profit sector compared to incorporated organisations. The 2012 Act and similar reforms in other jurisdictions diminished the differences between the two systems. The more robust framework associated with being a company limited by guarantee provides greater transparency of operations and accountability to stakeholders, which is positive for member based organisations. The framework’s compliance burden is minimal – any organisation with full-time staff and robust administrative processes will have little difficulty meeting the legal obligations. For some organisations, the auditing and financial reporting obligations may change from their previous obligations; however, the Australian Securities and Investments Commission (ASIC) provides a tiered approach with reduced obligations for small and mid-sized organisations.

When contemplating constitutional change two prerequisites should be considered streamline the process of reform. The first is that the board has full trust in senior staff and that staff are tendering sound legal advice. The second being that the organisation’s members trust that the directors are undertaking reform for their best interests. That said, trust does not necessarily equate to complete agreement – both directors and members should make their own enquires to assess if the proposal is warranted and sound.

Member-based organisations contemplating a new constitution need an appropriate governance framework to accommodate the changes, and provide flexibility to deal with future challenges and opportunities. ADIA adopted a minimalist constitution – the shortest document necessary to legally establish the entity and provide appropriate member safeguards within the context of the Corporations Act (Cth) 2001. The constitution outlines little detail and procedure which allowed the Board to create by-laws on various matters, like membership categories. It was important to have these by-laws drafted prior to the change of legal structure so as to provide guidance to members on what the new organisation will look like after the change is completed.

The timeframe between the ADIA Board’s commitment to the reform to when the members considered the change at the general meeting of members was twelve months, which is considered to be a relatively short time in the NFP sector. The process of creating the constitution was expedited by the Board’s governance subcommittee agreeing their role was simply to provide guidance to the CEO and ADIA’s lawyer on requirements for the change, rather than the subcommittee drafting the constitution itself. Having completed the task of preparing a new constitution, the Board’s governance subcommittee presented the draft to a full meeting of the Board with the recommendation that the constitution be adopted. The Board agreed to the reforms after reading the explanatory note which provided a full explanation of all issues that required consideration.

The changes then required approval from the members at a general meeting of members which was convened in March 2014. As there were remarkably few changes to the association’s governance arrangements, and none to day-to-day operations, it was possible for the Board to brief members rather than consult with them. The rationale for reform was outlined and the benefits to members explained, and when the consensus view amongst members was that the proposals were ‘the right thing to do’ we were comfortable that at a whole-of-organisation level there was support for change. The changes were passed by members without dispute.

Changing the legal structure of an organisation that has been in existence since 1925 was a monumental step, however, it was accomplished without difficulty. The fundamental key for any organisation wanting to smoothly transition from an incorporated association to a company limited by guarantee is trust. The Directors must be in a position to trust that its advisors – the CEO and lawyer – are providing sound advice. Similarly, the Board must have the trust of its members. When there’s a common understanding that those driving reform have the requisite competencies and the interest of the members as the utmost consideration, the process can actually be as personally rewarding as it is productive.

Sarah Harding

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