How overlooking your governance basics can cause you considerable unnecessary problems…

A Charitable Trust that was set up to run social and educational initiatives for members of an iwi sought to enter into a contract for social services with a particular funder.  The Trustees had a meeting to discuss the contract and 3 out of 5 Trustees voted in favour of agreeing to the terms offered by the funder.

The decision of the Trust was communicated to the funder who forwarded a final contract for signing.

In the meantime the Chairperson received a phone call from one of the Trustees who had voted against the terms of the contract.  The caller’s strong view was that the contract was overly weighted towards the funder, and that the Trustees should have negotiated terms that were more beneficial to the Trust.

The “dissenting” Trustee argued that the decision to agree to the terms of the contract was not validly made as it was not made unanimously, and the quorum (required number of Trustees to be present at a meeting) requirements were also not met, both of which he claimed breached the Trust Deed.

After taking legal advice, the Chairperson realised that the Trustee was in fact correct, and that the decision to agree to the terms of the contract could not be enforced as it had not been made in accordance with the Trust’s governing document. 

The Trust had to start negotiations on the terms of the contract again, which took a significant amount of time and heavily strained the relationship with the funder.

It is easy to get caught up in the day-to-day running of organisations like this. Nevertheless it is important to frequently refer back to your governing legal documents, to reduce the likelihood of serious issues for the organisation.