By Jenny Baer Tuohy, Stoel Rives LLP
The Mazamas board of directors asked me to review and assess the bylaws and governance structure of Mazamas, an Oregon public benefit nonprofit corporation that is recognized by the IRS as a 501(c)(3) public charity. In this memo, I address the ways in which the current Mazamas bylaws and governance structure may be out of step with current practices with other 501(c)(3) organizations, run discordant with Oregon’s current nonprofit laws and IRS guidance, and pose potential governance and conflict of interest risks. To remedy these issues, I would advise Mazamas amend its bylaws as discussed in this memo.
Importance of Bylaws and Governance Maintenance
Mazamas last updated its bylaws in 2017, though the structure and basic principles appear to be much older. It is important for Mazamas to keep its bylaws in step with current law and best practices for many reasons, including the following:
- Maintenance of Tax-Exempt Status. The IRS recognizes Mazamas as a tax-exempt 501(c)(3) public benefit nonprofit organization. In order to maintain this status, it is important that Mazamas continues to keep good governance practices and operate exclusively in furtherance of its nonprofit mission, as described to the IRS as to “promote mountaineering through education, climbing, hiking, fellowship, safety and the exploration and protection of mountain environments.” 501(c)(3) organizations must operate exclusively for a public benefit are prohibited from conferring significant benefits upon any private individuals or groups of individuals. It is important that the Mazamas governance documents accurately reflect Mazamas’ operation for the benefit of the public and not for the benefit of its members or any other private individuals.
- Conformity with Current Oregon Law. Nonprofit organizations in Oregon are governed by the Oregon Nonprofit Corporation Act (the “Act”). The Act was revised by the Oregon legislature in 2020 and, while organizations are not required to update their bylaws when the statute is updated, we recommend that nonprofits do so to ensure that practices are conforming with the current Oregon law. There are a number of provisions in the amended Act that provide organizations with increased flexibility and assist in good governance practices.
- Avoiding Confusion and Internal Disputes. It is important for nonprofit organizations to have clearly written and easily digestible bylaws. Nonprofit organizations should be able to refer to their bylaws for clear answers on a number of corporate governance questions, ranging from manner of notice that must be given prior to a meeting to quorum requirements for passing measures. A lack of clarity can lead to internal and external disputes over procedural or substantive matters. The current Mazamas bylaws are relatively unclear and difficult to interpret, particularly as compared to other organizations of similar size and sophistication. As discussed in more detail below, there is a lack of clarity in some major provisions such as quorum requirements and director roles. Some terminology in the bylaws is also confusing – for example, all Oregon nonprofit organizations are required to have a board of directors, but the current bylaws instead call this governing body the “executive council.” The level of authority of the board is also vague and unclear, which runs counter to Oregon law. This lack of clarity increases the chance that the organization will be out of compliance with its own bylaws, potentially invalidating actions. It also leads to an increased risk of internal disputes over governance procedures.
- Maintaining Compliance with Bylaws. It is important for a nonprofit organization to be operating in compliance with its bylaws. However, the Mazamas bylaws include a number of outdated provisions, compliance with which may pose a challenge. One example is that the bylaws do not provide for electronic board or member meetings and contemplate only in-person meetings. The Mazamas bylaws should reflect the organization’s current and anticipated future governance practices and be a living document setting forth corporate procedures with which the organization complies.
Proposed Amended and Restated Bylaws
We propose that Mazamas adopt the attached restated bylaws to bring its governance structure up to date and into compliance with current nonprofit law and best practices. The proposed restated bylaws are based on the current Mazamas bylaws and are tailored to the Mazamas needs and structure, but they track the current Oregon nonprofit law. Restating the bylaws in their entirety allows Mazamas to go forward with a clear and concise document.
The chart below is a summary of the significant changes to the Mazamas bylaws presented by the proposed restatement:
| Issue | Current Bylaws | Proposed Restated Bylaws | Section |
| Confusion of roles and responsibilities between directors/executive council and members | Under Oregon law and IRS rules, all nonprofit organizations must be governed by a board of directors. However, the Mazamas bylaws do not clearly define the board and its role and responsibilities. Instead, the current bylaws provide for an “executive council” and include confusing statements, implying that not all “directors” serve on the “executive council.” A board of directors is vital to the governance of a nonprofit organization and essential to its legal validity, so these confusing provisions should be cleaned up and clarified | “Executive council” has been replaced with a “board of directors.” Language regarding director roles and responsibilities has been clarified throughout the document. In particular, Section 4.1 provides that the board shall “exercise, or delegate… all corporate powers and shall direct the management of the Mazamas’ affairs…” | Section 4 |
| Limited board authority is contrary to Oregon law | The role of a board of directors of a nonprofit corporation is to serve as fiduciaries and steer the organization towards a sustainable future by adopting sound policies and ensuring adequate resources to further the nonprofit’s mission. Under Oregon law, the board of directors must “exercise, or delegate … all corporate powers and shall direct the management of the corporation’s affairs” (ORS 65.301). The IRS requires that a 501(c)(3) organization have a board of directors and encourages “active and engaged” boards. The Mazamas bylaws do not appear to acknowledge the level of authority that the board of directors holds over the organization under Oregon law and IRS rules. The description of the board’s authority in the current bylaws (to “conduct the general business of Mazamas”) is more akin to a role that one would typically see for an executive director or officer. The current bylaws further limit the board’s authority by stating that the board may “make policies and procedures that deal only with administrative matters.” It is unclear what this means, and it likely runs contrary to Oregon law. | Language has been updated throughout to clarify that the board of directors holds authority to govern the organization. | Section 4 |
| Member authority impractical | The governance rights of members in the current bylaws appear are impractical for an organization with over 2,000 members. Given the size of the membership base, Mazamas members should be more limited as they will not be actively running the organization. The current bylaws include multiple provisions regarding the specifics of member dues and payment. We do not recommend including this information in the bylaws, as it is unnecessary and may change from time to time. | The proposed restated bylaws provide that members shall have the right to vote on the election and removal of directors and significant transactions. Members do not exercise general governance over the organization – rather, members elect directors who then govern the organization. Specifics regarding membership dues and payment have been removed from the bylaws, and the membership classes have been consolidated into a single class (the distinction between classes in the current bylaws are based on dues payments rather than governance rights, and that distinction is not necessary in the bylaws). | Section 2.2 |
| Committee structure | Under Oregon law and IRS rules, the board may establish committees to which it delegates responsibility or that can make recommendations to the board. Oregon’s nonprofit law does not provide for committees of members, and member committees are not able to exercise governance authority (e.g. make budgets, hire staff) without delegation by the board. The committee structure in the current bylaws is problematic because committees are not overseen by the board — they are instead self-perpetuating in that they select their own members. Although member committees may be vital for running the activities and operations of the Mazamas – however, they do not have governance authority over the organization and thus should be organized outside of the bylaws. | Description of membership committees has been removed from proposed bylaws – this should be included in a separate policies and procedures document that can change over time as. Committee structure has been changed so that board has oversight in selection of members to committees. A few standing board committees have been added (executive committee, nominating committee, finance committee). | Section 4.10 – 4.15 |
| Member quorum requirement | The current bylaws require five percent of the voting members for a quorum. Given the large number of members, this is a significant number of people who need to attend a meeting in order to validly take action, including on electing directors. | To avoid a potential roadblock at a member meeting, the proposed bylaws provide that the member votes represented at a meeting constitute a quorum. | Section 3.6 |
| Clarity needed for board and member meeting procedures | The current bylaws have a single Article titled “Meetings” that covers both board and member meetings, and it is not clear what notice and other requirements apply to board versus member meetings. The current bylaws do not explicitly permit the board or members to hold remote meetings or authorize the board to take action by unanimous written consent or email (both of which are allowed under Oregon law). The current bylaws state that “electronic voting [is] permitted,” but do not elaborate on permitted procedures. The current bylaws also contain confusing language seeming to require notice only to directors who are within a 300-mile radius of Portland, Oregon. Under Oregon law, all directors must receive notice of a meeting no matter where they reside. | The proposed restated bylaws separate the sections regarding board and member meetings and clearly state notice periods that apply. The proposed restated bylaws permit meetings to happen remotely and allow the board to act without a meeting (by unanimous written consent or email). They also remove confusing provisions, including provision re giving notice to directors within a 300-mile radius of Portland. | Section 3 (Member Meetings) Section 6 (Board meetings) |
| Size of board | The Mazamas board is currently set at nine directors. We suggest that Mazamas increase the size of the board to ensure that the board represents a sufficiently broad public interest and includes people with the required skills and resources to effectively govern the organization, which the IRS considers important for 501(c)(3) organizations. | Proposed restated bylaws increase the size of the board to between nine and thirteen directors. Nine directors would be elected by the members and those people must have been Mazamas members for three years. Up to four directors may be elected by the board and those persons do not need to be members. This allows the board to recruit outside talent and ensure that the board represents a sufficiently broad public interest and holds the skills and resources necessary to effectively govern the organization. | Section 4.4 (Number of Directors) Section 4.6 (Election of Directors) |
| Director nomination and election process | The bylaws provide that the Nominating Committee must nominate sufficient potential directors such that there is a contested election with six recommended candidates for three slots. This is a bit of an outdated provision and might make it more difficult to recruit interested directors who could add value to the organization if they know they will necessarily be in competition with other nominees. As mentioned above, the IRS considers it important for a 501(c)(3) board to represent a sufficiently broad public interest and the required skills and resources to effectively govern the organization – the Nominating Committee should be nominating the potential directors that it sees as best fit for the director role, as opposed to excess nominees for a contested election. | The proposed bylaws do not require director elections to be contested. As mentioned above, nine directors would be elected by the members and must have been Mazamas members for the past three years, and the board can appoint up to four directors who need not be members. | Section 4.6 (Election of Directors) |
| Check Signing | The current bylaws require that all checks be signed by two officers – which can be cumbersome for smaller expenditures. | The proposed restated bylaws remove the two-officer approval and provide that the board will adopt a policy regarding signing authority (e.g. approvals needed for expenditures at various dollar thresholds). The board should adopt such a policy in a separate policies and procedures document. | Section 9.3 |
| Update Outdated Terms and Simplify Document | The bylaws contain some outdated and confusing language. For example, the concept of appointing and using “tellers” for elections and the reference to Roberts Rules of Order. | The proposed bylaws present a modernized form without outdated language or references. | Throughout |