Read the Latest News from AXI

Governing With Competitors!

Governing a non-profit or association is a challenge at the best of times, but there are additional challenges in governing trade, professional and common interest associations that focus on the economic interests of the members. Generally, these organizations have members who are competitors with each other, and as a result, the directors are also usually competitors as well.

Here are some of the issues involved with having competitors on the same governing board and in the same membership.

Challenge #1 – The Antitrust Laws

In both the U.S. and Canada, many such membership-based organizations must be cognizant of and operate within antitrust legislation prohibiting anti-competitive or conspiratorial behavior (see Disclaimer below). That includes the Sherman Act and the Federal Trade Commission Act in the U.S., and the Competition Act in Canada. While the competitors come together because of a shared purpose, they must not enter into any collective activities or discussions that limit competition. The association must also ensure that it does not facilitate such activities, or provide the forum where such activities occur.

Some of the common activities where association antitrust problems can arise include:

• Pricing, bids, proposals

• Customers, markets, territories

• Membership rules and restrictions

• Standardization and certification

• Industry or professional self-regulation

To avoid non-compliance and promote compliance with antitrust laws, associations undertake these types of actions:

a. Implementing governance and operating policies and procedures, such as:

• Policies stating the organization’s intention to comply fully with the antitrust laws

• An antitrust compliance program

• An information and education program for the board of directors

• A formal record retention program

• Regularly scheduled meetings, and the prohibition of "rump" meetings

• Having legal counsel update directors and members, attend all board meetings, approve in advance all new association programs or changes in existing programs that may have potential antitrust implications (e.g. statistical reporting programs), meeting agendas, and Board minutes

• A prohibition on communication by association staff with officials of the applicable government department without prior approval of the association's legal counsel

b. When membership in an organization affects the organization or professional’s ability to compete, implementing membership policies and procedures prohibiting actions such as the following:

• Action by the association or its board of directors that has the effect of rejecting a membership application without approval by legal counsel.

• The exclusion of certain competitors from membership in the association even though they meet or comply with membership bylaw requirements.

• Restricting members from dealing with nonmembers, or boycotting specific organizations.

• Unreasonably limiting access to information that the association has developed.

c. Ensuring that any association, industry or professional self-regulation and codes of ethics do not:

• Unreasonably inhibit the ability of any member or group of members to compete (e.g. by restricting advertising of prices or fees)

• Require members to refrain from dealing with others (e.g. suppliers, customers, or other professionals/firms)

d. Avoiding discussions at association meetings related to:

• What constitutes a "fair" profit

• Control of sales

• Allocation of markets or customers

• Current or future fees, prices or bids (and possibly historical prices and practices)

• Pricing procedures, possible price changes, or the standardization of prices or fees

• Rigging of bids or proposals

• Credit terms

• Refusal to deal with a corporation or professional because of its pricing or bidding practices

• The pricing or bidding practices of any company or professional, and whether they are unethical or use unfair practices

The scope of what is not allowed under antitrust laws, and the extent to which the affected associations must work to ensure they and their members do not unknowingly contravene them, is generally a surprise to many non-commercial associations and charities.

Challenge #2 – The Secret Formula

When competitors sit around the board table, there can be some reluctance to share too much information. That “I don’t want anyone to know my secret formula” thinking limits both the contribution as well as the benefit. These board members think they cannot share information for fear that they will be giving away their secrets of success. On the contrary, the potential benefits in the shared issues and experiences far outweigh those fears…unless, perhaps, you happen to be KFC or Coke!

Challenge #3 – The Crowded Table

In many of these organizations there is significantly enhanced value in sitting at the board table. Therefore, while governance trends are leading to smaller boards, these organizations may be under pressure to make more room at the board table.

Challenge #4 – The Free-Loaders

Voluntary membership professional and trade associations typically have major activities such as research and advocacy that benefit the entire profession or industry. Boards of these organizations make decisions to spend significant resources in pursuit of these endeavors, all the while knowing that some non-members will benefit as equally as members, but without paying a cent.

Challenge #5 – David and Goliath

A trade association may have very large members and very small members represented on the board. Not only are these organizations likely competitors, the very large organization may be paying many times the fee of the small organization. Not surprisingly, those who pay the bills want a greater say in how the association’s resources are spent!

While this is not a definitive list of the governance-related challenges faced by organizations with competitors in the membership and on the board, it does provide a sense of the complexity that comes with governing them. Typically, the organizations in these circumstances incur substantial costs in addressing the challenges described.


Wayne Amundson is president of Association Xpertise Inc., a consulting firm serving associations and non-profits. He is also writer and speaker on association and non-profit management and governance, and is editor of The Canadian Association e-zine and co-author of the new “Primer for Directors of Not-for-Profit Corporations” published by the Industry Canada and three non-profit umbrella groups in Canada. 
Phone: 403-374-1822 E-mail: admin@axi.ca  Website: www.axi.ca 

 

Association Xpertise Inc. (AXI) is a full-service company providing consulting and other services to associations and non-profits.     Details

OUR MISSION

To build better
associations and non-profits by 
delivering unique
and unparalleled expertise, programs
and services
to their staff and
volunteers.