SMART active membership rules

The CNL describes the general nature of an active membership requirement.19 The Registrar of Co-operatives provides some guidance on how to draft an active membership rule.20 An underlying theme for an active membership rule is that a person who is contemplating becoming a member must be able to readily understand and calculate his or her obligations to the co-operative by reading the active membership rule. This means that it cannot be something that is determined according to an external circumstance that might change. If there is a monetary component it is expressed in terms of the maximum amount that might be required of a member. This is not to say that a member may be required to contribute a lesser amount, merely that the requirement may not be increased without a change in the rules voted upon by all members.

A further ‘rule of thumb’ is that the obligations should be minimal. If the active membership rule requires a significant or onerous contribution, then members will not be attracted. Members are always free to contribute more to their co-op and they will do so when such contributions are met with a reward. So a consumer co-operative that provides members with discounted products might only require a minimum spend over a year, but the more the member spends, the greater the overall discount.

The SMART acronym is a simple checklist to help first time drafting for active membership rules.

A co-operative’s rules must specify not only the obligation of membership, it must also state the period of time that a person can be ‘inactive’ before their membership is cancelled. The default rule, if no period of time is specified, is 3 years.

There are examples of SMART active membership rules in Part 5.

S

Simple

the support or action required needs to be simple and expressed in clear simple terms. If it is complex it may be difficult to understand and difficult for the co-operative to determine whether a member is complying with it. It will also present a problem for prospective members who may question what it is that may be expected of them as a member. The simplest requirements are those that require a member to either buy or sell a specified quantity of an identifiable product or service. If the co-operative provides more intangible services, such as information, then the requirement might be simply to either provide information at specified times or subscribe to an information service offered by the co-operative.

M

Measurable

it is important that if the co-op requires members to buy,  sell or use a service, that this is identified in a measurable way. For example an agricultural co-operative might require members to provide a quantity of grain or milk. This should be expressed in a manner that is objectively measurable, such as tonnes or litres and not expressed by reference to variable or other factors, such as a percentage of their output.  The ability to measure the requirement objectively will enable any intending member to readily ascertain the full extent of their obligation as a member. For co-operatives formed to pursue an interest or to provide a service, such as a ski club or a health services co-operative, the requirement would be expressed as using the club facilities or co-operative service on a specified number of occasions each year.

 a

Alternatives

not all potential members will have the same ability to comply with a single active membership requirement, and usually co-operatives are able to identify more than one purpose or primary activity. For example, a co-operative formed to operate a local retail store will not only need customers, but also suppliers as well as workers. The store might also be a community hub for social, health or educational purposes. For such a co-operative the primary activities would be multiple and there will be a number of alternative ways in which a member might support the activities of the co-operative such as supplying products, buying products, volunteering time, providing content for educational or health promotional activities. Within this range of possible supporting activities, the potential community of members will be broad and will bring the ‘crowd’.

 

 r  

Reasonable

what is a reasonable obligation for a member of a co-operative will differ according to the co-operative’s proposed enterprise. Legislation governing restrictive trade practices prevents co-operatives from requiring their members to do all or a significant portion of their business through the co-operative. So the active membership rule should be expressed as a requirement somewhere between a ‘significant commitment’ and the bare minimum that a co-operative needs to ensure that its members stay engaged with their co-operative.

Where members are required to buy reasonably substantial shareholdings to become members, then it would be prudent to ensure that the active membership rule is a bare minimum.

For example, setting up a community renewable energy co-operative will require a substantial amount of capital for construction, planning and licensing. The nature of the product of the co-operative is one that members may not readily access the electricity generated because of national or local electricity distribution networks. A co-operative embarking on this type of enterprise is likely to want a large share buy-in amount, but the active membership rule may be as simple as subscribing to the co-operative’s information service. See Hepburn Community Wind Co-operative rules 

Where the member has a substantial share investment in the co-operative, it is likely that the member will have a strong engagement to ensure that the co-operative is pursuing its objectives.

 T

Timely

an active membership rule should expect an ongoing commitment from its members in order to be self-sustaining over the long term. It is essential that the requirement to support a primary activity is expressed with reference to an identifiable time period that is relevant to the enterprise. A retail store co-operative might express the requirement to supply or purchase in a 12 month period. A dairy co-operative will express its supply requirement on a weekly time period. Longer term projects such as renewable energy projects will be likely to require a continuous subscription to their information service. The time bound commitment for active membership is not only important for the ongoing operation of the co-operative, but it also sets the basis for determining when a member is inactive and this, in turn, sets in motion requirements for cancellation of membership. For this reason, it is important to specify what is meant by a ‘year’ or such other period. For example, is it a calendar year or a financial year?

 

Active members and inactive members

Failure to comply with the active membership rule may lead to cancellation of membership, and a consequent obligation on the co-operative to repay that member’s share capital. When a member stops complying with the active membership rule and before the membership is cancelled, the member is simply referred to as inactive. For example, if a member is required to purchase a specified value of products from the co-operative in a calendar year and fails to do so from January to December, then that member is ‘inactive’. If the active membership rule specifies that the member must be inactive for 3 years, then this member will still be a member for the next 2 calendar years.

At the end of the 3 year period there is a statutory obligation on the board to cancel the membership.

Inactive members forfeit their right to vote in the co-operative. For members who wish to retain this level of engagement, remaining active, or revive their activity is the means of retaining or recovering this democratic right.

Members who lose interest in their co-operative and remain inactive will face cancellation of their membership. Cancellation requires the co-operative to repay any share capital invested by the member. The obligation to repay share capital is a challenge to a co-operative’s financial viability and must be managed by prudent financial provision and planning and ongoing community and member engagement.21