Cohousing-L Mailing List: Implementing Sociocracy in Cohousing

[evdavwes (evdavwes]

Re: how to implement Sociocracy in cohousing, with particular reference to 
which circle should be the legal "Board."    


This is a reflection on the discussion initiated by Sharon Villines (quoted 
below).


As you know, Cohousing Communities implement consensus -based decision making 
in their Bylaws and practice using several different approaches.  Most 
Cohousing communities are governed by Homeowners Associations (HOA's).  Many 
states (such as North Carolina), have adopted some variant of the model Uniform 
Planned Community Act, which ascribes default roles to Members and the Board 
based on the conventional HOA model.  In this model, Members have the authority 
only to elect the Board, change the declaration, sometimes change the bylaws, 
and sometimes approve the budget; all other governance decisions, including 
rules and policies, are made by the Board.  There are prescribed ways to change 
this "default" governance arrangement, and there are some roles and 
responsibilities that can not be changed (for example, in NC an HOA Board can 
never be given the authority to change the Declaration or elect the Board).  
The Bylaws of a Cohousing HOA need to reference and accommodate all such 
relevant laws and standards.  


Here are some of the ways that Cohousing Communities are set up legally.  I'll 
call these Types 1 through 5:

The Bylaws of some Cohousing communities have the "Plenary" (the Members, the 
larger group) be the main decision-making group, which creates policies, rules, 
and procedures, and appoints Committees and officers to take on defined roles 
related to management of the community.     The Plenary may be legally the 
Board.   Alternatively, the Plenary may be defined in the Bylaws to have the 
authority typically given to the Board (ie, the Bylaws may state that the group 
referred to as "Plenary" or by some other name has all the responsibility and 
authority intended to be given by law to the Board.)    Given that the law may 
prescribe certain authority only to "the Members" (for example, changing the 
declaration) and other roles by default to "the Board" (for example, approving 
rules and regulations), the Plenary may have to meet sometimes as "the Members" 
and sometimes as "the Board."    
For other communities, the Bylaws may give Members certain roles in governance 
which in conventional HOA's are given to the Board.  For example, the Bylaws 
may state that the Members may adopt rules and regulations, or state that 
certain policies must be approved by Members.
For some Communities, the bylaws state that the governance structure is that of 
a conventional HOA (with a governing Board which makes all decisions), but in 
practice many Rules and policies are made by the Plenary.  In some of these, 
there is a defined process where the "unofficial" decisions of the Plenary are 
"ratified" by the Board.   In others, the Board does not ordinarily ratify 
decisions, so that some of the community's decisions may be legally 
unenforceable (those made by Members) and others are legally enforceable (those 
made by the Board).  Whether or not decisions are legally enforceable may be 
unimportant in many cases.  Enforceability is most important in the case of 
rules.  A Court action may be initiated to penalize a homeowner or make him or 
her comply with the Rules, which action may fail if a court determines that the 
Rule was not approved in the legally correct way (for example, if the Bylaws 
say that the Board approves the rules but the relevant rule was actually 
approved by Members).
Some Cohousing Communities may be organized like a conventional HOA: In this 
conventional model, the Board is a subset of the group, and takes all actions 
related to "governance," such as making policy or rules, with advice and input 
from Members.  (I include this theoretical case for completeness sake, although 
I have found no actual examples of this.)
Some Cohousing Communities may have two governance structures.  One structure, 
similar to the Conventional HOA, and governed by the Board, manages the 
property.  The other structure may be more consensus-based, with authority 
given to the Plenary in areas of common agreements and actions not related to 
the property management.

My own community, Westwood Cohousing, is basically Type 3 above, with the 
Documents saying one thing and our practice being another.  The "actual" 
intended role of the Plenary is either vague or undefined in the Bylaws, 
depending on the issue.    Because our practice and traditions have been so 
different from what is defined in the Documents, there is considerable 
dissension in our community about which type we "are" and which type we are 
"intended to be."    There is also some "drift" sometimes towards doing things 
the way the Documents say they should be done, other times towards the way our 
traditions and precedent say they should be done;  and this "drifting," which 
can change our practice significantly, is often done without community decision 
or even discussion.    The Members actually decided in 2002 to adopt the Type 5 
structure, with 2 separate governance organizations, of which one deals with 
property management and the other deals with social issues; however, we never 
implemented this fully, leaving a lot of confusion and dissent about what our 
intentions were and are.  Over the years we have gradually drifted away from 
the "two-body" form, but without ever having made a community decision to lay 
this down.   I have heard from different members of my community arguments that 
we are intended to be (i.e., we have made a consensus community decision that 
we intend to be) Type I, or Type 2, or Type 3, or Type 4, or Type 5.  I am 
currently on a Committee which is trying to help the community decide clearly 
which Type we would like to be, and then implement that decision.  My major 
bias is that the Bylaws should reflect the intended structure of governance for 
the Community;  that is, if a conflict exists between the Documents and the 
Practice, as in the Type 3 structure, unnecessary confusion and dissension 
results.  My minor bias is that a Cohousing community can and should, if it 
wants, implement Consensus-based rule of the Plenary, rather than the more 
hierarchical rule by an elected Board.  This bias is in favor of Direct 
Democracy over Representative Democracy (see 
http://en.wikipedia.org/wiki/Direct_democracy , 
http://en.wikipedia.org/wiki/Representative_democracy ).


>From my study of the issues and advice from our legal counsel, I have come to 
>feel that in a community which wants to have its Plenary to have a role in 
>issues commonly given to the Board (such as adopting Rules and Regulations, or 
>(in North Carolina) approving the budget), there is a advantage in having the 
>larger group be legally the Board.  I will explain the reasons for this below. 
>  Note I am not a lawyer, just a student of the law as it applies to this 
>situation.


Some of the arguments might apply more to North Carolina than to other states.


Some of these considerations might not hold for some other corporations, where 
the higher rung of authority has to some extent employment and supervision 
authority over the next lower rung, and each rung has some similar employment 
and supervision authority over the next circles.  In Cohousing, by contrast, 
there are few or no employees, and work is done by volunteers and HOA 
"Members."  


Decisions of the Board and of Committees of the Board are protected by the 
Business Judgment Rule


One consideration is that Boards are protected by law in their liability for 
the actions they take.  Part of this protection is known as the "business 
judgment rule."  That rule protects Boards in a court of law by assuming that 
the Board's actions are reasonable unless certain conditions are met:  See 
definition from http://en.wikipedia.org/wiki/Business_judgment_rule :



the "directors of a corporation . . . are clothed with [the] presumption, which 
the law accords to them, of being [motivated] in their conduct by a bona fide 
regard for the interests of the corporation whose affairs the stockholders have 
committed to their charge"[1]. To challenge the actions of a corporation's 
board of directors, a plaintiff assumes "the burden of providing evidence that 
directors, in reaching their challenged decision, breached any one of the 
triads of their fiduciary duty—good faith, loyalty, or due care"[2]. Failing to 
do so, a plaintiff "is not entitled to any remedy unless the transaction 
constitutes waste . . . [that is,] the exchange was so one-sided that no 
business person of ordinary, sound judgment could conclude that the corporation 
has received adequate consideration"[3].



Our HOA has been advised (by an expert in conventional HOA structure and 
governance) that any decisions made by Teams could fail this test.  That is, 
that a court would assume that if there is a bad consequence of a decision made 
by a Team, the Board would not be protected by this rule, and that it would be 
therefore much easier for a plaintiff to win a suit against the HOA.   
Essentially, delegating decisions to a Team can be in itself evidence of a 
breach of the Board's fiduciary responsibility to the Members.    My impression 
is that if the Board were hiring and directing the actions of a manager, the 
manager's actions would pass the business judgment rule and the HOA would be 
protected.    


The HOA can get around this situation by having Teams make not actual 
decisions, but rather recommendations to the Board, which would then review and 
approve the decisions.  Our state (NC) Non-profit corporation law also makes 
explicit another way of having a Team-based organizational structure while 
preserving the Board's protection from liability:  Making sure that all the 
Teams are legally "Committees of the Board."  This requires that the Teams be 
created and appointed by the Board and that there be at least two Board members 
on each Team (presumably there could be other non-"voting" Non Board members as 
well).   Reference at  
http://www.ncga.state.nc.us/enactedlegislation/statutes/html/bychapter/chapter_55a.html



§ 55A‑8‑25.  Committees of the board.


(a)        Unless the articles of incorporation or bylaws provide otherwise, a 
board of directors may create one or more committees of the board and appoint 
members of the board to serve on them.  Each committee shall have two or more 
members, who serve at the pleasure of the board.


(b)        The creation of a committee and appointment of members to it shall 
be approved by the greater of:


(1)        A majority of all the directors in office when the action is taken; 
or


(2)        The number of directors required by the articles of incorporation or 
bylaws to take action under G. S. 55A‑8‑24.


(c)        G.S. 55A‑8‑20 through G.S. 55A‑8‑24, which govern meetings, action 
without meetings, notice and waiver of notice, and quorum and voting 
requirements of the board, apply to committees of the board and their members 
as well.


(d)        To the extent specified by the board of directors or in the articles 
of incorporation or bylaws, each committee of the board may exercise the 
board's authority under G.S. 55A‑8‑01.


(e)        A committee of the board shall not, however:


(1)        Authorize distributions;


(2)        Recommend to members or approve dissolution, merger or the sale, 
pledge, or transfer of all or substantially all of the corporation's assets;


(3)        Elect, appoint or remove directors, or fill vacancies on the board 
of directors or on any of its committees; or


(4)        Adopt, amend, or repeal the articles of incorporation or bylaws.


(f)         The creation of, delegation of authority to, or action by a 
committee does not alone constitute compliance by a director with the standards 
of conduct described in G.S. 55A‑8‑30. 




If the Plenary is the Board, and all Teams are set up as Committees of the 
Board, the Corporation is fully protected by the presumptions of the law.  If 
Teams are not legally Committees of the Board, the Board may be vulnerable.


Liability Insurance is readily available for Directors and Officers and 
Committees of the Board, but not for Members or for other Committees


A related issue is that the standard Directors and Officers insurance policies 
covering HOA's offer legal defense of actions of the Board and of Officers, but 
not the actions of Members and volunteer Teams.  (Remember that the insurance 
companies are operating in a system where for many developments the Members 
take no actions other than electing the Board and approving the Declaration.)  
Presumably Committees of the Board would be covered by such insurance.  It may 
be possible to insure the actions of a non-standard organization where Members 
make other "non-standard" decisions, such as making the rules and regulations, 
but it is likely to be cumbersome to do so.


The law assumes certain roles for the Board in an HOA, which it is cumbersome 
but not impossible to change


A third issue is that some states have laws that govern HOA's, and that these 
laws may limit the flexibility of those HOA's that want to do other than the 
standard.  For example, North Carolina has the "Planned Community Act," with 
takes most of its provisions from the model act.  A number of states base their 
laws on this model.  


In the NC law, the Board, operating as the "association," has by default the 
authority to do a number of things (listed below), unless the Declaration 
states explicitly that the Members, a Team, or some other person or group has 
this authority.   We have heard from one of our lawyers that the words "the 
association may" in § 47F‑3‑102 has the legal meaning and intent of "the Board 
may."   Note that "elect the Board" and "change the Declaration" are left off 
this list:  these powers are in NC reserved to Members only, and can never by 
given to the Board.  However, any powers by law given to the Board could be 
given to Members.   Here is the list, from  
http://www.ncga.state.nc.us/enactedlegislation/statutes/html/bychapter/chapter_47f.html
 :



    § 47F‑3‑102.  Powers of owners' association.
    Unless the articles of incorporation or the declaration expressly provides 
to the contrary, the association may:
(1)        Adopt and amend bylaws and rules and regulations;
(2)        Adopt and amend budgets for revenues, expenditures, and reserves and 
collect assessments for common expenses from lot owners;
(3)        Hire and discharge managing agents and other employees, agents, and 
independent contractors;
(4)        Institute, defend, or intervene in litigation or administrative 
proceedings on matters affecting the planned community;
(5)        Make contracts and incur liabilities;
(6)        Regulate the use, maintenance, repair, replacement, and modification 
of common elements;
(7)        Cause additional improvements to be made as a part of the common 
elements;
(8)        Acquire, hold, encumber, and convey in its own name any right, 
title, or interest to real or personal property, provided that common elements 
may be conveyed or subjected to a security interest only pursuant to G.S. 
47F‑3‑112;
(9)        Grant easements, leases, licenses, and concessions through or over 
the common elements;
(10)      Impose and receive any payments, fees, or charges for the use, 
rental, or operation of the common elements other than the limited common 
elements and for services provided to lot owners;
(11)      Impose reasonable charges for late payment of assessments, not to 
exceed the greater of twenty dollars ($20.00) per month or ten percent (10%) of 
any assessment installment unpaid and, after notice and an opportunity to be 
heard, suspend privileges or services provided by the association (except 
rights of access to lots) during any period that assessments or other amounts 
due and owing to the association remain unpaid for a period of 30 days or 
longer;
(12)      After notice and an opportunity to be heard, impose reasonable fines 
or suspend privileges or services provided by the association (except rights of 
access to lots) for reasonable periods for violations of the declaration, 
bylaws, and rules and regulations of the association;
(13)      Impose reasonable charges in connection with the preparation and 
recordation of documents, including, without limitation, amendments to the 
declaration or statements of unpaid assessments;
(14)      Provide for the indemnification of and maintain liability insurance 
for its officers, executive board, directors, employees, and agents;
(15)      Assign its right to future income, including the right to receive 
common expense assessments;
(16)      Exercise all other powers that may be exercised in this State by 
legal entities of the same type as the association; and
(17)      Exercise any other powers necessary and proper for the governance and 
operation of the association. (1998‑199, s. 1; 2004‑109, s. 4; 2005‑422, s. 1.)



If a Cohousing Community in North Carolina wants to have its Members or Teams 
(as opposed to the Board) given any of the authority for actions in this list 
(for example, approving Rules and regulations or budgets), it is necessary to 
have the Declaration specify this (The law says Articles of incorporation or 
the Declaration, but our lawyer consultant had a strong preference that 
amending the declaration would be advisable).    In contrast, a Cohousing 
Community that is set up with the Plenary having the name or role of the Board 
can decide how to allocate authority between the Plenary and the various Teams 
and Officers via its internal decisions and documents, rather than having to 
alter the Declaration.   For example, Westwood Cohousing has "Team Charters," 
which give authority to Teams, but in our case, they in many cases conflict 
with our Bylaws, which give the same authority to the Board.    In the 
Sociocracy model, if the General Management Circle is not the Board, but the 
organization wants the General Management Circle to approve Rules and 
Regulations or the Budget, the Association needs to make sure to adopt a 
"non-standard" Declaration specifying this.  If the roles change, the 
Declaration would have to be changed.  


These considerations operate whether the organization is sociocratic or 
consensus-based.  It is far simpler to accept the assumptions of the law and 
have the Plenary operate as the Board than to fine tune the Bylaws and 
Declaration to specify which of the standard roles of the Board the Members 
will have, and which the Board will have.


Implementing Sociocracy in Cohousing


I would assume, as you do, that if a Cohousing Community adopted Sociocracy, 
they would want at least three levels of Circles:  the Top circle, the General 
Management Circle, and the Teams.  In some communities there might be sub 
teams, but I will leave them out for now.


The arguments related to insurance and business liability above suggest a 
strong preference for the Teams being Committees of the Board, with at least 2 
members of the Board being the legal decision makers for each Team.   In 
addition, the arguments related to the standard HOA law suggest that the bodies 
that are going to be making Rules and Regulations, making policy, approving the 
budget, and making routine day to day decisions should be called the Board or a 
Committee of the Board.  I can see three ways of setting things up that would 
accommodate these preferences.

General Management Circle is the Board, Teams are Committees of the Board, and 
the Top Circle is a Committee of the Board.  
General Management Circle is the Board, Teams are committees of the Board, and 
the Top Circle, while having several Board members serving, is not the legal 
Board and has no legal authority to take action for the organization, only the 
ability to provide recommendations to the General Management Circle.
Top circle is the Board, General Circle is a Committee of the Board, Teams are 
Subcommittees of the Board (this option is suboptimal if the Top Circle is 
intended to be a "small" group, as the Top Circle would have to have enough 
members for each Team to have 2 Top Circle members).

Of these three options, 1 and 2 are the most attractive to me.  It would depend 
on whether the Community wants to give to the Top Circle authority to make 
certain decisions (as in #1, where the Top Circle has been set up as a 
Committee of the Board) or merely to make recommendations to the Plenary (#2).  
My sense of the intended role of the Top Circle would be that it should be 
given decision-making authority within its limited sphere.


The option of having the Top Circle be the Board, but the General Management 
Circle, Teams, and subteams being "informal" groups of volunteers, but not 
clearly being Committees of the Board, is less attractive based on the 
considerations reviewed above. 



In addition, if the Top Circle had the "default" roles of the Board, the Top 
Circle's role would be expanded from being responsible for "abstract, 
long-range five year plans" to being also responsible for the rules, policies, 
and day to day decisions of the organization.  I think this is not what is 
intended for the Top Circle.  Of course, in the NC legal system the Declaration 
could be amended to specify that the General Management Circle and the Teams 
would have roles usually given to the Board, but this adjustment is cumbersome.


There may be other reasons for having the Top Circle be legally the Board.  We 
have heard by some in our Community that there is some benefit in electing a 
Board to make any and all decisions on behalf of the Plenary (ie, some benefit 
in the form of "representative democracy" over "direct democracy").    
Personally, I have a conviction that "direct democracy" can work, and can yield 
significant benefits to the group.    I suspect that many Cohousing residents 
want to try direct democracy and see it succeed as well, and there are many 
good examples in the Cohousing world of direct democracy working.    There is 
also an argument that the Plenary is not suited for making decisions about 
details, and therefore the Plenary needs to give full authority to an elected 
Board to decide all details.   I would agree with parts of this second 
argument.     It is counterproductive and leads to burnout for the Plenary to 
take on too much of the detail of day to day decision-making.  The Plenary must 
 be  able to delegate administration to subgroups.  In my opinion, the main 
roles of the Plenary should be to establish the governance structure and to 
choose clearly which areas the Plenary wants to have authority over, which 
areas it wants Teams to implement, and with what guidance (i.e. policy 
decisions) it wants the Teams to operate.  


First, decide which group should fill the typical roles of the Board


In my opinion,  there is simplicity and efficiency in having the group that the 
Community wants to fill the roles of a conventional Board (such as making rules 
and regulations, approving policy, or approving the budget) actually be called 
(or be explicitly defined as being equivalent to) "the Board."    The biggest 
question a community should ask, then, is which group does a Community want to 
have the various powers that the law assumes the Board will have?    Should it 
be the Plenary or a smaller elected group?     Although different communities 
might have different preferences, I would suspect that many Cohousing 
communities would want the "Plenary" to have the power to perform or delegate 
most or all of those powers.  I suspect that those Cohousing Communities who 
implement Sociocracy would want the General Management Circle (assuming that 
this is equivalent to the "Plenary") to have or delegate those powers.  


Does any of this really matter?


I have sometimes heard the argument that "how a Cohousing group is set up 
legally doesn't really matter, as long as they are getting along and making 
decisions together using consensus."    Why bother thinking about these issues? 
 Why bother making the Community's legal documents consistent with the 
Community's actual practice?    A cautionary tale is the example of my 
Community, which has Bylaws which describe one governance structure, Team 
charters which describe another structure, and practice which without a clear 
community intention drifts towards one or the other over time, and sometimes 
differs from either one.  We have wasted a large amount of energy over the 
years in unproductive disagreement, based on different individuals' differing 
preferences for one or another of the mutually contradictory decisions we have 
made.  To me, clarity about these matters is a beautiful thing.  It may not be 
achievable for my Community, if there is no clear vision with which we all can 
agree.  But it is possible for a forming Community, or for a Community where 
all members happen to share the same preferences.  In my opinion, it is a great 
gift to the future of the Community to be clear and precise about the form and 
rules of governance, and to create a "vision" which prospective members may be 
attracted to or repelled by, depending on their personal preferences.  Ideally 
the Community will attract others who share the same vision. 


I would love to hear from other groups about how they came to adopt the 
governance structure they did, and whether it is working for them.  


David Clements



-----Original Message-----
From: Sharon Villines <sharon [at] sharonvillines.com>
To: Cohousing-L Cohousing-L <cohousing-l [at] cohousing.org>
Cc: Elana Kann <ekann [at] bellsouth.net>; Evdavwes [at] aol.com
Sent: Mon, Jul 19, 2010 7:07 pm
Subject: Sociocracy/Dynamic Governance Clarification


I've working on a proposed structure for cohousing for using 
sociocratic/dynamic governance that some have misinterpreted. 
 
The standard structure is for a Top Circle that fills some of the functions of 
a board without the power over the organization than boards of corporations 
normally do. It is a relatively small group that includes outside experts. 
 
The structure of a sociocratic or dynamically governed organization is: 
 
Top Circle/Board 
General Management Circle 
Teams 
Sub-teams 
 
Each level makes a different kind of decision, more abstract and long range at 
the top (five year plans), and more immediate at the bottom (day to day). 
Within the policies of the whole organization, each team and sub-team makes its 
own policies. It isn't a power over structure. It's a "circular hierarchy" like 
rock-paper-scissors where there is control and feedback at all levels of the 
organization. 
 
Since in cohousing communities every one is used to making decisions as a 
group, I proposed that everyone serve on the board. Then the major decisions 
like budget approval would be made by everyone as most groups do now. This is 
not the typical or recommended structure in sociocratic/dynamically governed 
organizations. 
 
A major function of the Top Circle/Board is to connect the organization to the 
community. This done by having external experts on the board with full 
consensus participation. Such experts would be your lawyer, accountant, a 
cohousing expert, someone from the local neighborhood association or 
government, and possibly someone related so a special interest. 
 
If you were an ecovillage, you would want one or more experts in ecology.  
These experts could change from year to year. If one year you want to work on 
your meal program, you might have a local chef on the board. The next when you 
are starting a garden, a horticulture expert. 
 
The board would meet 3-4 times a year. The importance of having them all in the 
same room at the same time is the synergy of discussion. Each person will have 
a different point of view to share with the others and will think of different 
things than if you were asking for advice from them. The General 
Manager/President/Chief Coordinator and one or more elected representatives 
would meet with the board 
 
This kind of discussion would be hard with the whole board if it included all 
the members. There is also the danger of reverting to whole group decisions and 
bogging down the system again. 
 
An alternative, and perhaps a better one is to have the recommended top 
circle/board structure and have "full circle" meetings when desired or 
necessary. A full circle meeting would include members of all the circles. 
Everyone should be attached to at least one circle in order to be contributing 
work to the community so it would include everyone. Most condominium laws 
require at least one annual meeting of the owners. 
 
A specific domain of decision-making would have to be defined for full circle 
meetings that did not overlap with the decisions delegated to one of the 
circles, or perhaps the domain would include decisions that the circles weren't 
able to make and that is inappropriate to send to an outside authority. 
 
So everyone on the board (as some communities do now) or full circle meetings, 
which are probably preferred if communities will accept that structure. 
 
Sharon 
===== 
 
Sharon Villines 
"Let us make a special effort to stop communicating with each other, so we can 
have some conversation." Judith Martin