Printer Friendly Version
The Next Best Thing to Being There
Investment Clubs Can Find Creative Ways to Deal With the Pesky Attendance Issue
“Showing up is 80 percent of life,” said filmmaker Woody Allen, and although the percentages may vary, having members show up at your investment club’s meeting is definitely key to the club’s success. That’s why most investment clubs require that each member maintains a minimum attendance level at meetings throughout the year. Miss too many meetings and you could be expelled from the club.
This month, Sam Irwin from the A Touch of Gray investment club in Council Bluffs, Iowa, wrote to ask “How can we avoid not having a quorum for members who, for various reasons, can’t make the club’s meetings?” Standard club operating documents define a quorum as the number of members and/or percentage of the club’s capital accounts that must be in attendance in order for the club to conduct business. At the start of each meeting, the secretary normally takes attendance and validates that a quorum exists and the meeting can continue.
If a quorum doesn’t exist, the members who are in attendance cannot take any official actions, such as voting to buy or sell stocks, electing officers or deciding to spend club funds. The attending members can still make the most of their time together and discuss educational topics or review the club’s financial statements, but only on an unofficial basis. Of course, it can be a dismal prospect to turn out for a club meeting and find that not enough members are in attendance to effect an official meeting. If your club operating agreements permit, you might consider allowing members to attend meetings by dialing in via a telephone or Internet-enabled conference line and speakerphone.
Another common way that clubs ensure that they have a quorum is to stipulate that members can attend meetings by proxy, assigning their voting rights in writing to another member of the club on a temporary basis. A member attending by proxy is then considered when determining whether a quorum exists. In this way, even if the members who are physically in attendance don’t constitute a quorum, one may still exist when including those attending by proxy.
Proxies work well when members know in advance that they’ll be unable to attend a meeting, such as while they’re on vacation. They don’t work so well for a last-minute emergency or change of plan that prevents a member from attending a club meeting, though an emailed proxy could be suitable if allowed in your bylaws. Proxies can also inhibit sound group decision-making if many members give their proxy to a single partner or officer of a club, thus placing too much power in the hands of one individual.
Back in September 1995, NAIC’s then-President Ken Janke wrote in his “Mr. NAIC” column in this magazine about quorums and provided a solution used by his Mutual Investment Club of Detroit. (BetterInvesting members may read this article online) His club’s proxy statement allowed an individual to assign his voting rights to each attending partner at a meeting “pro rata in proportion to each of the attending general partner’s capital accounts.” This practice allows the quorum to be called but doesn’t concentrate voting power.
Sam also wants to know: “If members can’t attend meetings indefinitely, can we place these members on a inactive membership until a change in their situation happens? Will this require us to modify our club agreement?”
The bottom line is that if too many club members don’t participate in the club’s business, the club really can’t exist. This is the reason for the minimum attendance and participation levels used by many clubs.
Securities and Exchange Commission regulations do stipulate that passive members of investment clubs are one of the factors used to determine whether certain laws regarding the issuance of securities should apply to the club, though most BetterInvesting clubs would likely not meet all the other necessary criteria for such consideration. But members do experience changes in their lives and sometimes circumstances conspire to prevent members from attending meetings or participating fully in club matters.
There’s nothing wrong with allowing a temporary, compassionate exemption from club requirements on occasion to allow for members to cope with pressing issues in their lives. I suggest that clubs allow these exemptions only for a designated period of perhaps a few months. They can then review the situation with the member to see whether he or she is able to begin participating once again. If not, then the member should begin exploring the notion of resigning from the partnership.
After all, if an investment club held a meeting and no one came…would any stocks be bought or sold?
Douglas is ICLUBcentral's product manager, helping develop the company's programs including Toolkit 6, myICLUB.com, and the Investor Advisory Service. He is also the author of several investing books, including The Pocket Idiot's Guide to Direct Stock Investing, The Complete Idiot's Guide to Online Investing, The Armchair Millionaire, and Investment Clubs for Dummies.