June 2004 Issue

Sole Membership:
What Is It, And Why Are We Talking About It?
by D. August Boto & James P. Guenther

The "Sole Membership" issue addresses the orderly adoption by the Southern Baptist entities of certain amendments to their governing documents (specifically, their articles of incorporation) over the past several years. These amendments restate the traditional relationships historically enjoyed between the entities and the Southern Baptist Convention. These amendments use modern corporate law language, which is better understood by courts than the former language. The amendments did not, however, alter any of the relationships, rights, powers, or duties.

An appropriate analogy would be that of using a modern English version of the Bible for witnessing rather than one in Hebrew and Greek — the English is much more effective. In the same way, almost all of our SBC entities have adopted modern corporate-law language to better apprise courts of our structure in the SBC. The goal is to have better success over two major problems that surfaced in recent years: "ascending liability" and "future subsidiary allegiance."

Protecting the Entities' Management Freedom

"Ascending liability" is the term church groups coined for the legal term, "vicarious liability." It occurs when one organization is held responsible for the liabilities of another. The term came into Southern Baptist vocabulary following a court case in which it was alleged that the United Methodist Church (the denomination) was responsible for the liabilities of a Methodist nursing home. Ascending liability occurs when a court determines that there is excessive control. For example, if the United Methodist Church was found to dominate the management of the nursing home, then the United Methodist church stood to be held responsible for the nursing home's contracts.

Therefore, it is important for the legal documents that describe the SBC's relationship to its entities to state very clearly that the SBC does not control the management of its fostered entities. The SBC's bylaws said this already. The new language would get it clearly said in the entity's charters.

For example, the Convention elects the trustees who manage the International Mission Board. If it is clear in the entity's charter (in addition to the SBC's bylaws) that the IMB's board, not the SBC, manages the IMB's affairs, then the Convention has helped make it clear that the SBC is not responsible for the IMB's liabilities.

Thus, the sole member model allows the entities' instruments to describe how the trustees, not the Convention, control the operations of the entity corporations, and it helps show that the Convention ought not be held liable for what the entities do — or do not do.

Protecting the Convention's Ownership

The sole member model also allows the Convention, as the corporation's only voting — or "sole" — member to perpetuate its historic and fundamental control rights over its entities, assuring that those entities will remain Southern Baptist. So while the governing documents spell out the right of the board to govern the entities, they also spell out that the Convention, as the entity corporation's member, has certain unalienable rights. These Convention rights are enumerated in the entities' governing documents and are repeated in the following discussion. They are not new or greater rights. They include only fundamental matters, such as the right to determine who sits on the board of trustees, the right to approve charter amendment, and to approve the dissolution, merger, or sale of the institution.

The new language being utilized in the governing documents of the Convention's entities describes the relationship between the entity and the Convention. It clearly indicates that the Convention does not control the entities in those ways that would cause the entities' liabilities to "ascend" to the Convention; and, at the same time, the relationship is described so that the Convention clearly can prevent an entity from ceasing to be Southern Baptist. The new language does not give the SBC or the boards of the entities any more or less control rights over the entity. The present and historic division of control between the Convention and the various boards is simply being described in modern corporate law terms, and the Convention is exercising its traditional rights in its capacity as the entity's only voting member.

What Does "Sole Membership" Mean, and Have Others Adopted It?

"Sole membership" describes a corporation which has only one member. Corporate laws allow nonprofit corporations to have members, or even just a single member, in addition to the corporation's board of trustees. In nonprofit corporations with members, the members' rights and the board's rights regarding governance are specifically recited in the corporation's articles of incorporation or bylaws. All Southern Baptist Convention entities except one have amended their articles so that they are written in this more up-to-date corporate law terminology which will better apprise judges and others that the SBC is the only member (the sole member) of each of the various SBC entities, and as such has the right, as it has always had the right, to approve certain things, such as who will serve as trustees, as discussed above.

All of the boards of the SBC entities, except for one, have deliberated over and adopted sole membership amendments between 1996 and 2000. The reason sole membership is becoming more widely discussed currently is because the last SBC entity to consider adopting the more modern language of sole membership, New Orleans Baptist Theological Seminary (NOBTS), decided in its October 2003 board meeting not to adopt the necessary amendments. After two meetings in spring, 2004, the same board decided to attempt to craft an acceptable alternative to sole membership to submit for ultimate consideration by the SBC messengers, agreeing also to submit sole membership in case the messengers decided to stay with the course they have earlier approved for the other entities. As a result of these board meetings, state papers reported various accounts, and discussions among Southern Baptists naturally followed.

A Brief History of SBC Interest in Sole Membership

Over the years, the SBC's Executive Committee has observed and assessed the various legal methods employed by Baptist general bodies, other denominations, and other nonprofit associations by which they maintained fundamental control and struggled with unintended assumption of liability. These "various legal methods" included trust law concepts, contractual agreements, "covenants," and an assortment of corporate structures. Long ago the Convention decided to coordinate related ministries through separately incorporated entities. The Convention established a mode by which the Convention shared governance over those corporations with the boards of trustees the Convention elected. For these reasons it was deemed most effective and most compatible to the Convention's polity to utilize the shared governance arrangement made possible under modern nonprofit corporation statutes. It became obvious that no other governance method, except the method permitted under these statutes and the corporate model upon which they were based, would allow the Convention to maintain its historic polity.

To be more specific, the Executive Committee followed the development of the Model Nonprofit Corporation Act in 1965 and the adoption of all or significant parts of that model act by many of the state legislatures in the subsequent years. This model act contained the member concept. It provided several clear methods by which nonprofit corporations could relate to one another. These were mechanisms by which one corporation could share in the governance of another corporation in explicit ways while maintaining the legal separation of the two corporations.

The Executive Committee watched as other religious bodies and nonprofits confronted affiliational issues generally. For example, the Executive Committee studied the case mentioned earlier against the United Methodist Church (UMC) in 1979, in which that denomination's general body was sued because of the bankruptcy of an affiliated corporation. That suit cost the UMC $21 million in damages plus $4 million in attorney's fees.

In 1981, the Executive Committee created a Legal Affairs Committee to help inform the Executive Committee, the entities, and the Convention on ascending liability and other legal issues relevant to the Convention's relationships with its entities. In that study, the Executive Committee was advised of the advantages of the member role under the nonprofit corporation statutes that had been and were continuing to be enacted in the various states.

The Convention was sued that same year by an employee of the Brotherhood Commission. In that suit the plaintiff undertook to impute liability to the Convention for alleged wrongdoings of the Brotherhood Commission and of its employees. While the Convention was successful in the Federal District Court in convincing the Court of the division of governance between the Convention and the Commission's Board, and in showing the lack of control by the Convention over employment at the Commission, the experience brought home to the Executive Committee matters which previously had been seen by some as primarily hypothetical. The benefits of sole membership became obvious.

Over this same period, the Executive Committee also monitored the strategies by which entities of the state conventions acted to distance themselves from the state convention which fostered them, and the strategies institutions of other denominations used to flee the control of those bodies. Those strategies included: amending the entity's articles of incorporation to give the entity's board the power to elect trustees without state convention approval, depriving the state convention of that right; dissolving the corporation and conveying the entity's assets to a new corporation not controlled by the state convention; merging the convention-controlled entity into an entity not controlled by the convention; and selling the assets of the convention-controlled entity to an entity not controlled by the convention. It was apparent that the Southern Baptist Convention needed to find a role, recognized in the state nonprofit acts, by which the Convention could play out its limited governance role in the separately incorporated entities and be assured that its role would be legally recognized. The "member role" was the most obvious role.

Some state statutes allowed for a person or organization other than the member to have the kind of governance roles that the Convention has exercised over its entities. South Carolina is such a state. The South Carolina state convention worked with its entities "post-Furman," and each entity amended its articles to give the state convention the shared governance role of "another" named in the entities' articles. The SBC Executive Committee explored this "another" role but it was not available in each of the states in which the Convention's entities are incorporated, so uniformity would not be obtainable.

In 1995, the Convention's attorneys recommended that the Convention utilize the role of the member as the means by which the Convention's limited governance role could be achieved in the creation of the North American Mission Board. That advice was given to the Implementation Task Force (ITF). That committee had the responsibility of implementing the reorganization that had been adopted by the Convention upon the recommendation of the SBC Program and Structure Study Committee. The ITF plan called for the creation of a new corporate entity, the North American Mission Board of the Southern Baptist Convention. This afforded an opportunity unique in the recent history of the Convention, the opportunity to create a new corporation, utilizing modern nonprofit corporation law models.

The ITF concluded that the most appropriate way for the Convention to perpetuate its traditional governance role in this new entity, NAMB, was by utilizing the role of corporate member, that is, sole membership. The Convention accepted that model and approved the NAMB charter. That charter enumerated the Convention's control rights, declaring both what those rights are, and what they are not, making it clear that in all other matters the Board manages and controls the corporation. Following the Convention's adoption of this model in the NAMB incorporation, the model has come to be accepted and approved by the Convention and put into effect by all the other entities of the Convention, with NOBTS being the last entity to consider the issue.

Sole membership, then, has effectively satisfied the need for uniformity by forming the basis upon which the Convention can relate in the same fashion to all its entities. It represents a "common denominator" plan that works in every state in which SBC entities are incorporated. It tracks what has come to be a widely accepted model in nonprofit corporate structures. It is a "known factor" among civil judges, and is immediately recognized as well as being fully understood as to its effects and capabilities.

In moving to the member role, it has been the Convention's intent to simply recast present understandings into this member role, neither to enlarge nor diminish the Convention's governance rights. Certainly, nothing in this new model affects the role of the Executive Committee. The Executive Committee's role in relation to the Convention, and its role in relation to the institutions, remains as declared in the Convention's instruments. Nothing is changed.

So implementing the sole membership model should not be perceived to be anything that changes or threatens to change our polity or our present system of governance. It has been the subject of study now for nearly forty years. There has been no intent to modify polity, nor has experience indicated any polity shifts. To the contrary, what the Executive Committee has tried to do is to preserve SBC polity and ecclesiology, and to find a way in the present law of corporations to express SBC polity in terms understood by the law. Sole membership accomplishes the preservation of our intended relationships, and makes it unlikely that a court will declare those relationships to be different from what the Convention says they are. Sole membership also perpetuates the entities as truly and permanently Southern Baptist, and at the same time reduces ascending liability risks.

D. August Boto is an attorney and serves as vice president for convention policy, SBC Executive Committee. James P. Guenther has served as an attorney for Southern Baptists for forty-six years — six years as in-house counsel for the Baptist Sunday School Board, and then as outside counsel for the Southern Baptist Convention since 1964.

Sole Membership in a Nutshell

• It creates a uniform basis upon which the Convention can relate to all its entities in a similar fashion.

• It is a legal arrangement that operates in every state where SBC entities are incorporated and is a widely accepted non-profit corporation model.

• It is immediately recognized and understood by civil judges and current legal systems.

• It makes the SBC immune from its entities' obligations and assures future entity allegiance.

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