The parts of the RCO and how they fit together. (Part 2)
By now we’ve explored why we believe the Regenerative Community Organism (RCO) is needed as well as the fundamental problems we are addressing. We have also gone through the three basic components of the organism: its source code, the two legal entities (the association and company) and the life cycle. This piece will dig into one further level of detail looking at the different legal documents as well as the different parts of the structure and how they interact with one another.
The parts of the parts
There are a number of the parts of the parts so to speak. We’ll address the bylaws and the board of the association as well as briefly touch upon how these relate to the operations. The same for the company and then other aspects to consider.
It is important to notice that we are not dogmatic about how we think about governance - we believe that governance should be selected based on the type of organism you are trying to build and what context it is in response to. E.g. high uncertainty and lots of agility would imply more of a decentralized approach, a stable environment with clearly definable metrics would imply that a hierarchy would be able to do the job. Governance is in other words up to the ideals of the founders and the initial employees based on how they can best capture the opportunity they see in front of them. The association might benefit from higher degrees of decentralization and democracy in their governance compared to the company because it tends to increase the engagement of the members if nothing else. That is however not a requirement that the RCO puts on its organism.
The association: Bylaws
The bylaws are the spine of the Association. That is the document where all the basics of the association, its governance and its operations are outlined. It is the formal fall back for members to refer to when aspects of the association need to be clarified. It is also where we outline who are allowed to sign for the organization and in what capacity etc.
The bylaws are closely interlinked with the Source Code and refers back to the source code for the larger picture. The bylaws are on a more concrete level than the source code. This document legally constrains members and their rights and defines the scope of the Association.
The association: Board and operations
The board of the association is elected by its annual general meeting. This is the meeting where members, once a year, come together to decide on matters concerning the Association. The board is tasked with the management of the Association, its finances, the way it conducts its work and to safeguard and honor the purpose of the Organism (which it shares with the source code and the Company) aligned with the principles in the source code.
The board may be operational in the association or it may be employing and overseeing some of the work ongoing in the organization, delegating different work streams to working groups, members, employees and/or committees. In the original design of the RCO the boards (all boards of the RCO actually) are invited to consider 4 different perspectives in their decision making: Purpose & Principles, 7th Generation, Relations and Shadow. It is the board however that sets the operational direction and governance model for the Association in collaboration with its members.
It is also the job of the board to appoint 50% of the boards of the pledged company(ies). Either directly or in a delegated capacity. This is one of their most important functions aside from ensuring the operations of the Association. It does so with the purpose to both serve the company and where it is in its life cycle and safeguard the purpose as stated. No physical person may serve on the board of the Association and the board of a pledged company at the same time. The Association is in the large picture a very normal non-profit association with a special mandate and connection to a limited liability company.
The Company: Shareholder agreement and bylaws
The main two documents to consider are the Shareholder agreement which is an agreement between the shareholders about the conditions for their ownership. Shareholder agreements are usually not public and they are also the document that supersedes the bylaws of the company in a conflict. This means that the Shareholder agreement (SHA) is very important to get right, and to keep monitoring as you take in financial investors as they always want to change the agreement. The other documents are the bylaws of the company, these bind the company itself. Since a company has the status of a (non physical) person in our societies this is the basic set of rules the company has to adhere to. If it is in the bylaws then the company cannot deviate from it. Unless the shareholders think otherwise of course.
The bylaws of any company are public and registered at official registration authorities. The RCO design introduces transparency also into the SHA. Since the association becomes a party to this agreement it becomes viewable to all the members. The shareholder agreement will regulate everything relating to resources and ownership for the Company - including the transition points for the life cycle. The bylaws map how the organization may or may not be contractually committed. As well as the basic governance and principles for its operations.
Both the shareholder agreement and the bylaws will refer to the Source code. It is important to note that the bylaws of the company and the association alike share the same purpose. This is crucial. The bylaws also include a decision catalog where the SHA outlines that certain of those decisions will have to be approved by all the preference shareholders i.e. the association. Our suggestion is that the two decisions that the association has a right to veto are changes to the purpose of the company and the acquisition of new owners/investors.
Finally the bylaws make the board of the Company personally liable not only for the economic progress of the company but also that its operations are run in line with the stated purpose and the stated ethical principles that the owners have put into the bylaws. This is a significant sharpening of the responsibility of the board for the company’s operations. It is also something that is well tried and tested in the B-corp movement among others.
The Company Board and operations
The company board follows the same principles as any other board with the exception that 50% of this (it is always to consist of even numbers of delegates) are appointed by the Association (preference shareholder). The board constitutes itself i.e. it will have to agree upon who is the chairperson (that has the casting vote) as well as other roles.
The board has a close relationship with the CEO and oversees the operations without being directly involved. The CEO reports to the board. The owners of the company in turn put out a shareholders directive including instructions on what the board should focus on, this needs to be aligned with bylaws and source code. The board puts out a number of instructions to set the basic governance of the Company in alignment with the shareholders directive.
From this point onward the company building follows a familiar pattern with the exception of the influence and increased transparency and the accountability to the Association and its members. Another significant difference from the normal limited company is the extended responsibility for the board members with regard to how the company is operated.
The company’s owners only directly get involved in the governance once a year during the annual shareholders meeting. This is when the strategy is discussed and the owners exercise their influence. As an owner it is in this context the Association would also have a right to voice concerns or propose suggestions etc. These influences are however limited and the main influence that owners have on the organization is through relationships and through its nominations to the board.
In terms of the association, it has no possibility to direct the company’s operations. Its power is more social or reputational due to the larger circle of transparency. The association can stop certain decisions as a preference shareholder. The main influence is the 50% allocation of board seats which is a big influence on the operations. The association is expected to put effort into finding good members that can serve the company and the purpose alike. This is why they are ‘given’ the 10% of shares at the outset. The rationale of the connection between these entities is that engagement is (almost) a more important currency than financial capital these days and engagement is related to self-determination i.e. an ability to be part of and influence the organism, both these precedes loyalty. In other words, it is good for business to have the Association involved in the balancing of profit and purpose as the physical persons in the association do not stand to personally gain from financial profit.
FAQ: Governance, context, control and evolution
The RCO is an invitation to use existing structures to create something new. It is radically different (as in different at the root) and it seems to have a strong resonance across the world as a concept. The RCO is not dogmatic when it comes to content, which means we believe that if you are a founder, moving in to actually create something in a field you will know what is required in the field. What the RCO does is to provide a counter balancing point, where the purpose is safe guarded and less likely to be captured. Other aspects like governance, degree of formalization etc should be adapted to your context. What does your organism need to be successful in the environment you are going to put it in? Please note carefully that the question is not what do you normally do but what does your organism need? Meet only those needs, leave the rest open.
It should also be clear that there is no required flow of money between the company and the association. The association is expected to stand on its own feet. It could, of course, provide a service to the company or it could be the recipient of a stipend from the company. This is something to be determined depending on the context the particular RCO will be operating in. If this is done one should carefully consider the independent status of the association in relation to the company as it is there to audit and counterbalance the financial interests.
The second thing we get questions about quite a bit is the notion of control. The capture of the association, the negative influence on the company. This is of course possible. Fundamentally though, we see it as a feature, not a bug. We consider people to be ‘layer 0’ to use block chain lingo. If we cannot build a sustainable organization then that is a symptom of how we operate that needs to be taken seriously. The RCO puts a relational and biophysical world above the economic world. They all exist alongside one another - clearly so - but the economical does not have a special status in the RCO universe.
Finally the idea of the life cycles is a path to center the purpose of the organization. The founders and financial investors are going to have to have a discussion and make explicit their wants from this organism. I.e. how much financial, social, intellectual and spiritual capital will one get out of this organism to make it worthwhile? The assumption is that the founders will look to the good of the organism that they are birthing as well as themselves. That is the structure which we base the evolution of the organization on. In other words we introduce a notion around what is enough. To dream into the different outcomes at the beginning and use that as a reference point down the line. The idea is to prevent the capture of the inherent logic in the system, to combat witiko and allow us to see how far we’ve gone and perhaps get in touch with what is referred to as WuWei - the mastery of no(n) action. Note that all these documents can be changed along the way as long as all parties are in agreement or the decision making thresholds are reached.
Evolution is not fully predictable and since we humans are social creatures, inherently limited in our individual biases and views - we need each other to see differently, to dream differently, to heal and to transform. To do that, things cannot be rigid and controlled, but has to have a chance to evolve and shift. That is why the RCO is not a foundation for instance (let’s talk about that if you’ve looked at those models). That is why we are choosing to give up control, to create space for the unexpected because most of the time, things actually become so much better than what we can imagine.
In this second piece on the details we’ve covered the different documents and key components and forums in the RCO: the bylaws of the association and the company and their relationship to the shareholder agreement. The two boards and the two annual general / shareholder meetings. These are all different entities with different jobs and mandates to keep track of. It is easy to get confused since there are many moving parts.
Here are a couple of things in short:
The bylaws of the association govern the association and relate closely to the source code. The bylaws of the company bind the non-physical person of the company and relate closely to the source code. The bylaws and the source code all share the same purpose. Both bylaws are legally binding.
The shareholders agreement legally supersedes the bylaws in the company. It relates anything related to the owners, their relationship and their rights as owners. The SHA binds the owners not the entities as such.
The board of the association’s job is to govern and steward the association and appoint 50% of the board of the company. Physical persons may not be on both boards simultaneously. The board of the company’s job is to govern and steward the company.
All board members (both entities) are legally responsible for the economic profit, ethical business conduct and the fulfilling of the purpose of the RCO.
The association has an enshrined veto right in the company over a very limited number of decisions. Its main power it has over the company is through its board representation which is filtered through the board of the association, and the social regulation the increased transparency and available information to its members.
I covered the Source code, the two entities and the life cycle in a previous article and in an article before that we discussed why one should consider the RCO. The next piece will move us into How to do it. How do you find out if you should RCO and how do you begin the conception of one?