See part 1 here, where Canler discusses the first two areas of concern. There he said:
My concerns revolve around three aspects of the plan, two of which I’ll highlight in this post, and the third I’ll discuss in part two:
- Reservations Regarding Escrowing Cooperative Program (CP) Funds and Entity Reporting
- Reservations Regarding Trustee and EC Nominations
- Reservations Related to Sole Membership, Ascending Liability, and Seminary Accreditation
What is Sole Membership and Why is it Good for Southern Baptists?
Sole membership is the legal way the Southern Baptist Convention and its entities relate to each other, particularly with respect to governance. As the sole member of each SBC entity, the messengers to the Southern Baptist Convention annual meeting (and other special called SBC meetings) possess certain governing rights over each entity while each entity’s board of trustees retains all governing rights not specifically granted to the sole member. According to SBC legal counsel, sole membership allows the SBC and its entities to adopt “modern corporate law language to better apprise courts of our structure in the SBC so as to have better success in surmounting two major problems that had been identified, namely: 1) ascending liability, and 2) future subsidiary allegiance.”
Ascending liability is the term used “when one organization is held responsible for the liabilities of another…when a court determines there is excessive control.” SBC legal counsel continues, “[I]t is important for the legal documents that describe the SBC’s relationship to its entities to be clear as possible that the SBC does not control the management of its fostered entities. 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 Convention 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 the Convention ought not be held liable for what the entities do or do not do.”
“On the other hand, the sole member model also allows the Convention, as the corporation’s sole member, to perpetuate its historic and fundamental control rights over its entities which will assure that those entities will remain Southern Baptist. So while the instruments 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 documents of the entities and are repeated in the following discussion. They are not new 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” (italics mine). With the sole member model, the Convention possesses limited governing rights to “prevent an entity from ceasing to be Southern Baptist.”
Is a BFP Approved by the SBC Enforceable Under the Current Sole Membership Arrangement?
I am concerned that the actions of the sole member to create, modify, or attempt to uphold the proposed financial governance policy in the form of the BFP may not be enforceable apart from amending each entity’s charter through its board of trustees. Remember, as quoted above from SBC legal counsel, sole membership gives the SBC messengers and only the SBC messengers (not the Executive Committee (EC) acting ad interim for the SBC per questions 7-8 here) very limited governing rights to determine who sits on the trustee boards; to approve entity charter amendments that are first approved by entity boards and subsequently sent to the SBC; and to approve the dissolution, merger, or sale of the institutions. Financial governance of the SBC entities is not a right enumerated to the sole member or to any other entity; it belongs solely to each entity’s board of trustees (as do all rights not explicitly given to the sole member per questions 2, 6, and 7 here). For example, you can see what rights do belong to the SBC in the case of New Orleans Baptist Theological Seminary (NOBTS) in question 5 here. And, in case you were wondering, SBC legal counsel contends that the sole member cannot unilaterally grant itself additional governance rights over its entities (see question 6 here). Thus, I question whether this BFP, if approved unilaterally by the sole member, is enforceable apart from entity trustee approval.
I understand that the SBC implemented a BFP in 1939 (see pg. 16 here), that SBC Constitution Article XII was amended in 1961 to require incorporated SBC entities to comply with the BFP (see pg. 52 here), and that sole membership came decades later. One striking reality is that some, if not all, entity charters in existence in 1939 and in 1961 were not amended to require adherence to the BFP. The trustee board(s) did not give up their financial governance rights. Why not?
Looking at current documents, rights belonging to the sole member regarding trustees, entity charters, and the very existence of our entities are clearly outlined both in the entity charters I’ve read as well as in the SBC governing documents (see here and here for SBC docs, and multiple links here for NOBTS, for example). On the other hand, while the SBC governing documents mention the BFP, I have not seen many entity charters that either make adherence to a BFP a requirement for an entity or that convey a governing role with respect to finances to the sole member. NAMB does. IMB, SBTS, SEBTS, MBTS, GBTS, and NOBTS, for example, do not appear to do so. Why is this so? Why was the sole member not given the right in each entity’s charter to hold each entity to the BFP during the transition to sole membership?
I’m not contending that the SBC should not have a BFP. I’m for a BFP created by the SBC that SBC entities must follow! But if a BFP is a governance document in the realm of finance and stewardship, which even EC CFO Jeff Pearson admits here, I’m left scratching my head trying to figure out how a governance right exclusively delegated to trustee boards in their SBC-approved governing documents can be assumed (or attempted to be assumed) by the sole member in the BFP without the prior approval of each entity’s trustee board (even as I wonder why many SBC entity articles failed to enumerate BFP rights to the SBC back in 1939 and/or during the sole membership transition).
The “should” versus “shall” language dichotomy in the proposed BFP indicates the fine needle being threaded here. Consider Section XV on Contingency Reserves, italics mine.
Each entity should, and the Executive Committee shall, establish a reserve for contingencies to provide for deficits that may occur either through decreased receipts or through emergencies or both. The board of each entity should establish a contingency reserve policy and maintain contingency reserves sufficient to meet the needs of the entity during times of deficits or emergencies as determined by the entity. Entities shoulddisclose in the financial reports provided to their board the amount of reserve funds set aside for contingencies.
As an autonomous entity, the EC can stipulate in the BFP that it created that it shall ______; however, notice that the BFP only indicates that other SBC entities should _____. Why is should used with respect to non-EC entities? Shall is a word of obligation whereas should is a word that indicates a recommendation where deviation from the standard is permissible. It seems to me that the very reason why should is used concerning all SBC entities outside of the EC is because, no matter how much we would like to see BFP compliant entities, many SBC entities currently do not have an obligation to adhere to many of the requirements found in the BFP. So, is a BFP approved by the SBC enforceable as a governing document under our current sole membership arrangement? Do we need to request trustee boards to amend their articles of incorporation to stipulate that each entity must comply with a BFP approved by the sole member?
Concerns with Escrowing Funds: Its Legality, Ascending Liability, and Seminary Accreditation
Here is where escrow comes in. Escrowing CP funds incentivizes entities to comply with the BFP. But escrowing money comes with many questions.
As part of the proposed BFP, CP funds could be escrowed until an entity meets the proposed annual entity confirmation requirements found in Section XXI here. The SBC should be able to determine how it distributes its funds to its own entities. But, can CP funds authorized by the Convention legally be escrowed if the document granting such escrow authority is not obligatory upon entities? What if, for example, an entity has its CP funds escrowed and sues the escrowing entity? Can the decision to escrow on the basis of the BFP be upheld when BFP compliance is strongly encouraged but appears merely optional in many cases (should vs. shall)? Could a court conclude that the BFP is an attempt by the sole member and/or the escrow entity to gain financial governance power over SBC entities in a manner at odds with the sole member relationship and dismiss the BFP as an invalid document, particularly in light of SBC Constitution Article IV?
Here’s another escrow question. Once the CP allocation budget and percentages are set for the year by the messengers to the SBC, can CP funds actually be escrowed by the EC or any other escrow entity in line with existing SBC bylaws? According SBC bylaw 15.E,
“The Executive Committee shall be the fiduciary, the fiscal, and the executive entity of the Convention in all its affairs not specifically committed to some other board or entity. The Executive Committee is specifically authorized, instructed, and commissioned to perform the following functions:”
Providing clarity, SBC bylaw 15.E.3 declares that the EC is specifically authorized, instructed, and commissioned to
“receive and receipt for all current funds of the Convention including all undesignated cooperative missionary, educational, and benevolent funds and all current special or designated funds for missionary, educational, and benevolent purposes which may be contributed by individuals, churches, societies, corporations, associations, or state conventions; and to disburse all undesignated funds, according to the percentages fixed by the Convention and all the designated funds according to the stipulations of the donors” (italics mine).
According to these bylaws, the EC is instructed to receive and to disburse all undesignated CP funds, not to escrow funds. Not one exception is given in this bylaw for the EC to do anything but receive and disburse CP funds. And both the current and proposed BFP indicate that funds received by the EC should be disbursed weekly. So, how is the EC both to disburse all CP funds without any qualification per the SBC bylaws and yet have the option not to disburse (i.e., escrow) from the BFP? And if we add in a non-EC escrow entity, how would they be able to escrow the very funds the EC is instructed to disburse without exception? Would not the messengers of the SBC need first to amend this bylaw provision to give the EC (or whoever the escrow authority is) permission not to disburse funds under certain conditions before escrowing under the BFP is a legitimate option? As in my previous post I’ll also ask, why is the EC proposing governance changes in the BFP when we have bylaws for the purpose of setting forth our governance structure?
Oh, and if the escrow entity does escrow funds, where exactly do the funds go? In what kind of account will the funds be placed? Will the escrow account be interest bearing? If so, who gets the interest? With a proposed $190,000,000 2021 CP allocation budget that could be escrowed, we’re talking a potentially substantial amount of interest. In this revised BFP, where’s the guidance on financial stewardship for escrowed funds?
Furthermore, does the proposed BFP create ascending liability between the Southern Baptist Convention and its entities? With the sole member stipulating additional financial governance requirements that each entity should meet and with the sole member aiming to ensure entity compliance by introducing an escrow entity that is external to both the sole member and each entity (EC perhaps excluded), could a court now find the SBC liable for the actions or inactions regarding any of its entities? Mind you, SBC legal counsel reminds us herethat the Convention might not be able to meet legal obligations that arise from ascending liability claims because the Convention has few reserves and because CP money flows to entities when received. But if the SBC through the EC or any other escrow entity is holding on to CP funds, might these funds be lost in a legal case should a court find that the BFP and its modifications create ascending liability?
Speaking of the potential of losing funds, very importantly, what of any escrowed funds if the SBC and/or the escrow entity is directly involved in a lawsuit and ordered to pay monetary damages? How will escrowed funds be protected from liability and loss?
Moreover, does the attempt to increase financial governance over SBC entities as set forth in the proposed BFP affect the accreditation of any of our SBC seminaries? The Southern Association of Schools and Colleges (SACS), for example, accredits Southern, Southwestern, Southeastern, and New Orleans Baptist Theological Seminaries, and SACS requires on page 13 of their 2018 Principles of Accreditation manual found here, “That the institution has a governing board of at least five members that…(e) is not controlled by a minority of board members or by organizations or institutions separate from it” (italics mine). It’s one thing for the SBC to appoint trustees who then independently govern the institution, but it seems that we are getting closer to violating this accreditation standard when outside institutions like the SBC and the EC (or escrow entity) try to enforce financial governance requirements via escrow that legally appear to belong to our entities’ trustees.
Finally, section VI.C of the proposed BFP indicates that trustee training should include training on the trustee’s “accountability to the Southern Baptist Convention.” Well, what does “accountability” mean? This “accountability” could be construed to indicate that the SBC has ultimate oversight and responsibility for our trustee boards and their governing actions, which not only creates accreditation questions but might also create ascending liability. Is this what we mean by “accountability”? Or, do we mean that trustees need to know that they will be held accountable by the SBC to represent the interests of the SBC and its entities, not their own interests and not the interests of the entity head, and that a failure to represent the interests of the SBC and its entities could result in the SBC removing and replacing them on the board via its sole member prerogative? I believe we intend the latter, so why not clear up the language to read something like, “Trustees shall agree to exercise their trust over an SBC entity solely in accordance with the best interests of the SBC and its entities” and eliminate the ambiguous “accountability” language?
I know that various legal counsels were involved in the creation of the revised BFP, counsels I trust to be well-versed in SBC polity and who would not make defending the SBC more difficult as a result of this revision process. I also readily admit that I am not a lawyer or legal expert. Furthermore, I believe that the proposed BFP changes are birthed out of a godly desire for the SBC and its entities to be faithful stewards over the hundreds of millions of dollars entrusted to us each year for the spread of the Gospel of Jesus Christ all around the globe. What a weighty privilege! At the end of the day, as a Southern Baptist who cares deeply about our Convention and the Gospel work to which we are committed, like so many, I want to be assured that we are moving in the right direction and that we have covered our bases when we approve any changes to documents like the BFP, Constitution, or Bylaws.
A ship with holes in the hull has a good chance of sinking. Such a ship should be left in the port until the holes are plugged. Only when the ship is seaworthy should it be released to accomplish its aquatic aims. The analogy stands for this proposed BFP. Are there holes that should keep this proposal in committee a little while longer for maintenance and repair, or is the proposal ready to float? Any clarity that SBC legal counsel and/or the EC could provide on the questions presented here would be much appreciated.
Note that all quotes not hyperlinked are sourced from here.
Jon Canler is privileged to serve as the Church Administrator at Ashland Avenue Baptist Church in Lexington, KY. He is a graduate of the University of Kentucky (B.S. & M.S.) and the Southern Baptist Theological Seminary (M.Div.), and he holds a certificate in nonprofit management from the University of Texas at Austin. Jon and his bride Natalie get the joy of being parents to three boys, and the entire family avidly cheers for the Atlanta Braves.