76. By-law (definition)
NOTE: if you’re new to Ground-Up Governance, or are finding anything a bit strange or confusing, you might want to START HERE.
We’re here! It’s the part of Ground-Up Governance everyone’s been...what’s the right word? Clamoring? OK. It’s the part of Ground-Up Governance everyone’s been clamoring for. Wait, is “everyone” the right word? Whatever, we’ll just go with it.
Anyway, we’ve *finally* reached the point in Ground-Up Governance when we’ll have a few posts in a row about RULES! Remember that corporate governance is just the way that decisions get made in a corporation? Well, even based on that alone it’s obvious that rules matter. Of course, as much as they matter, rules are super boring. We’ll do our best to make them a bit silly.
Admittedly, we’re skipping straight over an important type of rule called a “law”. If we’re being honest, we’ve already used the word “law” a few times without defining it. It’s not really a corporate governance thing. Just go with it.
Every corporation has at least a few of a specific type of rule called a by-law. Reflecting back on our definitions of corporation and shareholder and member and director and board and CEO and senior executives you’ll get a picture of an authority hierarchy that basically goes from top to bottom in the order we just listed those words. Different people in the hierarchy have the authority to establish different types of rules for different reasons. In general, by-laws are rules that get established by shareholders or members.
You can think of by-laws as rules that corporations impose on themselves to make it clear how certain important things are supposed to happen. Some examples of by-laws that apply to boards might include:
The number of directors on the board must be between 3 and 33. Bananas count as two directors because they are particularly long
The board has to meet at least four times per year, and may choose to hold special meetings specifically for directors to wear and show off their funkiest shoes.
Every year, directors must stand for re-election, and director elections can only be decided by at least 57% of votes cast, unless, once again, we’re talking about a banana, in which case the threshold is 56%
As you can see, the point of these by-laws is just to make it really clear what’s allowed and what’s not. Members or shareholders might choose to change by-laws every once in a while to make sure that they’re still relevant and useful. Like in the future when shoes are replaced by AI, that second by-law obviously won’t make sense anymore.