How Should We Admit New Members to Our Club?
by Douglas Gerlach

Q. Should clubs require that new members be accepted only by the unamious vote of current partners? Our club has found it to be a problem. Or is a majority vote a better practice? And should a new prospect be present during the voting?

A. The suggested partnership agreement of the National Association of Investors Corp. (NAIC) recommends that new partners be added only by the unanimous vote of your club's current members:

16. Additional Partners. Additional partners may be admitted at any time, upon the unanimous consent of the partners, so long as the number of partners does not exceed twenty-five (25).

The idea behind this provision is that it ensures that all members are "confirmed" by all the members prior to joining the club. This is likely to reduce the potential for any problems that might arise down the road due to personality conflicts or ill will amongst the club members -- problems that could get in the way of your club's successful operations.

On the other hand, a two-thirds vote of the U.S. Senate is all that's required to kick the President out of office in an impeachment trial, so maybe requiring a unanimous vote is going a little overboard!

I think the problem is that you may be focusing on "adding club members" instead of "adding the right club members." I think it's more important that you ensure that a new club member is right for your club before it comes to a vote, and not worry so much about adding members for the sake of building up your membership. Of course, most clubs find that they'll have to admit new members at some point during their operations, as founding members move away, lose interest, or otherwise are unable to continue as members. Every club should outline the requirements for becoming a member and the process that new candidates should follow in applying for membership. Some clubs have a formal questionnaire that they ask candidates to complete at the beginning of the membership application process, in order to learn more about the individual and their approach to investing. Other clubs have a "new member" packet that introduces the club and outlines what it expects of its members.

I suggest that all clubs have an "initiation period" where a candidate attends meetings and participates as if they were a full-fledged member, culminating in a presentation to the full club on some investing topic. The idea is not to test the candidate's investment knowledge (remember, clubs are a great learning experience and even new investors can be productive club members), but to test their willingness to participate and to contribute to the overall club effort. Often, another member of the club can serve as a "mentor" during this initiation period to guide the new member and answer any questions he or she might have.

The advantage of this approach is that it's self-selecting -- a member who isn't willing to follow through with the initiation process probably wouldn't have been a good member anyway, and you won't have to worry about their membership candidacy coming up for vote at a meeting. If a candidate excels at the initiation requirements, chances are your club would unanimously welcome them into the fold.

As for candidates being present during the vote, it depends on your club. Some clubs have fairly formal meetings, and like to have discussions (or simply to open the floor for discussions) about a member candidate prior to voting. It's more comfortable for the existing members and the candidate if these discussions and the vote happen out of earshot of the prospective member. Certainly, if you expect a discussion to take place, or if a member has issues with the prospect's application, then you should ask the candidate to leave the room during this time. Out of courtesy, you might place the vote on the new member application to the top of your meeting agenda in any case.