Constitution

Nothing is more difficult to handle than initiating changes in a state's constitution. Machiavelli

The main reason for having a constitution is to define the laws, rules and procedures under which the organization operates.

Types of constitution: Virtually all organizations have to be legally constituted in some way and each category will be subject to different laws and taxation regimes.  Some examples of constitutions follow: Sole traders (Plumber, accountant, artist), Partnerships (Legal and accountancy firms), Charities (Oxfam, hospices, churches), Private companies (Small businesses, residents' groups) Public companies (IBM, Marks & Spencer, Shell), Government agencies  (Food Standards, Racial Equality), Government departments (Social Security, Ministry of Defence), Public Services (BBC, National Health Service), Local government (City councils, county councils), Mutual (Financial funds, betting syndicates), Franchises (Burger King, Budget Rent-a-Car), Co-operatives (Groups of fishermen or craftsmen), Illegal organizations (Cartels, crime syndicates). Each form of constitution is subject to its own peculiar legal framework, taxation regime and disclosure and accountability rules. What is right at a particular time is not necessarily appropriate five years later, as for example with a private company finding that it needs additional finance which only a public company would have access to.

Changes to constitutions: It is often fashionable to change a constitution - mutuality often giving way to company status, as with the recent fashion for financial institutions to convert from mutual societies (owned by the ‘members’, who may be employees or customers) to public companies (owned by shareholders, who provide finance and receive profits). The reason usually given for this change is to encourage greater growth, diversification and access to funds, but it could be that the senior executives want to appear more successful and justify higher salaries.

The effects of a constitution: The type of constitution affects other elements in the model.  For example, a charity does not have owners as such but trustees; it is limited in obtaining financial resources (since it cannot raise funds on the stock market); and its financial results are not geared to making a profit but showing that it has been prudently managed. All managers in the organization should be aware of what its constitution is and under which laws and constraints it operates. >>>