Creating a New Trade Association

Tags: Guidance Notes

A Guide by Boleat Consulting

A rapidly changing industrial structure requires an equally rapid change in the trade association structure. This paper provides a brief guide to establishing a new trade association.

The guide is concerned with getting a trade association off the ground and operational. After a year or so there may well be a need to take a decision on how the develop the association. The experience in that period will guide that decision.

Establishing a new association cam be done simply and cheaply. One guiding principle is to keep options open and avoid long term commitments.

When should a new trade association be established?

There are three broad sets of circumstances in which it is appropriate to seek to establish a new trade association;

  • Where a new industrial sector emerges, particularly one which is subject to regulation. Recent examples include Internet service providers, the provision of some services via the Internet such as health advice, professional rugby clubs, train operating companies, cable television suppliers and self employed IT consultants.
  • Where there is a significant change in the nature of a sector such that an existing trade association structure is no longer appropriate.
  • Where there is dissatisfaction with an existing trade association, either generally or because the interests of a particular group of members are not adequately served.In either of the last two cases, the companies concerned may choose to remain, at least for the time being, in the previous trade association.

Who should take the initiative?

Where a new trade association is being established the initiative should be taken by a group of companies, ideally being representative of the industry and including the largest companies in the sector. An association that is seen to represent either a single company or a group of maverick companies is unlikely to achieve anything other than short term publicity in the trade press. The companies should form a steering committee and elect a chairman and secretary of it. This committee can become the initial executive committee of the association until elections can be held.

Legal form

A significant proportion of established trade associations are unincorporated. In the short term this is the best option for a newly established trade association as it is the most flexible and least costly. Incorporation is most appropriate where there is a need to limit the liability of members - which is not normally the case for trade associations.

Similarly, a new trade association can work best with a short constitution, no more than three or four pages. A model constitution is set out in Appendix 1.

Unlike in most other countries there is no need for a trade association to register with any official body or to make returns.

Start up costs

The costs incurred in establishing a trade association should be shared between the members of a steering committee. One large company may well be willing to fund the start up costs but the association should not be seen to be a creature of one of the founding members. The members of the steering committee should therefore each make a modest contribution, perhaps of equal size, or if the members are of widely differing sizes then with some appropriate differentiation. The amount raised initially should be sufficient to cover any printing and distribution costs and modest promotional material, together with paid-for consultancy and secretariat support, but in no circumstances payment to members of the steering committee for their time. Depending on circumstances the start up costs can sometimes be recovered through an entry fee into the new association.

Secretariat support

It is important that those establishing the new trade association should have secretariat support from a person or organisation that has an understanding of what trade associations are and how they work. This could be;

  • A member of staff of one of the organisations who has had suitable experience on trade association committees.
  • A professional firm that provides company secretary services, although it needs to be remembered that these are quite different from trade association secretariat services.
  • Someone with suitable trade association experience, perhaps a chief executive.
  • An existing trade association, the best option where this is appropriate but clearly not if any relevant association is felt to be inadequate.
  • An association management company or consultancy, although the market for these in Britain is rather thin. Promotional material

A new trade association needs a short one page statement which can be issued in the form of a press release setting out succinctly why the trade association is being established, who the founders are, how it will be organised, what its objectives will be and how it will be financed. A draft is set out in Appendix 2.

A more detailed 'prospectus' will also be needed, filling in the detail and crucially setting out governance arrangements and the subscription scale. The constitution would be part of this. Appendix 3 sets out what should be covered in a prospectus.

Membership

A trade association should be open to every company in the sector. The greater the membership in terms of both number of members and percentage of market covered the more credibility (and money) the trade association will have. A new or existing trade association should be very careful before rejecting any applications for membership as they could lay themselves open to legal action. In the short term the best policy is to accept into membership any organisation operating in the sector unless the association is being set up specifically for companies that subscribe to a particular code of practice or professional standard.

Running costs and subscription scale

One of the most difficult tasks is to estimate the running costs of the association. These will obviously depend on the scale of the business being planned. Generally, new associations have modest aspirations with an annual budget in the £10,000 to £100,000 range. The work that a trade association can do is almost infinite so a sensible approach is to seek to assess the essential workload of the association and the cost of this, and also what potential members are likely to be willing to pay - which will require some modest market research. A judgement then has to be made about the target subscription income. It is unwise to assume any income other than subscription income.

Costs that have to be met include secretariat support (if this is outsourced this will be a known amount), printing and postage, meeting expenses, any accommodation and staff costs, the subscriptions to federations/European bodies and the Trade Association Forum, and the costs of developing and maintaining a website.

The total subscription income being sought should be equal to the estimated running costs plus a small contingency.

It is then necessary to work out a subscription scale. This will need to be included in the prospectus. This requires some knowledge of the structure of the industry and the likely take up of membership. Ideally, it should be possible to work out how much revenue would be received for a given scale if every company in the sector joined, or if companies covering 50% of turnover join etc. A sensible approach is to assume a modest take-up – say 30 - 50% of the sector by volume of business – but plan the business so as to accommodate greater take-up.

For the subscription scale itself, normal practice is to have a minimum, which should be sufficient to cover administrative costs for one member but low enough to attract SMEs. Typically, this is in the £200 - £1,000 range. There should also be a maximum that will depend on the nature of the sector and the planned activities of the association; the lower quartile in 1999 was £1,820 and the upper quartile was £19,400. Between the minimum and maximum it is usual to have a tapering scale related to turnover.

Communications

At an appropriate time the steering committee should begin a communications programme which should cover the sector, in particular through the trade press, other relevant trade associations and relevant government departments, official bodies and, if appropriate, European organisations. A letter from the chairman of the steering committee accompanied by the short promotional piece and perhaps also the detailed prospectus is the best way forward.

Pitfalls to be avoided

There are a number of pitfalls which those seeking to establish a new trade association can easily fall into -

  • Giving the appearance, justified or not, that the association is in fact a creature of one company, of a small group of maverick companies or worse still an individual.
  • Deliberately or accidentally fixing prices or providing a framework which is seen to encourage anti-competitive behaviour.
  • Being too legalistic, in particular starting with a detailed constitution drawn up by lawyers. There should be no need to involve lawyers in the early stages of most trade associations unless a very substantial organisation is being planned.
  • Seeking meetings with other trade bodies and government departments without having given any thought as to the purpose of the meeting.


Appendix 1

Model Constitution

Introduction

  1. The name of the Federation shall be the "British Widget Federation" (referred to in this constitution as "the BWF").

  • The BWF was established on……...
  • The BWF has the following mission statement -

"The British Widget Federation provides a service to widget manufacturing companies by helping to establish a favourable operating environment, by providing a forum for discussion on non-competitive issues, and by providing information to assist them in their business."

Objectives

  1. The BWF shall have the following objectives -
  1. To be a central representative body to put the views of widget manufacturing companies to Government departments and agencies, Parliament, the European Commission and Parliament and other relevant organisations.

  • To be a research and statistical centre, to aggregate and publish statistics, and to provide analysis on widget manufacturing and other relevant market information.
  • To be a technical centre providing commentary, guidance and advice on all legal and other regulatory developments of relevance to widget manufacturing.
  • To provide a forum for the exchange of non-competitive information.
  • To promote the widget manufacturing industry. Membership

  1. Membership of the BWF is available to companies which manufacture widgets. Admission to membership is at the discretion of the Executive Committee.

Associates

  1. The Executive Committee shall, at its discretion, admit as an associate of the BWF any organisation that does not manufacture widgets but which is otherwise interested in the business. Associates shall be entitled to receive most publications and other literature prepared under the auspices of the BWF, and otherwise be entitled to participate in the affairs of the BWF as decided by the Executive Committee.

Finance of the BWF

  1. The financial year of the BWF shall be the calendar year but this may be changed by resolution of the Executive Committee.

  • The subscription scale shall be set by the Executive Committee.
  • Associates shall pay an annual subscription fixed by the Executive Committee.

Meetings of the BWF

  1. The BWF shall hold an annual general meeting not later than four months after the end of each financial year. At least 10 members of the BWF, or the Executive Committee, may at any time require the Secretary to convene a general meeting of the BWF. In convening such a meeting the Secretary shall give not less than 21 days notice to members.

Executive Committee

  1. The affairs of the BWF shall be directed by an Executive Committee comprising -
  1. Representatives of the two largest companies in membership.

  • Six members elected on a [national/regional/size] basis, each member serving for a three year term. Each member shall have as many votes as there are vacancies. The Executive Committee may make bye-laws governing the conduct of elections including provision to phase retirements.
  • No more than three members co-opted by the Executive Committee.
  • A member of the Executive Committee shall cease to be a member if he resigns from, or if he ceases to hold office in, the institution in which he has hitherto held office.
  • Each member of the Executive Committee shall have one vote. The President shall have a second, or casting, vote in the event of equality.

President and Deputy President

  1. The Executive Committee shall, at its first meeting in each financial year, elect a President to hold office until the first meeting in the following financial year. The Executive Committee shall also elect a Deputy President. No person may hold the office of President, or of Deputy President, for more than two consecutive years. In the event of the President or the Deputy President resigning or ceasing to be a member of the Executive Committee, the Committee shall have power to elect a replacement to serve for the remainder of the term, this period of office not counting for the purpose of the requirement in the previous sentence.

Publicity

  1. The Federation shall publish an annual report on its activities and a list of subscribing members. Both these documents will be published on the Federation’s website with the membership list being always up to date.

Committees and Panels

  1. The Executive Committee may establish and maintain sub-committees and project groups, and may delegate matters to them.

  • The Executive Committee may appoint technical panels to advise and assist it.

Director General

  1. The Executive Committee shall appoint a Director General who shall be responsible to it for the management of the Federation and who shall also be the principal representative of the Federation and the principal policy adviser to the Executive Committee.

Delegation

  1. The Executive Committee and the Director General may delegate any of their powers

Revision of the Constitution

  1. This constitution shall be amended by the BWF, provided that at least 75% of the members of the BWF present at the meeting vote in favour of amendments of which prior notice has been given.

Transitional arrangements

  1. The following transitional arrangements shall apply ……….

[This should cover among other things, the composition of the initial executive committee, the officers who will serve to the first AGM, the initial subscription scale, and entry fee if any, and the name of the initial director general.]


Appendix 2

Draft initial announcement

Trade association for widget manufacturers to be established.

A new trade association for the British widget manufacturing industry is to be established. A group of six companies, including the largest in the sector, have formed a steering committee to be responsible for establishing the Federation. The Chairman of the steering committee is John Smith, the Managing Director of Superior Widgets Ltd, and the other members are…………….

The Steering Committee is drawing up a prospectus which it expects to issue to all companies in the sector in………

John Smith said – “Widget manufacturing is a relatively new business but has now reached the stage when it needs its own dedicated trade association. All companies which manufacture widgets will be invited to join and we hope to cover over 75% of the market within a year.”

The Federation has retained the XYZ Consultancy to assist in setting up the Federation and to provide secretariat services until a Director General is appointed. For the time being the Federation will be based at the offices of the XYZ Consultancy. The Federation will be advertising for a Director General in the next few weeks.

The Federation will join the………… Federation, the umbrella organisations for trade associations in the wider ……… sector and also the Trade Association Forum.

The Government and the ………Agency have been kept informed of the discussions which have led to today’s announcement and have given their full support to the initiative.

For further information contact –

John Smith, Chairman of the Steering Committee, on …………..

David Jones, XYZ Consultancy, on……………….


Appendix 3

Contents of prospectus

  • Steering committee/initial executive committee and contact details.
  • Foreword by the President
  • Executive summary
  • Reasons for establishing the new association
  • Structure, governance and staffing/secretariat support of the association
  • Functions of the association
  • Method of operation of the association (eg use communications with members, method of dealing with the government, relations with other industry bodies)
  • Finances of the association
  • Timetable/business plan
  • Appendix – constitution
  • Appendix - subscription scale


Boleat Consulting specialises in trade association work. For details of the Consultancy and some papers relevant to trade associations see the website www.boleat.com . Mark.Boleat@btinternet.com

The Trade Association Forum is the 'Trade Association for Trade Associations' in Britain. It is administered by the CBI. The Forum runs training courses and has issued a number of publications. A new association should seek to become a member of the Forum and to be included in its listing of associations.