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Leadership: is following the spirit of rules OK?

In reading this post, please keep its age in mind.

Not long ago, a charity leader, in response to a complaint that the AGM had deviated significantly from the procedure laid down in the constitution, admitted that the process should be ‘tightened up to meet the letter of the law.’ However, he also said that he was not unhappy with the process, believing that ‘the spirit of the law has been kept’.

So changes would be made, but only because he was caught, not because he thought that he was culpable.

To be fair, he’s only human. We’ve all done it. Take the laws for pedestrians that go under the label of jaywalking for instance. The pedestrian light has only just turned red, but there are no cars in any direction, so you cross anyway. Well you’ve just broken rule 231 of the Australian Road Rules[i]. Implicitly you thought ‘The intention of the law is to keep me, the pedestrian safe. There are no cars around, so I will be safe. Therefore I can cross without breaking ‘the spirit of the law’.

Or you cross the road within 20 metres of a pedestrian crossing (rule 234), or the one that most people think of as jaywalking, you don’t cross the road by ‘the shortest safe route’ (rule 230). In all these cases you are unlikely to feel culpability, feeling hard done by if you were caught and given a fine. As the charity leader no doubt felt.

And now researchers have given the backing of science to what we are doing and seeing. Building on the literature that established that culpability assessment is rarely black and white, Garcia and his colleagues[ii] have shown that people do exactly as both you the jaywalker and the charity leader did: they don’t judge culpability against the letter of the law but rather against its spirit, its perceived intention[iii].

But common practice doesn’t make something right. Certainly not with the governance regulators – they don’t allow a buffer on the letter of the law before you’ve done wrong. For example, here’s the charity regulator’s advice:

Your governing documents set out many of the powers, objects and processes used to manage your charity. They help you make sure your charity is run well and on track. [The rules] should be part of every charity’s life [iv].

And the company regulator, ASIC, says “you are unlikely to get into trouble if you…understand your legal obligations and make compliance with them part of your business [v].

It’s even tougher for those groups – lawyers and accountants for instance – with a professional code of ethics. They not only have to comply with the letter of the law but also have to consider the spirit of the law to see whether something more is required of them. For instance, this from the Queensland Law Society’s The Lawyers Compass:

…Ethics requires more from us than mere compliance. It requires a commitment to the spirit of what is written and the principles behind the duties owed[vi].

And accountants, who have a separate organisation laying down their ethics, are told that

In applying the requirements outlined in this Code, members should be guided, not merely by the words, but also by the spirit of this Code[vii].

But leadership (or governance) is as leadership/governance does, not what the rulebook says. And it’s people like the charity leader doing the doing. Therefore without somebody to point out the transgressions, nearly all of which will escape the regulators eyes, ‘the spirit of the law’ will apply.

One of the problems with this is that there is usually no one objective interpretation of the spirit of a particular law; the spirit of the law being a matter of individual human assessment means that the answers will often vary widely.

This fact underlies the first reason the ACNC gives for the importance of rules:

Rules are important because they help give some certainty about how your charity is run and set out procedures that everyone involved with your charity can rely on[viii].

If our charity leader had needed to rely on what happened at the AGM to support a significant decision he may have been on shaky ground. The ACNC gives something similar as its second reason:

It is important that your rules accurately reflect how your charity operates. If your rules are not followed, you will not be able to rely on them if there is uncertainty, which is when you need them most.

So the answer to the question?  Yes, following the spirit of rules is OK, but only if you are bound by, and follow, a higher law. Because then at least the letter of law will be obeyed[ix].


P.S.  Business by The Book exists to provide accounting, audit and governance services, for no fee if necessary, to not-for-profits who are themselves serving those who are the least, last and lost of the world.


[i] Road Transport (Safety and Traffic Management) Regulation 2000, www.legislation.act.gov.au

[ii] Garcia, Stephen M., Patricia Chen, and Matthew T. Gordon, The letter versus the spirit of the law: A lay perspective on culpability, Judgment and Decision Making, Vol. 9, No. 5, September 2014, pp. 479-490.

[iii] We define “spirit” in terms of perceived intention to emphasize the fact that ordinary people will not always know the exact intention behind any given law. Even lawmakers themselves may well forget the exact intention of any given law. More importantly, we realize that the construal process – how people perceive any situation, person, or target – is itself highly subjective” [Garcia et al, 480]

[iv] The ACNC’s Governance for good – your governing documents’ page, www.acnc.gov.au, accessed 28.01.2015

[v] http://www.asic.gov.au/for-business/running-a-company/company-officeholder-duties/your-company-and-the-law/, accessed 28.01.2015

[vi] http://www.ethics.qls.com.au/content/thelawyerscompass, accessed 28.01.2015.

[vii] APES 110 Code of Ethics for Professional Accountants, Accounting Professional & Ethical Standards Board (APESB), 2012, paragraph 1.6.

[viii] http://www.acnc.gov.au/ACNC/Manage/Tools/ACNC/Edu/Tools/GFG/GFG_Ch6.aspx

[ix] You can see one of the reasons why lawmakers are often happy to let groups regulate themselves if the members, amongst other things, have to sign up to a code of ethics.