Many MLSs have transitioned from operating as a Committee of their Shareholder Association to a stand-alone legal entity with their own bylaws, board of directors, and financials. On paper, this move allows MLSs to gain autonomy to function as a nimble, technology company while enabling the Association to focus on what it does best – education, advocacy, professional standards and community development. 

In practice though, many free-standing MLSs still find themselves beholden to a single Association shareholder that often holds the decision-making cards. Despite the corporate structure, it’s not uncommon for the Association’s leadership to override or delay MLS board-approved initiatives, even those within budget and strategic scope 

This creates not only operational dysfunction but also potential legal exposure. 

Are you Piercing the Corporate Veil?

If your Association Board or CEO can stop or delay MLS approved initiatives without justification or accountability, you’re not operating as two independent entities. Also, if the Executive Committee manages BOTJ the Association and MLS shares you are, in effect you’re operating one entity pretending to be two. And that could mean you’re at risk of piercing the corporate veil.

In this case, if the MLS is governed as a separate corporation but effectively controlled by the Association especially in a way that overrides the decisions of the MLS board or executive leadership, it could expose the Association to liability. Courts can interpret the MLS not as an independent entity, but as an operational extension of the Association.

This isn’t only a legal issue. It can threaten the viability of the MLS organization because it slows innovation, damages staff morale, and diminishes the MLS’s ability to operate as a competitive, service-oriented technology company.

MLSs Are Not Just Service Departments Anymore

The most effective MLSs model their operations, leadership and decision-making after other highly successful subscription-based technology companies. They call their subscribers CUSTOMERS, not members. They are passionate about earning customer loyalty, never assuming customers will come to them automatically. 

If approval processes go first through an MLS committee, then an MLS Board of Directors and then to an Association Board of Directors, the organization is wasting valuable time. The pace of change in real estate technology today, especially with the arrival of generative AI, requires confident and well-informed decision-making from the Board of Directors closest to where MLS technology is going. The priorities of a nimble technology company and a risk-averse trade association are often at odds and that misalignment can set up both organizations for failure.

It’s Time for a Governance Reality Check

If your MLS claims to be a separate corporation, it’s time to put that claim to the test. Ask yourself:

  • How many MLS decisions are made by the MLS Board of Directors vs. the Association Board of Directors?
  • Does the MLS have a CEO and driver, responsible for all aspects of financial success and the authority to execute the company’s operations and strategic initiatives without constant scrutiny? 
  • Does the MLS Board of Directors build and approve its own budget—without final override by the Association?
  • Once an MLS budget is approved, can a line item or initiative be delayed or cancelled by the Association without explanation?
  • Does the MLS CEO or Executive Staff lead day-to-day strategy and execution, or can the Association CEO override strategic decisions at will?

If any of these red flags apply to your organization, you may need to re-craft the working relationship and decision-making responsibilities between the MLS and the Association before it becomes a legal, operational, or reputational crisis. At WAV Group we have noticed that many of the CEO turnovers, lawsuits, and leadership crises are a result of an Association board trying to exert too much authority over the MLS without being armed with the knowledge to make well-informed decisions. 

Final Thought

Strong MLSs need strong, independent governance and authority. While historically Associations managed their MLS committees with a close eye and total influence and control, today’s MLSs need more autonomy to constantly evolve the organization to better address customer needs and the clients they serve. With that comes the need for a senior level staff leader with a depth of technical leadership skills, accountable to the MLS Board of Directors.

 

 

If your organization is struggling with the true empowerment of your independent MLS operation, WAV Group can help. We can help with strategic planning, governance and by-laws reviews and recommendations and training sessions, WAV Group can help both your Association and MLS thrive. 


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