Chambers of Commerce: The Basics

Misconceptions abound regarding many brands, products and organizations. When it comes to the term “chamber of commerce,” confusion and erroneous assumptions are even more likely, even though almost everyone has heard of the term. The lack of understanding is in large part self-inflicted because chambers in various towns, cities, regions, states and even nations focus on different things and actually operate in different ways. A chamber of commerce primer may be helpful. What follows is a “living” document produced by the American Chamber of Commerce Executives staff. It will be adapted based on input from chambers and others. (Version V, 11/2/09)

Definition

chamber of commerce is an organization of businesses seeking to further their collective interests, while advancing their community, region, state or nation. Business owners in towns, cities and other territories voluntarily form these local societies/networks to advocate on behalf of the community at large, economic prosperity and business interests. Chambers have existed in the US for more than two centuries, with many having been established before the jurisdictions they represent. A business-led civic and economic advancement entity operating in a specific space may call itself any number of things – board of trade, business council, etc. – but for the purposes of this primer, they are all chambers of commerce.

Chamber missions vary, but they all tend to focus to some degree on five primary goals: Building communities (regions/states/nations) to which residents, visitors and investors are attracted; Promoting those communities; Striving to ensure future prosperity via a pro-business climate; Representing the unified voice of the employer community; and Reducing transactional friction through well-functioning networks. Chambers have other features in common. Most are led by private-sector employers, self-funded, organized around boards/committees of volunteers and independent. They share a common ambition for sustained prosperity of their community/region, built on thriving employers. Most are ardent proponents of the free market system, resisting attempts to overly burden private sector enterprise and investment.

Local businesses are voluntary paying members of a chamber (non-profits, quasi-public and even public sector employers also sometimes pay dues to belong). The membership, acting collectively, elects a board of directors and/or executive council to set policy for, and guide the workings of, the chamber. The board or executive committee then hires a chief executive (various titles), plus an appropriate and affordable number of staff to run the organization.

In the majority of countries, the use of the term “chamber of commerce” is regulated by statute, though this is not the case in the US. Only trademark, copyright and domain name rules protect a chamber’s identity – only state corporation law defines their existence and reason for being. While most chambers work closely with government, they are not part of government although many consider the process of appropriately influencing elected/appointed officials to be one of their most important functions.

Currently, there are about 13,000 chambers registered in the official Worldchambers Network registry. There are roughly 3,000 chambers of commerce in the US with at least one full-time staff person and thousands more established as strictly volunteer entities.

Membership

Under the private, volunteer membership model, which exists in the USA and many other nations, companies are not obligated to become chamber members. Membership rolls in a given North American chamber can range from a few dozen firms to more than 20,000, so there is no real “average” or typical chamber of commerce.

Chambers do not operate in the same manner as a Better Business Bureau or trade association, which can bind its members under a formal operations doctrine (and, thus, can remove them). Businesses and other employers pay dues to belong and expect to receive the benefits of membership as long as they continue to invest in the organization. They usually accept any reputable business as a member, though dues investment schedules can sometimes result in intended or unintended exclusivity.

It is important to note that in most cases it is the company that is the member, not an individual. A member company is then encouraged to involve numerous senior level employees in the work of the chamber. While five, ten or more individuals from a given company will identify themselves as “members” of the chamber, only the organization they work for is counted when a chamber states its size. A company is free to join (pay dues to) multiple chambers and many mid-size to large firms do so (especially neighbors), in order to further advance their companies’ market or policy interests.

Dues amounts are typically determined by the size of the member company (employee count or annual revenue), rather than by the number of people engaged in the chamber from that company. Some chambers have adopted pay-as-you-go or funding models based on specific categories or quantity of services provided to member companies.

Occasionally, chambers will “bundle” memberships, allowing a single dues investment in one organization to qualify a company for membership in a group of chambers. This is sometimes referred to as “federation” membership and it can even extend to the national level.

Structure

Chambers of commerce in the US operate almost exclusively as non-profit entities known as 501(c)(6) corporations. Unlike charities, these 501(c)(6) non-profits have the authority under state and federal tax rules to represent their members in public policy debates. They may lobby and take positions on actual or proposed legislation, subject to local, state and federal laws. Chambers may legally endorse candidates for public office and/or ballot propositions (but most do not). The use of general fund revenues for chamber political and lobbying purposes is strictly regulated. The chief executive or another member of the staff is sometimes a state-registered lobbyist. The portion of any member’s dues investment allocated to direct lobbying is not deductible as a business expense.

Chamber business models and organizational missions vary significantly. Some chambers may offer services and products that appear to compete with businesses operating within their own territories. One group of chambers may affiliate with a service provider to offer discounts or other benefits to chamber members (from low-cost office products to health insurance), while another group aligns with a completely different vendor. As a rule, larger chambers tend to rely less on membership dues revenue than their smaller counterparts. About one-third of the chambers of commerce in the US also include economic development corporations and/or tourism and visitors bureaus. Virtually all chambers have revenue sources other than dues; event income is the most common.

Although a chamber is a non-profit entity under federal tax law, such a 501(c)(6) is free to undertake supporting business activities (referred to as “unrelated business income) – publishing, trade shows, insurance programs, etc. In many cases, these activities are subject to business income taxes.

Many chambers establish charitable/educational foundations, known as 501(c)(3) corporations, to support specific, eligible parts of the chamber’s agenda. The allowable purposes and rules related to such supporting foundations are different than those that have been established for 501(c)(6) organizations.

(NOTE: In a few cases, for-profit chambers have been established in some communities. These business ventures are routinely shunned and fought by traditional non-profit chambers.)

The largest metro or state chambers may employ up to 100 people. The vast majority, however, have staffs numbering fewer than five and budgets under half a million dollars. Chamber professionals serve in jobs covering most of the disciplines found in other small businesses – communications, finance, marketing, customer service and event planning. Some chambers specialize in certain activities, such as economic development, tourism, research, and/or advocacy. Some provide staffing and management to development-related government agencies on a contract basis.