Practical Corporate Governance Tips
For Directors & Officers
Of Not-For-Profit Corporations
Presented by
Andrae J. Marrocco
E amarrocco@dickinsonwright.com
T 416 454 2244
Introduction
• The imperative
• Increased scrutiny, accountability and regulation
• Time constraints on directors and officers
• Lack of resources
• The purpose
• Educate - highlight what you need to know
• Equip - improve governance with practical guides and simple tools
• Protect - directors and officers from potential claims
• The DW approach
• Practical, realistic, incremental and successful
Corporate Governance
• Dichotomy of not-for-profit corporations
• Various categories of directors
• Where are the governing rules found?
• Laws of the land
• Letters patent, articles, bylaws, constitution etc
• Meeting procedures, policies, codes or internal regulations
• What does the ideal board look like?
To the extent possible, the board of a not-for-profit corporation should be
comprised of individuals from diverse backgrounds who have a broad range of
experience, expertise and skills that bring a unique perspective to the role of
managing the affairs of the corporation
Corporate Governance
• Organization mandate
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Why does the corporation exist?
Whom does it serve?
What is it there to achieve/results?
Refresh annually
• Accountability
• Government
• Courts
• Stakeholders
Corporate Governance
• Scarcity of determinative law
There are few court rulings when it comes to corporate governance issues
pertaining to not-for-profit corporations
• Best practice approach beneficial
While it may not necessarily provide a successful defense, where one can
demonstrate having followed a well thought out policy or practice in keeping with
good governance such practice will create a highly persuasive argument for a
defense
Corporate Governance
• The Panel on Accountability and Governance in the Voluntary
Sector identifies 8 tasks required of the not-for-profit
corporations
• Steering toward the mission and guiding strategic planning;
• Being transparent, including communicating to members, stakeholders
and the public, and making information available upon request;
• Developing appropriate structures;
• Ensuring the board understands its role and avoids conflicts of interest;
• Maintaining fiscal responsibility;
Corporate Governance
• Ensuring that an effective management team is in place and
overseeing its activities;
• Implementing assessment and control systems; and
• Planning for the succession and diversity of the board.
Corporate Governance
• Annual legal audit checklist
• Review of Articles of Incorporation / Letters Patent vis-à-vis mission;
• Review of Bylaws from a compliance as well as best
practice/functional perspective
• Organization/policy documents
• Governance structure
Duties of Directors
• Directors are responsible for management
• Knowledgeable on the business and financial affairs of the corporation
• Aware of legal/regulatory environment and governing rules
• Heightened responsibility where charitable property involved
• Liability of directors
• General rule against liability, ‘corporate veil’
• Corporation as a separate legal entity; limited liability
• Exceptions increasingly rendering directors liable for breach of duties
Duties of Directors
• Fiduciary relationship
• Fiduciary duty
• Duty of Care
• Duty of Loyalty
Duties of Directors
• Duty of care
• Duty to exercise the appropriate care, diligence and skill
• Subjective vs objective
• Standard of care
• Appropriate level of care/diligence/skill
• Informed by legislation and court decisions
• Increasing support for the position that a heightened duty of care is
owed by directors of charitable corporations
Duties of Directors
• Limitations
• Business judgment
• Delegation and reliance on officers and reports
• Practical guidance on what directors should do
• Make informed decisions based on full consideration of all materials
and advice of experts where required
• Develop understanding and oversee all aspects of the operations
• Delegate, but maintain supervision
• 10 simple guidelines to follow
Duties of Directors
• Duty of loyalty
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Act honestly, in good faith, and in the best interests of the corporation
Improper purpose taints
Duty cannot be delegated
Duty to disclose and avoid conflicts of interest (no profit/gain rule)
• Practical guidance on what directors should do
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Always disclose the entire truth
Full allegiance to the mission and objects (or resign)
Place the interests of the corporation above personal interests
Maintain corporation’s trust and confidence at all times
Duties of Directors
• Duties towards members of the corporation
• Issues and caution around suspending/fining/expelling members
• 10 point directors duties inventory
Potential Areas of Liability
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Torts and negligence
Breach of fiduciary duty
Unauthorized contracts
Breach of trustee duties (charitable corporations)
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Premise of the trustee relationship
Actions inconsistent with charitable objects
Investment decisions
Co-mingling of donor restricted funds
Potential Areas of Liability
• Statutory duties and liability
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Employee obligations
Reporting requirements
Taxation
Environmental regulations
• Exercise - Self assessment plan
Directors’ Rights and Powers
• Sources
• Legislation
• Constating documents
• Common law
• Main rights and powers
Committees
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Advantages
Special vs standing
Successfully structuring
Determination of terms of reference
Audit/Finance committee
Executive committee
Discussion on experience and tailored structure
Risk Management
• Concept of “risk”
• Examples of potential risks
• Managing the affairs of the corporation
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Remain informed and aware of objects, by-laws, board meetings etc
Conduct regular due diligence on compliance requirements
Consider risks relating to the particular function and operations
Screening and monitoring policies for all employees
Reasonable reliance on management permitted; obtain reports
Reliance on qualified professional prudent
Risk Management
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Indemnification
Insurance
Statutory protection
Practical strategies
Taxation
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Charities vs not-for-profit corporations
“no benefit to members” and “no excess funds”
“exclusively charitable” and “public benefit”
Key restrictions on activities
Treatment of gifts made to charities
Corporate structures for business activities
Legal Disclaimer
The contents of this presentation outline a number of complex issues in a
concise and general manner, we recommend that you first consult with a
lawyer from Dickinson Wright LLP before acting upon, or refraining from
acting upon, any of the information contained in this presentation.
The information provided in this presentation is for information purposes
only. It is not intended to be and shall not constitute legal advice. Although
every reasonable effort has been made to ensure the accuracy of the
information contained in this presentation at the time of its publication, no
individual or organization involved in either the preparation or distribution
of this presentation accepts any contractual, tortious, or other form of
liability for its contents or for any consequences arising from its use.
Contact us for a complimentary legal assessment
for your not-for-profit organization
Andrae J. Marrocco
E amarrocco@dickinsonwright.com
T 416 454 2244