CORPORATE GOVERNANCE FOR NOT- FOR-PROFIT ORGANIZATIONS Presented by Kellie Beasley – Lawyer
What is Corporate Governance? ▪ System of rules, practices and processes by which a company is directed and controlled Balance interests of NPO’s many stakeholders, ▪ such as members, management, service beneficiaries, suppliers, financiers, government and the community
Why is it Important for NPOs? ▪ Must not only be well governed, but must also be seen to be well governed ▪ Must demonstrate that their monies are being well spent and used for intended purposes
The Results of Poor Governance ▪ Potential for fraud within the organization ▪ Reduction in funding: either in donation revenues or government funding ▪ Poor financial results/sustainability of organization ▪ Impact on employees/staff turnover/morale ▪ Damage to reputation ▪ Difficulty in recruiting board members/management
The Legal “Pecking Order” ▪ Federal, provincial and municipal laws, regulations and by-laws ▪ Constating documents ▪ By-laws ▪ Policies ▪ Funders
The Legal “Pecking Order” ▪ Board of Directors ▪ Officers ▪ Members
The Board of Directors ▪ Key Characteristics of Directors: • Integrity • Accountability • Leadership • Communication skills • Commitment to the organization • Active participant • Team player
Role of Board of Directors ▪ Select, evaluate and support the CEO ▪ Approve high-level organizational goals and policies ▪ Make major decisions ▪ Oversee management and organizational performance ▪ Act as external advocates
Role of Management ▪ Run the organization in line with direction of the Board ▪ Keep the Board educated and informed ▪ Seek the Board’s counsel
The Right Balance There is no “right answer”, certain organizations will require more ▪ Board involvement than others ▪ Board and Management need to be on the same page in terms of roles and responsibilities Board of Directors BoD Committees CEO/Executive Director Human Finance Programs Resources
Board of Director Meetings Best Practices ▪ Frequency of meetings ▪ Importance of taking minutes ▪ Time and place for “in - camera” meetings ▪ Board compensation ▪ Importance of doing board evaluations ▪ Approval of annual budget and analysis ▪ Role and election of Board or Committee chairperson
Committees ▪ Committees will depend greatly on the organization and its activities ▪ Some examples of committees : General Specific • Audit/Finance • Investment • Governance • Fundraising • Risk • Building/Capital • Health and Safety
Best Practices ▪ Succession planning for board and management ▪ Strategic planning ▪ Board orientation/on-boarding
Director’s Duties Directors have three main duties: 1. Duty of Diligence or Duty of Care 2. Duty of Loyalty and Good Faith 3. Duty of Obedience A breach of any of these duties could lead to a Director facing personal liability, putting personal assets at risk
Duty of Care & Due Diligence Directors have duty to MANAGE – even if ▪ some duties are delegated, Directors still have overall responsibility Directors have duty to ACT REASONABLY – ▪ decisions should be informed and made after careful consideration and diligence
Duty of Loyalty & Good Faith ▪ Directors have duty to place interests of the organization BEFORE their own Directors should avoid CONFLICTS OF INTEREST – ▪ even appearance of a conflict ▪ Directors should maintain CONFIDENTIALITY - not use any information gained in role as Director for personal gain or gain of another
Duty of Obedience Directors have duty to follow organization’s INTERNAL ▪ RULES (by-laws, other regulations and policies, etc.) ▪ Directors have duty to follow rules set out in LEGISLATION and other EXTERNAL REGULATIONS, e.g.: • Duties to ensure payment of source deductions and to file reports and maintain records • Duties to comply with environmental legislation • Duties to comply with employment laws in relation to employment practices
8 Ways to (try to) Protect Yourself from Personal Liability REVIEW organization’s internal rules 1. Act in good faith and with appropriate DILIGENCE 2. Keep proper RECORDS 3. Avoid CONFLICTS OF INTEREST 4. ASK QUESTIONS and DISSENT 5. Get an INDMENITY from organization 6. Get Director’s and Officer’s INSURANCE 7. Stay INFORMED and INVOLVED 8.
1. Review Internal Rules ▪ Review letters patent and by-laws of organization ▪ Ensure management is conducted in line with internal rules ▪ Have by-laws professionally reviewed and have policies created and ensure they are followed
2. Act in Good Faith & With Due Diligence ▪ Review documentation with care ▪ Act in best interests of organization at all times ▪ Go through diligence process ▪ Seek assistance from external professionals
3. Keep Proper Records ▪ Maintain a minute book ▪ Keep good records of decisions and in particular discussions which lead to decisions ▪ Document any employment issues carefully ▪ Keep or insist that proper books and accounts are kept and reviewed regularly
4. Avoid Conflicts of Interest ▪ Avoidance is best policy ▪ If unavoidable, conflicts should be disclosed and recorded ▪ Do not vote on issues where there is or may be a conflict ▪ Take steps to avoid misuse of confidential information
5. Ask Questions & Dissent Speak up if you don’t understand anything or have ▪ questions Dissent from actions you don’t agree with (silence = ▪ agreement) - know how to properly dissent ▪ If all else fails, RESIGN (NOTE: this must be done properly)
6. Indemnity from the NPO An Indemnification Agreement sets out organization’s ▪ obligation to indemnify Directors from claims brought against them while acting on behalf of organization ▪ NOTE: only protects you if you are acting HONESTLY and in GOOD FAITH
7. Directors & Officer’s Liability Insurance ▪ Only offers protection for Directors acting in good faith, honestly and in organization’s best interests Not all insurance policies are created equally – ▪ REVIEW the fine print Be careful if providing services to organization – may ▪ not be covered by D & O insurance
8. Stay Informed and Involved ▪ Know your obligations and responsibilities as a Director ▪ Attend meetings and insist on receiving proper documentation in a timely manner ▪ Stay informed about legal changes affecting organization and review policies and procedures regularly to ensure they are in line with changes
Questions? For further information and questions on: ▪ Not for Profit Corporations and Charities ▪ Corporate and Commercial Matters ▪ Commercial Real Estate contact Kellie Beasley 705-327-6655 kbeasley@hgrgp.ca
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