Practical Corporate Governance Tips For Directors

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Practical Corporate Governance Tips For
Directors Officers Of Not-For-Profit
Corporations

• Presented by
• Andrae J. Marrocco
• E amarrocco_at_dickinsonwright.com
• T 416 454 2244

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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

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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

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Corporate Governance

• Organization mandate
• Why does the corporation exist?
• Whom does it serve?
• What is it there to achieve/results?
• Refresh annually
• Accountability
• Government
• Courts
• Stakeholders

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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

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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

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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.

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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

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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

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Duties of Directors

• Fiduciary relationship
• Fiduciary duty
• Duty of Care
• Duty of Loyalty

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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

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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

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Duties of Directors

• Duty of loyalty
• 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
• Always disclose the entire truth
• Full allegiance to the mission and objects (or
  resign)
• Place the interests of the corporation above
  personal interests
• Maintain corporations trust and confidence at
  all times

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Duties of Directors

• Duties towards members of the corporation
• Issues and caution around suspending/fining/expell
  ing members
• 10 point directors duties inventory

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Potential Areas of Liability

• Torts and negligence
• Breach of fiduciary duty
• Unauthorized contracts
• Breach of trustee duties (charitable
  corporations)
• Premise of the trustee relationship
• Actions inconsistent with charitable objects
• Investment decisions
• Co-mingling of donor restricted funds

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Potential Areas of Liability

• Statutory duties and liability
• Employee obligations
• Reporting requirements
• Taxation
• Environmental regulations
• Exercise - Self assessment plan

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Directors Rights and Powers

• Sources
• Legislation
• Constating documents
• Common law
• Main rights and powers

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Committees

• Advantages
• Special vs standing
• Successfully structuring
• Determination of terms of reference
• Audit/Finance committee
• Executive committee
• Discussion on experience and tailored structure

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Risk Management

• Concept of risk
• Examples of potential risks
• Managing the affairs of the corporation
• 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

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Risk Management

• Indemnification
• Insurance
• Statutory protection
• Practical strategies

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Taxation

• 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

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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.

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Contact us for a complimentary legal
assessmentfor your not-for-profit organization

• Andrae J. Marrocco
• E amarrocco_at_dickinsonwright.com
• T 416 454 2244