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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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;

7. 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.

8. 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

9. 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

10. Duties of Directors • Fiduciary relationship • Fiduciary duty • Duty of Care • Duty of Loyalty

11. 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

12. 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

13. 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 corporation’s trust and confidence at all times

14. Duties of Directors • Duties towards members of the corporation • Issues and caution around suspending/fining/expelling members • 10 point directors duties inventory

15. 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

16. Potential Areas of Liability • Statutory duties and liability • Employee obligations • Reporting requirements • Taxation • Environmental regulations • Exercise - Self assessment plan

17. Directors’ Rights and Powers • Sources • Legislation • Constating documents • Common law • Main rights and powers

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

19. 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

20. Risk Management • Indemnification • Insurance • Statutory protection • Practical strategies

21. 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

22. 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.

23. Contact us for a complimentary legal assessmentfor your not-for-profit organization Andrae J. Marrocco E amarrocco@dickinsonwright.com T 416 454 2244