Directors Source News - November 2009

• 20 Questions Directors of Not-for-Profit Organizations Should Ask about
  Fiduciary Duty
• Ten things for Boards of Directors to Avoid
• Not-for-profit Organizations Director Alert: Pandemic Preparation and Response – Questions for Directors to Ask

• TSX to Require Shareholder Approval
  for Dilutive Public Company Acquisitions
• New CRA Guidance on Fundraising by
  Registered Charities
• New Canada Not-for-Profit Corporations
  Act

• Post Your Directorship Opportunity
  Here

• CICA’s 5th Annual Conference for Audit Committees
• New Standards for Not-for-Profit Organizations
• Executive Education Online Program
• Practical Advice for the Board in the New Deal Environment

• The Handbook of International Corporate Governance
• Above the Board: How Ethical CEOs Create Honest Organizations

• CICA’s Online Resource Centre for Not-for-Profit Organizations
• The Future of Risk: Protecting and Enabling Performance
• Responsibilities of Directors in Canada

Directors of not-for-profit organizations in Canada have a legal duty to act in the best interests of the organization which they serve at all times. In fact, the law requires a director to place the interests of the organization ahead of his/her own. This is known as the fiduciary duty. Successful fulfillment by directors of their fiduciary role is critical both in terms of the well being of the organization, and in order for directors to protect themselves from liability.

20 Questions Directors of Not-for-Profit Organizations Should Ask about Fiduciary Duty was written to help members of not-for-profit boards of directors understand and fulfill their fiduciary duties by summarizing the legal principles and providing leading practices in not-for-profit governance.

Summarized answers to two questions are included below:

1. What is the role of a director of a not-for-profit organization?

A director is a person who participates in the administration, guidance, and supervision of the affairs of an organization by being part of the governing body of the organization — the board of directors. A director, in the not-for-profit context, is one person in a collective body that governs the organization and provides strategic leadership for the organization. In most provinces and territories in Canada, a not-for-profit corporation must have at least three (3) directors. The title may not even be ‘director’. The title could be governor, trustee, or administrator.

Directors have an overall responsibility for the organization and the strategy for achieving its legal purpose. As a director, it is essential to understand why the organization exists, how it is legally structured, the interests of its stakeholders and how it manages the risks it faces. Directors should also be involved in the approval of, and at times the development of, the strategic plan.

2. What should a director do if faced with a conflict of interest?

If faced with a potential conflict of interest, a director should:

• Immediately declare the conflict and abstain from voting where the conflict arises at a board meeting;
• Review the organization’s conflict of interest policy to determine if there are additional requirements imposed by the organization or whether there is an identified process which must be followed with respect to declaration of the conflict;
• Speak to the chair of the board or another officer identified by the conflict of interest policy concerning the nature of the conflict, particularly where the director is unsure if a conflict truly exists;
• If not a charity, look to the corporate legislation to determine if there is a declaration of conflict process which can be followed;
• Where the conflict places you in a situation in which you believe you cannot act in the best interests of the organization as a result of the conflict, resign;
• Where possible, avoid the potential conflict or where the conflict has already materialized, resign as a director if the organization is a charity and the director stands to benefit directly or indirectly.

Most non-profit corporate legislation in Canada provides for a narrow exception to the no-conflicts rule where a director has an interest in a contract or proposed contract with the organization, declares the conflict and follows the process outlined in the legislation.

It is important to understand that this kind of statutory exception is not generally available to directors of charities (as opposed to not-for profits that are not charities), depending on the province in which the charity operates. Because of the premise that charities are there for the public good, directors of charities must avoid any interest in a contract unless court approval is given ahead of time.

Publication: Deloitte, September 2009

In response to questions from directors asking what they should avoid doing in order to carry out their duties, Deloitte looked to the experience of professionals and developed the following list of ten activities boards should avoid to improve effectiveness in the boardroom. This list is not all inclusive, and there may be other considerations for the board:

• Avoid presentation overload
• Avoid understating the importance of compliance
• Avoid postponing the CEO succession discussion
• Avoid the trap of homogeneity
• Avoid excessive short-term focus
• Avoid approvals if you don’t understand the issue
• Avoid discounting the value of experience
• Avoid stepping over the line into management’s role
• Avoid ignoring shareholders
• Avoid a bias to risk aversion

A pandemic such as the H1N1 influenza virus could seriously affect Canada’s not-for-profit organizations. It provides a powerful reminder of the need for proactive and ongoing risk management and crisis planning. In organizations with a CEO and professional staff, the role of the board of directors is to make sure that the CEO has plans for managing crises and responds promptly, decisively and effectively. In smaller organizations, the directors may need to play a more active role.

This not-for-profit Director Alert provides some key questions about risk assessment, business continuity planning and crisis response that directors can ask to help them assess their organization’s readiness for a major crisis such as a flu pandemic, and assist them in responding to a crisis should one occur.

Link to TSX Notice and Amended Rule

Link for more information

The new Canada Not-for-Profit Corporations Act is intended to eventually repeal the Canada Corporations Act (CCA). This change will affect all federally-incorporated nonprofits. The Act has received Royal Assent but will not come into effect until regulations are in place, which is estimated to be about a year from now. Once the Act is in effect, nonprofits currently incorporated under the CCA will have 3 years to apply for a certificate of continuance under the new Act. Some of the highlights of the new legislation include:

• NPOs will no longer be incorporated by way of letters patent, but rather by signing articles of incorporation;
• A general requirement to appoint a public accountant and conduct an annual audit, subject to exemptions based on annual revenues of the corporation and membership approval;
• Enhanced member rights and an oppression remedy;
• Codification of the duty and standard of care of directors;
• Rules regarding election of directors.

CICA’s 5th Annual Conference for Audit Committees

Date: November 19-20, 2009
Location: King Edward Hotel, Toronto, ON

Audit Committee members of Canadian companies of all sizes are facing an unprecedented number of challenges in an environment of ever-increasing complexity and regulation. Attend this conference and raise your understanding of the critical issues. Get the most up-to-date, authoritative and practical information for Audit Committee members and chairs, including sessions on changing standards, current and emerging regulatory issues, disclosures, internal controls, risk management and much more. The Conference also includes two valuable workshops on IFRS for Audit Committee Members and GAAP for Private Enterprises for Audit Committee Members.

New Standards for Not-for-Profit Organizations

Imagine Canada, together with Volunteer Canada and the HR Council for the Voluntary and Non-Profit Sector, has proposed a Standards of Excellence Program for Canada’s charities and non-profit organizations.

The goals of the initiative are to:

• Support and strengthen good practice in the sector;
• Foster public trust and confidence in the sector;
• Protect both the credibility of the sector and the interests of the public; and
• Demonstrate the accountability of the sector.

Draft standards have been created in the areas of governance, human resources, and accountability, transparency and financial management. They are available for download from Imagine Canada’s website.

Web conferences and meetings are being held during the fall of 2009 so that organizations can learn more about the Standards Program. In early 2010, Imagine will host a Forum at which interested charities and nonprofits will be asked to debate and approve governance structures/processes, membership criteria, values, and design principles for the Standards Program.

Executive Education Online Program

Governance as Leadership: Reframing the Work of Nonprofit Boards is an online program offered by Harvard Kennedy School, designed to help executives of nonprofit and non-governmental organizations engage their boards in more consequential and meaningful work that produces greater value for their organizations. The program is intended specifically for executives in nonprofit and non-governmental organizations who want to tap into the full array of talent and energy within their boards.

Practical Advice for the Board in the New Deal Environment

Date: December 1-2, 2009
Location: Calgary

Volatile capital markets, economic conditions and new judicial and regulatory decisions have added to the complexity of the role of the Board in M&A transactions. In this session you will learn how to navigate the minefield. Presented by Stan Magidson, Osler, Hoskin & Harcourt LLP at Insight’s Advanced Mergers and Acquisitions conference.

The Handbook of International Corporate Governance

Published by the Institute of Directors, 2009

The IoD Handbook of International Corporate Governance is a relevant read for anyone with an interest in corporate governance practice, the pace of change in governance-related legislation, or the future direction of disclosure and transparency issues. The book looks at shareholder rights and directors’ responsibilities, issues relating to control and disclosure and codes of practice.

One section of the book provides coverage of corporate governance practice in 18 separate jurisdictions, as well as five regional overviews, with each profile focusing on key areas such as: the development of laws, models and codes; board structures; shareholder rights; disclosure and transparency; directors; and executive pay and performance.

Link to chapter on Corporate Governance in Canada

Above the Board: How Ethical CEOs Create Honest Organizations

Ethical CEOs create honest corporations by making honesty a core company value, argue the three co-authors. With examples ranging from Whirlpool to Xerox, this book illustrates not only why ethics are important to a company’s survival, but also how real companies have made wide-scale transparency a reality.

Above all, the book stresses how setting the ethical tone is a one-person job fit for the CEO and how the rest of the company, especially HR, can help shape the CEO’s vision and trumpet it throughout the business, to customers and other stakeholders.

Link for more information

The CICA offers various resources specific to not-for-profit organizations (NPOs). These materials may be helpful to management and boards of NPOs, as well as their professional advisors.

The Ernst & Young Future of Risk report is based on a survey of 507 C-suite and board level executives in global companies across multiple industry sectors. The purpose of the survey was to provide a snapshot of the current risk environment and to understand organizational attitudes toward enterprise risk management and how the downturn has impacted approaches to risk management and organizations’ abilities to identify and manage different types of risk.

Published by Torys LLP, 2009

This guide focuses on directors of public corporations with securities traded on a stock exchange. Although much of this guide is equally applicable to directors of private corporations, it does not deal with certain aspects unique to private corporations, such as the role of unanimous shareholder agreements.

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Publisher
John Tabone
john.tabone@cica.ca

Editor
Janice Turner
janice.turner@cica.ca
416-204-3241

Designer
Mark Hinkley



© 2009 CICA