for the rest of us non-lawyers
Disclaimer: The contents of these pages are offered as general principles, but not as legal opinions. Statutory law and entity policy on board structure, lines of authority and board discipline vary widely. Some of the comments here may not be applicable, or may be wrong in some situations, depending on the regulatory and organizational environment. When in doubt consult competent legal counsel. See the further disclaimer at the end.
Definitions and basic concepts for board governance are on the starting page.
Some scenarios illustrating fiduciary misconduct are collected on a separate page.
Board governance principles are not exhausted by
Many additional principles that speak more finely to the organization may come into play. Examples include:
- After selection, there should be mandatory training sessions to ensure board members know their duties and responsibilities, particularly as fiduciaries, and understand the founding documents, policies, and culture of the organization.
- differing cultural or legal environments may sharpen or modify some of these principles. For instance, the custom of designating the board chair as CEO and the president as COO may differ, but without changing the basic concept of delegation, whatever titles are used.
- Some organizations, by their very nature, have a modified structure:
- Member driven organizations may elect all their directors. Care must be taken to consult with outside resources for the skills the board is missing (legal, financial, etc.)
- Small organizations with diverse activities and using mostly volunteers (churches, community centres and the like) usually deliver services through committees, each with its own delegated mandate, budget, and chair (or manager). In such cases, (and whether there is a COO or not) a board member should be designated as a reporting conduit for each committee. This gives the committee direct access to the board for resource requests, and creates a facilitating role to the directing function. The principle of delegation still applies--the board never confuses direction or facilitation with management.
- Governments call the board the cabinet, and this directorship works either above or alongside a parliament in some division of powers. The fundamental principles still apply.
- A church is a special case, for it may have a hierarchical governance that does not include a board, exists alongside a board, or be a member driven (congregational rule) organization. In the last two cases, pastors (elders) have a spiritual authority that may transcend that of the board, or be parallel to it. They must still be accountable to the church through the board for budgets and goal fulfillment, however.
- A university is also a special case, for it may have a partly or wholly bicameral governance consisting of the conventional board that handles business matters and a senate that handles academic standards and their enforcement. The senate chair, and possibly all senators may be regarded as fiduciaries, depending on the division of powers between the two bodies. So may a provost, and some vice-presidents.
- commercial corporations (particularly large ones) may have additional fiduciary duties to the society at large that necessitate them having some or even a majority of independent directors (that is, ones with no financial stake in the corporation).
- corporate professional persons or partners (doctors, lawyers, engineers accountants, etc) may have overriding duties to their professional associations that trump some other fiduciary duties.
- Some boards have or ought to have a modified membership. This might include:
- one or more employees.
- in the case of a crown corporation or legislatively mandated entity, a government-appointed ex officio board member
- in the case of a corporate subsidiary or company whose shares are held in one or more large blocks, a representative of those interests on the board
- in the case of banks and other prominent institutions, a government mandated appointee or outside board member
- in the case of a professional association, a government appointee and/or a board member from some other profession
- Where vetting potential board members takes place (and good advice for members who vote on directors)
- disqualify any candidate who says something like "if I'm not elected I'm quitting this organization.
- avoid candidates who are highly politicized, or sure they are always right about everything
- avoid candidates who have a reputation for ill temper or disputatiousness
- do background checks with the police, and check all references and credentials directly with the issuer.
- obtain assurances of no conflict of interest, arms-length from current directors and candidates, and agreement with the code of ethics.
- All governance must be conducted in view of discovery.
- board documents, even those generated in camera may be required in a court case.
- Incorporated companies and societies (but not unincorporated associations) may be required to turn over specified documents in a freedom of information request, depending on the laws of the incorporating jurisdiction.
- all e-mail sent to or from fiduciaries and staff on entity business or using entity mail accounts belongs to the entity, and is not private. It too can be discovered by court order.
- Some organizations also use policy governance, which adds a number of additional principles relating to the mode of operation. These will not be covered here, as there are many web sites devoted to policy governance or Carver governance.
Typical board committees:
- a governance committee responsible for determining what other committees are required, what is the due process for disciplinary action for breaches of fiduciary duty or other misconduct by board members, and what changes may need to be made from time to time to the organization’s broader governance.
- a standing audit or finance committee. This committee hires any external auditor completely independently of staff input, and works directly with said auditor to carry out due diligence on the organization's finances.
NOTE: In carrying out its duties, the audit/finance committee may become privy to confidential information that can only be shared with the rest of the board on a need-to know basis, so being on the audit committee of a board imposes an additional confidentiality and fiduciary burden.
- (possibly) an executive committee consisting of the board's chair and vice-chair, together with the chairs of the other standing committees,
- such other standing committees as may be appropriate to the entity's market sector or mission,
- such ad hoc committees as may be needed to handle emergent issues. These committees cease to exist with each new board term (normally annual) but may be reappointed if the new board wishes,
Special Case 1--unincorporated associations
Some entities, such as community clubs, special interest groups, and churches, are not incorporated as legal entities (a society) and so are not covered by statutory law regarding such things as: meetings, notice of meetings, disciplinary processes, certain government reports and fiduciary limitations. They are still covered by labour and taxation laws. This means:
- they are governed solely by their own constitution and bylaws,
- their governance processes may be more relaxed because written notice of meetings and motions may not be required, making some procedures much less formal,
- BUT they may have little or no recourse to legal action (except a civil suit for the value of damages) if a director misbehaves—unless said misconduct involves some direct interaction with a staff member, which will almost certaibnly result in a labour board instigating a harassment suit. Thus, even an unincorporated association should maintain anti-harassment measures, if it does not want the association to be named as a co-defendent.
Special Case 2--the president as a board member
Having the president be an ex officio member of the governing board is a nearly universal practice. This is done to enhance communication between management and the board—a very good idea. However, this carries its risks, for the president's very presense at the table blurs the line between direction and management. In such cases:
- there should be no more than one such ex officio board member,
- for anything other than a club, community association, or small non-profit, the president should be non-voting,
- the president should show restraint in taking strong stances on issues, or (s)he may have to live with an opposing decision.
- the president of course must interact with individual employees, directly or indirectly, so what is unethical for another director in this instance is the duty of the president (and delegates) alone among directors. Nor can the rest of the board overrule the president in a personnel decision without removing the president from office.