The board of directors of a corporation is its governing body, charged with high level management and supervision of the corporation. While most boards are not involved in the day-to-day operations of the not-for-profit, the board generally approves the strategic plan which sets the tone and the key priorities for the organization. In addition, one of the functions of the board is hiring the senior most employee (the Executive Director or CEO), which can have a huge impact on the future of an organization – so, while the board’s responsibility is not operations, it selects the individual that will be responsible for those operations – which is one of the most critical decisions in any not-for-profit. Given the functions of the board and its role in high-level decision making, the composition of the board is a key issue in corporate governance.
The first consideration in board composition is the legal requirements for directors. The Canada Not-for-Profit Corporations Act (“CNCA”) and the Not-for-Profit Corporations Act of Ontario (“ONCA”) both contain provisions on eligibility criteria for directors. The qualifications required for directors are similar in both the CNCA and ONCA – a director must be an individual, over the age of 18, cannot have the status of bankrupt and cannot be incapable or, in ONCA, found incapable of managing property under the Substitute Decisions Act, 1992 or the Mental Health Act.
In terms of the number of directors for a board, ONCA requires that a board have at least three directors. The CNCA allows for a board of one director; however, a soliciting corporation requires at least three directors and, given the low financial threshold for this designation, many CNCA corporations must comply with this requirement. Neither the CNCA nor ONCA provide an upper limit for the number of directors permitted for a corporation – but practically speaking, a large board can be inefficient and difficult to manage. Generally speaking, the best practice for a board size is considered 6-10 or 6-12. This number allows for diversity of thought and division of labour but does not become unwieldy from a governance perspective.
Beyond the legal and practical considerations set out above, the key question is how to put together a board that will effectively govern the corporation. This requires considering the skills or knowledge that will be needed by the board – these considerations often include professional expertise – for example, many boards routinely ensure they have directors that are legal or accounting professionals. In addition, corporations that are made up of individuals with specific interests or professional credentials often structure their boards to ensure that the voices of different roles are heard at the board table – for example, corporations made up of medical professionals in a given field will often have director seats reserved for individuals with specific training or certification or a seat for a student in the field. Where a corporation exists to serve a specific population or clientele, some also reserve a board seat for an individual that has accessed the corporation’s services in the past or is a current client.
Diversity is also a key factor in board composition, with a goal of ensuring a board that reflects the composition of the corporation’s membership or of Canada itself. This can include language, ability, sexuality, gender and ethnicity or culture. In addition, for corporations that operate across Canada, place of residence can be an important consideration in ensuring the board is reflective of the membership.
Lastly, a note on the role of a director. It is not uncommon for a corporation’s by-laws to state that directors are elected to “represent” a certain subset of members – for example, members who reside in certain jurisdiction or have specific credentials; however, this is misleading as to the role of directors and does not accurately reflect their responsibilities in law. The primary duty of a director is to act honestly and in good faith with a view to the best interests of the corporation – and this duty does not change where a director was elected by a subset of members or to “represent” those members. A director can certainly speak to the priorities of those members at the board table, but a vote by a director based on the instructions or priorities of one group of members to the exclusion of the best interests of the corporation could be a breach of the director’s fiduciary duty to the corporation.
While each not-for-profit will have its own priorities, the above reflects the legalities and common considerations for not-for-profit boards in Canada.
This blog post was written by Megan Wallace, Practice Lead, Not-for-Profit and Charity Law, and a member of our Business Law team. She can be reached at 613-369-0368 or at megan.wallace@mannlawyers.com.
