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Feature: Charity Law January/February 2012
Brian Seaman
© Norman Chan | Dreamstime.com
If you are thinking about serving on a board of directors for your favourite charity the next time
a spot becomes available, it would be a wise idea to ask a few questions first and also consider what
your obligations will be as a board member before putting your name forward. Otherwise that
acquaintance from your local health club or friendly colleague at the office trying to recruit you may
be just a bit disingenuous about what’s required from you.
Don’t worry, the meetings never last more than a couple of hours at most and you only have to show
up two or three times a year should give any prospective member good reason to ask a few questions
and check the organization’s bylaws and minute books. The chairperson or recruitment committee for
a charity should regard recruitment for board membership with proper care. The prospective board
member should be informed of the following:
So you want to be a board member?
Think twice
before you say yes
Feature: Charity Law
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January/February 2012
• the time commitment, i.e. how many meetings will he or
she have to attend and how long the meetings typically
last;
• the obligation to act at all times in the best interests of
the charity; and
• any fund-raising he or she will be expected to do and to
what extent a personal and/or professional network will
be called on to this end.
A board of directors, even for a charity or non-profit organization (NPO), serves three main functions as:
• a legal body;
• a functional or administrative body; and
• a symbolic body.
The days are long gone when a member of a board might expect to fulfill minimum performance
expectations by simply showing up to a meeting now and then to help assure a quorum. Now,
there are expectations of performance and due diligence; the law will hold a board of directors
accountable for any failure to properly monitor how the affairs of a charity or non-profit organization
are being run. Due diligence is a legal term that will, of course, mean different things depending
on the professional or business context. In the context of a charity or NPO, due diligence means
that the board member must conduct herself or himself in accordance with the standard of care of a
reasonable board member. This will include ensuring that the charity’s executive director performs
her or his job in accordance with the mandate of the charity and also that the financial affairs of the
organization are in order.
There are very few reported cases addressing instances where the boards of charities or NPOs
have been sued. However, the fact that there are even a few should be reason enough for prospective
board members to take note that they could be subject to legal actions in instances where, for
examples, an employee feels she or he has been wrongfully dismissed, or where the charity or NPO
has been failing to conduct its affairs in accordance with its mandate. Here are two recent examples.
In Thiessen v. Borden Hospital Foundation Inc. – a 2011 decision of the Saskatchewan Court
of Queen’s Bench – a dispute among board members turned nasty when one of the board members
wound up suing the rest of the board and the NPO foundation itself over a disagreement as to how
foundation funds were to be spent on a new building.
In Hadjor v. Homes First Society – a 2010 decision of the Ontario Superior Court of Justice – a
dissenting board member for a charity that ran a low-income housing project brought an application
to set aside an amendment to the charity’s bylaws that had been passed by the rest of the board
members. Even though in both these cases, the courts found against the dissenting board members,
the fact that boards of charities or NPOs can be subject to lawsuits is reason enough for a prospective
board member to regard membership as something much more than simply an opportunity to
volunteer some spare time to a pet cause. This potential for legal liability is why a wise board should
carry Errors and Omissions insurance for its members.
The days are long gone when a
member of a board might expect
to fulfill minimum performance
expectations by simply showing
up to a meeting now and then to
help assure a quorum.
Feature: Charity Law
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January/February 2012
Charities are granted a tax exempt status by the Canada Revenue Agency (CRA) for a reason.
They serve the public interest and are not in the business of generating surplus revenue which is
then re-invested back into the organization to permit it to grow, or paid out to shareholders as
dividends. Instead, the revenue charities receive via donations is doled out to an array of benevolent
organizations that include homeless shelters, women’s shelters, arts societies, the Canadian Cancer
Society (for example) and a variety of other support and lobby groups in the health services field.
The public interest is therefore served by holding charities accountable for how money is raised and
dispensed. The boards of charities play a critical role in monitoring this process. Board members have
a legal duty of care toward their charitable organization that is met by meeting regularly, ensuring a
quorum for the meetings and keeping accurate minutes. All decisions the board makes must be in the
best interests of the organization and without even the appearance of a conflict of interest.
A critical function of an effective board is to stay on top of the finances. Board members should
learn how to read the financial statements for their organization. Although the actual preparation of
the charity’s budget and annual fund-raising campaigns is the proper purview of the executive director
and staff, the board’s role is to act as a constructive critic during the budget planning process. Then,
once the budget has been approved for the coming year, the board should evaluate how the plan is
being implemented without being involved too closely in micro-management.
The relationship between an executive director and the board of directors is a delicate and
nuanced one that requires a high level of trust, the willingness for each party to know when to
follow and when to lead, and strong, effective two-way communication. For an executive director
to adequately perform her/his tasks, the organization needs to have a detailed job description that
sets out expectations for performance and provides for annual performance reviews. The viability of
any given charity or non-profit agency depends on a solid relationship as well between the executive
director and the chairperson of the board. The chairperson, ideally, should be regarded in the capacity
of a special advisor to the executive director.
Finally, since the successful running of a charity will depend
in no small measure on the active contribution of all board
members, both the executive director and board chairperson
must give diligent and careful consideration about who should be
recruited for membership. To this end, it is prudent to have an
active nomination committee with a complete understanding of
the charity’s mandate, its strategic plan, and its ongoing operations.
Prospective candidates for board membership should be persons
of solid character and standing within their professions and
community who can bring value to the table. Once prospective
candidates have been vetted by the nomination committee, they
should be given a package of information that includes the bylaws
of incorporation, minutes of recent board meeting, board rosters,
Even though in both these cases,
the courts found against the
dissenting board members, the
fact that boards of charities or
NPOs can be subject to lawsuits is
reason enough for a prospective
board member to regard
membership as something much
more than simply an opportunity
to volunteer some spare time to a
pet cause.
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January/February 2012
the ongoing program(s) the charity has, and relevant budget information. The only way for prospective
board members to arrive at informed decisions as to whether membership on a given charity’s board
will be the right fit is for such prospects to move forward with their eyes wide open.
Diligence and transparency at the outset go a long way to ensuring that the fit is right for
everyone concerned: the individual board member, the board as a collectivity, the management of
the charity, the donors and benefactors of the charity who must feel confidence in the organization
in order to part with money every year, and last, but certainly not least, the recipients of the aid or
largesse of the charity.
For more information about the benefits, but also the potential risks about sitting on the
board of directors of a charity or a non-profit organization, see Sitting on a non-profit board: A risk
management checklist at http://www.practicepro.ca/practice/pdf/Non-profit_board_risk_management_....
Brian Seaman is a lawyer and
researcher with the Alberta Civil
Liberties Research Centre in
Calgary, Alberta.