Fiduciary duty is a common law concept. Essentially it requires directors of corporations, and like officials of certain other types of entities, to act in the best interest of their organization. It also obliges them to act with care and loyalty. The notion of fiduciary duty, or aspects of it are sometimes reflected or entrenched in statute. However, determining whether the particulars of fiduciary obligations have been met in a specific circumstance falls to the Courts. So elements of fiduciary duty evolve over time.
In the recent spate of sexual harassment allegations, typically initiated on social media and known as the “#MeToo” movement, criminal charges have or are being brought in some instances. Perhaps more commonly though, lawsuits have been launched against alleged perpetrators, the organizations where the incidents occurred and/or their boards or other governing bodies. Given the widespread publicity that has attended the movement, it is hard to argue against the average person being aware of the issue and of the prevalence of misbehaviour.
If there is a harassment allegation that results in legal action, Courts will be less likely to find that the actions of the directors were inadequate or erroneous where a policy is in place. Organizations themselves may be at risk of having to pay damages under the doctrine of vicarious liability, which potentially imposes liability on an employer, or other principal, for improper conduct by its employee or agent. That is a subject for another column, other than to note that in Canada organizations have, in some situations, been held accountable for sexual misconduct by those they have hired or contracted.
Which brings us to board or director personal liability and back to fiduciary duty. Currently there is little, if any, case law on the relationship between the adoption of harassment policy and fiduciary liability. The jurisprudence in this area is still evolving.
Except for the smallest non-profit groups, most boards or board members do not actively involve themselves in the day-to-day operations of their organizations. Rather they establish a policy framework within which the group carries out its mission. In that context, they can still be held personally accountable. Adequately managing the risks faced by an organization is broadly part of fiduciary duty.
In the wake of the countless revelations involving sexual or physical abuse of vulnerable individuals in educational, religious, social service and recreational institutions or groups in the last fifty years or so, it has become best practice for organizations to adopt screening policies for vetting potential employees or volunteers. Doing a police or other background check on individuals will not necessarily weed out every possible wrongdoer. Even so, entrenching a practice of methodically inquiring about someone’s past conduct or dealings with the criminal justice system is a way of showing that the board and directors have turned their minds to the issue and taken steps to reduce the risk of engaging with someone apt to conduct him- or herself inappropriately.
Currently there is little, if any, case law on the relationship between the adoption of harassment policy and fiduciary liability. Having good policy and processes is not a full defense for boards and directors having acted with due care in fulfilling fiduciary duty, and a Court could still find liability. However, it does show awareness of a potential problem, and that steps have been taken to lessen risk. It lays the groundwork for an argument that the directors and board exercised due diligence.
Likewise with the issue of sexual harassment. In the current context, directors should advocate for boards to adopt an organizational sexual harassment policy. Or – where one exists – thoroughly reviewing it. Showing that this issue is recognized as a potential problem area, and that measures have been taken to try to deal with it, is evidence that the directors and board exercised the required care in their organizational decisions. If there is a harassment allegation that results in legal action, Courts will be less likely to find that the actions of the directors were inadequate or erroneous where a policy is in place.
Organizations themselves may be at risk of having to pay damages under the doctrine of vicarious liability, which potentially imposes liability on an employer, or other principal, for improper conduct by its employee or agent. The personnel models for voluntary sector organizations vary widely. So there is no one-size-fits-all solution in terms of the substance of a policy. However, in drafting a policy there are some common considerations that should be taken into account.
Factors to think about include those set out below:
- the policy should include all types of harassment, and not just sexual harassment;
- the policy should recognize that sexual or other harassment is not gender-specific, and that anyone can be subject to it;
- the policy should safeguard the rights of all parties, and be structured to be as fair as possible even beyond legal obligations. In this regard, thought should be given to not having processes that may result in unnecessary embarrassment or humiliation;
- the policy should provide for confidentiality and privacy protections, and the decisions to withhold or release information need to be in accordance with applicable law;
- the policy should contemplate situations where the person accused may be in a governance role or be the senior staff person or a supervisor, and provide for processes to deal withthese circumstances. In this regard, thought should also be given to providing checks and balances against possible retribution; and
- disciplinary action contemplated in the policy needs to be in accordance with applicable law.
As with a screening policy, having a good policy on harassment will not absolutely protect boards and directors from liability, but it does show the matter has been considered and efforts have been made to deal with the risk of misconduct. In the current environment, that may be a small step, but it is one worth taking.