One of the more murky areas of charity and not-for-profit law is the issue of the proper conduct of board elections. Many of the older pieces of legislation that deal with constituting and operating non-share capital corporations – the typical structure adopted by charities and not-for-profit groups – provide little guidance on the process for such elections.
The current Alberta Societies Act is typical in this regard. The statute itself, though it has almost nothing to say on the subject, mandates that the bylaws of groups seeking incorporation as a Society must set out provisions on “the appointment and removal of directors and officers and their duties, powers and remuneration” as well as provisions on the holding of general meetings of members, the rights of members and how members are admitted, withdraw or, if applicable, can be expelled.
A Society is free to include as much detail about elections and other governance processes as it likes in its bylaws, but many choose to provide minimal direction beyond fulfilling the basic requirements under the statute. The standard bylaws available on Service Alberta’s website also provide limited specifics. The merit of this is that organizations are afforded lots of flexibility in how they operate, and are not subject to a ‘one-size-fits-all’ approach.
However, this flexibility also means that elections may be conducted on a ‘because that is the way we have always done it’ model. In the average organization this may leave unanswered questions like:
- at what stage in the member application process does someone attain voting rights?;
- what rights do members have to member lists and other corporate records (for example, for purposes of presenting a motion at a General Meeting)?; and
- if candidates for directorships are identified and/or vetted through a Nominations Committee, can the general membership nonetheless nominate other candidates from the floor of a general meeting?
The mechanics of nominations recently became an issue in a large Canadian co-op retailer, which sought to implement a vetting process to ensure nominees for its board had expertise in its core business. Though not structured as a charity or not-for-profit organization, that corporation’s initiative mirrors the approach of many voluntary sector groups that seek to keep a tight rein on who can stand for election as a potential director.
A Society is free to include as much detail about elections and other governance processes as it likes in its bylaws, but many choose to provide minimal direction beyond fulfilling the basic requirements under the statute.For sector groups, to some extent the lack of guidance on questions around these processes was addressed at the federal level with the replacement of the Canada Corporations Act, Part II with the Canada Not-for-Profit Corporations Act (CNCA) a few years back. That legislation includes measures to clarify the uncertainty that sometimes arises about the composition of an organization’s membership, and explicitly deals with the procedures for accessing member records to bring a motion at a general meeting or for other legitimate purposes related to the governance of the corporation.
That said, even that legislation leaves lots of unanswered questions about election processes. An insight into some of the potential difficulties that can arise in the conduct of elections, and how courts are likely to view them, was provided by the decision in a recent Ontario case concerning the election of directors to a CNCA corporation: Syed v Choudry, 2015 ONSC 7653 (Syed).
The case arose in the context of a governance dispute in a religious association. A new election was ordered because the Court found that the conduct of the original election had been flawed. Generally, provincial superior courts have authority to review the governance processes of corporations.
In Syed, Justice Gray took as a starting point, the following proposition, drawn from Lee v. Lee’s Benevolent Assn. of Ontario, [2004] O.J. No. 6232 (Lee):
Non-profit organizations such as the Association should not be required to adhere rigorously to all of the technical requirements of corporate procedure for their meetings as long as the basic process is fair. Nor should the court be too quick to grant relief in such circumstances that may only serve to encourage a disgruntled member of such an organization to seek such relief. Absent some demonstrated evidence that any irregularities went to the heart of the electoral process or lead to a result which does not reflect the wishes of the majority, the court should be loathe to interfere in the internal workings of such groups.
This approach gives lots of latitude for breaches of technicalities to be ignored. However, the Court found in the Syed case that, in light of allegations that the organization’s membership list had been improperly expanded and that there had been failure to comply with repeated requests for a copy of the membership list, the election should be set aside. The specific flaws cited by the Court included an election where it was questionable whether those voting, or entitled to vote, were all legitimate members of the corporation and where candidates were denied information they needed in order to effectively campaign for positions as directors.
The Court held that these defects were “fundamental” and not merely technical breaches. Such small mistakes could ostensibly be overlooked pursuant to a bylaw provision that excused minor errors or omissions in governance proceedings or be determined not significant enough to warrant court intervention pursuant to the holding in Lee. Since the Court found that they were fundamental, however, a new election was ordered under the supervision of an independent solicitor.
The case highlights the need for the staff and boards of corporate charities and not-for-profit organizations to look beyond the minimal procedural requirements set out in the statute and generally expanded on to some extent in an organization’s bylaws. They must examine their governance processes and ensure they can withstand scrutiny as fair.
This suggests that protocols ought to be carefully developed (with the help of legal or other expert advice), written down and adhered to. Entrenching practices in bylaws is an option, but not a necessity, and will mean a more onerous process must be undertaken to change practices when that is deemed desirable. Documenting what was done is also essential, in case the conduct is ever called into question. The law being murky in this area is all the more reason for organizations not to be.
About Peter Broder
