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Practical Corporate Governance Tips For Directors

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Practical Corporate Governance Tips For Directors & Officers Of Not-For-Profit Corporations Presented by Andrae J. Marrocco E amarrocco_at_dickinsonwright.com – PowerPoint PPT presentation

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Title: Practical Corporate Governance Tips For Directors


1
Practical Corporate Governance Tips For
Directors Officers Of Not-For-Profit
Corporations
  • Presented by
  • Andrae J. Marrocco
  • E amarrocco_at_dickinsonwright.com
  • T 416 454 2244

2
Introduction
  • The imperative
  • Increased scrutiny, accountability and regulation
  • Time constraints on directors and officers
  • Lack of resources
  • The purpose
  • Educate - highlight what you need to know
  • Equip - improve governance with practical guides
    and simple tools
  • Protect - directors and officers from potential
    claims
  • The DW approach
  • Practical, realistic, incremental and successful

3
Corporate Governance
  • Dichotomy of not-for-profit corporations
  • Various categories of directors
  • Where are the governing rules found?
  • Laws of the land
  • Letters patent, articles, bylaws, constitution
    etc
  • Meeting procedures, policies, codes or internal
    regulations
  • What does the ideal board look like?
  • To the extent possible, the board of a
    not-for-profit corporation should be comprised of
    individuals from diverse backgrounds who have a
    broad range of experience, expertise and skills
    that bring a unique perspective to the role of
    managing the affairs of the corporation

4
Corporate Governance
  • Organization mandate
  • Why does the corporation exist?
  • Whom does it serve?
  • What is it there to achieve/results?
  • Refresh annually
  • Accountability
  • Government
  • Courts
  • Stakeholders

5
Corporate Governance
  • Scarcity of determinative law
  • There are few court rulings when it comes to
    corporate governance issues pertaining to
    not-for-profit corporations
  • Best practice approach beneficial
  • While it may not necessarily provide a successful
    defense, where one can demonstrate having
    followed a well thought out policy or practice in
    keeping with good governance such practice will
    create a highly persuasive argument for a defense

6
Corporate Governance
  • The Panel on Accountability and Governance in the
    Voluntary Sector identifies 8 tasks required of
    the not-for-profit corporations
  • Steering toward the mission and guiding strategic
    planning
  • Being transparent, including communicating to
    members, stakeholders and the public, and making
    information available upon request
  • Developing appropriate structures
  • Ensuring the board understands its role and
    avoids conflicts of interest
  • Maintaining fiscal responsibility

7
Corporate Governance
  • Ensuring that an effective management team is in
    place and overseeing its activities
  • Implementing assessment and control systems and
  • Planning for the succession and diversity of the
    board.

8
Corporate Governance
  • Annual legal audit checklist
  • Review of Articles of Incorporation / Letters
    Patent vis-à-vis mission
  • Review of Bylaws from a compliance as well as
    best practice/functional perspective
  • Organization/policy documents
  • Governance structure

9
Duties of Directors
  • Directors are responsible for management
  • Knowledgeable on the business and financial
    affairs of the corporation
  • Aware of legal/regulatory environment and
    governing rules
  • Heightened responsibility where charitable
    property involved
  • Liability of directors
  • General rule against liability, corporate veil
  • Corporation as a separate legal entity limited
    liability
  • Exceptions increasingly rendering directors
    liable for breach of duties

10
Duties of Directors
  • Fiduciary relationship
  • Fiduciary duty
  • Duty of Care
  • Duty of Loyalty

11
Duties of Directors
  • Duty of care
  • Duty to exercise the appropriate care, diligence
    and skill
  • Subjective vs objective
  • Standard of care
  • Appropriate level of care/diligence/skill
  • Informed by legislation and court decisions
  • Increasing support for the position that a
    heightened duty of care is owed by directors of
    charitable corporations

12
Duties of Directors
  • Limitations
  • Business judgment
  • Delegation and reliance on officers and reports
  • Practical guidance on what directors should do
  • Make informed decisions based on full
    consideration of all materials and advice of
    experts where required
  • Develop understanding and oversee all aspects of
    the operations
  • Delegate, but maintain supervision
  • 10 simple guidelines to follow

13
Duties of Directors
  • Duty of loyalty
  • Act honestly, in good faith, and in the best
    interests of the corporation
  • Improper purpose taints
  • Duty cannot be delegated
  • Duty to disclose and avoid conflicts of interest
    (no profit/gain rule)
  • Practical guidance on what directors should do
  • Always disclose the entire truth
  • Full allegiance to the mission and objects (or
    resign)
  • Place the interests of the corporation above
    personal interests
  • Maintain corporations trust and confidence at
    all times

14
Duties of Directors
  • Duties towards members of the corporation
  • Issues and caution around suspending/fining/expell
    ing members
  • 10 point directors duties inventory

15
Potential Areas of Liability
  • Torts and negligence
  • Breach of fiduciary duty
  • Unauthorized contracts
  • Breach of trustee duties (charitable
    corporations)
  • Premise of the trustee relationship
  • Actions inconsistent with charitable objects
  • Investment decisions
  • Co-mingling of donor restricted funds

16
Potential Areas of Liability
  • Statutory duties and liability
  • Employee obligations
  • Reporting requirements
  • Taxation
  • Environmental regulations
  • Exercise - Self assessment plan

17
Directors Rights and Powers
  • Sources
  • Legislation
  • Constating documents
  • Common law
  • Main rights and powers

18
Committees
  • Advantages
  • Special vs standing
  • Successfully structuring
  • Determination of terms of reference
  • Audit/Finance committee
  • Executive committee
  • Discussion on experience and tailored structure

19
Risk Management
  • Concept of risk
  • Examples of potential risks
  • Managing the affairs of the corporation
  • Remain informed and aware of objects, by-laws,
    board meetings etc
  • Conduct regular due diligence on compliance
    requirements
  • Consider risks relating to the particular
    function and operations
  • Screening and monitoring policies for all
    employees
  • Reasonable reliance on management permitted
    obtain reports
  • Reliance on qualified professional prudent

20
Risk Management
  • Indemnification
  • Insurance
  • Statutory protection
  • Practical strategies

21
Taxation
  • Charities vs not-for-profit corporations
  • no benefit to members and no excess funds
  • exclusively charitable and public benefit
  • Key restrictions on activities
  • Treatment of gifts made to charities
  • Corporate structures for business activities

22
Legal Disclaimer
  • The contents of this presentation outline a
    number of complex issues in a concise and general
    manner, we recommend that you first consult with
    a lawyer from Dickinson Wright LLP before acting
    upon, or refraining from acting upon, any of the
    information contained in this presentation.
  • The information provided in this presentation is
    for information purposes only. It is not intended
    to be and shall not constitute legal advice.
    Although every reasonable effort has been made to
    ensure the accuracy of the information contained
    in this presentation at the time of its
    publication, no individual or organization
    involved in either the preparation or
    distribution of this presentation accepts any
    contractual, tortious, or other form of liability
    for its contents or for any consequences arising
    from its use.

23
Contact us for a complimentary legal
assessmentfor your not-for-profit organization
  • Andrae J. Marrocco
  • E amarrocco_at_dickinsonwright.com
  • T 416 454 2244
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