Guide to Good Governance: Not-for-Profit and Charitable ...

Guide to Good Governance: Not-for-Profit and Charitable Organizations

SECOND EDITION (SEPTEMBER 2013)

Introduction to the Guide

The Governance Centre of Excellence (GCE), an initiative of the Ontario Hospital Association (OHA), is committed to leading excellence in health care governance. Established in 2004, the GCE provides a broad range of relevant services, educational programs, and resources including the Guide to Good Governance: Not-for-Profit and Charitable Organizations (2009). Like the first edition, the second edition of the Guide to Good Governance: Not-for-Profit and Charitable Organizations, provides a comprehensive overview of the key components of good governance practices, as well as templates and tools to implement and support these practices.

The Government of Ontario's Not-for-Profit Corporations Act is scheduled to come into effect no earlier than six months after Bill 85 (Companies Statute Law Amendment Act, 2013) is passed. Bill 85 would make a number of amendments to the new Act and is expected to be debated and passed in the fall of 2013. The Notfor-Profit Corporations Act (Ontario) will replace the Corporations Act as the governing statute for non-share capital corporations in Ontario. To the best extent possible under the circumstances, this second edition of the Guide clarifies how the Not-for-Profit Corporations Act (Ontario) will affect governance and how to navigate these changes. This Guide has also been updated to reflect emerging trends and best practices in board roles. The GCE will be completing any necessary updates to this Guide once the Not-for-Profit Corporations Act (Ontario) is in force.

The resource materials found in the Guide are intended for use by all not-for-profit and charitable organizations. However, they may need to be adapted to meet the needs of specific institutions and, as such, organizations are encouraged to customize the tools and templates to meet their unique circumstances. We also anticipate that organizations may wish to consult the Guide for different purposes. For example, new board members may utilize the Guide to familiarize themselves with governance practices and processes, while more experienced board chairs and secretaries may look to the Guide to supplement their practices in a particular area. It is not expected that organizations will adopt the Guide in its entirety.

The Guide is not intended, nor should it be construed, as legal advice. Those concerned about the applicability of specific governance practices to their organization are advised to seek legal or professional advice based on their particular circumstances. Although the Guide contains a list of resources and references, it does not provide a synthesis of the literature with respect to governance. For those interested in a review of the literature, we would recommend consulting the list of references provided in Appendix II.

As the not-for-profit and charitable sector continues to improve its governance processes and practices, additional resources will be needed. The OHA and GCE look forward to developing additional tools and resources that will supplement the contents of the Guide, and to offer educational programming based on the best practices outlined in the Guide.

ISBN # 978-0-88621-352-7

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About the Authors

PRINCIPAL AUTHORS

Anne Corbett

Anne Corbett is a Senior Partner with the law firm of Borden Ladner Gervais LLP in Toronto, where she specializes in the areas of corporate commercial law and health law, with a special emphasis on corporate governance. Anne is involved in providing advice to boards of not-for-profit corporations and pension administrators with respect to governance issues. She has also been involved in several not-for-profit amalgamations and restructurings, and in transactions between charities and the private sector involving partnerships, outsourcing and joint venture arrangements. She provides advice to health service providers, education institutions, trade associations, fundraising foundations, research institutes and shared service corporations. She is a recognized expert on corporate governance. She frequently conducts board education sessions and facilitates board retreats. Anne is the principal author of the 2005 Guide to Good Governance (for hospitals) and co-author of the 2009 Guide to Good Governance for Not-for-Profit and Charitable Organizations, and the 2011 Guide to Good Governance (for hospitals). She is one of the authors of Quality and Patient Safety: Understanding the Role of the Board (2008, Ontario Hospital Association). She is a frequent speaker for the Ontario Hospital Association on topics related to directors' fiduciary duties, governance and accountability. Anne Corbett received her B.A. from the University of Windsor in 1976, her LL.B. from the University of Toronto in 1979, and was called to the Bar of Ontario in 1981.

James M. Mackay

Jim Mackay is the Managing Partner of the Berkeley Consulting Group and a member of faculty at the Schulich School of Business (York University). Formed in 1985, the Berkeley Consulting Group, with its network of associates, provides top management leadership advice, strategic planning, organization effectiveness, and governance reviews to private, public and not-for-profit sector clients. Jim has personally provided business top managers with leadership advice globally. Jim brings his own blend of fresh ideas and strategic thinking. He is the co-author of the 2005 Guide to Good Governance (for hospitals) and co-author of the 2009 Guide to Good Governance for Not-for-Profit and Charitable Organizations, and the 2011 Guide to Good Governance (for hospitals). Jim has conducted governance courses across the province for the Ontario Hospital Association and the Maytree Foundation since 2006. As an Adjunct Professor of Strategy at the Schulich School of Business (York University), he has been teaching part-time in the MBA program since 1985. In 2010, Jim became the Director, Strategy Field Studies, where he leads the core second year course taken by 500 MBAs annually. Jim received his B.A. from the University of Toronto (Hons. Economics), his MBA from the Richard Ivey School of Business, University of Western Ontario, and he is a Certified Management Consultant (CMC). Laren Stadelman, a Berkeley Senior Associate, assisted Jim in the research for this edition of the Guide.

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Contributing Author

Pamela L. Cross

Pamela Cross, a Partner in the Ottawa office of Borden Ladner Gervais, LLP and head of the Ottawa Tax Group, is the contributing author on Chapter 3. She practices in the areas of taxation (domestic and international), estate and business succession planning, and tax litigation and dispute resolution. Pamela works with charitable organizations, public and private foundations and nonprofit organizations, providing advice on structuring donations, governance, and the legislative framework governing these entities. She has been qualified as an expert before the Ontario Superior Court of Justice and has provided testimony with respect to tax matters. Pamela has also presented at local, regional and national

conferences and has co-authored several books on Tax Treaties. In 2006, she received a "Forty under 40" award from the Ottawa Business Journal. She has been recognized by The Best Lawyers in Canada (Trust and Estates) and in Canadian Legal Lexpert Directory (Estate and Personal Tax Planning). Pamela is Secretary of Society of Trust and Estate Planners Canada (STEP), Chair of STEP's Tax Technical Committee, Co-chair of STEP's National Conference and a member of the Canadian Venture Capital Association Tax Policy Committee (since 2006).

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Table of Contents

Introduction to the Guide

I

About the Authors

II

Chapter 1: Framework for Good Governance

1

Objective: Good Governance of Not-For-Profit Corporations

1

The Audience: A Broad Spectrum of Not-For-Profit Boards

1

A Framework for Good Governance

2

Condition #1 ? The Board's Role

3

Condition #2 ? Board Quality

3

Condition #3 ? Board Structure and Processes

3

Boards Responsible for their Own Governance

4

Chapter 2: The Not-For-Profit Corporation

5

What is a Corporation?

5

The Not-For-Profit Corporation

5

Creating a Not-For-Profit Corporation

5

Transitioning to the new Canada Not-for-Profit Corporations Act

and Not-for-Profit Corporations Act (Ontario)

6

The Range of Not-for-Profit Entities

7

Soliciting Corporations and Public Benefit Corporations

7

Focus of the Guide

8

Not-For-Profit Corporations and the Income Tax Act (Canada)

8

Corporate Governance Structure

8

Best Interests of the Corporation

10

Understanding Corporate Accountability

10

Factors that Impact Governance

12

Summary

12

Chapter 3: Legislation Governing Charities

19

What Directors Need to Know

19

What is a Charity?

19

Becoming a Registered Charity

19

Instructions for Issuing a CharitableTax Receipt

20

Losing Charitable Status

22

Intermediate Penalties

25

Improper Gifting Arrangements

25

Provincial Law ? Ontario

25

Provincial Law ? Other Jurisdictions

27

Personal Liability of Directors of Charitable Corporations

27

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