by them (or a related person – such as their employer) while they are serving as a director. Should a director receive a benefit without authority to do so, he or she may be held personally liable to repay the benefit received.
In Ontario, for a director of a charity to receive remuneration for services rendered to the charity (i.e., outside of their capacity as director), the charity must bring an application to the Superior Court of Justice, upon consent of the Office of the Public Guardian and Trustee (the “PGT”), under section 13 of the Charities Accounting Act. Section 13 of the Charities Accounting Act permits applicants to obtain a court order dealing with certain charitable matters without having to go to court or commence formal proceedings. Historically, the PGT has been willing to grant consent to section 13 orders permitting remuneration to directors for services rendered outside of their capacity as directors, provided that the applicant demonstrates that:
there is a benefit to the charity by having those specific individuals (or the specific law firm, for instance) provide paid services; and
financial ability of the charity to pay the fees.
Particularly relevant to us, is that generally, the PGT will consent to a charity hiring the law firm of a board member, only if:
-- someone other than the board member provides the legal services;
-- the board member recuses him or herself from board meetings when decisions are being made about the contract between the law firm and the charity; and
-- the legal services rendered by the specific law firm further the best interests of the charity (e.g., the services are provided at a discounted rate or the lawyer providing the services has a demonstrable expertise of value to the charity).
Regardless of whether the organization is charity or an NPO, an important consideration of a non-profit board is whether anything is being done by the organization that may result, on audit, in a loss of the organization’s tax-exempt status.
Directors’ Liability
One element that individuals (other than us, as lawyers) often fail to recognize when choosing to serve on an non-profit board is that with a commitment to serve comes an exposure to liability. Most liability is similar to the liability attributable to directors serving on for-profit boards. However, directors of charity boards are, arguably, subject to increased liability in certain cases by operation of Trust Law. Further, some organizations (particularly religious organizations) exist as unincorporated associations, which does not afford directors with the limitation on liability provided to directors of incorporated entities. This means that directors serving on boards of unincorporated associations may be subject to joint and several unlimited personal liability to satisfy a judgment.Moreover while our seat on a board has the potential to expose us to liability in our personal capacity, it also has the potential to expose our law firms. This is because some claimants will seek to impose liability onto us for actions taken (i.e., advice provided) as a lawyer, rather than as a director. Therefore, it is advisable to ensure that we prudently vet the non-profit before we accept a position on the board. For instance, we should consider the following:
-- the financial condition of the non-profit;
-- the existing press coverage received by the non-profit;
-- the composition of the current directors;
the relationship between the board and management;
-- any existing (or foreseeable) conflicts of interest between us and the non-profit; and
--whether the non-profit maintains directors’ and officers’ liability insurance.
As a means by which to mitigate risk, many firm policies prohibit lawyers from providing legal advice while serving on boards. This can be at odds with the very reason why we have been asked to serve on the board of a non-profit and makes our role as a director-lawyer difficult, since we must adhere stringently to the “nose in, fingers out” approach to board service. As a lawyer-director, we must let management consult with external counsel as appropriate and report to the board the advice of such counsel, rather than take it upon ourselves to advise our fellow board members on the legal issues of the non-profit. This is not to say, however, that our analytical and issue-spotting skills as lawyers still cannot be put to good use (and in fact should
19 BLawyerisH/July, 2017