by Lois Gander

LawNow August / September 2001

Looking into the Future: Legal Education Needs of Not-for-Profit Boards

The past 20 years has seen a rapid expansion in the use of not-for-profit organizations to meet a variety of needs. It is estimated that there are now over 175,000 such agencies in Canada employing 1.3 million people. Every year approximately 7.5 million Canadians provide more than a billion hours in service through voluntary organizations - the equivalent of almost 580,000 full-time jobs. Twenty-one million Canadians make donations to charitable and non-profit organizations totaling approximately $4.5 billion. The voluntary sector has annual revenues of $90 billion and assets worth over $109 billion. This is comparable in size to the economy of British Columbia in 1999.

Through the 1990s, not-for-profit organizations acquired increased responsibilities for essential services with respect to food, clothing, and shelter as well as many others including child welfare, youth crime, correctional services, mental health, secondary health care, and education due to both federal and provincial government policies of privatizing services that they formerly provided.

Internationally, not-for-profits, often referred to as non-governmental organizations (NGOs), are taking on responsibilities for human welfare and, consequently, are demanding to be heard on issues as varied as the environment, the cost of drugs, and world trade.

Volunteers tend to join the boards of not-for-profit organizations because they are committed to the organization's purpose. They may already have or look forward to gaining a measure of expertise in the particular work of the organization whether it be a theatre or a food bank. However, the job of a board member goes beyond supporting the organization's program. Boards are responsible for the overall governance of the organization so board members often must develop considerable expertise in planning, policy development, management, fund development, and public relations.

As the demands on not-for-profit organizations have grown, their affairs have increasingly come within the purview of the law. Important court cases such as Boys and Girls Club and Vancouver Society of Immigrant & Visible Minority Women (see LawNow's not-for-profit section at www.extension.ualberta.ca/ lawnow) have helped to clarify the nature of the legal obligations of not-for-profit organizations. New legislation related to GST and access to information has increased the complexity of record-keeping in organizations. Greater reliance on public funding and private donations has generated increased pressure for accountability. Use of lotteries and other forms of gaming have brought more organizations under the ambit of legislation regulating gambling. Add to that the laws of contract, labour relations, and negligence and a contemporary not-for-profit's legal affairs can be as complex as many a business.

Given the new and increased responsibilities of not-for-profit organizations, it is not surprising to find that board members require more knowledge and sophistication to direct and be accountable for the increasing complexity of the services and fund-development that their organizations entail. Where board members could once reasonably rely on good intentions to satisfy their obligations, they must now exercise a more structured and objective diligence in the management of their organizations' affairs. To become competent in carrying out their responsibilities, board members must assimilate a great deal of information, acquire a range of skills, develop judgment in carrying out their responsibilities effectively, and keep up with changes in their sector and in the not-for-profit sector generally.

Increasingly, this means that board members must have a more substantial understanding of the legal framework in which all not-for-profit organizations operate as well as familiarity with the specific legal context in which their particular services operate. Unfortunately, the law governing not-for-profits has not evolved in an orderly fashion, nor always with regard to the particular needs of such organizations. Originating in early English common law, the Canadian law has been modified by both federal and provincial legislation touching everything from tax to occupier's liability. The law has become a patchwork of cases and statutes layered on an antiquated framework making it difficult to understand and apply the law to modern situations.

Both the voluntary sector and the government recognize that the regulatory framework governing not-for-profit organizations is confusing, complex, and generally inadequate to support the vital role those organizations play in enhancing the quality of life in Canada. Discussions are currently underway with respect to creating a new and coherent body of rules that reflect the realities of organizations that are dependent on volunteer effort. In the meantime, getting well grounded in the current law, keeping up with continuing changes to the law, let alone participating in discussions on potential law reform adds to the challenges of serving on boards.

Legal Education Needs of Members of Boards of Not-for-Profit Organizations

While there are a number of monographs, training programs, web sites, as well as audio and video tapes currently available to help meet the growing need for board development in the not-for-profit sector, the resources to assist board members gain an adequate understanding of their legal environment are particularly limited. (See LN website).

Earlier this year, the Legal Studies Program began a modest project to help alleviate this situation. With funding from the Muttart Foundation, we are developing a series of five workbooks to assist boards in governing their organizations. The new workbooks will complement an existing series of five workbooks that deal with drafting and revising bylaws, recruiting and developing effective board members, developing job descriptions for board members, financial responsibilities of boards, and hiring and performance appraisal of the executive director. These latter workbooks were developed by the Board Development Program of Alberta Community Development also with funding from the Muttart Foundation.

As a first step in moving our project forward, we developed the following inventory of educational needs of board members in Alberta. This catalogue attempts to capture the diversity of needs based on the stage of development of the organization, the legal nature of the organization, the level of experience of volunteers in serving on such boards, the volunteer's position within the board, and the nature of the activities of the particular organization. Not all the needs listed are strictly legal in nature, but most have a legal dimension that should be provided for in board development activities.

Forming a new not-for-profit organization:

• Why form a not-for-profit organization
• The nature of corporate status
• The nature of not-for-profit organizations
• Choices of corporate forms
• Powers and privileges of boards
• Responsibilities of board members
• Procedures for incorporating common forms of not-for-profit organizations
• Becoming a charity

The legal status of the not-for-profit organization:

• The unincorporated association
• The society
• The not-for-profit company
• The federally incorporated not-for-profit organization
• The charity
• Related organizations (for the purpose of fund development or carrying on a business)
• Mergers, takeovers, winding up

The new board member:

• The nature of corporate status
• Distinctions between corporate forms
• How to identify a corporate form
• Understanding a constitution
• The powers and privileges of boards
• The responsibilities of board members
• Conflict of interest, confidentiality, and other ethical considerations
• The nature of not-for-profit organizations
• Being a charity

The on-going board member:

• Recruiting new board members
• Developing Effective Board Members (including job descriptions, conflict resolution, leadership, board evaluation, succession planning)
• Board routines
• Understanding a constitution (including drafting and revising bylaws)
• Policy development versus management
• Accountability
• Financial management (including banking, negotiating lines of credit, investing, negotiating with banks, the Trustee Act, GST and other tax issues)
• How to read financial statements
• Budgeting and financial accountability (including program budgets)
• Record keeping (including Access to Information Act, Freedom of Information and Personal Privacy Act, Personal Information Protection and Electronic Documents Act)
• Fund development (including issuing charitable receipts)
• Working on committees (including the committee mandate, chairing a committee, setting agendas, preparing reports, rules of order)
• Effective communication and media relations
• Strategic planning
• Business plans
• Marketing
• Program evaluation
• Advocacy
• Partnerships, collaboration, mergers
• Hiring and performance appraisal of the Executive Director
• Staffing (including consultants, contractors, employees, volunteers and addressing cross-cultural issues)
• Working with volunteers
• Liability Issues (including negligence, vicarious liability, issues, warning signs, employee wages, fraud, contracts, property, waivers, insurance, bonding)
• Keeping your organization legal
• Keeping up to date: issues and developments affecting the voluntary sector
• Working with advisors (including legal, accounting professionals)

Officers of the not-for-profit organization:

• The role of president (including chairing meetings of the board of directors)
• The role of vice-president
• The role of secretary (including keeping minutes, handling correspondence, using the corporate seal)
• The role of treasurer

The activities of the organization:

• Serving children and other vulnerable groups (vicarious liability, confidentiality)
• Being a landlord
• Carrying on a business
• Social entrepreneurship
• Intellectual property
• Running recreational programs

The Legal Studies Program is actively seeking feedback on this inventory to ensure its completeness.

Meeting the Legal Education Needs of Board Members

A healthy, vibrant democracy requires citizens that are actively engaged in free association with each other in pursuit of common interests. The trend toward increased activity of this sort in Canada appears clear as both the public and governments see voluntary organizations as a welcome alternative to government programs. But as we look into a future of increased use of the not-for-profit organization, we must also consider the need for standards and accountability from this sector. We must look into a future in which legal regulation will be a commonplace characteristic of the affairs of these organizations. If we want volunteers to step forward to serve on these boards of the future, we must make provision for their education so that they can assume and meet their legal obligations.

As the Legal Studies Program moves into the next phase of its workbook project, we will be identifying existing resources and matching them against our inventory of legal education needs. We will be attempting to determine which needs are well-covered and where additional resources are needed. We will then focus our workbooks on five priority areas. In the final phase of the project, we will set our direction for further resource development.

Meeting the full panoply of board development needs is more than any one organization can achieve. There must be a mix of in-person, print and electronic resources to provide volunteers with a comprehensive and coherent approach to meeting their responsibilities as board members. A complete set of resources should include a variety of learning resources for everyone from the prospective member of a small community association through to the president of a large, multi-faceted service. These resources should be accessible in a range of languages and through a continuum of media including in-person, print, audiovisual and electronic forms of communication.

We may never achieve this ideal, but we can take important steps forward to ensure that basic resources are generally accessible. If this can take place within a reworked and realistic regulatory framework, the legal education of board members will not only be manageable but enhance the credibility and functionality of the not-for-profit sector.

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