"What is fiduciary duty anyway? And while you're at it, please explain standard of care."
Too often legal requirements don't make the transition (and translation) from a pure legal dis-cussion to the conversations of everyday life. This is particularly so for many of the legal rules relating to non-profits and charities.
Most of these rules originate in the commercial world: requirements related to the needs and problems of share capital corporations. In turn these concepts are borrowed by the courts and legislators because non-profits have some similarity with their for-profit, corporate cousins. But the family resemblance is not that strong. And as many readers know, trying to use rules bor-rowed from organizations with different purposes is not very helpful. Business corporations are concerned with enhancing the value of their owner's shareholdings. Non-profits and charities strive to fulfill their missions without providing a direct monetary advantage to the people operating the organizations. So what guidelines would be useful?
Legal standards which speak to what charities and non-profits do in their everyday operations and programs would go a long way in assisting people to do their jobs with confidence. A key concern is how money is raised and spent. Whether money is being spent properly and wisely is at the root of most scrutiny. But saying that directors must act honestly, in good faith, and in the best interests of the organization doesn't really help people decide what to do. Instead the focus needs to be on developing techniques to easily identify whether an organization is efficient and effective. In many ways, designing these methods is the flip side of the risk management work which many non-profits and charities are currently doing.
Risk management is a kind of critical thinking: reflecting on the assumptions underlying our ideas and actions and considering alternative ways to think about what we have been doing. Its focus is to provide a systematic method of responding to the dangers in an organization's opera-tions. The goal of risk management is to improve management by acknowledging and control-ling risks. It is about protecting and conserving the organization's resources and providing goods and services sensibly.
It's been said that efficiency is doing the right things well, while effectiveness is knowing the right things to do. If a donor came to you tomorrow with a ten thousand-dollar gift, could you say what it would buy? If you run a youth drop-in centre, could you confidently announce to your prospective donor that the money would support 45 young people in a full range of club activities for one year? Or, if you provide food aid, could you say the money would buy three thousand Christmas hampers? Or, if an international relief agency, could you show that the donor's hard-earned gift would buy one hundred hand-pumped water installations in a particularly needy are a ?
And so on. The applicable legal rules stem from a desire to see that operations are undert a k e n prudently and to provide sanctions if this is not done. Non-profits and charities
- need to be clear about their missions,
- need to develop specific, measurable definitions of results, and
- have to be willing to measure their performance and modify their activities in light of the results they do produce.
The people managing non-profit organizations have to know what their organizations can do and how those objectives are measured. In a world preoccupied with debt and value-for-money, donors and funders are increasingly unwilling to pay for effort unrelated to outcome. For many, one thing done well is better that ten things tried.
An important by-product of results-led operations will be compliance with the myriad of applicable legal standards. Why? Because fiduciary duties, the duty to manage and the duty to exercise the proper standard of care are just expressions of the requirement that right and proper actions be undertaken. The law, with minor exceptions, does not require an assured outcome. It does not hold directors of organisations responsible for particular results. What it does require is that directors exercise good sense in trying to accomplish reasonable goals. Where an organization can say to a donor or funder - "this is what we did in the past, this is what we will do this year, this is how we will meet our objectives, and this is what it will the cost" - good sense is not only being used, it is being re c o rded for display. And that is the reason for the variety of legal rules in the first place.
Laird Hunter is a lawyer with the firm of Worton & Hunter in Edmonton, Alberta.
