Five Good Ideas for aspiring board directors
Boards and directors are coming under increased pressure to be “on top of their game.” This involves a clear understanding of their fiduciary duty and duty of care, the foundational elements of good governance. In addition, modern governance involves a commitment to EDI and ESG – and ensuring that these principles are included in their governance structure. All this while continuing their responsibilities of oversight in regards to sustaining the long-term viability of the organization, and the monitoring of risks the organization faces. Richard Powers, Associate Professor at the Rotman School of Management, presents his five good ideas on how new and seasoned board directors can better manage their roles and contribute in a more meaningful way to the organizations they represent.
Five Good Ideas
- Understand your Fiduciary Duty and Duty of Care as a director
- Understand the “information chasm” – you will never know as much as management
- Determine which director skill sets are required to maximize your potential as a Board
- Understand the importance of succession plans for the CEO/Executive Director and Board members
- Stay on top of financials – embrace financial literacy
- Institute of Corporate Directors (ICD): The website is a “go-to” resource for Canada’s directors and boards.
- Imagine Canada: Learn more about this national charitable organization with the goal to strengthen the sector’s collective voice, create opportunities to connect and learn from each other, and build the sector’s capacity to succeed.
- The Chartered Professional Accounts Canada (CPA): The website lists a number of articles in its “20 Questions” series.
- Canadian Coalition of Good Governance (CCGG): CCGG promotes good governance practices in Canadian public companies.
- Governance Professionals of Canada (GPC): GPC‘s mandate is to be the voice of governance professionals in Canada.
- Maytree’s Five Good Ideas collection on governance: find other sessions to help you in your journey as a board director
Please note: This transcript has been edited for clarity.
Elizabeth McIsaac: Like many of you, I’ve had the privilege of serving on a number of boards throughout my career, and I’ve seen firsthand the incredible impact and growth it can bring to individuals and organizations. I’m a firm believer in the value of board service and recommend it to anyone with a passion for creating positive change. However, as you begin or, like me, continue your board journey, it’s critical to have a clear understanding of what to expect and what’s expected of you.
Today’s conversation will set you up with insights to ensure your board experience is both fulfilling and effective in contributing to the cause you’re passionate about.
Our guest today is an exceptional expert in the field of governance and board leadership, Rick Powers. Rick brings a wealth of experience and knowledge to the table, and his insights will inspire you to be on top of your game as board directors.
Richard Powers: Thanks very much, Elizabeth. Happy to be here.
Elizabeth McIsaac: Can you start off by telling us why we need to be concerned about the role of boards and good governance?
Richard Powers: There’s compelling research that shows that good governance leads to better performance, better decisions, and really assists organizations in trying to be the best that they can be. Good governance leads to better boards and better organizations.
Elizabeth McIsaac: Then let’s get started with the good ideas.
Richard Powers: First, understand your fiduciary duty and duty of care as a director. These are the two foundational elements that a director has to understand and adhere to. Whenever you hear the word fiduciary, think of the word trust. As a fiduciary, you are in the highest position of trust. Examples of a fiduciary duty would be doctor-patient and lawyer-client. You have to put another party or another group’s interests ahead of your own.
In Canada, a director’s fiduciary duty is owed to the organization. That came out of a case involving Bell Canada Enterprises and the Ontario Teachers’ Plan in 2008. It is different in different countries. In the United States in the corporate environment, fiduciary duty is owed to the shareholders, rather than the organization.
That does not mean you disregard the interests of all the other stakeholders. Every organization has a number of different stakeholders. But oftentimes there will be conflicts between stakeholders. In a situation like that, a director and a board have to make a decision that is in the best interest of the organization.
Second, recognize your duty of care as a director. Fortunately, it is a reasonable standard. You don’t have to be extraordinary. You’re allowed to make mistakes. But in assessing whether someone has met the “reasonable person” test, that’s the legal term for it, they’ll take a look at their various skillsets.
So as a lawyer sitting on a board, if a board’s decision wereT ever questioned, one would ask, “For someone with 20 years corporate law experience, was that a reasonable decision given their background and skillset?” It’s either above the bar or below the bar.
One of the good things about that is that we bring on specific skillsets to boards to help them function better and more properly. But in doing so, we have to recognize we don’t leave our professional or skillsets at the door. We bring them into the meeting with us.
When we sit around that table, we have to be prepared, we have to have read the material in advance and understand the decisions that we’re being asked to make. As long as we do that reasonably, there’s no problem.
I might add, it is very rare to have a successful lawsuit against a director in any sector in Canada. Now that doesn’t mean you won’t get sued. The operative word there is successful. It costs the plaintiff $0 to add your name to a claim. But the last thing we would want to do is dissuade people from joining boards. There are numerous ways to protect yourself to make sure that you are properly protected and your personal assets wouldn’t be put at risk.
So first key idea is the idea of understanding your fiduciary duty owed to the organization and your duty of care, a reasonable standard of care, respective of your skill sets.
Elizabeth McIsaac: Are there places that we can go to deepen our understanding of what fiduciary duty looks like in particular context?
Richard Powers: Most organizations will have a board charter where they actually stipulate the fiduciary duty will be owed to the organization.
I’ll give you an example of a golf club. The members don’t want to pay any higher fees per year, but the board takes a look at the costs needed to maintain the quality of facilities at this golf club. They say, well, we’re going to have to increase the membership fees because that’s our club’s primary source of income.
So where the members may not appreciate an increase in fees, the directors are looking at the best interest of the organization. The best interest of the golf club in this case would put forward an increase in fees in order to maintain the quality of the course as required.
So you can see how those conflicts would come up. And, Elizabeth, conflicts are the biggest area that I get called upon. A conflict can be direct or indirect. The perception of a conflict is just as important as a real conflict. But obviously a direct conflict would be where you have a financial interest in an organization or the organization has been presented with a Request for Proposals (RFP) and you have a financial interest in that. In such situations, you would recuse yourself, you wouldn’t participate in discussions, you wouldn’t vote, obviously.
And you should leave the room. We’re human. People won’t say things in front of you that they would when you’re out of the room. Once you’ve declared the conflict, you should leave the room in order to allow the rest of the board to have that discussion.
The other fact is that by staying in the room, you may become privy to information that would be helpful at a later stage.
Elizabeth McIsaac: Right, so what’s the next thing a new board member or an existing board member should be thinking about?
Richard Powers: Then we get into the realities of being a board member. You will never know as much as management. We call this the information chasm.
Elizabeth, how many hours a year do you work?
Elizabeth McIsaac: Too many.
Richard Powers: Okay, well, you can get to 2000 pretty easy. 40 hours a week, 50 weeks a year, there’s 2000 hours.
How many hours do directors spend? Well, for non-profits it’s around 150 hours. If you’re the chair, double it. Taking on a chair position, always an honor to be selected as the chair or offered the chair position, but understand you’ve just doubled your workload. It just takes that much more time to do an effective job as a chair. But even at 300 hours and management working 2000, you can see the delta there is just too wide. So that’s the information chasm. You will never know as much as management, and you’ll always be put into situations where you’re required to make decisions without complete information.
You do the best you can. Remember I just talked about the standard of care, being a reasonable standard of care, not an extraordinary standard. So understanding that we are to a large part captive by management. And so how do you add value in a situation like that? Well, you add value by asking good questions, by asking better questions, doing your homework, understanding the organization, understanding the competition, the competitive environment as well. Because in all environments, including not-for-profit, there are competing forces or competing issues, competing organizations competing for funding. So lots of situations, you have to understand the sector in order to add value. And the best way you add value is by asking better questions.
Elizabeth McIsaac: Also balancing that line between dipping into the operations and staying at a governance level.
Richard Powers: Many boards start out as what we would term a “working board.” I’ve certainly been on working boards in the past where the organization is small, maybe a bit unsophisticated, may not have the funding available. So the board members are actually doing a lot of the work. They may be management and board members all at the same time. More organizations that grow and become more sophisticated generally move to more of a governance model. And that’s where we get a clear separation between the role of management and the role of the board.
We use the term NIFO: Noses in. Fingers out. That used to be a hard line. It isn’t any longer. Certainly in a crisis it’s all hands on deck. A good CEO or executive director will access the skill sets on their board of directors to help them do their job. They can’t be an expert in everything.
Two things happen when the board gets involved in operations. One, you undermine the authority of your CEO. Two, the board becomes responsible for those decisions. How can you hold the CEO responsible when the board is getting involved in the day-to-day decisions? And a CEO should push back on in a situation like that. There has to be that separation.
And again, the board will never know as much as management. So it’s almost negligent for them to get involved in day-to-day operations because they don’t know as much as management. They can’t. There isn’t enough time.
A good chair will monitor that separation as well.
Elizabeth McIsaac: Respect what the CEO knows, but then also be prepared to bring your skills forward. So what are the director skills that are needed?
Richard Powers: That’s different for every organization and I think that’s one of the things that organizations have to sit down and really give some thought to.
As an example, I used to be involved in Childhood Cancer Canada, and I remember sitting down with the CEO and the chair and asking, “Okay, in a perfect world what skill sets would we want on this board?”
And it’s pretty easy to do. We call this a skills matrix. Along the left hand, we would have “nice to have.” Some with some financial acumen, some legal expertise. It’s a medical charity, so you’d like some practitioners, some doctors that work in oncology. You’d want other sector experience or other skill sets, like HR.
In a not-for-profit, depending on the board, someone experienced with fundraising is an essential skill. Many organizations, as you would know, Elizabeth, have split off that fundraising component to a foundation or something. But smaller organizations, they’re all-in-one. So there will be some people on the board that have some understanding of that.
Then asking, Do we have that on the board currently? If we don’t, should we be recruiting for that? And that’s where you can really build up the strength of your board.
As I said, there are certain skill sets — financial, legal, things like that — that all boards could benefit from. But then depending on the board, depending on the sector that it’s in, those specific skill sets will be identified. Applying that matrix to your current board, where are the gaps?
Most boards today have term limits. The most common term being three years. Provincial and federal legislation across the country has limited a term to a maximum of four years in the not-for-profit sector. What it didn’t do is say how many of those four year terms you can have. So most organizations are coming down with two, perhaps three at most.
So at a certain point that person is going to leave the board. What skill sets are they taking away? Are they covered by somebody else on the board? Or in terms of succession, should we be recruiting other directors with those skill sets?
One idea that not-for-profits have done very, very well — corporate not so well — is bringing people onto committees first. So we call that evergreening and what you’re doing is you’re developing a potential pool of candidates for the board.
It gives the candidate or potential candidate for the board an opportunity to test drive this organization. Is this an organization I’d like to get involved in? Do I believe in what they’re doing? Do I understand the organization? It also gives the organization an opportunity to test drive them. Is the candidate conciliatory? Do they work well with other people? Do they add value to the organization? Are they passionate about the cause? And that I cannot emphasize too much, overly emphasize, are they passionate about the cause? And by doing that, again, it’s much easier to bring someone onto a committee. You don’t have to go through an election or anything like that. And you are developing a pool of potential candidates that could assume a board position in the future.
Elizabeth McIsaac: So that’s a nice segue into your fourth good idea.
Richard Powers: Succession plans for the CEO executive director and board members.
Well, let’s start with the CEO or the executive director. It amazes me, it really does that very few organizations spend nearly enough time on this. Oftentimes, a CEO or an executive director, if they’ve been with the organization a while, will say, “I plan to leave in two years.” And that’s great. The worry around that is they become a lame duck. So most CEOs or executive directors, if they decide to leave, give the board reasonable notice, but not a long runway.
So the board should constantly be thinking about this. Even with new hires. I did some work with a healthcare facility in Eastern Canada a short while ago. They had just gone through a change at the top. And in my final report, I wasn’t critical, but I said, you should really be considering about succession. And they jumped back on me. “Rick, give us a break. We just hired our CEO.” Well, what if that CEO can’t come to work tomorrow? There’s a family emergency or a health crisis. They should have a short term and a longer term plan.
The research is quite clear. Your fortunes in terms of a new CEO are much better if you can promote from within. But many organizations don’t have the financial capacity to have a strong number two. They just can’t afford it. So they should have a checklist, or a list of potential candidates, other organizations that in a pinch we could go to or in terms of a timely succession, we could start to contact.
But succession planning is so important and the board has, when we go back to our idea of governance versus operational, the board has one employee, the CEO, and they have to respect that. But another part of that job is the succession plan for that CEO. So as much as they can, as their resources will allow, they have to have that.
But there are situations where you don’t want to hire from within. And I don’t want to throw anybody under the bus here, but a lot of Hockey Canada’s issues were endemic to the organization. We don’t know all the facts and we probably never will. But once the CEO stepped down, a management team took over and it was very clear right from the beginning they were not going to appoint from within.
They’ve just appointed Katherine Henderson, who’s the former CEO of Curling Candidate. I cannot think of a better candidate to lead this organization. They’re going to need a culture change and she will bring that culture change. It’s very hard to do that from within because those people have been inoculated in the current culture. That’s where you have to go outside the organization. And again, I have full faith that Hockey Canada will be successful in turning the organization around. And Katherine and Hugh Fraser, the board chair, are certainly the people to lead it.
Elizabeth McIsaac: That’s a great example because it gets into that cultural piece, which is so critical to an organization’s ability to thrive and live out its vision. Your fifth idea is one that I always drag myself to reluctantly because I’m not, as you saw with how many hours a year I work, I’m not good with the math.
So what is your fifth idea?
Richard Powers: Understand the financials. Financial literacy is the term everybody’s using today. What does it mean? Well, it certainly doesn’t mean you have to have a CPA or some other financial or accounting designation, but at a very general level, it means to understand financial statements. As a board, you are going to be asked to approve the financial statements. We have audit committees where you’ll have that financial acumen around the table. They can do the heavy lifting, but those financials do come back to the board. What do they say? You should understand the difference between a balance sheet and an income statement, a cashflow statement.
There are lots of organizations and opportunities to buttress your skills around financial acumen. At the Rotman School, we run a short program. The organization that we’re involved with, the ICD, Institute of Corporate Directors, occasionally run these financial literacy programs. I know there’s others as well around the country. They’re short, inexpensive, and very, very valuable. If you understand the financials, then you’re a long way into having a very successful organization.
And Elizabeth, we know there have been examples where people have not been on top of the financials.
Now again, we never know all of the facts, but look at Goodwill Toronto in 2016. The story goes on a Thursday night at 10 o’clock, the board was meeting and they find out they have a payroll the next day they can’t meet. How does a situation like that develop? How does it happen? Well, again, we don’t know all of the facts, so it’s unfair to go back and criticize the board or management. But something happened there, and as a result, Goodwill went bankrupt and closed all its stores. Now it’s resurrected itself, but not nearly to the size it was before.
These things can happen. So having a good understanding of the financials, like what is the monthly burn? Where are financial sources? Not being dependent on one financial source. I’ve certainly been involved in a couple of organizations where we are dependent on government funding and all of a sudden that government funding stops and that can have catastrophic effects on the mission of an organization. So having other sources of funding.
If it’s a corporate donor, situations change, executives change, priorities change, and you may not be their priority in the future. For example, for our governance essentials program, we were very fortunate years ago to have TELUS Corporation as a sponsor, and they were wonderful, but their focus shifted to more children’s based charities and they gave us a three-year runway. They said, we’re going to give you 100% this year, two thirds next year, a third the year after. That gave us three years to go out and find another funder, and again, we are very fortunate to attract the Royal Bank of Canada Foundation who have been a very generous funder of the program for a number of years now. So first of all, hats off to TELUS, the way they did that was excellent. Understand the priorities can change and obviously had hats off to RBC Foundation for coming in to help us run what is a really valuable program in the not-for-profit sector.
Elizabeth McIsaac: So, thank you. We already have a bunch of questions coming through the Q&A box. I want to start with one that goes back to some work that Matytree did a number of years ago, which is diversifying boards. We have very serious and important conversations and objectives around EDI and ESG goals for organizations. Do you have some thoughts about how that gets integrated into the board matrix, the governance structures?
Richard Powers: Excellent question, Elizabeth, and there is a focus obviously on diversity. If I can just jump to corporate Canada for a moment. Corporate Canada has been looking at this for a while, and they’ve really focused on one aspect of diversity, gender, and they’ve been very successful. Last year in Canada, 53% of new board members were female. They’re not 50-50 yet. But with more women joining boards now than before, we’ll get there eventually. We’ll get to 50-50 or pretty close to that as it should be. But that’s only one aspect of diversity.
Maytree is very involved in all aspects of diversity. So how do we ensure that other aspects are present on your board? Well, first of all, the process for succession should start right after the the annual general meeting for the next year or the next election cycle. Typically, the AGM is coming up and the chair looks down the table at a board meeting and says four words, “Does anybody know anyone?” And we tend to know people who look a lot like us. So if you really want to have diversity and diversity comes with diversity of thought as well, you have to give yourself a longer runway.
I have an excellent example. I actually sit on the nominations committee for the Canadian Olympic Committee (COC). It is a very diverse board because we work at it. We have an election cycle every two years. You have to have the skill sets, but you can also have diversity. So we match skill sets with diverse candidates.
It is the most robust nominations process or elections process that I’ve ever been involved in. The results are clear. I would encourage people to take a look at the COC board and just see how diverse it is. Now you can’t tell everything on it by looking at a person or just reading their bio, but for just about any aspect of diversity you could talk about, we have members on the COC that represent that area of diversity. It comes down to some hard choices sometimes, but if diversity is important, you make those.
Elizabeth McIsaac: There’s an add-on question to that that’s come up in the Q&A box. When you’re recruiting for boards, how do you reconcile the tension between professional the skills matrix and good community representation? So some of the diversity that you might be looking for, from racialized groups, perhaps people with lived experience, people who have been clients or users of the organization’s programs, and they may not have the typical board skills, but still bring important perspectives to the board work. How do you strike that balance?
Richard Powers: Well, I guess if the question is how do you strike the balance between skillsets and diversity, that would assume that you can’t have both. And my answer would be yes, you can. I’ll give you an example. We at the Canadian Olympic Committee put out a call for directors and the first tranche of candidates did not represent all of the areas of diversity that we were looking for. The board had talked about this, and I think they’d given us 11 different areas of diversity. Everything from French-English to able-athlete to para-athlete to summer sport, winter sport, to just LGBTQ, it just goes on and on. There was a laundry list.
And I remember looking at it and thinking, how are we going to find all these candidates and have the appropriate skill sets as well? Well, the first tranche of candidates did not represent some of the concerns we had around diversity. But remember I talked about giving yourself a longer runway? We had the time to go out and discuss these issues among our committee. We were able to identify people that did have those skill sets and represented different aspects of diversity or lived experience. We went and asked them. And what’s surprising is, first of all, they were eager to assist, and two, they’d never been asked. That was the issue. So again, giving yourself a longer runway, recognizing that skill sets and diversity can have both and going after it. It’s a task, but it’s a very important task. And you will end up with a diverse board if you follow those steps.
Elizabeth McIsaac: This session is about getting people thinking about joining a board and what their considerations should be. Can you comment on doing your due diligence before joining a board?
Richard Powers: A couple of things there, Elizabeth. I teach a course on governance to the executive MBAs who tend to be a bit older than MBAs. MBAs are early 20s or so. Executive MBAs tend to be in their 30s, early 40s. Just a bit more work experience. Oftentimes at the end of the program, they say, “I really hadn’t thought of joining a board. I really enjoyed the course. What board do you think I should join?” And I can’t tell you that. You have to be passionate about the cause or you won’t stay. So think about the things that are important to you.
Then approach a board and ask to get involved in a committee. That is a very good first step because as I mentioned previously, you don’t have to go through an elective process. It’s really up to the chair and the chair of that committee and possibly the CEO to determine whether you have an appropriate skillset that could add value.
As you get involved, ask to see certain things. I would want to see the strategic plan. I would want to see their financial statements, particularly the notes to the financial statements. Are there any impending lawsuits, for instance, that the organization is dealing with?
Talk to senior management. Talk to other directors. Many boards will have a mentoring system where a senior director mentors a new director. There’s limited time that you have at your board meetings. It’s always very helpful to have that relationship with another director where you can ask, “Can you give me a few minutes? I don’t understand the background of that. How’d we get here? Why are we making this decision?” Rather than taking up valuable time of the board, they can have those off board discussions to fill each other in and really act as a true mentor.
The other thing is to make sure you have director and officer liability insurance in place. I can’t overemphasize the need for that. Most organizations bylaws will have an indemnity where they will indemnify you against any costs or expenses you may incur in your role as a director or officer of the organization. That’s the first step. That’s great. Actually, a previous first step is just to do your job as a director. Remember, as long as you’ve met that reasonable standard of care, that’s your first line of protection. Do your job as a director. Second, make sure that there’s an indemnity in place.
Now, the only problem with an indemnity is it assumes that the organization has some assets that could be used to backstop any potential claims. I remember years ago sitting on the board of directors at Rugby Canada, and the issue came up about increasing our director and officer liability insurance. And our CEO at the time said, “No, you don’t need to worry about that. You’re all indemnified by Rugby Canada.” Well, a quick search revealed that we had about 42 rugby balls, maybe some of those orange cones that the coaches use and some kit. We had less than $15,000 worth of assets. So on paper, the indemnity was great. In practice, it was worth zero.
So having director and officer liability insurance, and that is very important. The plus side of that is in Canada, it is very inexpensive. So it doesn’t make any sense why any organization would not have it. Why would you put your personal assets at risk? And they are at risk in the absence of a director and officer liability policy. It could be a wrongful dismissal. It could be a slip and fall. It could be anything.
It costs the plaintiff $0 to add the board’s names to a potential claim. And in Canada, that director and office liability insurance is used primarily to fund the cost of defense. As I said, very rare to have a successful lawsuit against the director in Canada, but you still have to defend it. Who’s going to pay for the defense? That’s why you have director and officer liability insurance. So all those things, understand the strategic plan, understand the financial position of the organization, a mentoring system or the opportunity to speak to management and other directors, and making sure you have insurance in place.
Elizabeth McIsaac: Your second good idea was recognizing and understanding the information chasm. Given that, can you recommend or provide a good practice or a best practice to monitor and review the CEO or ED’S performance? How do you effectively do that when there is that big difference in knowledge and contact?
Richard Powers: In working with the CEO and executive director, the board should be having some goals, or as part of their review, there should have been a mandate for the CEO or the executive director things that they should be accomplishing each year. It’s usually done on an annual basis. It can be done more often or less. I wouldn’t suggest less often, but certainly it could be done a little bit more often every six months or so. But there’s certain goals and objectives that would be part of an assessment of the CEO’s performance. Tracking against those along the way, that’s where the chair’s role becomes very important.
The chair and the CEO should be good buddies or good friends. They have to. In corporate, it used to be a situation in Canada where the CEO would also be chair of the board. Now, we’ve moved away from that probably two decades ago. But in the United States, in corporate USA, it is still quite common where the CEO is also the chair of the board. So they’re obviously going to be good friends. They’re the same person. But in Canada, and certainly in the not-for-profit, we have that clear separation of roles and duties.
So as far as the CEO performance, there should be certain goals and objectives that are outlined in advance so the CEO knows what they’re going to be judged on, what their performance is going to be based on, and a regular discussion on how they’re tracking against those goals.
A good chair will be following the CEO’s performance, comparing their performance against the various goals and objectives that have been outlined for the year and keeping them informed. It shouldn’t be a surprise at the end of the year if the chair sits down with the CEO and says, listen, you did a great job on A, B, and C, but we didn’t see much movement on D, E, and F, so maybe next year these are the things that we want to work on.
Also, oftentimes, for the performance of a CEO, there’s a bonus or some kind of monetary award tracked or attached to those. It should not be a surprise to the CEO at the end of the year that they did not get their full bonus. They didn’t get it because they didn’t perform as expected. So I guess regular updates on the performance tracking against goals and objectives, outlining exactly what those goals and objectives are in advance, and then monitoring the CEO’s performance throughout the year is probably the best way.
Elizabeth McIsaac: Earlier in our conversation, you talked about the fact that there’s some micro organizations that have a much more hands-on operational kind of board, and then others are more policy boards, advisory boards. One person is asking, when you’re moving from one to the other, when you are growing and now you want to morph into a board that is more advisory, more governance, more policy focused, do you have tips on how to manage that sensitively in a way that empowers the board to start thinking outward and to get out of the weeds?
Richard Powers: The chair of the board is critical in making that transition from a working board to a governance board. And that’s where the chair really has to pull back the directors. I’ve certainly been on a number of boards where we’ve gone through that transition. And when a director comments or is questioning or drilling down too far into the organization, into the management of the organization’s operations, a good chair will pull them back and say, “Elizabeth, good question, but let’s leave that with Rick for now. That’s his job. All right, we want to focus on some other issues here.” And steer the discussion back to more governance issues. The governance role of the board.
There’s no magic bullet there. Sometimes the board has to get involved in operations because there may be a crisis or they’re lending their expertise. But generally, a good chair will manage that transition from a working board to a governance board. And it really is identifying those areas that are operational and leaving them with management and leaving the board to look at the governance issues.
We haven’t talked about committees yet, but a board can delegate responsibility to committees. They cannot abdicate that decision-making responsibility. Committees make recommendations to the board.
The standard committees that you’re going to have are an audit or finance committee. I would suggest you have a governance and nominations committee and oftentimes an HR committee. Now depending on the sector, depending on the business or the mission of the organization, you may have others. In healthcare, they’re required to have a quality committee, for instance. And there may be other legislation demands of certain organizations. But with those committees and the idea that a lot of the heavy lifting takes place at committees, you don’t want to rehash everything at the board level.
That’s one of the other things I’ve seen in the past where someone on a committee didn’t feel that the other people followed their direction, so they didn’t win at committee. So now they try to win the argument at the board. No, that just duplicates the role of the committees and the boards and wastes time and time is the most precious resource that you have.
Elizabeth McIsaac: So that’s interesting that you’ve touched on the committees as another lever in moving a direction of a board because someone adds onto this with the question of, well, what happens if the board chair actually isn’t understanding that they’re in the weeds? Are there strategies or is there any advice on how to manage that power relationship if the chair isn’t in the right place?
Richard Powers: Other board members maybe who understand the process a little bit better can sit down with the chair and say, “Listen, I think we’re getting too much in the weeds here.” I can tell you the CEO will be on top of that, too, because they understand that it does undermine their authority in the organization, and it creates confusion within the organization. Who do employees report to? Is it the CEO or is it the chair?
To have proper governance, there has to be some holdback. Unless there’s a specific purpose or it’s been set up in advance, directors should not be contacting staff directly and asking them to do things for them. It really puts a staff person in a difficult position. They’re being assessed by the CEO, but here they’re not doing their job necessarily, they’re doing other work for a board member. So when a board member has questions, oftentimes they should be directed through the chair. So the chair can inform the CEO, and we can get the answers that way. But again, having directors contact staff directly is a recipe for disaster in most situations.
Elizabeth McIsaac: Here’s a really good straightforward Governance 101 question for you. Can or should a paid employee like the CEO or the ED be a member of the board? Do they sit on the full board or do they sit in on board meetings?
Richard Powers: That’s a good question and fortunately I know the answer. So that’s even better.
In corporate Canada, it would be rare for a CEO not to sit on the board and not to have a vote. They just have one vote and an average board size of nine to 12 or so. It’s one view. People could say that’s a pretty powerful view when it comes from the CEO.
In the not-for-profit and ABCs, the CEO does not sit on the board, and as a result, they do not have a vote. We’ve moved a little bit differently in the not-for-profit sector. The CEO reports to the board in order to enhance that independence.
So in the not-for-profit, the CEO does not sit on the board and does not have a vote. However, they do attend board meetings to provide information, and that’s important. Who knows the organization best?
Elizabeth McIsaac: Here is a question that taps into your experience crossing corporate and nonprofit boards and organizations. Within a lot of nonprofits, they have recruited board members who have a lot of experience in the corporate sector because they have the skills needed, but they don’t necessarily understand the context of nonprofit work. As a result, they may try to implement strategies for the nonprofit that don’t really work because nonprofits might have a different logic of what they’re doing. They don’t necessarily run the same as businesses. What suggestions do you have for boards experiencing this tension?
Richard Powers: It’s interesting, because we usually find the opposite that we have board members that leave their corporate skill sets at the door and think that not-for-profits aren’t as important or sophisticated. Well, they are. And I would hazard by saying that they’re more important in many cases. Most organizations can adapt or use those policies or skill sets that worked in corporate.
It’s up to the chair to determine what is the mission of the organization. The difference obviously is we don’t have a share price. We don’t have a return on equity. We don’t have many of the metrics that we’d use to judge corporate. So again, understanding what are the metrics that we’re judging this organization by? What is the mission of the organization?
We have different goals and objectives within the not-for-profit and ABCs in many cases. So understanding exactly what those goals and the mission of the organization are and then adapting some of those policies that have worked in corporate to that environment. I think that’s what they’re asking. How do they do that? Well, with experience. With people who’ve done it before. With a chair that understands the difference between the two different mandates where one is profit oriented and the other is not.
The other thing to understand in most cases, directors on not-for-profits are volunteers. How do you engage volunteers? That goes back to what I talked about previously. They have to have a passion for the mission of the organization. The average salary for a corporate director in a publicly traded company in Canada last year was just over $200,000. That’s what your time is worth.
Now, you may not be putting in the same number of hours. Corporate directors are putting in close to 300 hours per year. We know the stats in the not-for-profit are generally about half that, so that’s about three work weeks. How many blocks of three work weeks do we have to devote to another organization? Do we have a family? Would you like to see them? Are you still working? Are you retired? How many boards can you sit on when you take a look at that? So again, you have to have that passion for the cause or you won’t stay.
Elizabeth McIsaac: How many boards are you going to sign on to? Because what time do you really have to give because you need to do the job well? Because it can be very tempting to say, “Yes, yeah, sure, sign me up and I’ll show up for the meetings.” But there’s pre-meeting work. There’s other things to be done. Making sure that you understand the time commitment is so important.
Richard Powers: It’s a profession and it’s serious work and there’s liability that follows that. So it is important to understand exactly what your role is. Our first point today was understanding your fiduciary duty and standard of care. If you understand those two principles, you’re well on your way to being a good director.
Elizabeth McIsaac: One of the pressures every nonprofit feels is fundraising. Very often the recruitment of board members is also tied up in fundraising capacity. What’s the best rule for a director in fundraising? Or is it just a matter of being clear about the expectations?
Richard Powers: Elizabeth, I think your latter point is the one. Be clear about the expectations.
I had a situation where I joined the board a number of years ago. I went to the very first meeting and the person running the capital campaign got up at the meeting. They said they were very pleased to announce that 92% of the board had made a contribution to the capital campaign. Now, I’d never heard that stat before, and I thought that was fantastic. 92%! Until I looked around the room and realized I was the 8% that they were missing.
In joining in the not-for-profit sector, I think you just have to be clear about the expectations. There is a need for funding. If you’re passionate about the cause, you won’t mind contributing to the organization. It shouldn’t be an expectation. But the reality is that oftentimes board members will be called upon to give some money from their own, I guess, well, their own circumstances to the organizations in respect of that passion for the cause.
Elizabeth McIsaac: In terms of good governance, good practice, what does someone do if they’re a member of a board and their board chair displays racism? I’ll throw in any of the other discriminatory practices: discrimination, harassment, racism, transphobia, sexism, what have you. What do you do if that’s your board chair and you’re a new board member? What are the avenues to call him or her to account?
Richard Powers: The chair is just another board member. They have a different title. In most organizations, the chair is selected by the directors. So once the AGM has taken place, depending on the term that’s in place, obviously, but the incumbent directors choose the chair. Well, the bylaws should also allow for the removal of the chair or a director. Oftentimes, it comes with what we would call, not a simple majority, but perhaps a super majority. So you don’t have factions within the board. That type of behavior should be dealt with right away.
It’s tough to do sometimes because you’re on a volunteer board. The easiest solution is just to leave. But that doesn’t solve the problem. The problem is that you have an inappropriate chair. So how do you remove the chair? Put a motion on the table.
I would suggest that the directors have a conversation with the chair and explain that this behavior is not going to be tolerated. Unless they’re prepared to apologize and change and show how they’re going to change, whether it’s taking some sensitivity training or whatever you want to call it. It might be they just don’t understand some of the principles.
Now, I’d find that hard to believe in the world today that they would not be aware of those types of comments. But I would encourage board members. It takes a strong person, obviously, to put their hand up because there is a power imbalance. I would look to support around other directors. They can’t be the only one that’s heard this and speak with the chair. If there’s no apology or they don’t seem to understand what they’re saying, then I would put a motion on the table to remove the chair. If unsuccessful, then the director has a tough choice. Do they stay with the organization? Do they leave and come back at another time perhaps?
I don’t want to encourage people to leave the organization because they’re there and they’re performing good work, but no one wants to do their work in an environment characterized by that type of behaviour. So you end it.
I’ve been involved with a couple of organizations where that’s happened. But it does take a strong director to put their hand up and say, “Listen, that is inappropriate and we have to do something about it.” So make the change. Remove directors. Most standardized bylaws would have a mechanism for changing or removing a director. A director includes the chair. It doesn’t have to say chair. The chair has a special title, but they are a director.
Elizabeth McIsaac: Is there also value in having organizational or governance policies around anti-racism and anti-harassment as a place to point to as well? Or I mean, at the end of the day, if someone’s going to behave badly, they behave badly. But does that help in any way?
Richard Powers: It does, Elizabeth, but I can tell you, I find it rare where I see those types of policies. The things that you’re talking about right now, I think are table stakes. To participate in this conversation today, people had to adhere to a certain policies of Maytree. So I would make those policies, make sure the board has read those policies, the directors understand them certainly. But again, even without the policies, that type of behavior in today’s environment — those are table stakes. That’s a given as far as I’m concerned. Always nice to put it in front of them so they’ve been made aware of it, but they should be aware of it before they even get there.
Elizabeth McIsaac: Any final advice you have for people thinking about joining a board?
Richard Powers: Boards need our help. We have a tremendous support for volunteerism in Canada. It’s off the charts compared to many other countries. People have an opportunity to give back, and they’re taking that opportunity. Use your skill sets, find organizations you’re passionate about. Find that organization and find some time to give back.
They need our skill sets. They need our support. And if we can, then we can certainly help all Canadians, people right across the country enjoy a more fuller and more satisfying life. The not-for-profit sector is such a huge sector in Canada. Fortunately, we have the people that are supporting it, so I would encourage them and promote good governance.
So thank you for listening today.
Elizabeth McIsaac: Thank you again, Rick. And thank you to our audience for being here.