Mission-Based Governance

Board Governance: Legal Dimensions

The Institute’s primary interest is in the governance of public purpose organizations. These include charities, government agencies, crown corporations, associations and other non-profits, umbrella voluntary sector groups, community colleges, universities and hospitals.

Organizations for public good are typically created either by government or under a relevant statute like the Canada Corporations Act. If an organization is created by government, a specific piece of new legislation may establish it. Otherwise it may be created under the umbrella of existing legislation such as the federal Financial Administration Act. However, the vast majority of public purpose organizations are created on the initiative of Canadian citizens and are incorporated under the Canada Corporations Act or an equivalent provincial statute.

Different Forms of Legal Status

Typically, under legislation, most public purpose organizations have a board. A board of directors is the primary entity for fulfilling the governance role but the governance role is typically shared with staff to one degree or another.

A corporation established in law, whether by government or by citizens, is a legally constituted entity that has the status of a person in the eyes of the law.

The board, as the body tasked with stewardship of the organization:

• can be held accountable under the law for performance & actions of the organization.
• carries the public trust and accountability on behalf of the organization it governs.
• must comply with the corporation’s bylaws, relevant provisions of the statute under which the organization is incorporated and the rules established under common law governing directors’ duties.

Directors are required to exercise their power with competence (or skill) and diligence in the best interests of the corporation. They owe what is called a “fiduciary duty” to the organization. It is “fiduciary” because the obligation to act in the best interests of the corporation is an obligation of loyalty, honesty and good faith.