Navigating The Minefields of Non-Profit Organizations

Non-profit organizations are important contributors in every community.  These organizations provide significant value to aspects of a community that need it the most and are typically driven by the most altruistic intentions.  Often, however, there can be many difficulties that arise in the operation of non-profit organizations.  One of the most common issues, that we see in non-profits, is tension between the people involved in the organization.  This is often rooted in the fact that people involved in these organizations are very passionate about the organization’s cause and have a deeply personal interest in seeing the organization run the way they believe is best.  Usually, directors and members of the organization are volunteers donating their time for a cause they believe in, and this can result in a lack of structure and/or unfamiliarity with corporate governance.

One of the biggest problems we see in non-profit organizations is tension between the board of directors and a disgruntled employee, former employee, or member.  This is often caused when a board of directors takes a different approach to what has previously been done or when the disgruntled employee or member does not feel they are getting what they want on a personal level from the organization.  That employee or member may then go and provide misinformation to other members of the organization in order to cause an uproar among the members, sometimes with the ultimate goal of having the board removed by the members.

This is a difficult and unfortunate situation faced by many non-profit organizations and boards should tread carefully in their response to such behaviour. In most cases, the best approach is to correct the information with clear communication to the members regarding the board’s decisions and why the board believes its actions are in the best interests of the organization.  Boards must also keep in mind an employee’s right to privacy and avoid disclosing anything that may be confidential respecting the employment relationship (for example, the employee’s disciplinary history).  Boards must also be careful not to intentionally defame a member or employee. 

As an example, our office recently assisted an organization that had a member attempt to requisition a special meeting of members to discuss the resignation of a manager of the organization.  The member wanted to discuss the events leading to this resignation and the competency of the board.  The board called a meeting of members and sent out a communication to the members stating that, although the board could not discuss the specifics around that particular employee as it was private information, the board was willing to discuss the process used to set performance goals for the organization and manager, the process used to assess the performance of the manager against those goals, and the fact that the board believed its processes were in line with best practices of other organizations in the industry.  This was an effective way for the board to communicate clearly to its members without breaching confidentiality.

Sometimes, taking proactive steps can be helpful to the board down the road in the event that this type of issue arises.  If the organization hires employees, having a clear description of the employee’s duties in a contract from the outset (including provisions about confidentiality) or having clear policies regarding progressive discipline can be useful for a board in ensuring employees are held accountable for their actions.

In the midst of these disputes, we often see members of an organization demanding to see the minutes of director meetings.  It is a common misconception that members are entitled to these as the legislation is tricky and easy to misinterpret.  The non-profit legislation actually treats the meeting minutes of directors and members differently.  Unless the non-profit’s organizational documents say otherwise, the minutes of directors are only open to inspection by the directors, and not the members.

When conflict arises, boards are often concerned about personal liability regarding threats of civil actions against them.  It is important for boards to keep in mind, subject to certain statutory exceptions, the non-profit legislation limits personal liability of directors for actions taken in good faith by the directors or the organization.  Directors must always keep in mind that their ultimate duty is to the organization and that they have a responsibility to act honestly and in good faith with a view to the best interests of the organization.  If directors conduct themselves in accordance with this duty, there is no basis for liability, subject to a breach of any other statutory exception, such as unpaid employee wages or the failure to remit source deductions from employee wages.  Ultimately, this provides the comfort that many boards need. Even in light of conflict, the board can be confident in carrying out the organization’s good work for the community. 

If you would like more information regarding Corporate Law & Governance, please contact Megan Lorenz.