kathy o'brien ehl toronto governance 101

7/30/2019 Kathy O'Brien EHL Toronto Governance 101

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Emerging Health Leaders

Governance 101

Kathy OBrien

Dykeman Dewhirst OBrien LLP

May 23, 2013


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GovernanceWhat is governance? Why is it needed?

Corporations are a person at law

They make decisions and can be sued Need processes for proper decision-making and

accountability

Governance

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Governance Commercial corporations have shareholders who

own divisible pieces of the organization (1 share,

100,000 shares)these owners want to maximize

the return on their investment

Board is expected to serve this purpose

Pointer & Orlikoff, Board Work: Governing Health CareOrganizations

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Governance Non-profits (non-shares) are very differentthey

have stakeholders, not shareholders, who have a

collective and indivisible interest in the organization

but do not own it

Board is expected to deploy the organizations resources

to protect and advance the interests of the stakeholders

Represent and balance stakeholder interests Organizations are means, not ends unto themselvesset

organizations mission

Pointer & Orlikoff, Board Work: Governing Health Care

Organizations4


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Governance Management is doing things right; leadership

is doing the right things. Peter Drucker

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WHAT IS A HOSPITAL? Or a Community Health Centre

Or a Family Health Team

Or a CCAC

Or a Mental Health Agency


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What is a hospital? Non-share/non-profit corporation

Most are registered charities

Dont pay income tax Issue tax receipts for charitable donations

Who owns a non-profit or charity?

Answer: No one

Really: Wrong question

Question is: Who can make decisions?


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What is a hospital? Who can make decisions?

Board (governance decisions)

CEO/Executive Director (management decisionsreports to Board;

everyone else reports to CEO/ED) Members of the corporationhave a specific decision-making role

(AGM)set out in the Corporations Act

Electing directors

Receiving financial statements (transparency)

Appointing auditor

Approving by-laws and by-law amendments

Out-of-ordinary-course decisions (increase size of Board,

amalgamation, sale of substantially all assets)


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Non-share corporations & membership Open vs. closed Open = community members can pay $XX to

become a member, attend AGM and vote to elect

directors, approve by-laws

Unregulated, need oversight by community

Closed = only the directors vote at the AGM

Highly regulated, dont need oversight by community Board is sophisticated and managing millions

Hospitals, foundations


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Non-share corporations & board

Hospitalslegislation dictates that certain individuals

must be on board (non-voting)e.g., CEO, Chief of Staff,

Chief Nursing Executiveunique to hospitals

Otherwise, directors are elected according to process setout in the by-laws

Best practice: Nominating committee, call for candidates,

objective criteria, skills matrix, interviews to select best

candidates Sometimes an election with voting

Someone loses (chilling effect)

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WHAT DOES THE LAW EXPECT

FROM DIRECTORS?


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Duty to Govern Boards have a legal duty to govern the organization

What is governance?

Not defined in any law

Look to key governance reports to identify key governanceduties: National Policy 58-201 (Ontario Securities

Commission): Corporate Governance Guidelines


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National Policy 58-201

Role of Board1. Satisfying itself of the integrity of its CEO

2. Adoption ofstrategic planningprocess

3. Succession planning, including appointing, training andmonitoring senior management

4. Communication policy for the corporationcommunicate to

stakeholders


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National Policy 58-201

Role of Board5. Integrity of the corporations internal control and

management information system

6. Identification ofprincipal risks of the corporations business

and ensuring the implementation of appropriate systems tomanage these risks (e.g., quality of care, deficits, privacy)

7. Developing the corporations approach to governance,including a set of corporate governance guidelines and

principles


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Legal Expectations

Section 43 of newNot-for-Profit Corporations Act(Ontario)

[will slowly replace out-of-date Corporations Act]

In carrying out his/her governance responsibilities, each

director shall:

act honestly and in good faith with a view to the best

interests of the corporation (fiduciary duty)

exercise the care, diligence and skill that a reasonably

prudent person would exercise in comparable

circumstances (duty of care)


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Fiduciary Duty

Board is obligated to serve as agents of theirstakeholders as a

whole:

Patients/clients

Community

Staff

Government

Donors

Volunteers

A Director breaches his or her fiduciary duty if he/she

represents narrow interests or particular interest groups


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Fiduciary Duty

Directors owe their fiduciary duty to the Corporation and the

best interests of the Corporation must not be confused with

the interests of any of the Corporations stakeholders

In resolving competing interests, directors should act to make

the Corporation a better Corporation

They must respect the trust and confidence that have been

reposed in them to manage the assets of the corporation inpursuit of the realization of the objects [purposes] of the

Corporation

Peoples Department Stores (SCC)


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Fiduciary Duty

Fiduciary duty is why conflicts of interest are such a problem

for directorsif you have a conflict of interest, you may act

(or be perceived to act) in your own best interests, your

business best interests, your associates best interests, insteadof thebest interests of the corporation

Every director must declare any potential or actual conflict of

interest, leave the room, not participate in discussions, not

vote so that fiduciary duty is not violated


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Fiduciary Duty

How does a board member know what is in the best interests

of the Corporation?

Objects [in incorporating documents]

Mission, vision, values Strategic plan (usu. 5-year plan)

Accountability agreement with LHIN or Ministry of Health


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Standards for Non-Profits Directors of non-profit corporations are subject to the same

standard of care as directors of corporations run for profit.

(Wheeliker v. Canada, Federal Court of Appeal)


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Duty of Care - Individual Test This is an individual test

The concept of diligence implies attentiveness,

persistence and vigilant activity Vigilant activity

read management reports and board packages

ask questions where applicable


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Duty of Care Supreme Court of Canada confirmed that the duty of care is

tested against an objective standard and that the standard isnot perfection

Exercise the care, diligence and skill that a reasonablyprudent person would exercise in comparable circumstances

Courts are more concerned aboutprocess than results: Did the board have sufficient information?

Did the board examine the information critically?

Did the board allocate appropriate time to make the decision?

Peoples Department Stores (SCC)


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Defences Business judgment rule (proper process will not be

questioned)

Reliance on professionals (lawyers, auditors, etc.)

D&O insurance (charities can purchase only if the premiumswill not render them insolvent)

Good faith protection underPublic Hospitals Act


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Kathy OBrien

416-967-7100 ext. 227

[email protected]

kathy o'brien ehl toronto governance 101

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