Naturist Legacy Inc. and its risk managementPrudent risk management contributed to Naturist Legacy's early success.
Risk management: (in business) the forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact. (Oxford)
Naturist Legacy Inc. is a non-profit (non-share) corporation. No one "owns" Naturist Legacy Inc. It's governed by a board of directors (elected by its membership), who are in turn governed by the corporation's by-laws (approved by its membership). The by-laws are the "DNA" of this corporation, and the board of directors are its brain, eyes, ears and hands. The board is charged with filing two basic legal documents annually (a Corporate Return and an Income Tax Return) that essentially keep the corporation "alive."
The board has a duty to exercise due diligence in overseeing the activities of the corporation. Its required to act in good faith and in the best interest of the organization. Board members are tasked not to act as they would personally, but to act as Naturist Legacy Inc. would and should — that is, for its sake, not theirs. In other words, Naturist Legacy's agenda and best interests are paramount, and not those of the board. It takes reflection and effort in order to be sure that members of the board are always separating the two.
Directors on the board may be held liable for failure to act as stated under a statute, or for the non-compliance of the organization with a statute. For example, directors may be liable for mismanagement, financial losses or nonperformance. It's also important to note that directors can be held personally liable. Ignorance is not a defense. Resignation is not necessarily a defense. Board indemnity may not be enough.
The board manages risk tolerance for the corporation. Risk tolerance describes the amount of risk that the organization is willing to assume. It has two key components: appetite for risk and capacity for risk. Risk management weighs potential opportunities against any adverse effects. There are essentially four ways to manage risk: avoidance, transferance, mitigation or acceptance.
22.1 Disputes or controversies among members, directors, officers, committee members, or volunteers of the Corporation are as much as possible to be resolved according to mediation and/or arbitration according to this section.
22.2 In the event that a dispute or controversy among members, directors or officers of the Corporation arising out of or related to the Articles or this by-law, or out of any aspect of the operations of the Corporation is not resolved in private meetings between the parties, then without prejudice to or in any other way derogating from the rights of the members, directors or officers of the Corporation contained in the Articles, this by-law or the law, and as an alternative to the person instituting a law suit or legal action, the dispute or controversy will be settled by a process of dispute resolution as follows:
1. The dispute or controversy will first be submitted to a panel of mediators where the one party appoints one mediator, the other party appoints one mediator, and the two appointed mediators jointly appoint a third mediator. The three mediators will then meet with the parties in an attempt to mediate a resolution.
2. The number of mediators may be reduced from three to one or two upon agreement of the parties.
3. If the parties are not successful in resolving the dispute through mediation, then the parties agree that the dispute will be settled by arbitration before a single arbitrator, who will not be any one of the mediators referred to above, according to The Arbitration Act of Manitoba (C.C.S.M. c. A120) or as otherwise agreed upon by the parties to the dispute. The parties agree that all proceedings relating to arbitration will be kept confidential and there will be no disclosure of any kind. The arbitrator’s decision will be final and binding and will not be subject to appeal on a question of fact, law or mixed fact and law.
4. All costs of the mediators appointed will be borne equally by the parties to the dispute or the controversy. All costs of the arbitrators appointed will be borne by the parties as may be determined by the arbitrators.
Directors have certain duties to the members of the corporation. They must ensure that the corporation and its directors abide by the terms of its letter patent [articles] and bylaws, which have been considered by the courts as akin to a contract between the corporation and its members.
Directors must also treat all members equally (for instance, by fixing or collecting dues or enacting rules or bylaws), unless the best interests of the corporation clearly require otherwise.
Directors must tread especially carefully in the sensitive and litigation-rich area of members' discipline.
Before suspending, fining, expelling or refusing to readmit a member, directors must make sure that the bylaws of the corporation clearly empower them to do so, and that all the internal procedural steps they set out (notices, delays, inquest and recommendation by a committee, hearing, internal appeal, etc.) have been strictly adhered to.
The proceedings must afford a reasonable degree of procedural fairness — i.e., fair play and good faith. The disciplined member should be given fair notice, and an opportunity be to be heard (and have counsel present) in his own defence by board members open to persuasion. Otherwise, the board’s decision will be subject to review by a Court. Directors must be careful not to impinge on the member's reputation, for example by publicising at large his expulsion and the motives thereof, or by having a general meeting of members ratify it when a board resolution is sufficient according to the bylaws. They stand to be personally sued for damages if they do.
This excerpt is from the Primer for Directors of Not-for-Profit Corporations (PDF). It was published by Industry Canada in 2002.
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