Chapter 5: Committees

Primer for directors of not-for-profit corporations (Rights, Duties and Practices)

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Peter Broder ^*
Legal Counsel & Policy Analyst, Canadian Centre for Philanthropy

Introduction

Committees are an essential tool for the effective and efficient functioning of a not-for-profit corporation's board of directors. An appropriate committee structure allows a board to focus expertise where it can best be used, and manage the flow of information so directors are not burdened with unnecessary material that can hinder rather than facilitate good decision making. Solid committee work - i.e., thoughtful assessment of information that results in well-focussed recommendations or options - is a lynchpin of prudent and informed board decisions.

There is no magic formula for determining the best division of responsibilities among the board as a whole and any committees it may have. The mandate, size and the stage of development of the organization will largely dictate its committee structure. In some cases, the committees that are struck will be determined by the organization's governance model. Some models require establishment of an executive committee, standing audit committee and/or nominating committee. In other cases, committees are set up to meet operational needs of the board or the organization. For instance, the board may strike a committee to help it deal with a major issue or a specific problem - such as a board conflict of interest policy or organizational membership policy.

The responsibilities of a specific committee may vary from organization to organization, depending on its reliance on volunteers. For instance, the fundraising committee in an organization run solely by volunteers may be responsible for preparing funding applications. In an organization with some paid staff, a similar committee may play more of a supporting role - researching and identifying potential funders - while staff prepares the applications. In organizations with highly professional staff, the fundraising committee's role may be limited to considering policy and addressing questions like where and how funding efforts should be focused.

Good co-ordination is needed between the board (typically through the chair) and the Executive director in determining the proper committee structure, particularly in regard to striking of committees dealing with operations. This will help avoid situations where the board creates a committee to carry out a function that is more appropriate to staff. Mandating a board level committee relating to an operational matter, especially when that mandate is entrenched in the bylaws, can sometimes be at cross-purposes with staff effectively handling the issue and can also result in resources being devoted to the board committee that might better be used elsewhere.

Committee terms of reference should always provide for, at a minimum, the following elements:

• chair (how selected);
• composition (size and how selected);
• reporting responsibility (to whom and when);
• mandate (scope of authority);
• nature of authority (report, recommend, act); and,
• resource and/or staff support.

Adequate insurance coverage should always be in place to protect committee members - including those who are not board members - from any liability that may arise from bona fide committee decisions or actions. Indemnification provisions in the articles of incorporation or bylaws should also contemplate protection against actions arising from committee work.

Types of committees

Special Committees
These are short-term committees stuck to deal with, or make recommendations on, a specific governance or organizational issue. Members of the committee do not have to be members of the organization or the appointing board.

Among the special committees typically struck by not-for-profit corporations are: personnel/ human resources, fundraising, and programming committees. Less frequently considered, but worth contemplating, are communications, compensation and volunteer committees.

The mandate of a special committee is deter-mined by the board resolution that establishes it. The resolution should also cover the size of the commit-tee, either as an absolute number or as a permissible range; the selection procedure; and the scope of any power delegated to the committee.

In some cases, the scope of the committee's power may be set out or amended in a separate resolution - for instance, where the committee's mandate evolves over time, or where an aspect of the commit-tee's work was not contemplated when it was established.

Committees that are appointed "with power" have sufficient powers to carry out their instructions. Under the Quebec Companies Act, only the executive committee can be appointed "with power". In that province, all other committees are advisory.

Federally, and in some other jurisdictions, committees may be appointed with more limited authority - for instance, to represent the board in certain specific dealings, to act as agents for a specific purpose, or to bind the corporation in a particular transaction.

The amount of power delegated to the committee will turn on its size and expertise in comparison to the full board, the scope of the project, and ensuring a proper balance is stuck between efficiency and accountability in the decision-making process.

Committees, like directors, face certain limitations on their powers. A board can never do indirectly through a committee something that it is not empowered to do as a board. So, for instance, a committee may not act outside the mandate of the organization as established by its objects. Committee members drawn from outside the board of directors are subject to these same limitations.

Advisory committees have no power to act on behalf of the corporation. Such committees are sometimes established to give an organization credibility or as a tool for fundraising. Sometimes they are struck to create a pool of technical expertise from which staff may draw in carrying out the organization's activities.

Committee members should have a clear understanding of their powers and be mindful how they present the committee to those outside the organization. In some cases, potential liability can arise when third parties rely on authority they believe a committee has, but which it does not in fact possess.

Where members of an advisory committee are expected to give professional or technical advice to staff, either as a group or individually, care should be taken to ensure that either the advisors or the corporation carry adequate insurance to protect against any claims that may arise from the advice.

In not-for-profit corporations where commit-tees play an active role in organizational decision making, special care should be given to structure commit-tees so that staff do not have to answer to two authorities. In practice, this means that committee mandates should not mirror the job descriptions of staff. When a committee's mandate closely parallels a staff member's responsibilities, the staff member may get direction from the committee that is at cross-purposes with instructions received from a supervisor or the full board. Staff should always report either to another staff person or to the full board, not to a committee.

Standing Committees
These are permanent committees stuck to deal with, or make recommendations on, on-going governance or organizational issues. Members of a standing committee do not have to be members of the organization or the appointing board.

The mandate of a special committee may be determined either through a provision in the organization's bylaws or in the board resolution that establishes it. Standing committees differ from special committees in that their decisions or actions are an integral part of the board's work. As such, it is advisable to set out in the bylaws how these committees are constituted. Industry Canada's Policy Summary on Not-for-Profit Corporations, which applies to federally incorporated corporations, states:

Where the bylaws provide for standing commit-tees, they must also provide:

1. The manner of appointment or election of commit-tee members.
2. The manner in which committee members are removed.
3. The responsibilities or duties of committee members.
4. The remuneration of committee members.^{Footnote 1}

Standing committees do not have to be set out in the bylaws. If they are not, then, at a minimum, these four provisions and the committee size (either as an absolute number or as a permissible range) should be contained the board resolution establishing the committee and recorded in the minutes of the meeting at which the resolution was passed. The scope of the power delegated to the committee should also be set out in the resolution. If the scope of the committee's power is set out in the bylaws, it cannot be amended through a board resolution.

Two standing committees that are common in not-for-profit corporations are the nominating committee and the audit committee.

Nominating committee
This committee oversees the process of board recruitment and deals with removal or replacement of directors. Although a nominating committee is not required by law, it is a key element of good governance for not-for-profit corporations. The nominating commit-tee's role may be limited to finding candidates for the board, or may extend to determining appropriate nominees for particular positions on the board. It may also perform a disciplinary or advisory function: dealing with directors who are remiss in their duties or suggesting roles and parameters of directors' work.

Inclusion of a wide range of stakeholders in the governance process is the norm in many not-for-profit corporations. In these cases, the nominating committee can play a decisive role in ensuring that all interests are balanced and that the composition of the board fosters decision making that is in the best interests of the corporation as a whole.

Care should be taken to ensure that nominating committee members are disinterested - i.e., that they have no close ties to either staff or particular factions on the board. Perhaps more than any other committee, the nominating committee needs to be concerned with the long-term interests of the corporation. For this reason, it is important that it act independently. Unless the committee is seen as independent, its ability to deal with or remove delinquent directors may be compromised.

Audit Committee
This committee's key function is as liaison between the auditor and corporation's financial manager. Depending on how professional the not-for-profit corporation's staff are and how extensive the corporation's operations are, the mandate of the audit committee may be largely limited to the annual financial review or may extend to closer supervision of accounting practices.

In some cases (typically in small member-benefit organizations), an independent external assessment of the finances of a not-for-profit corporation is not legally required. The board should assess how active the committee needs to be in these circumstances to properly oversee the financial integrity of the corporation. Such factors as the size of the bud-get, amount of discretionary spending and staff professionalization should be considered. This decision may be made with input from the committee itself and/or the corporation's outside auditor or financial advisor.

The audit committee should be distinguished from the finance committee. Often these two committees have parallel memberships, but their functions are quite different. The audit committee is a governance body concerned with the integrity of the corporation's financial procedures. The finance committee is concerned with the mechanics of the corporation's financial operations. Depending on the nature and maturity of the corporation, it may be solely a governance body, or may be partly a governance body and partly an operational body.

In some cases, the role of the finance committee will be filled instead by a single board member, usually called a Treasurer or Finance Vice President.

Where the organization chooses to have a finance committee, it normally deals with such matters as budgets and regular reporting of financial results to the board. It may also address such issues as procurement, cost controls, and asset management. If the organization is a charity, treatment of assets may be subject to statutory or common law requirements. In these cases, the committee's work should be structured to ensure these requirements are met.

The audit committee's mandate occasionally includes responsibility for the corporation's legal compliance. Because the law is ever-changing, size-able resources (either staff, committee members or outside counsel) need to be continuously, or at least at short regular intervals, devoted to monitoring legal developments that may affect the corporation.

Owing to the the fact that this work is continuous and related to operations, it is preferred that this function be delegated to the finance committee or another committee. However, where the board has made it the responsibility of the audit committee, directors should consider that audit committee expertise is apt to focus on accounting, and ensure the composition of the committee and the resources available allow it to properly carry out assessment of legal compliance.

Executive Committee
This committee is characteristically on-going. It oversees the organization generally, and particularly direction of staff, between full board meetings, and normally has the capacity to bind the corporation. Members of the executive committee should also be members of the appointing board.

Because of the power an executive commit-tee has, it must be constituted through the bylaws.^{Footnote 2}

Industry Canada's Policy Summary on Not-for-Profit Corporations, which applies to federally incorporated corporations, states:

Where the bylaws provide for an executive committee, they must also provide:

1. The procedures for holding meetings of the executive committee.
2. The quorum for executive committee meetings [fixed at a minimum of two directors].
3. A reasonable period of notice of executive committee meetings, or indication that reasonable notice will be given.
4. The manner of appointment or election of executive committee members.
5. The manner in which executive committee members are removed.
6. The responsibilities or duties of executive committee members.
7. The remuneration of executive committee members.^{Footnote 3}

Executive committees have the power to bind the corporation, but they cannot be delegated authority to distribute assets, dissolve or merge the corporation, or take other decisions affecting the fundamental mandate or structure of the corporation.

Although a committee can be designated by board resolution to oversee management of the not-for-profit corporation, its authority should be considered as more limited than that of a committee mandated by bylaw. For instance, giving it a general power to bind the corporation may be challenged as improper. When this type of oversight committee is appointed by resolution, it should be called something other than an "executive committee" to avoid confusion or the danger of third parties relying inappropriately on its apparent authority.

When deciding on the composition of the executive committee, the board should try to:

• obtain the range of skills necessary for the committee to carry out its functions;
• achieve a diversity of membership that adequately represents appropriate geographical areas or constituencies; and,
• allow for frequent meetings at low cost (this typically means either ensuring geographic proximity of members or making provisions for electronic participation in meetings).

The full board should be briefed on decisions made and actions taken by the executive committee at the earliest possible opportunity. In some cases, the executive committee may want to make an interim decision on a matter, which is effective only until the full board considers the matter. If the executive committee has any doubt about its authority to deal with a matter, it should seek legal advice on the scope of its power and/or refer the matter for consideration either by the full board or by the membership, as appropriate.

Procedures
The procedural formality used in committees can vary enormously. A key advantage of committees is that they have fewer participants and more flexibility in their proceedings. This allows for more efficient processing of information and quicker decision making.

Directors should be aware, however, that delegating responsibility to a committee does not necessarily protect them from liability arising from committee decisions or actions. In practice, directors should always ensure that they have access to committee minutes and records. They are legally entitled to any such material.

The legitimacy of committee meetings, like other meetings, can be challenged if its members have not been afforded procedural fairness. Even where the committee operates very informally, there should be provision for:

• notice of meetings;
• adherence to quorum requirements;
• certainty as to the subject matter under consideration;
• availability of minutes and records for review; and,
• opportunity to record dissent.

In many cases, these procedures do not have to be committed to writing. However, board and committee members should always be mindful of them. If the procedure is recorded somewhere, this will save having to refer the matter to the full board or having to institute more formal policies should a dispute occur.

Precisely how much oversight the full board should exercise over a committee depends on the amount of power and the scope of subject matter that it gives to the committee. It may also depend on whether the committee is composed solely of board members or includes outsiders. For instance, there is minimal need for a board to supervise the procedures of an advisory board. But if a committee is empowered to bind the corporation, then the board should make sure that there are procedural safeguards in place. These include:

• careful vetting of candidates for committee membership (any possible hidden agendas or potential personality conflicts?);
• the board retaining the right to designate the committee chair;
• regular or occasional review of the committee minutes and records; and,
• annual, or more frequent, reporting by the committee to the full board.

Committees can inform the full board of their work through minutes, oral or written reports, or recommendations. Minutes are typically submitted so that the board can monitor the functioning of the committee. Reports may or may not contain recommendations. If they do, the recommendations should be listed at the conclusion of the report. If the report is being considered as part of the agenda of a board meeting, there is no need to pass a motion to 'receive' it.^{Footnote 4} In rare instances, a board may wish to 'adopt', 'accept' or 'agree to' a report. This means that the board concurs not only with the findings contained in the report, but also with the deliberations of the committee as set out in the report. It is very unusual for a board to want to endorse a report in this manner. Not having partaken in the work, board members are unlikely to want to concur with all its nuances.

Instead, the board should address its attention to the recommendations, presented either as part of the report or separately. It can vote to implement the recommendations or to take other measures with regard to them that it deems appropriate - including, for instance, rejecting them or returning them to the committee for reconsideration.

A note on advisory boards
Many not-for-profit corporations create an 'advisory board', typically to advise on fulfilment of the corporation's mission and/or to enhance its public credibility. These boards do not take a direct hand in governing the corporation. To avoid any possible misunderstanding by the public or stakeholders, it is important that the relationship between the advisory board, the board of directors and the staff be well defined. The corporation should be able to explain these relative roles to third parties if they are asked. When describing members an advisory board, it should be made clear that they do not have authority over organizational activities. The term 'director' should be avoided.

Sample questions for prospective directors to ask the organization

1. What is the committee structure of the board?
2. What standing committees are contemplated in the corporation's bylaws?
3. What is the mandate and role of each of the standing and special committees of the corporation?
4. Are there any advisory or honourary committees of the corporation, and what is their role and composition?

Sample questions for directors to ask themselves

1. Given my skills and experience, what committee or committees is it appropriate for me to serve on?
2. Any there any committees I should keep informed about the decisions or activities of, even though I don't serve on them?
3. Am I satisfied that the procedures of the committees I serve on are appropriate given their mandate and composition?

Committees checklist

Committees Checklist

Subject	To be conducted by	How often	Comment
1. Committee structure	Full board	Annually	Is the existing committee structure the best division of responsibilities to accomplish the corporation's mandate and the board's work? Are the terms of reference and membership of each current committee clearly stated somewhere in the corporation's documents? Is there adequate insurance coverage in place to deal with any claims that may arise from committee work?
2. Mandating of committees	Full board and committee chairs	At inception of committee	Do the committee terms of reference provide for: chair (how selected); composition (size and how selected); reporting responsibility (to whom and when); mandate (scope of authority); nature of authority (report, recommend, act); and, resource and/or staff support?
3. Committee procedure	Full board and/or committee chairs	Annually	Are committee procedures clearly stated? Is there recourse if there is a challenge to the fairness of a committee's proceedings?
4. Standing committees	Full board	Annually	If the bylaws provide for standing committees, are they mandatory or optional? Are the required committees functioning?
5. Operations	Full board	Annually	Is there an executive committee, or other body, responsible for dealing with the corporate matters between board meetings? If not, what is the procedure for taking decisions that cannot be dealt with by the full board in a timely way?
6. Governance	Full board	Annually	Is there a committee responsible for overseeing board governance issues, such as a nominating committee? If not, how are these issues dealt with?
7. Audit	Full board	Annually	Is there a committee responsible for liaison with the auditor, and if not, whose role is this?
8. Finance	Full board	Annually	Is there a committee responsible for overseeing the corporation's financial operations, and if not, whose role is this?
9. Advisory committees	Full board	Annually	Is the role and membership of any advisory body clearly set out somewhere is the corporation's documents? Is adequate insurance in place to cover any liability that may arise from such work?

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* B.A., LL.B. The Canadian Centre for Philanthropy), is a national, voluntary sector umbrella organization.