Canada’s Not-for-Profit Corporations Act: A Winning Model for Modernizing Governance Standards in Sport Governing Bodies? – Michael Pedersen
By iSportconnect | January 20, 2014
Many sport leaders and key stakeholders of sport are asking themselves, what the role of regulation is or should be in ensuring good governance in sport governing bodies. Some favor voluntary approaches and upholding the autonomy of sport. Some favor regulation and common mandatory minimum standards. Others favor a mix of the two.
This tenth contribution of mine for iSportconnect’s expert column on sport governance offers perspectives on the case of the Canada Not-for-Profit Corporations Act. The contribution focuses on the nature of regulatory minimum standards for good governance that Canadian sport governing bodies are required to comply with by mid October 2014. It also offers some challenging questions for sport leaders to consider about pros and cons of regulatory vs voluntary approaches, as they start the process of modernizing their governance standards for the future.
My 11th contribution is going to be published in the middle of February. It will offer perspectives on the case of the International Paralympic Committee with a focus on gender equality in sport.
To regulate sport governance or not? – And to what extent?
Many sport leaders attach great importance to upholding the autonomy of sport. While acknowledging that exemplifying good governance is key to avoiding rigorous regulation, they favor voluntary approaches and believe that there is no one-size-fits-all governance model for sport governing bodies, not least because such bodies have very different sizes, resources and challenges.
With governments being the sole or biggest source of sport funding for a lot of sports in many countries, many politicians and regulators have an inherent interest in making sure that sport governing bodies spend public funds effectively and efficiently in a transparent and accountable manner. They favor regulation and minimum standards for good governance for all sport governing bodies to comply with.
Appreciating the value of the two opposing perspectives requires striking a delicate balance. The Canada Not-for-Profit Corporations Act can be seen as an attempt to do exactly that. Some people will say that the Act is just right. Some will say that it has a too narrow or a too broad scope in defining good governance. Others will say that for the areas of governance that it regulates, the Act is too detailed or leaves too much discretion to sport governing bodies in defining good governance themselves. Often, where you stand depends on where you sit.
A brief introduction to the Canada Not-for-Profit Corporations Act
The Canada Not-for-Profit Corporations Act comprises the first significant modernization of Canada’s not-for-profit legislation since 1917. The Act aims at fostering greater public trust and confidence in the not-for-profit sector through accountability, transparency and other means of good governance.
Upon royal assent on 23 June 2009, the Canada Not-for-Profit Corporations Act came into force on 17 October 2011. Following a three-year transition period, all not-for-profit entities in Canada, including sport governing bodies, must comply with the Act by 17 October 2014.
The nature of the regulated boardroom in Canada, including conflicts of interest
According to the Canada Not-for-Profit Act, board directors have to be elected by the members of a sport governing body. That implies that past presidents and other ex officio directors cannot be part of the boardroom. However, it does not imply that a director is required to be a member of the actual sport governing body. Directors can be appointed, but only for the period until the next annual meeting. The number of appointed directors can comprise no more than 1/3 of the total number of elected directors.
While the term in office for board directors cannot be more than four years at a time, staggered terms are allowed. Directors can grant themselves a reasonable remuneration at their discretion. They can also grant a reasonable remuneration and expenses for any specific task that goes beyond the director role – for instance the situation, where a director in reality becomes a consultant to the sport governing body.
A board director must act honestly and in good faith with a view to pursue the best interest of the sport governing body. (S)he is deemed to have consented to any resolution passed or action taken in a meeting, unless (s)he requests a dissent to be entered in the minutes of the meeting. Also, alternate directors cannot act for an absent director at a meeting of directors.
Board directors are required to disclose the nature and extent of any conflict of interest, either in writing or by requesting to have it entered into the minutes of a meeting of directors or the minutes of a meeting of committees of directors. Disclosure is required for any interest that a director has in a material contract or material transaction, whether made or proposed, in the meeting at which a proposed contract or transaction is first considered.
A board director is seen to have an interest, if (s)he:
(a) is a party to the contract or transaction;
(b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction; or
(c) has a material interest in a party to the contract or transaction.
Most importantly, a board director required to make a disclosure of interest is not allowed to vote on any resolution to approve the contract or transaction.
Furthermore, if a board director becomes interested only after a contract or transaction is made, (s)he has to disclose it at the first meeting after becoming interested. The same applies to a person who is interested in a contract or transaction and later becomes a director. In that case, the person is required to disclose the interest at the first meeting after (s)he becomes a director.
It is particularly noteworthy that in the case of a director failing to make a required disclosure of interest, the sport governing body or any of its members can apply to a court to request that the contract be set aside and that the director repay any profits or gains realized from the contract.
The nature of regulated membership rights in Canada
Unless a sport governing body has different classes or groups of members with different rights and responsibilities, all members are entitled to vote at an annual meeting of members and to make a proposal to make, amend or repeal a by-law.
In the context of an annual meeting, any member may demand a ballot either before or after any vote by show of hands. At each annual meeting, the members are required to appoint a public accountant to hold office until the closing of the next annual meeting. Also, the members may remove any board director or board directors from office by ordinary resolution at a special meeting.
Last but not least, any member may examine the portions of any minutes of meetings of board directors and of committees of board directors that contain disclosures of interest, and of any other documents that contain such disclosures.
Other noteworthy aspects of regulated sport governance in Canada
The Canada Not-for-Profit Corporations Act also sets out requirements for other governance related matters such as notice of meetings, absentee voting, requisitioned meetings, timing of the annual meeting and time required to publish financial statements. It is particularly noteworthy that conflict of interest requirements similar to the ones for board directors apply to professional staff too.
Critical questions for sport leaders to ask themselves
Inspired by the case of the Canada Not-for-Profit Corporations Act, critical questions for sport leaders to ask themselves, as they start modernizing governance standards for the future, include:
> Had your sport governing body been registered in Canada, which are the main changes you would have to introduce to your governance standards to comply with the Canada Not-for-Profit Corporations Act? – Which of those changes would create a better foundation for good decision-making in the support of the future development of your sport? – And which of those changes would leave your sport governing body worse off?
> Which are the pros and cons in putting in place regulatory measures that define the nature of mandatory minimum standards of good governance in sport governing bodies? – And which are the pros and cons in putting in place voluntary measures that define the nature of good governance standards in sport governing bodies?
> When putting in place regulatory governance measures, what is the best way of striking the delicate balance between on one hand appreciating differences in size, resources and challenges among sport governing bodies and on the other hand ensuring that government funding to sport is effectively and efficiently spent in a transparent and accountable manner? – In which areas and to what extent does it add value to define mandatory minimum standards for good governance for all sport governing bodies to comply with, and in which areas and to what extent does it add value to leave it to each sport governing body itself to define its own standards of good governance?
> What is the best way to support sport governing bodies in modernizing their governance standards to ensure compliance with new regulation?
> How could sport governing bodies be further motivated to comply with new regulation that defines good governance standards? – For instance, what is the possible positive effect in ensuring compliance by tying it to the eligibility for receiving continued full government funding? – Through carrots and/or sticks?
Links to my previous contributions for iSportconnect’s expert column on sport governance:
Michael Pedersen, Founder of M INC., is an internationally recognized expert and leader in good governance, transparency, ethics and integrity.Michael is the former Head of the World Economic Forum’s Partnering Against Corruption Initiative, an international good governance partnership with over 175 multinational companies and their CEOs. He holds three MSc degrees; an MSc in Global Leadership; an MSc in Responsibility and Business Practice; and an MSc in International Relations.
Michael is passionate about sport. Sport has and continues to play an important role in his life. He is of Danish origin and currently lives in Lima, Peru and in Barcelona, Spain.
He also publishes a leadership series on good governance in sport that is available for free download at:http://minc.ch/sport-practice.html