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In The Not-For-Profit Setting, Balance Is Key

If my practice is any sort of indicator, not-for-profit organizations are a bountiful source of work for employment lawyers. Most often, the problems I encounter involve a broken relationship between the organization’s board of directors and its executive director.
Many, if not all, non-profit organizations have paid employees. The most senior manager among them typically has the title of executive director (although some more grand titles – CEO, for example - seem to be fashionable at the moment).
The executive director usually has responsibility for fund-raising activities, overall management of the organization’s operations, and hiring, firing, and supervision of other employees. He or she will often be the sole conduit of information to the board of directors and will have day-to-day control over the organization’s finances.
Simply put, the executive director exerts an extraordinary amount of authority.
In my experience, the relationship between the executive director and the organization’s board of directors will tend to run hot and cold. It can be very close and productive one day and then, seemingly overnight, it can turn toxic.
This scenario often results in the parties “arming up” with lawyers and can lead to wrongful dismissal litigation. Needless to say, in the non-profit sector the associated costs can be destructive for the employer – these don’t tend to be organizations with endless sources of funds.
I have seen this pattern play out many times in the non-profit setting. Looking back over those occurrences, the most frequent cause seems to be the existence of an “imbalance” in the relationship between the executive director and the board.
Members of boards of directors at non-profit organizations tend to be volunteers and often fill roles for which they are untrained. They offer their services for a variety of reasons (one of which, I hope, is a genuine interest in whatever activity the organization is pursuing).
Board members’ obligations of oversight and governance of the not-for-profit are critical. Their active involvement in setting the direction of the organization, overseeing financial transactions, and monitoring day-to-day activities should not be taken lightly.
They place a high degree of trust and faith in the organization’s executive director. But, at least to some extent, their function is to corral the activities of the executive director.
If they do not do so, the executive director’s scope of authority (or at least his or her perceived scope) can reach an unhealthy level. In some instances, it seems the executive director comes to perceives him or herself to be the organization. It’s as if the executive director has developed a heightened sense of entitlement, losing sight of the boundaries of his or her employment.
Left unchecked by the board, an executive director has the opportunity to engage in a variety of financial and other improprieties. Because the executive director controls the flow of information, board members can be the last to know about the existence of these problems.
For most of these issues, a better balance in the relationship between board of directors and executive director provides the answer. A board which is active and inquisitive in pursuit of fiduciary principles of governance will go a long way towards fostering an understanding on the executive director’s part of the boundaries of his or her discretion.
That result requires board members who take their governance role seriously. A good rule of thumb for people who wish to serve on a not-for-profit board is “don’t volunteer if you aren’t passionate about actively fulfilling the role for which you have volunteered”.
Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, or to view past “Legal Ease” columns, log onto