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Board Governance

for the rest of us non-lawyers
Rick Sutcliffe

Disclaimer: The contents of these pages are offered as general principles, but not as legal opinions. Statutory law and entity policy on board structure, lines of authority and board discipline vary widely. Some of the comments here may not be applicable, or may be wrong in some situations, depending on the regulatory and organizational environment. When in doubt consult competent legal counsel. See the further disclaimer at the end.

Definitions and basic concepts for board governance are on the starting page.

Scenarios and Comments

Things that can go horribly terribly wrong

This page collects a number of common examples of fiduciary misbehaviour. Because of the human condition, it is not by any means exhaustive, only illustrative. For positive takes on the appropriate and legal ways to govern, see the individual pages:

Specific Issues

Often the best way to elaborate board governance principles is to consider common scenarios where a (possible) violation of fiduciary duty takes place, i.e. there is a question of director misconduct. Here are a number of these with rough answers. Keep in mind that detailed dispositions may in many cases require legal counsel for proper disposal.

Political actions and issues

A director is elected on and/or comes to act upon a politicized or personal agenda.

This is not in itself a problem nor does it imply misconduct if pursued solely at board meetings within reason. However, a director has a sole fiduciary duty to the organization, and this trumps all previous or other associations, promises, client interests, special intrest groups, and agendas. So, there is a potential for conflict of interest here, but pressing for specific issues at board meetings is not itself misconduct unless it becomes obstructive. If a director continually demands that old decisions be revisited or consumes an inordinate amount of time repeating arguments already advanced, the chair needs to step in and impose rules of order to expedite business. In an extreme case of obstruction, a board usually has the power (by due process) to warn the offender, even to remove the person from the board. A better remedy is to ensure that board members are well selected in the first place, but in situations involving elections, this may not be possible. Indeed, those elected on a perceived platform of change or at the behest of a special interest faction of stakeholders may be the least willing to defer to the consensus at a board meeting, and the most likely to trigger governance nightmares. Political parties often learn the pitfalls of running and winning on politicized agendas when they find that they have to govern for everyone, and cannot keep all the promises made to special interest groups. Whether they are right or wrong in their views is another matter.

A well-known columnist or editorialist who has often been critical of a particular entity gets elected to its board.

Besides the considerations in the last paragraph, the columnist is now not part of the anti-establishment but part of the establishment. No further public criticism of the entity is now allowed, the new director must instead promote existing policy unless and until it is changed.

A former director/member/other stakeholder opposes a decision or policy of the organization.

If conducted within legal bounds, there are no governance issues here. Common legal pitfalls for an especially determined protestor may however include: (i) any use of confidential information belonging to the organization, whether known only to the board or otherwise, such as member names, addresses, email addresses, customer lists/data, vendor information, salaries, prices, policies under discussion but not decided, products under development but not announced, trade secrets or formulas, proprietary information, procedures or techniques (such as computer programs), legal or financial knowledge, and so on, (ii) the specific use of mail or email addresses to spam stakeholders or customers, (iii) any behaviour that can be interpreted as harassment, slander, misrepresentation, or libel, (iv) any action that hinders the staff from performing their duties, or prevents the members/stakeholders from the normal and lawful use of the organization’s services and/or facilities, (v) any action that causes material damage to the entity’s reputation, sales, membership, or stock (unit) value.

Each of these categories of action could attract a civil suit or charges under a variety of statutes, depending on the jurisdiction in which the alleged offense is committed. The illicit use of confidential data to spam people may attract especially heavy penalties in some jurisdictions. Note that email may pass through numerous servers physically located in a variety of jurisdictions, each with its own laws concerning the use of data and the generation of spam, and each potentially subjecting the perpetrator to separate prosecution. Moreover, a person who is a former director would be assumed to have privileged information and is at risk of a presumption of being more culpable than some other current or former stakeholder because fiduciaries are always held to a higher standard of behaviour than other stakeholders.

SIDE NOTE 1: The courts take a dim view of the illicit posession and use of confidential data bases:
Prison for stealing a database

SIDE NOTE 2: At some point in the process of sending out spam it becomes to the advantage of an ISP to do more than simply cancel the spammer's mail account, but also to make an example of the person by seeking a fine, which is typically $100 per address per message. See also the Northern Spy column on spam.

Dilemma: An organization's policy requires board approval for new candidates, but a sitting board member believes that a nominated candidate is unsuitable for personal or character reasons.

Here, one must balance whether to allow a personal opinion to drive an objection. Does the potential for future trouble at the board level outweigh the possible conflict of interest generated by putting forward wat could be construed as a personal agenda? This is a difficult decision, and there is no one-size-fits-all answer. If the board member with the reservations is the chair, there is an added risk of compromising the position, making the decision more difficult.


A director wishes to oppose a board decision.

(S)he can do so only at board meetings. Directors are constrained far more than other stakeholders in the enterprise. They are not free to speak in opposition to corporate policy outside board meetings, or to so act under any circumstances. Even if done privately, speaking against corporate policy or a board decision elsewhere than at a board meeting is a clear violation of fiduciary duty and grounds for removal from the board. If the action is public, dismissal should be an automatic consequence. In government, the same principle is called cabinet solidarity, and a cabinet member who publicly opposes cabinet decisions always does so at the cost of the position. Likewise a caucus member of a political party who criticizes the leader is routinely dismissed from caucus and party membership. If the organization’s reputation and business suffers as a result of such an action, there may be a legal remedy for director malpractice. Directors running for re-election are at a disadvantage here compared to newcomers seeking a seat, because they are bound by existing policy and cannot directly oppose it in their campaigns. Neither can they use confidential board information in those campaigns.

NOTE: There is no such thing as an ongoing "opposition" to direction or management. Once a board decision is taken, all directors must support it, and they have no other voice. They have no direct voice in management except to hold the COO accountable for achieving goals (including budgetary).

One or more members/stakeholders challenges the authority of the board on a decision.

In a corporate context, the only way to succeed in such a challenge once the board reaches a decision and expresses an unwillingness to revisit it, is to elect new directors, which may not be easy. In a more member-driven organization, the board must first decide whether the matter is of material substance and therefore one of confidence. If the latter, it must inform the members prior to any vote at a general or special meeting that overturning their decision will remove them from office and force new elections. This does not constitute undue pressure to force stakeholders to agree with them. On the contrary, failure to disclose that the board considers a vote as a confidence action, then unexpectedly resigning would itself be misconduct. In the British parliamentary system, government conducts itself under such a constraint at all times, and a non-confidence vote always forces an election. NOTE: A board decision on a material matter such as (but not limited to) the entity's budget, a hiring decision, a disciplinary matter, the mission statement, one involving a legal matter, or other issue touching on the Board's ability to govern, is always a confidence issue if challenged or required to be confirmed by stakeholders for some other reason.

Reaching Down

A director attempts to do any of the following:

  • pressure a staff member to take or cease some action,
  • demands that a staff member be dismissed,
  • gets into a personal dispute with the president or a staff member,
  • personally attempts to override a committee to which a task has been delegated,
  • takes a complaint about a staff member and attempts to handle it directly,
  • calls a meeting between a staff member and other stakeholders without the specific minuted authorization of the board.

It is outrageous misconduct for a director to by-pass the board and the president to become directly involved in a personnel matter, worse still if the chair so offends. Even the board as a whole should not do this unless it is planning to dismiss its president. No director may speak outside the board’s single voice channel of communication, especially not to intervene operationally through meeting with a staff member outside the controlled venue of a duly convened board meeting. No board member, not even the chair, has the authority to initiate a meeting or disciplinary contact with a staff member, unless specifically directed to do so on behalf of the whole board. Moreover, such action imolies that the offending fiduciary is bringing a personal agenda to the workplace, a direct breech of trust.

The remedy depends on the severity of the misconduct. On a first offense, if the harm done is in the board’s view immaterial, and the staff member is not actually contacted, an apology to the board and president, with a signed but undated resignation letter kept on file may suffice. A second offense requires immediate removal from the board.

If any form of negative contact with a staff member is made, the bigger issue (than fiduciary misconduct) is that a staff member so interfered with by a person acting on their perceived power to do so (but lacking the actual authority) would almost certainly be entitled to a presumption of workplace harassment (bullying). Since a person who abuses a position of trust is an extremely high risk to re-offend, no second chance can be afforded. Civil and/or criminal harassment charges will surely apply under a variety of statutes. Legal counsel should be consulted in such cases.

NOTE: Much that was tolerated in the workplace a decade ago is no longer. Today the organization itself could also face prosecution if it failed to have in place safeguards to prevent workplace bullying or other improper behaviour at any level. Moreover, the legal presumption tends to be that if the one on the receiving end of the behaviour believes certain actions constitute harassment, then they automatically do. The mere mention of the word by the target of the behaviour must today always trigger at least an internal investigation, and there may be statutory reporting obligations as well.

In a small organization such as a church or club, a director may also be a member of a committee to which a defined portion of the entity's tasks has been delegated.

Such a committee member must take great care to remain at all times subject to the rule of said committee and its chair, and may not under any circumstances use his/her board position to overrule the chair of the committee or set aside policy developed by the committee in pursuit of its mandated goals.

Example: The board chair of a church is also the chair of its education committee, and is a worker in the boy's club. In all respects he is entirely under the authority of the club leader with respect to club business and meetings, and may not use either of his positions as chair to impose his will on the club.

Example: An organization appoints a committee to look into any needed amendments to its governing documents. It may make sense for the board chair or another director to be a member of such a committee, but only for the purpose of information and explanation. Because (s)he is already a fiduciary, his/her personal opinions on potential changes to the governing documents cannot enter the picture, unless so directed by the board before forming the committee.

Board Membership/Composition

A director or other officer wishes to sit on the board of other organizations.

In most cases this is not only not a problem, it is a good thing. Officers and directors need a broad perspective on governance, and holding multiple directorships is an excellent way to acquire that experience. There are potential issues, however. Two organizations that share more than one director (the exact number may be legislated) are said to be interlocking, and this can attract attention of a variety of government agencies, including anti-trust enforcers. If the entities are also either business partners, in a client relationship, or competitors, there is obvious potential for conflict of interest. Legal counsel should be consulted before undertaking multiple directorships to ensure there are no material conflicts. If any subsequently develop the director must resign one of the two positions.

Two relatives/friends/business partners or associates wish to sit on the same board.

For small societies, one such pair may be acceptable (e.g. brothers on a church or condo board), but usually even these must usually be reported to the appropriate government regulators, where applicable). For closely held companies, the majority owner may be permitted to name several board members. However, this is at least inadvisable. In many of the relevant regulatory environments, all or nearly all directors must be pairwise independent, that is, at arms length in every respect. In larger entities, such as corporations with a significant societal footprint (banks) most of the directors should be independent of the shareholders. This is contrary to previously accepted practice, which often required directors to hold stock. The difficulty with that was that fiduciary duty was often interpreted solely in terms of maximizing shareholder value, which is inappropriate.


A director reveals confidential board information outside the board meeting.

If no material damage ensues, a reprimand and undated resignation kept on file may suffice. If the damage is material, the director should be dismissed, and may also face civil and criminal charges for the violation of duty, plus a recovery of damages.


A board takes an action that benefits the majority stakeholders at the expense of other stakeholders who have minority shares or voting rights (or vice-versa).

Answer: These can be very murky situations, and are likely to end up in court, so the action must be backed by competent and multiple legal authority and be thoroughly documented.


The board chair wishes to speak to an issue at a board meeting.

On routine matters, an informal approach may be acceptable for a small organization such as a church, a community club, a housing coop, or a small business. On controversial matters, in more formal situations, or where detailed minutes are a matter of public record, the chair should yield to another member (with the meeting’s consent) for the entire duration of discussion on that issue. The point here is that while board members are constrained to act only within existing policy, the chair is further constrained by the necessity to both remain impartial and to appear to be so. Conflict, even intelligent discussion, can never be effectively managed once the chair takes sides. A church makes a good, if not universally applicable illustration. There, the deacons are, by definition, literally servants of the church, assistants and facilitators for the church leaders (elders/pastors, or the equivalent). Their chair is in turn their servant (a servant of servants). No deacon has individual authority, only the board as a whole (and in that context, it must act within existing governance policy and may be subject to the will of the members as well, depending on the governance model.)

NOTE: the chair is not, therefore "in charge" of anything, except expediting the policies and procedures of the entity. If even the directors cannot give orders to anyone but the president (and that only as a collective body) the chair has no authority whatsoever, except to act on the authority of the entity's defining documents and existing policies. No one is more constrained.

Accusations, Legal Issues

A member of a board or a candidate for election to a board either is or becomes involved in a legal action to which the organization is party.

No matter how slight the connection to the legal action, this disqualifies the person from board membership, as it makes it impossible to carry out fiduciary duty.

A member of a board or other meeting makes an accusation of lying or bias (or other derogatory remark, particularly if touching on motives) against another individual, whether present or not.

As in any meeting held under rules of order, such language is unparliamentary. Moreover, because such accusations speak to motive as well as fact, they are nearly impossible to prove, so should not be entertained outside a court of law. The matter must be brought to the chair's attention, who must deal with it by requiring the remark to be withdrawn. If the offender refuses, the instruction is repeated. If it is refused a second and third time, the offender must be immediately evicted from the meeting and may not return to it or a subsequent session of the same body until the remark is formally (for the official record) withdrawn.

A member of a board makes some other accusation against another board member or a staff member of the organization.

If the accusation is a matter of some kind of illegal activity, the matter should be turned over to the appropriate authorities. Otherwise, the gold standard for taking action requires two witnesses. That is, accusations involving private conversations where only the two parties were present, or that attribute motive (impossible to verify) cannot be entertained. Once the issue of admissibility is settled, the matter passes to the President if it involves another staff member, and to the board's own internal disciplinary process if it involves a fiduciary.

(modifies some of the above) A director takes unilateral action with an external agency to report an illegal act.

The organization should have in place a whistleblower policy that expressly states that such an action will not produce any negative consequences for the person so reporting, whether director or staff. In many jurisdictions, there is a requirement to so report, and failure to do so can attract charges. Of course, the person so doing must engage due diligence to ensure the matter is correctly reported. A false allegation may itself attract charges. This reporting is a violation of fiduciary duty, but in this case because the one duty istrumped by a higher one.

Breech of Trust: Fraud

A member of a board becomes aware of a business opportunity in the sphere of interest of the entity, and takes it for himself/herself.
or The member uses inside knowledge of the entity's plans for products or services to go into competition via some other entity in which (s)he has an interest.
or The member uses inside knowledge of the entity's plans for products or services to buy or sell shares in the entity.

Fiduciary duty obliges a board member or officer of the entity to give the organization the exclusive right of first refusal on any business opportunity. Any use of the entity's plans for self-enrichment constitutes criminal breech of trust. The organization almost certainly has legal recourse to recover the lost opportunity from the board member.

A member of a board or other insider manipulates the shares of the entity or uses inside information to determine buy and sell times so as to make a personal profit.

This is fraud. Such cases are normally heard by quasi-judicial regulatory bodies or the courts. The penalties include some or all of jail, fines, a ban on trading shares, and/or a ban on being a director or an officer of a company. In addition any parties who suffer material loss because of the fraud may launch a civil suit for recovery.

A member of a board, acting without the board's specific direction, writes a letter identifying the organizational connection, either in the signature or by using organizational letterhead.

If the contents of the letter are in accord with entity policy, and the only fault was that the board member was not specifically directed to write it, a simple rebuke and reminder of duty will do. If the letter was in opposition to organizational policy or sent for some personal, political, or other purpose not related or only indirectly related to the organization, this constitutes an serious breech of fiduciary duty. The member should be removed from the board, and the board chair be directed to write the recipients of the original letter an apology and disclaimer of the rogue actions. This might be sufficient to deter legal action against the entity by the receivers of the letter, though the offending board member would still be personally liable for any harm. The entity may also have cause for legal action against the offender for misuse of its trademarks.


A board is considering a business relationship with or a legal action against another entity in which one of its members has an interest or with which the member is in legal conflict.

If the interest is material, the member must absent him/herself from all discussions on the point. The time of leaving and re-entering the meeting must be noted in the minutes.

NOTE: This material is dynamic, and may be added to as additional scenarios come to mind or new issues come to the author’s attention.

Further Disclaimer: All the above scenarios are summary composites of multiple situations that have come to the author's attention in a variety of ways, in some cases even from novels or the daily news. None are intended to depict or describe persons or events from the author’s personal experience or consulting practise. He regards all as commonly occurring in everyday organizational life and has seen or heard the like more than a few times. The reader should not assume that any of these scenarios represents or even resembles any specific situation.

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Last updated 2013 02 06
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