When a Director on a Non-Profit Board Goes Rogue

George v. The B.C. Wildlife Federation, 2016 BCSC 718 (CanLII)

IMG_0468Non-profit boards are often comprised of voluntary individuals elected to term positions at an Annual General Meeting of the particular non-profit.  In many, if not most cases, individuals elected to a non-profit board have a special interest in the purpose, goals and objectives of the particular board to which they are elected.  This is what usually attracts the individual to the non-profit in the first place.

Most non-profit organizations are incorporated in  Canada under provincial variations of a Society or Societies Act.   In George, the act in question was the Society Act, R.S.B.C. 1996, c.433, the British Columbia Act.  Nova Scotia has its own act, the Societies Act, R.S.N.S. 1989. c.435.  Regardless of the provincial jurisdiction involved, these acts articulate the basic law governing the incorporation of non-profit organizations, the conduct of business, and the ultimate wind up of non-profit organizations.  Both the B.C. and N.S. acts prescribe certain provisions that must be included in the by laws and memorandum of  association of all non profit organizations, including provisions for the election and removal of directors.

Directors are generally elected at the Annual General Meeting of the non-profit organization by the membership.  In both B.C. and in N.S., a director can only be removed from the board by special resolution.  A special resolution requires at least 75% of the members entitled to vote at a general meeting of the society, voting in favour of the director’s removal.  Where a non-profit organization fails to act in accordance with its by laws and articles of incorporation, its actions and decisions can be challenged in court.

In George, the non-profit in question was the British Columbia Wildlife Federation (the “Federation”).  An issue arose around email correspondences and other verbal communications between the Vice President of the Board and at least two employees of the Federation.  In short, the email correspondences were of an inappropriate nature, sexual in orientation and directed to both a male and a female staff member.  When the Vice President was asked to cease and desist from using the Federation’s email server for sexually oriented email correspondences and from speaking inappropriately with staff, he failed to co-operate.  This was even after being informed in writing that he was in conflict with the Code of Conduct governing the behaviour of directors on the Federation Board.  He was further advised that if he continued in violation of the Code, the matter would be remitted to the full Federation Board for appropriate action. The Vice President essentially ignored the warnings and continued the impugned behaviour.

At a meeting of the full Board, a motion was passed by a simple majority of directors to suspend the Vice President from his Board responsibilities for the remainder of his term, which was three months.  The Vice President challenged the Board’s decision in court.  He argued that the suspension was, in fact, a removal and that the motion passed by the Board was not legal or within the authority of the Board.  His position was that a removal required  a minimum three quarters majority vote of the members called to a general meeting of the Federation and not a simple majority vote of Board members.

The Federation argued that the suspension was not a removal and that it only prevented the Vice President from performing his functions as an officer and director of the Federation for the remainder of his term.  Officially, the Vice President continued as an officer and director of the Federation, but without the ability to exercise his duties and responsibilities.  Furthermore, the Vice President was not precluded from running for election again at the next Annual General Meeting of the Federation.  In determining the Federation Board had not acted for any improper purpose and that it had acted in good faith, the court decided in favour of the Federation and declined to intervene in its disciplinary action with respect to the Vice President.

Problems with individual directors on non-profit boards are not uncommon.  Because they are generally elected by the membership, directors can only be removed by the membership.  As stated earlier, both in B.C. and N.S., a minimum three quarters majority of the members must vote in favour of the removal.  This can make removal of a director quite difficult.  Discipline of a director, on the other hand, who has acted contrary to a code of conduct, or contrary in some other way to the interests of the organization he or she is a board member of, is confirmed by the court in George to be well within the purview of the  board.  Equally important, the court confirmed in George that suspension of a rogue director’s responsibilities is a step that, if and when warranted, can be taken by a non-profit board of directors on a simple majority vote.

The B.C. court’s decision in George,provides very helpful direction for all non-profit organizations in dealing with elected directors who, even after being warned, continue to act in ways contrary to the best interests of the non profit.  Suspension may be as practically effective as removal, without the formality of a three quarters majority vote of the general membership.

 

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