Many of corporate Canada’s best practices have filtered down to nonprofit board governance, one of which is the practice of having independent board members on a board. As part of their fiduciary duty, all board members must act honestly and in good faith with a view to the best interests of the organization. Part of that duty is accomplished by ensuring that the board’s composition process supports sound and objective decision-making and avoids conflicts of interest.
The goal of the board is to efficiently and effectively steward the organization on behalf of its members and stakeholders. Corporate and securities legislation have long had requirements that there be independent board members to ensure that the board fulfills this mandate while functioning independently of management. Keeping the control (ratification and monitoring) of decisions separate from the management of the organization ensures that those who are expected to benefit from the decisions are protected against opportunistic actions of those who make the decisions. Many of corporate Canada’s best practices have filtered down to nonprofit board governance, one of which is the practice of including independent board members on the board.
All board members in Canada have a legal fiduciary duty to the organization regardless of their independence. This means that they must put the interests of the organization above all other interests. Board members must not disclose the confidential information of the organization and generally must share with the organization any significant information within their knowledge. This can pose some unique challenges for association governance given many if not all board members have direct ties and interests to the decisions of the association. Adding independent, non-member board members can offset these inherent conflicts.
Independent Board Members and Board Decision Making
The board’s core functions are decision-making and monitoring. Board decision-making can be improved through increased objectivity and the broader set of skills, knowledge and experience independent board members offer. The benefits outweigh potential concerns, especially when organizations adopt modern governance protocols such as a Board Policy Manual which sets out expectations and objectives. Vital to the system is a well-defined board composition process that seeks to minimize representative tendencies in favour of requisite board member skills, competency, and diversity. This style of composition will ensure that the board can get the most value from the presence of independent board members.
For an industry or trade association it might not make sense for the majority of board members to be fully independent however establishing a minimum number of independent board members can contribute many benefits to board decision making. The association can determine the appropriate level of independent involvement by asking itself whether the composition of the board advances or hampers the ability of the board or individual board members to make independent decisions in the best interest of the vision, mission, and strategic direction of the organization. In other words, are the members looking objectively at the information, asking thoughtful, challenging questions and willing to advocate for an unpopular view. By assessing the answers to these questions a nominating committee can develop the appropriate board member competency framework for the association and actively recruit independent board members that can add real value to the board.
In summary, independent board members contribute many benefits to the effectiveness and quality of a board’s core decision making and monitoring functions. A comprehensive governance system can capture the benefits while mitigating any risks.