Federal Not-for-Profit Corporations: Board Removal – No; Board Suspension – Yes

Posted on by Michael A. Chambers

The legislation governing not-for-profit corporations incorporated or continued under the Canada Not-for-Profit Corporations Act does not permit a Board of Directors to remove a board member.  Board members are to be elected, with certain exceptions, by the membership of the organization, and can only be removed from the Board by a resolution calling for such passed at a special meeting of the membership.  The Board itself cannot remove a Board member.  The particularly relevant sections of the Act are subsections (1) and (2) of section 130 of the Act which read as follows:

“Removal of Directors

130(1)  The members of a corporation may by ordinary resolution at a special meeting remove any director or directors from office.

Exception

(2)  A director elected by a class or a group of members that has an exclusive right to elect the director may only be removed by an ordinary resolution of those members.

…”

This limitation to the powers of federal not-for-profit boards, this anomaly really, has been a conundrum that these boards and organizations have had to deal with since the coming into force of the Act.

What to do about the misbehaving board member who engages in unethical, or even corrupt, behaviour.  Can this be somehow dealt with without the necessity of having to summons a special meeting of the organization’s membership, in many cases a prohibitively costly endeavour.  Well, according to a 2016 decision of the Supreme Court of British Columbia, George v. The B.C. Wildlife Federation, there is a way to effecitvely deal with the deliquent board member – suspend him or her.  He or she is not removed from the board, but as a suspended board member is importantly removed from the boardroom.

It is of course important and necessary that the corporation’s by-laws permit the board to suspend one of its board members.

Interestingly, the George case was decided under the now repealed B.C. Society Act, that on November 28th of last year was replaced by the new B.C. Societies Act that permits much more flexibility in terms of board member removal so long as the by-laws of the organization properly provide for it.  However, under the old B.C. Society Act which was the governing legislation in the George case, there was a very similar limitation on the Board’s power of removal of a board member.  Section 31 of the old B.C. Society Act provided:

“31.  A director may be removed from office by special resolution (defined elsewhere as a 75% vote of the members of the organization at a general meeting) and another director may be elected, or appointed by ordinary resolution, to serve during the balance of the term.”

In this case the B.C. Wildlife Federation (BCWF) board had suspended, not removed, one of its members for the balance of his term for breach of the BCWF’s Code of Conduct and Ethics.

Simply put, the lawyer for the suspended board member argued, they can’t do that, the Act only permits the membership to remove a board member and a suspension for the balance of the board member’s term amounts to his removal.  He struck out.  The Court found that there was indeed a distinction between suspension, albeit for the entirety of the balance of the board member’s term, and removal.  At the time of suspension the board member’s remaining term was 3 months and that was the length of his suspension.  The Court stated,

“If the three month suspension was justifiable the fact that it coincides with the remaining portion of the petitioner’s (the suspended board member’s) term does not in my opinion redefine it as a removal.”

Of course, a board must conform with the rules of national justice when considering suspension of a board member: the member must be given the opportunity to be heard, must be given notice of the hearing, notice of what he or she is alleged to have wrongly done, and those making the ultimate decision must do so in an even-handed unbiased manner.

In conclusion properly handled, properly framed by an organization’s by-laws, boards of federal not-for-profit corporations do have a means available to them, suspension, that enables them to deal with board members who have conducted themselves in a manner such that they ought not be in the boardroom.  There are nuances to be careful of for sure, but with the help of proper legal advice the mission can be accomplished.

Misleading Advertising…Misleading Complaints About Advertising

Posted on by Gordon B. Greenwood

Virtually everyone thinks of misleading advertising as originating only with a manufacturer or seller of a product and designed to deceive the public into buying their wares.  However, I have a more expansive view.

A company has to comply with numerous pieces of consumer protection legislation at both the federal and provincial level and, if it is a regulated product, will also have to comply with the specific legislation governing that product or category of products.  Claims must be true and verifiable, may have to be backed up by clinical or other scientific testing and will always be subject to the utmost scrutiny.  Failure to substantiate claims may result in class action law suits, criminal or civil prosecution or the imposition of significant administrative penalties or fines.

Contrary to the strict burden on companies, critics seem to have carte blanche to make unsubstantiated claims, semi-substantiated claims or claims which are based upon “scientific” results achieved through the use of questionable testing methods.  Irrespective of the fact that these latter studies may be subject to scientific and academic criticism or ridicule, they seem to survive in perpetuity and regularly rise from the ashes like a phoenix.

Without taking a position on the matter one way or the other because I have not seen the research upon which either side relies, it is interesting to discover that Subway has recently issued a Notice of Action against the Canadian Broadcasting Corporation for $210,000,000.00 in damages over allegations made by the CBC about the amount or quality of chicken in the Subway sandwich product which statements, Subway alleges, are defamatory and absolutely false.

Is this the tip of an iceberg where “investigative” reporting is being called to account?  Will these challenges also extend to special interest organizations who disparage, products relying only or mostly on what is known as “junk science”?  One can only hope!

I have never understood why there is such a high standard of scientific testing and proof required before a company is permitted to make certain claims, but there is no standard whatsoever required of those who criticize a product based upon little to no quality research, and cause panic or concern among consumers.  The following excerpts are taken from Advertising Standards Canada website and recite certain definitions from the Canadian Code of Advertising Standards (italicize):

“Advertiser” is defined as an “entity” that has, or shares with one or more other entities, the final authority over the content of an advertisement.

“Advertising” and “advertisement(s)” are defined as any message (other than those excluded from the application of this Code), the content of which message is controlled directly or indirectly by the advertiser expressed in any language and communicated in any medium (except those listed under Exclusions) to Canadians with the intent to influence their choice, opinion or behaviour.

“Advertising” also includes “advocacy advertising”, “government advertising”, “political advertising”, and “election advertising”, as defined below.

“Advocacy advertising” is defined as “advertising” which presents information or a point-of-view bearing on a publicly recognized controversial issue.

These definitions in the Code are certainly general enough to include those who undertake campaigns against a company’s products, based upon little to no substantive evidence.

The Competition Bureau, and provincial authorities overseeing the administration of consumer protection legislation, tend to take the position that companies are big enough to look after themselves.  If a company tries to do so, there is often an outcry of abuse and allegations of a David and Goliath type of battle being undertaken.  Surely consumer protection legislation should be designed to protect the consumer not only from false and misleading statements by the manufacturer or seller of a product that they may consume or want to consume, but also from false and misleading claims made by so-called “expert” critics of that product.  Is there not enough real pressure on individuals resulting from world events without injecting fear or what may be happening to them in the solitude of their own home when they use or consume products considered by scientists and our government to be safe?

As I said at the beginning, I have no idea whether Subway will be successful or whether they or CBC are the ones whose claims are truthful, but I do applaud Subway’s actions in calling critics to account and in making them justify the scientific basis upon which they made their allegations.  May they be a beacon to others!

The Exercise of Common Sense

Posted on by Gordon B. Greenwood

I have a few sayings. That doesn’t mean that they are right or that other people like them, but I do and I use them when I can.  One of my most favourtie sayings is “95% of the practice of law is the exercise of common sense.”  Granted, the common sense exercised by a lawyer is coupled with his or her legal training and background, but it still comes down to common sense.

When giving advice to my clients, it is sometimes necessary to give them both a legal answer and a “practical” answer which contains a large dose of a common sense solution.  This second option usually results in a more expedient and cost efficient solution for the client, but also gives the lawyer the opportunity to use some of his or her more creative talents in arriving at a solution or a resolution.

While I realize our training has ingrained in us that lawyers operate under the adversarial system, it is incumbent upon lawyers to minimize the adversity in that system and treat it as merely requiring us to be representing the best interests of our clients, without that representation meaning that any solution has to be to the detriment of the other party.

If a client truly wishes to be adversarial, then it is incumbent upon the lawyer, and it makes common sense, to then quantify how much that position will cost in terms of time and money.

The legal solution and the practical, common sense solution are also frequently the same.  Whether the matter be a commercial transaction or family law litigation, it is frequently worthwhile for the lawyer to take a step back, to review the legal position for soundness and then to review that position from the perspective of his or her own client, how it will be viewed by the other side and, if the lawyer is ultimately called upon to present that position to a mediator or arbitrator, what would be the likely result.

We have all heard the old axiom that there are lawyers who are “deal makers” and there are those who are “deal breakers.”  During my rather lengthy legal career, I have dealt with both.

Lawyers who are deal makers build a strong foundation based on the law and then custom build the balance of the structure using high quality common sense and practicality to make it solid.  That construction often requires the cooperation of lawyers representing all the parties so that they can all take pride in standing back, looking at what they have built, knowing that it will stand the test of time. Deal breakers often, intentionally or not, protract negotiations to the detriment of the clients and show frustratingly little creativity or insight in assessing novel ways of resolving issues.

I have dealt with deal makers in the past and have recently had the privilege of dealing with some lawyers who are top notch deal makers.  While it is difficult to teach common sense, it is up to senior counsel to create a training environment for young lawyers which encourages them to give free rein to their common sense, to search for practical solutions, to become creative thinkers and to use their elders as resources and sounding boards.  It is up to those of us who are senior counsel to lead by example and to encourage and give courage to those who look to us for advice.