Social enterprise: Good governance questions asked by founders

As a social innovation advisor, I work with social entrepreneurs in the very early start-up phase and founders working in the non-profit (NPO) space. They often ask me the following questions around governance.

1. When is the right time to create a board?
Albert Plant is one of MaRS’ amazing volunteer advisors and we are really fortunate because a) he is enjoys working with social entrepreneurs and b) he is a governance expert. Albert’s recently filed a series of related articles on the MaRS Entrepreneur’s Toolkit (see all the articles under “governance”), which I recommend as essential reading for all ventures in the start-up phase. He is absolutely clear on the first burning question: “There is a simple answer to this key question: ‘as soon as possible.'” (See: Creating your initial board of directors)

For the next set of questions, I collaborated with Susan Manwaring, an expert in charities and NPOs and a lawyer and partner at Miller Thomson LLP.

2. How many board members are required for an NPO set-up?
Incorporated NPOs are governed by a board of directors (BoD) consisting of no fewer than three members. Legally, the requirement is that there be a president, who is usually the chair. There is no legal requirement for a vice chair, although there is a requirement for secretary and treasurer, which can be either one or two positions.

3. Can the founder be on the board?
New NPOs can (and usually do) set up with the founder as a member of the BoD. The founder can assume executive roles, including board chair.

4. Can the founder of an NPO sit on the BoD and be paid?
The founder cannot be paid for their BoD role; however, they can be remunerated for operational responsibilities and may take on responsibilities such as CEO, executive director or finance officer and be involved in the day-to-day operations of the corporation or a specific project or initiative.

5. Can other board members be paid by an NPO?
When a board member assumes an operational role or provides services as a consultant to the NPO, the work should be outlined in an employment or service contract. The member should also declare a conflict of interest and abstain from discussion or voting on decisions such as those regarding their employment or contract and amounts paid.

6. Can the founder of a charity sit on the board and be paid?
If the NPO takes on charitable status and the founder remains on the board, they should not be remunerated for their services as director or for any services provided in any other capacity.

7. Can board members be paid by a charitable organization?
Any charity operating in Ontario is governed by the regulations set out by the Office of the Public Guardian and Trustee of the Ministry of the Attorney General. The Public Guardian and Trustee of Ontario takes the position that no director can be remunerated in any capacity without first obtaining a court order approving such payment.

This is applied very broadly: for example, if one member of a law firm is on the BoD, another member of that same law firm should not be paid for legal services provided. Under common law, the question of conflict of interest can be raised and a stakeholder (any member of the public) could challenge remuneration paid to a director of a charity as inappropriate. If the payment is deemed to be an inappropriate use of the assets of the charity, the director who received remuneration could be required to pay the charity back.

8. Does the CEO or executive director have a vote on the BoD?
The CEO or executive director may operate as an ex-officio (non-voting) member of the BoD. The governing bylaw can go so far as to provide that the CEO or executive director is entitled to attend all meetings other than those at which his or her employment contract terms or remuneration are being discussed.

More questions?
If you are planning or running a social venture and have burning questions, let me know and I will get back to you via the MaRS blog.

Shout out: Miller Thomson provides pro bono services to social entrepreneurs through SiG@MaRS.