Some Emerging Issues with Transition to the NFP Act

Published February 23, 2013

The NFP Act came into law in October 2011, with a 3-year window for corporations to become compliant (by October 2014). That window is now almost half-closed, meaning that there are only about 18 full months remaining for sport organizations to complete the transition to the new legislation.

Half-way through this transition period, I want to reflect on four emerging issues. In November 2012 I wrote a post about some of the mechanics that sport organizations should include in their transition planning and timing. This post is about some new challenges that are more subtle, but that if not considered and attended to, could have a big impact on your organization's future governance structure and practices.

Firstly,  nomination systems for board succession will be hugely important. Because the Act requires that all directors be elected, organizations may be challenged to find directors. In the past where directors were ex-officio, or were appointed by entities within the organization or outside it, a board of directors simply created itself without a lot of thought and planning. This will not be the case going forward. Organizations will have to seek out, recruit and nominate qualified people. And keep in mind, every other sport organization will be seeking out and recruiting also - possibly from the same small pool of people (the sport community is not very large, after all). We may all be competing against each other for qualified, committed, skilled board leaders for our sport organizations.

This places an onus on sport organizations to design and implement robust nomination procedures - including scanning your board for needed skills, creating position descriptions for the positions you wish to fill, delegating to a capable nominating committee the task of seeking out nominees, determining the minimum qualifications for nominees, communicating and advertising leadership opportunities through national media, vetting nominees to determine who is most appropriate, and creating the procedures and timelines for your election process. Nominating used to be an afterthought, done a few months or a few weeks out from an annual general meeting: now, it will a year-round process and will require focused thought.

I cannot overemphasize the importance of placing a high priority on planning succession within your board.

Secondly, if you are like most NSOs you are streamlining and simplifying the definition of membership and moving away from individual participants having status as members in your organization. Instead, they gain recognition in a different way, as a 'registrant' or 'registered participant'. This is a wise course of action but alone is not sufficient. If individuals are not members, then a sport organization does not have legal authority or jurisdiction over them through their bylaws. Jurisdiction is critical - without it, a sport organization does not have control over participant conduct and does not have the legal 'monopoly' that is the backbone of the amateur/commercial sport system. Jurisdiction must be established in other ways, such as through policies, rules or contracts. This can be easily done, but is also easily overlooked.

Rowing Canada Aviron, upon eliminating individuals as a class of member, passed a resolution that "wherever in RCA's policies there is a reference to 'members, which under the former Constitution included non-voting members, that this will be taken to include 'Registered Participants' until such time as the RCA policies are revised to conform with the amended Constitution". A very easy fix indeed! But potentially fatal if not done.

Thirdly, as organizations move towards elected boards and typically smaller boards, many of them are losing sight of athlete representation. Because directors must be elected, the usual practice of having national team athletes put forward their own representative to serve on the board will no longer work. An alternative method must be designed, and this requires some thought and some effort. Sport Canada, as a funding agency, requires that each funded NSO have “a formal policy on athlete centeredness and can demonstrate the direct involvement of high performance athletes in decision-making”. Sport Canada acknowledges that giving athletes substantive opportunities to be involved in decisions which affect them can be achieved in a number of ways.

My observation working with about 40 organization on their transition plan is that athletes are not engaged in these discussions about transition and governance reform. Decisions about future governance within sport organizations are being made at a very high level, and the impact of these decisions will go very deep. Athlete leaders, and AthletesCAN, should take note.

Lastly, the natural evolution towards smaller, competency-based, policy-governing boards gives rise to the discussion about .... CARVER. The Carver model of governance dates from 1990 and governance 'guru' John Carver. In simplest terms, the model states that the role of the Board is to determine organizational purposes ('ends') and to leave all other organizational matters ('means') in the hands of staff. The board exercises its oversight and fiduciary role by setting limits as to what staff can do to carry out means. The Board delegates all means to a single staff person (the CEO) and holds that person to account.

Several organizations undergoing transition have wanted to explore this model for their future structure. Theoretically it holds appeal as it is simple, elegant and unmessy. But it makes me very uncomfortable. The president of one NSO (who shares my discomfort) stated recently "if you are being a recruited to a board and the board follows the Carver model of governance, run for the hills!". I am not convinced that the Carver model is conducive to directors fulfilling their statutory, fiduciary duties, which is why 'running for the hills' might be a wise response. While there are elements of Carver governance that are very helpful, the model in its entirety is not the solution.

More importantly, I don't think the Carver model is good for sport. A tiny few NSOs in Canada are governed this way but even those are not pure Carver organizations. The predominance of volunteers and vounteerism in the leadership and delivery of sport in Canada (as a sector, we rely more on volunteers than any other sector) does not support the Carver model, in my view. I am sure there are some people who would challenge me on this - its a good debate!!

Thanks for listening. Feel free to contact me, or others in the Sport Law & Strategy Group, if you want to discuss any aspect of your transition to the NFP Act.