Increasingly, we are seeing coaches become members of Boards of Directors of sport organizations with which they coach. Perhaps this is part of the move by many sport organizations to select board members on the basis of expertise as opposed to representation based on regional affiliation.
In any event, whether you are a coach acting as a member of a board of directors or you are a coach working with a board of directors, it is important to understand the responsibilities of a board member. Indeed, increasingly we are being asked about instances of possible conflict of interest of board members and their conduct within the board milieu.
This topic is perhaps not the most scintillating but it is nonetheless important (and, in fact, continues to increase in importance as board members of organizations are held increasingly accountable for their conduct). And if your organization also has charitable status, which many sport organizations do have, the standard of conduct must be even more scrupulously upheld.
So, let’s talk about the responsibilities of the director to the organization. A director is said to be a fiduciary or a trustee of the organization. As such, a director is expected to be extremely loyal to the organization – not putting his/her personal interests before his/her duty to the organization, and not profiting from the relationship. It is notable that the fiduciary relationship is typically characterized by the words “good faith”, “loyalty” and “trust”. In fact, the word “fiduciary” comes from the Latin word “fides”, meaning “faith”.
What does this mean in terms of the daily conduct of the director? Being a director is like taking on a higher calling. One has higher obligations and higher responsibilities. Directors are ultimately responsible for the welfare of the organization as a whole. Being a director means that the standard of care in all you do is higher than that required in ordinary negligence (or tort) actions (see “What is the Standard of Care”, Coaches Report, Summer, 1997, Vol.4 No.1).
The duty of directors in for-profit organizations is largely spelled out in the pertinent legislation. Unfortunately, this is not always the case for ‘not-for-profit’ directors. Much of the guidance for these organizations comes from the case law (as well as the specific by-laws of the organization). There are two main categories of duties for the not-for- profit director: the duty of care and the duty of loyalty. The duty of care imposes on directors the duty of competence or skill and a duty of diligence. Directors must act in accordance with what a reasonably prudent person would do in a similar circumstance (this standard can be modified by the legislation in your specific jurisdiction, so it is always important to review the pertinent legislation). Bottom line: You must be reasonably informed and knowledgeable and knowledgeable about the governance of your organization and certainly should be well informed about the corporation’s mandate and all aspects of its operations.
The second category of duties is that of the duty of loyalty. The duty of loyalty requires both high standards of honesty and good faith in all that a director does on behalf of the organization. This is important – directors must act for the right reason on behalf of the organization (i.e., no intentional dishonesty, incomplete or misleading representations or acting for an improper purpose). The good-faith requiremen is the core of the fiduciary relationship and requires directors to act in the best interests of the organization.
But, the real key here for directors, particularly for coaches acting as directors of organizations, is the notion of a ‘conflict of interest”. Two rules are applicable to directors who have other roles within the organization (such as coaching) or to others who do business with the organization (e.g. director who also acts as a personal coach to an athlete within the organization). These rules are the non-profit rule and the non-conflict rule. The non-profit rule state that the duty of loyalty requires that directors stringently avoid conflicts of interest. Directors may not profit in any way from their relationship with the corporation.
The non-conflict rule states that directors cannot place themselves in a situation where their duty as a director conflicts with their interests or with their duty to others.
What do these rules mean? Coaches who are directors should not put themselves in a position that would create a conflict between their duty to act in the best interests of the corporation (their first duty) and their own personal interests. Do you have an interest (either direct or indirect) in a contract being considered by the board or even a decision being made by the board. If so you have a conflict. Will your actions as a director give benefit to a third party? If so, you have a conflict.
There may be ways of managing theses conflicts. Policies of your organization may specifically state that such conduct is a conflict of interest and set out specific remedies. That said, for most directors dealing with a situation of conflict, it is prudent and often necessary to, at the very least, identify the conflict to the Board, refrain from any discussion on the issue in conflict and then remove oneself from any vote on it. This is most often set out succinctly in the governing legislation for the corporation.
Bottom line: Read the legislation as well as good resources on the duties of directors and specifically on the topic of conflict of interest. Being a board member is no small business. It takes knowledge, diligence and responsibility.
Avoiding conflict can be difficult particularly where one plays a dual role within the organization. Coaches who are directors will very often be faced with potential conflicts. Managing these properly can be difficult, particularly when it means stepping away from being part of a particular decision. Nonetheless, it is a crucial part of being a director and is always in the best interests of the organizations.
A word of caution: Many of the concepts discussed in this column apply to both incorporated and unincorporated sport organizations. Directors of unincorporated organizations (many sport clubs are unincorporated) face many more situations of potential personal liability than directors of incorporated organizations. One of the benefits of incorporation is that it does, in many instances, protect the director from liability.
Originally published: Coaches Plan (2006) Vol. 12(4), modified October 2017 for publication on this website