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The Risks Associated to Managing an NPO

Lussier Dale Parizeau | September 28, 2021
While it may be flattering to be approached to serve on the board of a nonprofit organization (NPO), the position does not come without certain risks and responsibilities.

First, you should be aware that your personal liability is at stake: just because you act on behalf of the organization does not mean that you are exempt from personal liability. Indeed, the laws provide for a number of circumstances in which the director himself is in the hot seat: the Civil Code of Quebec establishes that one cannot hide behind the organization to avoid personal liability if it is to conceal a fraud, which is easily understood, but also to commit an abuse of right or to contravene a rule of public order.

Consider a case of discrimination: if a victim alleges that he or she has been discriminated against by a nonprofit, there is nothing to prevent the victim from holding not only the organization but also its directors liable.

There are also important guidelines to remember: directors must act prudently and diligently (without being expected to be perfect) and in the best interests of the organization, not in their own interests.

Given the scope of these obligations, directors should seek to protect themselves in the event of a lawsuit against them, whether rightly or wrongly. It is therefore strongly recommended that directors and officers not serve on the board without directors’ and officers’ liability insurance that protects both the organization in the course of its activities and the directors and officers for the consequences of their decisions. Imagine a lawsuit against the director of a nonprofit alleging a conflict of interest in the awarding of a contract; the director may have good defences (disclosure of the conflict, withdrawal at the time of the board’s decision, awarding to the lowest bidder, external expert advice in support of the decision), but he or she still has to defend himself or herself, hire a lawyer, and pay for his or her fees. That’s what directors’ liability insurance is for: the insurer takes care of the case and neither the nonprofit nor the director has to pay these costs.

Now you know what to put on the agenda for the next board meeting…

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Lussier Dale Parizeau

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