Depolarization starts at home: Fundamental legal principles in living with intractable governance disputes

There is no shortage of blog posts advising directors on how to manage conflict on the board, between the board and members, or amongst the organizational members. These posts focus on developing robust and transparent decision-making processes and engaging in constructive dialogue practices, all of which are legally advisable approaches that I echo. 

But what about the disputes that can’t be resolved? What about the divisions that run so deep and are so acrimonious, the most robust process in the world won’t get people to sit down together? It’s still possible for directors and officers to fulfill their fiduciary duties under these circumstances in a way that accounts for everyone’s interests whether they recognize it or not. 

I want to take a step back and reflect through the lens of corporate law what these governance disputes mean in our polarized world. After all, nonprofits are often referred to as “schools of democracy”, i.e. places where individuals learn the skills necessary to participate in public decision-making processes. As with any school, the habits we practice within them could reflect the pathologies or foster the kind of skills and attitudes so desperately needed outside of them.  

What are we doing here? Remembering the corporate purposes.

Those charged with responsibility for nonprofits (directors and officers) are required to first and foremost act in the best interests of the corporation. Courts¹ have said the best interests of a nonprofit is the accomplishment of its corporate purposes. Reasonable people often disagree over what these are. How are these disputes to be settled? 

The Supreme Court in the classic case Re BCE said:

In considering what is in the best interests of the corporation, directors may look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. Courts should give appropriate deference to the business judgment of directors who take into account these ancillary interests, as reflected by the business judgment rule.  The “business judgment rule” accords deference to a business decision, so long as it lies within a range of reasonable alternatives…

Among other things, commentators have puzzled over: 

1. How could a board ever be held accountable if they can always fall back on one interest group or another with directly opposing views?
2. How could a board, in the pursuit of the corporation’s best interests, be required to consider groups who may have opposing interests of the corporation itself?

The conflict is the way

In the context of acrimonious and apparently unresolvable disagreement, the Supreme Court invites us to consider the following principles: 

1. Governance is an exercise of weaving together disparate interests towards a particular goal. Those with opposing interests are every bit as relevant as those who support your cause since they have the capacity to undermine your purposes. This doesn’t mean appeasement of every critic is necessary, it means an effective strategy must account for this opposition in its design. Alienating an interest group is not in itself a sign of governance failure, making decisions without accounting for an interest group’s perspective just because you disagree (e.g. the “difficult” member) is by definition a failure. Put differently, the fact that a party will never be satisfied does not absolve an organization of its duty to consider them. For example, certain neighbours may not be pleased at a social service provider expanding its facilities; in order to win municipal approval, the social service provider may incur additional costs to install noise reducing fences. Though this doesn’t satisfy the oppositional neighbours, it clearly takes them into account.
2. The who matters as much as the what. Governance is not a science in the sense that a good governance process checks all the boxes of consulting all the relevant people to gather all the right data to discover the correct answer. In the absence of a marked defect in the process, (e.g. failing to consider a relevant interest-holder) a range of solutions will pretty much always be possible. Within that range is the space of a board’s discretion that no amount of expertise can settle. It’s a space filled by nothing else but the board’s collective judgment, so who’s at the table and, who they are accountable to, matters.
3. A decision must be made. The law assumes that a decision must be made because there is an underlying duty to move towards the purposes of the corporation. Making no decision at all due to a fear of acrimony or an inability to achieve sufficient consensus is treated for the purposes of corporate law as a decision in the sense that a board may be held accountable for any consequences of inaction. 

Conclusion: Conflict happens and that’s OK

The above principles explain why we cannot let polarization freeze us or ignore third rails if we know addressing them is vital to the mission. It also reminds us that everyone is part of the solution whether or not they like that solution. Governance practices aimed at eliminating conflict may mitigate some and hide the rest. 

“Depolarization” in the corporate law context means navigating towards our end goal cognizant of the reality of conflicts, minimizing unnecessary conflict, and taking principled positions on those we cannot minimize. 

1. Bloorview Children’s Hospital Foundation v. Bloorview MacMillan Centre, 2002 CarswellOnt 517, 22 B.L.R. (3d) 182, 44 E.T.R. (2d) 155, [2002] O.T.C. 108, [2002] O.J. No. 521 (Ont. S.C.J.) at para 32. ↩︎