BLG partner Jeremy Farr. (Darren Brown, OBJ)

In this age of corporate scandal and compliance regulations, corporate governance has become a key issue for publicly traded companies, but now even private firms and not-for-profit organizations are looking for legal advice about the topic.

Jeremy Farr, a partner with the Ottawa office of Borden Ladner Gervais (BLG) says law firms across North America are increasingly serving as advisors to non-profit groups who are interested in establishing corporate governance strategies.

"Governance is still perceived as a reaction to corporate failures, but it's really a long-standing series of systems and initiatives that's designed to build a better mousetrap," he says. "It improves corporate performance and improves as a result the value of the entity to its stakeholders, whoever they may be."

Mr. Farr says law firms are able to advise about the best practices in many categories, including the recruitment of board members, establishing an ethical code of conduct, creating an audit committee for financial reporting and securing the proper insurance coverage.

"For non-public entities, it's really the venture capitalists involved who have bought into the governance mantra and the importance of doing a due diligence assessment of the companies they've been asked to invest in," he says. "A non-public's willingness and success in implementing some of these government structures is really a pre-condition for the prospective recruit as to whether it's an organization they want to join. And that's also being seen at the senior executive level, where there's competition for this talent and those organizations that have moved more forward will look more credible."

Mr. Farr says it is the recognition by public companies of the need to embrace governance that has really elevated the sense of importance and urgency in the non-public environment.

"Governance-type requests and mandates have probably increased at least tenfold since the public company development started to take shape, but I see in Ottawa more growth in governance issues in non-public entities than in public enterprises," he says. "It's creating a lot of work for the city's law firms and accounting firms."

The city's local United Way campaign has used the services of a local law firm to ensure it is using best practices, as well as meeting necessary transparency and accountability standards.

"Organizations like ours, that are significant in size and profile in the community and dependent on a major amount of public trust, demands that we exercise first-class governance and performance," says Michael Allen, president and executive director of the United Way in Ottawa. "We've worked deliberately with tremendous support from both our volunteers and from consultants, like Deloitte and others, who are experts in the area of board governance."

The United Way is an autonomous organization governed by a local independent board of directors that uses volunteers and staff to raise funds. In 2004, the United Way campaign in Ottawa raised more than $24 million, which is then given back to the community through numerous projects and special initiatives.

Mr. Allen says most non-profits in Canada have already investigated and integrated corporate governance measures on their own.

"For example, in the last couple of years, we have created a board governance committee for a broad range of activities, such as the nominating of future board members and orientation, as well as the conduct of board members, the structure of our by-laws and terms of reference for different committees and the accountability of the board itself," he says. "All things that model best practices of a good organization, be they volunteer-driven or otherwise."

A lawyer by trade, Mr. Allen says most law firms have "stepped up to the plate" when it comes to assisting non-profits groups with these issues.

"There is no doubt that the legal community, probably as much in this community as others, if not more, has a strong and significant history in terms of community service work," he says. "They bring to organizations like ours and the many others that are smaller in their scope and size a lot of support."

Many non-profit entities are also participating in continuing education programs. A new program, called The Governance Essentials Program, is being presented by Telus and offered through ICD Corporate Governance College partner universities throughout 2006. The first program will take place at the Rotman School of Management in Toronto on May 7 and then move on to Ottawa, Edmonton, Calgary, Montreal and Vancouver.

"According to Statistics Canada, non-profit and voluntary sector organizations manage more than $112 billion (correction from previous figure) in revenues," says Beverly Topping, president and CEO of the Institute of Corporate Directors and ICD Corporate Governance College. "The Governance Essentials Program will educate not-for-profit directors on their key board accountabilities and director responsibilities."

Grant Jameson, the managing partner for the Ottawa office of Ogilvy Renault, says he has found that non-profit directors take their responsibilities very seriously, but one of the hardest concepts to grasp is how to act in the group's best interests.

"It is not a legislative body where policy or political views motivate the manner in which the director behaves," he says. "All directors must act in the best interests of the corporation they govern even if those best interests are contrary to the interest group or stakeholder which has nominated them to the board."

Mr. Jameson says law firms are well situated to properly advise non-profits about the proper way to implement governance issues.

"I think the best way for firms to make a difference when advising not-for-profits is to know not only governance principles, but it is also very important to understand the motivation, the desire to make a difference in the community or in society at large and the commitment that volunteers bring to the positions of directors and officers of not-for-profit boards," he says. "Our experience with governance issues in businesses can be combined with our understanding of the not-for-profit sector to make appropriate governance recommendations."