2005
 
NEW BEST PRACTICE GOVERNANCE AND DISCLOSURE GUIDELINES FOR BC’S COLLEGES AND UNIVERSITIES 
Corporate governance refers to the broad functions of those who oversee an organization’s affairs and the means by which they are held to account for their stewardship. Because public Colleges and Universities, like other public sector organizations, control and manage assets and provide educational services on behalf of the general public, it is not surprising that there is a high onus on public sector corporations to act in the public’s best interest and to be accountable to the public. Accordingly, it is appropriate to regularly review and compare the institution’s governance practices with what is considered "best practices" for governance (which continue to evolve). In February 2005 the Board Resourcing and Development Office, Office of the Premier, published "Best Practice Guidelines, Governance and Disclosure Guidelines for Governing Boards of British Columbia Public Sector Organizations". This publication sets out new governance and disclosure guidelines which apply to all of BC’s public sector organizations, including public Colleges and Universities. It is expected that by April 2006, all public sector organizations will publicly disclose how their governance practices compare to the new guidelines. The Best Practice Guidelines contains:
Context - Public sector organizations are accountable to the people of the province via the Legislative Assembly and Government; the latter communicates specific objectives through the responsible Minister. Thus, what is considered to be ‘best practices’ for governance of a College or University must be determined in the context of the College or University’s governing legislation, and the performance expectations set out in its annual Budget and Accountability Letter, signed by the Minister of Advanced Education. Because the Board of a College or University is responsible for overseeing governance, it is important that the Board be kept regularly informed of key communications between the institution and the Minister. Finally, because of their public trust mandate, public sector organizations have more onerous disclosure requirements than their private sector counterparts. Guidelines - The Best Practices Guidelines contain best practice guidelines for: Board Composition and Succession, Board Responsibilities, Committees, Audit Committee Responsibilities, the Board Chair, Individual Board of Governors or Directors, the President, Corporate Secretary, Code of Conduct & Ethics, Orientation and Professional Development for Governors or Directors, Assessment of the Board, Committees and Governors, and Communication Strategy. Disclosure - Disclosure of an organization’s current governance practices is seen as a key element to best practice in corporate governance. Thus, the Best Practices Guidelines also provide a reference guide to disclosure obligations as they relate to each of the guidelines. The expectation from the Province is that all public sector organizations should begin to report on their governance practices as soon as possible, but in any event, not later than April 2006. Colleges and Universities should be reviewing their governance and disclosure practices in relation to the guidelines set out in the Best Practices Guidelines so that any deficiencies in governance practices are identified and a plan to address those deficiencies is well underway before the April 2006 disclosure deadline arrives. Nicole Byres or any other member of Clark Wilson LLP’s Higher Learning Practice Group would be pleased to provide further information on this topic and can be reached at 604.687.5700. For online text of the Best Practices Guidelines go to www.fin.gov.bc.ca/abc.
VICTORY FOR ONTARIO UNIVERSITIES
In Ontario, as in British Columbia (and most other jurisdictions), the land owned by institutions of higher learning is exempt from property tax. But such exemption requires more than simple ownership. It also typically requires use or occupation by the institution. A recent decision from the Ontario Superior Court of Justice confirms that the lands remain exempt from property taxation even at times when buildings are being constructed on the lands, even if the building and lands are not yet available for their particular designated use. On May 17, 2005, Justice Somers of the Superior Court of Justice issued Reasons for Judgment in two actions which were heard together, brought by Ryerson University and the University of Ottawa against the Municipal Property Assessment Corporation. In each case, the universities owned land upon which they had commenced construction of buildings to be used by the universities. It was not disputed that both of the applicants were universities as defined by the Ontario Education Act and as such, each was exempt from property taxes. Paragraph 3 (1.4) of the Ontario Assessment Act states: "3(1) All real property in Ontario is liable to assessment and taxation, subject to the exemptions from taxation: 4) land owned, used and occupied solely by a university, college or school as defined in the Education Act or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner." Further, the Ryerson University Act, 1977, and the University of Ottawa Act, 1965, also included provisions stating that as long as the lands were actually used and occupied for the purpose of the universities, they would be exempt from property taxation. This exemption is similar to that found in Section 54(1) of the University Act (British Columbia): "Unless otherwise provided in an Act, the property vested in a university and held or used for university purposes is exempt from taxation under the Community Charter Act, the Local Government Act, the School Act, the Vancouver Charter and the Taxation (Rural Area) Act" The construction work undertaken by Ryerson University took place between October 16, 2002 and August 2004. Counsel for MPAC argued that, in accordance with the construction contract, Ryerson’s contractors, as opposed to Ryerson, had control of the property during that time. The construction of a new residence on lands owned by the University of Ottawa commenced August 25, 2003 and continued to the end of August 2004. Again, counsel for the assessor took the position that, during the construction, the university did not have control of the lands and that the lands were not being used for university purposes. In essence, the argument was that, had the legislation intended to provide Ryerson and the University of Ottawa with an exemption for all land owned by them, it could have done so. Since it must be shown that the universities actually occupy and use the land in question for their purposes, the onus is on the universities to establish something in addition to legal possession or ownership. This approach is borne out by the decided cases; however, the courts have gone to some lengths to avoid too narrow an interpretation of what would constitute an educational purpose. Justice Somers concluded: "In my view, both Ryerson and the University of Ottawa took active roles in obtaining the necessary permits to erect the respective buildings, to obtain variances in the zoning regulations, if any, and in fact, to acquire the property itself. The construction work was prepared for the university by professional architects and engineers, but it was clearly made subject to the approval of the universities, not just before construction started, but all during the course of construction. … It is my opinion … both universities occupied the subject properties within the meaning of the governing statutes. I, therefore, find on behalf of both the applicants." Ultimately, the Court declared that the properties owned by the universities were exempt from taxation during 2004 and all subsequent tax years and directed that all property taxes paid by the universities to the assessor were to be refunded for the taxation year 2004 and all subsequent years. In conclusion, it appears now well settled that as long as the lands owned by the universities are being used and occupied or, if the lands are the subject of construction to allow the better use and occupation of the lands by the universities, the lands will be and remain exempt from property taxation. It would seem reasonable that vacant land which is held by a university, pending development for university purposes, should also be exempt, provided that no one else is using or occupying such land. John Fiddick or any other member of Clark Wilson LLP’s Higher Learning Practice Group would be pleased to provide further information on this topic and can be reached at 604.687.5700.
LIQUOR ON CAMPUS -
The Supreme Court of Canada has outlined in a number of cases the standard of care owed by commercial hosts to their patrons and the standard of care required by commercial hosts to meet that standard of care. It is now accepted that commercial hosts, being "hosts" such as taverns and pubs which sell liquor, have a positive duty of care to their customers and to third parties who foreseeably might come into contact with those customers and be at risk. It is now clear that a commercial host is obliged to monitor the consumption of alcohol by its patrons, in terms of both quantity of alcohol served and visible signs of intoxication. If a patron is intoxicated, the host must stop serving the patron and make an effort to find the person safe transportation home. The social policy aim is to protect the patron and society. A campus pub operated by someone other than a college or institute is clearly a commercial host which must meet this high standard of care. The issue is not so clear with respect to venues on a campus when liquor is served, especially when the institution is itself the operator of the pub. The Supreme Court of Canada has not yet ruled on the liability of social hosts, but has granted leave to appeal from the Ontario Court of Appeals case Childs v. Desormeaux (2004), 239 D.L.R. (4th) 61. In this case, the Court of Appeal draws a bright line between a social host and a commercial host by stating that social host liability is not simply an extension of commercial host liability. Importantly, the Court of Appeal draws a number of distinctions:
Alcohol may be sold pursuant to permanent liquor licenses – such as, in a pub, restaurant or hotel. It may also be sold pursuant to a special occasion license. In British Columbia (and we understand a similar system is in place in the other provinces), a special occasion licence is required to host an event on campus that involves alcohol and is not held on licensed premises. Special occasion licenses can be obtained for either a private or a public special event. A public special event is a community or public celebration. An event is considered public if it is held in a place open to, or in view of, the public. There are no cases on point dealing with host liability involving a special occasion license based on a university or college campus. The Liquor Control and Licensing Act section 7(2) states that: A licence must not be issued for the prime purpose of making a profit, unless the general manager is satisfied that the purpose of the special occasion is to raise funds for a genuine charitable purpose. At first glance, one might think that host liability under a special occasion license should correspond with social host liability because the primary purpose cannot be profit. In a campus context, the licensee is not likely selling liquor for conventional profit, but rather, to further the objectives of the institution, its student association or some other worthwhile objective. For this reason, one might think that the standard of care applicable in the case of a special event on campus should be the same as that for social hosts. On the other hand, in many respects, factors under a special occasion license resemble those involving commercial hosts. The license is regulated and there are statutory standards. Further, it is likely that the licensee will carry insurance as a measure of protection when hosting an event and the people attending the event may not bring their own liquor. Money will be paid for the liquor consumed. These are important differences from the typical social host event. Significantly, the licensee has control over the service of alcohol, and thus must monitor consumption by its patrons. As a result, it would be prudent to assume that the standard of care for a special occasion license is the same as applies to a commercial host. A potential licensee should consider the factors the court has applied in finding commercial host liability. The person named as the licensee may be personally responsible for compliance with the terms of the license and all other alcohol-related matters in connection with the function, including the conduct of visitors and guests. The staff employed by the host should be aware of the visible signs of intoxication so that patrons will not be served past the point of intoxication and appropriate steps are taken to provide safe transportation for intoxicated patrons.Another consideration is in respect of third party licenses. Is a college or university potentially liable as a host in respect of licensed operations where a third party is the licensee, be it pursuant to a permanent or special occasion license? There is no clear law guiding what liability a college or university would have where a third party licensee, such as a common operator or student association, operates a pub on campus. It is unlikely that the college or university would be primarily liable for an action connected to an alcohol related incident. This does not mean, however, that a plaintiff would not seek damages from the college or university, alleging a failure to properly delegate or supervise the licensee. Again, there are no reported cases in Canada which we have found that deal with this issue. But it seems likely that a university or college could in some egregious circumstances be found liable even if it does not itself hold the license for a licensed function on its campus. A college or university should follow all regulatory steps when approving the event or agreeing to allow a third party to operate a licensed premises. The college or university should have policies in place concerning events with alcohol and bring them to the attention of the potential licensee. For instance, the college or university should consider the applicant’s plan for providing safe transportation for intoxicated patrons, selection of staff, experience of staff and training of staff for the type of event sought to be hosted. Also, the college or university ought to inquire whether the licensee will have insurance, and in any case, should confirm that it has coverage which will respond to claims and defence costs. The university or college should seek an indemnity from the licensee. The bottom line is that a college or university could be found liable if it negligently grants permission to sell liquor on campus and should therefore carefully scrutinize the licensee’s plans to make sure they correspond with both statutory requirements and common law principles. The issue of alcohol in student residences is a separate matter and not considered here. Larry Munn or any other member of Clark Wilson LLP’s Higher Learning Practice Group would be pleased to provide further information on this topic and can be reached at 604.687.5700.
WHISTLEBLOWER POLICY - A TOOL FOR CORPORATE GOVERNANCE
In the wake of some of the dramatic financial disclosure failures in publicly traded companies over the last few years, new corporate governance standards have been implemented for publicly traded companies to encourage and protect whistleblowers. These new standards have also become the benchmark by which public sector organizations’ corporate governance policies are judged. This article sets out the key elements of an effective whistleblower policy. The term "whistleblower" refers to employees or third parties who wish to report an alleged breach of the corporation’s code of conduct or breach of any law. A "whistleblowing mechanism" is a tool to identify problems which may not otherwise show up with other governance and audit functions. An effective whistleblowing mechanism, in conjunction with an effective code of conduct, can minimize the likelihood that serious fraud or misconduct will go undetected. When designing a whistleblowing mechanism within a corporation, the objective should be to encourage and make it as easy as possible for people to report legitimate concerns in a timely manner so that losses are minimized. To be effective, the whistleblowing mechanism should be designed in a manner which considers the structure and culture of the corporation. Colleges and universities are complex institutions and there is no effective "one size fits all" whistleblowing policy. However, there are some consistent themes to consider when developing or reviewing your policy. 1. Leadership It is important that the President and Board of Governors send the message to the rest of the institution that they are committed to full, fair, accurate and timely disclosures, and that individuals with complaints will be protected from retaliation. 2. Code of Conduct The institution’s code of conduct should be reviewed regularly to ensure that it clearly sets out the standard of behavior expected by an institution’s Board, President and all other employees, agents and contractors acting on behalf of the institution. Without a clear and well communicated code of conduct, it is difficult to create the ‘accountability environment’ which is required to implement controls and procedures. Employee training is also necessary, to ensure that all employees understand how the code of conduct relates to the various operations and undertakings of the institution and the role and responsibilities of the individual in supporting and working in a manner which is consistent with the code. At least once a year, all employees should be asked to review the code and report any conduct which they believe may be in contravention of it. 3. Disclosure Policy A disclosure policy should set out a mechanism by which individuals can report breaches or suspected breaches, and alternative reporting structures should be in place to ensure that the whistleblower believes that there is an effective mechanism to deal with the complaint. For example, although it would be hoped most employees could report a problem to their supervisor or immediate superior, that may not always be the case, especially when the supervisor or superior is alleged to be the problem. In those instances, there should be alternate people, such as internal legal counsel or an ethics commissioner, who could receive complaints an employee might never bring forward to their supervisor or superiors. 4. Complaint Handling Timely and confidential handling of complaints is also important and the whistleblower policy should include a method by which complaints will be handled. Within colleges and universities, a disclosure committee with membership from different faculties and departments should be formed to handle the investigation of such complaints; the disclosure committee then reports to senior management, the President or the Board’s audit committee, as appropriate, in the event the committee believes there is merit to the complaint and follow-up is required. Irrespective of whether or not follow-up is required, on an annual basis, the disclosure committee should also report to the audit committee the number of complaints received and any actions taken as a result of those complaints. 5. Independent Counsel and/or Advisors The disclosure committee should have the ability to hire independent legal counsel or other advisors to provide advice with respect to complaints, and the appropriate investigation and disposition of complaints. 6. Communication It is also important to communicate the institution’s commitment to the whistleblower policy in conjunction with employee education with respect to the code of conduct. The institution will want all employees and third parties to be aware of and easily gain access to specific complaint procedures and policies when required. Besides traditional employee education opportunities, this would also include publication of the institution’s code of conduct and all the relevant policies and information required to assist employees or third parties to make a complaint on the institution’s website. Lyall Knott, Q.C. or Nicole Byres would be pleased to provide further information on this topic and can be reached at 604.687.5700.
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