Avoid Common Corporate Governance Mistakes in Canada
Corporate governance mistakes can expose Canadian businesses and not-for-profits to legal risk, financial setbacks, and reputational harm. Many small to mid-sized organizations unintentionally overlook key governance duties in favor of day-to-day operations. This article identifies the most common corporate governance mistakes under Canadian law and outlines practical solutions to help boards, directors, and executives avoid liability and improve oversight.
1. Treating the Board Like a Rubber Stamp
Why It’s a Problem
In many organizations, board members take a passive approach—approving proposals without engaging in active oversight. This undermines their fiduciary duties and increases exposure to legal claims.
Legal Obligations
Directors must act honestly, in good faith, and in the corporation’s best interests, using reasonable care and diligence under legislation like:
- Canada Business Corporations Act (CBCA), s.122
- Ontario Business Corporations Act (OBCA), s.134
- Canada Not-for-profit Corporations Act (CNCA), s.148(1)
- Ontario Not-for-Profit Corporations Act (ONCA), s.43
How to Fix It
- Encourage active discussion during board meetings
- Provide new directors with onboarding and training
- Ensure access to timely, relevant reports and materials
2. Poor Record-Keeping (or No Records at All)
Why It’s a Problem
Missing or disorganized corporate records can become a major issue during audits, disputes, or grant applications. In some cases, they lead to questions about board legitimacy.
Legal Requirements
Under Canadian corporate law, corporations must maintain accurate records, including:
- Director and officer registers
- Meeting minutes and resolutions
- Articles, by-laws, and other governance documents
Common Triggers for Record Reviews
- Corporate financing or sale
- Government audit or compliance review
- Annual return filings or grant applications
Best Practices
Keep a well-organized minute book or secure digital equivalent, and stay on top of:
- Annual return filings
- Board and shareholder resolutions
- Changes in directors, officers, and share structure
3. No Succession Plan for Directors or Key Executives
Why It’s a Problem
Relying heavily on founders or a few leaders without a succession plan can cause confusion and operational paralysis if they suddenly leave.
Implications for Governance
Lack of planning can result in:
- Leadership gaps and internal conflict
- Loss of institutional memory
- Weakened donor or stakeholder confidence
Solutions
- Identify key leadership roles in advance
- Build leadership development into strategy
- Review governance documents for transition planning
4. Outdated Governance Documents
Why It’s a Problem
Outdated by-laws, shareholder agreements, or board policies may conflict with current practices or legal standards.
Recent Legal Changes to Note
ONCA (in force since 2021) changed governance standards for not-for-profits, including:
- Board structure and meeting rules
- Member rights and voting procedures
- By-law and document formatting
How to Stay Compliant
- Conduct regular reviews of all governance documents
- Update by-laws to comply with CBCA, OBCA, CNCA, or ONCA as applicable
- Seek legal review every few years or during major transitions
FAQs About Corporate Governance Mistakes
1. What is the biggest corporate governance mistake for small businesses?
Failing to keep accurate corporate records is a common and serious oversight.
2. Can directors be held personally liable for governance failures?
Yes. Under Canadian law, directors may face legal or financial consequences for breaching their fiduciary duties.
3. How often should governance documents be reviewed?
Ideally every 2–3 years, or after significant organizational or legal changes.
4. Is a succession plan legally required?
No, but it is a best practice for stable governance, especially in NFPs and family-run businesses.
5. What’s the difference between tax filings and annual returns?
Tax filings go to CRA, while annual returns are corporate filings required by CBCA, OBCA, or ONCA to maintain active status.
Conclusion
Corporate governance mistakes are avoidable but common in Canadian business and not-for-profit environments. From weak board engagement to outdated documents and poor records, each misstep can lead to legal, financial, or operational challenges. By understanding and addressing these issues early, organizations can strengthen oversight, remain compliant, and ensure long-term sustainability. Consult a legal professional to audit your corporate governance practices and implement lasting improvements.
