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Governance in the News - Yet Again

Sep 11, 2022

Our too-short summer is drawing to a close, and, with that, DirectorPrep’s hiatus from weekly blog production has ended. Fortunately, the news cycle has brought us the gift of content.

Hockey Canada is the governing body of Canada’s most beloved sport - a non-profit organization with a board of volunteer directors. But don’t kid yourself – this is big business. And now it’s in hot water and its board is under public scrutiny. That makes it fodder for our third installment of “Governance in the News.” (Click here and here for the first two issues.)

I’ve said it before, and I’ll say it again. When your board of directors is in the news, it’s never a good thing. When you see the word governance in a headline, you can be sure it’s not going to be a heartwarming story.

For a Savvy Director, there’s a lot to learn if you approach a story like this with a director’s mindset, asking yourself, “What should the board have known?”, “What role could a director play?” and “What should be done going forward?”

 

Hockey Canada

Hockey Canada is the national governing body for hockey – men’s, women’s, and children’s. It controls most organized hockey with a few exceptions such as university hockey and professional hockey clubs. Its members are the provincial and territorial hockey organizations. Its mission statement is “Lead, Develop and Promote Positive Hockey Experiences.”

Hockey Canada oversees the management of hockey programs from entry-level to high performance teams and competitions, including world championships and the Olympic Winter Games. Its operations are financed primarily through events, sponsorships, government funding, non-governmental funding, and donations.

 

What Happened?

In June 2018, Hockey Canada was informed that a woman alleged she had been sexually assaulted by eight hockey players following a gala in London, Ontario. Hockey Canada informed both the London police and Sport Canada (the branch of the Canadian government department that provides funding to Hockey Canada), and opened its own third-party investigation. The hockey players who were present in London were strongly encouraged to speak with investigators, but not mandated to do so.

In February 2019 the London police closed their investigation without laying criminal charges, and in September 2020 Hockey Canada closed its own investigation.

In the spring of 2022, the woman filed a lawsuit for $3.55 million in damages, which Hockey Canada settled out of court for an undisclosed amount, without determining the facts of the case or holding players accountable.

The story of the lawsuit and out-of-court settlement became public shortly afterwards.

 

The Fallout

The situation soon became political. The Minister of Sport froze federal funding and ordered an audit to ensure no public funds had been used in the settlement. Appearing before a Parliamentary Committee, Hockey Canada officials disclosed few details, citing confidentiality requirements. Outraged politicians, including the Prime Minister, called on the board of directors and top executives to resign, saying that Canadians have lost confidence in Hockey Canada’s leadership.

Sponsors like Scotiabank, Tim Horton’s, and Imperial Oil paused their sponsorship and withdrew support from the world junior hockey championship. NHL players and former players condemned Hockey Canada’s lack of transparency, calling for full-scale change in the organization’s leadership team and board. Provincial and territorial hockey organizations demanded information, with some of them making payment of local dues contingent on getting satisfactory answers.

Public outrage grew when it was revealed that Hockey Canada had not used insurance to settle the lawsuit, but instead had tapped into its National Equity Fund - a little-known fund built through community-level registration fees without disclosing to parents and players that their money was being used toward sexual assault cases. In fact, it was later disclosed that the fund has been used to pay out millions of dollars in settlements for several sexual assault and abuse claims over the years.

 

 

Hockey Canada’s Response

Hockey Canada has revealed a multi-pronged Action Plan in response to the situation. Among other actions, it has re-opened its investigation, this time making player participation mandatory.

Other Action Plan commitments include training, mandating that failing to participate in an investigation could result in a lifetime ban, and ceding oversight for all complaints, allegations, or concerns with national programming to the Office of the Sport Integrity Commissioner.

There have also been changes at the CEO and board chair positions. As part of an approved succession plan, the CEO retired and was replaced by COO Scott Smith. It’s widely felt that, since Smith has been a hockey Canada employee since 1997, this doesn’t exactly represent a changing of the guard.

The board chair resigned and was replaced by an interim chair. The departing chair explained that, because his term was due to expire in November, he would have been unable to see the Action Plan through to completion.

Despite public calls for leadership changes, the interim board chair has publicly stated that Scott Smith and the executive team have the support of the board.

 

Governance at Hockey Canada

The purpose of this Savvy Director blog isn’t to delve into hockey culture – which, by the way, has been described as “toxic” and “broken” – or to weigh in on the wisdom of using a pot of money called the “National Equity Fund” to settle sexual assault claims.

Our goal is to reflect on the implications for the board of directors and to consider the governance aspects of the situation. So, let’s do that.

The Hockey Canada Board of Directors is made up of volunteers elected by its members – thirteen provincial and territorial hockey organizations. The bylaws – posted here on the website - were updated in 2019 to require a minimum of two women on the board and an independent nominating committee to recruit nominees. According to the interim board chair, the current board has “representation from different ethnic and cultural communities, including from the indigenous community, and from the LGBT2Q+ community.”

This diversity has apparently brought new perspectives to the board, which has focused on inclusion and accessibility, with accomplishments ranging from new rules about discriminatory taunts and insults to coaching certification changes that ensure players enjoy a safe environment.

Hockey Canada’s governance – like that of other national sport organizations – was reviewed by Sport Canada last year. After Hockey Canada challenged the low scores it received from the review, the ratings for board structure, board development, and risk management were upgraded. However, the low scores for conflict of interest, board responsibilities, and strategic planning remained the same.

Evidently, Hockey Canada wasn’t concerned that they would lose federal funding as a result of their poor showing - they viewed the low scores as recommendations and didn’t expect any follow up. Their blasé attitude might change in the future, as the Minister of Sport has since announced that, starting in 2023, governance improvements will be a requirement for national sport organizations to receive federal funding.

 

The Independent Third-Party Governance Review

In August, details of a governance review that had been announced as part of the Action Plan were made public . Former Supreme Court Justice Thomas Cromwell will lead the process, with interim recommendations expected by November. The announcement stated:

“The governance review will examine the organization and make recommendations to ensure its governance structure, systems, personnel and processes are geared to the requirements and best practices of a national sport organization of similar size, scope and influence in Canada.”

The complete list of questions that the review has been asked to address is shown in the Terms of Reference. Here they are in edited form:

  • The National Equity Fund: Was its use appropriate? Is there appropriate oversight of payments from the fund? Is its use sufficiently transparent?
  • The bylaws: Are they in line with current best practices? Should there be changes to enhance board diversity? Are term limits aligned with best practices? Should the nominating process be amended? Is the structure of the standing committees and task teams appropriate?
  • Board oversight: Does the board exercise appropriate oversight of senior management? Is the structure in the best interests of hockey in Canada? Is there a clear process for what items staff must report? Does the structure ensure work is efficient, effective, and high quality? What role should the board play in operations versus policy and strategy?
  • Management: Is the senior management team properly structured to oversee operations?
  • Other: What other governance recommendations could improve the confidence of Canadians in Hockey Canada?

 

Questions to Consider

Given this situation, here are just a few governance issues that come to mind if you consider the story with a director’s mindset.

Remember, there are no correct answers – just interesting questions!

  • The Terms of Reference for Justice Cromwell’s review focus on structure and process. In your view, how likely is it that the review will get to the root of the issues? Do you see any glaring holes? (Hint: do you see anything about board culture, board dynamics, or director competencies? Do you see anything about directors having the courage to do the right thing for the right reasons?)
  • According to one Globe & Mail article, the board kept no records of its discussions about the most recent settlement and avoided keeping meeting minutes. If true, what are the implications of this practice?
  • If your board was rated poorly in a third-party governance review, how would you respond? What questions would you ask?
  • Who are Hockey Canada’s key stakeholders? From what you can tell, does it appear the board is appropriately involved in stakeholder engagement?
  • What kind of reputational risk questions could board directors have asked when considering the situation?
  • What are the risks implicit in the board continuing to stand behind the current CEO and management team?
  • Was it wise for the board chair to resign? Should the entire board have resigned instead?
  • What level of disclosure should the board expect from management when it comes to allegations, investigations, lawsuits, and settlements?
  • What level of oversight would you expect the board to have over payments from the National Equity Fund?
  • What recommendations might you have for the board in terms of disclosure and communication to stakeholders and the public?

 

Your takeaways:

  • Just because board directors are volunteers, doesn’t mean expectations are any lower. Especially when the organization is basically big business.
  • Oversight of culture is a board responsibility.
  • Your stakeholders might be more aware of “cancel culture” than you are!
  • Reputational risk can be even more devastating than financial risk.
  • Making a mistake is one thing. Covering it up just makes it worse.

 

Resources:

 

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help directors prepare for their board role.

 

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