ADR, Corporate

Corporate directors, shareholders should not let bylaws be bygones

Canadian corporate directors and shareholders should show initiative and leadership by enacting corporate bylaws that include arbitration provisions, Toronto commercial arbitrator Marvin J. Huberman tells

Huberman says enacting corporate bylaws that include arbitration provisions is a timely and appropriate response to the current business and legal landscapes and the multifarious challenges that corporations face in 2016.

Citing a recent survey of directors conducted by accounting firm EisnerAmper LLP, Huberman says the results indicated directors are most concerned about three risks: reputational, cyber security, and regulatory compliance.

“Essentially those were the top three concerns,” he says. “It seems to me that if there are well-drafted, robust corporate bylaws that deal effectively with arbitration, it will help corporations address those risks as well as others.”

Once a bylaw is enacted — showing a commitment to ADR and its goal to resolve disputes “faster, cheaper and better” than traditional litigation — it would be permanent and continuous. This is different from a resolution, Huberman says, which relates to a single act of the company.

“By enacting a bylaw, it shows a seriousness and has a legal force behind it,” he says. “It’s also a greater force than a contract because a bylaw regulates the company's own actions and concerns the rights and duties of its members among themselves. It has tremendous legal force and I think it's an excellent way to risk-manage and achieve the goals of alternative dispute resolution at the same time.”

When it comes to the language used in the bylaw, Huberman says the business community could take a cue from the not-for-profit sector. He points to Corporations Canada's online Bylaw Builder, which allows not-for-profit corporations to create and customize bylaws as required under the Not-for-Profit Corporations Act.

“The site has sample provisions and has a dispute resolution mechanism that addresses the event where there's a dispute or controversy among members, directors, officers, committee members or volunteers of the corporation,” Huberman says. “And the dispute resolution mechanism is without prejudice to — or in any other way derogating from — the rights of the members, directors, officers, committee members, employees or volunteers of the corporation as set out in the articles, bylaws or the Act.”

He says this is something that should be considered as part of the bylaw regime outside of the not-for-profit sector.

“My view is that by enacting these type of bylaws, you manifest effective corporate governance, risk-management, and cost-reduction and it makes for good long- and short-term corporate strategy.

“As such, it's something that can and should be done as soon as possible,” Huberman adds.

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