Carol Hansell, the report’s lead author, says scandal is ‘reflective’ of the LSO’s overall culture
An advisory firm that specializes in governance matters is calling for an independent review of the Law Society of Ontario’s governance structure, detailing in a new report multiple “governance failures” in how the regulator handled a controversial pay increase for its ousted chief executive officer.
“In our view, an independent review of the governance structure of the LSO is imperative,” reads the report published by Hansell McLaughlin Advisory Group on Wednesday. “This review should be overseen by someone other than the LSO and a report on the review should be made available to the legal community.”
The report adds that it is “clear” that the regulator’s governance needs to be overhauled.
Carol Hansell, the lead author on the report, told Law Times on Thursday that she doesn’t believe the recent controversy at the LSO occurred in isolation. “It seems to me to be reflective of the culture of Convocation and of the LSO,” she says.
“People are reluctant to address an issue with Convocation because they’ll say, ‘Well, Convocation is dysfunctional, it’s tense, it's combative, so we don’t want to go and talk to Convocation about x,’” she adds. “That’s an unhealthy culture within Convocation, and between Convocation and management or staff at the LSO.
“The idea that staffers don't have a level of comfort to put up their hands and say, ‘Look, this is not right, how we're proceeding here’ – that's a cultural issue.”
Hansell McLaughlin’s findings are based on its review of a 67-page report prepared by former associate chief justice of Ontario Dennis O’Connor. Publicly released in late March, the O’Connor report looks at the circumstances surrounding a steep pay increase for Diana Miles, the LSO’s ousted CEO, which the regulator’s former treasurer executed without its governing board of director’s knowledge or approval.
In its report, Hansell McLaughlin said that “very few board members (and still fewer CEOs) in Canada” would fail to quickly and correctly identify that the governing board of directors had the authority to determine the CEO’s pay.
The report stated that all of the lawyers at the LSO who permitted Miles’ pay increase “looked past the basic legal analysis,” failed to consult the Law Society Act, LSO bylaws, or LSO governance documents, and simply relied on former treasurer Jacqueline Horvat’s claims that she was authorized to push through the pay hike.
The report noted the LSO’s lack of a “knowledgeable governance professional” as the events around Miles’ compensation unfolded, as well as the absence of a “whistleblowing” mechanism through which board members and staff can raise concerns. The O’Connor report detailed multiple instances where staff members and non-lawyer benchers questioned Horvat’s decision to raise Miles’ pay, but had no neutral authority to direct their concerns to.
Hansell McLaughlin suggested that a whistleblower mechanism could also help address dysfunctional conduct that stemmed from the LSO’s “tumultuous” culture. The report noted that multiple successive treasurers avoided bringing Miles’ request for a compensation review to the LSO’s governing board because they believed the board would not be receptive.
“Anticipating what a board would find acceptable can be an important discipline on management,” the report said. “However, if there is a difficult relationship between the board and management, some members of management may look for ways to circumvent the board approval process. The board may have no way of knowing.
“An effective whistleblower policy… can allow issues to come to the attention of people with no conflict who have the authority to act,” the report added.
Hansell says the debacle at the LSO held lessons that could apply to boards at many types of organizations.
Directors reading the report might ask, “If we had a director who had a serious problem with what was happening in a committee, who would that director talk to? Where would they go with that concern?” Hansell says.
“Do we as a board have enough of a relationship with other senior members of management that if they felt there was a problem that needed to be dealt with, [they] would tell us that? Or are they so under the thumb of the chief executive officer that there is no way?”
Responding to the report on Thursday, LSO treasurer Peter Wardle said in a statement that the regulator is “moving quickly” to implement recommendations O’Connor made in his report as well as other changes.
“Convocation will consider a report at its meeting on April 24th that details how the LSO plans to address the recommendations highlighted by Mr. O'Connor and explore broader governance reforms,” Wardle said.
That report will include “immediate, actionable next steps to ensure the approval process around executive compensation is clear and unambiguous,” he added. “Further proposed changes will be brought to Convocation for decision in the coming months.”
