Ākina submission on the review of the Charities Act

We’re sharing our submission on the review of the Charities Act, made by our CEO Louise Aitken on behalf of the Ākina Foundation. We’d also like to encourage others to be part of this important conversation. If you’d like to make a submission email charitiesact@dia.govt.nz before 31 May 2019.

The Ākina Foundation

The Ākina Foundation is Aotearoa New Zealand's leading impact development organisation.  Our mission is to make meaningful change for people and our planet by putting impact at the heart of our economy.  We do this through building the capability of enterprises, impact consulting services, tapping into supply chains through social procurement and enabling change-making organisations to scale through impact investing.  Ākina works with social and community enterprises, charities, corporates and government agencies.  In 2018, Ākina was named as the strategic partner to Government in a three-year programme to develop New Zealand's social enterprise sector.  The Social Enterprise Sector Development Programme aims to enable a thriving social enterprise sector and map the way forward for government support.

There are approximately 3,700 social enterprises in New Zealand contributing $1 billion financially to the New Zealand economy, and significantly more through their social and environmental impacts.  Many of these organisations, including the Ākina Foundation, are registered charities.  We are interested in ensuring the review of the Charities Act 2005 recognises the evolving way charitable purposes are achieved, including through social enterprise and impact driven business models, and the lessons to be learned from charities successfully operating as social enterprises to create long-lasting, scalable and sustainable positive impact for New Zealand.


The scope of the review

Charitable purposes: We think that any review of charities law should include a first principles consideration of the definition and scope of charitable purposes in New Zealand.  In particular, we think it is important to recognise that the existing heads of charity are deficit-based.  That is, the heads of charity, and approach to stating and interpreting charitable purposes, is to identify a deficit or need (eg poor, aged, sick, uneducated) that the charity will 'fix'.  This has several problematic consequences, including:

  • perpetuating a dichotomy of the helpers and the helped, which inherently undermines the agency of those being helped and excludes them from also being 'helpers' in their own communities;

  • dis-incentivising charities from doing more than just reacting to problems.  Once the deficit is 'fixed', the role of the charity is complete and the communities that were receiving help (and importantly, often without being empowered to help themselves) are then left to fend for themselves; and 

  • charities needing to use different language when communicating with communities (strengths-based language) than the language used to describe their charitable purposes (deficit-based language).  This reduces transparency and accountability and adds complexity to the governance of charities.

The alternative is a strengths-based approach: leveraging the strengths of an individual or community to generate positive social change and supporting those people and communities to thrive toward the goal of being in a position to help others thereby causing a chain reaction of positive change.  Rather than seeing people as problems to be fixed, it sees them as having value and being agents of their own change.   

Most charities, social enterprises, community organisations and government agencies are already using strength-based approaches and strength-based language.  A recent, powerful example of this shift in approach is the Government’s decision to change the name of Oranga Tamariki from Ministry for Vulnerable Children - although it might seem obvious now that caring for and empowering tamariki should not start with giving them negative labels, the same holds true for charities empowering communities, who must also use strengths-based language. 

The review of the Charities Act provides an opportunity to formally recognise and encourage a strength-based approach for charities (including in the statement of charitable purposes).  This starts with a translational piece, whereby Charities Services is able to recognise strength-based language, how it fits within the existing heads of charity and provide guidance for charities on how to interpret the heads of charity and how to use a strength-based approach to generate public benefit. 

Valuing impact: Charitable status unlocks a tax benefit because charities deliver public benefit through their charitable purposes, but Charities Services needs better ways of understanding the positive impact generated by charities.  Charities Services should be measuring and monitoring the impact generated by charities to build public confidence and trust in the effectiveness of the sector.  Performance reports go some way to providing accountability for the impact delivered by charities, but as we detail below, there are further steps that need to be taken to help build capability in charities to measure and report on their impact – rather than just financials and outputs.

Having stated our reservations above, we will take this opportunity to provide comments on the areas that are covered by the review below. 


What are the key opportunities facing the charities sector over the next ten years?

The key opportunity facing the sector over the next 10 years is the positive impact it can make, but we need to know what that is.  The value of the charities sector has been promoted in the discussion paper – 27,000 registered charities, $17 billion annual expenditure, $58 billion in assets.  What is striking is the lack of information on how much impact the sector creates for New Zealand.

As the Government creates policies and a budget focused on well-being and makes decisions to implement the Living Standards Framework, it should not only be looking to charities to help contribute towards achieving New Zealand’s Living Standards Framework goals, but also be able to understand the extent to which they are.  There is work that needs to be done to understand what impact is being generated by charities and how.  Measuring the impact of charities would give Government, funders, charities themselves and volunteers a clearer understanding of how they are creating positive change and allow them to make adjustments to create even greater impact.

To do this requires capability building across multiple stakeholders within the sector.  Charities themselves need support to better understand their impact, how they can measure and improve this.  And Government needs to work with the sector to more clearly outline how those outcomes can contribute to Government’s goals.  This would enable charities to better describe their positive impact and tie it back to public policies, such as the Living Standards Framework, to demonstrate to Government and the public how (and how much) their impact is contributing to public policy goals.  Consistent language and frameworks are essential to the sector being able to articulate its overall contribution to positive social and environmental impact, and government plays an important role in leading this development and discussion.


What is the role of government in achieving this vision?

As well as the roles set out in the discussion paper, we see the potential for Government to also fill the following key roles in the development and modernisation of the charities sector:

  • capability building: build the capability of sector stakeholders to measure impact so that charities can quantify the positive impact they are creating, and New Zealand better understands and recognises their contribution.  This may include workshops, partnerships with organisations able to provide training, and online resources;

  • modern approach to impact: clearly endorse theories of change as an important precursor to effective impact;

  • set clear goals: create and publish an outcomes framework to which charities can align their impact;

  • utilise charitable service providers: prioritise social procurement, investments and partnerships with charities, social and community enterprise (including, allocating regional / local government funding and contracts to community groups and charities) to increase the impact that Government itself is enabling through its supply chain and investment activities; and

  • unlock philanthropic and grant funding: there is limited capital available for organisations which operate for public benefit while the scale of funding required to solve social and environmental problems grows.  Alongside this, charitable funders traditionally take a very cautious approach; philanthropic funders, which are registered charities, should be encouraged to invest their funds to provide capital for organisations delivering public benefit (whether also registered charities or not).


Why did your organisation register as a charity?

A key reason for registering for charitable status is to "lock in" the organisation's purpose or impact.  Even when an organisation does not seek the other benefits of being a charity (eg the tax exemption), it adopts this structure because other legal structures do not provide the same ability to lock in impact/purpose.  This driving force must also be recognised in the modernisation of the Act.

Is more support required for charities to meet their obligations? If so, what type of support is needed?

More impact and better accountability and understanding of the sector can be achieved through investing in building the capability of all participants in the charities sector, including, Charities Services, officers of charities, funders and beneficiaries.  The type of support needed includes:

  • how to understand impact;

  • improve the delivery of impact;

  • report on impact; and

  • if appropriate, scale impact.

 As well as the capability within the organisations, organisations with charitable purposes should be enabled and supported to access professional services support for setting up their legal structures and good governance practices, for example: through grants, low-interest loans or partnerships with providers.

What other mechanisms (for example support for test cases) could be used to ensure that case law continues to develop?

Proactively publicise accepted charitable purposes that contribute toward Government policies, including the Living Standards Framework and other identified public needs.

What should be the registration requirements for unrelated businesses?

 The law currently allows charities to generate income and profit in order to achieve their charitable purposes (hence the tax exemption for 'business income') and to have non-charitable purposes which are ancillary. 

In practice, the rule against individuals receiving private gain overshadows the framework for charitable organisations to have sustainable business models to fund their activities.  This review needs to clarify that trading / potentially generating profit / identifying as a social enterprise does not preclude registering as a charity as long as there are adequate protections against private benefit.  To do so, the Government needs to build understanding in the sector, the regulator and the wider industry that trading for profit can occur without individuals accumulating private gain and is a sustainable model for growing impact. 

The application process for registration should more explicitly reflect the mixed functions of business in achieving charitable purposes and profit raising.  Where businesses contribute directly to charitable purposes, as well as generate income, the default approach has been for organisations to separate these functions in different legal entities increasing administrative and compliance costs for the organisations.  Recognising that this social enterprise model is a growing part of the charities sector and is a sustainable and scalable approach to delivering impact, Charities Services should accept, and encourage, charities wanting to trade for impact and income using one legal entity.

What should be the requirements of charities to manage conflicts of interest when undertaking business activities?

The rules regarding conflicts of interest stem from the prohibition on individuals receiving private gain from charitable entities, however, what is meant by private gain is not well understood leading to overly conservative approaches by advisors as well as having a chilling effect on officers of charities.

This review should clarify what is private gain (including how it relates to salaries or contracts for goods and services), to prevent the inefficient operation, and use of funds by, charities that results from the misunderstanding of the rules around conflicts.

In Australia they have a 'predominant rule', where by as long as you are predominantly focused on achieving the purpose and the business practices are not taking away from that, that is ok.  Charities Services should explore this and be clearer on their position in this respect to help organisations who want to diversify and innovate but do not for fear of losing their charitable status in the process. 

Are you aware of charities that are reluctant to advocate for changes to law and policy that would further their charities purposes? Why are they reluctant to do so?

We are aware of organisations setting up their legal structures being hesitant to apply for charitable status if they are intending to discuss / inform people about laws / regulations and/or political topics.

This hesitancy stems from a lack of clarity around the meaning of advocacy, as well as the meaning of 'ancillary'.