Non-profit law: ONN asked. Government listened

March 28th, 2013 by Brian Iler

Breaking news.

For some time now, Ontario Nonprofit Network has been highly critical of the as‑yet unproclaimed Ontario Not‑for‑profit Corporations Act. The Ontario Government hadn’t listened much.

Until now.

This morning, the Ministry of Consumer Services announced:

  • A further delay in proclamation to January 2014
  • $250,000 grant to CLEO (Community Legal Education Ontario) to support the sector in transitioning to the new act over the next 3 years including a website, training, and legal assistance effective April 1, 2013 so supports can be provided before proclamation.
  • A clarification that organizations have the full three years under the old Corporations Act to transition to the new Act so they can restructure under existing rules.
  • A public commitment from the Minister to take a hard look at amendments that have been suggested and admission that the Act needs further work; and
  • A pledge to work actively with the Implementation Steering Committee (a joint partnership between the Ministry of Consumer Services and ONN) to monitor transition and collect evidence.
  • A clarification that the provision regarding the rights of non-voting members will not come into force until the end of the three year period and only then if the government made a deliberate proclamation to bring them into force. (Essentially making this provision null and void)

Certainly the existing Act was in desperate need of updating – it was first enacted in 1907 and last substantially revised in 1953. But it was drafted badly, and missed what should have been the central objective entirely:

To encourage the growth and development of an increasingly healthy and vibrant non-profit sector through the removal of unnecessary regulatory barriers, and a supportive corporate regulatory regime.

Instead, the government enacted a replacement Act that borrowed heavily, and clumsily, from business corporate law, and was imbued with a misguided assumption that much more authority has to be given to members.

Only in the past year has the climate changed – by agreeing to a joint ONN/ Ministry Committee last fall to address the implementation of the new Act, and listening to the sectors concerns.

Productive meetings of that committee led directly to this morning’s announcement.

The Committee was comprised of assistant deputy ministers from multiple ministries, and ONN representatives Jennifer Holmes-Weir from YMCA – Ontario, Rob Black of the Rural Ontario Institute, Mario Calla of COSTI- Immigrant Services, Margarita Mendes from Nellies Women’s Shelter, Sport Alliance Ontario’s Holly Graham, and Pat Bradley of the Ontario Arts Council.

The delay, and clarity on the three‑year transition, allows two things to happen:

  • Fixes to the most egregious provisions in the new Act can be agreed upon, and implemented
  • Non‑profits subject to the Act will have the time they need to adjust their governance approaches to accord with the new Act, as it ultimately is amended.

Many non‑profits have been anxious about the degree to which decision‑making is shifted from the board to the membership under the new Act, and some have moved quickly to shrink their membership base, to forestall any undue exercise of the new members’ powers.

This was an unintended consequence of the government’s stated intention to make non‑profits more accountable to their members – a move that was poorly thought‑through, and criticized vigorously by ONN.

The government’s original 2007 discussion papers on non‑profit law reform ‑ that led directly to the new Act ‑ sparked widespread concern in the non‑profit community, and were the impetus for the formation of the ONN, to ensure the sector had a strong voice on issues, like the Act, that affected it.

The fixes that are now on the government’s agenda for implementation start to address the sector’s concerns – they are set out in this ONN brief. That brief opens with this:

Unfortunately, without a few key amendments, many organizations in the non‑profit sector will have great difficulty using the Act and are at risk of being significantly destabilized, and/or are faced with complex and difficult restructuring.

For background, here’s my critique of the approach taken by the government in reforming non‑profit corporate law – from a presentation at the first meeting of sector representatives on this issue, in July, 2007:

I applaud this initiative – it is about time! And I agree with all the objectives stated on page 6.

One more, though. Non-profits inherently are about the betterment of the community – not just yet another actor in the economy. They provide value-added service to our communities, and public policy should be about finding ways to encourage, not discourage, the growth of the non-profit sector of our economy – as a matter of public policy. One way to do that is to remove regulatory barriers from their growth; another is to ensure that rules affecting their governance are state-of-the-art.

So an added objective must be: to encourage the growth and development of an increasingly healthy and vibrant no-profit sector through the removal of unnecessary regulatory barriers, and a supportive corporate regulatory regime.

There is an assumption throughout this consultation paper that is troubling: that non-profits aren’t – and shouldn’t be – engaged in economic activity; that that is best left to the private sector.

This is by omission in the second paragraph of the introduction, and stated more explicitly, at page 11:

“Alternatively, the prohibition could be clarified to … preclude profit-making activities except as incidental to the principal not-for-profit purposes unless there is an over-riding public benefit (e.g., airport authorities, aboriginal economic development corporations). This has generally been the manner in which the provision has been interpreted.”

There is no justification stated for such an assumption. In fact there are many non-profits engaged in economic activities – a non-profit governance structure is one choice among many that should be available for consideration when determining how a new entity should be structured.

My view is that the non-profit alternative, like the business, or co-operative, alternatives, should be available, and not subject to artificial restrictions, to those who choose to situate their organization within its parameters

Non-profits, like co-operatives, combine economic activity with social goals – the differences among them stem from the degree of emphasis to one side or the other:

  • The GTAA is one extreme – operating the multi-billion dollar business of Pearson Airport;
  • A-Way Express is somewhere in the middle – operating a courier service, but employing, and engaging its employees as members, those who are consumer/survivors of the mental health system;
  • The traditional charity is at the other end.

Many non-profits today seek to establish and nurture social enterprise – economic activity that also has integral social goals.

Some are forced to do so, by sometimes massive cutbacks of government support. Some choose to do so, like A-Way, as the self-respect and intangible rewards stemming working for a social enterprise in which you are also a voting member, is very attractive to many.

I would suggest that this consultation continue on a rather different premise – that the non-profit alternative is one to be encouraged, and facilitated, for all forms of economic activity, limited only be the imagination of their initiators – and by the fundamental rule that non-profits’ surpluses are to be applied only to further the social goals for which the organization was established..

From this premise flow these conclusions:

  • Of course, incorporation should be as of right – the letters patent process is archaic, cumbersome, and paternalistic.
  • The same modern governance rules that are available to businesses, and to a lesser extent, co-operatives, should be available to non-profits.
  • Government should reduce, not increase, the red tape to which non-profits are subject. Consider those resources that are now devoted to reviews in the MGS office, and by the PGT, that provide little value to the applicants, or to the public interest, that could be applied to support and encourage the non-profit sector.
  • Get rid of redundant charitable regulation – CRA does a far better job than the Public Guardian and Trustee, and is much more in touch with current developments in the non-profits world.

Brian Iler has been the ONN’s legal advisor on ONCA issues. 

Filed in: Not for Profit Law

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