This is part of The Globe and Mail's in-depth look at the evolution of philanthropy. Read more from the series here.
Canada’s non-profit sector is grappling with the implications of a new federal law that gives members the equivalent of shareholder rights – creating avenues for more accountability and engagement but also concern over legal expenses and unintended consequences.
As the Conservative government examines new ways of funding charities and non-profits, the sector is looking to comply with a major legislative change approved in 2009 called the Canada Not-For-Profit Corporations Act that recently came into force on Oct. 17.
Though the bill – described by the government as a long-needed replacement for the 1917 Canada Corporations Act that governed non-profits – passed through Parliament with little controversy, some are warning in could have a major impact and risks forcing the dissolution of many small non-profits.
The law requires all federally registered non-profits to file new governing bylaws and other legal documents to Industry Canada by Oct. 17, 2014. It also gives members of non-profits new rights that are akin to the rights of shareholders of private corporations, including the ability to force motions for a vote, demand certain documents or trigger legal proceedings.
Stephen Hazell, the former executive director of the Sierra Club environmental group who now provides legal advice to non-governmental organizations (NGOs), sees potential for abuse.
He notes that small non-profits would be vulnerable to surprise takeovers. For instance, opponents of an environmental group could join the organization and have the executive director fired or force legal proceedings that the NGO can’t afford.
“The number of members of any not-for-profit that actually show up at an annual general meeting is typically pretty small; 10, 20, 40, 50 people at the most,” he said. “So it would be very easy to stack that meeting with other folks who’ve also paid their 20 bucks.”
Given that about 54 per cent of Canada’s 161,000 non-profit and voluntary organizations have no paid staff and rely entirely on volunteers, there is concern that many smaller non-profits won’t have the time or money to comply by the deadline.
Mr. Hazell warns that thousands of non-profits risk being dissolved for missing the 2014 deadline, but an Industry Canada spokesman noted the law provides default bylaws for those that do not file new reports.
“The new act enhances and protects member rights which will facilitate accountability of the corporation and its directors to its members,” Michel Cimpaye said in an e-mail.
Marcel Lauzière, president and CEO of Imagine Canada, the national umbrella organization for non-profits and charities, said more needs to be done to inform groups of the “relatively onerous” legal requirements. As for new member rights, he indicated the key is to be aware and adapt to the new powers of members.
“You want as many voices as you can,” he said. “Everyone who wants to be engaged should be able to be engaged.”
One expert in the field argues the law is a good one and should be embraced.
“I think it’s healthy that organizations are accountable to their members,” said Peter Elson, senior research associate at Mount Alison’s Institute for Non-Profit Studies. “We see it in political parties all the time, right? … There’s always a risk of mischief-making, per say, but I think it really comes down to the quality of the organization.”
The Ontario government has approved a similar law for provincially registered non-profits. But Lynn Eakin, policy lead for the Ontario Non-Profit Network, says the shareholder model is ill-suited to non-profits. She notes that charities and non-profits must balance the needs of those they serve with the needs of their government funders, their members and their other financial contributors.
“You have that fine balance,” she said. “What this act does is it gives people who are members of the organization a disproportionate amount of authority or options compared to the other parties that make up this fine balance of a non-profit organization serving the public.”