Canadian Charities Urged to Adopt Codes of Conduct

All non-profit organizations in Canada should adopt codes of governance and ethical fund raising as a way to reinforce public confidence in their activities, a prominent independent panel has recommended.

The Canadian government, for its part, should establish a new commission to promote and regulate the country’s voluntary organizations, the panel suggests. And Parliament itself, the panel says, must decide whether to extend charity status to classes of organizations that are now excluded under archaic statutes.

Those are among dozens of proposals offered in the final report of the six-member Panel on Accountability and Governance in the Voluntary Sector. They reflect months of consultation with a cross-section of groups nationwide that followed the panel’s release of a draft of the report last year (The Chronicle, August 27, 1998).

While charity leaders may take issue with individual proposals, the first comprehensive critique of Canada’s non-profit world has drawn widespread praise and is expected to have significant influence among policy makers.

“It will provide the blueprint for legal, regulatory, and accountability policy for at least the next several years,” predicts Gordon Floyd, vice-president for public affairs at the Canadian Centre for Philanthropy, which promotes the interests of charities and foundations.

Many of the recommendations by the panel — which is often named informally after its chairman, the retired politician Edward Broadbent — involve making the affairs of voluntary organizations more transparent to the public, and providing model standards for groups to follow.

“The panel has opted for a series of recommendations that have more to do with supporting and strengthening the sector than with policing it,” says Mr. Floyd. “It’s clear that they’re more impressed with the way policy affecting the sector is moving in Britain than in the United States.”

While Americans’ first impulse in insuring greater accountability is to add more regulations, he says, “the attitude in Britain, when charities are not living up to the letter of the law, is that it’s more because they lack the knowledge or skill to do so rather than that they’re trying to pull a fast one.”

He adds: “The Broadbent panel has reached the same kind of conclusion about Canada’s voluntary sector: that accountability deficits are most effectively addressed through preventative measures rather than by stepping up the policing.”

Some of the measures proposed by the panel may take years to accomplish. But four, the panel says, should be implemented quickly:

* A handbook of good practices should be adopted and distributed widely to help non-profit groups’ governing boards communicate more effectively and become more accountable. Organizations also should be required to follow the Code of Ethical Fundraising and Financial Accountability developed by the Canadian Centre for Philanthropy. Among other things, that code bars the sale of donor lists and the practice of commission-based compensation for fund raisers.

* The federal and provincial governments should consider making formal commitments to improve relations with the voluntary world. A new Cabinet-level position — Minister for the Voluntary Sector — should be created at both the federal and the provincial levels to insure that non-profit concerns are reflected in policy discussions.

* The government should create, within a year, a Voluntary Sector Commission, modeled loosely after the Charity Commission of England and Wales. The proposed commission would combine in one institution the functions of information clearinghouse, cheerleader, coach, and watchdog. It would complement the work of Revenue Canada, the federal tax-collection agency, which registers and supervises the country’s 175,000 non-profit organizations.

* Parliament itself should create a committee to examine the question of which groups should qualify for charity status, and present its recommendation to lawmakers. The determination should be reviewed every 10 years, the panel says, to insure that the tax code stays abreast of societal changes.

Some observers worry that allowing lawmakers to determine which organizations qualify as charities threatens to politicize the decision, as politicians seek to deny charity status to groups they don’t like for reasons of ideology. “It’s the most difficult problem for us to work through,” says Mr. Floyd.

But critics have long contended that Revenue Canada has far too restrictive a view of which organizations qualify as charities, a status that confers tax benefits on donors to those groups. The criteria being used today date from Elizabethan England, as codified a century ago — well before the existence of groups involved in protecting the environment, defending human rights, or other activities that elsewhere have been construed as charitable.

A recent ruling by Canada’s Supreme Court puts additional pressure on Parliament to tackle the issue. In a 4-to-3 decision, the court rejected the application of a Vancouver organization that helps immigrant women find jobs and become integrated into Canadian society. But the majority said its decision was based on what the law currently was, not on what it should be, and commented that “some substantial change in the law of charity would be desirable and welcome at this time.”

The Broadbent panel proposes that the legislature retain the current criteria for determining charity status, but add additional “public-benefit” categories as it sees fit. And the registration process, which now is confidential, should be open to public scrutiny, the report says.

The panel does recommend that non-profit groups be required to report regularly and in some detail on their affairs, including how they are complying with the various ethical codes. Doing so, say some observers, can eat up the scarce resources of small groups.

“Many of our organizations are very small and have no staff,” notes Penelope Rowe, executive director of Community Services Council, in St. John’s, Newfoundland. Additional reporting requirements, she says, may prove to be overwhelming for some groups. “You have to balance between doing those things and using your volunteer energies to make changes in the community.”

Bob Wyatt, executive director of the Muttart Foundation, in Edmonton, Alberta, applauds the panel’s recommendation that large groups be required to report more information than smaller ones. But he questions whether the cutoff point — a $200,000 annual operating budget — is too low.

“Even an agency with a $200,000 budget may have only three or four staff people,” he says. “For them, the amount of work the panel recommends would be extraordinary.”

The panel also recommended that non-profit organizations consider what they want their programs to accomplish — and that they determine benchmarks against which to measure their progress toward those objectives. Such “outcome-based measurement” helps assure donors that their gifts are being well-spent, the panel notes.

The report pays relatively little attention to the issue of financing non-profit activities. It does urge governments to reinstitute or increase money provided to so-called intermediary organizations, which often provide research, training, and management assistance that benefit many other voluntary groups. It encourages companies to continue giving for purely philanthropic reasons, rather than tying all corporate support to marketing schemes. And it proposes the creation of a national association of all foundations that operate in Canada, to help diffuse ideas and models of good practices throughout the country’s philanthropies.

But much of the report deals with changes that can only be made by government. “It is time for governments to move from benign neglect of the voluntary sector to active partnership and leadership,” the panel says. Among its other suggestions:

* The federal government should overhaul the antiquated organizational forms available for voluntary groups — charitable trust, association, or non-profit corporation — to minimize complexity and make it easier for them to enter into service contracts or conduct business activity.

* The federal government should adopt legislation allowing Revenue Canada to punish a charity by imposing fines or other sanctions. The only option now is the drastic step of revoking an organization’s registration.

* Provincial governments should seek greater consistency in their charity regulations.

* Provincial governments should require that professional fund-raising companies operating within their borders be licensed and bonded.

* For-profit companies that compete with non-profit organizations for government contracts should be required to disclose the same kind of information that voluntary groups must provide.

The report has already paid dividends in helping Canadians to think of voluntary activities as a coherent sphere of action, some observers say. “Even if nothing came out of this, it has really brought the sector together,” says Susan Phillips, who served as research director for the project.

But many of the report’s suggestions are given a strong chance of being adopted. “A year ago, I’d have said the likelihood of getting it implemented was about 20 per cent,” Ms. Phillips says. “I now think it’s more like 75 or 80 per cent.”

Two factors have contributed to that optimism. One is the recent Supreme Court decision on what constitutes a charity, which highlights the deficiencies of current law, she says.

The other is that a committee of senior officials from a dozen federal ministries that interact frequently with non-profit organizations has been examining ways to improve relations between the government and those groups, which in recent years have often been critical of cutbacks in federal funds to support their programs. The committee’s report, due out next week, is likely to deal with some of the Broadbent panel’s ideas.

“We’ve never had anything like this in Canada,” said Mr. Wyatt of the Muttart Foundation. “It will help get us into the 21st century.”

The panel’s report, “Building on Strength: Improving Governance and Accountability in Canada’s Voluntary Sector,” was commissioned in 1997 by the Voluntary Sector Roundtable, a coalition of a dozen large national organizations. The full report is available at the panel’s Web site (http://www.pagvs.com/Building%20on%20Strength.htm).