Rethinking Philanthropy in New Zealand

One of the privileges of specialising in trusts law is that the skills, experience and knowledge used to advise individuals and families are often very transferrable to the non-profit sector. The Kensington Swan Private Wealth team has some very fulfilling and in some cases long standing relationships with iconic New Zealand non-profit organisations including Auckland Rugby Union, Auckland Health Foundation, Kiwi Trust and Auckland Theatre Company. We are also involved in some exciting new projects backed by high profile and influential Kiwis.

Charities have an essential function in our communities as they deliver certain social services that would be difficult to provide on a purely commercial or a state-run basis. However, I believe that the charitable sector in New Zealand can be optimised and with this in mind Kensington Swan and Auckland Foundation recently published a White Paper which has ignited some really positive discussions over the past few weeks. I thought I would discuss some of the themes in this month’s blog.

The charitable sector in New Zealand

More than 27,000 registered charities assist Kiwis in diverse areas including the arts, community development, education, emergency services, environment, health, housing, area, religion, social services and sport. These charities are supported by more than 230,000 volunteers and 180,000 paid staff. Charities in New Zealand spend around $17 billion annually, manage $58 billion in total assets.

The size of charities ranges from large tertiary education institutions to small community groups. Some charities are household names (for example, Starship, Plunket and St John). However, charities form only a component of a broader non-profit sector comprising more than 140,000 organisations that include ethnic associations, Lions Clubs, chambers of commerce and resident’s associations.

The public supports the charities sector by volunteering and donating money and other resources. New Zealand’s rates of volunteering and donating to charities are high compared to other countries. Public trust and confidence in the sector improves when charities are registered, regulated, well governed and transparent.

With one charity for every 170 people, the number of charities in New Zealand has grown significantly in recent years even though the Government has, properly, increased the level of regulation of charities over a corresponding period of time.

It is notable that the ratio of charities per person in New Zealand is substantially lower than that of Australia, Canada, United Kingdom and the United States. At first blush this statistic may signal our virtues but it is arguably more indicative of inefficiencies in the sector. There is evidence to suggest that new charities are often being established in circumstances where existing organisations already serve a particular cause. The charitable sector in New Zealand is very fragmented and does not seem to maximise efficiencies. In my view, divergence and duplication of efforts by different organisations, despite working for the same causes, may very well be inhibiting the actual social impact and undermining confidence in the sector.

Emerging themes

Across the Tasman, the state of Western Australia requires that a prospective new charity prove that the need it purports to serve is not already being met. It is arguable that this has controlled the growth of the charitable sector to a sustainable rate and that there are lessons for New Zealand in this approach.

Similarly, in Australia, charities must meet core, minimum governance standards that require charities to remain charitable, operate lawfully and be run in an accountable and responsible way. However, the standards set out high level principles, not precise rules, and so there is flexibility in how charities can comply.

In May 2018 the New Zealand Government announced that a comprehensive review of the Charities Act 2005 would be undertaken to ensure that it is still fit for purpose. In February 2019 a Discussion Document was published by the Minister for the Community and Voluntary Sector, Hon Peeni Henare and I commend it to you for reading.

In my view this review is very timely as there is an increasing importance and pressure for the charitable sector in New Zealand to demonstrate that tangible impact is being created and that we do not take for granted the benevolence of donors or further undermine confidence in the sector.

This review process and its outcomes may lead to a reworking of traditional philanthropic models. Its terms of reference are relatively narrow which, in my view, is somewhat disappointing. For example, I believe that better collaboration between charities and pooling of resources could usefully be part of the discussion. However, it is fair to say that there is probably no need for law reform to achieve this objective.

Community foundations 

Community foundations are a 100-year-old worldwide movement and the fastest growing form of philanthropy globally.

Community foundations are grant making public charities that are dedicated to improving the lives of those in their local communities. They operate like a platform for charities and pool together the financial resources of individuals, families, and businesses to support effective charities in the community.

Currently there are over 1,800 community foundations around the world and they provide choice and flexibility for wealthy benefactors through to small but socially conscious donors, and everyone in between.

The popularity of community foundations is due to their simplicity and commitment to a donor’s wishes. The community foundation takes care of compliance and administrative matters, investment and governance. Donors can be as involved as they want to be, with many delighting in focusing on fund raising and giving and the benefits their gift will bring rather than mundane governance and administration matters.

Importantly, the charities operating on a community foundation platform can retain their own unique identities and control their own destinies.

Community foundations typically have very close connections with and empathy for local issues and are in a unique position to facilitate effective giving. They play a key role in identifying and solving problems in a particular community, creating confidence in the charitable sector that donor funds are being used effectively and efforts are being streamlined. As a not for profit entity itself, a community foundation uses a cost recovery model so as to maximise the impact of every dollar given.

There are a number of Community Foundations in New Zealand. I am surprised how little public recognition they get for the good work that they do. Furthermore, it surprises me even more that they are not considered more often by donors and their professional advisors as turn key solutions for philanthropy. In my view, community foundations have a really valuable role to play in optimising the charitable sector in New Zealand and making philanthropy more effective.

Alternative approaches to the usual ways of doing things 

I also believe that professional advisors have a role to play in optimising the charitable sector. Since returning to New Zealand a few years ago, it is occasionally apparent to me that there is a tendency amongst New Zealand professional advisors to do things in a particular way for no other reason than that is the way they have always been done with little or no thought given to why that is so. I find it refreshing when I hear intellectually and professionally courageous people, tactfully and respectively of course, question the underlying reasons for why things are done in a particular way. Often the answers provided are underwhelming at best and flawed at worst.

It is like this in a number of areas in which I practice and so it is with optimism that I look forward to participating in the Review of the Charities Act 2005 and would encourage any of you interested in philanthropy to do the same.