Modernising our structures to support social enterprise

April 18, 2019

By Sue McCabe, Chief Executive Philanthropy New Zealand

Changing the company structure to better meet the emerging number of businesses focussed on leaving the world a better place is a key recommendation in a report released today by the Impact Initiative.Funded by the Law Foundation, with significant support from Russell McVeagh, Chapman Tripp and Parry Field, the report is part of the Social Enterprise Sector Development Programme, a partnership between the Ākina Foundation and the Department of Internal Affairs.

Structuring for Impact: Evolving Legal Structures for Business in New Zealand assesses how current legal structures service the modern environment. The conclusion is that they don’t work for social enterprise.

The current company model supports organisations that prioritise profit, whereas the current charity model prioritises impact. But more and more organisations are cropping up that want to achieve impact and make a profit.At today’s launch Ākina Foundation Chief Executive Louise Aitken estimated there are about 3700 social enterprises in New Zealand, contributing $1b to our economy.Louise said the research identified two main problems: that companies find it hard to lock in their mission; and that impact-focussed companies struggle to attract funding from traditional investors.

The report says the solutions include education and support to help social enterprises navigate the challenges of the current structure. Meanwhile we need to evolve the Companies Act 1993 to include opt-in provisions for a social enterprise model that could be labelled an “impact company”.Organisations would need to meet yet-to-be-determined criteria to be deemed an impact company. Impact companies would recognise that mission is pre-eminent, and provide the conditions for an easier flow of capital – and customers – to impact-focussed businesses.

Louise said the research looked at the overseas models – which often involve setting up a specific social entity legal structure – but that they weren’t right for New Zealand. She cited the fact that many Māori and iwi-led enterprises are among those leading the way in terms of balancing profit and impact.

I like that this proposal recognises the special place of not for profits. In the current environment they can feel pressured to become more profit-focussed, when their work helps the most vulnerable people, animals and environmental causes in New Zealand. There’s no profit opportunities in many of the critical activities our community sector carries out.

Similarly, philanthropy has always made a significant contribution to our society and will continue to evolve itself to meet needs – both as an investor and a funder. The rise of social enterprise presents opportunities for charity and philanthropy, and the report’s proposal sits nicely alongside these two groupings.

This report makes a significant contribution to the ongoing discussion of how we modernise the legal structures. And it’s an incredibly positive discussion to be part of:  how we modernise given the exciting environment where an increasing number of businesses want to make a bigger difference using more varied means to solve our problems and realise opportunities.

Philanthropists and grant-makers have skin in the game with this discussion, which was recognised at the report’s launch. More philanthropic funders are interested in investing their capital into social enterprise, and having increased certainty as to whether they can fund social enterprise (and whether this would risk their registered charity status).

Wel Energy Trust’s CE Raewyn Jones was thanked for her contribution as a philanthropic funder to the report, and Philanthropy New Zealand was noted as being a partner in this ongoing conversation.

You can find the report here and Ākina Foundation comment here: http://akina.org.nz/news/legal-structures-holding-back-impact/