Why Chrystia Freeland Needs to Reform the Charitable Sector

In quick succession of his resignation, Chrystia Freeland has taken over one of the most significant portfolios in government. There will be much for her to do, but the one thing she must not do is run away from charities. If anything, the WE affair has displayed the urgent need for a hard look at the sector.

Over the last few months, we have heard two competing narratives about charities. One is about charities on the front lines of the pandemic, stepping up to provide essential services to Canadians: at food banks, at women’s shelters and to youth with mental health needs. At the same time, the inquiries into WE have raised concerns about charitable governance and transparency. Both narratives are correct. The new finance minister has a role in play in both.

First, on governance. It is hard to understand that the chair of the WE board held a board position for 15 years, despite the best practice of regular board renewal. Charities should not be the domain of a few influential people, although many are.

These matters are best left to the organizations themselves but Freeland must appreciate that governance is not where charities spend a great deal of time, because they simply don’t have it. If we want to ensure transparency and accountability, then charities need to be supported in developing their governance muscles.

The governance of charities should also reflect the diversity of Canada and the communities they serve. But many are not diverse. We need to collect data on diversity to get a better information on governance. The CRA should include a question about diversity in the forms that charities must submit every year.

Next, we need clarify the sticky wicket that was ever present in the WE testimony. There is only one revenue source for charities that is growing — not donations, not government grants, but earned revenue. Current provisions, done decades ago, limit earned revenue to activities that are directly related to a charities purposes — hospital auxiliary shops, museum gifts shops etc. They did not see a future where a charity could be a landlord or run fitness gym, or run a travel business like WE.

Other jurisdictions like Australia have modernized to enable charities to earn revenue from unrelated businesses as long as the revenue is applied to the organization’s charitable mission. Under this scenario, WE would not have needed to set up a separate organization to do so.

The minister of finance will do well if she remembers that millions of Canadians need a thriving charitable sector to live their lives and that government is often only able to deliver its services through the sector.