Thank you very much, Mr. Chairman.
My name is Tim Draimin. I'm the executive director of Social Innovation Generation. We are a national partnership including the J.W. McConnell Family Foundation in Montreal, the PLAN Institute in Vancouver, the University of Waterloo, and MaRS in Toronto.
Our mission is to promote the use of social innovation to address intractable social challenges, with much of our work focused on the non-profit sector. As you may know, the non-profit sector, charities, and non-charitable non-profit organizations encompass over 161,000 organizations, with revenues well in excess of $100 billion, directly employing over 1.5 million people.
My objective in speaking with you today is to draw the committee’s attention to a major gap in Canada’s legislation governing corporate activity, specifically the lack of any hybrid corporate structure for business serving public benefit. By hybrid I mean a blend of an organization that would have the social purposes of a non-profit, like benefiting the community, with the business model of the for-profit sector.
Social Innovation Generation is proposing policy changes to assist Canada’s non-profit sector in becoming more financially stable and less dependent on the decreasing revenue streams from government and philanthropy in order that more innovative ideas, services, and products meet the social needs of Canadians.
You may have noticed in today's paper that Statistics Canada is announcing a big drop in donations to registered charities. While the dominant paradigm for the sector in the past half-century has been income primarily from government and charitable donations, that is changing. Earned income is now over 35% of total income, and growing. In fact, a significant expanding thrust is building new business models that allow non-profits to meet their mission in financially self-sustainable ways.
We propose that the Government of Canada introduce a new optional legal structure under federal law that enables the creation of a hybrid public benefit corporation or community enterprise. A hybrid structure would encourage much broader access to capital for the social and community sector. A hybrid structure would allow for contribution of charitable dollars as well as non-charitable shareholder investments.
The model we are suggesting has been successfully incubated in both the United Kingdom and the United States in the form of community interest companies, CICs, and low-profit, limited liability corporations, or L3Cs.
We all know the importance of the non-profit and charitable sector in terms of the services it provides, but we may not be aware of the revenue model that supports this work. Overall, non-profit revenue received is about half from governments, over a third from fees and earned income, and about one-tenth only from philanthropy.
In a recent Wellesley Institute research report, it was found that the most significant charitable issue, selected by 63% of respondents, was the requirement that “all of a charity’s activities must be charitable”, a requirement that is at odds with funder expectations that charities be sustainable and entrepreneurial. It is also at odds with reality if you take into account the percentage of revenue from earned income.
The existing legislative and regulatory regime was designed in a different era.
Canada’s community non-profit and social sector has challenges accessing capital and diversifying their sources of operating income because of restrictive tax regulations and capitalization options. These financial barriers are unnecessary obstacles for a new breed of social entrepreneur that is emerging and limits the potential impact of their innovations. The sector needs the flexibility to explore new forms of social finance.
Our SiG partner MaRS has advised hundreds of clients, including non-profit enterprises, on their marketing strategy, business plans, and funding options. Outlined here is just one example of a social enterprise that has encountered problems due to regulatory restrictions or lack of capital options.
As a social enterprise of Eva’s Initiatives, the Eva’s Phoenix Print Shop provides an award-winning print training program for homeless youth that works with businesses to offer them a socially and environmentally responsible commercial print service option. The print shop is located at Eva’s Phoenix, an internationally recognized transitional housing and employment facility for homeless youth.
Eva’s Phoenix Print Shop operates in a commercial environment and requires state-of-the-art printing equipment to remain competitive. While the print shop has sought to expand its services due to increased demand, it has faced significant funding challenges. In a traditional print shop model, a combination of revenues and working capital loans would be the obvious choice. However, this social enterprise must depend on grants and donations to expand.
In traditional non-profit structures, loans to the enterprise are considered risky and thus an option rarely considered by the boards of those organizations. Furthermore, they have no legal way to access any other form of financing, such as equity.
Expansion is an option that would rely solely on the generosity of donors and not on their increased revenue potential, which severely prevents them from being competitive in furthering their social mission. The proposal outlined in this document represents an opportunity for the Government of Canada to support the community non-profit sector in ways that build sustainability and resilience by enabling organizations to exploit opportunities for growth and independent financial well-being. Support for a new hybrid corporate structure will strengthen the country's community non-profit sector, and help it access much-needed capital. It will demonstrate that Canada wants to unleash the creative energies of previously unexploited financial resources and capacities in order to help advance social entrepreneurship sustainability and self-reliance in the community non-profit sector.
Thank you very much.