From Charity to Social Impact

Principals in the charities sector are increasingly looking at social impacts
From Charity to Social Impact
Robert Hayhoe of Miller Thomson is a leading adviser in the charities and non-profit sector in Canada

Canadian society has long viewed charities (and other non-profit) organizations as being a wholly different category from businesses, sometimes called the “third sector” However, recently, we have begun to focus more on social purpose and social impact as goals, and less on charitable or non-profit legal form. This has resulted in real change to how lawyers should give legal advice to charities and non-profits and to the broader sector of people and organizations with social goals – the “social impact” sector.

At Miller Thomson, our charities lawyers were a mix of former corporate tax lawyers, former private client lawyers, and at the more junior end, lawyers who started their careers as charities lawyers. For some clients, we would serve only as tax counsel, for others we were general counsel. As general counsel, teams of Miller Thomson lawyers assisted us with usual specialties that a charity might need – labour and employment, real estate, intellectual property, privacy, commercial agreements, lending, gambling regulation, etc.

When I started focusing seriously on charities in the early 2000s, clients fell largely into two categories - start-up organizations looking to be incorporated and registered as a charity with the Canada Revenue Agency and larger organizations from Canada and elsewhere looking for tax compliance assistance. While these start-ups and established players would have the occasional business revenue question, the vast majority of charity lawyer time was spent advising on donation fundraising issues and charitable expenditure limitations.

In the late 2000s and early 2010s, we started to see cultural changes in our clients.  They wanted to advance social goals, but they did not always want a charity. They wanted to do good, but they also wanted to do well (for themselves). They wanted their organizations to grow in ability to advance their purposes, but they did not wish to be limited by donor fundraising or government grants. 

In response, we deepened our knowledge of the business limitations on registered charities. We started setting up business vehicles for our existing clients and exploring multiple entity structures with mixed purposes for our start-up clients. These changes were incremental and did not change how we as charities lawyers carried on our work.

Somewhat later, our clients started to talk to us about public market funding for their social purposes. Very large charities like hospitals and universities have for many years been able to access bond financing for capital projects, secured typically by land or by explicit or implicit government backing. These financing structures were pretty conventional and had returns adjusted for risk and only risk. Working off of prior work done largely in England, charities started to want to access capital that was interested in social return as well as (or even instead of) financial return. Some of these clients wanted to borrow funds at a lower rate of return from friendly investors for capital projects. Other even more innovative clients began to discuss making repayment or return contingent instead on social outcomes.

The result of this was the social impact bond structure where a charity borrows funds  but where repayment is contingent in part on meeting a social impact measure, For example, in 2016 we advised the Heart and Stroke Foundation on a social impact bond whereby it borrowed money from investors. If the Foundation is able to meet certain social impact measure – hypertension reduction – then its investors will receive a return funded by the Government of Canada. If the social impact is not seen, then the Government of Canada will repay investor capital but there will be no other return.

The focus on social impact has also resulted in changes for lawyers.  At Miller Thomson, we have changed the name of our former Charities and Non-Profit Group to be our Social Impact Group. We have also changed the lawyer and expertise composition of our group. Where before, our group was heavily focused on tax and governance for traditional charities, we have added some securities law, lending and real estate finance expertise to our group both through increased knowledge on the part of our traditional members but also through involving specialists from these disciplines as real members of our group rather than as only external specialists. We believe that this additional focus allows us remain relevant to the social impact sector.