A Better Framework: Reforming Not-for-Profit Regulation

Abstract

A final research report titled "A Better Framework: Reforming Not-for-Profit Regulation" (Susan Woodward and Shelley Marshall) has been released and is available free on-line or can be ordered as hard copy.

The report is the result of a three year research project conducted at the Centre for Corporate Law and Securities Regulation at the University of Melbourne in collaboration with Philanthropy Australia Inc. (a peak body for non-government grant makers).

A key research question was the suitability of the company law regime for not-for-profit organisations (NFPs). While the views of business have been canvassed before any corporate law reforms have been implemented, the views of NFPs have been overlooked. To obtain these views, a detailed survey was sent to all of the 9,817 companies limited by guarantee on the public register maintained by the Australian Securities and Investments Commission (ASIC) as at 1 March 2002 (virtually all of which are NFPs). Over 1,700 completed replies were received. The data collected gives, for the first time, a national snap shot of those NFPs that are registered as companies limited by guarantee.

The survey sought a wide range of information about: - the organisation's profile - size, principal activity, number of volunteers, member-serving vs public-serving, tax status; - why a company structure had been chosen instead of, say, an incorporated association and whether or not this structure had met the organisation's needs; - who were regarded as the organisation's key stakeholders and what reporting was made to them; - the composition and experience of the board of directors - board size, age, gender and skills, whether fees are paid to non-executive directors, how board members are chosen, board independence etc.; - the procedures and structures of the board; and - whether the current regulatory framework is working - views on what information should be disclosed to the public, on current dealings with ASIC, and whether there be a new specialist regulator for NFPs.

The report details the findings of the survey and explores any significant differences between the responses of NFPs based on, for example, their size, tax status, principal activity or whether they are primarily a member-serving or public-serving body.

The findings show that the particular needs of the NFP sector have been overlooked in the company law reform process, and the dual Australian regulatory regime (State based laws governing some forms of legal structure such as associations, but a Federal regime for those incorporated as companies) is causing problems. Increasingly, even very small NFPs operate on a national basis, and this is not facilitated by the existing State based incorporated associations' regime.

The report's main contention is that the NFP sector needs a national regulatory framework based on sound public policy, rather than disclosure requirements that vary vastly depending on jurisdiction and the nature of the legal structure adopted. Other recommendations for reform are made, including several about what disclosure should be required.

Any comments or feedback, contact Susan Woodward.

Keywords: corporate, not-for-profit, regulation, australia, corporate law reform, Australian Securities and Investments Commission

JEL Classification: K2, K22, K29