In a gentle way, you can shake the world – Mahatma Ghandi
Governance for faith based organsiations is not the same as for other entities. We have dealt with both types of structures for many decades and wanted to set out some key thoughts in this article. This was originally prepared as a paper presented at the Legalwise “Religion and the Law” conference held on 30 October 2021. The paper was written and presented by Steven Moe, a Partner at Parry Field Lawyers.
Faith based organisations have their own unique dynamic that can be distinguished from other Not for Profits. Albeit this being an important issue, there has not been much written about it in Aotearoa New Zealand to support leaders of faith based organisations. This article stipulates the unique nature of faith based organisations and provides practical recommendations for their governance.
This article addresses the following issues faced by faith based organisations:
● What are the usual legal structures where these boards operate?
● What are the key functions of boards of faith based non-profits?
● How does the legal framework affect these boards?
● What added dimensions shape governance?
Should you have any questions or comments about this article please feel free to reach out.
B. What are faith based organisations?
In New Zealand there are approximately 115,00 Not for Profits, with around 27,500 being registered charities. Of those, 8,000 are listed as advancing religion with Charities Services. Charities Services, as the regulator of charities, provides the following description of organisations which advance religion:
“The term “religion” includes many different faiths and belief systems (for example, Christianity, Judaism, Islam, Hinduism, and Buddhism). Generally, however, to be religious there needs to be a body of doctrines that:
● concern the place of humankind in the universe and its relationship with the infinite
● go beyond that which can be perceived by the sense or ascertained through the scientific method
● contain canons of conduct around which adherents structure their lives.”
They go on to provide that the doctrines involved and the conduct expected must be structured and serious enough to be capable of advancing religion. For example, a Jedi Society was denied charitable status. This promoted the ideology found in the Star Wars films.
C. Common legal structures
There are a range of legal structures that can be adopted by faith based organisations – from Charitable Trusts to Incorporated Societies to Unincorporated Associations. This article focuses on registered Charitable Trusts because in our experience it is the most common entity type for a faith based organisation.
A registered Charitable Trust has a written trust deed and trustees that advances its charitable purpose. Most often the purpose concerns advancing religion, however there may also be purposes concerning relief of poverty, education or purposes beneficial to the community. Moreover, it is understood that faith based organisations perform various functions within the communities that they operate. They may have associated initiatives that come under the umbrella of the main faith organisation or as a separate entity. For example, a faith based group may have itself, or have members that started, initiatives such as a preschool, counselling service, aged care, mental health services, teaching English as a second language, immigrant services, school related work, food banks and the like.
A Charitable Trust Deed is flexible in that there is no industry standard. Nevertheless, the common elements are set out in Annexure 1.
D. The bigger picture
A faith based organisation is founded on a very different paradigm of thinking than other organisations, such as a company. This is a fundamental point accounted for when framing our discussion on governance for faith based organisations. There is something much bigger involved with faith based organisations whereby the way of operating or describing entities in the legal sense does not touch on the “spiritual” side of what faith based organisations really represents.
This may be difficult to grasp so let’s consider this dynamic using a word picture:
Imagine a tree standing in a field. The leaves and branches are moving. We can talk about the tree because we can see it easily. However, that is not all that is at play. We may come to realise that what is being considered is not just the tree itself but also the wind. In other words, we cannot easily see and explain some aspects of the dynamics that are relevant when we turn to look at a faith based organisation. In this picture, the organisation is the tree and the wind represents other aspects such as faith, eternity, God and the spiritual. These are often unseen dimensions of life. A purely objective person might say “you are talking about a tree” whereas in fact we may be “talking about the wind”.
We often use the English word “Church” to describe certain types of organisations. Legally we might consider them to be entities that exist and are registered within our law. However, through the eyes of Christian faith the word “church” is something bigger and more profound than a registration number filed with a Government department. In fact, the term used for Church in the Bible falls on the Greek word used in the New Testament of ekklesia which refers to “a calling together”, that is people gathering to worship and serve God. Other religions have similar deeper conceptions about what is going on in the World than can be explained just with legal entities and formal documents. For example, in Hinduism there are concepts like Atman (eternal self – the self as spiritual rather than a material being).
These examples show that we must delve deeper than what exists at law. This is because for faith based organisations there is a lot more going on at a spiritual level.
E. Unique aspects of governance for faith based organisations
Let’s turn now to some of the aspects which make governance for faith based organisations a bit more unique than other forms of entity.
The purpose of faith based organisations will likely be evident that they are about advancing religion. However, the issue is that sometimes such organisations get involved with activities that no longer align with their original purposes. As a result, it is often appropriate for those in governance to consider whether they are still within the remit of the original purposes or whether they need to revise those purposes (if possible) or set up another entity to perform the activities that they have since taken up.
2. Unincorporated associations
It is common for faith based organisations to have a long history. Therefore, it is also common that these organisations do not have a trust deed or governance in the same way we would today. Many entities are in fact unincorporated associations without the formality of a constitution or document setting out how they will operate. This can introduce challenges for governors today to govern in an acceptable way, such as appointing and removing people, decision making and liability. Therefore, it may be appropriate to look at the existing structure and determine whether it is the right one or if a new entity should be created or new rules adopted.
3. Statements of belief
It is common for a faith based organisation to have a statement of faith or belief set out in the schedule to the trust deed. This introduces an additional set of criteria which Board members need to be aware of. Anyone that proposes to join the board would usually be required to confirm that they adhere to those beliefs. As such, a statement of faith may add an extra level regarding who can qualify to join the Board. Further, it may be that on a yearly basis, or when requested, a Board member may be asked to reaffirm or sign that they agree to the statement of faith.
4. Conduct of Board members
As well as affirming a statement of faith it is likely that in the rules there may be reference to criteria to remain a trustee. While this is also common in other organisations it may be heightened in a Church organization with the ability to remove a trustee if, in the opinion of more than three quarters of the other trustees, doing so is in the best interest of the Trust. In other words, it is likely that the standard expected of trustees may be different to those in a different context. Therefore, the impact of conduct will be particularly important for those on Boards of faith based organisations.
5. Relationship to the Bigger Group
It is common for churches to be affiliated to a denomination. This can provide real benefits such as in the form of training, conferences, sourcing of content and decision making at a national level. It may also mean that the individual Church and the governing body will relate to the Denomination. This is different to a normal “independent” charity. It introduces interesting dynamics to discussions which will differ depending on the strength of the relationship. For example, some trust deeds will simply refer to assets going to the denomination on wind up. Others will have more direct relationships, particularly if the denomination holds the legal title of the land on behalf of the Church. This can affect ventures that the Church wants to take on, such as developing part of the site for social housing, taking on more debt to fund expansion or even selling the land. Some denominations will be very involved in the decision making process while others are not so involved. The context is critical. As such, it must be understood how the entity relates to the domination and when approvals are needed at that level.
6. Relationship with international bodies
Sometimes a faith based organisation will not have a New Zealand based body which it relates to. This may be because the organisation was set up by an overseas based charity to do work in New Zealand. Consequently, the same considerations in relation to a denomination mentioned above may apply here to the overseas entity, in that it must be fully understood how the board relates to any overseas groups. For example, trustees may need to be approved by the overseas body, big decisions may need to be brought to them for approval and they may continue to have international board members that they appoint. This raises interesting dynamics for the New Zealand entity over time, particularly if those involved locally may want to align more with local culture and trends. For example, this could relate to wanting to partner on Treaty matters or other areas not familiar to the overseas based charity.
7. Interaction with other Trusts
Often a religious group will have members that wish to do good in the local community. It is common for them to approach the Charity and seek to set up a new Charity that has the blessing of the original group. Sometimes the old Charity itself controls these new initiatives. For example, if the trustees of the older Charity itself have the right to appoint and remove the trustees of a community focussed trust then it is likely that this will count as ‘control’ for tax and accounting purposes, and the accounts will need to be consolidated with those of that original Charity. Trustees of a faith based group should consider if this is the right solution because it may be that these new initiatives should be given their own wings to fly independently of the original group. Accordingly, the organisation will have to be aware of accounting implications when they have control over other trusts.
8. Duties of Trustees
The Trusts Act 2019 imposes on trustees mandatory and default duties. It is essential for trustees of a charitable trust to know and understand the terms of the trust deed so that they can be sure of meeting their obligations and duties to the beneficiaries. The various duties of trustees are set out in other articles we have written, such as this.
9. “Special Character” and Governance standards
Sometimes there will be some unique considerations when it comes to this type of organisation. It must be considered whether those “called” by God are employees. Also relevant will be considerations in relation to schools that a Church may be associated with.
With regards to governance standards there are overseas resources that may be of interest. For example, the CMA Standards Council in Australia have produced Principles and Standards. Further, the “Nine Principles of Ministry Accountability” provide a unique framework for thinking about governance for faith based groups. Their focus is on accountability. It is helpful to look for resources that deal with faith based groups and consider what might be suitable for the particular organisation.
10. Back to the bigger picture
As mentioned earlier, for faith based organisations there is another factor at play: A higher power. This means that there will often be extra dimensions to decision making and process. For example, it is common for faith based boards to start meetings with prayer or a devotional reading. In addition, it is likely that all those involved will feel that the Trust and entity is a vehicle to achieving a much higher calling. Therefore it is essential to understand that there is more at play that just the words in a trust deed.
We have a great deal of experience in dealing with faith based organisations and in our experience none of them are the same as the next. If you’d like to talk about your situation then let me know by email to firstname.lastname@example.org. To come full circle with how we began this article, it is clear that there will be unique aspects of governance for faith based organisations. Being aware of those will help – whether you are in governance or providing advice to such an organisation. Those different drivers and stakeholders will be vital when taking action and ensuring that the organisation is successful.
ANNEXURE 1: USUAL CONTENT OF A CHARITABLE TRUST DEED
There is no industry standard for a charitable trust deed. Also, there is no particular format required in the Charitable Trust Act 1957, but it is normally expected for a charitable trust deed to cover the following key points:
- That a settlor is setting up the trust by donating to create a fund (often $10)
- The purpose of the trust
- The name of the board
- Who is on the board, such as min and max number of the trustees
- How trustees are appointed
- How they can be removed
- Any process around how long they serve
- How the property will be controlled by the board
- Powers of the trustees
- What funds will be used for
- Conflicts of interest and how they are dealt with
- Common seal (it is required)
- Meetings of the board and quorum and notices
- Preparation of financial accounts
- How contracts entered into
- Variations of the trust deed
- How to wind up and what happens to assets