By Hayes Knight – 16 March 2014

Further to our earlier articles about the Law Commission review of the Incorporated Societies Act and the Government’s agreement with the suggestions, we ponder what this many mean.

The Ministry of Business, Innovation, & Employment now have the task of turning the Law Commission’s report into the Incorporated Societies Act into new legislation.  But what will this mean in practice?

My personal view is that this legislative reform may result in significant change for many incorporated societies.  Similar to the impact of the Charities Act establishing the Charities Commission and the requirement for charities to be registered, this legislative reform of this 1908 legislation could be a similar “grenade in the middle of the table”.

The impact of the increased regulation over charities had the impact of causing many charities to do some serious organisational navel gazing. It forced many to firstly find their governing documents (which for some was a challenge in itself!), and then read them. For many this had not been something they had done for some time and some got a rude shock that they had in fact been acting ultra vires i.e. against their own rules.

The lesson:
it is important to understand your legal structure and constitutional requirements.

The proposed Incorporated Societies Act reforms will require most if not all incorporated societies to review their governing documents to ensure they will meet the requirements of the new law.

The second impact of this is that looking at constitutional documents usually leads to a wider, and generally very healthy, consideration of organisation fundamentals such as purpose or raison d’etre, structure, fit for purpose financial and operational sustainability.  These are all very important considerations.

Interestingly, such strategic consideration often flushes out many issues which have been festering but perhaps not quite important enough to deal with just yet.  In other words I believe that the need to review the fundamental documents will likely result in some incorporated societies having to address some fundamental issues that perhaps they have been ignoring, or just “kicking down the road”.

One classic such issue in many incorporated societies is falling membership and hence needing to relook at financial sustainability.  This requires creative thinking and looking at new income generation and future success models.

Another reality of change in the incorporated societies space is that structural change requires member buy-in.  Practically this is often time and energy intensive and can be very challenging.

The timing?

The reality of this legislative reform is that it won’t be mandatory immediately.  Firstly the legislation needs to be drafted and to go through the parliamentary process, exposure draft, select committees etc before it can reach the House to be passed into law.  There was also a recommendation in the Law Commission report that this change will be potentially significant on many incorporated societies, many of which are small and poorly resourced.  Hence there should be a generous transition time before it is mandatory.  Four years has been mentioned.

Summary

Will this reform be positive?

Yes I believe the proposed legislative reform will lead us to a much better place for incorporated societies in New Zealand.  It will force organisational navel gazing and this, albeit often hard, is usually a positive process.  But readers should be under no illusions that there may also be some pain along the way to get to this better place.

For many, this reform will be a catalyst for organisational change at a fundamental level.