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A Call for Equity Holders in the Nonprofit Sector

By Nell Edgington



Clara Miller, CEO of the Nonprofit Finance Fund, which is a leader in working to adequately capitalize the nonprofit sector, wrote a great post in the Chronicle of Philanthropy about how the sorely inadequate way the nonprofit sector is funded has got to change.  She argues that the current recession is the potential nail in the coffin for a sector that has struggled to do more with less since 2001.  In fact she sees the crumbling infrastructure of the nonprofit sector as the biggest risk facing America today: “the greatest risk to America’s social fabric is that we continue with business as usual and fail to recognize that investing in the unseen infrastructure of the nonprofit world is arguably just as important, if not more so, as investing in other public works.”

We can no longer be content to have nonprofit organizations that provide critical “public works” to our country scrape by:

No longer can Americans expect social problems to get solved by Band-Aid solutions, emergency grants, below-cost reimbursement rates and project grants with multiple strings attached.

Instead, she argues, board members and donors must become “equity holders” in the nonprofit organizations they support, concerned with the long-term gains of a strong, sustainable organization as opposed to merely buyers of the cheapest services:

In the nonprofit world, board members’ ideal role is to look out for the interests of the ultimate equity holders — the public — protecting the nonprofit enterprise so it can fulfill its mission, sometimes over many years…But the ethos in today’s nonprofit world encourages everyone to do just the opposite. Board members, managers, grant makers, and government officials are so determined to ensure that nonprofit organizations deliver more for less that they regularly lose sight of their role as protectors of the organization’s capacity to deliver quality services as long as the need for them exists, and to get the highest-quality results that will have the largest social payoff to the public.

Hers is a call for a complete restructuring of the nonprofit financial system.  The end result would be a stronger, more effective sector ready and able to address the many problems our country faces head on.

Let’s make 2009 the year when we recognize that nonprofit organizations — like all healthy enterprises — need capital investment, reliable and adequate revenue, and operations that can draw on working capital, reserves, and reinvestment to sustain good results.

What a powerful idea.

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About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.

Thursday, January 15th, 2009 Financing, Foundations, growth capital, Nonprofits

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2 Comments to A Call for Equity Holders in the Nonprofit Sector

[…] on the argument for equity holders in the nonprofit sector, there has been a call for restructuring nonprofit accounting standards (FASB) to introduce equity […]

[…] I described in previous posts here, here and here, one of the ways in which the nonprofit sector is broken is that it is […]

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