Change is certainly happening within the nonprofit sector and the philanthropy that funds it. From efforts to make philanthropy better at addressing inequity, to movement away from the overhead myth (and other myths), we are witnessing important shifts in how we tackle (and fund that tackling of) social challenges.
But I’m hungry for more.
And more could emerge from honest and transparent conversations about what is holding the social change sector back. There are some key hurdles facing the sector, and we have no hope of finding solutions to those challenges unless we start some no holds barred conversations, like:
- What keeps nonprofits from creating more sustainable business models?
Everyone understands that nonprofits are sorely under-resourced and struggle to find sustainable financing for their work. But few are trying to really understand how we change this reality sector-wide. A few funders have commissioned research on the state of money in the sector, but it’s not nearly enough. I would love to see a real, solutions-oriented conversation about a problem that everyone (nonprofit leaders, boards, funders) knows exists. - Why do we hold nonprofits to a different standard than for-profits?
Because the nonprofit sector was borne out of the charitable impulse, we continue to see it as more holy than and separate from the for-profit sector. Therefore we are uncomfortable with nonprofits being too political, raising too much money, or spending too much on infrastructure. As a stark example, the nonprofits working for reform to our fairly dysfunctional political system have many fewer resources for and many more restrictions on their efforts than the for-profit lobbyists that the nonprofit reformers are fighting. - Why won’t we treat nonprofits as equal partners in the economy?
Related to this, because the nonprofit sector emerged as a side-note to the business-driven economy, nonprofits have always been viewed as secondary to, and thus less valuable and important than, the private sector. But you simply cannot have one without the other. The nonprofit sector often provides the research and development, worker support, quality of life and other services that fuel the success and profits of the private sector. Without the nonprofit sector there would be less profit and a weaker economy. So we have to recognize the critical (and equal) role that nonprofits play in creating a strong economy. And we have to begin investing equally in the success of those nonprofits. - Why are nonprofit boards largely ineffective?
Another truism of the nonprofit sector is that boards just don’t work. I have yet to meet a nonprofit leader who doesn’t have at least some frustration with her board and many are resigned to their board’s deep dysfunction. It is extremely difficult to corral a group of volunteers, to be sure, but instead of accepting that challenge as a rule, let’s figure out how to fix it. Perhaps greater standards and regulations, perhaps compensation for their efforts — I don’t know what the right answer is, but let’s analyze the root causes of this inefficiency and change it. - How do we direct more money to efforts that result in social change?
There is much debate about whether donors want to give based on the results a nonprofit creates. But if the government is going to continue to off-load social interventions to the nonprofit sector, we don’t have the luxury of letting the funders of those nonprofits give solely based on emotion, reciprocity, or duty. You may not believe in “effective altruism” (the idea that philanthropy should flow to the most effective social interventions), but the fact remains that with mounting social problems and a resource-constrained and gridlocked government, a growing burden for addressing social challenges is falling to the nonprofit sector. Nonprofits will only be able to rise to this challenge if the solutions that work have enough resources to actually work. So let’s recognize the tension among increasing social problems, less government involvement, and lack of money and figure out how to fix it.
It’s time for bigger conversations. We have to openly face the challenges standing in the way of social change and figure out a way forward together.
Photo Credit: Paul Thompson
I enjoyed your thought-provoking article. My service in both the for-profit sector as the CFO of a NYSE-traded company and the nonprofit sector as Executive Director and other roles, as well as on the boards of both types of organizations, give me some insight — at least enough to form some outside-the-box opinions.
1. What keeps nonprofits from creating more sustainable business models?
Nell, I think the #1 reason is that folks with business degrees often find themselves very unwelcome in the sector. While more job descriptions for nonprofit leaders encompass business backgrounds as a possible qualifier than was perhaps true 10 years ago, most often the inertia favors program directors of development directors with traditional nonprofit backgrounds. And when for-profit executives go into non-profit, they are quite often faced with a culture shock and the inability to make quick changes. Boards full of business leaders seem to often check their business acumen at the door and rely on traditional nonprofit ways of doing things, because those board members didn’t join the board to drive change.
3. Why won’t we treat nonprofits as equal partners in the economy?
Because, let’s be real, they aren’t. The economy is measured in monetary terms, and the social sector is small change compared to the industries that drive our economy. The better question is “Why does the nonprofit sector accept its subserviant role vis-a-vis the government in meeting social needs?” That could change if the tax code were to change (see below) … The nonprofit sector cannot grow at the expense of the private, for-profit sector .. but it can grow at the expense of government, because it can provide services more effectively and efficiently than the government given an equal amount of capital. I don’t understand why the social sector doesn’t seek to grow at government’s expense.
4. Why are nonprofit boards largely ineffective?
We send a signal to board members of nonprofits of their relative value to the organization when we don’t pay them anything for their work. Ironically, I’ve seen more of a sense of “ownership” held by the boards of smaller nonprofits than the larger, more visible ones. The message I got when joining a large nonprofit’s board was to get-along you had to go-along. Your job was to help raise money, not to govern. Governing boards need to be small, intensely committed, and paid (even if the pay is relatively low). Advisory “friends” boards is where the fundraisers should be put.
5. How do we direct more money to efforts that result in social change?
The social sector should push Congress for a massive overhaul of the tax code … offering tax credits rather than tax deductions for contributions to domestic safety net-related nonprofits. That way huge new capital would move towards the social sector. The social sector should believe it can be a better steward of those dollars than the government — if they don’t, why do they exist? I have not heard the nonprofit sector make this argument, but it should, and frankly it would find a very receptive audience in a Republican government that wants to devolve power away from the Washington bureaucracy.
To make major changes in results, we need to make major changes in capital flows, governance and management.
Thanks for the opportunity to respond to your very interesting article. I hope you get a lot of feedback.
Bob, thanks so much for your very thoughtful comments to my post.
While I agree with the spirit of your comments, I do disagree on several points.
First, I don’t think business leaders are the answer to more sustainable business models for nonprofits. There are deep dysfunctions in how the sector deals with money (and you’ve illuminated some of them) so it is a complex problem requiring study, education, conversation, changed norms, etc., not just the introduction of more people who may or may not understand business modeling in the for-profit sector.
I also strongly disagree with your assessment that nonprofits are not and should not be equal partners in the economy. While the budgets and people of the nonprofit sector comprise only about 10% of the overall economy, their impact on that economy is far, far larger. Nonprofits provide the education and training to the for-profit workforce, make cities livable and culturally vibrant so employees will come and stay, increasingly provide the social safety net necessary to a strong economy, and the list goes on and on.
And I am a huge believer in including money-raising as a key part of a governing board’s role, so I disagree that you separate the two into two distinct groups, and I also don’t believe paying nonprofit boards of directors is feasible.
But I wholeheartedly agree, as you put it so well, “To make major changes in results, we need to make major changes in capital flows, governance and management.” Amen!