The Corporatization of U.S. Nonprofits - Tony Martignetti

The Corporatization of U.S. Nonprofits

July 14, 2010

in Charity

black and white low angle view of a road sign saying change of strategy ahead

Our country’s nonprofits are swiftly becoming more like their for-profit corporate counterparts.

Recently, Reuters told us nonprofits mimic the language of Wall Street, but for years donors have demanded to be treated as investors, and the institutions have obliged, referring to “returns on investment” and negotiating gift arrangements as contracts.  More recently, foundations and individual donors have insisted on outcome metrics, best practices, benchmarking, social impact and performance standards.  All of this was unheard of 7 to 10 years ago in nonprofit communities.

Donors and grantors are not alone in creating this change in culture and enterprise organization.  Federal and state governments also unite our nonprofit and profit-making corporations.  Since Sarbanes-Oxley reforms were levied against the profiteers in 2002, serious talk about identical improvements has trickled down to those with a calling higher than profit.  (I’m uncertain what tone to take about this: lamentation; resignation; pride; excitement; exhilaration.)

To my recollection, “board development” didn’t exist 10 years ago.  At the least, it wasn’t nearly as much a part of the nonprofit lexicon as today.

Our Internal Revenue Service, through its agents and tax-exempt commissioners, measures, and pronounces about good governance, accountability, financial integrity, transparency and oversight.

State Charity Registration laws, which I study, write and speak about a lot, have been enforced more in the last 18 months than anybody I know can remember.  The IRS stepped in here, too, probing more directly in its heavily-revised Form 990, an unusual instance of a federal agency asking about compliance with purely state laws.

Even the legal form of the nonprofit enterprise is becoming indistinguishable from its counterpart.  Several states have adopted the Low-profit Limited Liability Company, or L3C.    Profit is allowed but must not be the primary objective.  (By the way, you should pay attention to Gene Takagi, publisher of the blog at that last link.)

Nonprofits are becoming more like companies.

Part of me longs for the charming days, when do-gooders came together, appointed their parents and friends to boards, raised money, and did their best with heart and head to make a difference in their community.  We cannot return to that time, and we shouldn’t.  But I partly miss it.  It was so much easier.

I’m between resignation and excitement, closer to the latter.  Funders and governments demand change and nonprofits are complying, looking more like for-profits, at a pace that is accelerating and will not reverse.

This brings enormous, promising opportunity for smarter, more efficient execution of charitable missions, which should mean better service to those in need throughout the world.  (That sentence hits on several subjects debated by bigger thinkers and more august personages than me.)  Look at organizations like charity: water and The Center for High Impact Philanthropy to discover the possibilities.  (At The Center, I commend Autumn Walden to your attention.)

What examples do you see of the corporatization of nonprofits?  Are you excited by what we’re witnessing?  Do you miss the old days, or am I alone?

{ 7 comments }

Steve Thomas July 14, 2010 at 1:56 PM

Tony, forward, insightful thinking as always.
I guess I share your mixed feelings. I love the intensity and focus on net income that comes with a corporate/for-profit perspective. I dislike the “games” that are a natural byproduct of such oversight and perspective–GIK abuses come to mind.
I believe two sectors of the NPO world will be favored by this move: 1. the start-up which is not saddled with legacy overhead or infrastructure in need of updating; 2. the giant npo which is able to both bring economies of scale to bear and game the accounting system.
Those who will struggle are those in the middle…I don’t know that I’d say that’s bad, but it will be a struggle. And the wise will survive and thrive.
(It’s time for us to interview you again–this will be interesting to our tribe).
Thanks again.
st

Autumn Walden July 14, 2010 at 2:02 PM

I share your mixed emotions on the nonprofit/for-profit issues but am also excited as you are. I’d like for donors and the general public to learn more about the effective work that many nonprofit organizations are doing. It’s hard to read all of the negative stories of mismanagement and fraud when I know there are over-powering, positive stories that have yet to be seen and heard. I’ve recently been inspired by Dan Pallotta’s ideas for nonprofits and social entrepreneurship and am looking forward to reading his book, Uncharitable.

Thanks so much for the blog shout. I will make sure to return the favor in the future. In the meantime, see you on twitter!

Tony July 14, 2010 at 10:37 PM

Thank you for your comment, Steve,

I don’t think this trend will be easy for the small shops. All the stuff they’ve got to deal with takes time and some money. Or a lot of money if they pay for someone else’s time to do it for them. I worry about the small nonprofits, which is why I have a radio show devoted to helping them.

I’d be happy to do another interview with you, please email me.

Tony July 14, 2010 at 10:54 PM

Thanks, Autumn,

Bad news sells newspapers. I take comfort knowing the stories from our clients, and telling them as often as I can.

My pleasure to send people to you and the Center. T.

Margaret Dyekman July 26, 2010 at 6:21 PM

I am definitely seeing the effects of corporatization. Savvy boards are defining their compensation philosophy and are hiring companies like mine to be the objective third party in gathering competitive compensation data so they can do a better job of proving that executive pay is reasonable. Hospitals have always done this in great numbers, but it is the other non-profits who are now paying more attention because they are being forced to by the IRS. I don’t think this is a bad thing, but I do agree that the smaller non-profits will have a tougher time because of the resources this due diligence requires.

Tony July 26, 2010 at 7:14 PM

Thanks, Margaret,

You’re right, excessive compensation is a hot button. We see egregious examples in the press from time to time, and no nonprofit wants to be the next headline for that kind of press. You’re in a growing business.

Thanks for your comment,
Tony

Tony July 27, 2010 at 1:10 PM

Talk about timely, Margaret,

I presume you saw today’s NY Times article on executive compensation. Your phone should be ringing off the hook.

Tony

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