Nonprofits
In a Changing Ecosystem, Whither Nonprofits?
I'm concerned about nonprofits. Are they aware of the threats they face? Are they prepared to demonstrate their value in the face of changes in corporate and tax law, and, as importantly, changes in the cultural zeitgeist about social capital markets and social enterprise? For almost a century, 501c3 nonprofits have held a privileged place in our communities and in our tax code… (continue reading this blog post)
I’m concerned about nonprofits. Are they aware of the threats they face?
Are they prepared to demonstrate their value in the face of changes in corporate and tax law, and, as importantly, changes in the cultural zeitgeist about social capital markets and social enterprise?
For almost a century, 501c3 nonprofits have held a privileged place in our communities and in our tax code. They are provided tax exempt status, and supporters can deduct their contributions to these organizations from their income taxes. In so doing, the US tax code privileges these organizations - from major hospitals and universities to small neighborhood groups - as providers of social goods and contributors to civil society.
Those privileges are being challenged from numerous directions. Let me list just a few:
- New corporate forms that recognize social businesses (these are modifications to the corporate codes at state levels - L3Cs, B Corporations, proposed H corporation);
- Tax credits for social businesses;
- Foundations’ increasing interest in “sector agnostic” approaches to solving social problems;
- Regulatory concern about good governance, payout rates, and endowment growth over charitable purpose;
- Social investment exchanges that are expanding the revenue and capital streams to financial/social hybrids (not necessarily to nonprofits);
- Growth of models for social goods/civil society that emphasize operating foundations or social enterprises more than a nonprofit framework (everywhere but USA).
Each of the innovations above has advantages and disadvantages and none may be explicitly targeted at putting nonprofits out of business. Most of the hybrid forms are promoted as expansions of the social sector. The fervent interest in social investment exchanges and mission related investing or impact investing are also seen as new revenue sources to good. Note, however, that these are effectively ways of expanding the pools of social good providers and social good financing, effectively increasing the pool around nonprofits, not working to strengthen, support or expand financing to them.
What we are experiencing is a confluence of forces, each of which may have merit independently, but which collectively challenge our current framework (policies, mental models. and financing systems) for where civil society and social goods come from.
Who provides them, who finances them, and how are they distributed?
Michael Edwards’ new book, Small Change, which challenges the currently en vogue market model, comes closest to raising these questions. And conferences on regulation, discussions of technological innovations, and celebrations of innovations and changing ecosystems contribute to the broad awareness of options.
But who is working on these big questions in pragmatic ways? Who is looking at what nonprofits do best, what social enterprises and social businesses contribute, and what roles government can and must play? Who is looking out for the whole? Or even looking at the intersections, not all of which are complementary or positive, of these many pieces?
Currently, most of the innovation in the sector is around the edges of our existing corporate and tax frameworks - we are developing “workarounds” to the 501c3 or commercial corporate model to encourage social entrepreneurs and new investors or donors.
The preponderance of these workarounds should have been our first clue - it is time to reconsider the entirety of the systems and policies for the production, financing and distribution of social goods and civil society in the Twenty First century.
Lucy Bernholz is the founder and president of Blueprint Research & Design, Inc, a strategy consulting firm that helps philanthropic individuals and institutions achieve their missions. She is the publisher of Philanthropy2173, an award winning blog about the business of giving and serves as executive producer of The Giving Channel on Fora.tv.
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COMMENTS
BY Curtis Ogden
ON February 10, 2010 01:09 PM
Wonderful post, Lucy. Indeed, who is holding the whole with respect to all of these intentional innovations and incidental changes and challenges to nonprofits? And what does this mean for the “third sector” and the important role it has historically played in terms of accounting for market failure and providing a real values-based arena for organizing and channeling resources? You seem to imply another shift at play in the field without explicitly naming it, and this is the emergence of networks for social change that transcend organizations and sectors. At IISC we are particularly interested to what comes of net-centric approaches and how these complement existing more organizationally-based efforts. Something I’ve perceived over time is that much of what has passed for innovation within the traditional nonprofit sector is often of the “creatively make due with less” variety, as opposed to innovation driven by a sense of abundance and possibility. That’s something that I am hopeful to see change with this confluence of factors you identify. And evolution always raises the question not just about what comes next but what should be conserved. Careful that we don’t throw out the baby with the bathwater!
BY Mark, Generated from Facebook.com by SSIR
ON February 10, 2010 03:33 PM
Lucy Bernholz seems to be suggesting NPO’s face eventual extinction in the face of competition from social enterprises, social entrepreneurs, and changing expectations from the investment sector. I submit the premise is correct, but the long term prognosis has more to do with our shrinking philanthropic doner base mirroring our place in the global economy. With the post WWII US dominance of market share subsiding, so will available resources from the philanthropic sector.
BY Nikki Zeuner
ON February 10, 2010 03:52 PM
While I have enjoyed reading Lucy’s posts for a while, I always struggle to find them relevant or applicable beyond the bi- coastal philanthropic consultant blogger and professional conference attendee worlds.
In rural NM, where I work with social innovators, we too closely watch policy developments. Sector “agnostic” sounds buzzy, but the sector relationships we are concerned with now are strictly between government and nonprofits: state funding cuts affecting nonprofit service providers and cuts in state subsidies to low-income residents are the development that worry my clients in these weeks. All the blogtalk of social capital markets, social investors, tactical philanthropy, hybrid corporate forms… remains inconsequential blogtalk to us.
Foundations in New Mexico have been close to irrelevant regarding social innovation for many years now (with a few exceptions, such as the NM Collaboration to end Hunger), and this year in particular they have resorted to distributing minuscule grants to a very few nonprofits, with no social impact expected. Corporations in New Mexico so far have not stepped forward to provide leadership in any cross-sector innovative projects. I imagine this is true for many non-coastal and rural states.
So… our questions are different from the ones that Lucy is asking: How can social innovation happen through rural nonprofits that are 90% dependent on government contracts, and are mired in vendorism? How can we develop effective networks across sectors, while building the capacity of individual nonprofits? How can we participate in federal initiatives such as the Social Innovation Fund, that are already set up to work through large intermediaries, i.e. foundations, in the absence of a wealthy, progressive foundation community?
Not much bathwater left in our tub, Curtis.