Is THIS the FUTURE of the NON-PROFIT WORLD ?
There are many debates taking place as to the future of non-profit organizations. These debates center around a few specific issues that have come up in the universities who teach about the future of Social Enterprise and its relationship to the non-profit sector. You can hear these conversations as a frequent topic of the Ted Talks as well as in several books written by important contributors to 'thought leadership' on this subject. Former president Bill Clinton in his book GIVING and Matthew Bishop, business editor of the Economist Magazine, in his PHILANTHROCAPITALISM are just a couple that come to mind.
These debates center on at least three topics that effect the future success of non-profit organizations and are dependent upon their ability to make significant changes to their manner of operation. Like any other 'industry' or 'sector', NPOs need to adapt to the changing needs and desires of its constituency, to changes in social consciousness, and to address their shortcomings in order to adapt and flourish in a world that has accelerated its rate of change in this Information Age. Clearly, the NPO world is a relic of the past and is under pressure to make some changes that are nothing less than what has become 'common sense'. Here are the three areas of concern presently being debated;
1) The primary reason that Bill Gates, Warren Buffett, the Gates Foundation, and others are being so effective in addressing their charitable mission is simply because they are running their non-profit initiatives like a business. This was a major tenet of the previously mentioned book, PHILANTHROCAPITALISM. They are applying principles commonly employed in the 'business world' to a sector that has been operating without the disciplines of efficiency, accountability, and pragmatism. This "new' approach suggests to some non-profits that those with overlapping missions consider merging for the exact same reasons that mergers take place in the business world; economies of scale, eliminating duplicate expenses, and other efficiencies of operation. NPOs may naturally resist such change because of the egos and prestige invested in them by their founders and Directors, and also in order to sustain the often bloated bureaucracies supported by these organizations. There are major differences in the area of accountability between these two worlds. NPOs are accountable to their Board of Directors and to public opinion whereas a corporation, a business, is accountable to its shareholders, otherwise known as 'the bottom line'. An enterprise is either operating at its full potential (efficiency and 'profit') or it is not. The 'New Face of Philanthropy' is focused on RESULTS ! The debate is whether or not NPOs need to become more businesslike, more focused on results, in order to survive and accomplish their missions.
2) A very heated debate is taking place on the subject of compensation for CEOs and other top positions within NPOs. On the surface it would appear 'offensive' or 'inappropriate' that top management positions at NPOs would receive hefty compensation, after all, it is a charity we are dealing with. The debate is taking place in the university MBA programs and has been the subject of several Ted Talks as well. The counterpoint presented is that 'if' NPOs are going to be run more like actual businesses with more emphasis on accountability and results, then it stands to reason that greater talent will be necessary to accomplish better results and that these positions can only be filled by offering results-oriented compensation such as exists in the business world. If a major corporation pays its CEO a million dollars a year and gets results such as a huge increase in stock value, well, it is considered a very worthwhile investment. So if it is a matter of talent, or expertise, and a NPO were to also pay its top executive the same million dollars a year, and the net donations were to increase by a large multiple of that number, why would that also not be a wise investment on the part of the NPO such as it was for the corporation? This is the essence of the debate on this issue. If one were only concerned with the amount of money raised by a NPO that employed the necessary talent and expertise to accomplish this result, well there would not be much of a debate. The issue is that our concept of what is right and wrong, what is appropriate, may be getting in the way of the true objective of raising more money so as to deliver more services where they are needed. We can see here how this issue and the one raised above by Gates and Clinton and others are really the same issue, although viewed from different perspectives.
3) Now let's take a look at the 'Mack Truck Test". This debate asks a simple question of any organization that is dependent upon the creativity, or drive, or even the charisma of its Founder. And if this morning this person is hit by a Mack Truck, what then comes of the enterprise he has founded? This question is much the same for a NPO as it is for any corporation. Is the organization in a position to replace the Founder and continue to accomplish its mission ? The answer is simple enough and not the subject of much debate. If the enterprise has the resources to hire a similar talent or expertise it is able to move forward, and if not, well, what may have been a great idea with tremendous potential may come to stop. Now this issue begins to fall into the same category as the other two issues outlined above. Now we can see how the true debate revolves around a simple premise that is being presented by the MBA programs, the Center for Social Innovation, and those offering real 'thought leadership' on this subject. They all conclude with a simple fact; in order for a social benefit to be delivered in a sustainable fashion there must be an underlying sustainable business model providing a dependable and continuing source of funds to accomplish this mission on an ongoing and perpetual basis. This is the underlying principle that drives Social Enterprise and makes it such a viable answer to the question of how society can restructure itself to more effectively deal with its social problems. Enter a very impressive group of social entrepreneurs who may have a great solution to each and every issue raised in this debate. Read on;
The Benefit Corporation
A few years ago Andrew Kassoy and two of his longtime friends had a great idea. They had all been enormously successful in business, had made fortunes, and now wanted to do something with PURPOSE. Andrew, along with Jay Coen Gilbert and Bart Houlahan, realized that the growing interest in social enterprise did not have an infrastructure to support its true mission. They wanted to, in their own words, "create a new sector of the economy that harnesses the power of business to solve social and environmental problems". The challenge facing them was that a corporation is legally responsible to its shareholders and any altruistic activity by that company that reduced the profits was by definition not in the interest of the shareholders, at least financially speaking. So these competent and very well connected entrepreneurs enlisted the aid of several top law firms to draft legislation to be presented in several states that would create a new class of corporation; the Benefit Corporation. This new class of corporation is required to create a material positive impact on society and the environment and to meet higher standards of accountability and transparency. The Benefit Corporation is responsible not only to its shareholders but also to its stakeholders; its employees, its community, the environment, and any and all effected by its operation. Now ratified in 19 states including Delaware, which has 40% of all corporations, it is pending in many more and there are plans to present it in all 50 states for ratification. There are now a few thousand Benefit Corporations operating and many more being formed. Some are well known and many more are new companies with a social mission as well as financial goals. When a shareholder invests in a Benefit Corporation it is clearly defined in the by-laws that in addition to financial gains there are social benefits that are part of their overall return. The rules and laws guiding these practices vary by state and are very complex and certain to be refined over time. Now let's take a look at what lessons and advantages this new entity may have for non-profits.
Both Benefit Corporations and non-profits have a mission of providing a social benefit in the form of either goods or services. As a for-profit enterprise a Benefit Corp. has access to capital like any other business. It has a business plan with projected profits and a plan for how part of the profit will be used to accomplish its social mission.
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