The New Role – Will Our Sector Lead?

The number of challenges to the nonprofit sector, what I call the civil benefit sector, is increasing at a rather rapid rate. What the economists characterize as the “failures of the market” are under increasing pressures to be something else.

At heart, we are the embodiment of the noble American traditions of collective action for the common good. We always cite the neighbors who bring the lumber and the lunch to rebuild the barn. Toqueville recognized a good thing.

What we symbolize is the great stream of generosity toward others, of mutual help, of teaching our neighbors “to fish,” rather than to continuously offer food.

Society has long recognized the role of charitable organizations, continually expanding the definitions as the society and its needs evolve. So we have governmental recognition of our role, institutionalized in the c (3) designation and the related statutory and regulatory categories that grant various benefits, such as tax deductibility to donors, cheaper mail rates, exemption from certain taxes and so on.

The Current Challenge

While many of my colleagues deny it, we are under major challenge from some of the forces that traditionally support us. Some donors have given up giving through charitable contributions and are investing in businesses set up to accomplish the same outcomes and impacts as the nonprofit sector.

We are hearing about double and triple-bottom line businesses. People are offered commercial opportunities to invest in such groups. Many large investment houses and mutual funds now have socially responsible options for private investment and financial return.

Over half the states now have some variant of a Benefit corporation, a B-Corp. From a flour company first established in 1790 to a new start-up, Benefit corporations are attracting a new breed of donor interested in social good. Most for-profit companies are also waking up to the challenge that they must not only produce a quality product or service, but must also benefit the society in some way.

The Rockefeller Foundation has led a number of other foundations in investing parts of their endowments in these socially responsible companies. Who would deny that Ben and Jerry’s, a division of Unilever, or Patagonia are doing good?

Partnerships?

Some of our colleague institutions are participating in this change. With Social Impact Bonds, we have a partnership between government, nonprofit organizations and investment banks and investors working to solve a societal problem such as recidivism.

We also see foundations investing in organizations whose programs are scalable, after having empirically demonstrated positive impact on a specific need. This is joined by schemes to pay for performance, to partner regardless of legal definition, obliterating distinctions between for- and non-profit organizations. (See my Pollen essay on The New Philanthropists)

So where does this lead us? To a diminished role for the traditional nonprofit, leaving the low hanging fruit to others and concentrating on the intractable challenges in society?

Not necessarily. One of the great strengths of our sector is Mission, belief in a set of values to inspire, to motivate, to convert.

Yes, let’s partner. Let us scale up. Let us merge. Let us measure impact. Let the businesses return on investment. Let the bondholders make money. But let us lead.

Let us set the agenda.

This is the key. We know the problems and we know some of the solutions. We also have a sense of what works and what doesn’t. So let us expand our vistas. Let us attract the capital to pursue the solutions that make the most sense. Let us collect the data to show what works.

It will take a totally different way of thinking. We will not be reliant only on charitable donations, which are a very solid force and a welcome one. We will also be open to foundation loans and investments. We will be open to investment by mutual funds through our for-profit subs, but we will use all of this to expand our reach, to grow our Mission to create civil benefit, and we will make our communities better places.

This is an unbelievable opportunity for us to expand our reach, to grow, and to bring bountiful benefit to our society.

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