October 14, 2014

Nonprofits Must Show How They Serve the Common Good

Nonprofit organizations and foundations have to make hard strategic choices about how and where to take action as problems grow worse and resources are stretched even thinner. Essentially, they need to think about their distinctive societal role in considering their options.

The notion of distinctiveness becomes more complex with so many other organizations seeking ways to do good: social-benefit corporations, for-profits owned by nonprofits, groups offering social-impact bonds and market-financing schemes, and other efforts that have increasingly blurred the lines between nonprofit and for-profit sectors.

Based on findings from years of personal polling from the back seats of taxicabs around the nation, I've found the public thinks that nonprofit organizations are characterized by volunteerism, sacrifice, and donations from rich and poor—all in service to those in dire need. But that’s clearly not true for much of the charitable world. What, for instance, makes a nonprofit day care center different from a for-profit one across the street?

When I ask that question, nonprofit leaders most often say that the nonprofits provide services to those who can't afford to buy them. But when insurance companies, governments, and others are paying for services the nonprofit provides, and the organization is getting special tax treatment, it’s hard to argue that the nonprofit is really there to address a failure in the market. Furthermore, we know that the lion’s share of nonprofit revenue comes from fee-for-service just as in a business.

Leaders also say nonprofit organizations improve civil society, but they offer few specific examples of how—and businesses make the same claim that they benefit society. Similarly, nonprofits often say they play a special role in advancing democracy, but when pressed few can point to any way they do beyond getting citizens involved on their boards.

Perhaps a more significant and striking distinction is this: Nonprofit leaders point out that businesses try to increase the market for their products, as if the whole world needs running shoes or more expensive infant formula.

By contrast, they note that nonprofits try to reduce service demands and work themselves out of a job, although few leaders are able to say how they actually help people and communities reduce their collective neediness. Still, this becomes a very powerful difference—a most laudable distinctive role for charities.

And it’s exactly at that juncture, reducing need by strengthening democracy and enhancing civil society, that nonprofits attain their distinction and can fully realize their extraordinary value across the range of charitable missions. In fact, today’s crises require it.

It might help for all of us, at our next board or staff meeting, to reflect on the following apocryphal story.

During a break at a nonprofit leadership retreat, five staff members went for a walk beside a small river that ran through the conference center. They suddenly noticed a group of toddlers being swept downstream, and as they watched the waters became more rapid and the number of children in peril grew.

One leader jumped into the river and started to grab kids, throwing them up on the dry banks, saving them one by one. The second leader also jumped in and channeled others into a calmer cove where she started to teach them to swim so they could save themselves.

The third leader jumped in, too, and began to organize the now-swimming toddlers to become self-helpers, getting them to teach their unschooled peers at least to tread water to survive. The fourth leader ran off, headed back downstream to the retreat center, saying he was going to get more volunteers to help, encourage donations of dry clothes, raise funds to support continuing rescue and self-help efforts, and get some management training so they could all operate more efficiently and effectively, complete with outcome measures.

The last of the leaders ran off in the other direction. When her confused colleagues asked where she was going, she said she was headed upstream to see if people were throwing the children into the river and try to stop their abuse or at least figure how to prevent it if they were falling in accidently.

We know that nonprofit organizations need to use all five of those approaches and more, but charities are doomed to a Sisyphean future unless leaders increasingly turn upstream. While certainly nonprofits must continue every approach—our world would become too horrible a place without such work—they also need to figure out ways to contribute to the task of prevention, to change the dynamics that throw some into the river and allow too many others to fall in.

This exhortation is true in all areas of charitable mission. While some groups may not feel that their clientele or constituency is in as much peril as the toddlers, the truth is that growing inequality, high rates of poverty, and a decline in middle-class income, as well as the frightening erosion of democracy by out-of-control campaign finance and tyrannical gerrymandering, affect us all.

Recent research has shown that the higher people are in class structure and the more powerful they are, the less sensitive and attuned they are to other people. And The Chronicle’s How America Gives study just revealed a serious erosion in the generosity of the wealthiest, while harder-pressed people are digging a little deeper.

Another study found that the American Dream is dying, with only 20 percent believing that our children’s generation will do better than our own—and social scientists think that’s because of people’s awareness both of increasing inequality and of politicians’ seeming inability to do anything about the problem or about even easier, more mundane ones.

Government matters in every area of nonprofit concern not only because of its ability to gather and allocate resources to fight problems and generally improve society but because of its critical upstream role. Through regulatory and other safeguards, through institutional investments, it is government that can change the dynamics that throw so many into the river and allow too many of the rest of us to fall in.

Those challenges are also affecting global society. As Michael Ignatieff, a Harvard professor, has observed, "What alarms America’s allies is not weakening credibility of its strategic guarantees. American power remains overwhelmingly credible when used with discrimination and care. The real problem is democratic dysfunction at home: the 20-year impasse between Congress and the executive branch, the reality-fleeing polarization of political argument, the gross failure to control the invidious power of money in politics, weakening domestic infrastructure, and public disillusion with democracy itself. ... A still deeper problem is American disillusion with their own institutions."

Nonprofit organizations and philanthropy together constitute one of those institutions. Given the failures of political leaders and the self-serving successes of the corporate world, it falls to charities to reverse these trends for themselves and the rest of society.

This requires the nonprofit world to regain its distinctive role now by serving the public interest and the common good effectively, with integrity. And that requires it to strengthen democracy by working to increase voter education and engagement and by trying to limit the corrosive influence of campaign finance and gerrymandering. Charities must help people insist that government itself get better and more effective and efficient, upstream.

Mark Rosenman is a professor emeritus at the Union Institute & University. This article is based on a keynote speech he made to the annual meeting of the Alliance of Arizona Nonprofits.