It’s a line I have heard a number of times now, on the conference circuit, and it always generates a lot of head nods and a few approving chuckles. A speaker opens his or her comments with a lament about the foolishness of naming the sector “nonprofit.”
In this presentation, for example, Hildy Gottlieb says, “We have come to refer to ourselves as what we are not.” But, she declares, “We are not what we are not.”
Gottlieb proposes a different name for the sector. “We are community benefit organizations. Doesn’t it feel good when you hear that?” She then invites the audience to say the words “community benefit organizations” with her. (This reminded me a bit too much of Al Franken’s SNL character, Stuart Smalley.)
Aside from objecting to the fact that the word begins with “non,” Gottlieb’s issue with the term “nonprofit” appears to be, as she puts it, that “our name says we have no money.”
But that is not what it says at all. Profit is the difference between revenue and expenses that goes to the owners of a business. In a nonprofit, this difference is called a surplus and, rather than going into owners’ pockets, it goes back into the organization.
Why does this matter? It matters because this means that nonprofit organizations can pursue their mission – whatever it may be (and it may not, in fact, be ‘community benefit’ in the case, for example, of many associations) – without having to satisfy the demand for a return from business owners.
I get Gottlieb’s point. She is a thoughtful contributor to discussions about the sector and she is committed to improving its impact. Although we share this commitment, I differ with her on this particular point because I believe that, in some important respect, we actually are usefully defined by what we are not.
Look at how being nonprofit plays out in higher education, where nonprofit colleges often deliver educations to students at far less than it costs them – thanks to fundraising (and resulting endowments). This enables institutions such as the college I attended (which had lots of money) to allow someone like me – who had virtually no family income beyond my summer earnings that could go toward tuition – to get an education. It also tends to reduce the likelihood of the kind of unethical behavior that has been well-documented at many for-profit institutions of higher education.
A GAO report this month laid bare these practices:
Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO’s undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid—for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants’ potential salary after graduation and failed to provide clear information about the college’s program duration, costs, or graduation rate despite federal regulations requiring them to do so. … Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options.
Could this kind of thing happen at a nonprofit college? Of course it could. But it’s a good deal less likely to – because the incentives are different.
So being nonprofit matters, and we shouldn’t deemphasize that by avoiding the term. It matters because our society, to fulfill its potential, needs both organizations that are as purely mission-driven as possible as well as those that are primarily profit-driven – and it needs the healthy tension that sometimes exists between the two types of organizations. As I have noted in another blog post, perhaps more of this kind of healthy tension would have reduced the chances that BP would act with the kind of reckless disregard it did.
Much of what we take for granted in our modern lives has its roots in research conducted and supported by nonprofit organizations – often research that no for-profit company or investor would have supported. (See Claire Gaudiani’s The Greater Good: How Philanthropy Drives the American Economy and Can Save Capitalism.) The Internet, after all, was not developed at or by a company – it had its roots on university campuses and in the Department of Defense. Eventually, it was made available for commercial use, and many great businesses as well as some great nonprofits (such as Wikipedia) took advantage of its potential.
I don’t mean to single Gottlieb out: she seems to be one of the more thoughtful proponents of the view that the sector needs a different name. Unlike Gottlieb, some of the others who take issue with the term “nonprofit” seem to lack a sophisticated understanding of the sector. Often, they are affiliated with MBA-granting institutions, where people sometimes find it hard to imagine a human motive other than profit – and where the nonprofit sector’s role in occasionally calling companies to task may be less than appreciated.
The first person I heard decry the term “nonprofit sector” was a professor of mine at Harvard Business School, about a decade ago. More recently, Dan Pallotta, author of Uncharitable and When Your Moment Comes: A Guide to Fulfilling Your Dreams by a Man Who Has Led Thousands to Greatness (no, I am not making that title up), argued on his Harvard Business Review blog, “Anyone who has thought about it for more than a nanosecond agrees that ‘nonprofit’ is about the worst possible summary we could give of ourselves and our work.”
As the CEO of the Center for Effective Philanthropy, a nonprofit, I have, in fact, given the term “nonprofit” more than a nanosecond’s thought – and I am more than fine with it. I believe our particular mission is better fulfilled as a nonprofit and that this label means something important. (It is, also, of course, crucially related to tax status.)
The nonprofit sector is vast, including organizations of stunning diversity, so it is in some respects not surprising that the term used to describe it would be a broad one. I suppose we could call the sector by a variety of names that would be fine: “independent sector” is pretty good, and I use that sometimes. But “nonprofit sector” isn’t so bad, either, and I am suggesting here that it communicates something important. It certainly isn’t a name that deserves all the derision it gets.
Frankly, it surprises me that the need to emphasize the importance of pursuing goals other than profit needs to be articulated today, after all we’ve been through these past few years. But, apparently, it does.
My real hope, though, is that we can spend less time debating semantics and more time focusing on making the organizations in our sector – whatever we call them – as effective as they can be. Because we need them, just as we need for-profit companies and just as we need good government. About that much, I hope we can all agree.
| Posted in | Developing Strategy, Managing Operations |
| Tags | nonprofit sector |
Interesting post, Phil. I would say this concern is more about politics or ideology than semantics.
I was reading a non-profit management book recently that observed that given that businesses only pay taxes on the differences between their revenues and costs (i.e., profits or surpluses), there is no point in being a non-profit unless you intend to generate a surplus. A bit of a simplification, for sure, but I think it goes a long way to addressing the criticism of the non-profit sector that holds that it is necessarily less dynamic and less entrepreneurial because it cannot make a profit. (Perhaps it could be called the “for-surplus” sector?)
However from the Foundation side, I often do feel funny being lumped in with “real” non-profits, those that actually deliver benefits to the public. We are definately “for surplus” as we spend a lot of time on endowment management in the hopes of having more money for more grants, but it just doesn’t feel the same.
Phil,
I don’t understand why you found it necessary to make fun of the title of my first book, or why you chose to cite that book rather than, “Uncharitable,” which is the book in which I make the argument topical to your blog post. Can you explain please?
Also, I don’t find your argument about for-profit universities compelling. First, because it’s a criminal justice issue. Second, the tendency to stretch the truth is not unique to the for-profit sector. The NonProfit Overhead Cost Study at Indiana University found that one third of Nonprofits with revenues of $1 – $5 million were reporting zero percent fundraising costs and found widespread evidence of intentional underreporting of the same. Why? Because that’s the metric by which they are judged. Indeed, the need to show the lack of interest in profit, even when the profit benefits the needy, is exactly what’s driving this behavior. In that sense, the name only adds to the undermining cultural norms that keep the sector from realizing it’s true potential.
Dan Pallotta
Chris, thanks very much for the comment. I do think there is an ideological dispute underneath this discussion: I made that point, less articulately than I would hope but as well as I could, in this interview: http://vimeo.com/8748982. And I hear you regarding foundations and nonprofits inhabiting different worlds.
Dan, thanks for your comment also. I actually mentioned both books in the post above. I included a parenthetical reference to the title because I thought it worth what I hoped would come across as a little good natured jesting.
As for your taking issue with the higher education example, we simply disagree. Of course there are distortions that occur in the nonprofit sector: nothing in my post suggested otherwise. But I remain grateful that the educational institutions I attended were nonprofits, and were therefore able to deliver an education to me at less than cost – rather than looking to capture a profit margin from what I paid in tuition.