This is the smartest, ballsiest response I’ve seen to the omnipresent nonsense about how what’s wrong with philanthropy and charity is that they’re too soft-hearted and how all the problems of the world could be solved if they were just more rigorous and did their “due diligence” and brought other failed concepts and consultant buzzwords over from the for-profit sector. What refreshing thoughtfulness and appropriate humility. Bravo, Mr. Scanlan!
Archive for the ‘Social enterprise’ Category
Tags:501c3, charity, donors, foundations, Fundraising, Management Advice Day tip, nonprofit, Nonprofit management, not for profit, philanthropy, Private Philanthropy, Relations with funders
Posted in Nonprofit management, Nonprofits--General, Private Philanthropy, Relations with funders, Social enterprise, Venture philanthropy | 2 Comments »
The Nonprofiteer threw a bit of a bomb at a meeting today. (“Now, dere’s a bolt from da blue,” as Andy Sipowicz would say.) Perhaps she should be sorry—but she’s not.
After a group of young “venture philanthropists” described their efforts to help expand a small number of poverty-fighting nonprofits and to attract other philanthropists to support them, she had a few thoughts which she generously shared.
- Their analysis of Return On Investment in this context was very exciting, comparing the dollars spent to the dollars added to the projected lifetime earnings of program participants as a result of whatever intervention the nonprofits provided.
- Their goal of “Scaling Up What Works,” while admirable, had challenged many other institutions. Did they have a template for determining which nonprofits would continue to succeed after significant expansion? (Not really: they look for leadership and give it management support; but management support can’t clone inspired leaders.)
- Their main achievement was to have assembled a group of white people (staff and Board) to whom other white people would give money. White people are reluctant to give money to black and brown people (she observed). But this group, by virtue of its comfortingly familiar MBA-speak upper-middle-class front, is able to overcome that reluctance.
Afterward, the meeting’s host suggested to the Nonprofiteer that her last comment had been both off-putting and dismissive. On reflection, she concluded that, while she was sorry to have embarrassed her host in front of his guests, she was glad to have given voice to the Subject That Dare Not Speak Its Name: the gap between the resources available to white people and those available to nonwhites. We’d like to think that philanthropy responds to need, but most donors actually respond to being asked by those who look a lot like they do.
If these people can level that tilted playing field, more power to them. And if some of them can make a career out of doing so, mazel tov. But while the advice and management training and analysis and for-profit perspective on nonprofit problems are all very well, let’s not fool ourselves about what’s really useful in this model: the ability to look and sound like the sort of people who should be entrusted with a lot of money.
That’s not a critique of pale people who want to help. It’s just a plea for frankness about how racism plays out in our sector.
Tags:charity, donors, Evaluation, nonprofit, Nonprofit management, not for profit, philanthropy, Poverty, Private Philanthropy, Racism, Relations with funders, venture philanthropy
Posted in Fundraising, Investment, Nonprofit management, Nonprofits--General, Poverty, Private Philanthropy, Racism, Relations with funders, Social enterprise, Venture philanthropy | Leave a Comment »
for which the Nonprofiteer can take no credit. Rather, thanks to her friend, Baltimore tax lawyer Stuart Levine, for laying out so clearly the problem with low-profit limited-liability companies, the latest fad in efforts to do well by doing good. Stuart’s argument appears in response to, among other things, a recent New York Times report that foundations have increased the proportion of their “grants” which are actually program-related investments, that is, grants for which repayment is expected to a greater or lesser degree.
Look, there are numerous “good cases” where one can see that infusion of capital that doesn’t really have to be repaid at market rates makes good sense. (Actually, government loan guarantees of, say, solar power start-ups falls into this category.) The problem with allowing 501(c)(3)’s to make these sorts of investments is that the process is subject to abuse.
Say that I want to create “Stuart Levine’s Good Works Foundation.” The Foundation attracts $10M in tax deductible contributions. The Foundation uses the cash to “invest” in projects operated either by me or my Aunt Minnie. While Minnie and I invest our own funds in these businesses, our capital position is ahead of the Foundation’s and gets a higher return, so that the first profit out goes to pay us and, if the deal craters, the biggest part of the hit will fall on the foundation. (Did I mention the $250K a year consulting fee paid to me by the investment entity?)
I don’t for a minute believe that the Bill and Melinda Gates Foundation is engaged in double-dealing of the sort that I described. I have less faith in the “Stuart Levine’s Good Works Foundation.” Has everyone forgotten the Pallottine Fathers? See here:
Or, as one might say, everything old is new again.
The burden of proof rests on those who believe L3Cs are essential. They must demonstrate that the entities’ potential for abuse is outweighed by their capacity to meet needs that are otherwise unmet. But all that’s unmet so far is that burden of proof.
Tags:501c3, charity, Conflict of Interest, donors, foundations, nonprofit, Nonprofit management, not for profit, philanthrocapitalism, philanthropy, Relations with funders, social entrepreneurship
Posted in Conflict of Interest, Finances, Foundation Hall of Shame/Stupid Foundation Tricks, Investment, Nonprofit management, Nonprofits--General, Philanthropy and Taxation, Relations with funders, Social enterprise | 3 Comments »
It will be interesting to see how things develop at the Washington Post’s new On Giving section. Self-described as a “conversation about philanthropy and social entrepreneurship,” it at least aspires to talk about the nonprofit sector in more depth than the conventional scandal-or-gala approach. (The Nonprofiteer has long complained about the mainstream media’s coverage of the sector, which manages to be both narrow and shallow; in fact, those shortcomings account for the launching of this blog.)
But is a focus on mammoth gifts and efforts to up-end the nonprofit model really any better? Maybe those are the dog-bites-man stories. Maybe the day-to-day struggles of the majority of good-deed-doing agencies simply don’t lend themselves to the conventions of daily journalism—but the Nonprofiteer would give a lot to see someone try to find out.
Tags:501c3, charity, corporate giving, nonprofit, not for profit, philanthrocapitalism, philanthropy, Private Philanthropy, social entrepreneurship, Washington Post
Posted in Charity scandals, Coverage of nonprofits, Nonprofits--General, Private Philanthropy, Social enterprise | Leave a Comment »
So a couple of weeks ago the Nonprofiteer received a press release announcing “Redefining [of] the Nonprofit Model.” Doubtless you’re all familiar with the genre: a group of business people get together and decide that the nonprofit sector hasn’t cured cancer or ended poverty because people in the nonprofit sector are stupid and lazy, and that an infusion of good old hard-headed American for-profit business practices will compensate for that. Voila: instant Great Society!
One hundred advisors, including many of Silicon Valley’s elite, are coming together to disrupt the nonprofit space. . . . [They] have committed to one full year of serving on the board of a nonprofit. . . . [and] attending monthly salons where they will discuss the specific pain points of their assigned nonprofits and attempt to find solutions as a team. . . . [This] is part of a larger movement . . . to make the non-profit world more efficient. . . . “This is just the start of how [we] will disrupt the nonprofit sector and create new, innovative ways for business leaders to contribute . . . . Before [this], there was no easy path for nonprofits to find experienced leaders to help them at a board management level. A board role is not just about fundraising, but includes developing growth plans, operational efficiency, cause marketing, customer relationship management, event planning, and much more.”. . . . In order to maximize results, [the group] carefully matches advisors to nonprofits based on their skills, interests and a nonprofit’s needs.
Tags:501c3, Advocacy, Board of Directors, Boards of Directors, charity, governance, Marketing, Mission, nonprofit, Nonprofit management, nonprofits, not for profit, philanthrocapitalism, philanthropy, Poverty, Private Philanthropy, social entrepreneurship, volunteer
Posted in Advocacy, Boards of Directors, Coverage of nonprofits, Current Affairs, Earned income, Finances, Marketing, Mission, Nonprofit management, Nonprofits--General, Philanthropy and Taxation, Poverty, Private Philanthropy, Social enterprise, Technology, Volunteers/Volunteerism | 9 Comments »
Here’s something strange: a concept thrown around routinely and casually in conversations among nonprofits and philanthropies is simultaneously the subject of fierce debate and sometime disapproval by the Internal Revenue Service, a committee of the American Bar Association, and other experts. What is going on?
The notion of Low Profit Limited Liability Corporations (L3Cs, for short) is that they’re a vehicle for doing well by doing good and therefore an improvement over the typical nonprofit structure. L3Cs are permitted to earn profits but proponents claim that their praiseworthy intentions—to end hunger or provide clean water or whatever—make those who lend to them eligible for the special tax benefits attached to program-related investments. In other words, this is a legal structure presented as a technique for gaining access to capital (always a struggle for nonprofits) by providing a tax benefit to lenders.
Of course, foundations already get a tax benefit for program-related investments in regular nonprofits, so what, exactly, is the appeal? In theory, foundations might be more interested in program-related investments that generate a reliable flow of capital (in the form of profit) than in program-related investments that generate nothing but additional nonprofit programs and services. Likewise in theory, regular venture capitalists outside of foundations will be more interested in making investments in profit-making entities than in pure nonprofits. This—the notion goes—will increase the amount of capital available to support general good-guy behavior.
However, a number of scholars and lawyers (Daniel Kleinberger of William Mitchell College of Law prominent among them) see the L3C as, at best, redundant and, at worst, an invitation to fraud. They point out that regular limited liability corporations can be organized for any purpose, including public-spirited and low-profit ones. They point out that the IRS has not yet issued (and does not seemed inclined to create) a rule awarding automatic program-related investment status to any investment in an L3C. So anyone who invests in an L3C on the basis that it provides a higher return than a regular nonprofit with the same tax benefits will find out to his/her sorrow that this is not the case.
What strikes the Nonprofiteer as peculiar, though, is that in the many discussions she’s heard and read about L3Cs, only one mention (specifically, Professor Kleinberger’s Nonprofit Quarterly article) has ever surfaced of this opposition from the bar and Federal regulators. Not until her tax lawyer Stuart Levine asked about the [successful] efforts in Illinois to create L3Cs did she realize there was anything controversial about the phenomenon. After bringing her up to speed Levine wisely said,
L3C’s don’t work unless there is a change in federal tax law. In other words, L3C’s are a little like Oreo-Tycin-Myacin—the wonder drug for which there is no known disease.
L3C’s raise difficult issues of fiduciary duty and the inherent conflict between “charitable” purposes and “business” purposes. At the least, these conflicts cannot be dealt with via a quick-fix state statute.
Doubtless the Nonprofiteer spaces out on frequent occasions and misses aspects of what’s said or done in the sector. But she suspects there’s also a disconnect between what nonprofit executives and L3C promoters expect and describe and what lawyers and regulators understand.
So if you’re considering investment in an L3C, be the aware buyer of whom you’ve heard.
Tags:501c3, charity, Executive Director, Executive Directors, foundations, Fundraising, IRS, L3C, low profit limited liability corporation, nonprofit, Nonprofit management, nonprofits, not for profit, philanthrocapitalism, philanthropy, Private Philanthropy, program related investments, Relations with funders, social capital, social entrepreneurship
Posted in Coverage of nonprofits, Current Affairs, Earned income, Finances, Foundation Hall of Shame/Stupid Foundation Tricks, Fundraising, Investment, Nonprofit management, Nonprofits--General, Philanthropy and Taxation, Private Philanthropy, Relations with funders, Social enterprise | 8 Comments »
More about the troubles of the do-well-by-doing-good gang, this time in the financial services sector.
Which raises the question: when does “profiting” turn into “profiteering”?
Tags:charity, Conflict of Interest, corporate giving, Fundraising, International, Mission, nonprofit, Nonprofit management, nonprofits, not for profit, philanthrocapitalism, Poverty, Relations with funders, social entrepreneurship
Posted in Nonprofits--General, Relations with funders, Coverage of nonprofits, Current Affairs, International, Fundraising, Charity scandals, Investment, Poverty, Earned income, Mission, Conflict of Interest, Nonprofit management, Finances, Social enterprise | Leave a Comment »
A new study—poignantly titled “Social Enterprise: Innovation or Mission Distraction?”—reports that nonprofit agencies which choose to support themselves with for-profit businesses end up serving their clients less and worse. Moreover, when the businesses thrive the profits go back into the business, while when the businesses falter the losses are taken out of the hide of the agencies. (So glad to see nonprofits acting like businesses! This “heads I win, tails you lose” approach is just what the investment bankers did—en route to destroying the economy.)
Gloating is unattractive, and unwarranted. After all, any friend of the nonprofit sector would be delighted to learn there was a way to strengthen it without having to stretch every penny into a copper wire, or grovel to wealthy people who understand the situation less well than the people they may or may not deign to help. But a bit of schadenfreude directed at the prophets of social enterprise really can’t be avoided.
It’s always seemed obvious to the Nonprofiteer that if there were money to be made in ending poverty, poverty would long since have been ended. The challenge is to provide services and alleviate suffering when it isn’t profitable. It seems equally obvious that any system which must allow for a private person to make money before the clients get served is one that reduces the resources available for those clients.
Now, lots of things that are obvious also happen to be false. And certainly there’s a reasonable discussion to be had about whether, once you factor in all the costs of raising donations, it would be cheaper or more efficient—even with a profit margin—to organize charities as business enterprises. But a decade’s worth of experimentation suggests that the answer is “No.”
Are services provided by social entrepreneurs better than no services at all? Sure, but it demonstrates the poverty of our current mindless anti-tax political discourse that those seem like the only two choices. The real alternative to entrusting the provision of public services to for-profit groups is having them supplied by the public. Anyone familiar with the history of the private subway franchises and private lending libraries and private schools of the 19th Century will be grateful that our predecessors decided to eliminate the middleman markup and run subways and libraries and schools as the public goods they are.
Have social enterprises ever succeeded? Certainly, and more power to them. But anyone who claims they will supplant philanthropy, charity or social change movements is selling snake-oil.
The most thoroughgoing enthusiasts of the market seem to forget that Adam Smith himself recognized areas in which it would, and did, fail. Those of us caring for people who can’t make profits for other people are dealing with the consequences of those failures. So let’s face it: we’re outside the market economy. Let’s stop contorting ourselves to fit into it, and concentrate on figuring out how to make our own systems function more fairly, transparently and effectively.
Tags:501c3, Fundraising, Mission, nonprofit, Nonprofit management, nonprofits, not for profit, philanthrocapitalism, philanthropy, Poverty, Private Philanthropy, recession, social capital, social enterprise, social entrepreneurs, social entrepreneurship, social services
Posted in Coverage of nonprofits, Current Affairs, Earned income, Fundraising, Investment, Mission, Nonprofit management, Nonprofits--General, Poverty, Private Philanthropy, Social enterprise | 10 Comments »
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