Predictions for the new year – love ’em or hate ’em – they’re difficult to do well. Good prognosticators have to go beyond stating obvious trends but without being careless. I’ve tried this once before (see 2008: Policy & Random Predictions by Gene Takagi, Esq.), and it’s instructive to look back. So, for 2015, I’ll note just one obvious, but often dismissed, trend and leave the more sophisticated predictions to others.
Nonprofits will increasingly recognize the importance of recognizing, understanding, and responding to the for-profit social enterprise movement.
While there has been a rise of for-profit businesses legitimately pursuing social goals, it’s still difficult for the public to determine which are the true do-gooders and which are the posers. Yet, they are intriguing and inordinately attractive. Are dollars and resources that otherwise would have gone to charity going to these efforts? Of course!
The New York Times certainly recognizes the issue. The newspaper invited experts to discuss the following issue in it its Room for Debate section on December 30, 2014: Is it better to invest money in a socially responsible business or give to a charitable group?
Nonprofits should recognize that many billions of dollars are involved. Corporations will highlight their social programs but those programs will increasingly be funding their own or other for-profit social good efforts instead of charities (e.g., Google.org). Foundations will increasingly make use of program-related investments (PRIs), opting for this still little-used vehicle in lieu of making grants. As for individuals, here are some thoughts I offered at last year’s Independent Sector Public Policy Institute:
Impact and how you evidence impact. That’s what donors and funders want to see. And more and more, individuals (particularly those of younger generations) are becoming sector agnostic. They don’t care if they are supporting nonprofits or for-profits doing good. Making a loan through Kiva (which is not a gift to a charity) or supporting a crowdfunding project (which often is not to a charity) are attractive options. Charities have to recognize this new form of competition, and not only for funds, but also for talent.
Does it matter whether funds and assets designated for social good are given to a nonprofit or for-profit?
Absolutely! 501(c)(3) nonprofit organizations are best situated and structured to advance most charitable efforts. They must be organized exclusively for charitable purposes. They must be operated primarily for charitable purposes. They are subject to restrictions against private inurement, private benefit, excess benefit transactions, self-dealing, and violations of charitable trust laws. And they are required to publicly disclose their annual filings with the IRS. But there are other important factors to consider. For example, it’s even more important to determine which specific organizations (whether nonprofit or for-profit) receive those funds and assets. Some organizations just do a better job at advancing their social missions than others. And some for-profits do a better job than many nonprofits.
How should nonprofits respond to the for-profit social enterprise movement?
Nonprofits need to recognize, more than ever, they are operating in a broadened competitive environment for funds and supporters. And they’ll need to determine how best to compete in light of the changing environment. As noted above, evidencing and framing positive impact should be a priority. But the provision of immediate goods or services, in and of itself, should not be underappreciated. Not every program needs to show a long-term impact on achieving a broader social goal. A bandage has a purpose too.
For some nonprofits, collaborations with for-profits will be a key to staying relevant and creating greater impact. There’s nothing new about looking to for-profits for funding, sponsorship, or opportunities for cause-related marketing. And we’ll continue to see growth in such areas. But we’ll also see new forms of collaboration, some of which will work well and others not so much.
Social impact bonds will continue to be experimented with and evolve. Nonprofits will increasingly use for-profit subsidiaries to operate unrelated businesses. We’ll see more joint ventures between nonprofits and for-profits, including outside of the health care and low-income housing areas. And we’ll see more formal cooperative arrangements to increase service delivery to otherwise neglected markets.
These are exciting times full of challenges and opportunities that should not be trivialized as short-term hype. It’s not just technology that’s changing the world. There’s much more going on.