Elgar Encyclopedia of Nonprofit Management, Leadership and Governance (Elgar Encyclopedias in the Social Sciences series) 1800880081, 9781800880085

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Elgar Encyclopedia of Nonprofit Management, Leadership and Governance

Kevin P. Kearns Wenjiun Wang

Elgar Encyclopedia of Nonprofit Management, Leadership and Governance

ELGAR ENCYCLOPEDIAS IN THE SOCIAL SCIENCES Elgar Encyclopedias in the Social Sciences serve as the definitive reference works to their fields. Each Encyclopedia is overseen by an editor internationally recognised as a leading name within the field, and contain a multitude of entries written by key scholars, providing an accessible and condensed overview of the key topics within a given subject area. Volumes in the series are commissioned across the breadth of the social sciences, and cover areas including, but not limited to, Political Science, Sociology, Human Geography, Development Studies, Social Policy, Public Management and Public Policy. Individual entries present a concise and logical overview of a given subject, together with a list of references for further study. Each Encyclopedia will serve as an invaluable resource for practitioners, academics, and students, and should form an essential part of any research journey. For a full list of Edward Elgar published titles, including the titles in this series, visit our website at www​.e​-elgar​.com.

Elgar Encyclopedia of Nonprofit Management, Leadership and Governance Edited by

Kevin P. Kearns Professor Emeritus, Graduate School of Public and International Affairs, University of Pittsburgh, USA

Wenjiun Wang Assistant Professor, Department of Political Science, Sam Houston State University, USA

ELGAR ENCYCLOPEDIAS IN THE SOCIAL SCIENCES

Cheltenham, UK • Northampton, MA, USA

© Kevin P. Kearns and Wenjiun Wang 2023

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2023946800 This book is available electronically in the Political Science and Public Policy subject collection http://dx.doi.org/10.4337/9781800880092

ISBN 978 1 80088 008 5 (cased) ISBN 978 1 80088 009 2 (eBook)

EEP BoX

Kevin P. Kearns: For Lorna, Maura, and Cal Wenjiun Wang: For Dad, Mom, and Tom

Contents

List of contributorsxiii Introduction to Elgar Encyclopedia of Nonprofit Management, Leadership and Governance xvii Kevin P. Kearns and Wenjiun Wang

Branding and brand strategies Walter Wymer

47

Budget process Marcus Lam and Bob Beatty

49

Accountability1 Barbara S. Romzek

Business planning David La Piana

53

Accounting practices, rules, and standards Carolyn Cordery

Bylaws55 William M. Klimon

7

Accreditation10 Madeline Y. Lee

Campaign: Annual campaign Bobbi Watt Geer

58

13

Campaign: Capital Campaign Eugene R. Tempel and Sarah K. Nathan

60

Advocacy16 Sheldon Gen

Capacity building Judith L. Millesen

64

Affordable care act Berkeley Franz

Careers and preparation Amanda J. Stewart and Ryne A. Crout Jones

68

Case for support Karen Wolk Feinstein

71

Cause-related marketing Gordon Liu

73

Celebrity philanthropy Hilde Van den Bulck

76

Charitable giving Kevin P. Kearns

78

Charity law Alexander C. Campbell

80

Administration costs Tianyi Li, Elizabeth A. M. Searing and Jesse D. Lecy

20

Antitrust23 Alexander C. Campbell Articles of incorporation William M. Klimon

24

Arts and cultural organizations Constance DeVereaux

26

Audit  Anne-Mie Reheul and Tom Van Caneghem

29

Authoritarian regimes and the nonprofit community Mark Sidel

32

Chief executive director: Compensation84 Nathan J. Grasse and Leonor Camarena

Beneficiaries36 Lehn M. Benjamin Black philanthropy Jacqueline Bouvier Copeland

38

Board policies manual Robert C. Andringa

45

Chief executive officer: Performance review Jessica K. A. Word

vii

87

viii  Elgar encyclopedia of nonprofit management, leadership and governance

Chief executive officer: Relations with the board of directors Scott E. Robison

90

Civic agency Jo Anne Schneider

93

Civil rights organizations Leon L. Haley

96

Civil society Annette Zimmer

98

Collaboration strategies Stuart Mendel

101

Commercialism105 Janelle A. Kerlin and Meng Ye Commons109 Brenda K. Bushouse, Brent Never and Robert K. Christensen

Cultural competence Heather Getha-Taylor Curricula for nonprofit management in higher education  Roseanne M. Mirabella and Timothy J. Hoffman

151

153

Democracy and philanthropy Wenjiun Wang

159

Diaspora philanthropy Shawn Teresa Flanigan

161

Digital divide Jaclyn Piatak

165

Dissolution of nonprofit organizations168 Jiahuan Lu

Community foundations Laurie E. Paarlberg

113

Diversity, equity, and inclusion Ruth Sessler Bernstein and Paul Salipante

Community-based organizations Carl Milofsky and Margaret Harris

116

Donor-advised funds Eileen R. Heisman

177

Donor and donor motivation Kevin P. Kearns

180

Donor choice  Michaela Neumayr

185

Donor retention and stewardship Richard D. Waters

188

Earned income Kimberly M. Reeve

192

Education-focused organizations Gregg Behr

195

Comparative perspectives on nonprofit organizations Paul J. Nelson

118

Competition122 Omer Topaloglu Competitive forces Teresa D. Harrison

125

Conversion foundations Karen Wolk Feinstein

128

Co-production130 Tony Bovaird and Elke Loeffler

171

Effectiveness of nonprofit organizations198 David O. Renz and Elizabeth Ireland

Corporate foundations Kathleen W. Buechel

133

Corporate philanthropy Georg von Schnurbein

136

Corporate social responsibility Archie B. Carroll

139

Crisis management Thomas W. Haase

143

ePhilanthropy207 Abhishek Bhati and Andrew Douglas Burk

Crowdfunding  Jeremy C. Short

146

Faith and philanthropy Sabith Khan

211

Crowding out Joycelyn Ovalle and Ji Ma

148

Faith and volunteering M. D. Kinoti

213

Endowment202 Thad D. Calabrese and Todd L. Ely

Contents  ix

Faith-based organizations Gaynor Yancey

216

Governing board: Chairperson Kevin P. Kearns

280

Family philanthropy Julie Fisher Cummings, Douglas Bitonti Stewart and Caitlen Macias

220

Governing board: Composition William A. Brown

283

Federation222 Patricia Bradshaw and Madeline Toubiana

Governing board: Dynamics and meeting management  Michael R. Ford

287

Governing board: Membership Anne Wallestad, Joy Folkedal and Andrew Davis

290

Financial documents and control John T. Zietlow

226

Financial performance indicators Tianyi Li and Elizabeth A. M. Searing

230

Governing board: Responsibilities Anne Wallestad, Joy Folkedal and Andrew Davis

292

Financial ratios Christopher R. Prentice

234

Government failure theory Laurie E. Paarlberg and Samantha Zuhlke

296

Financing nonprofit organizations George E. Mitchell and Elizabeth A. M. Searing

238

Government funding and contract management299 Steven Rathgeb Smith

Fiscal sponsor Fredrik O. Andersson

243

Forming a nonprofit organization William M. Klimon

245

Grant303 Janine Lee, David Miller and Stephen Sherman

Foundations – History and functions Stefan Toepler

248

Founder’s syndrome Joanne G. Carman

251

Fraud and corruption Carolyn Cordery

253

Fraud detection and investigation Dennis Neier, Harry Sandick and Justin Zaremby

256

Fundraising261 Kirsten A. Grønbjerg Gender and philanthropy Debra Mesch

268

Giving circles Julia L. Carboni

273

Global conflict and philanthropy Colin Knox

275

Governance  Anne Wallestad, Joy Folkedal and Andrew Davis

278

Grassroots INGOs Susan Appe

307

Growth strategies David Gras and Gavin Williamson

309

Housing organizations Rachel G. Bratt

313

Human service organizations Bowen McBeath and Michael J. Austin

316

Hybrid organizations Wenjue Knutsen

320

Identity-based philanthropy Noah D. Drezner

324

Impact investing Wenjue Knutsen

326

Income portfolio analysis Hanjin Mao and Lindsey McDougle

329

Industry analysis Kevin P. Kearns

331

Innovation in nonprofit organizations Kristina Jaskyte

334

x  Elgar encyclopedia of nonprofit management, leadership and governance

Institutional isomorphism Nadeen Makhlouf

338

Mission and economics Richard S. Steinberg

398

Intermediate sanctions Bok Gyo Jeong

340

Mission statement Kevin P. Kearns

401

Internal Revenue Service David A. Bell

343

Motivation: Paid staff Jed DeVaro

403

International aid David A. Bell

346

406

Investment policy statement Matthew Rice

349

Motivation: Volunteers Arthur A. Stukas, Mark Snyder and E. Gil Clary Multisite nonprofit organizations Seth J. Meyer

408

Nascent organizations Fredrik O. Andersson

411

Nongovernmental organizations Paloma Raggo

412

Nonprofit sector Peter Frumkin and Mark A. Hager

416

Journals, periodicals, and associations353 Wenjiun Wang and Kevin P. Kearns Leadership359 Kevin P. Kearns Leadership succession Amanda J. Stewart and Ryne A. Crout Jones

363

LGBTQ+ philanthropy  Elizabeth J. Dale

366

Operating foundations Khrista McCarden

420

Lifecycles of nonprofit organizations Rikki Abzug

369

Operating reserves Thad D. Calabrese

422

Limited life foundations  Lynda Mansson

372

Payout requirement Richard C. Sansing

425

Major donors Beth Breeze

375

Performance management David A. Campbell and Kristina T. Marty

427

Managerialism378 Kevin P. Kearns

Philanthropy: Definition and history Michael Moody

432

Marketing381 Walter Wymer

Place-based philanthropy Susan D. Phillips

435

Membership associations Kevin P. Kearns

383

Planned giving Russell N. James III

439

Mental health organizations Alicia C. Bunger and Thomas K. Gregoire

386

Politics and philanthropy David Callahan

442

Mergers and acquisitions Theresa Ricke-Kiely

389

Principal–A ­­ gent Theory Tracey M. Coule

445

Microfinance  Cécile Godfroid, Marek Hudon and Marc Labie

393

Private foundations Michael Moody

448

Private inurement prohibition Lloyd Hitoshi Mayer

452

Millennial generation’s civic engagement395 Young-joo Lee

Professionalism455 Kevin P. Kearns

Contents  xi

Program evaluation Lehn M. Benjamin, Dana R. H. Doan, Alnoor Ebrahim and Mary Kay Gugerty

458

Program-related investments Heng Qu

Settlement house T. Laine Scales

520 522

462

Sexual harassment  Erynn E. Beaton and Elizabeth J. Dale

Project management Nicholas J. Chakos

464

Social capital Tristan Claridge

525

Public charity Penina K. Lieber

468

Public policy and nonprofit organizations472 Shannon K. Vaughan and Shelly Arsneault

Social change and nonprofit organizations528 Theresa Anasti Social economy Laurie Mook

532

Social enterprise Wenjue Knutsen

534

Social entrepreneurship Rasheda L. Weaver

537

Public relations Richard D. Waters

474

Public trust in nonprofit organizations Jurgen Willems

476

Recruitment and retention Kunle Akingbola

479

Social responsibility of nonprofit organizations540 Shawn Pope

Refugee services Lisa S. Alfredson

483

Social return on investment Kate Cooney

543

Regulation of nonprofit organizations Putnam Barber

486

Stakeholder management Kevin P. Kearns

547

Resilience management Dennis R. Young

492

Strategic analysis: SWOT  Kevin P. Kearns

550

Restricted / unrestricted funds ChiaKo Hung, Arjen de Wit and Pamala Wiepking

495

Retrenchment strategies Yuan (Daniel) Cheng and Shuyi Deng

498

Revenue diversification Heng Qu

501

Risk management Grace L. Chikoto-Schultz

505

Sarbanes-Oxley Act Sarah A. Garven

509

Self-help groups Melanie Boyce

511

Self-regulation513 Angela L. Bies Service portfolio analysis Kevin P. Kearns

517

Strategic human resource management552 Kunle Akingbola Strategic planning David La Piana

558

Supporting organizations Penina K. Lieber

563

Tax policy: Federal Joseph Cordes

567

Tax policy: State and local Joseph Cordes

571

Technology and social media  Chao Guo and John McNutt

574

Transparency578 Erica E. Harris Triple bottom line Dragana Djukic-Min, Allison R. Russell and Elizabeth A. M. Searing

581

xii  Elgar encyclopedia of nonprofit management, leadership and governance

Unfair competition Alexander C. Campbell

585

Volunteer management Christopher J. Einolf

United Way Laurie E. Paarlberg and Jin Ai

587

Unrelated business income  Alexander C. Campbell

590

Wage equity within and across sectors604 David A. Macpherson and Barry T. Hirsch

Venture philanthropy Tamaki Onishi and Arisa Miyakozawa

592

Voluntarism595 Allison R. Russell and Femida Handy

600

Watchdog organizations Margaret F. Sloan and Kennedy M. Musyoka

609

Wealth inequality Claire Le Barbenchon and Lisa A. Keister

611

Index617

Contributors

Rikki Abzug, Ramapo College of New Jersey

William A. Brown, Texas A&M University The

Kathleen W. Foundation

Kunle Akingbola, Lakehead University

Alicia C. Bunger, The Ohio State University

Lisa S. Alfredson, University of Pittsburgh

Andrew Douglas Burk, United Way of Greater Toledo

Theresa Anasti, Washington University in St. Louis Fredrik O. Andersson, Indiana University Indianapolis

Buechel,

Benter

Jin Ai, Indiana University Indianapolis

Brenda K. Bushouse, Massachusetts Amherst

University

of

Thad D. Calabrese, New York University

Robert C. Andringa, The Andringa Group

David Callahan, Inside Philanthropy

Susan Appe, University at Albany – State University of New York

Leonor Camarena, Bloomington

Shelly Arsneault, California State University – Fullerton

Alexander C. Campbell, Baker & Hostetler LLP

Michael J. Austin, University of California Berkeley

David A. Campbell, Binghamton University

Putnam Barber, University of Washington Seattle (Retired)

Julia L. University

Carboni,

Indiana

University

Washington

State

Erynn E. Beaton, The Ohio State University

Joanne G. Carman, University of North Carolina at Charlotte

Bob Beatty, University of San Diego

Archie B. Carroll, University of Georgia

Gregg Behr, The Grable Foundation

Nicholas J. Chakos, Next Tier Strategies

David A. Bell, Bloomington

Indiana

University

Yuan (Daniel) Minnesota

Cheng,

University

of

Lehn M. Benjamin, Indiana University Indianapolis

Grace L. Chikoto-Schultz, Cleveland State University

Pepperdine

Robert K. Christensen, Brigham Young University

Ruth Sessler University

Bernstein,

Abhishek Bhati, Green State University

Tristan Claridge, Institute for Social Capital

Angela L. Bies, University of Maryland

E. Gil Clary, LTO Development

Tony Bovaird, Governance International and INLOGOV, University of Birmingham

Kate Cooney, Yale University

Melanie Boyce, Anglia Ruskin University Patricia Bradshaw, Saint Mary’s University Rachel G. Bratt, Tufts University Beth Breeze, University of Kent

Jacqueline Bouvier Copeland, The Women Invested to Save Earth Fund (The WISE Fund) Carolyn Cordery, Aston University and Victoria University of Wellington

xiii

xiv  Elgar encyclopedia of nonprofit management, leadership and governance

Joseph Cordes, The George Washington University Tracey M. University Julie Fisher Foundation

Coule,

Hallam

Thomas K. Gregoire, The Ohio State University

Lovelight

Kirsten A. Grønbjerg, Indiana University Bloomington

Sheffield

Cummings,

Nathan J. Grasse, Carleton University

of

Mary Kay Washington

Andrew Davis, BoardSource

Chao Guo, University of Pennsylvania

Arjen de Wit, Vrije Universiteit Amsterdam

Thomas W. Haase, Sam Houston State University

Shuyi Deng, University of Minnesota Jed DeVaro, California State University, East Bay Constance DeVereaux, The University at Buffalo Dragana Djukic-Min, University of Texas at Dallas Dana R. H. Doan, Indiana University Indianapolis Noah D. Drezner, Columbia University

Teachers

College,

Gugerty,

University

Elizabeth J. Dale, Seattle University

Mark A. Hager, Arizona State University Leon L. Haley, University of Pittsburgh Femida Handy, University of Pennsylvania Erica E. Harris, Florida International University Margaret Harris, Aston University Teresa D. Harrison, Drexel University Eileen R. Heisman, National Philanthropic Trust Barry T. Hirsch, Georgia State University

Alnoor Ebrahim, Tufts University Christopher J. Einolf, Northern Illinois University Todd L. Ely, University of Colorado Denver Karen Wolk Feinstein, Jewish Healthcare Foundation Shawn Teresa Flanigan, San Diego State University

Timothy J. Hoffman, Seton Hall University Marek Hudon, Université Libre de Bruxelles – CERMi ChiaKo Hung, University of Hawaii at Manoa Elizabeth Ireland, University of Missouri – Kansas City

Joy Folkedal, BoardSource

Russell N. James III, Texas Tech University

Michael R. Ford, University of Wisconsin Oshkosh

Kristina Jaskyte, University of Georgia Bok Gyo Jeong, Kean University

Berkeley Franz, Ohio University Peter Frumkin, University of Pennsylvania

Ryne A. Crout Jones, North Carolina State University

Sarah A. Garven, Middle Tennessee State University

Kevin P. Kearns, University of Pittsburgh Lisa A. Keister, Duke University

Bobbi Watt Geer, United Southwestern Pennsylvania

Janelle A. Kerlin, Georgia State University

Way

of

Sheldon Gen, San Francisco State University Heather Kansas

Getha-Taylor,

University

of

Sabith Khan, California Lutheran University M. D. Kinoti, Regis University William M. Klimon, Compass Legal Group Nazarbayev

University

Cécile Godfroid, Université de Mons – CERMi

Colin Knox, Kazakhstan

David Gras, University of Tennessee

Wenjue Knutsen, Queen’s University

Contributors  xv

David La Piana, La Piana Consulting

Carl Milofsky, Bucknell University

Marc Labie, Université de Mons – CERMi

Roseanne M. University

Marcus Lam, University of San Diego

Mirabella,

Seton

Hall

George E. Mitchell, Baruch College, City University of New York

Claire Le Barbenchon, Duke University Jesse D. Lecy, Arizona State University Janine Lee, Philanthropy Southeast

Arisa Miyakozawa, Indiana University Indianapolis

Madeline Y. Lee, California State University San Marcos

Michael Moody, Indianapolis

Young-joo Indianapolis

Indiana

Lee,

University

Penina K. Lieber, University of Pittsburgh Gordon Liu, The Open University University

University

Laurie Mook, Arizona State University Kennedy M. Musyoka, James Madison University

Tianyi Li, University of Texas at Dallas

Elke Loeffler, Open Governance International

Indiana

and

Jiahuan Lu, Rutgers University – Newark Ji Ma, University of Texas at Austin Caitlen Macias, Columbia University David A. Macpherson, Trinity University

Sarah K. Nathan, Middletown Community Foundation Dennis Neier, DSN Forensic Accounting Services PLLC Paul J. Nelson, University of Pittsburgh Michaela Neumayr, WU Vienna University of Economics and Business Brent Never, University of Missouri – Kansas City

Mason

Tamaki Onishi, University of North Carolina at Greensboro

Lynda Mansson, formerly MAVA Foundation, currently LeaderLy Sàrl

Joycelyn Ovalle, University of Texas at Austin

Nadeen Makhlouf, University

Hanjin Mao, – Downtown

George

University

of

Houston

Kristina T. Marty, Binghamton University Lloyd Hitoshi Mayer, University of Notre Dame Bowen McBeath, Portland State University Khrista McCarden, Tulane Law School Lindsey McDougle, Rutgers University – Newark

Laurie E. Paarlberg, Indiana University Indianapolis Susan D. Phillips, Carleton University Jaclyn Piatak, University of North Carolina at Charlotte Shawn Pope, IÉSEG School of Management Christopher R. Prentice, University of North Carolina Wilmington Heng Qu, Texas A&M University

John McNutt, University of Delaware

Paloma Raggo, Carleton University

Stuart Mendel, National Center on Nonprofit Enterprise

Anne-Mie Reheul, KU Leuven

University

David O. Renz, University of Missouri – Kansas City

Seth J. Meyer, Bridgewater State University

Matthew Rice, First Business Bank Private Wealth

Debra Mesch, Indianapolis

Indiana

Kimberly M. Reeve, The King’s College

David Miller, Philanthropy Southeast Judith L. Millesen, College of Charleston

Theresa Ricke-Kiely, University of St. Thomas

xvi  Elgar encyclopedia of nonprofit management, leadership and governance

Scott E. Robison, Central Educational Services Center

Indiana

Omer Topaloglu, University

Fairleigh

Dickinson

Barbara S. Romzek, American University

Madeline Toubiana, University of Ottawa

Allison R. Russell, University of Texas at Dallas

Tom Van Antwerpen

Paul Salipante, Case Western Reserve University

Hilde Van den Bulck, Drexel University

Harry Sandick, Patterson Belknap Webb & Tyler LLP Richard C. Sansing, Dartmouth College T. Laine Scales, Baylor University

Shannon Montana

K.

Universiteit

Caneghem,

Vaughan,

University

of

Georg von Schnurbein, University of Basel Anne Wallestad, BoardSource Sam

Houston

State

Jo Anne Schneider, Chrysalis Collaborations

Wenjiun Wang, University

Elizabeth A. M. Searing, University of Texas at Dallas

Richard D. Waters, Florida State University

Stephen Sherman, Philanthropy Southeast

Rasheda L. Weaver, Iona College Indiana

University

Jeremy C. Short, University of North Texas

Pamala Wiepking, Indianapolis

Mark Sidel, University of WisconsinMadison

Jurgen Willems, Vienna University of Economics and Business

Margaret University

F.

Sloan,

James

Madison

Steven Rathgeb Smith, American Political Science Association Mark Snyder, University of Minnesota Richard S. Steinberg, Indiana University Indianapolis Amanda J. Stewart, North Carolina State University Douglas Bitonti Stewart, Max M. & Marjorie S. Fisher Foundation Arthur A. Stukas, La Trobe University Eugene R. Tempel, Indiana University Indianapolis Stefan Toepler, George Mason University

Gavin Williamson, University of Tennessee Jessica K. A. Word, University of Nevada Las Vegas Walter Wymer, University of Lethbridge Gaynor Yancey, Baylor University Meng Ye, Georgia State University Dennis R. Young, Case Western Reserve University and Georgia State University Justin Zaremby, Patterson Belknap Webb & Tyler LLP John T. Zietlow, Indianapolis

Indiana

University

Annette Zimmer, Münster University Samantha Zuhlke, University of Iowa

Introduction to Elgar Encyclopedia of Nonprofit Management, Leadership and Governance Kevin P. Kearns and Wenjiun Wang

Elgar Encyclopedia of Nonprofit Management, Leadership and Governance provides brief but authoritative summaries of nearly 200 essential topics for people who work in, interact with, or simply curious about nonprofit organizations. We followed a rigorous, multi-method process to select the topics, including content analysis of the most highly ranked academic journals in the field of nonprofit studies; careful review of subject indexes of leading texts; scans of professional and scholarly websites; examination of topics covered in trade journals and at major academic meetings; and discussions with scholars and practitioners in our field. Each entry provides a definition of the concept, how the concept applies in practice in nonprofit organizations, and a brief discussion of current issues and future directions. The entries are succinct, usually between 1,500 and 2,500 words, yet thorough and are written by recognized experts including experienced practitioners as well as the field’s most renowned scholars. We selected topics and recruited contributing authors with consideration for diversity, equity, and inclusion on many dimensions. We have also addressed how nonprofits are responding to new demands for accountability and to new challenges such as those presented by the COVID-19 pandemic. A concerted effort has been made to minimize specialized jargon and excessive scholarly citations, but a concise list of references and recommended readings is provided at the end of each entry. Also, a list of other related topics covered in the book is provided at the end of each entry. We envision a wide audience for this book. Scholars and students of the nonprofit sector will find it to be a useful reference resource, accompanying other learning materials in college courses on nonprofit organizations. But we also designed the content and style of the book for other audiences including volunteers, nonprofit board members, professional

managers and leaders, donors, regulators, watchdog organizations, elected officials at all levels of government, supply chain organizations, media professionals, and others who have an interest in the vast and growing nonprofit sector. We believe the book is an essential reference resource for institutional libraries of all types including those at universities and in nonprofit organizations.

What is a nonprofit organization?

The answer to this simple question is surprisingly nuanced and complex. Nonprofits provide a formally organized institutional vehicle for the pursuit of socially valued missions such as education, healthcare, community development, assistance to people in need, and many other goods and services. Some nonprofits exist to help other nonprofits accomplish their goals. Foundations, for example, are a special type of nonprofit that make grants to help other nonprofits design and implement programs to achieve desired outcomes. Then there are nonprofit organizations that do not directly provide services but, rather, engage in research and advocacy on behalf of certain causes, usually to spur more public investment in these areas. Nonprofit organizations are remarkably diverse in their size, sophistication, and capacity. Large nonprofits like hospitals, universities, and national or international organizations, like the United Way or International Red Cross, are familiar to most people. But in the United States and elsewhere most nonprofit organizations are quite small, with annual revenues under US$1 million and fewer than ten employees. In fact, many nonprofits have no paid employees at all, relying instead on the governing board and other volunteers to handle day-to-day operations. In free market economies, nonprofits are hybrids between government agencies and private businesses. They provide public goods and services that governments cannot

xvii

xviii  Elgar encyclopedia of nonprofit management, leadership and governance

or choose not to provide directly, yet they do so with private resources such as charitable donations, grants, and even earned revenue from income-generating activities. Some nonprofits operate very much like businesses in highly competitive and commercialized subsectors. In fact, many nonprofit organizations regularly report profits from their various enterprises. While nonprofits are not forbidden from making a profit, they must use those profits primarily to reinvest in their charitable purposes rather than distributing profits to employees or key stakeholders. In the United States nonprofits have historically been credited with relieving government of responsibility for directly providing certain socially valued services and, therefore, they qualify for public subsidies through favorable tax treatment, such as exemption from corporate income tax for many types of nonprofits. Moreover, people in the U.S. who make donations to certain types of nonprofits may be relieved of a portion of their personal tax burden to the federal government. This practice is followed in some, but not all, countries. So, the answer to the question “What is a nonprofit organization?” is nuanced and complex. Some people have even suggested that we abandon the term nonprofit because it is imprecise and prone to misinterpretation. Terms such as social benefit organizations, civic sector, third sector, and not-for-profit organizations are sometimes used instead, but these terms also have their own ambiguities.

Management, leadership, and governance

Despite vast differences in their missions and size, there are three things all nonprofits have in common – they must be competently managed, they must have visionary leadership, and they must be governed effectively to serve and be accountable to the public trust. As indicated by the carefully considered title, this book provides essential information on all three – management, leadership, and governance. With respect to management, the book addresses skills and concepts that are central to the efficient and effective daily management of a nonprofit organization. These include acquiring and deploying human, financial, and material resources to advance the organization’s mission. Good management also involves a continuous effort to strategically align the mission and goals of the organization with emerging needs in the community and dynamics in the mar-

ketplace. There are dozens of management topics presented in the book such as those related to fiscal management, fundraising, and providing effective supervision of people and processes. Leadership is closely related to both management and governance. Leaders focus much of their attention on crafting and executing a strategy for the organization based on their assessment of external opportunities and threats. Skills in planning, working effectively with the governing board, and entrepreneurship are among the many leadership topics addressed in the book. Finally, governance of nonprofit organizations is undertaken by members of the board of directors (sometimes called trustees). These people, most of whom volunteer their time, are responsible for preserving the public trust in a nonprofit organization. The professional staff, especially the chief professional officer, reports to the governing board. Topics such as accountability, legal requirements, and effective policy making are among the many governance topics discussed in the book. Naturally, there are overlaps between management, leadership, and governance, which is one reason we chose to present the entries alphabetically rather than under these three categories.

Limitations

Elgar Encyclopedia of Nonprofit Management, Leadership and Governance is a single volume. Consequently, many important topics had to be compressed into just under 200 entries. Every entry, therefore, deals with a major concept that represents the umbrella idea. As space permitted, contributing authors were asked to include subtopics and technical issues worthy of inclusion to provide the reader with succinct yet authoritative introduction to the topic. Also, we chose not to include entries for individual organizations or luminaries who have been instrumental in the development of the field. Astute readers will, no doubt, discover errors of omission in the topics covered for which the co-editors take full responsibility. This book presents information primarily from the U.S. perspective with a secondary focus on free market economies in which the nonprofit sector is well-established. Nonetheless, many of the topics presented in this book transcend geopolitical boundaries. Moreover, we have recruited authors from many parts of the world, some of

Introduction  xix

whom provide a comparative international perspective.

Special thanks to contributors

We are grateful to the many contributors who enthusiastically participated in this ambitious project and who provided support and encouragement along the way. The scholars who contributed to the book are all prominent researchers and teachers in their respective fields who are accustomed to writing in a scholarly style for their peers and students. For this book, however, we asked them to write in a style that is accessible to a wider audience, avoiding typical components of scholarly writing such as extensive literature reviews. We also invited practitioners to contribute to the book, such as nonprofit executives and subject matter experts. They too were asked to write in a style that is unfamiliar to them. We thank all the contributors for their flexibility and patience with the editing process. We also acknowledge William Hooper, Emma Lockley and Emma Wiggin for their help in editing manuscripts and checking citations. Their attention to

detail ensured the successful conclusion of this project. This project was launched in the summer of 2020 and ended in the fall of 2023, spanning a period marked by a world-wide pandemic, dramatic social change, political polarization, and other stressful events. Like everyone else in the world, our contributors were personally impacted, and several were forced to withdraw due to these circumstances or illness. We thank them for the efforts they made to stay involved in the project. During the span of this project, we lost two of the leading scholars in the field of nonprofit studies, Lester Salamon and Jeff Brudney, both of whom were working on their contributions to the book at the time of their passing. They leave a priceless legacy in their many contributions to scholarship and practice and in the work of thousands of students and professionals they generously mentored. Lastly, we are grateful to Daniel Mather, our principal contact at Edward Elgar Publishing, who conceived the idea for this book, and to his many colleagues there who contributed to its production.

A

Accountability

the plurality of institutional environments relevant to nonprofits. Individual responses to performance expectations can range from reactive postures, for example, accepting expectations as specified, to more adaptive and strategic responses wherein individuals work to shape performance expectations and fall back on deeply held professional ideals (Schwabenland & Hirst, 2020). The most common response is to try to reconcile conflicting accountability demands using relevant professional logics as a toolkit. But of course, that is not always possible. The webs of multiple and occasionally conflicting accountability relationships typical in nonprofit management provide opportunities for actor discretion to manage expectations and stakeholders’ priorities. Such discretion introduces individual priorities and affords actors “an element of strategy wherein actors can attempt to position their agency for proactive as well as reactive responses” (Kearns, 1994, p. 187). For a particular authority, an actor could seek to shape performance expectations by negotiating which metrics to use to assess performance, such as whether fundraising success should be measured by amounts raised, donors identified, or the cost–benefit ratio. Strategic approaches to managing expectations could include efforts to shift expectations in new directions. For example, an actor might work to redirect performance expectations to those the actor prefers, are easier to achieve, tied to new initiatives, or discontinue an unpopular program. A time-honored avenue for shaping expectations is to cultivate good rapport with the most influential forums or stakeholders and using that rapport to influence stakeholder expectations. The answerability relationship in accountability emphasizes the authority as the forum to assess the actor’s performance (Bovens et al., 2014). Forums can be individual supervisors, governing boards, or external stakeholders such as government regulators.

Definition

Accountability at its most basic is a social relationship between a nonprofit professional or organization and an authority designated to assess the nonprofit professional’s or organization’s performance and assign consequences. There are two distinct but compatible approaches to accountability found in research on accountability which reflect these relationships. One approach emphasizes accountability as the management of expectations, and the inevitable balancing of diverse performance expectations. The other emphasizes accountability as answerability for performance. Each approach captures important aspects of this social relationship. Depending on their job assignments, most nonprofit professionals have a degree of agency which they can choose to exercise in their organizational roles, including frontline service providers (Maynard-Moody & Musheno, 2000). Nonprofit professionals and volunteers in these settings may exercise agency by working to understand, shape, and manage performance expectations they face (Romzek & Dubnick, 1987). At the same time, accountability agents or institutions constitute the authorities to which nonprofit professionals are answerable; these authorities may or may not be amenable to performance expectations being “managed.” For authorities focused on answerability for performance, the emphasis is on assessing performance and assigning consequences (Bovens et al., 2014). Individuals and organizations in accountability relationships work to shape the performance expectations that will be used by authorities (accountability agents or institutions) to assess their performance and assign consequences. Negotiations about accountability expectations are rarely formal, yet typically reflect 1

2  Elgar encyclopedia of nonprofit management, leadership and governance

Forums articulate expectations, assess performance, and assign consequences. Recent work on felt accountability expands on individuals’ perceptions regarding answerability (Hall et al., 2015; Schillemans et al., 2020). Acknowledging insights from behavioral psychology, nonprofit professionals and volunteers are more likely to feel answerable for assessment and consequences if they believe the assessment is by “a legitimate accountability forum with the expertise to appropriately evaluate the agent’s behavior” (Schillemans et al., 2020, p. 897). When nonprofit professionals encounter these different approaches to accountability (answerability for performance or managing expectations) they work to reconcile the diverse accountability pressures. In situations where actors faced pressures for answerability and opportunities for managing expectations, workers prioritized avoiding sanctions (answerability), especially those related to finances and reputation. Once actors had addressed safety and security needs, they then turned their efforts toward shaping and managing expectations (Aleksovska et al., 2019).

In practice: The institutional context of accountability for nonprofits

Nonprofit organizations work within arenas that typically have multiple stakeholders, diverse expectations, ambiguous performance metrics, and uneven applications of consequences. These characteristics include a complex array of formal and informal accountability relationships that reflect both vertical and horizontal ties (Romzek, 2011). Government’s increasing tendency to contract with networks of service providers has expanded the range of nonprofit engagement to include multi-sector collaborative networks of service providers. Calls for accountability can target any or all of the following: the organization overall, the chief administrative officer, collective or individual board members, individual employees, and donors. Accountability is a multifaceted concept that involves relationships and performance expectations among a range of legitimate actors within the nonprofit arena. Leaders and employees of nonprofits face multiple performance expectations from a diverse Barbara S. Romzek

range of stakeholders. Of course, stakeholders for a nonprofit organization will depend upon the arena within which the nonprofit operates. For example, a nonprofit social service provider will operate in an arena with performance expectations from government funders, private donors, professional associations, employee groups, and clients. Stakeholders for a nonprofit advocacy group related to voting rights will face similar categories of stakeholders but their expectations may be different given the nature of the organization’s mission. Formal accountability relationships structure the social relationships between authorities and actors. Formal accountability relationships vary in the sources of control (forums) and levels of discretion afforded to the actor based on the nature of the reporting relationship. As noted, different research frameworks address the complex range of accountability relationships (Bovens et al., 2014; Kearns, 1996; Romzek, 2000; Romzek et al., 2014). While these different frameworks highlight several types of accountability relationships, their common threads are performance expectations and answerability for that performance. Formal institutional arrangements include both vertical and horizontal relationships, such as financial and performance audits, staff certifications, and use of client surveys. Informal accountability occurs alongside formal accountability. Social relationships emerge among organizational members who interact regularly, whether within the organization or across boundaries, and are the basis of informal accountability. Informal accountability emerges from patterns of self-governance that develop among informal groups based on repeated interactions. These interactions involve rewarding or punishing actors based upon actions that support or violate shared norms (Ostrom, 1998). Informal accountability is based upon shared goals and norms, reciprocity, trust, and respect for institutional turf among the informal group members (Romzek et al., 2014). Informal accountability develops among individuals who work together but are not in formal reporting relationships (these can be multi-departmental teams, multi-organizational networks, or collaborations). Informal accountability operates when individuals personally feel accountable

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to individuals to uphold shared norms and engage in facilitative behaviors, even though they have no formal accountability relationship (Romzek et al., 2014). These informal dynamics can complement formal accountability relationships or conflict with them. Informal accountability is most effective when there is an alignment of shared goals and norms with institutional priorities, individual professional orientations, and unofficial interactions. In instances where shared goals and norms conflict with a client’s or collaborator’s needs, case workers will sometimes ignore agency policy (LeRoux et al., 2019). This complex institutional environment results in a series of nested accountability relationships within which nonprofit organizations operate; usually they operate concurrently, and sometimes they can be at cross-purposes. Nonprofit organizations operate within a web of formal and informal accountability relationships, involving multiple stakeholders, disparate performance expectations, and different rewards and/or sanctions (Romzek, 2011; Schwabenland & Hirst, 2020). Formal relationships operate within nonprofits and between nonprofits and their regular institutional forums (e.g., funders, government regulators). Informal accountability relationships operate among nonprofit actors and include relevant groups and network members across organizational boundaries. Informal rewards and sanctions are conferred based on their actor’s support for shared goals and norms. Informal accountability relationships can complement or conflict with formal accountability relationships, resulting in a tangled web of accountability. This tangle of formal and informal accountability relationships can constrain behavior and afford actors strategic opportunities to shape expectations. Actors nonetheless must anticipate that they can be held to answer for their performance by the appropriate forum. Regardless of how effective actors may have been in managing performance expectations, if the accountability process is working effectively, the forum will assess and assign consequences based upon the negotiated performance expectations.

Issues: Key questions of accountability

There are four key questions that underly any accountability relationship. To whom is the actor accountable? What is the expected performance? How is the accountable actor held to answer for the expected performance? What are the consequences for success or failure to meet those expectations? Accountable to whom? Nonprofit managers and organizations work in arenas where there are typically many stakeholders each of which has different expectations. Stakeholders are not just those authorities who hire/fire or fund/defund. Key stakeholders are those groups whose opinions, assessment, and/or collaboration are important for success, for example, funders, government regulators, oversight authorities, clientele, community, and network collaborators (Kearns, 2012; Romzek & Dubnick, 1987; Romzek et al., 2014). Authorities vary in the scope of their reach as forums. Individuals can occupy two roles. Sometimes a CEO is the authority figure and other times a CEO is the individual expected to answer for their performance (i.e., to the board of directors). The nonprofit management arena is populated with multiple authorities who have some legitimate claims to assess performance and assign consequences. For nonprofit organizations, these forums typically include boards of directors, chief executives, supervisors, professional associations, government agencies, clientele, the public, and the media. There are also informal accountability stakeholders, coworkers, and collaborators who operate within and among organizational networks. Accountability for what? Under sound management principles, a precondition for holding someone answerable for performance is the articulation of performance expectations in advance. The presence of multiple accountability stakeholders and relationships (formal and informal) presents nonprofit managers and employees with “competing accountability demands, and how they deploy agency in making these choices” (Schwabenland & Hirst, 2020, p. 326). These varied groups typically have different expecBarbara S. Romzek

4  Elgar encyclopedia of nonprofit management, leadership and governance

tations. For example, government regulators may emphasize legal compliance. The board of directors may emphasize financial stability. Community stakeholders may emphasize expanding clientele communities. And frontline staff may emphasize clientele service. Since the late twentieth century nonprofits have increasingly adopted a model that approaches social mission using market mechanisms (Young & Salamon, 2002), emphasizing both social and financial performance, and reflecting multiple and potentially incompatible expectations. Nonprofit organizations typically face expectations related to meeting the double bottom line of achieving their social mission and financial health. Beyond the usual expectations for sound and ethical management and legal compliance, nonprofits face expectations rooted in several historical impulses: voluntarism, professionalism, commercialization, and civic activism (Kearns, 2012). How will accountability be achieved? There is a wide range of formal and informal mechanisms that forums can use to hold actors answerable for performance (Kearns, 2012; Romzek, 2000; Romzek et al., 2014). Formal mechanisms include those derived from hierarchical supervisors (including governing boards), external oversight for adherence to laws (e.g., the U.S. Internal Revenue Service (IRS)), regulations (such as Financial Accounting Standards Board), professional standards of practice (including access to services), peer/coworker assessment (perhaps formally through 360-degree performance reviews or informally through reputation among coworkers), and external feedback from external stakeholders (such as donors, clients, citizen review panels, and peer organizations). Accountability strategies can include direct supervision, peer assessment, external scrutiny for compliance with legal standards (financial, rights of service access, etc.) and through stakeholder feedback. When accountability works according to plan, a forum will get information about an actor’s performance by asking questions. The next step is to “pass a judgment and make the agent face consequences of its behavior” (Overman, 2021, p. 1141). The accountability arena for nonprofit management offers multiple formal and informal strategies and mechanisms for achieving this end. Barbara S. Romzek

Accountability for nonprofit organizations involves many different approaches and authorities. Organizational strategies, especially the use of hierarchy, rely on internal organizational authorities (supervisory directives, rules, procedures) to evaluate performance. External legal and administrative authorities, in the form of auditors, courts, and official external investigators, pursue accountability by scrutinizing the actor’s performance in detail. Legal accountability relies on scrutiny for compliance with externally mandated standards, such as the IRS, for compliance with nonprofit status. Professional accountability relies on actors using their expertise and exercising discretion consistent with “best practice.” Political accountability emphasizes responsiveness to the expectations of elected officials and key outside stakeholder groups who can marshal considerable influence on the organizational actors. This standard is particularly challenging because multiple stakeholder groups often have conflicting expectations, thus being responsive to all is difficult if not impossible. Formal horizontal accountability relationships are commonly known as partnerships. As formal relationships, they typically include advance specifications regarding roles and performance expectations in partnership documents. Breach of contract would typically necessitate a legal resolution or renegotiation of the terms of the partnership. Under informal accountability, actors face rewards and/or consequences from their colleagues based upon whether their behavior complied with informal expectations about shared norms and facilitative behaviors. Informal accountability strategies are reflected in actors’ assessment of informal partners’ performance, including “sustaining one’s own reputation vis-a-vis different audiences…advancing one’s standing in the eyes of one’s audience(s) and about being seen as a reputable actor” (Busuioc & Lodge, 2016, p. 248). Informal rewards include facilitative behaviors that sustain informal accountability, including providing favors and sharing information. Sanctions can include withholding of information, reputation damage, and loss of opportunities. Positive informal accountability is evident when actors choose to engage in facilitative behaviors that support each other and the shared goals. These can include sharing information, providing new funding

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opportunities, collaborating, and enhancing a partner’s reputation. When a nonprofit actor is perceived as failing to share norms, demonstrate trust, or respect turf, then informal sanctions typically are forthcoming. These include diminished reputation, withholding of information, and loss of opportunities for collaboration. The presence of multiple formal and informal strategies for accountability, and diverse performance expectations affords some latitude to maneuver among accountability expectations and evaluative mechanisms. Nonprofit actors who adopt a strategic approach to expectations may find themselves in negotiations about performance indicators and targets with their supervisors, donors, boards of directors, subordinates, and informal collaborators. What consequences? After accountability forums go to all the effort to identify and evaluate performance, what arrangements are available for imposing consequences? The idea of accountability includes the expectation of consequences as it relates to accountability is important. If the performance is acceptable, what positive consequences (rewards), if any, should there be? And if the performance fails to meet expectations, what, if any, should be the negative consequences (sanctions)? If an actor is successful in meeting expectations, one could expect positive consequences (salary increase, award, promotion, enhanced reputation). Likewise, if an actor failed to meet expectations, this should result in negative consequences, such as a financial penalty, damaged reputation, or dismissal. While accountability is easy to describe and consequences are easy to project, the reality is that accountability reckoning is often fraught with incomplete information and the inability to identify the responsible parties. This latter situation is commonplace because typically there are many hands involved in organizational success or failure (Thompson, 1980).

Summary and future prospects

Accountability is an important value and a complicated social relationship that is essential to sustain in nonprofit management. In daily organizational life, accountability is a low-profile concept. It is present in honor-

ific awards or financial rewards for nonprofit organizations and/or individuals that are identified as meeting or exceeding performance expectations. Accountability for success can result in rewards. Often the recognition of success is a comparatively low-key affair. Accountability emphasizing success, whether meeting or exceeding performance expectations, usually involves short-lived visibility and rewards for the successful agency and/ or individuals. Accountability for success among nonprofits can take many forms for individuals and organizations: awards, reputational benefits, improved finances (contracts, grants, budgets, bonuses, salaries), and promotions. Accountability gets the most attention when there is a concern that the organization and/or individuals have failed to meet performance expectations. The popular media offers a continuing stream of reports raising questions of accountability, typically focused on organizational leadership or individual employees who appear to have failed to meet performance expectations. Failure to meet performance expectations usually generates more interest and increased visibility among relevant stakeholder groups. When performance expectations are unmet, sanctions tend to result, such as damage to budgets, reputations, career prospects, and job security. Sanctions depend on which relevant authority has concerns (e.g., board of directors, supervisors, government regulators, etc.). The promise of accountability in nonprofit management is well intentioned. The multifaceted nature of accountability is both an opportunity and a constraint. As accountability mechanisms are added to the nonprofit management arena, rarely is any accountability mechanism decommissioned. As a result, there exist many mechanisms to hold nonprofits accountable. The designs are well-intentioned, but they tend to fall short in practice. Barbara S. Romzek

Related topics

Governance Professionalism Regulation of nonprofit organizations Self-regulation Stakeholder management Barbara S. Romzek

6  Elgar encyclopedia of nonprofit management, leadership and governance

Further reading and references

Acar, M., Guo, C., & Yang, K. (2008). Accountability when hierarchical authority is absent. The American Review of Public Administration, 38(1), 3–23. https://​doi​.org/​10​ .1177/​0275074007299481 Aleksovska, M., Schillemans, T., & Grimmelikhuijsen, S. (2019). Lessons from five decades of experimental and behavioral research on accountability: A systematic literature review. Journal of Behavioral Public Administration, 2(2), 1–18. https://​doi​.org/​10​ .30636/​jbpa​.22​.66 Bovens, M. (2005). Public accountability. In E. Ferlie, C. Pollitt, & L. E. Lynn Jr. (Eds.), The Oxford handbook of public management (pp. 182–208). Oxford University Press. Bovens, M., Schillemans, T., & Goodin, R. E. (2014). Public accountability. In M. Bovins, M. R. E. Goodin, & T. Schillemans (Eds.), The Oxford handbook of public management (pp. 1–22). Oxford University Press. Busuioc, E. M., & Lodge, M. (2016). The reputational basis of public accountability. Governance: An International Journal of Policy, Administration, and Institutions, 29(2), 247–263. https://​doi​.org/​10​.1111/​gove​.12161 Hall, A. T., Frink, D. D., & Buckley, R. M. (2015). An accountability account: A review and synthesis of the theoretical and empirical research on felt accountability. Journal of Organizational Behavior, 38(2), 204–224. https://​doi​.org/​10​.1002/​job​.2052 Kearns, K. P. (1994). The strategic management of accountability in nonprofit organizations: An analytical framework. Public Administration Review, 54(2), 185–192. https://​doi​.org/​10​ .2307/​976528 Kearns, K. P. (1996). Managing for accountability preserving the public trust in public and nonprofit organizations. Jossey-Bass. Kearns, K. P. (2012). Accountability in the nonprofit sector. In L. M. Salamon (Ed.), The state of nonprofit America (pp. 587–615). Brookings Institution. Lee, Y., & Suh, J. (2018). Managerial development programs for executive directors and accountability practices in nonprofit organizations. Review of Public Personnel Administration, 38(4), 431–450. https://​doi​.org/​10​.1177/​0734371x16674783 LeRoux, K., Piatak, J., Romzek, B., & Johnston, J. (2019). Informal accountability in children’s service networks: The role of frontline workers. Human Service Organizations: Management, Leadership & Governance, 43(3), 188–204. https://​doi​.org/​10​.1080/​23303131​.2019​ .1637804 Maynard-Moody, S., & Musheno, M. (2000). State agent or citizen agent: Two narratives of discretion. Journal of Public Administration

Barbara S. Romzek

Research and Theory, 10(2), 329–358. https://​ doi​.org/​10​.1093/​oxfordjournals​.jpart​.a024272 Ostrom, E. (1998). A behavioral approach to the rational choice theory of collective action: Presidential address, American Political Science Association, 1997. American Political Science Review, 92(1), 1–22. https://​doi​.org/​10​ .2307/​2585925 Overman, S. (2021). Aligning accountability arrangements for ambiguous goals: The case of museums. Public Management Review, 23(8), 1139–1159. https://​doi​.org/​10​.1080/​14719037​ .2020​.1722210 Pollitt, C. (2006). Performance management in practice: A comparative study of executive agencies. Journal of Public Administration Research and Theory, 16(1), 25–44. https://​doi​ .org/​10​.1093/​jopart/​mui045 Romzek, B. S. (2000). Dynamics of public sector accountability in an era of reform. International Review of Administrative Sciences, 66(1), 21–44. https://​doi​.org/​10​.1177/​0020852300661004 Romzek, B. S. (2011). The tangled web of accountability in contracting networks: The case of welfare reform. In M. J. Dubnick, & H. G. Frederickson (Eds.), Accountable governance: Problems and promises (pp. 22–41). M. E. Sharpe. Romzek, B. S., & Dubnick, M. J. (1987). Accountability in the public sector: Lessons from the Challenger tragedy. Public Administration Review, 47(3), 227–338. https://​ doi​.org/​10​.2307/​975901 Romzek, B. S., LeRoux, K., Johnston, J., Kempf, R. J., & Piatak, J. S. (2014). Informal accountability in multisector service delivery collaborations. Journal of Public Administration Research and Theory, 24(4), 820–835. https://​ doi​.org/​10​.1093/​jopart/​mut027 Schillemans, T., Overman, S., Fawcett, P., Flinders, M., Fredriksson, M., Laegreid, P., Maggetti, M., Papadopoulos, Y., Rubecksen, K., Rykkja, L. H., Salomonsen, H. H., Smullen, A., & Wood, M. (2020). Understanding felt accountability: The institutional antecedents of the felt accountability of agency-CEO’s to central government. Governance, 34(3), 893–916. https://​doi​.org/​10​.1111/​gove​.12547 Schwabenland, C., & Hirst, A. (2020). Hybrid accountabilities and managerial agency in the third sector. Public Administration, 98(2), 325–339. https://​doi​.org/​10​.1111/​padm​.12568 Thompson, D. F. (1980). Moral responsibility of public officials: The problem of many hands. American Political Science Review, 74(4), 905–916. https://​doi​.org/​10​.2307/​1954312 Young, D., & Salamon, L. M. (2002). Commercialization, social ventures, and for-profit competition. In L. M. Salamon (Ed.), The state of nonprofit America (pp. 423–446). Brookings Institution.

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Accounting practices, rules, and standards Definition

Recording and monitoring incoming and outgoing resources is an important requirement in any entity to ensure that incoming and outgoing goods and services are paid for, and that the entity is meeting its financial goals. While owner-managed entities may prepare financial reports merely for their own use, General Purpose Financial Reports (GPFR) and Special Purpose Financial Reports (SPFR) are prepared for external stakeholders. An example of SPFR is an entity’s annual tax return, often using a set format that ensures the minimum requirements are met. GPFR have a wider readership, and entities prepare them to communicate with external investors such as banks, equity providers and creditors. To ensure these reports are understandable and comparable, accounting standard-setters worldwide develop principles and rules-based standards for GPFR, especially for larger entities. These are termed “Generally Accepted Accounting Principles” (GAAP). GAAP requires accrual-based accounting, with transactions recorded when they occur, rather than when payment is received or made. These standard-setters consider cash accounting, or accounting for transactions when the cash passes hands to be “non-GAAP,” but may nevertheless publish non-GAAP guidance or standards (e.g., the Office of the Scottish Charity Regulator issues guidance on cash reporting and New Zealand’s accounting standard-setter’s “Tier 4 Not-for-profit Simple Reporting Standards” which are for entities legislatively allowed to undertake cash reporting). Almost 80 percent of charities registered in the U.K. prepare cash-based receipts and payments accounts, and many smaller nonprofits find cash-based reports to be easier to prepare and easier for their users to understand (Crawford et al., 2014).

In practice

This entry focuses mainly on accounting standards as prescribed by national nonprofit standard-setters. These standards may be based on for-profit or public sector accounting or, conversely, be developed independently for nonprofit entities alone. While they mainly lack “investors” and the equity providers of for-profit entities, nonprofits have many external stakeholders interested in their GPFR, including donors, funders and regulators/policy makers. U.S. nonprofits report GPFR using U.S.-based GAAP promulgated by the Financial Accounting Standards Board .fasb​ .org). Accountants (FASB) (see www​ (and accounting academics especially) see these as “rules-based” standards where there are detailed requirements and few choices/options and, therefore, comparability is enhanced when entities follow these standards. Since the turn of the twenty-first century, much of the rest of the world has gravitated to International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) domiciled in the U.K. (see www​.iasb​.org). Many national standard-setters adopt or adapt IFRS for their own jurisdictions; they also often write their own GAAP standards for entities that are not listed on securities exchanges and are small.1 These so-called principles-based, as opposed to rule-based, standards may require greater judgment to ensure compliance, although there is a plethora of examples and advice from both the IASB and the accounting community, which provide guidance. A similar geographic split can be seen when transnational nonprofits (such as the United Nations, NATO, INTERPOL and the OECD) use standards promulgated by the International Public Sector Accounting Standards Board (IPSASB) (Canadian based and within IFAC’s (International Federation of Accountants) overview) (IFAC and CIPFA, 2021). While developed for the public sector, IPSASB’s GAAP and non-GAAP (cash) standards (see www​ .ipsasb​ .org/​ ) also form

1 The IASB also issued IFRS for SMEs (small and medium enterprises) which more than 80 nations use for their smaller entities. These have fewer options within the standard, and all requirements are in “one book” (see www​ .ifrs​.org/​issued​-standards/​ifrs​-for​-smes/​).

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the basis of some nonprofit standard-setting (see below). Nonprofit accounting practices, rules and standards Nonprofit accounting reflects a much greater diversity internationally than that undertaken by large entities in the for-profit and public sectors, due to local regulatory contexts and the lack of an international nonprofit accounting standard-setter. Of course, nonprofits are very diverse in themselves, and range from very small unincorporated groups that may establish to resolve a single issue or run a single event, to large international bodies involved in lobbying, international aid, fundraising, service delivery and so on (e.g., Red Cross/Red Crescent). Nevertheless, even the members of, and others involved in, very small entities are interested in how their donated resources are used, driving the need for rules and standards to guide nonprofit reporting for accountability and decision-making. As with the for-profit and public sectors, regulatory bodies and major funders drive nonprofit reporting rules and standards, as shown in the examples below. Since 2021, a new international body, International Financial Reporting for Non-Profit Organisations (IFR4NPO) (see www​.ifr4npo​.org/​), is consulting on the development of internationally legitimate guidance to aid nonprofits across the world to produce more standardized GPFR. Major national standard-setters are represented on this body’s Technical Advisory Group, including from the U.S. and U.K., and through a Practitioner Advisory Group and Country Champions, the voice of nonprofits is being heard. Nonprofit annual reporting takes many forms, including financial and non-financial/ narrative performance information. Accounting standard-setters that choose (or are required) to develop nonprofit standards, most commonly base these on the nation’s for-profit GPFR, requiring at least a statement of income and expenditure for the year and a statement of assets and liabilities at the year-end. Some utilize public sector GPFR standards. In addition, nonprofits may be required to complete SPFR for a regulator, with financial information given via a standardized form or return that is not in financial Carolyn Cordery

statement format. Such filing may allow cash or accrual accounting. In some jurisdictions (e.g., the U.K. and the U.S.) accrual accounting is underpinned by the concept of fund accounting. That is, because donors and other funders often provide funds for a restricted purpose rather than for general use within the nonprofit (unrestricted funds), the nonprofit must track the resources received and committed for specific purposes (e.g., to respond to a specific disaster or program). Donations that are endowments for restricted purposes may be further restricted beyond the purpose alone. That is, while itemized for a restricted purpose, an endowment might comprise a permanent capital base that must be invested rather than spent, with the investment income available for those restricted purposes. While fund accounting does not need separate bank accounts to be kept, it does require nonprofits to track and report the balances in each fund and also any transfers between funds. There is a distinction between internally designated funds and those restrictions nominated by funders and donors as such designation are “optional” and able to be changed. That is, when funds are unrestricted, a nonprofit may choose to use these monies for general purposes, or may choose to designate particular funds for purposes such as building repairs or replacement. Thus, accounting standards drive behavior as well as GPFR reporting. Different to financial reporting, performance reporting includes reports on operations and performance towards the organization’s mission written, for example, by the board chair/trustees/senior staff, who potentially add photos, case study examples, and so on, and whose methods of communication are quite different to financial reporting. Performance reporting is necessary as it is commonly agreed that due to nonprofits’ lack of focus on profit, users of nonprofits’ GPFR desire to understand the difference nonprofits make in non-financial ways. Therefore, comprehensive reporting combines financial and performance components about the nonprofit in an “annual report.” This fuller annual report can lead to a broader understanding of the nonprofit, for example, how activity and impact are aligned to size or expenditure. Regulators drive the mandatory reporting of nonprofits in most countries (Crawford et al., 2014). Although nonprofits may choose to report voluntarily to their own members

A 9 Table 1

Nonprofit and charity accounting standards and regulatory filings

Jurisdiction Nonprofit regulator

GAAP financial reporting

GAAP

Audit

non-financial

required?

reporting Belgium

The National Bank of Belgium

Large nonprofits’ GPFR must comply with

No requirement

Required if

(https://nbb.be/en) requires Belgian GAAP – slightly modified from that followed and no standards large or very nonprofits to file financial reports

by for-profit entities

exist

largea

New

Charities Services (www.charities.

The XRB (External Reporting Board)

All charities

Review

Zealand

govt.nz/) requires all charities to

issues standards across all sizes of entities.

must report

required if

file GAAP-compliant accounts (or

Large nonprofits’ GPFR is based on IPSAS,

service

expenditure >

performance

NZD550,000;

with

audit required

requirements

if expenditure

size-specific

> NZD1.1

non-GAAP if eligible to apply cash medium and smaller is termed ‘Simple reporting)

Format Reporting’b

million U.K.

U.S.

Charity Commission (E&W,

SORP issued by Committee, endorsed

Charity

Required if

Scotland, NI) requires annual

by FRC. These are adapted for charity

Commission of

large and

filing; larger charities (income

transactions from the IFRS for SMEs with

E&W requires

gross assets

> GBP250,000) must file SORP

requirements for fund accountingc

large charities to >GBP3.26

(Statement of Recommended

state how public million; or if

Practice) -compliant accounts (e.g.,

benefit achieved gross annual

see: www.gov.uk/government/

(greater detail

income >

organisations/charity-commission)

>GBP100,000)

GBP1 million Depends on

Tax Authority (IRS) requires

FASB issues nonprofit accounting standards

No requirement

larger nonprofits to file a Form

for GPFR requires nonprofits to report on

and no standards state laws,

990 (SPFR) annually (see www.

net assets using fund accounting, specifically exist

but required

irs.gov/charities-non-profits/

those with and without donor restrictions

if receive

exempt-organization-annua

(see www.fasb.org/jsp/FASB/Page/

>USD750,000

l-filing-requirements-overview)d

ImageBridgePage&cid=1176168380

in Federal

111#section_5)

funding

Notes: a A nonprofit is considered large or very large if it exceeds two of: (i) total assets = EUR3,125,000 ~USD3.6 million; (ii) total income = EUR6,250,000; and/or (iii) 50 FTEs (full-time equivalents) (if > 100 FTEs audit is mandated). b A charity is considered medium if its expenditure is greater than NZD$2 million (~USD1.4 million), large if it is greater than NZD30 million. All charities follow accrual-based standards except those with expenditure less than NZD140,000 who may follow cash-based standards. c See Morgan (2017) for more detail on the numerous exemptions, exceptions and levels of reporting and audit. The U.K.’s Independent Examination regime offers smaller charities a review alternative to audit. d A nonprofit is considered large if it has USD50,000 or more in gross receipts and is not exempted. The Form 990 is unrelated to GAAP although it requires accrual accounting.

using any accounting rules and standards, in the jurisdictions where there are frameworks, these provide legitimacy for the users of nonprofits’ annual reports. Some examples might be helpful, with Table 1 providing examples from four jurisdictions that take different approaches to mandating financial and non-financial reporting of nonprofits. As well as outlining those for financial reporting, it addresses requirements for non-financial reporting and audits (and at

what level) with links to the mentioned regulators and standard-setters. In some countries, charities are more highly regulated than other nonprofits due to the taxation deductions and exemptions on donations and operations available through this form.

Issues and debates

Nonprofits enter into specific transactions that are not covered by for-profit accounting frameworks. For example, in the U.K. and Carolyn Cordery

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U.S., fund accounting is mandated in order that users of GPFR can readily understand which funds are restricted and which can be used for nonprofits’ general expenditure. Yet, when nonprofits use standards not adapted for the sector, among many examples where nonprofits find it hard to apply for-profit standards are: ● assessing control when defining the reporting entity. With the “bottom up” nature of many nonprofit branches and other affiliations making it hard to assess control, defining which parts of the nonprofit are “inside” the annual report and which are not can be challenging; ● recognizing revenue for non-exchange transactions such as grants, donations, legacies and volunteering raises questions as to value, the timing of that valuation and over what period the value should be recognized; ● defining when grant commitments and other NPO-specific obligations are liabilities and when they are not challenges philanthropists and may result in differences between the grantee and grantor; and ● accurately disclosing transactions with related parties (e.g., board members or their relatives), especially given the power of these parties and desires for privacy versus transparency. Accounting rules and standards can bring rigor to financial management of any entity, and this is just as true of nonprofits. Yet, many jurisdictions do not tailor nonprofit accounting standards to meet the needs of these entities and their users. Nevertheless, resource providers demand accountability from nonprofits and will also seek to make decisions about whether to commit further resources to them, be they financial or non-financial. Despite philanthropy and aid being globalized, diversity in practice, rules and standards limits the ability of these resource providers to compare GPFR of nonprofits across jurisdictions. Further, the limited availability of some regulatory filings can mean that the interested reader cannot even access regulatory-specific SPFR. Performance reporting remains under-developed, particularly in newer topics such as sustainability disclosures. There is certainly space for an international collaboMadeline Y. Lee

rative effort to develop nonprofit accounting standards. Carolyn Cordery

Related topics

Audit Financial documents and control Internal Revenue Service

Further reading and references

Cordery, C. J., & Deguchi, M. (2018). Charity registration and reporting: A cross-jurisdictional and theoretical analysis of regulatory impact. Public Management Review, 20(9), 1332–1352. https://​doi​.org/​10​.1080/​14719037​.2017​ .1383717 Crawford, L., Morgan, G. G., Cordery, C. J., & Breen, O. B. (2014). International financial reporting for the not-for-profit sector: A study commissioned by the CCAB. www​.ccab​.org​ .uk/​wp​-content/​uploads/​2020/​06/​International​ -financial​-reporting​-for​-the​-not​-for​-profit​ -sector​-A​-study​-commissioned​-by​-CCAB​ -Final​-Report​-​.pdf Accessed 15 December 2021. International Federation of Accountants & The Chartered Institute of Public Finance & Accountancy. (2021). International Public Sector Financial Accountability Index 2021 Status Report. www​.ifac​.org/​knowledge​ -gateway/​supporting​-international​-standards/​ discussion/​international​-public​-sector​-financial​ -accountability​-index McConville, D., & Cordery, C. J. (2018). Charity performance reporting, regulatory policy and standard-setting. Journal of Accounting and Public Policy, 37(4), 300–314. https://​doi​.org/​ 10​.1016/​j​.jaccpubpol​.2018​.07​.004 Morgan, G. G. (2017). The charity treasurer’s handbook. Directory of Social Change.

Accreditation Definition

Accreditation is a process and an organizational designation (Lee, 2013). As a process, organizations undergo accreditation to demonstrate they meet standards established by an independent, third-party accreditor. As an organizational designation, accreditors and accredited organizations tout accreditation as a signal of quality and trustworthiness to consumers and policy makers.

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Context: Background, evolution, and the uptake of accreditation

Accreditation is a worldwide phenomenon that has spread to a wide range of industries and fields, including nonprofit organizations (Braithwaite et al., 2006; Lee, 2014b). Deriving from the Latin word for trust, credito, the concept of accreditation is over a century old. It initially emerged in education to standardize variability among the growing number of colleges in the late 1800s. In 1951, The Joint Commission was established to address standards of quality healthcare, and the Commission on Accreditation of Rehabilitation Facilities (CARF) was established in 1966 to accredit community-based rehabilitation programs for those with chronic and persistent mental illness, as well as other mental health and alcohol and drug programs. In 1977, the Council on Accreditation (COA) was founded as an accreditor of child and family services. Today, The Joint Commission, CARF, and COA are the largest accreditors of social service agencies and nonprofit organizations in the U.S. COA (2022) has more than 1,600 accredited or in-process organizations and CARF (2022) accredits more than 8,000 service providers. The Joint Commission (2022), the largest accrediting body, accredits more than 22,000 organizations and programs in the U.S. Accreditors in other nonprofit sectors cover a range of organizations, from the National Association for the Education of Young Children (NAEYC) for early childhood education to the Evangelical Council for Financial Accountability (ECFA) which accredits Christian nonprofits, and Nonprofits First, an accrediting body established in 2005 for a variety of nonprofit organizations. The current accreditation rate among nonprofit organizations is unknown, or at least not made widely known or publicly available. In 1992, an Arizona statewide survey found that most human service agencies (75 percent) were not accredited nor seeking accreditation (Nichols & Schilit, 1992). Data from the Substance Abuse and Mental Health Services Administration’s (SAMHSA’s) National Survey of Mental Health Treatment Facilities (NSMHTF) showed that nearly 60 percent of the included facilities were accredited by COA, CARF, or The Joint Commission (Lee, 2017). Despite accreditation’s growing popularity in various fields,

more current research is needed regarding the uptake of accreditation among NPOs.

In practice Critical components of accreditation By combining research literature with input from experts in the field and stakeholders, accreditors develop standards that are described as “best practice” (COA), “state-of-the-art” (The Joint Commission), and “a mechanism for continuous improvement” (CARF). The standards nonprofit organizations are required to implement for accreditation can cover a range of organizational aspects, including financial management, governance, and quality improvement. The standards can also be specific to services the organization provides, such as residential treatment, outpatient mental health, adult day services, and foster care. Standards vary by accreditor and the length of time for their revisions vary, from annually to every four years. Accreditors may require organizations to undergo self-study or self-evaluation, for which organizations submit documentation to demonstrate implementation of accreditation standards. This is typically in preparation for a site visit or survey by reviewers who, depending on the accreditor, may be volunteers or employed by the accreditors. Based on the reviewers’ findings self-study and site visit, an accreditation decision is made. Accreditors can grant organizations accreditation for varying lengths of time, defer, or deny accreditation. Some accreditors may also require organizations to submit reports in between accreditation cycles. Undergoing and maintaining accreditation is not free. Some accreditors’ fees, depending on the size and type of the organization, can be at least $10,000 for an average, medium-sized nonprofit (Lee, 2017). These fees do not include costs for preparing for the site visit and making changes needed to meet accreditation standards. The policy context of accreditation State policies can vary, making accreditation voluntary or mandatory for nonprofit organizations (Lee, 2014b). For example, some state policies provide incentives for organizations to become accredited. Such policies may Madeline Y. Lee

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include higher reimbursement rates for accredited organizations or deemed status, which allows organizations to substitute accreditation for licensure or government inspections. Other policies may mandate accreditation for state licensure, reimbursement from the state, or to contract with the state. Policies can dictate how governments and accreditors regulate organizations, thus influencing how organizations deliver services.

Current and future directions How can accreditation make a difference? Accreditation has the potential to improve quality and outcomes in two ways (Lee, 2014a). The first is direct by setting accreditation requirements. Requiring agencies to have certain structures and processes in place to become accredited may increase quality (e.g., staff caseload and credential requirements). Another way accreditation can improve quality and outcomes is indirectly through by-products of accreditation. The process of undergoing accreditation or having the accreditation designation could lead to quality (e.g., increased funding and improved staff morale). Ultimately, the impact of accreditation depends on what organizations do with it. Does accreditation become part of the agency culture (Lee, 2014a) to spur meaningful improvements? If the organizational changes are superficial and short-lived, accreditation can lose meaning and value. Limited research on accreditation and challenges for further research A small, growing body of research from a range of fields shows moderate and mixed evidence for accreditation’s merit (Cerqueira, 2009; Mays, 2004). Studies on accreditation have varied research designs and few shared outcomes with inconsistent findings regarding the impact of accreditation on consumer outcomes and satisfaction (Lee, 2013). Most of the evidence is from healthcare, and research on accreditation among other types of nonprofits is limited. More research is needed to examine accreditation’s impact. Is it worth the time and money to be accredited? Researching accreditation has challenges. For example, organizations with already superior performance may be applying for accreditation, thus leading to selection bias. This may Madeline Y. Lee

need to be accounted for methodologically (e.g., propensity score matching), since organizations cannot be randomized to be accredited and not accredited. In addition, since accreditation is not the only driver influencing organizations’ quality of care, it can be challenging to isolate accreditation’s impact. Accreditor as regulator: A balancing act, limitations, and its potential As a regulator of service providing organizations, accreditors perform a balancing act by seeking to set high-quality organizations apart from others, while partnering with organizations to help them improve services and outcomes. This inherent dual role could make the accreditation designation a “rubber stamp” instead of a “seal of approval” to distinguish organizations that deliver high quality services. In addition, not all accreditors make accreditation process results available for the public to know how organizations fared, including if they failed to attain accreditation due to quality issues. In the end, accreditors may not know everything about the organizations that they accredit, and no one regulates the accreditors. In other words, the accrediting bodies regulate accredited organizations with limited information, and there is no oversight of the accrediting bodies. Accreditation may not be a guaranteed solution for improving quality issues. However, without accreditation, regulation for some nonprofit organizations can consist of registration with or licensure by the government that sets minimal standards for operation. It is not possible to ensure organizations are maintaining accreditation day-to-day, and accreditors count on organizations to continuously improve their quality of services after achieving accreditation. More research is needed to ensure accreditation is an effective tool for quality improvement and to make it meaningful for organizations and those they serve. Madeline Y. Lee

Related topics

Accountability Branding and brand strategies Professionalism Program evaluation Self-regulation

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Further reading and references

and administrative costs, refer to the expenses Braithwaite, J., Westbrook, J., Pawsey, M., that contribute to the overall operations and Greenfield, D., Naylor, J., Iedema, R., Runciman, management of a nonprofit organization. B., Redman, S., Jorm, C., Robinson, M., Nathan, No standardized definition of administrative S., & Gibberd, R. (2006). A prospective, costs exists (Burkart et al., 2018). Often, multi-method, multi-disciplinary, multi-level, in the private sector context, administrative collaborative, social-organisational design for costs are labeled as expenses a for-profit researching health sector accreditation. BMC organization incurs that are not directly tied Health Services Research, 6, 113–123. https://​ to a specific core function such as manufacdoi​.org/​10​.1186/​1472​-6963​-6​-113 Cerqueira, M. (2009). A literature review on the turing, production, or sales. Similarly, in the benefits, challenges, and trends in accreditation nonprofit sector context, administrative costs as a quality assurance system. http://​hdl​.handle​ are also labeled as part of indirect costs, which are used “in a supportive way to facilitate the .net/​1828/​1497 (accessed September 16, 2023) Commission on Accreditation of Rehabilitation use of the direct costs” (Burkart et al., 2018, Facilities. (2022). CARF accreditation focuses p. 308) and can be defined as operational on quality, results. http://​www​.carf​.org/​home/​ costs not directly related to nonprofit proCouncil on Accreditation. (2022). What is accredi- gramming (Lecy & Searing, 2015). Nonprofit tation? https://​coanet​.org/​accreditation/​ administrative costs usually comprise legal Lee, M. Y. (2013). Children and family service agencies’ experience with the initial council expenses, accounting fees, banking service on accreditation process: An exploratory study. charges, executive and administer payroll, Families in Society, 94(1), 23–30. https://​doi​ liability insurance, healthcare benefits, office supplies, and other miscellaneous operating .org/​10​.1606/​1044​-3894​.4259 Lee, M. Y. (2014a). Agencies’ views on the costs, such as phone, postage, printing, travel, effects of the council on accreditation process. equipment rental, and office rent (Bowman, Human Service Organizations: Management, 2006; Zimmerman & Bell, 2014). Leadership, and Governance (formerly Moreover, administrative costs and “overAdministration in Social Work), 38(3), 199–214. head costs” are widely used interchangeably https://​doi​.org/​10​.1080/​23303131​.2013​.878012 Lee, M. Y. (2014b). Motivations to pursue accred- by nonprofit practitioners and watchdogs. itation in children’s mental health care: A mul- However, administrative costs and overhead tiple case study. Nonprofit Management and costs are not identical – in fact, administraLeadership, 24(3), 399–415. https://​doi​.org/​10​ tive costs are one of two sub-categories of overhead expenses, according to the accepted .1002/​nml​.21098 Lee, M. Y. (2017). A national perspective on accounting rules for nonprofit organizations exploring correlates of accreditation in chil- (Bowman, 2006). According to Callen et dren’s mental health care. Journal of Behavioral al. (2010), overhead expenses (incurred for Health Services and Research, 44(3), 498–505. activities not directly related to carrying out https://​doi​.org/​10​.1007/​s11414​-016​-9542​-7 Mays, G. (2004). Can accreditation work in public the organization’s mission) are comprised of health? Lessons from other service industries. administrative expenses (incurred to serve the central administrative function of the organhttps://​folio​.iupui​.edu/​handle/​10244/​508 Nichols, A. W., & Schilit. R. (1992). Accreditation ization) and fundraising expenses (incurred of human service agencies: Costs, benefits, and to help obtain donations). Specifically, in the issues. Administration in Social Work 16(1), Internal Revenue Service (IRS) Instructions 11–23. for Form 990 (see www​.irs​.gov/​pub/​irs​-pdf/​ The Joint Commission. (2022). What We Offer. i990​ .pdf), the term overhead expenses are www​.jointcommission​.org/​accreditation​-and​ used synonymously with indirect costs, -certification/​(accessed September 16, 2023) which are those costs that are not tied only to a single program (but can be allocated). In addition, the IRS Instructions for Form 990 also suggests that administrative costs exist independently of any specific program activities a nonprofit conducts. The distinction is essential when it comes to the legally required reporting of functional expenses Definition Administration costs, also known as admin- according to the purpose for which they istrative expenses, management, and general incurred. Pakroo (2021) argues that dividing

Administration costs

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expenses between programs and administration is often more of an art than a science, and sometimes nonprofit organizations need to use subjective judgment to decide how to attribute an expense. For instance, office printer and ink expenses are often perceived as general office supplies and, thus, can be considered as general administrative costs. However, alternatively, nonprofits could also spread these expenses of office supplies across their program, administrative, and even fundraising categories, depending on the overall percentage of the printer usage devoted to each program, administrative, and fundraising activities. Therefore, in this process, functional expense allocation is one the most challenging and creative areas of preparing nonprofit financials.

In practice

Since administrative costs are the expenses that relate to the organization’s overall operations and management, rather than to program services or fundraising activities, it can be calculated by subtracting fundraising expenses from the difference of total expenses and program expenses. Alternatively, administrative expenses can also be measured by the sum total of all management and general costs, including expenditures for human resource servicing, consultants, procurement and contracting, budget control, financial operations, reporting, and auditing (Burkart et al., 2018). An administrative cost ratio, also known as an administrative ratio, is frequently used by nonprofits and nonprofit watchdog groups (Sloan, 2009) and serves as one of four key financial performance indicators (Tuckman & Chang, 1991). The administrative cost ratio is calculated as administrative costs divided by the sum of total expenses from all program costs, administrative costs, fundraising costs, and payments to affiliates (Ashley & Faulk, 2010). Administrative costs and administrative cost ratios are often used by donors and charity watchdog organizations as proxies for organizational efficiency and mission impact (Ashley & Faulk, 2010; Park & Matkin, 2021; Wing & Hager, 2004). Practical guidebooks always attempt to educate nonprofit practitioners that they are judged on how many of their total dollars they can put toward programs, and savvy nonprofits know

that donors would prefer to sponsor those “most effective” organizations, in which a minimum of donors’ contributions is used for administration and fundraising (Hager, 2003). The logic is that every penny not spent on program-related costs is a penny that is somehow wasted. This is why some nonprofit organizations advertise that 100 percent of a certain donation will be directed to programs: they know that this will entice donors. However, administration does not necessarily imply inefficiency, only that there are costs of running an organization that are not directly attributable to a program. The existing literature has proposed abundant arguments on how administrative costs impact nonprofit efficiency. On the one hand, Weisbrod and Dominguez’s (1986) seminal work, the “price hypothesis,” remains the dominant conceptualization of the influence of the administrative cost on contributions to nonprofit (Tinkelman & Mankaney, 2007; Zhao & Lu, 2020). From their perspective, administrative costs are viewed as organizational resources that are not used directly upon the true mission of nonprofits and, thus, should be considered as “the cost to a donor of purchasing one dollar’s worth of the organization’s output” (Weisbrod & Dominguez, 1986, p. 87). In this “price hypothesis” mechanism, administrative costs serve as a financial indicator of efficiency and healthiness of a nonprofit in turning resources into charitable output. Therefore, nonprofits charging higher administrative costs in service provision or reporting higher administrative costs in funding proposals would be less competitive and less preferred by funding agencies in a grant or contract decision. In other words, higher administrative costs signal higher levels of inefficiency and waste, which are perceived negatively by donors and watchdogs. Empirical research documents the phenomenon that nonprofits with high levels of administrative cost ratios receive fewer private donations and less constituent support (Bowman, 2006; Sloan, 2009; Tinkelman & Mankaney, 2007), which was termed as “overhead aversion” (Gneezy et al., 2014). On the other hand, other scholars argue that administrative costs are a necessary investment in nonprofit infrastructure and operations. Salamon (1995) states the administrative cost ratio is framed as a positive indicator of organizational capacity. In the

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“quality hypothesis,” nonprofits investing more in administrative infrastructure and operations are more likely to improve their organizational effectiveness and provide quality service. Currently, the “quality” camp is dominated by a “nonprofit starvation cycle” theory, developed by the seminal work of Wing et al. (2004), Gregory and Howard (2009) and Lecy and Searing (2015). The nonprofit starvation cycle describes a phenomenon in which organizational dynamics emerge when donors become fixated on efficiency ratios – nonprofits suffer from persistent cuts in overhead expenditures in response to three self-reinforcing pressures: unrealistic donor expectations, competitive pressures, and misleading reporting (Lecy & Searing, 2015). Triggered by donor’s expectations concerning acceptable levels of overhead ratios and nonprofit watchdogs publishing benchmarks and ratings based on overhead metrics, donors appreciate nonprofits with low ratios by rewarding more funding grants to those seemingly efficient nonprofits. To accomplish the goal of decreasing the administrative ratio to gain a competitive advantage in the pursuit of financial resources, a nonprofit sometimes has to choose between under-investing necessary administrative capacities (such as good governance, strategic planning, risk management, performance evaluations, and necessary staff training) and engaging in misreporting (mostly underreporting) of administrative expenses (Gregory & Howard, 2009; Hager, 2003; Lecy & Searing, 2015; Tinkelman & Mankaney, 2007; Wing & Hager, 2004). Burkart et al. (2018) endorse the existence of the “nonprofit starvation cycle” phenomenon and further propose that reducing administrative costs is a logical consequence from a financial viewpoint but might negatively affect nonprofits through the resulting administrative capacities and misreporting on administrative costs as “a misleading tactic to succeed in this price war turned into a race to the bottom” (p. 309).

request could be turned down by grantors if the budgets show that the nonprofit is spending too much money on its general administration and insufficient on worthwhile programs (Pakroo, 2021). Although many funders prefer to support direct programmatic activities, some others do give grants to help nonprofits cover administrative costs; information about those funders who give grants for general operating expenses can be found via watchdogs’ database. For instance, Candid offers Foundation Directory Online, as a searchable database of grant-makers, to serve the need of finding funders that give for general operating expenses. Additionally, according to National Council of Nonprofit, the White House Office of Management and Budget issued a federal grants guidance in 2014 on administrative costs, which explicitly requires federal, states, and local governments to reimburse a nonprofit’s indirect costs by applying its federally negotiated administrative cost rate, if one already exists. If a negotiated rate does not yet exist, then nonprofits are empowered either to request negotiating a rate or use the default rate of 10 percent of their modified total direct costs (MTDC). Nonprofits will benefit significantly from this new policy if they manage to learn how to maintain financial records to properly allocate costs so they can negotiate for the full administrative cost rather than settle for the default MTDC rate. Ideally, stakeholders from all public, private, and nonprofit sectors are gradually educated and careful not to attach too much meaning to a single metric, as more and more research reveals that the administrative or overhead ratio has become an inaccurate proxy of nonprofit efficiency. Donors should develop a health appreciation for a nonprofit’s administrative costs. Increased efficiency is a laudable goal, but not at the cost of reduced nonprofit capacity and increased organizational vulnerability. Tianyi Li, Elizabeth A. M. Searing and Jesse D. Lecy

Current and future directions

Related topics

Administrative costs play an important role in grant applications. Some funders will provide funds only for program budgets, not administration. Others may keep a careful eye on the administrative cost ratios. A funding

Financial ratios Financing nonprofit organizations Grant

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Further reading and references

Ashley, S., & Faulk, L. (2010). Nonprofit competition in the grants marketplace: Exploring the relationship between nonprofit financial ratios and grant amount. Nonprofit Management & Leadership, 21(1), 43–57. https://​doi​.org/​10​ .1002/​nml​.20011 Bowman, W. (2006). Should donors care about overhead costs? Do they care? Nonprofit and Voluntary Sector Quarterly, 35(2), 288–310. https://​doi​.org/​10​.1177/​0899764006287219 Burkart, C., Wakolbinger, T., & Toyasaki, F. (2018). Funds allocation in NPOs: The role of administrative cost ratios. Central European Journal of Operations Research, 26(2), 307–330. https://​doi​.org/​10​.1007/​s10100​-017​ -0512​-9 Callen, J., Klein, A., & Tinkelman, D. (2010). The contextual impact of nonprofit board composition and structure on organizational performance: Agency and resource dependence perspectives. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 21(1), 101–125. https://​doi​.org/​ 10​.1007/​s11266​-009​-9102​-3 Gneezy, U., Keenan, E. A., & Gneezy, A. (2014). Avoiding overhead aversion in charity. Science, 346(6209), 632–635. Gregory, A. G., & Howard, D. (2009). The nonprofit starvation cycle. Stanford Social Innovation Review, 7(4), 49–53. https://​doi​.org/​ 10​.48558/​6K3V​-0Q70 Hager, M. A. (2003). Current practices in allocation of fundraising expenditures. New Directions for Philanthropic Fundraising, 2003(41), 39–52. https://​doi​.org/​10​.1002/​pf​.40 Lecy, J., & Searing, E. A. M. (2015). Anatomy of the nonprofit starvation cycle: An analysis of falling overhead ratios in the nonprofit sector. Nonprofit and Voluntary Sector Quarterly, 44(3), 539–563. https://​doi​.org/​10​ .1177/​0899764014527175 Pakroo, P. (2021). Starting & building a nonprofit: A practical guide. Nolo. Park, Y. J., & Matkin, D. S. T. (2021). The demise of the overhead myth: Administrative capacity and financial sustainability in nonprofit nursing homes.  Public Administration Review, 81(3), 543–557. https://​doi​.org/​10​.1111/​puar​.13269 Salamon, L. M. (1995). Partners in public service: Government-nonprofit relations in the modern welfare state. Johns Hopkins University Press. Sloan, M. F. (2009). The effects of nonprofit accountability ratings on donor behavior. Nonprofit and Voluntary Sector Quarterly, 38(2), 220–236. https://​doi​.org/​10​.1177/​ 0899764008316470 Tinkelman, D., & Mankaney, K. (2007). When is administrative efficiency associated with charitable donations? Nonprofit and Voluntary

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Sector Quarterly, 36(1), 41–64. https://​doi​.org/​ 10​.1177/​0899764006293176 Tuckman, H., & Chang, C. F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445–460. https://​doi​.org/​10​.1177/​08997640910200040 United Nations Central Emergency Response Fund Secretariat. (2012). Paper on project direct and indirect costs. https://​docs​.unocha​ .org/​sites/​dms/​CERF/​AG Weisbrod, B. A., & Dominguez, N. D. (1986). Demand for collective goods in private nonprofit markets: Can fundraising expenditures help overcome free-rider behavior? Journal of Public Economics, 30(1), 83–96. https://​ doi​ .org/​10​.1016/​0047​-2727(86)90078​-2 Wing, K., & Hager, M. (2004). Getting what we pay for: low overhead limits nonprofit effectiveness. The Urban Institute. https://​ webarchive​ .urban​.org/​publications/​311044​.html Wing, K., Pollak, T. and Rooney, P. (2004). Toward a Theory of Limited Nonprofit Organizational Effectiveness. Available at http://​dx​.doi​.org/​10​.2139/​ssrn​.4256936 Zhao, J., & Lu, J. (2020). Does government punish nonprofits for high administrative costs in contracting decisions? American Review of Public Administration, 50(3), 286–296. https://​doi​.org/​ 10​.1177/​0275074019893807 Zimmerman, S., & Bell, J. (2014). The sustainability mindset: Using the matrix map to make strategic decisions. John Wiley & Sons

Advocacy Definition

The word advocacy literally means to give voice or argue for a position. In the context of nonprofit work, the term has two major and distinct applications. Case advocacy represents and assists individual clients to access resources and services, with the aim of improving the clients’ welfare. This type of advocacy is central to social services provided by nonprofits. Policy advocacy, on the other hand, represents groups and their interests to affect policy processes and social conditions. While it is not unusual for an organization to do both kinds of advocacy, this entry focuses on the latter, which has seen significant academic development and professional focus in the 2000s. When we look at how the term policy advocacy has been used in academic and

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professional literature, some defining characteristics emerge. First, policy advocacy is initiated by the public, acting individually or as a collective, and often represented by nonprofit organizations. The people represented sometimes have less relative power in society or may be unable to represent their own interests, such as the poor or children. Other times they are well-resourced interest groups. Either way, it is a “bottom up” approach to engaging the government that is initiated by public stakeholders. It lies in stark contrast to “top-down” public participation activities that are initiated by government bodies, including familiar outreach tools such as public hearings, citizen surveys, citizen juries, and so on. In Figure 1, examples of bottom-up, public-initiated advocacy activities are on the bottom half of the graph. Top-down, government-initiated public outreach activities are on the top half. The continuum from left to right marks the relative degree of passive to active participation on both sides. Second, the methods of policy advocacy involve a deliberate process of influencing decision-makers, or influencing a social or civic agenda, in order to build political will around action. Specific advocacy approaches have been described by many, and include familiar tactics such as lobbying of legislators, political campaign activity to support

Figure 1

or oppose issues, demonstrations, rallying public support around an issue or policy, boycotts to discourage business with a targeted entity, and litigation to advance a cause. The point here is that advocacy is intentional action. This contrasts with other events and activities that might influence policy processes unintentionally, such as uncoordinated behaviors and focusing events. Finally, this kind of intentional action has intended outcomes. Ultimately, policy advocacy aims to change policy or the policy-making process. In terms of policy change, the goal may be to adopt, modify, or reject certain policy options. Changes to the policy-making process generally focus on making it more accessible and transparent to the public. This latter goal has sometimes been called “participatory advocacy.” Summarizing these main characterizations across the academic and professional literature, advocacy can be defined as intentional activities initiated by the public to affect policy-making.

Context and issues

When considering the general purposes of policy advocacy in a democratic society, the broader literature on public participation provides both normative and descriptive answers. On the normative side, public par-

Example modes of public participation in policy processes

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ticipation is widely prescribed to legitimize the process of policy-making. By providing the public access to the process, the public’s input can at least complement the government’s prescriptions for rational approaches to decision-making, and perhaps identify shared interests between the two. In doing so, public commitment, and sometimes consensus, for policy choices are enhanced. On the descriptive side, a limited body of empirical research concludes that public participation can produce better policy outcomes. Policies developed with public input have been found to be more effective, have wider distributions of benefits, and be more valued by the public. Furthermore, others have found that public participation can also improve the government processes itself, by making government institutions more responsive to public concerns and more adaptive to their changing environments.

In practice

While the benefits described above are impressive, they are social, and they ignore the fact that nonprofits often engage the policy process not only for broad social gain, but primarily to advance their own specific preferences. That is, while the above benefits of public participation accrue to society, nonprofit advocates may engage policy for more narrow benefits. It is doubtful, for example, that the social benefits of a lively campaign among competing interests would be enough to motivate nonprofits to participate. Thus, we must consider the benefits to nonprofits for their policy advocacy efforts. What are nonprofits’ expected outcomes for engaging the policy process? The simple answer to this question is they seek favorable policy outcomes, such as passage of a preferred policy, or termination of an opposed policy. After all, policy advocates often advocate for specific policies. However, this answer does not hold up against thoughtful scrutiny. There are important complexities of policy advocacy that make it challenging for nonprofits to engage for the sole purpose of policy change. First, if favorable policy were the sole measure of success for advocacy efforts, then most could only be called failures. In a pluralistic society, few get exactly what they want in policies. Especially with controversial issues that attract deep engagement by many advoSheldon Gen

cacy groups with different preferences, the policy outcome is seldom a zero-sum game with clear winners and losers. As Robert Salisbury described, “Very often there is no clear resolution, no definitive conclusion to the process by which interests are articulated and pursued. ‘Play’ continues…” (cited in Baumgartner & Leech, 1998, p. 61). Second, even in those rare cases where a policy advocacy group gets its preferred policy, attribution of that outcome to their own advocacy efforts is tenuous at best. Other groups with overlapping preferences may have contributed to the outcome, making the causal link between any individual advocacy effort and policy outcome difficult, if not impossible, to empirically establish. Further complicating the issue is the temporal length of political processes. The arc of policy change can be on the scale of decades for some issues, which is an order of magnitude longer than nonprofits’ programmatic and budgetary cycles. Activities with such long feedback loops are not as attractive to supporters as those with more immediate impacts. As demand for accountability in advocacy work has grown, policy advocates and their supporters – from individual donors to major grant funders – want to see measurable results of their advocacy efforts. Instead, in practice, there are ranges of expected outcomes for advocacy efforts, of which favorable policy change is just one. Long-term outcomes also focus on implementation changes, such as wider and improved implementation of programs, or better enforcement of existing policy; changes in the conditions of target populations, such as improved health or income; and changes in the policy-making processes, such as more participation from the full spectrum of public stakeholders. Equally important to nonprofits are the near-term outcomes of their advocacy efforts, which often provide more tangible and timely feedback to advocates than the long-term outcomes. They include changes in the public’s views, such as changes in their awareness, beliefs, and attitudes on an issue, or behavioral changes, such as voting or shows of support or opposition. Similarly, advocates expect changes in decision-makers’ views. Many of their advocacy activities can be aimed at building political will among elected officials or other government policy makers. A third category of near-term out-

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comes is enhancement of the democratic environment. This may include greater transparency and accountability in government actions, or a stronger civil society in which public engagement is deep and influential. While these near-term expected outcomes don’t usually capture the headlines that the long-term outcomes do, they tend to be easier to measure and thus provide nonprofits with more frequent and more quantifiable feedback on their advocacy efforts.

Current and future directions

Beginning in the 1960s, nonprofits have increasingly engaged policy-making processes, such that today policy advocacy is a common and significant component of how nonprofits pursue their missions. In that same span, our understanding of how they advocate for preferred policies has become more sophisticated, and more closely tied to academic theories of policy change. One of the earlier taxonomies of how interest groups advocate for public policies bifurcates the methods into inside strategies that focus on lobbying policy makers, and outside strat-

egies that focus on mobilizing the public (Walker, 1991). Lobbying, in turn, has attracted its own attention in nonprofit studies, because of nonprofits’ legal prohibitions against “substantial” amounts of lobbying, lest they lose their tax-exempt status. The somewhat nebulous limitation has had a chilling effect on the activity, despite the fact that nonprofits may lobby to some extent, and as Berry and Arons (2005) eloquently argued, should lobby to bring voice to their organizations’ concerns. To quantify the extent of allowable lobbying, nonprofits may use the Internal Revenue Service’s (IRS) expenditure test under section 501(h), which sets the limit on lobbying expenditures based upon the size of the organization. Similarly, public mobilization has also received significant academic and professional attention, in studies on social movements. Recent research has further refined the taxonomy of strategies by making the important distinction between tactics and strategies, while tying advocacy strategies to theories of policy change that support them. First, tactics are specific advocacy activities that can be

Source: Adapted from Gen & Wright’s (2020).

Figure 2

Policy advocacy strategies of nonprofits

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20  Elgar encyclopedia of nonprofit management, leadership and governance

combined to make strategies. Categories of policy advocacy tactics include coalition building, mobilizing the public (e.g., protests, letter writing campaigns, voter registration), engaging decision makers (e.g., lobbying, relationship building), information campaigning (e.g., research, policy analysis, problem framing, messaging, education), direct reforms (e.g., litigation, demonstration projects), and policy monitoring. Strategies are combinations of tactics that create comprehensive, long-range approaches to policy change and other policy goals. Gen and Wright (2018, 2020) employed q-methodology and a national survey of nonprofits to identify six distinct policy advocacy strategies of nonprofits, which span the spectrum between Walker’s (1991) inside and outside strategies. Figure 2 summarizes these strategies, including their views of policy change, their key tactics, their expected outcomes, and their associations with theories of policy change. These refinements to our understanding of policy advocacy strategies advance the practice in two important ways. First, they articulate near-term expected outcomes, which helps advocates monitor their progress toward long-term goals during their advocacy campaigns. While developing performance measures of those near-term outcomes remains challenging, having near-term outcomes is itself an improvement of practice. Second, they begin to bridge the gaping span between the professional practice and academic theories on policy advocacy and change. The professional practice of advocacy has been predominantly guided by past experiences, anecdotes from peer networks, and consultant advice. Most of it has evaded theoretical grounding that could root it in established theories of policy change. Those theories clearly have implications for nonprofits seeking to strategically influence the policy process. Sheldon Gen

Related topics

Democracy and philanthropy Politics and philanthropy Public policy and nonprofit organizations Regulation of nonprofit organizations Social change and nonprofit organizations

Berkeley Franz

Further reading and references

Baumgartner, F. R., & Leech, B. L. (1998). Basic interests: The importance of groups in politics and in political science. Princeton University Press. Berry, J. M., & Arons, D. F. (2005). A voice for nonprofits. Brookings Institution. Gardner, A. L., & Brindis, C. D. (2017). Advocacy and policy change evaluation: Theory and practice. Stanford Business Books. Gen, S., & Wright, A. C. (2013). Policy advocacy organizations: A framework linking theory and practice. Journal of Policy Practice, 12(3), 163–193. https://​doi​.org/​10​.1080/​15588742​ .2013​.795477 Gen, S., & Wright, A. C. (2018). Strategies of policy advocacy organizations and their theoretical affinities: Evidence from q-methodology. Policy Studies Journal, 46(2), 298–326. https://​ doi​.org/​10​.1111/​psj​.12167 Gen, S., & Wright, A. C. (2020). Nonprofits in policy advocacy: Their strategies and stories. Palgrave Macmillan. Hoffer, R. (2012). Advocacy practice for social justice (2nd edn.). Lyceum Books, Inc. Walker, J. L. (1991). Mobilizing interest groups in America: Patrons, professions, and social movements. University of Michigan Press.

Affordable care act Definition

The Patient Protection and Affordable Care Act (ACA), signed into law by President Obama in 2010, represented a decades-long effort to reform the American health care system. The primary focus of the ACA was to expand health insurance coverage and access to health care services through the creation of public insurance exchanges and broadening of Medicaid eligibility in U.S. states. Although this landmark health care law included a number of additional provisions, two have particular importance for nonprofit organizations in the U.S.: 1) the requirement for nonprofit hospitals, which constitute approximately two-thirds of hospitals in the U.S., to expand their community benefit activity reporting in exchange for tax exemption; and 2) the requirement for all employers with more than 50 employees, including nonprofit organizations, to offer health care coverage or face financial penalties.

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In practice

The expansion of community benefit requirements, the legal term applied to expectations for nonprofit hospitals to give back to their communities in exchange for tax exemption, is in line with the ACA’s broader focus on emphasizing preventive care and population health improvement. This arrangement also continues a uniquely American tradition of public–private partnerships in the provision of health and social services. Prior to 1969 nonprofit hospitals qualified for tax-exemption by providing free or reduced-cost care to patients unable to otherwise pay for medical care. As health insurance coverage expanded as a result of the Medicare and Medicaid programs being signed into law in the 1960s, hospitals no longer needed to provide this level of charity care, requiring new activities altogether. In 1969 the qualification for tax-exemption broadened to include general activities that hospitals undertake which benefit their communities. This established the “community benefit standard.” In 2008 the Internal Revenue Service (IRS) added additional documentation for community benefit spending, the Schedule H forms which allowed for yearly reporting of financial expenditures in specific categories, but not specific detail regarding the nature of activities and their alignment with local community health needs. The ACA greatly expanded health care coverage, lessening the need for hospitals to provide charity care once again. In exchange for tax exemption, hospitals were pushed to justify that their benefit to the community was commensurate with the benefits they receive in foregoing a broad range of tax liabilities. Specifically, the ACA added section 501(r) to the Internal Revenue Code, which established the following four requirements for nonprofit hospitals: 1) Conducting a community health needs assessment (CHNA) on a triennial basis and developing an implementation strategy (IS) of programs to address identified needs; 2) Instituting a written financial assistance policy for medical care; 3) Following rules on maximum hospital charges for patients eligible for financial assistance; and 4) Following rules on billing and collections, including avoiding “extraordinary collection actions.” Beyond nonprofit hospitals, the ACA included several provisions for employers which impacted nonprofits – for example,

the ACA mandated that employers with more than 50 employees offer affordable and high-quality health insurance coverage to full-time employees or face a “shared responsibility payment.” These employers are also required to report on health coverage offered to eligible employees – using Forms 1095 C and 1094 C – and may be required to document the value of health insurance coverage provided to each employee on W2 forms. Employers who have 100 or fewer full-time equivalent (FTE), may purchase insurance through the Small Business Health Options Program (SHOP). If small employers with under 25 full-time equivalent cover at least 50 percent of their FTE premium costs, they may be eligible for the Small Business Health Care Tax Credit.

Current issues and challenges

Americans face poor health outcomes compared to peer countries, which are driven primarily by significant disparities in health and well-being in the U.S. Although most industrialized nations provide health insurance and other social services through government-run systems, the U.S. opts for a public–private partnership, between federal and state governments, and both private hospitals and businesses, to meet these needs. This compromise was further solidified in the ACA as expectations for nonprofit hospitals expanded, requiring these organizations to demonstrate coordination with community-based partners to improve local health outcomes. Although the revised community benefit standard requires buy-in from the broader community in determining local health needs, this input can be provided by health care professionals and does not ensure that the priorities of average residents are considered when making investments. The guidelines also allow considerable latitude in completing CHNAs and ISs. As a result, there is considerable variation in the activities hospitals undertake and the quality of reports and services provided to the public. The community benefit standard effectively treats all nonprofit hospitals equally, meaning that small, rural facilities and large research hospitals embedded in health systems are expected to produce the same community benefit documentation. Although large hospitals often have staff dedicated to population health, which can undertake Berkeley Franz

22  Elgar encyclopedia of nonprofit management, leadership and governance

surveys and other primary data collection necessary to identify critical community health needs, other hospitals may struggle to do this work without external support. Some hospital organizations elect to use external consultants or system-level support to help produce these reports which may also limit local buy-in. Because no requirements exist for hospitals to make investments in a specific area, large health systems may technically meet requirements without adopting programs that benefit the local community around an individual hospital. For individual communities that lose tax revenue when a local hospital is tax-exempt, these requirements mean that communities may lose local funding under current guidelines.

The future

Nonprofit organizations serve as critical anchor institutions in their communities as employers, purchasers, and through direct community engagement. The ACA recognized this essential responsibility in expanding expectations for nonprofit hospitals and organizations to address the needs of employees through the provision of health insurance and communities through hospital community benefit investments. Although the ACA expanded expectations for nonprofit hospitals, research has demonstrated little change among hospitals’ community benefit spending, and to date there have been no changes requiring hospitals to meet a minimum threshold of spending or to allocate a specified percentage of funding beyond traditional charity care. Although policy makers, public health advocates, and researchers have advocated for more investment to address social and economic needs which fall under the IRS category of “community building,” a tiny fraction of community benefit dollars are spent in this category which has not changed significantly in recent years. Evidence suggests that health and well-being are affected by social and economic factors to a much greater extent than health care services, requiring nonprofit hospitals to shift their investments upstream to ensure that they have a measurable impact on community health. Case studies of nonprofit hospitals demonstrate that some organizations are responding to this evidence base and developing innovative programs to promote local employment, stabilize housing, and Berkeley Franz

enhance the availability of healthy foods. Nonetheless, future policy changes are necessary to incentivize investments into upstream needs and ensure that a broader set of nonprofit hospitals invest in the interventions that are most likely to have efficacy in redressing persistent health disparities. Although the ACA remains politically at risk – Republicans have attempted to repeal or weaken the law more than a dozen times since its passing – its impact on nonprofit hospitals remains a lesser-known facet of this health care law and one that is surprisingly bipartisan. There is significant potential to build on and strengthen expectations for nonprofit organizations. More detailed community benefit requirements can incentivize robust community engagement to ensure that institutions are meeting the needs that local residents prioritize. More structured reporting will ensure that hospital investments can be formally evaluated and tied to local community health improvement. These changes will secure an important legacy of the ACA – recognizing the powerful role that nonprofit institutions, as local community anchors, play in shaping health outcomes in the U.S. Berkeley Franz

Related topics

Accountability Financial documents and control Internal Revenue Service Public policy and nonprofit organizations Social responsibility of nonprofit organizations

Further reading and references

Affordable care act tax provisions for large employers. (2021). Internal Revenue Service. www​.irs​.gov/​affordable​-care​-act/​employers/​ affordable​-care​-act​-tax​-provisions​-for​-large​ -employers Community health needs assessment for charitable hospital organizations – Section 501(r) (3). (2021). Internal Revenue Service. www​.irs​ .gov/​charities​-non​-profits/​community​-health​ -needs​-assessment​-for​-charitable​-hospital​ -organizations​-section​-501r3 Rosenbaum, S. (2016). Hospital community benefit spending: Leaning in on the social determinants of health. The Milbank Quarterly, 94(2), 251–254. https://​doi​.org/​10​.1111/​1468​ -0009​.12191 Rosenbaum, S., Kindig, D. A., Bao, J., Byrnes, M. K., & O’Laughlin, C. (2015). The value

A 23 of the nonprofit hospital tax exemption was $24.6 billion in 2011. Health Affairs, 34(7), 1225–1233. https://​doi​.org/​10​.1377/​hlthaff​ .2014​.1424 Rozier, M. D. (2020). Nonprofit hospital community benefit in the U.S.: A scoping review from 2010 to 2019. Frontiers in Public Health, 8(72). https://​doi​.org/​10​.3389/​FPUBH​.2020​.00072 Young, G. J., Flaherty, S., Zepeda, E. D., Singh, S. R., & Rosen Cramer, G. (2018). Community benefit spending by tax-exempt hospitals changed little after ACA. Health Affairs, 37(1), 121–124. https://​doi​.org/​10​.1377/​hlthaff​.2017​ .1028

Antitrust In the world of nonprofit organizations, antitrust issues generally arise in one of three contexts: (1) with trade and professional associations, such as industry groups; (2) with large entities that engage in anti-competitive behavior in contracting; and (3) with mergers among nonprofits – particularly common in the healthcare sector – which result in less competition and thus harm the consumer.

Definition

Antitrust law is a compilation of federal and state laws which regulate business conduct to promote competition and to prevent monopolistic business activities. The three primary sources of federal laws on the subject are the Sherman Antitrust Act of 1890 (codified in 15 U.S.C. §§ 1–38), the Clayton Antitrust Act of 1914 (codified at 15 U.S.C. §§ 12–27 and 29 U.S.C. §§ 52–5), and the Federal Trade Commission Act of 1914 (codified at 15 U.S.C. §§ 41–58), and taken together these laws prohibit anti-competitive activities. State antitrust laws generally mirror and occasionally expand on these federal laws. It is important to note that there is no “nonprofit exemption” from the antitrust laws, as the U.S. Supreme Court reiterated in its 2021 decision in NCAA v. Alston. In other words, while many think of antitrust law as being a for-profit business issue, it is equally applicable to the nonprofit sector. The antitrust laws prohibit a number of per se antitrust violations, such as price fixing, bid rigging, and allocation of markets among members of a business group (e.g., each

member agrees to stay out of the market occupied by the other members). In addition, other anti-competitive conduct is considered using a “rule of reason” analysis, which compares the anticompetitive elements of a particular course of conduct against the procompetitive elements of that conduct. An activity which is not a per se violation may nevertheless be deemed an antitrust violation based on this rule of reason balancing test. Most potential antitrust issues are considered using this rule of reason approach. Antitrust violations carry severe penalties, ranging from fines to criminal prosecution to hefty civil damages. There is also the potential for individual liability in addition to organizational liability.

Applications: Issues with nonprofit associations

In the context of nonprofit associations, there are a number of activities which could give rise to antitrust issues. First, nonprofit associations must avoid sharing information and benchmarking which leads to price fixing. Almost by definition, many nonprofit industry group meetings are meetings of businesses which are in competition with each other. As such, it is important that the attendees at these meetings avoid discussing the following, each of which could result in illegal agreement in violation of the antitrust laws: ● Pricing ● Business practices ● Whether to do business with a particular business or organization ● Confidential strategic plans It is also important that nonprofit associations approach information gathering efforts, such as surveys, with care, to avoid the kinds of issues described above. Second, associations must exercise care in agreements regarding human resource issues. Association members must avoid discussions such as fixing compensation and benefits across a particular sector, exchanging nonpublic salary or benefits information, or agreeing to prevent employees from being free to switch employers. Finally, nonprofit associations should avoid professional certifications that are contingent on membership. For associations which certify individuals (e.g., certifying an Alexander C. Campbell

24  Elgar encyclopedia of nonprofit management, leadership and governance

individual as a specialist in a particular field) or businesses (e.g., certifying a business’ product as meeting certain standards), it can be problematic from an antitrust standpoint to tie such certification to membership in the association (i.e., restrict certification to only those businesses which are members of the association). Compliance strategies To help mitigate the risks of antitrust violations, a nonprofit association should do the following: ● Approve and scrupulously follow an antitrust policy, ● Provide periodic training on antitrust issues for members, ● Institute and cultivate a culture of compliance, ● Create an agenda for meetings and stick to it – and if deviation is necessary, make sure reason for deviation is meticulously documented.

Current and future directions

As noted above, while antitrust issues are often top of mind for nonprofit associations – to the point where some associations ask antitrust counsel to attend association meetings – antitrust issues appear in other nonprofit organization contexts as well. For example, a merger between two competing nonprofits may be analyzed through an antitrust lens to ensure that the resulting merged entity does not reduce competition. This is particularly relevant in the healthcare industry which has seen several waves of merger activity over the last several decades. Other aspects of the healthcare sector are also subject to antitrust scrutiny, such as arrangements which – intentionally or not – limit patient choice and access. Another example of antitrust in the nonprofit sector would be educational institutions colluding with each other regarding financial aid to students, TV rights to sporting events, or other anticompetitive behavior. Alexander C. Campbell

Related topics

Commercialism Competition Competitive forces Mergers and acquisitions Regulation of nonprofit organizations William M. Klimon

Social responsibility of nonprofit organizations Unfair competition

Further reading and references

Capps, C., Carlton, D., & David, G. (2020). Antitrust treatment of nonprofits: Should hospitals receive special care? Economic Inquiry, 58(3), 1183–1199. https://​doi​.org/​10​.3386/​ w23131 Philipson, T. J., & Posner, R. A. (2009). Antitrust in the not‐for‐profit sector. The Journal of Law and Economics, 52(1), 1–18. https://​doi​.org/​10​ .1086/​589704 Spotlight on Trade Associations. (n.d.). Federal Trade Commission. www​ .ftc​ .gov/​ advice​-guidance/​competition​-guidance/​guide​ -antitrust​-laws/​dealings​-competitors/​spotlight​ -trade​-associations

Articles of incorporation Definition

Articles of incorporation are the founding or charter document of a U.S. nonprofit corporation under a general incorporation statute. Although the Model Nonprofit Corporation Acts promulgated by the American Bar Association and adopted by most states use the term “articles of incorporation,” the same document is also known by other names, for example, certificate of incorporation (in Delaware and New York) and certificate of formation (in Texas).

General incorporation

Under a general incorporation statute, which every state has adopted, any legally competent person may file articles of incorporation, with contents required or permitted by law (as discussed below), with the relevant state agency (usually, the secretary of state’s office), and the state will recognize the entity described in the articles as a corporation, a separate legal person, which can own property and contract in its own name, can sue and be sued, and the liabilities and obligations of which do not attach to its legal agents or constituents. Prior to the adoption of general incorporation statutes, states would specifically charter corporations by act of the legislature. Even today some nonprofit corporations are specifically

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chartered by the U.S. Congress or state legislatures, but the vast majority are generally incorporated by the filing of articles. After the incorporator’s initial filing, articles of incorporation may be amended by the board of directors or, if the corporation has members, by the membership by an additional filing with the state.

Contents

The contents of nonprofit articles of incorporation can be grouped into three categories: ● provisions required under the state’s corporation law; ● provisions permitted under the state’s corporation law; and ● provisions required by the Internal Revenue Code (IRC) for tax-exempt status. Required provisions under state law Articles of incorporation need include only very little information under state law to form a nonprofit corporation. The states’ laws vary on what information is required, but there are some usual provisions. The first required item is typically a distinctive and legally permissible name. Many states prohibit names that suggest for-profit or other specific activities or affiliations with the government. Most states do not require nonprofit corporations’ names to include a corporate identifier (e.g., “Corp.” or “Inc.”), but even in those that do, they may include permission to use another term that denotes that the entity is a corporate body and not a natural person (e.g., “Church” or “Foundation”). Also universally required is the name of a registered agent and the address of a registered office for the service of process and to receive official notices from the secretary of state’s office. The registered agent is usually an individual officer or employee of the corporation resident in the state of incorporation or a commercial entity the business of which is to provide resident-agent services. The resident agent and office requirement frees nonprofit corporations from maintaining an office in their state of incorporation. Articles are also required to list the name and address of an incorporator. Historically, many states required more than one person to serve as incorporator – and it was customary

for all the founders of an organization to act as incorporators – but today the typical incorporator is a single individual, usually an agent acting for the new corporation. Usually, the state statutes also require a provision describing the corporation’s membership or if it will not have a membership. Including some additional provisions about the membership may be advisable, but most membership provisions are typically reserved to the bylaws or a membership agreement. Other typical required provisions include: ● the corporation’s street or mailing address; ● a statement of the corporation’s specific purposes or that the corporation is governed by the nonprofit corporation statute; that it is organized for nonprofit purposes; or that it is not authorized to issue capital stock; ● the type or class of nonprofit corporation it is (e.g., California and New York both require that a new corporation be designated as one of a particular type); ● whether the corporation is governed by any other statutes (e.g., laws regulating schools or hospitals); ● the duration of the corporation (the default is typically perpetual); ● some description of the corporation’s governance or of the manner of electing directors and, if the initial directors are named in the articles, their names and addresses; ● a statement that the corporation succeeds another organization; and ● a clause describing how the corporation’s assets must be disposed of upon dissolution (but see below). Optional provisions under state law The nonprofit corporation statutes are generally agreed that articles of incorporation may contain any provisions “not inconsistent with law” regarding the corporation’s purposes, business, governance and membership, and distribution of assets. In addition to the sometimes-required provisions listed above, some state statutes list these optional provisions: ● further provisions on how the corporation’s directors will manage its affairs; William M. Klimon

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● a description of any alternative to board governance; ● provisions limiting the directors’ liability; ● a description of each class of members and its rights and obligations; ● whether any third parties have rights in the corporation’s governance; ● whether the corporation is subordinate to any other organization; ● the consent of any governmental body or official to the incorporation; and ● any provision that could be included in the corporation’s bylaws. Required provisions for tax exemption In order to qualify for exempt status with regard to U.S. federal (and most states’) income tax, nonprofit corporations must be formed and function for specific tax-exempt purposes, with the governing documents including those purposes and some related language. The strictest requirements are reserved for charitable organizations, which must pass an “organizational test.” The organizational test requires three items be included in a charity’s articles of incorporation, whether quoted verbatim or using similar language: ● a statement of its purposes that is within the parameters of IRC § 501(c)(3), namely, that it is “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes,” and so on; ● language recognizing section 501(c)(3)’s limits on lobbying and its prohibition on political activity, namely, “no substantial part of the activities of [the charity] is carrying on propaganda, or otherwise attempting, to influence legislation … and which does not participate in, or intervene in …, any political campaign on behalf of (or in opposition to) any candidate for public office”; and ● a dedication of the corporation’s assets to charitable purposes upon its dissolution, which must be “distributed for one or more exempt purposes, or to the … government, for a public purpose, or would be distributed by a court to another organization” for similar purposes. Treas. Reg. § 1.501(c)(3)-1(b)(4).

Constance DeVereaux

Although not specifically included in the organizational test, a charity’s articles should also include section 501(c)(3)’s prohibition on private inurement – “no part of the net earnings of [the charity] inures to the benefit of any private shareholder or individual” – which is in fact what makes a nonprofit organization “nonprofit.” William M. Klimon

Related topics

Fiscal sponsor Forming a nonprofit organization Governance Internal Revenue Service Lifecycles of nonprofit organizations Regulation of nonprofit organizations

Further reading and references

Boyd, W. L., & Frey, J. C. (Eds.). (2012). Guidebook for directors of nonprofit corporations (3rd edn.). American Bar Association, Section of Business Law. Committee on Nonprofit Organizations. (2009). Model nonprofit corporation act (3rd edn.). American Bar Association, Section of Business Law. Hopkins, B. R. (2017). Starting and managing a nonprofit organization: A legal guide (7th edn.). John Wiley & Sons, Inc. Presser, S. B. (2002). Corporations: Nonprofit corporations. In K. L. Hall (Ed.), The Oxford companion to American law (pp. 170–171). Oxford University Press. Sorokin, C., Frey, J. C., Cion, J. A., & Sevcik, R. L. (2011). Nonprofit governance and management (3rd edn.). American Bar Association, Section of Business Law. Subcommittee on the Model Nonprofit Corporation Law. (1988). Revised model nonprofit corporation act. Prentice Hall Law & Business.

Arts and cultural organizations Definition

The National Taxonomy of Exempt Entities (NTEE) amalgamates “arts, culture, and humanities” organizations, drawing from a large and diverse array that includes performing arts touring companies, venues, and organizations, entities engaged in produc-

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tion (dance, theater, music, visual arts, film and video), ethnic organizations, nonprofit media, publishers, service organizations such as arts councils, arts education, multi-use arts centers, museums (art, history, science, natural history), and many others, equally diverse. As of 2020, there were 127,388 of these entities in the U.S.; 33,411 in performing arts (Cause IQ, n.d.). Difference in size, audience, mission, and organizational structure compounds challenges for treating arts and culture organizations in a single category. The common thread is a loose connection to an anthropological conception of culture that, broadly delimited, refers to socially transmitted beliefs, traditions, habits, expressions, and practices with the arts as one subset. Definitions among scholars, researchers, policy makers, artists, cultural workers, and the general public are frequently in dispute on practical and theoretical grounds. What counts as art (referred to as Art in the distant past) has been disputed since ancient times. “Culture” is equally intractable; the types of “cultural” nonprofit organizations continually expands. Further, the term is frequently taken to refer only to traditional institutional offerings at art museums, ballet and opera companies, and symphony orchestras, rather than in broader meaning. Considered, in this way, as elitist, accessible only to sophisticated tastes, and reflecting Western European traditions, a limited conception of culture can lead to assumptions that nonprofit arts organizations do not serve the general public.

In practice

For policy and practical purposes (such as organizational management), definitional disagreements affect funding, policy support, program decisions, exhibitions, performances, advertising and promotion, and donor solicitation. Formal definitions, such as by the National Endowment for the Arts, provide limited guidance. The term “the arts” includes, but is not limited to, music (instrumental and vocal), dance, drama, folk art, creative writing, architectural and allied fields, painting, sculpture, photography, graphic and craft arts, industrial design, costume and fashion design, motion pictures, television, radio, tape and sound recording, and the arts related to the presentation, performance, execution, and exhibition

of such major art forms (National Foundation on the Arts and the Humanities Act of 1965, 1965). The definition is not exclusive, recognizing the dynamic nature of art production and the likelihood of new forms. Conceding, for practical purposes, that a thing or activity is art if enough people consider it so, a perennial challenge for nonprofit arts and culture organizations is attracting sufficient audiences for their offerings as well as support (through donations) of their causes. Tensions between what an organization wishes to express, artistically, and what will serve needs and interests of the public are ongoing struggles. A heightened period of controversy occurred in the era of the so-called Culture Wars (late 1980s to early 1990s) when public funding of arts performance and exhibition was questioned. In brief, the period’s tensions stemmed from art movements of the 1960s–1970s (pop art, minimalism, conceptual art, performance art, psychedelic art, guerilla theater, and others) that confronted traditional sensibilities, leading some societal groups to demand censorship and bans. Because of this impact on public and political perceptions about the arts, funding often favors organizations demonstrating concrete social outcomes (increased civic engagement, improved educational effects, reduction in numbers of at-risk youth, economic impact). Assumptions about arts’ potential to achieve these goals, however, are not clearly established (Belfiore & Bennett, 2007; Ortega-Villa & Ley-Garcia, 2017). Another lasting outcome is that controversy about works exploring political, sexual, and radical social justice themes may render them less attractive to some funders. Of historic significance is the proliferation of U.S. arts nonprofits in the 1960s and 1970s due to philanthropic interests of large funding institutions such as the Ford and Rockefeller Foundations; eligibility was often reserved for nonprofits. Generous funding led many entities to choose nonprofit status over other organizational forms. Later changes in philanthropic interest by the same foundations eliminated some funding sources. Dissolution of many arts and culture nonprofits resulted from an inability to replace or expand revenue streams. Constance DeVereaux

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Organizational structures of nonprofit arts and culture organizations follow similar patterns with variances largely to do with size, and presence of paid, professional staff. Smaller organizations tend to be volunteer run, with board of directors fulfilling both governance and management roles. Mid-sized and large organizations follow one of two general models: sole leadership by an executive director, or CEO, reporting directly to a board of directors, or dual leader structure with executive director (also known as managing director) for administrative and financial needs, and an artistic director, responsible for presentation, production, and programming. Most often, dual leadership occurs in performing arts entities (theatrical, dance, and music presenting organizations). Financial complexities arise from the need to reconcile artistic aims with financial exigencies while demanding “the contextual knowledge required to successfully navigate the non-profit realm” (Heidelberg, 2019, p. 56). Art production and presentation are costly; expenses of a single opera production can be well over a million dollars, only partly offset by audience revenues. Costumes, constructing sets, performers’ salaries (for rehearsals and performances), travel, insurance, and advertising are only some of the costs to mount a performance above and beyond daily operational expenses. Income generation is an on-going concern. Government (federal, state, and local) and foundation grants, corporate, and individual donations are primary income sources supplementing ticket sales for performances, exhibitions, and events. Some organizations also rely on gift shop sales, event concessions, memberships, corporate sponsorships, and facility rentals. In recent years, especially due to the Covid-19 pandemic, arts and culture organizations dependent on ticket sales and other earned revenue fared worse than those whose primary income is from grants and donations. Notably, grants and donations to arts organizations, in the Covid-19 period have increased by approximately 15 percent (Cause IQ, n.d.). Overall, and disproportionate to other nonprofits, organizations in the NTEE category arts, culture, and humanities, have seen a downturn in revenues of approximately 7.5 percent (ibid). As an example, 76 percent of U.S. museums report decreases in operatConstance DeVereaux

ing income in 2020 (American Alliance of Museums, 2020). Although the pandemic partially accounts for the decline, trends in place before 2020 indicate that while overall charitable giving increased, giving to arts nonprofits decreased (Wolf, 2020).

Current and future issues

Ongoing challenges include lack of clear articulation about the value of programs, exhibitions, and performances offered by nonprofit arts and cultural organizations compared to for-profit and public entities. Responding to changing public tastes and values, especially regarding diversity, is another challenge, as well as the need for appropriate arts and cultural management leadership training. Constance DeVereaux

Related topics

Earned income Financing nonprofit organizations Governance Income portfolio analysis Marketing Politics and philanthropy

Further reading and references

American Alliance of Museums. (2020). National Snapshot of Covid-19 impact on United States Museums. www​.aam​-us​.org/​wp​-content/​ uploads/​2021/​05/​2021Third​-Snapshot​-Survey​ -on​-the​-Impacts Belfiore, E., & Bennett, O. (2007). Determinants of impact: Towards a better understanding of encounters with the arts. Cultural Trends, 16(3), 225–275. https://​doi​.org/​10​.1080/​ 09548960701479417 Byrnes, W., & Brkić, A. (Eds.). (2020). The Routledge companion to arts management. Routledge. Cause IQ. (n.d.). Arts, culture, and humanities organizations. Arts, culture, and humanities nonprofits. www​.causeiq​.com/​directory/​arts​ -culture​-and​-humanities​-nonprofits​-list/​ DeVereaux, C. (Ed.). (2019). Arts and cultural management: Sense and sensibilities in the state of the field. Routledge. Heidelberg, B. M. (2019). The professionalization of arts management in the United States: Are we there yet? Cultural Management: Science and Education, 3(1), 53–66. https://​ doi​.org/​10​.30819/​cmse​.3​-1​.04 Kreidler, J. (1996). Leverage lost: The nonprofit arts in the post-Ford era. The Journal of

A 29 Arts Management, Law, and Society, 26(2), 79–100. https://​doi​.org/​10​.1080/​10632921​ .1996​.9942956 National Foundation on the Arts and the Humanities Act of 1965. P. L. 89–209. (1965). Ortega-Villa, L. M., & Ley-Garcia, J. (2017). Analysis of cultural indicators: A comparison of their conceptual basis and dimensions. Social Indicators Research, 137(2), 413–439. https://​doi​.org/​10​.1007/​s11205​-017​-1588​-2 Paquette, J., & Redaelli, E. (2015). Arts management and cultural policy research. Palgrave Macmillan. Stein, T. S., & Bathurst, J. R. (2008). Performing arts management: A handbook of professional practices. Allworth Press. Taylor, J. (2017). Visual arts management. Routledge. Wolf, M. C. (2020). Arts funding is facing a dire crisis. To survive, cultural organizations must change how they frame themselves to the public. Artnet News. https://​news​.artnet​.com/​ opinion/​arts​-funding​-op​-ed​-melissa​-cowley​ -wolf​-1929365 Zeigler, J. W. (1993). Arts in crisis: The national endowment for the arts versus America. Chicago Review Press.

Audit Definition

Nonprofit organizations (NPOs) interact with various types of stakeholders including donors, government contractors, creditors, and beneficiaries of their programs. All of these stakeholders are interested in how NPOs use their funds and, in particular, whether those funds have been appropriately used for their intended purpose. Financial reporting is an important aspect of NPOs’ discharge of accountability to these stakeholders, most notably the upward stakeholders such as donors, grantors, creditors, rating agencies and tax authorities. Rating agencies and (actual or potential) fund providers, for example, may rely on NPOs’ financial statements to assess organizations’ efficiency, financial health and/or financial needs.

Depending on relevant national, regional or local requirements, the financial statements include: ● a balance sheet, or statement of financial position: a statement showing the assets, equity and liabilities; ● an income statement, or profit and loss account: a statement showing the revenues and expenses; ● a cash flow statement: a statement showing the operating, investing and financing cash in and outflows; and ● notes to the financial statements: a more bulky statement providing additional detail regarding the figures disclosed in the aforementioned statements. All statements serve a different purpose, but are equally important. Creditors, for example, will rely heavily on the balance sheet to assess solvency and/or liquidity, while donors may rely more heavily on the income statement to assess efficiency. The program ratio, being a frequently employed efficiency metric by donors, is derived from information regarding expenses, which is disclosed in the income statement. The fact that stakeholders may rely on financial statements in their decision process (e.g., whether or not to make a donation or grant a loan) might create incentives for management to misreport the information disclosed in these statements. Examples include different types of expense shifting such as overstating program expenses to enhance perceived efficiency in using resources toward the mission or over allocating indirect expenses from tax-exempt activities to taxable unrelated business activities in order to minimize unrelated business income tax. That is where the external financial statements audit comes in. The primary objective of an external financial statements audit is providing reasonable assurance that these statements are free of material errors, including an evaluation of the organization’s internal control and compliance with federal regulations and GAAP (Generally Accepted Accounting Principles). The auditor reports his/her findings in the so-called audit report, which is then attached to the financial statements and in which the auditor expresses an opinion on financial statements’ quality. The audit report can reflect an unqualified, or “clean” Anne-Mie Reheul and Tom Van Caneghem

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opinion, versus a modified opinion. The latter signals uncertainties regarding the trustworthiness of the financial statements in which case the auditor may attach a qualified opinion, an adverse opinion, or even a disclaimer of opinion. In extreme cases the auditor may express an opinion regarding the financial sustainability of the organization, which is called a going concern opinion (GCO). For NPOs’ stakeholders, an unqualified audit opinion can thus be considered an independent quality stamp and implies that the financial statements are trustworthy. In sum, financial reporting and external auditing are important monitoring mechanisms in the nonprofit sector. High-quality financial reporting (and thus auditing) may help support public trust and confidence in the sector.

ments audit as part of the rating process and/or as a requirement to further disclose information about the organization. Finally, a large funder of the organization such as a government contractor may also impose an external financial statements audit.

Current and future directions

Contemporary research shows that the quality of nonprofit financial statements is worrisome. Accounting errors and intentional actions to enhance financial statements appear to be a bigger problem in NPOs than in similar-sized for-profits (FPs). The non-profit sector is not free from financial scandals. Because nonprofits do not have shareholders per se responsibility falls on (often volunteer) NPO governing boards to give assurances to many different stakeholders regarding the financial viability and In practice trustworthiness of the organization. Lack of An external financial statements audit financial literacy and other limitations on may be imposed by law from the relevant volunteer governing boards can potentially national, regional, or local jurisdiction. If result in a lack of oversight. As discussed so, the requirement is typically linked to earlier, the external financial statements certain size criteria, where larger organiza- audit provides assurance that financial statetions are then subject to a mandatory exter- ments are a trustworthy reflection of undernal financial statements audit. Examples of lying economic performance. applicable size criteria relate to the total As such, it should not come as a surprise amount of donations and/or government that NPOs undergoing an external financial grants received; total revenues; total assets; statements audit are consistently revealed and total employees or some combination of to demonstrate higher financial statements these criteria. quality, e.g., higher GAAP compliance and In the absence of a legal requirement, lower expense shifting. However, not every there might be other incentives and/or auditor performs equally well in constrainexternal pressures to opt for an external ing financial statements errors or manipufinancial statements audit. If an organiza- lation. While it is generally acknowledged tion, for example, relies heavily on finan- in the literature that larger audit firms cial debt to ensure continuity of services, are more independent and provide higher negotiations with creditors on issues such quality than smaller audit firms, there is no as credit limits and/or interest rates may consistent evidence linking audit firm size be favorably affected by the presence of to higher audit quality in NPOs. Another externally audited financial statements. As important observation is that large auditanother illustration, to obtain the Gold Seal, ing firms command relatively small market the Guidestar (U.S. rating website, see www​ shares in the nonprofit sector (4 percent .guidestar​ .org/​ ) refers to audited financial in U.S., 15 percent in Belgium, 17 percent reports (or basic financial information). In in U.K.). NPO audits tend to be riskier a similar vein, donorinfo.be (Belgian non- due to operating loss or internal control profit financial transparency website, see deficiencies and more time-consuming for www​.donorinfo​.be/​) requires audited finan- the auditing firm due to lacking accounting cial statements for an organization to be expertise or unique sectoral or local regulisted on its website. So, nonprofit infor- lation. Moreover, NPO audits are further mation intermediaries (which are extremely complicated by the presence of restricted important in attracting competitive funding) funding. Therefore, large audit firms may may also impose an external financial state- consider NPOs less economically attracAnne-Mie Reheul and Tom Van Caneghem

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tive as clients. Quality measures other than auditor size might be more appropriate in the NP setting. Auditor expertise in specific NP sectors such as education or healthcare is found to be a more valid quality measure. Because of an in-depth knowledge of the relevant sector-specific financial reporting and auditing issues, laws and regulations and business characteristics, sector experts are more effective and efficient across a variety of auditing tasks. It is argued that audit firms do not necessarily specialize on a national basis, but rather by office or by state/city, thus both small and large audit firms can build an extensive market share in a specific local NP sector and gain sector expertise. Further, in line with knowledge being individually held, also partner-level sector expertise is revealed to be a valid audit quality measure. Audits by sector experts are associated with higher GAAP compliance, lower expense shifting, higher disclosure of errors and uncertainties in the audit report and fewer deficiencies noted in quality control reviews. Auditor sector expertise is also associated with higher client satisfaction. Finally, it is important to note that the occurrence of unexpectedly high audit fees (as a proxy for audit effort) is associated with lower expense shifting and may be considered a valid audit quality measure as well. Besides financial reporting consequences, a high-quality audit or a voluntary audit (when an external financial statements audit is not legally required) also has economic consequences, such as helping NPOs attracting donations and grants. This is attributable to three specific indirect functions of an audit: (1) the audit’s signaling function – a signal of the organization’s credibility; (2) the audit’s advice function – helping the NPO apply industry best practices in operations and fundraising; and/or (3) the audit’s insurance function, in which auditors provide implicit insurance coverage to (funding) parties in the event of audit failure. Audits by respected firms, whether large or small, have been linked to higher future donations and grants. Concerning sector expertise more specifically, there is evidence that only grantors (or professional users of financial statements) are able to

correctly assess an auditor’s sector expertise and adapt funding accordingly. Audit outcomes (audit opinions) have economic consequences as well, particularly when the auditor expresses serious concerns about the financial viability of the NPO. GCOs are found to negatively affect contributions from governments and large donors, while small donors seem to contribute more following a GCO. Some less sophisticated donors seem to experience a “warm glow” when their contributions can save a failing nonprofit, but more sophisticated donors/ grantors generally reward NPOs for the ability to continue operations, for improved efficiency and effectiveness. Finally, regarding the auditor choice decision that NPOs make themselves, a choice in favor of a high-quality audit or a voluntary audit is more likely when the risk of information asymmetry is high. High-quality or voluntary audits are also associated with a better governance system such as board independence, indicating that it is a component of NPOs’ overall governance system in addressing information asymmetry. Further, higher risk NPOs in terms of financial health (e.g., loss) are found to select higher quality auditors as the latter may be in a position to provide tailored assistance and may serve as a signal of commitment to financial improvement. Noncompliance in financial reporting and internal control deficiencies can have adverse effects, such as damaged reputation (not only for the NPO itself, but the NP sector as a whole) resulting in decreased funding, criminal and civil penalties, and so on. This bears regulatory implications, such as encouraging NPOs to adopt more rigorous governance. To increase NP board effectiveness in ensuring good internal controls and financial statements compliance, policy makers, umbrella organizations or (subsidizing) governments should facilitate the search of board members with financial qualifications. Further, to increase audit quality in the NP sector, they should improve awareness of the value that auditors, and sector experts more specifically, can provide. Also, sector experts themselves can better inform NPOs via company profile descriptions. Anne-Mie Reheul and Tom Van Caneghem Anne-Mie Reheul and Tom Van Caneghem

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Related topics

Accountability Accounting practices, rules, and standards Financial documents and control Fraud and corruption Fraud detection and investigation Internal Revenue Service

Authoritarian regimes and the nonprofit community Definitions and variations

Nonprofit and civil society organizations have a difficult time under authoritarian regimes. Authoritarians do not like indeAmin, K., & Harris, E. E. (2017). Nonprofit stakeholder response to going-concern audit pendent nonprofit organizations; they conopinions. Journal of Accounting, Auditing & sider them a threat to the power of the Finance, 32(3), 329–349. https://​doi​.org/​10​ authoritarian state. And so authoritarian regimes seek to control, constrain and mold .1177/​0148558x15604989 Garven, S. A., Beck, A. W., & Parsons, L. M. the work of nonprofit organizations within (2018). Are audit-related factors associated their borders, and sometimes beyond. with financial reporting quality in nonprofit This entry examines the constraints organizations? AUDITING: A Journal of imposed on nonprofit organizations by Practice & Theory, 37(1), 49–68. https://​doi​ authoritarian regimes. By necessity this .org/​10​.2308/​ajpt​-51819 Harris, E. E., Tate, S. L., & Zimmerman, A. B. entry speaks generally about the topic, (2019). Does hiring a local industry specialist but at the outset, it is important to note auditor matter to nonprofit organizations? the variation among authoritarian regimes Nonprofit and Voluntary Sector Quarterly, and among nonprofit organizations. That 48(3), 633–664. https://​doi​.org/​10​.1177/​ variation substantially affects the treat0899764018784752 ment that authoritarian regimes mete out to Hay, D., & Davis, D. (2004). The voluntary nonprofits. choice of an auditor of any level of quality. On the furthest, harder end of the authorAUDITING: A Journal of Practice & Theory, itarian spectrum we have fully authori23(2), 37–53. https://​doi​.org/​10​.2308/​aud​ tarian states that allow no forms of civil .2004​.23​.2​.37 Hofmann, M. A., & McSwain, D. (2013). society to exist within their borders. North Financial disclosure management in the non- Korea (Democratic People’s Republic of profit sector: A framework for past and future Korea, DPRK) is among the few such fully research. Journal of Accounting Literature, authoritarian states in the world today. 32(1), 61–87. https://​doi​.org/​10​.1016/​j​.acclit​ No independent civil society, nonprofit or .2013​.10​.003 philanthropic organizations are permitted Reheul, A.-M., Van Caneghem, T., Van den to exist or operate in the DPRK. Bogaerd, M., & Verbruggen, S. (2017). If that were the extent of the spectrum Auditor gender, experience and reporting in of authoritarian states then the task of this nonprofit organizations. Managerial Auditing Journal, 32(6), 550–577. https://​doi​.org/​10​ entry would be relatively simple indeed. But that is far from the case. In the world .1108/​maj​-01​-2016​-1296 Vermeer, T. E., Edmonds, C. T., & Asthana, S. today we have other governments that are C. (2014). Organizational form and account- generally considered authoritarian, but not ing choice: Are nonprofit or for-profit man- in the same form or to the same degree as agers more aggressive? The Accounting the DPRK. Review, 89(5), 1867–1893. https://​doi​.org/​10​ Far more important are authoritarian gov.2308/​accr​-50796 ernments that permit and even encourage a nonprofit and philanthropic sector, such as the governments of China, Vietnam, Laos, and other states. The policies of these authoritarian regimes are far more useful for our analysis because of the dual position that these governments take toward the nonprofit sector: they seek to control, constrain, and restrict many aspects of nonprofit life, including but not necessar-

Further reading and references

Mark Sidel

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ily limited to nonprofit and civil society advocacy. At the same time, they recognize the importance of a nonprofit sector that provides social services and serves the state’s interests, and the interest of ruling communist parties. That dual policy – restriction and encouragement for service-oriented activities – is the key animating set of policies that authoritarian governments have had toward the nonprofit sector in China, Vietnam, and several other countries. Overall, we may call this “more third sector, less civil society.” And we may summarize these policies by noting that these authoritarian governments seek not to entirely prohibit a nonprofit sector but to mold and control it through extensive policy and regulatory action.

In practice: Forms of controls over nonprofit organizations under authoritarian regimes

What measures do authoritarian governments in countries such as China and Vietnam take to effectuate this dual mission of controlling the nonprofit sector, and encouraging the social service aspects of it to serve state interests? And here I note that other states that are not always considered authoritarian, such as India and other governments, may use some or many of the same tools. Key examples of controls and molding of nonprofit and civil society entities in authoritarian contexts (and often in some less authoritarian contexts as well) include: Restrictions on overseas funding for domestic nonprofit activities States such as China and Vietnam impose heavy regulatory and policy burdens on overseas funding for domestic nonprofit activities. The best example of these restrictions on overseas funding are the Overseas NGO Law of the People’s Republic of China (enacted 2016, effective 2017), and the Foreign Contribution Regulation Act (FCRA), enacted by the government of India in the 1970s and made fully enforceable toward domestic nonprofit entities in the 1980s. These types of instruments make foreign financing exceptionally difficult, if not impossible.

Restrictions on the work of overseas organizations within authoritarian countries Similarly to the restrictions on overseas funding, a number of authoritarian governments make operational activities by overseas nonprofit organizations and foundations very difficult. This is accomplished through onerous application, permission, and prohibition regimes in such countries as China, India, Vietnam, and Laos. Restrictions on formation of domestic nonprofit associations and other entities On the domestic side, a number of authoritarian as well as less authoritarian governments take regulatory and policy steps to make the formation of domestic nonprofit entities quite difficult and onerous. High application requirements; difficulty in obtaining permissions; frequently changing regulatory and policy requirements; and other means are used to make the formation of domestic nonprofit entities as onerous and difficult as possible. Restrictions on programmatic and advocacy activities of nonprofit and associational entities Even if domestic nonprofit and associational entities are allowed to legally form, their programmatic activities are often significantly restricted in authoritarian countries (and often in less authoritarian countries as well). Governments impose restrictions on advocacy activities; on policy activities; on membership activities; on meetings; and in myriad other ways. Restrictions on resource mobilization by nonprofits and associations Authoritarian governments that seek to control the nonprofit and associational sector almost always impose significant constraints on fundraising by nonprofit entities, in an attempt to control the growth of the sector and to mold nonprofit activities toward the state’s goals. These regulatory and policy tools may impose high barriers to fundraising; limit fundraising to social and human services; make online fundraising very difficult; and restrict fundraising in many other ways. Mark Sidel

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Restrictions on nonprofit finances A number of authoritarian governments restrict nonprofit finance. Nonprofits may be required to spend a high percentage of their income on service activities within the year in which those funds are received. They may be required to hold funds only in particular banks, often state banks. They may face significant restrictions on how nonprofit funds may be invested and managed. Endowments may be significantly restricted. Very heavy monitoring and reporting burdens on nonprofits In a number of authoritarian countries, nonprofit organizations are subject to exceptionally high monitoring and reporting burdens. This is the case in China and Vietnam, but also in countries such as India as well. Nonprofit entities may be required to report to the government exceptionally frequently and on the most detailed aspects of their operations. They may be subject to punitive tax treatment from the state. They may be required to obtain state approval for normal and typical governance activities, such as changes to boards of directors. These monitoring and reporting burdens exist in a wide array of additional areas as well. Repression of civil society activists Very importantly, a key tool for authoritarian control of civil society and the nonprofit sector is the repression of civil society and nonprofit leaders and activists. In China, Vietnam, India, and other countries, nonprofit leaders and activists are arrested, held in cruel conditions, tried, convicted, and imprisoned on grounds of opposing the state, and on manipulated or exaggerated charges of failing to report or obtain approval for activities; tax violations; and other legal charges.

Future directions for nonprofit and civil society organizations under authoritarian regimes

The struggle to expand civic, operational, and financial space for nonprofit and civil society organizations under authoritarian governments is an unending one. How that Mark Sidel

struggle plays out depends on different national and sometimes local contexts, and so the fields of contention between governments and the nonprofit sector may look quite different in different authoritarian environments. In China, for example, some contention is centered on the drafting of laws and regulatory documents governing the nonprofit sector, such as the long debate over China’s first omnibus Charity Law, which was enacted in 2016. In Vietnam, somewhat similarly, there is much contention over regulatory documents (such as the still-unenacted (as of October 2023) Law on Associations), and on the scope for everyday activities in the nonprofit sector. In India, the government and the nonprofit sector have contended for decades over onerous regulatory requirements, and over the government’s attempts to significantly restrict foreign funding for nonprofit activities in India through the Foreign Contribution Regulation Act (FCRA). All this points to the long continuation of the struggle between states and civil society over autonomy and space for nonprofit, philanthropic, and civil society organizations. These struggles will play out, as this entry has indicated, in different ways and different times in different countries. But for researchers, practitioners and activists, keeping track of and advocating within these conflicts is an ongoing task. Mark Sidel

Related topics

Civil society Comparative perspectives on nonprofit organizations Diaspora philanthropy Global conflict and philanthropy Public policy and nonprofit organizations

Further reading and references

Agarwal, S. (2021). Accountable handbook FCRA 2010: Context, concepts and practice (2021 ed.). AccountAid India. Breen, O., Dunn, A., & Sidel, M. (Eds.). (2017). Regulatory waves: Comparative perspectives on state regulation and self-regulation policies in the nonprofit sector. Cambridge University Press. Sidel, M., & Moore, D. (2019), The law affecting civil society in Asia: Developments and

A 35 challenges for nonprofit and civil society organizations. International Center for Not-for-Profit Law. Son, P. T., Doan, D. R. H., & Sidel, M. (2022). Philanthropy after Covid: What can we learn from Vietnam? Alliance magazine. www​.alliancemagazine​.org/​analysis/​

philanthropy​-after​-covid​-what​-can​-we​-learn​ -from​-vietnam/​ Spires, A. J. (2019). Regulation as political control: China’s first charity law and its implications for civil society. Nonprofit and Voluntary Sector Quarterly, 49(3), 571–588. https://​doi​.org/​10​.1177/​0899764019883939

Mark Sidel

B

Beneficiaries

activity. Nonprofits also adopt new terms as older ones take on negative connotations. For example, some nonprofits stopped using client and now use constituent or customer to suggest a more empowered role vis-à-vis the organization.2 No other stakeholder group seems to be referenced by such a wide range of terms. I use “intended beneficiaries” because, although limited, it reminds us that these individuals should benefit from the efforts of these organizations: they are the rationale for a nonprofit’s existence and should be central to our analysis of these organizations. This includes not only human service nonprofits but community and grassroots organizations, neighborhood development nonprofits, self-help and mutual aid groups, social movement organizations – all those nonprofits that focus on people’s lives.

Defining key concepts and terms

Many nonprofit organizations are formed to address the interests, concerns, and issues of distinct populations. These individuals, families, and communities are the intended beneficiaries of nonprofit strategies and programs. But importantly, intended beneficiaries are not simply external stakeholders who are the targets of strategies and programs; they are important organizational actors whose roles and overall experience in the organization not only matter for management and leadership but also for the social impact of these organizations. These individuals are central to nonprofits’ missions, inform the strategies nonprofits adopt, and motivate donors, volunteers, and staff to contribute to the organization (Benjamin, 2021a). Before proceeding, I want to address my choice to use the term intended beneficiaries. Nonprofits use several terms for this stakeholder group including constituents, clients, community, customers, grassroots leaders, members, participants, residents, service recipients, and so on. The fact that so many terms exist points to the variety of potential roles and the unsettled status these individuals have in the organization, compared to other nonprofit stakeholders. For example, some nonprofits use the term member to indicate these individuals have an equal status within the organization, while others use customer to suggest that the satisfaction of this stakeholder group orients the nonprofit’s

Current issues and challenges

No systematic review of research on nonprofits’ intended beneficiaries exists to date. As part of a previous study, I reviewed research published in Nonprofit and Voluntary Sector Quarterly, Nonprofit Management & Leadership and Voluntas between 1998 and 2018. This review found that only 2 percent of the articles reported findings about the experience of intended beneficiaries in these organizations. In fact, compared to other nonprofit stakeholder groups including staff, board, executive directors, funders, and volunteers, intended beneficiaries received the least attention, with volunteers receiving the most.3 A review of those empirical articles that

2 Language both reflects and can affect societal structures. The uneasy choice about terms for these nonprofit stakeholders reflects this. 3 There were more than four times the number of articles with volunteers and related keywords in the abstract title or keyword as there were for intended beneficiaries and related keywords. This is understandable when we consider that one of the three journals, Nonprofit and Voluntary Sector Quarterly, originated as the Journal for Voluntary Action Research. Interest in volunteering has been a core focus of many scholars, including those who study formal nonprofit organizations.

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B 37

included beneficiary and related key terms in the title, abstract, or keywords (N=130) provided only a fragmented and limited understanding of intended beneficiaries. Consequently, we need a more wholistic approach to understand intended beneficiaries, including how they engage with and experience these nonprofits. More to the point, we need to theorize the leadership, management, and impact of these organizations from the perspective of intended beneficiaries. How can we develop a fuller account of nonprofits and what it takes to lead and manage them by looking to intended beneficiaries? In his early scholarly treatment of nonprofits Ralph Kramer (1987) made a prescient point, one that seems to have gone unrecognized by subsequent scholars: what distinguishes nonprofits from other organizations is not voluntarism, but rather the role of intended beneficiaries in the governance of these organizations. Kramer recognized that intended beneficiaries play diverse roles and have wide-ranging relationships to nonprofit organizations. Using this observation as a starting point, we can begin to conceptualize nonprofits along two dimensions: 1) the degree of control intended beneficiaries have in the organization; and 2) the degree of commonality between intended beneficiaries and those leading and staffing the organization. Organizations that are more collectivist and member based, such as self-help and mutual aid groups or community-based groups made up of residents, would be high in both dimensions, whereas organizations that are professionalized bureaucracies with trained expert staff, such as health clinics, would likely be lower on both. These dimensions are descriptive, not normative. This is not suggesting that all nonprofits should become member based organizations. Rather the suggestion is that these two dimensions can help us with the analysis of the intended beneficiary– nonprofit relationship in ways that can inform the leadership in these organizations. The degree of control that intended beneficiaries have when they engage with a nonprofit organization includes the degree of control they have in the service process, including what they do, who they work with, how long they engage and with what degree of intensity. This also includes the degree of control or authority intended beneficiaries

have in the organization itself, including its operations and governance. For example, in some community-based organizations residents make up the majority of the board. In grassroots organizations decisions about strategy are made collectively by members. The degree of commonality refers to important shared experiences, backgrounds, or social identities between intended beneficiaries and those leading and staffing the organization. For example, in self-help and mutual aid organizations, the members all share a common problem or experience that brings them together to support each other in addressing the issue, whether it is addiction, building a business, childcare, or something else. In formal social service settings, some nonprofits hire staff who share the lived experience of the participants. The degree of control intended beneficiaries have in the organization and the extent to which they share commonalities with leaders and staff have implications for nonprofit management and governance. For example, in studies of community development corporations, where community residents make up half the board, scholars have shown that without active attention by nonprofit leaders, these community residents may not have real power on the board to ensure these neighborhood organizations are accountable to the community. When nonprofits hire staff with lived experience, they often assume that this commonality will enable these staff to work more effectively with intended beneficiaries because they have “been there.” The assumption, supported by research, is that these staff are trusted more easily, serve as role models, destigmatize issues and help create an organizational culture that is less alienating. But studies find that nonprofit leaders do not know how to successfully support these staff, they may be treated as clients by other staff, diminishing their status while at the same time not being supported in how to use their lived experience with their peers (Benjamin, 2018). These are just two strategies nonprofits use to ensure greater social impact, and yet our nonprofit management curricula give scant attention to how leaders can effectively employ such strategies and lead organizations where intended beneficiaries are not simply the motivation for action but where their experience guides the management and leadership of nonprofit organizations. Lehn M. Benjamin

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Future research

Three immediate lines of research emerge as useful starting points. First, we need descriptive work that provides a wholistic understanding of the variation in the roles, formal and informal, that intended beneficiaries play in the organization, including the extent of their engagement, their contributions, and what such roles require of staff and leadership. We need to understand how these roles vary both across and within organizations. Second, we need to understand how intended beneficiaries experience these organizations, why and how such experience varies depending on the organizational structure, as well as what such experience suggests for leading these organizations and for their impact. Third, picking up on Kramer’s (1987) original point, we need to understand not just what intended beneficiaries do and experience, but how both of these are affected by their formal authority within the organization. For example, although intended beneficiaries may play a role on the board, this may say little about the real authority they have on that board or within the organization. In the end, we need to start putting intended beneficiaries at the center of managing and leading these organizations. Lehn M. Benjamin

Related topics

Accountability Civil society Commons Social responsibility of nonprofit organizations Stakeholder management

Further reading and references

Benjamin, L. M. (2018). Client authority in nonprofit human service organizations. In R. Cnaan & C. Milofssky (Eds.), Handbook of community movements and local organizations (pp. 141–154). Springer Publishing. Benjamin, L. M. (2021a). Beyond programs: Toward a fuller picture of beneficiaries in nonprofit evaluation. In P. Dahler-Larsen (Ed.), A research agenda for evaluation (pp. 81–103). Edward Elgar Publishing. Benjamin, L. M. (2021b). Bringing beneficiaries more centrally into nonprofit management education and research. Nonprofit and Voluntary

Jacqueline Bouvier Copeland

Sector Quarterly, 50(1), 5–26. https://​doi​.org/​ 10​.1177/​0899764020918662 Benjamin, L. M. (2021c). Putting participants at the center of managing and leading nonprofits. Stanford Social Innovation Review. https://​ssir​ .org/​articles/​entry/​putting​_participants​_at​_the​ _center​_of​_managing​_and​_leading​_nonprofits Kramer, R. M. (1987). Voluntary agencies and the personal social services. In W. W. Powell (Ed.),  The nonprofit sector: A research handbook (pp. 244–257). Yale University Press.

Black philanthropy Giving context

Black people have had diverse, complex societies for millennia that included giving as an expression of love for humanity. A broad, cross-cultural definition of philanthropy is now generally accepted in the field. The degree to which giving is to strangers for purely altruistic purposes also varies. Unfortunately, most people do not learn the history of Black people worldwide in public or other educational settings beyond racialized stereotypes and tropes. Therefore, Black sociocultural phenomena such as philanthropy must start with historical basics. Also, most people understand philanthropy as the voluntary giving of large sums of money by wealthy people without understanding how this narrow, mostly Western construct manifests differently in diverse societies. So, this entry begins with a global Black history overview and philanthropy fundamentals as context for its description of contemporary trends. Philanthropy exists across the diversity of Black cultures worldwide. When looking at social institutions from a cross-cultural perspective throughout recorded history, giving is a universal attribute of humanity just as the family is, although its values, cultural expression, and social organization vary significantly across societies (Copeland-Carson, 2005; Wiepking, 2020). Mainstream, Western, and dominant notions of “philanthropy” as organized in elite, wealthy institutions such as foundations or banks are just one of a myriad of ways to organize giving. The degree to which giving is to strangers or for purely altruistic purposes also varies. As the number of university and

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hospital buildings prominently named after their donors demonstrate, prestige is a powerful philanthropic motivation. Black people have practiced culturally specific forms of philanthropy for millennia. Starting with its ancient roots in Africa, the remainder of this entry overviews the history and transformations of Black philanthropy and its scholarship, defining its core attributes and trends worldwide, citing seminal developments and literature. It concludes with a commentary on the challenges and opportunities facing the field, especially in these contemporary times of racial reckoning, calls for equity, as well as new COVID era crises and opportunities facing Black communities everywhere.

In practice: Giving roots and transformations Pre-historic and ancient times Using the available evidence, documented in ancient Egyptian writings, one can credibly argue that Black philanthropy may have begun at least 5,000 years ago, initiated by Black predynastic people, who created early Egyptian culture; informed ancient Egypt’s development; were represented in leadership; and likely influenced Indigenous Africans throughout several parts of the continent. Given that modern humans, that is, Homo sapiens, emerged first in various locations throughout the vast African continent about 300,000 years ago and populated the rest of the world starting 70,000 to 100,000 years ago, it is valid to speculate that giving, along with human language, culture, including music and art, cooperative social organization, and technology are, in fact, “Black” Africa’s gift to the world. These assertions are supported by the available and replicable scientific data that continues to find the world’s oldest cave paintings, the first tools, other artifacts, human remains, and DNA are in Africa. We are indeed one species, and Africa is our Motherland, the birthplace of human culture, including generosity behaviors that are often called “philanthropic.” Throughout the African continent’s vast history and diversity, including Egypt, there is a unifying culture of generosity and mutual assistance. The full history and practice of giving and social finance more generally of

Africa’s ancient, medieval, and modern eras are far beyond the scope of this overview. However, review of the written records and oral history of the great African empires of this era from Timbuktu in West Africa to the Zimbabwe Kingdom of the Shona people demonstrate complex customs and economics of mutual support at local, regional, and global levels in the periods before European colonialism (Feierman, 1998). The diversity of Africa is such that it encompassed many types of cultures and polities before European colonialism, such as highly democratic, mobile communities with decentralized political leadership and oral cultures. It also included expansive, diverse empires that traded globally with hierarchical political systems and writing. They had traditional Indigenous religions, Islam, Christianity, and other faiths. Nevertheless, they all had communitarian values and structures that facilitated the finance of public works and voluntary cooperation for community benefit. They organized much of the giving from religious institutions, families, guilds, various gender-based, age-based cooperatives, and elite community patrons (Feierman, 1998). Just as is the case with the U.S. or any other country, possessing a culture of giving does not mean that pre-colonial Africa was a utopia. Its many societies had competition, interethnic strife, religious disputes, civil conflicts, wars, and oppression, including a long-standing trans-Saharan slave trade since the seventh century BCE led by Arabs that continues to some extent today by many accounts, as well as a related Indian Ocean slave trade (Gahaedi, 2022). However, the historical record clarifies that giving has been a fundamental African cultural practice from the earliest phases of recorded history. Ancient proverbs, still used today, are a great source of information for Africa’s timeless community-giving principles; for example, the Igbo proverb, “Wealth is not what you own but what you give away,” is indicative of fundamental African giving values taught to children and practiced over centuries, if not millennia (African Philanthropy Network, 2020; Okome, 2006). The great, late Archbishop Desmond Tutu popularized the Indigenous South African concept of Ubuntu, a word from the Nguni language, meaning simply but powerfully, Jacqueline Bouvier Copeland

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“I am because you are.” Ubuntu is a social justice and philanthropic moral principle; it encourages people to give. It expresses the ancient Pan-African notion of human interconnection that underlies most aspects of African culture from ancient through colonial and contemporary times. Such concepts are the foundational roots of Black giving as the love of humanity expressed through acts of kindness, hospitality, and justice that have been transplanted and reformed throughout the global Black Diaspora across all historical periods. Slaveries and colonial periods Black philanthropy is not limited to United States Black Americans or Africa. People of African descent have existed throughout pre-historic and recorded history in every corner of the world from the earliest periods of human evolution. Various forces, including the Transatlantic, Trans-Saharan, and Indian Ocean slave trades, the conquest and colonialism by Middle Eastern Islamic, Christian empires, internal civil unrest, economic forces, climate change, and other factors have prompted people of African descent to migrate. A complete history of African migration and the emergence of Black Diasporan cultures, including social finance, is the subject of a future book project. However, using examples from various Black cultures and historical periods, there are some key developmental similarities in Black philanthropy culture worldwide. Of course, like most societies, many of the principles encouraging giving are found in the spiritual traditions of a people. Giving to religious institutions was a priority in pre-colonial Africa. Oppression breeds giving focused on spirituality. Available research throughout the Black Diaspora, whether looking at the Siddhis in India, African Americans in the U.S., Black Brazilian adherents of candomblé, Ethiopian Jews, and Black Palestinians in the Middle East, suggests that giving to Black-founded religious or spiritual organizations was a priority during periods of displacement and slavery and continues into contemporary times. This is not surprising given that spiritual solace was needed to survive the unique horrors of U.S. chattel slavery, direct colonial rule, and anti-Black racism. In Africa, the Caribbean, Latin America, which often included interJacqueline Bouvier Copeland

nal slavery and other forms of exploitation seen most powerfully in southern Africa’s apartheid, Black people created diverse communities. They mixed traditional, Christian, Islamic faiths, and traditional African religions for solace and community, including supporting them with whatever funds, time, or talent they accumulated. Although declining due to various factors in some countries, such as the U.S., Black giving to religious or spiritual causes remains the predominant philanthropic activity in Africa and the global Black Diaspora. What is now known as a giving circle is an ancient, Pan-African philanthropic and business finance structure ubiquitous throughout the Black World albeit called by various names. Cooperative finance existed in other countries, too, throughout history. However, the Black giving circle as created by Africans was reconstituted across numerous countries as a concept or as a distinctive social finance structure in various periods when funding was impossible from dominant institutions such as banks due to racism. Black people enslaved in the Americas used secret giving circles to pool resources, fund resistance, purchase freedom, and escape from their captors whenever possible. In the early twentieth century, churches and other voluntary organizations were often used to create businesses, savings and loan banks, churches, civic associations, and provide disaster funding to the broader community, including white people, during periods of slavery in the Diaspora and colonialism in Africa. These circles, as created, were all-purpose funding vehicles with both philanthropic and enterprise functions. Individuals who were already related in some way and trusted each other via extended family, religious, professional, educational, or other ties would each contribute a predetermined amount of goods or money on a prescribed schedule with each member, or the entire group. They used the circle’s collective pool on a rotating basis for a community or individual advancement purpose. These rotating giving and enterprise circles or cooperatives were documented in Jamaica as early as the seventeenth century. They were called “susus,” a variant of the term “esusu,” the name for such circles among the Yoruba people of Nigeria and elsewhere in West Africa. At least 25 percent of people

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sold in the trans-Atlantic slave trade were Yoruba, and various aspects of their culture, language, Indigenous religion, and social finance have been retained, especially in the Caribbean, North, Central, South America historical record, including language and other customs. In U.S. history, African retentions were strongest in the southern U.S., especially New Orleans and the Gullah Geechee Cultural Corridor, often described as the birthplaces of a unique African American culture, including social finance practices, particularly those regions with the least access to conventional community finance. It can be argued that such African-derived giving circle principles were retained in U.S. Black Church giving, which operated as hybrid giving and rotating credit circles from their earliest formation. Such circles provided grassroots funding for the Underground Railroad, the Abolition Movement, the Suffragette, and Anti-Lynching Movements, as well as funding funeral and community emergencies just as they did in Africa. Although many philanthropy leaders believe giving circles and credit cooperatives are a contemporary creation by white innovators, they existed as a core social finance mechanism in ancient and pre-colonial Africa. Giving circles also evolved to become benevolent societies, the precursors of early twentieth century Black-founded insurance companies. They were recreated in various, Black-led institutional or grassroots voluntary guises as a hidden-in-plain view, community-controlled tool for economic survival and liberation throughout Africa and the Black Diaspora during slavery and the colonial era, continuing and expanding through contemporary times. Giving now With the Civil Rights and African Liberation and Black Power Movements of the 1960s through to the 1970s, there was growing attention to the mechanisms of Black community finance to create and sustain social justice movements and Black economic empowerment. The creation of the now-defunct Twenty-First Century Foundation, a national public foundation focused on Black causes, and the still vibrant, now 50-year-old Association of Black Foundation Executives (ABFE) established key institutional anchors

to promote the emergent Black Philanthropy Movement in the U.S. The post-Civil Rights period produced several seminal studies of Black philanthropic history and culture inspiring a new generation of leaders and scholars to document and promote Black giving in a series of now-classic 1980s research focused on African American philanthropy (Carson, 1993; Joseph, 1991). These works, among others, through the 1990s, created data to conclusively prove that African Americans, by any definition, practiced philanthropy since at least the U.S. colonial period. This work also established the crucial statistical fact that African Americans gave a higher proportion of their income to charitable causes than other American ethnic groups, a fact now substantiated by almost 40 years of subsequent research. Indianapolis University of Purdue’s Center of Philanthropy, now the Lilly School of Philanthropy, was also a major research leader in this phase of the U.S. Black philanthropy research. African American philanthropy research and activism continued to expand through the 1990s, with a group of new leaders conducting increasingly more fine-grained studies of its history and building new institutions to expand its impact. There were new regional foundation professional associations and executive leaders, making this decade a kind of Golden Age of African American philanthropy. They hired a new crop of African American philanthropic leaders in the 1990s, now senior leaders, who continued to lead the movement with differing areas of specialty. Although there was significant interest among Black foundation leaders to support Black philanthropy globally, generally, “Black” philanthropy studies and advocacy was still primarily equated with African American priorities and practices. There was a 200 percent increase in Black immigration to the U.S. due to changes in immigration policy as well as civil unrest and natural disasters in some parts of Africa and the Black Diaspora. Unable to acquire business loans or foundation grants for their voluntary associations, Black African, Caribbean, Latin American, and other immigrants retained their giving and rotating credit associations to fund their hometown associations, U.S. community improvement projects, funerals, scholarships, as well as small businesses. Jacqueline Bouvier Copeland

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These homegrown social finance mechanisms were critical for economic empowerment just as they were to the ancestors of African Americans from the seventeenth century through the Jim Crow period as alternative financing mechanisms, and are witnessing a revival today as a tool of grassroots giving. Recognizing these patterns, some Black philanthropy leaders in the U.S. with decades of professional and lived international experience began to document and form new organizations to embrace U.S. Black philanthropy’s ethnic diversity, support its development in Africa, and build Pan-African philanthropic organizations as part of a global, multicultural racial and social justice movement. An entire crop of new studies and new organizations in the early 2000s began researching American and other Black immigrant and Diaspora philanthropy to establish a case for a more ethnically inclusive, global, Black Philanthropy Movement as a uniting force for social change (Copeland, 2005, 2007, 2011; Okome, 2006; Okome et al., 2014). The author formed the Pan-African Women’s Philanthropy Network (PAWPNet), a global Pan-African philanthropy association in 2001 based in Minneapolis. It expanded to 20 countries through their global networks by 2006 with a precursor summit and a resulting online community. PAWPNet inspired the author to create Black Philanthropy Month (BPM) and its action summit series in 2011, reaching eight million people in 30 countries by 2012. The addition of new leadership with excellent social media skills in 2013; the continuing global contributions of key, original PAWPNet (now called Reunity) members, and the author’s revival of a virtual version of the original 2011 action summit in 2020, the BPM collective has reached 60 countries and 19 million people. Another twentieth century trend is the effort to highlight and document the often-unrecognized contributions of Black women and gender expansive people to Black philanthropy (ABFE and Funders for LGBTQ Communities, 2020). Examples of key Black women’s philanthropy organizations or initiatives include African Women’s Development Fund; Reunity; Voice, Vision, and Value; and the Black Feminist Fund. A late twentieth century African Philanthropy Renaissance has emerged with a new crop of practitioners and scholars on the continent, creating family, private, Jacqueline Bouvier Copeland

public, community, and other foundations by the wealthy and grassroots advocates. Nevertheless, it also included several types of infrastructure and collaborative associations (Moyo, 2016). Among the pioneering philanthropy institutions across the continent created since the early 2000s are the Kenyan Community Development Foundation; The Danjuma Foundation; the African Women’s Development Fund; a series of regional grantmakers associations; the African Philanthropy Forum; African Philanthropy Network; South Africa’s Centre for African Philanthropy and Social Investment at University of Witwatersrand’s business school; and the John D. Gerhart Center for Philanthropy and Civic Engagement at the American University in Egypt. At the same time, Africa’s long-standing local giving philosophies, practices, and structures are alive and well, providing critical support to voluntary associations and advancing the well-being of individuals in times of crisis. Education, healthcare, and disaster assistance continue to be the primary focus of African givers. However, according to the most recent polls and studies, climate change is a growing priority. The expansion of Africa’s middle class, particularly before the COVID pandemic, is responsible for the growth of the continent’s philanthropic giving. Although this figure does not include traditional giving, in 2020 large-scale African donations, motivated by COVID relief efforts, increased seven times from 2018–19, estimated at $269 million (Hayi-Charters et al., 2020). Research by The African Philanthropy Network and Indiana University’s Lilly School of Philanthropy suggest that African giving and pooled, collaborative giving by the continent’s wealthy are increasing during the pandemic in keeping with a global uptick in philanthropy during the pandemic. The growing philanthropic sector has a global impact. For 2020, four African countries, Kenya, Nigeria, Ghana, and Uganda, are in the top ten philanthropic countries. According to the Charities Aid Foundation’s respected annual Global Giving Index (Charities Aid Foundation, 2021), Kenya is the world’s second most generous country, second only to Indonesia, and Nigeria is third. Although global generosity increased overall during the pandemic, generally, Western countries saw steep declines

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in their rankings, displaced by African and such as the influential, Black Panther film and Asian countries. global Afrobeat and Hip-Hop music; a resurFurthermore, African migrants living gent, more global Black Power Movement, abroad have among the highest remittances such as The Global Movement for Black worldwide; cash payments to their home Lives, an offshoot of Black Lives Matter; an communities and extended families, currently increase in African American tourism and at $45 billion and increased by 6.2 percent even migration to Africa; the addition of the during the pandemic, far surpass interna- Black Diaspora as the African Union’s sixth tional aid and foreign institutional grants. region; and the United Nations International While scholars have some controversy about Decade for People of African Descent. whether such remittances should be counted Black philanthropy is shaped by many of as philanthropy, some studies estimate that the same trends influencing giving in general. anywhere from 5–15 percent of these remit- More than ever, philanthropy, including tances are for public health, education, and Black philanthropy, exists in the context of disaster relief benefitting entire communi- an increasingly rapid and complex global ties, not just the sender’s blood relatives. exchange of people, ideas, and financial Furthermore, given Africans’ vast extended capital. Significant innovation is emerging family networks, some members of these as leaders use technology and other means to families can effectively be strangers, having organize multinational giving into an emernever met the giver. Sometimes Western gent Global Black Philanthropic Economy. models of philanthropy are too narrow to Organizations that can move beyond social fully accommodate the nuances of the world’s media to create educated, engaged, mutually diverse giving practices and social structures. supportive philanthropies will be best able to The Black philanthropy research field take advantage of new opportunities for such continues to expand as the field grows “translocal” funding to benefit Black commuwith increasingly fine-grained studies of nities worldwide. its history and contemporary dimensions. COVID and growing anti-Black violence Next-generation Black scholars are doing have had a devastating impact on most Black ever more fine-grained and influential studies communities worldwide, decimating health of African American philanthropy, further and economies. In response Black giving developing the field (Freeman, 2020). In addi- has generally increased or held steady intertion to the global African and Black Diaspora nationally. Furthermore, there has been an philanthropy networks created in the early increase in mutual aid and assistance, social 2000s, others are emerging, for example, justice philanthropy, as well as direct giving the African Diaspora Philanthropic Advisor to individuals in need across the world, Network (see https://​ moorephilanthropy​including Black communities. .com/​adpa/​) and The Imperative Fund. A significant challenge in gauging Black The Women Invested to Save Earth Fund charitable giving levels is outdated and (WISE, see https://​thewisefund​.org/​) sup- incomplete data. The figure of $11 billion ports underfunded Black, Indigenous, and is often cited for African American giving. Latinx innovators and their diasporas world- However, these figures are about ten years wide with “blended finance,” including both out of date (W. K. Kellogg Foundation, grants and social investment through its new 2012). Black philanthropy figures typically People’s Impact Fund. Furthermore, several only cite African American giving; they do long-standing U.S. Black voluntary asso- not generally include U.S. Black immigrants, ciations have expanded their membership Black Africa, or the global Black Diaspora. and philanthropy to include Africa and its Despite significant challenges global Black global diaspora, including The Links and Philanthropy Culture is alive and vibrant in Jack and Jill, for example. African immigrant Africa and its Black Diasporas in the U.S. alumni associations are now global entities and beyond. leading Black Diaspora giving for education Jacqueline Bouvier Copeland to Africa. Many cultural and other factors advance interest in global Black issues and, potentially, diasporan philanthropy and social Related topics finance. These include cultural phenomena Civil rights organizations Jacqueline Bouvier Copeland

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Cultural competence Identity-based philanthropy Social change and nonprofit organizations

Further reading and references

ABFE and Funders for LGBTQ Issues. (2020). Philanthropy OUTlook: Black LGBTQ Communities. https://​search​.issuelab​.org/​ resource/​philanthropy​-outlook​-lgbtq​-black​ -communities​.html African Philanthropy Network. (2020, July 10). African proverbs on giving and generosity. APN – Voice & Action for African Philanthropy. https://​afric​aphilanthr​opynetwork​.org/​african​ -proverbs​-on​-giving​-and​-generosity/​ Carson, E. (1993). A hand up: Black philanthropy and self-help in America. Joint Center for Political and Economic Studies. Charities Aid Foundation. (2021, June). CAF world giving index 2021: A global pandemic special report. www​.cafonline​.org/​docs/​default​-source/​ about​-us​-research/​caf​worldgivin​gindex2021​ _report​_web2​_100621​.pdf Copeland-Carson, J. (2005). Promoting diversity in contemporary black philanthropy: Toward a new conceptual model. New Directions for Philanthropic Fundraising, 2005(48), 77–87. https://​doi​.org/​10​.1002/​pf​.107 Copeland-Carson, J. (2007). Kenyan diaspora philanthropy. The Philanthropic and Harvard University Diaspora Philanthropy Initiatives. www​.cbd​.int/​financial/​charity/​kenya​-diaspora​ .pdf Copeland-Carson J. (2011). Pan-Africanizing philanthropy: Toward a social theory of an emerging sector. In M. O. Okome & O. Vaughan (Eds.), Transnational Africa and Globalization. Palgrave Macmillan. https://​doi​.org/​10​.1057/​ 9781137011961​_6 Dorsey, C., Bradach, J., & Kim, P. (2020, May 4). Racial equity and philanthropy: Disparities in funding for leaders of color leave impact on the table. The Bridgespan Group. www​.bridgespan​ .org/​insights/​library/​philanthropy/​disparities​ -nonprofit​-funding​-for​-leaders​-of​-color Feierman, S. (1998). Reciprocity and assistance in precolonial Africa. In W. Ilchman, S. N. Katz, & E. L. Queen II (Eds.), Philanthropy in the world’s traditions (pp. 3–24). Indiana University Press. Freeman, T. M. (2020). Madam C.J. Walker’s gospel of giving: Black women’s philanthropy during Jim Crow. University of Illinois Press. Hayi-Charters, S., Holland, M., Soa, A., & Schwier, J. (2020, February). The landscape of large-scale giving by African philanthropists in 2020. The Bridgespan Group. https://​www​.bridgespan​.org/​

Jacqueline Bouvier Copeland

insights/​library/​philanthropy/​landscape​-large​ -scale​-giving​-africa​-2020 Hounslow, M. (2013, February 5). Ma’at--Inspired giving in ancient Egypt. Global Giving Resource. www​.​globalgivi​ngresource​.com/​blog/​maat​ -inspired​-giving​-in​-ancient​-egypt/​ Ghaedi, M. (2022, February 8). “How are Gulf countries coming to terms with their history of slavery?” Deustche Welle. www​.dw​.com/​en/​ how​-are​-gulf​-countries​-coming​-to​-terms​-with​ -their​-history​-of​-slavery/​a​-60686264 Joseph, J. (1991). Black philanthropy: On the potential and limits of private generosity in civil society. ABFE. www​.abfe​.org/​wp​-content/​ uploads/​2014/​02/​1991​_James​-Joseph​.pdf Moyo, B. (2016). How to make societies thrive: The role of African philanthropy. In H. Mahomed, & E. Colema (Eds.), Claiming agency: Reflections on Trust Africa’ first decade (pp. 17–29). Avondale Press. National Committee for Responsive Philanthropy. (2020, September). NCRP Report: Too many local community foundations still underinvesting in Black communities. www​.ncrp​.org/​news/​ncrp​ -report​-too​-many​-local​-community​-foundations​ -still​-underinvesting​-in​-black​-communities Okome, M. (2006, January). Wealth is not what you own, but what you give away: Africa’s diasporas and giving back to Africa. ResearchGate. www​.researchgate​.net/​publication/​281441035​ _Wealth​_is​_Not​_What​_You​_Own​_but​_What​ _You​_Give​_Away​_Africa’s​_Diasporas​_and​ _Giving​_Back​_to​_Africa Okome, M., Copeland-Carson, J., & Osili, U. O. (2014, January). African immigrant innovations in 21st century giving. SSRN. https://​ssrn​.com/​ abstract​=​2396738 Philanthropic Initiative for Racial Equity. (n.d.). PRE. https://​racialequity​.org/​ Savane, J. (2011, January 1). The transformation of philanthropy in Sub-Saharan Africa: From traditional practices to the establishment of grantmaking foundations. Issue Lab. https://​search​ .issuelab​.org/​resource/​pitt​-political​-review​-gspia​ -edition​-spring​-2011​-volume​-3​.html W. K. Kellogg Foundation. (2012, January). Cultures of giving: Energizing and expanding philanthropy by and for communities of color. D5 Coalition. www​.d5coalition​.org/​wp​-content/​ uploads/​2013/​07/​CultureofGiving​.pdf Wiepking, P. (2020). The global study of philanthropic behavior. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 32(2), 194–203. https://​ doi​ .org/​10​.1007/​s11266​-020​-00279​-6

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Board policies manual Definition

A Board Policies Manual (BPM) is an organized “living” document that contains all the current policies a nonprofit board has adopted to govern wisely. Included in a BPM are best practices that articulate vision/mission/ values, set out board-level goals, define how the board functions, the board’s relationship with its CEO and staff, definition of committee functions, and board parameters around executive actions. The BPM, usually less than 20 pages plus a few exhibits and addenda, is reviewed at most board meetings and amended as necessary to reflect the latest board-level policies.

● Invite the executive committee or a board development committee to review and edit a final draft for full board review and adoption. ● Expect the CEO, once the BPM is initially approved, to provide in advance of every board meeting any provisions the executive team recommends changing. ● Assign each section of the BPM to the appropriate standing committee (e.g., the section on finance would be assigned to a finance committee) for periodic review to determine if they want to recommend revisions to the full board. ● Amend the BPM to reflect the latest policies after they have been reviewed and recommended by the appropriate committee.

Current trends and issues: Why all A BPM serves several important purposes for boards don’t have a BPM to guide board members, the executive staff, and even the board and staff The value of a BPM

some outside stakeholders. Here are some of the many benefits.

● Defines more specifically the board policies beyond what the bylaws set. ● Gives board members and key staff one place to look for board-level policies that are distinguished from management policies. ● Reduces the confusion about overlapping, redundant, or often conflicting policies, which are often found in years of board minutes. ● Allows new board members and key staff quickly to be oriented to the role of the board vis-à-vis staff. ● Frees up the CEO by knowing the parameters within which she/he can make decisions. ● Proves valuable, quite often, in winning grants and contracts. ● Testifies to donors and the public of the organization’s good governance.

In practice: Proven steps to initiate and continually improve a nonprofit’s BPM

● Ask the CEO or an experienced board member to do the first draft, often starting with a widely used template (Andringa, 2022).

While a BPM is almost universally considered a best practice in nonprofit governance, some nonprofit organizations have not adopted this tool of high performing boards. Why not? ● Tradition and the normal resistance to change. ● Desire of some board or staff leaders to “call the shots” without written policies. ● Perceived difficulty in writing a good, if not perfect, BPM. ● Over-reliance on board minutes to document board decisions and policies. ● Bad experiences with past efforts to document policies only to have them sit on the shelf and not used to manage the governance process. ● Not familiar with the concept and value to good governance. How a BPM relates to other key policy-related documents As Table 2 illustrates, there are levels of policies, all of which are important and relate in some way to each other. Note that authority flows down – no level of policy below it can violate the policies above it. Likewise, accountability flows up – nothing in one of the numbered boxes can be inconsistent with the boxes above it. Robert C. Andringa

46  Elgar encyclopedia of nonprofit management, leadership and governance Table 2

The hierarchy of policies

1. Federal and State Laws A board expects staff to monitor on its behalf and comply. 2. Influencers May Impact Written Policies Affiliated Nonprofit Organizations, Accrediting Agencies, Credit Rating Bureaus, Partnerships, Major Grant Provisions, etc. 3. Articles of Incorporation Seldom needs amending unless name or purpose change. 4. Bylaws Keep “lean” and revise as necessary to reflect actual practice. Leave the details to the BPM, which can be more easily revised. 5. Board Policies Manual (BPM) The “one-voice” of the board in an evolving, comprehensive document plus a few attachments: ● Mission, values, strategies, goals ● Board structure and processes ● Board–staff relations ● Parameters around executive authority in all major functions 6. CEO-Level Policies Planning documents, personnel manual, and so on, approved by CEO and often given to the board for information, but not approval, as that would make it a board-level policy requiring the board to make changes. 7. Other Organizational Policies Often determined in and by various staff units, e.g., ↓ Finance

Fundraising

Many small nonprofit organizations do not have to consider Box 2 when drafting their other policies. Too many boards neglect to review Boxes 3 and 4 regularly. This can result in lawsuits by disgruntled employees, vendors, and so on. It’s prudent to have an experienced attorney review these documents every few years to ensure compliance with the latest government laws and regulations. Someone also must be very familiar with policies in these boxes when changes to the BPM are proposed.

The future: Suggestions on keeping a policy-led organization effective and efficient with a BPM

Thousands of nonprofits have developed their own BPM within this hierarchy of policies to make them better performing boards. The concept known as the Policy Governance Model was first described by Dr. John Carver in his 1990 book, Boards That Make a Difference. It was envisioned to apply to a wide range of entities – schools, city councils, hospitals, churches, and many other types of organizations that have a governing board. The centerpiece of the model is a BPM discussed here and explored in greater detail in our book, Good Governance for Non-Profits (Laughlin & Andringa, 2007). Robert C. Andringa

HR

Programs

Every nonprofit could take giant steps toward a high-performing board with its own BPM. Once a working version is adopted, albeit not perfect, it will save hours of board time and reduce staff uncertainty by getting everyone on the same page. Once a working draft is available, boards should adopt only those sections on which a majority could initially approve. The remaining sections could be further researched and discussed, maybe in a committee, and brought back to the next board meeting for reconsideration/adoption. It’s a “living” document containing all the on-going policies a board needs to document and is continually modified to respond to external and internal changes and evolving trends affecting the organization. The BPM itself should sunset (terminate) any previous policy in minutes that is inconsistent with the BPM. Robert C. Andringa

Related topics

Articles of incorporation Bylaws Chief executive officer: Relations with the board of directors Forming a nonprofit organization Governance Governing board: Membership

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Governing board: Responsibilities Professionalism

is a latent (hidden) psychological concept because it refers to the meaning or construal of the organization in the minds of stakeholder groups. Further reading and references Brand strategy is a means of more effecAndringa, R. (2022). Board policies manual tem- tively attaining desired support or important plate (BPM). The Andringa Group. https://​ outcomes (e.g., donations, donor retention, theandringagroup​.com/​resources/​ Carver, J. (2006). Boards that make a difference: members, volunteers, season ticket sales). A new design for leadership in nonprofit and The goal of brand strategy is to strengthen a brand. A strong brand is manifested in the public organizations (3rd edn.). Jossey-Bass. Laughlin, F. L., & Andringa, R. C. (2007). Good superior attainment of desired brand mangovernance for nonprofits: Developing princi- agement outcomes. For example, Harvard ples and policies for an effective board. Harper University is a strong brand. Harvard enjoys Collins. a substantial endowment, regular fundraising success, new student applications that exceed capacity, and so forth. Most people recognize a strong brand because of its market dominance, or other manifestations of market success. However, less is understood about the nature of a strong brand or the characteristics of a brand that make it strong. Brand strength refers to (1) Definition the degree to which a brand is well-known Nonprofit managers are increasingly man- to an organization’s important stakeholder aging their organizations as brands. The groups (henceforth referred to as target audimotivation for taking a branding strategy ences); (2) is perceived favorably by target approach to managing a nonprofit organi- audiences; and (3) is perceived to be remarkzation is that by doing so, managers believe able by target audiences. Brand strength has three dimensions or they can more effectively attract and retain support for their organizations from donors, parts: (1) brand familiarity; (2) brand remarkability; and (3) brand attitude. Hence, managvolunteers, patrons, members, and so forth. The trade literature is littered with ers who want to increase their brand strength brand-related jargon, confusing the meanings may do so by increasing their brands’ perof commonly used brand terms. Brand can ceived brand familiarity, brand remarkabilhave two meanings, depending on whether it ity, and brand attitudes. Brand familiarity is used as a verb or as a noun. As a verb, as in refers to the level of knowledge target audi“to brand,” brand refers to making a nonprofit ences have about the organization (e.g., the organization distinct from other organiza- organization’s purpose/mission, its history, tions by giving it a name, logo, symbols, and its activities, its leadership, its events). Brand other identifying characteristics. As a noun, attitude refers to the degree to which the brand refers to how the various stakeholder organization is perceived favorably by target groups of importance to nonprofit organiza- audiences. Brand remarkability refers to the tions perceive, think about, or comprehend degree to which the organization is perceived to be superior and extraordinary by target those organizations. This entry discusses brand as it is defined audiences. as a noun. The creative aspects of branding a nonprofit organization to give it an iden- In practice tity and distinguish it from other nonprofit Nonprofit managers employ a brand strategy organizations will not be the emphasis of this to make their brands stronger so that they can entry. Most organizations have already made more effectively attract and retain support to decisions regarding their names and logos. the organization. For example, when there is How to successfully manage the organiza- a natural disaster somewhere in the world, tion as a brand has much greater managerial international disaster relief organizations significance and, hence, will be the empha- attempt to raise funds to resource their efforts sis of this entry. An organization’s “brand” to provide aid to the affected area. Often,

Branding and brand strategies

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organizations like the Red Cross attract a vast proportion of donated funds whereas less known organizations are only able to attract a small proportion in comparison. The Red Cross is an example of a nonprofit organization that enjoys the benefits of being a strong brand. The success of the Red Cross can be attributed to its ability to strengthen the three dimensions of brand strength (brand familiarity, brand attitudes, and brand remarkability) that make it a strong brand. Brand strength is dependent upon the perceptions of target audiences. Those perceptions are developed or formed by target audiences’ experiences (brand experiences) with the organization as well as information they have received about the organization. While managers cannot control the communications of competing organizations, or what others say about their organization, they can control their own organization’s communications and they can manage the experiences people have with their organizations (brand experiences). Hence, an effective brand strategy requires a regular program of communications and promotions directed at target audiences. Managers can influence many of the aspects of target audience members’ experiences with their organizations (i.e., their brand experiences). An individual’s personal experience with an organization has a greater influence on their perceptions of the organization than the information they receive about the organization. It is worth noting that the type and “depth” of these experiences may vary depending on the audience. For example, someone making an inquiry about the organization might be impressed by the way people answer the phone or the quality of the organization’s website in answering their questions. A donor or foundation executive, on the other hand, might be impressed by the organization’s stewardship of their funds. Hence, in addition to regularly communicating with target audience members, managers should ensure that target audience members’ experiences with the organization are of exceptionally superior quality. The reason that making one’s brand strong is the goal of a brand strategy is that there are many benefits to having a strong brand. Brand strength has an important mediation role. This means that brand management

Walter Wymer

tactics, like fundraising campaigns and membership drives, are more effective for strong brands than for weak brands. Referring again to disaster relief organizations, the reason the Red Cross’s fundraising during the aftermath of a natural disaster is typically successful is that people are familiar with the Red Cross and the Red Cross enjoys a good reputation. People are more confident in donating to the Red Cross than to a relatively unknown charity. Giving to the Red Cross seems much less risky than giving to an unknown charity. Target audiences are more likely to prefer a strong brand than a weak brand. Brand strength has a positive influence on brand preference. Brand preference has a positive influence on brand choice. Donors are more likely to contribute to a strong brand rather than a weak brand, all other things being equal. Brand strength also influences important outcomes like donor retention, volunteer retention, word-of-mouth referrals, intention to make a bequest, and so forth. Hence, the benefits of being a strong brand are worth the managerial effort required to develop a strong brand. The development of a strong brand is consistent with best management practices. Managers should practice continual improvement, making their organizations better from the perspectives of target audiences in an ongoing progressive manner. (The perceptions of target audiences can be obtained from marketing research tactics like surveys, focus groups, and other methods.) Continuous improvement will eventually manifest itself in an organization that is superior to competitors in making a greater impact on its mission efficiently. Identifying the aspects of an organization and its processes that enable it to have a greater or more efficient mission impact than competitors may form the core message of organizational communications to its target audiences. In essence, continuous improvement will help to attain higher levels of brand remarkability. The brand remarkability forms the basis of a regular program of communications to target audiences, attaining higher levels of brand familiarity. As target audiences become more familiar with the exceptional organization, their brand attitudes improve as well. Hence, a virtuous cycle of increasing brand strength is established.

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Current and future directions

Future nonprofit brand-related research would benefit by focusing on the nomological net surrounding brand strength. Increasing brand strength should be the overarching objective of a brand strategy. Better understanding the stronger influences on brand strength would be valuable for researchers and practitioners. Learning more about influences on brand strength would help to identify the stronger influencers of desired outcomes, like donations, donor retention, and so forth. It would also be useful for understanding the predictive value of measuring brand strength in addition to the outcome measures marketers have selected. In other words, brand strength should be a metric that is measured periodically to assess an organization’s strategic brand management effectiveness. Nonprofit managers and leaders should focus on increasing the organization’s brand remarkability through a program of continuous improvement and creative innovation. The aspects of a nonprofit organization that make it remarkable to target audiences also make it distinctive and serve as the core message thread in communication programs. The best brand strategy for nonprofit managers is an enduring effort to continually increase brand strength. This strategy best supports the annual short-term brand management tactics normally employed by nonprofit organizations such as fundraising campaigns, membership campaigns, season ticket subscription campaigns, special events, and so forth. Walter Wymer

Related topics

Fundraising Industry analysis Managerialism Marketing Public relations Stakeholder management

Further reading and references

Casidy, R., & Wymer, W. (2015). The impact of brand strength on satisfaction, loyalty and WOM: An empirical examination in the higher education sector. Journal of Brand

Management, 22(2), 117–135. https://​doi​.org/​ 10​.1057/​bm​.2015​.6 Schlesinger, W., Cervera-Taulet, A., & Wymer, W. (2021). The influence of university brand image, satisfaction, and university identification on alumni WOM intentions. Journal of Marketing for Higher Education, 33(1), 1–19. https://​doi​.org/​10​.1080/​08841241​.2021​ .1874588 Wymer, W. (2013). Deconstructing the brand Nomological Network. International Review on Public and Nonprofit Marketing, 10(1), 1–12. https://​doi​.org/​10​.1007/​s12208​-012​-0091​-3 Wymer, W. (2015). Nonprofit brand strength’s moderational role. Ekonomski Vjesnik / Econviews – Review of Contemporary Entrepreneurship, Business and Economic Issues, 28(1), 155–166. Wymer, W. (2017). Brand management: Creating and maintaining a strong brand. CreateSpace. Wymer, W., & Akbar, M. M. (2017). Brand authenticity, its conceptualization, and its relevance to nonprofit marketing. International Review on Public and Nonprofit Marketing, 14(3), 359–374. https://​doi​.org/​10​.1007/​s12208​ -017​-0177​-z Wymer, W., & Casidy, R. (2019). Exploring brand strength’s nomological net and its dimensional dynamics. Journal of Retailing and Consumer Services, 49(3), 11–22. https://​doi​.org/​10​.1016/​ j​.jretconser​.2019​.03​.003 Wymer, W., Gross, H. P., & Helmig, B. (2016). Nonprofit brand strength: What is it? How is it measured? What are its outcomes? VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 27(3), 1448–1471. https://​doi​.org/​10​.1007/​s11266​-015​-9641​-8

Budget process Definition

The “budget” is a monetary expression of an organization’s strategy to accomplish its mission. If the organizational mission is the long-term vision statement that guides the organization’s purpose and activities, and the strategic plan is the short-term (three to five years) road map of how the organization will achieve its mission, then the annual budget is the current term plan by which the organization hopes to achieve its mission incrementally on a year-to-year basis.

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In practice

For public service organizations – defined as organizations with no individual owners and in which profit is not the primary goal, including government and not-for-profit organizations – the budget is, arguably, the most important document for both internal and external stakeholders (Granof et al., 2022). For external stakeholders, in particular funders, the budget is important because it details how resources will be spent annually; for internal stakeholders, such as managers, directors, and front-line staff, the budget is important because it tells them how much resources they are allocated in order to meet their annual goals (Granof et al., 2022). As Granof et al. (2022), further state, “Directly or indirectly [the budget] affects, or is affected by, virtually all decisions of consequence that a governing body must make. The budget details in financial terms the strategy of the organization to accomplish its mission” (p. 741). For public service organizations, the final budget document is created through a process that typically spans three years. Specifically, the budget process is a cycle that involves the following four phases that build on one another: (1) budget preparation; (2) budget approval; (3) budget implementation/execution; and (4) budget audit/review (Granof et al., 2022; Weikart & Chen, 2022). Phases (1) and (2) occur prior to the start of the fiscal year, phase (3) occurs during the fiscal year, and phase (4) occurs after the fiscal year and informs the preparation of the budget for the following fiscal year. Budget preparation The first phase of the budget cycle is preparation. The budget preparation generally begins three to six months prior to the start of the next fiscal year, depending on the size of the organization. In this phase, the executive management team, usually the executive director and finance director, work in consultation with the staff (program directors) to review the current programs or to consider new programs. The review of current programs involves reviewing not only costs but also program performance considering both successes and failures (Weikart & Chen, 2022). Similarly, the review of new programs involves reviewing both financial feasibility Marcus Lam and Bob Beatty

(i.e., costs) and the community need for new programs. It is not enough to simply determine how much a program costs, but more importantly to consider how programs (current and new) align with the organization’s mission and objectives (Weikart & Chen, 2022). As Weikart and Chen (2022) further posit: “A useful rule is that programs should drive dollars; dollars should not drive programs” (p. 36). The budget preparation stage also involves forecasting the amount and likelihood of any continuing or new revenue streams. This forecasting might be based on trending metrics (say, revenue per grant application times the number of grant applications expected to be made, or revenue per program participant times the number of expected participants), and/or indications from funders as to their funding plans, or changes in numbers of grant writers/fundraising professionals/fundraising events, and so on. The budget preparation phase can either be a closed (centralized) or open (decentralized) process. In a closed or centralized process, only the executive team (i.e., executive director and finance director) are involved in preparing the budget. In an open or decentralized process, the executive team engages in discussion with the program staff (i.e., program directors and frontline providers) to determine the revenue and expense for each program as well as any changes from the current to the following year (Weikart & Chen, 2022). In general, for nonprofits, it is best practice to have an open process and engage program staff in the preparation stage as they are responsible for implementing the budget. Other best practices include the following: (1) solicit feedback from both the board and staff and allow time to make changes; (2) requiring staff to work with other departments, programs, and administration when developing individual budgets so that there is a good understanding of the interconnectedness and inter-reliance of budgets; (3) tying measures of outcomes for each program to the costs involved, comparing the cost/outcome results to prior years, and understanding the rationale for changes; and (4) using a zero-based approach for expenses (recognizing that expenses are investments to achieve outcomes).

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Budget approval Once a draft budget is prepared it must then be presented to and approved by the board of directors. Most boards have a finance committee that works with the executive director to present the budget to the full board. It is best practice to present the budget to the board early enough prior to the start of the next fiscal year in order to make any changes requested by the board. It should not be assumed that the budget will be adopted as is without board feedback or changes (Weikart & Chen, 2022). Ideally, the budget presentation will include at least a reference to multi-year plans which enable the board to understand how the budget to be approved “fits” into the longer-term strategic plan. Further, the budget presentation should begin with a narrative (vs. numbers) that focuses on the outcomes being produced, the rationale for changes to underlying metrics, and the linkage to the strategic plan. It should be noted, however, that unlike other public service organizations, including government agencies, where once a budget is approved the agency is legally bound to stay within budget limits and cannot add new programs during the fiscal year, a not-for-profit is not bound by such restrictions (Granof et al., 2022). The budget document can be amended throughout the fiscal year if the not-for-profit decides to pursue a new revenue stream to fund a new program, for example (Weikart & Chen, 2022). Budget execution and implementation Following the approval process, the budget is implemented, and this spans the entire fiscal year. During the implementation phase, it is important for the executive team to monitor the budget and compare actual spending or revenue against budgeted or expected spending and revenue. To monitor the budget, the executive team utilizes reports which should be generated on a regular basis, either monthly or quarterly. Specifically, three types of reports are of relevance during the implementation phase: variance reports, cash-flow reports, and performance reports (Weikart & Chen, 2022). Variance reports are the most common type to monitor budget activity. These reports list actual expenses and revenue against expected expenses and revenue and provide

a calculation that is the difference between the expected and actual values. More importantly, the variance report also provides an assessment of whether this difference is “favorable” (F) or “unfavorable” (U), along with a footnote explaining why the difference occurred. It is important to note that expenses below plan and revenues above plan are not always favorable. For instance, for a cost reimbursement grant, expenses under plan could result in lower indirect fees that can be claimed and might be due to an inability to hire staff which could lead to a failure to meet grant requirements. Variances can be due to changes in clients served (aka volume), costs of supplies, or amount of inputs to produce a product or service. An organization often has a policy to investigate variances above or below a specific percentage or dollar amount (often 5 percent or 10 percent, though it really needs to be based on the organization’s specific situation). Thus, regular variance reports are an important tool for managers to use to make course corrections throughout the year in order for the organization to stay on budget. It is important to note that variance reports are also a key internal audit tool that can assist in identifying misappropriation of funds. Another important type of report is the cash-flow report. Given that cash is the life blood of any organization, it is also important to monitor any gaps in cash throughout the fiscal year. As Weikart and Chen (2022) point out: “It is possible for a nonprofit to have a balanced budget for the year and yet run out of cash” (p. 42). As not-for-profits receive revenue from several different sources such as payments or reimbursements from government or private insurers, grants from foundations, or donations from individuals, it is important to monitor when revenue will be received. Often, the time between when an expense is incurred by the organization and when a payment is received from a third-party payor, such as a government agency or a health insurer, can be weeks or months. Organizations must therefore keep track of how long this gap will be, the size of the gap, and how they will fill the gap (i.e., by tapping into reserve funds, a line of credit, or through short-term borrowing). A cash-flow report will allow management to anticipate the gaps and plan how these will be covered. Marcus Lam and Bob Beatty

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A final report that is often less used but important for management is the performance or evaluation report. Much like a variance report for expenses and revenue, a simple performance report can compare basic outputs such as projected number of clients served vs. actual number of clients served on a weekly or monthly basis (Weikart & Chen, 2022). More complex performance reports can potentially track programs along specific outcomes such as improvements in health measures, specific skill attainment, or changes in behavior. Budget review, audit, and reporting The final stage of the budget cycle is the review, audit, and reporting phase. This phase occurs after the fiscal year is over and the management team prepares a final variance analysis for expenses and revenues and a final performance report in order to evaluate the effectiveness of their programs. The management team and board will analyze any variances above or below their stated threshold and discuss any changes required for the next budget cycle. For reporting purposes, organizations at this point will use their final expense and revenue figures to prepare the four financial statements: income statement, balance sheet, statement of cash-flow, and statement of functional expenses. Most typically, these reports are prepared on a monthly or quarterly basis. Once these financial statements are prepared internally, the organization may hire an outside auditor to audit their financial statements as well as offer an assessment as to their management control system (i.e., how well the organization is using, monitoring, and anticipating its resources).

Future directions

Increasingly, funders are encouraging budgeting processes focused more and more on performance rather than simply balance. The most important practice to implement for performance budgeting is identification of measurable outcomes that relate to the strategic plan and mission. As such, the first step in identifying measurable outcomes is to articulate a definition of success. The organization should address the following question, “What does successful mission achievement look like?” This can be articulated with respect to Marcus Lam and Bob Beatty

changes at the individual level (i.e., behavioral, values, skill, etc.); changes at the community level (i.e., social capital, collective efficacy, civic engagement, etc.) (Sampson et al., 2002); or changes at the policy level. Without a definition of success, much of the analysis may focus on changes in revenue, expense, and cash. A natural extension of linking expense to outcomes is creating multi-year, metrics-driven budgets (Lam & Beatty, 2020). Finally, such measures allow for the creation of dashboard reports that allow the board and staff to maintain focus on performance that drives outcomes and mission. Big data analytics is also emerging as a powerful tool that can help nonprofits inform both performance measurement and the overall budgeting process. Big data is defined as unstructured data gleaned from a variety of sources such as social media, websites, and so on. This data may include numerical data and text data as well as audio and visual data (Ibrahim et al., 2021; Warren et al., 2015). An example of the use of big data is in the budget preparation phase for forecasting revenue and costs as well as in the implementation stage to reduce variances between actual and budgeted figures (Ibrahim et al., 2021). Marcus Lam and Bob Beatty

Related topics

Administrative costs Audit Business planning Earned income Financial documents and control Financial performance indicators Financial ratios Financing nonprofit organizations Governing board: Responsibilities Income portfolio analysis Managerialism Transparency

Further reading and references

Calabrese, T. D. (2018). Do operating reserves stabilize spending by nonprofit organizations? Nonprofit Management and Leadership, 28(3), 295–311. https://​doi​.org/​10​.1002/​nml​.21282 Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2020). Financial management for public,

B 53 health, and not-for-profit organizations (6th edn.). Sage. Granof, M. H., Khumawala, S. B., & Calabrese, T.D. (2022). Government and not-for-profit accounting: Concepts and practices (9th edn.). Wiley & Sons. Ibrahim, A. E. A., Elamer, A. A., & Ezat, A. N. (2021). The convergence of big data and accounting: Innovative research opportunities.  Technological Forecasting and Social Change,  173, 1–13. https://​doi​.org/​10​.1016/​j​ .techfore​.2021​.121171 Lam, M., & Beatty, B. (2020). Budgeting and financial management: A multi-year budgeting approach. In H. K. Anheier & S. Toepler (Eds.), Routledge companion to nonprofit management (pp. 213–232). Routledge. McLaughlin, T. A. (2016). Streetsmart financial basics for nonprofit managers (4th edn.). Wiley & Sons. Sampson, R. J., Morenoff, J. D., & Gannon-Rowley, T. (2002). Assessing “neighborhood effects”: Social processes and new directions in research. Annual Review of Sociology, 28(1), 443–478. https://​doi​.org/​10​.1146/​annurev​.soc​.28​.110601​ .141114 Warren, J. D., Moffitt, K. C., & Byrnes, P. (2015). How big data will change accounting. Accounting Horizons, 29(2), 397–407. https://​ doi​.org/​10​.2308/​acch​-51069 Weikart, L. A., & Chen, G. G. (2022). Budgeting and financial management for nonprofit organizations: Using money to drive mission success (2nd edn.) Waveland Press, Inc. Young, D. W. (2016). Management control in nonprofit organizations (10th edn.). Crimson Press. Zietlow, J., Hankinm, J. A., Seidner, A., & O’Brien, T. (2018). Financial management for nonprofit organizations: Policies and practices. Wiley & Sons.

Business planning Definition

A business plan tests the proposition that a particular undertaking – program, partnership, new venture, growth strategy, or the entity as a whole – is economically and operationally viable. Business planning always begins with developing a strategy. It is helpful to think of strategic planning as the process through which a nonprofit addresses challenges and opportunities in pursuit of its mission with business planning as an

additional step of analysis, when needed. Business planning examines the economic and operational requirements of implementing a proposed strategy, such as major growth, dramatic contraction, a merger or alliance, or a significant shift in direction or funding. Think of business planning as supercharging strategic planning when needed to minimize the risk of a failed strategic move. Minimizing risk This brief case vignette illustrates the risks that might be avoided through business planning. An animal services agency wants to end its government contract for animal control so that it can become a no-kill shelter – a major programmatic shift. The board votes to move forward based on the mission imperative and a review of some basic financial data related to savings that would accrue from eliminating the animal-control positions; it anticipates attracting new funding to cover other program costs. One year after severing the contract, the organization finds itself in financial crisis and is forced to dramatically reduce its public education, animal adoption, and shelter programs because donors did not step up as hoped. What went wrong? In large part, the organization’s crisis could be traced to the absence of a thorough analysis of shared costs that had been covered by the government contract, an honest assessment of the likelihood that new donors would come forward in light of the programmatic shift, and an alternative plan for ensuring sustainability until that happened.

In practice

If strategic planning points an organization in the right direction, business planning measures the distance to the destination and estimates the chances of getting there on the available resources. Take a common example. The local affiliate of a national federation (e.g., the American Heart Association, Boys and Girls Clubs of America, YMCA or YWCA) is presented with the possibility of merging with the local affiliate that is geographically adjacent to it. This second affiliate has experienced leadership turnover and financial instability, while the first affiliate is strong and stable. The strategic David La Piana

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question is clear: Should we merge with this neighboring affiliate? The strategic planning approach to this question is likely to ask if the community would be better served by a single larger affiliate than by the current arrangement, how the two organizational cultures would mesh, to what extent board and management from the second organization would be offered opportunities to serve in the merged entity, and the extent of exposure to any financial or legal liabilities through the merger. In many cases, answering these questions thoughtfully would be adequate to inform a decision. This is especially likely when both organizations provide similar services and if both are reasonably healthy. However, in this case, with the second affiliate experiencing financial difficulties, the first affiliate might decide to create a business plan, with the aim of revealing whether the combination will strengthen the new larger organization or only drag it down. In a business planning exercise, the parties would examine each affiliate’s current operating and capital budgets, their results over the past several years, and the strength of their systems and infrastructure. The result would include pro forma (hypothetical) combined budgets projecting out two to three years, and pro forma combined balance sheets on the day of the proposed merger. It would also be important to undertake a detailed review of expenses, opportunities for savings, and required new outlays, and an analysis of any systems upgrades or compatibility issues required by the merger. The resulting business plan would demonstrate both the feasibility and advisability of the merger. Feasibility means, at its simplest, do the numbers add up? Would the merger strengthen the combined organization’s financial position or dangerously weaken it? Advisability takes that question a step further. A merger requires a great deal of work and always brings risks. Given the required effort, what would be left off management’s agenda for the next year or longer while it attended to merger integration issues? If these opportunity costs are too high, even a financially viable merger might not be advisable.

David La Piana

Six basic business planning questions 1. What is the focus of our business planning effort (e.g., a particular program, a new initiative, undertaken either alone or with partners, or the enterprise as a whole?) 2. What is the strategic intent of the program, initiative, or enterprise that is the focus of the business planning effort? 3. What questions do we need to answer – and what decisions do we need to make – in the course of this business planning process? 4. What information do we need in order to make these decisions? 5. Who is the audience for this business plan, and how will they use it? 6. Who will approve the final decisions and document?

Current and future directions

Unfortunately, in many instances the terms strategic planning and business planning are used interchangeably. It is helpful to think of them as two separate processes. Sometimes an organization means strategic planning but says business planning because that term sounds “more businesslike,” which in many quarters means more legitimate and thoughtful. But business planning is a more specialized and intensive process, often requiring outside analytical and financial expertise. One approach to business planning breaks it down into five steps, labeled DAREE. D stands for Design and launch the process. Think through who will be involved, where decision making authority lies, and the specific questions to be addressed. A stands for Assess your current business model. Unless the business plan is for a brand-new organization, the current organization has a business model. It may work quite well, it may be stressed, or it may be broken, and it is possible no one has ever analyzed its functionality. Understanding the current business model (what the organization does, who it benefits, where it works, and how it pays for it) is an essential first step. R stands for Research and review market factors. This is where assumptions about how the organization will perform are articulated, based on sound business practices and often using benchmarking research

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whereby the organization understands how others have addressed similar challenges. The first E stands for Evaluate options and assumptions. Once a possible future business model is created, it must be stress-tested against reality. A sophisticated financial analysis and projections tool may be required, allowing the organization to adjust different variables in real-time to determine how they affect the outcome. The second E stands for Elaborate on the chosen model. Once models have been tested, and a winner emerges, it should be fleshed out into a full plan, including multiyear budgets, timelines for implementation, one-time and ongoing investments required, and a full review of risks. David La Piana

Related topics

Earned income Growth strategies Income portfolio analysis Managerialism Risk management Service portfolio analysis Strategic analysis: SWOT Strategic planning

nonprofits. Nonprofit Quarterly. https://​ nonprofitquarterly​.org/​the​-matrix​-map​-a​ -powerful​-tool​-for​-mission​-focused​-nonprofits/​ Accessed 14 Sep 2023.

Bylaws Definition

Bylaws are the rules governing the internal affairs of a U.S. nonprofit corporation or sometimes an unincorporated nonprofit association or charitable trust. The term has been variously spelled – including by-laws, bye-laws, and byelaws – but the generally accepted American spelling is now “bylaws.”

In practice: The nature and status of bylaws

Bylaws are the private governing law of nonprofit corporations, in that they do not need to be filed with any government body to take effect while at the same time they have the status of a contract among the corporation’s directors and members, as many courts have held. Under most states’ laws, bylaws may include “any provision for regulating and Further reading and references managing the affairs of the corporation that Copen, B., Gowdy, H., La Piana, D., & is not inconsistent with law or the articles Olmstead-Rose, L. (2012). The nonprofit busi- of incorporation” (see section 2.06(b) in the ness plan. Fieldstone Alliance. Revised Model Nonprofit Corporation Act, Fritz, J. (2019, September 25). Why a nonprofit 1988). Most organizations are wise to keep needs a business plan and what to include. The their bylaws to a manageable length and to Balance Small Business. www​.thebalancesmb​ address secondary issues in documents other .com/​why​-do​-i​-need​-a​-business​-plan​-for​ than the bylaws, but organizations with more -nonprofit​-2502272. Accessed 14 Sep 2023. Horan, J., & Peters, T. (2015). The one page stakeholders or more complicated governbusiness plan for the creative entrepreneur. ance may need comparably more complex documentation. The One Page Business Plan Company. Because, as noted above, the state corporaNational Council of Nonprofits. (2020). Business planning for nonprofits. www​ tions laws state that bylaws may not be incon.councilofnonprofits​.org/​tools​-resources/​ sistent with the articles, no bylaws provision business​-planning​-nonprofits. Accessed 14 that contradicts a provision in the articles Sep 2023. will be effective. Articles and bylaws should Propel Nonprofits. (2019). Social enterprise business plan. www​.propelnonprofits​.org/​ then best be viewed as a single governing document, with terms in the former required resources/​social​-enterprise​-business​-plan/​. by the government and terms in the latter to Accessed 14 Sep 2023. Rees, S. (2020, June 9). Write your nonprofit effect the corporation’s governance. Good business plan in 9 Sections. Get Fully Funded. practice suggests refraining from duplicating https://​getfullyfunded​.com/​nonprofit​-business​ terms in both documents, especially with -plan/​Accessed 14 Sep 2023. regard to statements of purpose or mission, Zimmerman, S., & Bell, J. (2014, April 1). The where a divergence included in the bylaws matrix map: A powerful tool for mission-focused

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56  Elgar encyclopedia of nonprofit management, leadership and governance

may mislead a corporation into activities that are in fact ultra vires for it under its articles. Bylaws are typically adopted by the initial directors (or in some cases by the incorporator). After their adoption, bylaws may be amended by the corporation’s members or, in some cases or in the absence of a corporate membership, by the board of directors. It is not uncommon for bylaw changes to require a supermajority vote or some other procedural hurdles (e.g., specific notice of proposed bylaw changes or the approval of a specified third party).

Contents

In general, there are no legally required contents of nonprofit bylaws. They can include whatever the organization wishes. But bylaws importantly do two things: first, they restate the relevant legal default rules in a handy compendium, to which the organization’s stakeholders and fiduciaries may easily refer, and second, they derogate from those default rules or specify terms beyond what the default rules set out. All of the nonprofit corporate statutes and many of the unincorporated nonprofit association statutes include governance rules that operate by default in the absence of bylaw provisions. For example, all of the nonprofit corporation laws state that a corporation will be governed by a board of directors. Some states’ laws say that in the absence of any affirmative statement, a corporation will not have members; other states say that the directors are the members. The default rules are important because they fill the void left by poorly prepared bylaws. But the nonprofit corporations laws, in particular the more recent Model Nonprofit Corporation Acts, permit almost every statutory rule to be varied by specific terms in the articles or bylaws. So, for example, the law may require notice of a meeting to be given to members no less than ten days and no more than 60 days before the meeting unless the bylaws set out a different notice period. Under that provision, the bylaws may specify any kind of notice period. The bylaws’ details are beyond the scope of this entry and vary from state to state and with the needs of each organization, but the categories of most common provisions are as follows. William M. Klimon

Members The bylaws should address the most fundamental question of the organization’s constituency: Does the organization have members or is it a directorship organization with a self-perpetuating board? If it has members – as is typical for religious organizations, labor unions, and trade associations, among others – it can have a sole member or multiple members. If the members are divided into classes, the bylaws should state the rights of each class. The bylaws should set out the members’ voting rights. The right to vote for the board was the defining feature of classic nonprofit membership, but the modern statutes expand that definition to include any right to vote on any matter of corporate significance, including changes to the governing documents and fundamental corporate transactions like mergers. Since members’ fundamental right to vote is usually exercised at a meeting, the rules for when meetings are held, who gets notice of the meetings and when, which questions may be brought to the meeting, what quorum must be present, and who can vote, among other meeting and procedural rules, should be set out in some detail. Directors Bylaws should set out the authorized number of directors or a manner of setting that number. Some states require only one director, some three, and one state (New Hampshire) requires five. Maximum board size may also be specified – no state’s law specifies a maximum board size. The directors’ terms and tenure should also be described. Some statutes have a default term of one year that can be varied by bylaw. No state’s law discusses term limits, one of the most popular governance techniques of recent years, so if an organization wants to limit the number of consecutive terms that a director may serve, that must be set out in the bylaws. The bylaws should describe how the directors are elected and removed from office: by the members or by the directors themselves, although other options include representatives of the members (usually called delegates) or authorized third parties. How do the directors in turn exercise their authority? Usually by vote at a meeting at which a quorum is present and for which proper notice had been given. Directors may

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also usually attend meetings by electronic communications technology or act by unanimous written consent, but they cannot act by proxy. The bylaws should include all those rules. If the board may delegate some of its authority to committees, those structures and rules should be listed in the bylaws, typically including manner of acting and distinctions between board committee (with the board’s authority) and advisory committees (those without that authority). Officers Although some states require certain officers – usually a variation on the classic triumvirate of president, treasurer, and secretary – many states’ laws leave the description of the officers’ titles, roles, authority, manner of selection and removal, terms, and other provisions entirely up to the organization’s discretion and as set out in the bylaws. Much flexibility is permitted, but given the lack of statutory default rules, an organization’s bylaws must include some detailed provisions. Most important are terms on what authority with regard to the organization’s finances, contracts, and assets is delegated to the officers and to which officers. Miscellaneous provisions Finally, the bylaws should also set out or otherwise describe how the various housekeeping and general administrative provisions necessary to the governance of a corporation or association will be decided, including the indemnification of its fiduciaries, its fiscal year, what books and records must be kept, any other rules of parliamentary or other procedure, and how the governing documents may be amended.

Current trends and issues: Constitutions

One issue that some nonprofit organizations may face is the legal status of their constitutions. The first half of the twentieth century saw a vogue for nonprofit organizations adopting a constitution in imitation of the U.S. Constitution, and that trend continues in some cases to this day. These documents often contain detailed provisions about the governance of their organizations, but no

state nonprofit corporations law refers to constitutions. So what is their authority? If filed with the state’s corporations division, a constitution may be an organization’s charter document, in place of or supplemental to its articles of incorporation. Alternatively, it may stand in the place of and function as an organization’s bylaws. But in some cases an organization may have both a constitution and bylaws. In that case, the organization’s governing body or membership should, with the assistance of legal counsel, define the status of each document. William M. Klimon

Related topics

Board policies manual Chief executive officer: Relations with the board of directors Dissolution of nonprofit organizations Fiscal sponsor Forming a nonprofit organization Governance Governing board: Composition Governing board: Membership Governing board: Responsibilities

Further reading and references

Boyd, W. L., & Frey, J. C. (Eds.). (2012). Guidebook for directors of nonprofit corporations (3rd edn.). American Bar Association, Section of Business Law. Committee on Nonprofit Organizations. (2009). Model nonprofit corporation act (3rd edn.). American Bar Association, Section of Business Law. Hopkins, B. R. (2017). Starting and managing a nonprofit organization: A legal guide (7th edn.). Wiley & Sons, Inc. Lindley, M. S., & King, R. (2012). Bylaws workbook: A handbook for new and established societies (2nd edn.). Federation of Genealogical Societies. Presser, S. B. (2002). Corporations: Nonprofit corporations. In K. L. Hall (Ed.), The Oxford companion to American law (pp. 170–171). Oxford University Press. Sorokin, C., Frey, J. C., Cion, J. A., & Sevcik, R. L. (2011). Nonprofit governance and management (3rd edn.). American Bar Association, Section of Business Law. Subcommittee on the Model Nonprofit Corporation Law. (1988). Revised model nonprofit corporation act. Prentice Hall Law & Business.

William M. Klimon

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Campaign: Annual campaign

and communications serve as an accountability mechanism, providing a platform for nonprofit organizations to demonstrate what they have accomplished through the support of their donors and build commitment and urgency for continued support in the future.

Definition

The annual campaign is a fundraising tool utilized by nonprofits and a key source of unrestricted income, primarily from individual donors, raised every year to carry out the mission of the organization. Annual campaigns are critical to supporting the ongoing operations of nonprofits, such as core program support, staff and other operating expenses, rather than specific special projects, capital campaigns or other restricted purposes. Annual campaigns are often thought of as the support for “what keeps the lights on” in a nonprofit organization. It is important to emphasize that these campaigns are often the only source of unrestricted support for nonprofits and even small amounts can provide crucial support.

In practice

Most nonprofits implement some type of annual campaign to support its operations. The type and scope of annual campaign varies in relation to the size, resources and capacity of the nonprofit implementing it. There are many formats for annual campaigns, but let’s take a look at three examples. A small community library is likely to conduct its annual campaign by sending a single letter during the year-end holiday season that summarizes its programs and services provided to the community. The letter would include a response form with giving options, as well as a return (unstamped) envelope. The library sends the solicitation to its full list of library cardholders, regardless of the degree to which those cardholders use the library resources, and the same letter goes to everyone. The campaign may raise $20,000 in total and not include any type of personal follow up or reminders to non-responders, which could improve a low direct mail response rate of 5–9 percent. A mid-sized arts agency that has a development office will implement its annual campaign with more structure and frequency and by utilizing more tools. This agency has the capacity to segment its donor records to target annual campaign appeals more precisely. Therefore, an annual appeal letter will be emailed to donors who contribute smaller amounts along with a file of new prospects, including a link to the organization’s online web portal for contributions. Follow up to non-responders can be planned and automated. This same mid-sized arts organization can recruit volunteers or utilize development

Context

Some form of annual campaign is implemented widely by many types of nonprofits, such as health, human services, arts, education or environmental organizations, and by organizations of all sizes. Annual campaigns can be conducted by mail, email, special events, social media or other digital formats, as well as via in-person solicitation, and the gift sizes vary by the size and scope of the organization. Annual campaigns have a specific dollar goal based on the organizational budget, and the costs to implement can vary significantly based on tools used and scope. They create a foundation on which the nonprofits’ work can be done and built further and serve as an important communication channel with existing donors and new prospects, providing information about the organization’s mission, impact and achievements. Annual campaign solicitations 58

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staff team members to solicit annual campaign gifts through personal outreach for their larger donors. This annual campaign operates on a year-round basis with a segmented and targeted plan based on donor size and engagement with the organization and may raise $250,000 to support its work. A third type of annual campaign is one that has been implemented by United Way, one of the world’s largest and long-standing nonprofits, for over 130 years. United Way has conducted annual workplace campaigns that engage millions of donors in supporting human service and educational programs in communities. The United Way annual campaign operates within workplaces, often orchestrated by its internal staff, and invites employees to make gifts to support partner agencies and initiatives that address community needs that persist year over year. What was once an exclusively paper pledge form campaign conducted in the fall of each year has now evolved to include year-round campaigns utilizing digital platforms to swiftly and efficiently process contributions, personalized asks, as well as multiple ways to engage donors as volunteers and advocates for the mission. United Way annual campaigns raise billions of dollars each year from individuals, corporations and foundations to improve human services delivery in the local communities they serve.

Issues

Several trends in fundraising create challenges to sustaining and growing annual campaigns. As donors and fundraising itself become more sophisticated, giving to an organization just to “keep it running” is less compelling. Donors often expect to know exactly what their contributions support and are more likely to prefer restricting their gifts to particular programmatic efforts rather than overhead. Many large donors are attracted by special projects or capital campaigns for which they can receive greater named gift recognition. It is not nearly as appealing or compelling to be the donor who supports the salary of the program director who counsels youths versus the youth center itself. At the same time, while philanthropy overall continues to mostly grow in the United States, this growth occurs while the overall number of donors declines. In other words,

fewer people are giving more dollars. There are fewer middle-income donors, which have often been the staple and stable giving source for annual campaigns like those highlighted above. This de-democratization of philanthropy overall is a particular risk to annual campaigns and the organizations supported by them unless this trend can be minimized or reversed. Another key challenge for nonprofits is their access to technology and digital sophistication. Not only is the annual campaign message harder to sell to donors, the medium often lags as well. We are a digital society, handling many of our life’s functions from banking to entertainment, from the palms of our hands on our cell phones. Nonprofits that cannot engage digitally cannot compete. There are so many ways to give and give seamlessly, that receiving a letter in the mail that requires a prospective donor to write a check in response requires too much time and energy to hold their attention. Further, the proliferation of ways to contribute to meeting social needs now extends beyond the nonprofit sector. GoFundMe pages abound for those who have suffered a medical emergency or for those who may have lost their home to a fire, allowing people moved by these circumstances to give immediately and easily. When we consider how technology has changed giving, it is not just annual campaigns at risk, but nonprofit missions overall. However, nonprofits have demurred in investing in their own capacity in favor of making sure that maximum investment is made in the mission. Unfortunately, while noble, this further inhibits their ability to access and use digital tools to leverage more support for their respective missions. Finally, workplace giving campaigns have been on the decline for more than a decade. There are many factors contributing to this decline, including the nature and location of corporate leadership and business engagement in local communities, the proliferation of other tools and options for giving, changing preferences for next generation donors and the aforementioned decline in the “every day” donor, which were the backbone of workplace giving campaigns. Despite these challenges, there remains significant power and scale with annual workplace campaigns.

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Future trends

Annual campaigns will continue to be a centrally important source of funding for nonprofits, particularly those whose funding is primarily derived from individuals, rather than government funding, earned revenue or foundations. The challenges above outline the importance for nonprofits to communicate more clearly and with urgency what is accomplished through support of the annual campaign. Many nonprofits have become more skilled at telling their stories about who is impacted through their work, developing a compelling narrative about how the donor’s gift to the annual fund changes lives and improves their communities. The COVID-19 pandemic also accelerated nonprofits’ ability to use digital tools to tell their stories. As nonprofit organizations pivoted to the pandemic realities, their leadership used virtual events, educational programs, donor meetings and service recipient videos to communicate, engage and cultivate greater support. The pandemic propelled the sector to greater digital literacy that will help address challenges such as concentration of giving with wealthier donors, access to and comfort with using technology in the sector and diminishing annual workplace campaigns. The digital upskilling of the sector during COVID-19 was a positive outcome during an incredibly challenging time. Continued use of digital tools, donor segmentation and message development will determine the success of annual campaigns going forward. However, investing in the digital tools required to support annual campaigns will be a challenge for nonprofits whose resources were stretched to the limit by the pandemic and for whom it may take years to recover lost revenue. There is no single best approach to conducting an annual campaign for a nonprofit organization, but the annual campaign has been and will continue to be a critical part of the funding mix for nonprofits, providing the flexible funding and capacity to deliver programs and services that accomplish their respective missions. To learn more about the function, structure and execution of successful annual campaigns, please refer to the resources listed below. Bobbi Watt Geer

Eugene R. Tempel and Sarah K. Nathan

Related topics

Administration costs Charitable giving Crowdfunding Donor retention and stewardship ePhilanthropy Fundraising Restricted / unrestricted funds Technology and social media United Way

Further reading and references

Klein, K. (2016). Fundraising for social change (7th edn.). Wiley & Sons, Inc. Tempel, E., Seiler, T. & Burlingame, D. (2016). Achieving excellence in fundraising. Wiley & Sons, Inc. The ultimate guide: Annual fund campaigns. (2021, January 3). Give Smart. www​.givesmart​ .com/​blog/​annual​-fund​-campaigns​-the​-ultimate​ -guide/​(Accessed 14 September 2023) Wolf, T. (2012). Managing a nonprofit organization. Free Press. Worth, M. (2016). Fundraising principles and practice. Sage Publications, Inc.

Campaign: Capital Campaign Definition

The Capital Campaign is a special fundraising effort to enhance the capital assets of a nonprofit organization. It provides for new facility construction, renovation of an existing facility, acquisition of a major piece of equipment, or addition to the organization’s endowment. Combined Campaigns or Comprehensive Campaigns include all philanthropic support received during the campaign counting period, including gifts to the annual fund. The challenge of the Capital Campaign is its strict timeline, usually three to five years. Tension results because donors who make the largest gifts in the campaign have their own timelines which may not align with the organization’s. An early leader in the field described the Capital Campaign as a dollar goal up against a deadline. With construction and renovation projects the timeline is fixed;

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Source: The Fund Raising School (2021, p. 148).

Figure 3

The total development program

with endowment building, it can be more flexible. The Fund Raising School teaches two key elements of campaign fundraising. The first is “Top Down,” meaning that the largest gifts are solicited first and in order of anticipated size. The second is “Inside Out” which reflects the idea that those closest to the organization are solicited regardless of gift size.

gifts are typically the largest gifts individuals make. Capital Campaigns primarily depend on a small number of large gifts and may include planned gifts. Table 3 illustrates the levels of gifts required to complete a typical campaign. Except for community-based campaigns which seek gifts from the entire community, Capital Campaign gifts come primarily from the existing donor base.

In practice

The case for support All fundraising depends on the case for support and is essential to the Capital Campaign. The accomplishments of the Capital Campaign must focus on the needs of society that will be met in new and better ways. The case for support summarizes all the reasons donors might support the campaign, while illustrating how society will be improved from the new or renovated facility, the addition of new equipment or technology, or through the organizational stability offered by an endowment. The case must be compelling, moving donors to action. The advantage of having donors come from the board, advisory boards, staff and current donors is that they best understand the case for support.

The Capital Campaign related to other fundraising The Capital Campaign must be considered as part of a Total Development Program as illustrated in Figure 3. The pyramid represents number of gifts an organization might receive, from many smaller gifts at the bottom to fewer but larger gifts at the top. An organization seeks first time gifts from many prospective donors, renews gifts the following year, and subsequently invites donors to increase the amount after they have repeated gifts. Special and major gifts are larger gifts requiring individual cultivation and solicitation. Planned

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62  Elgar encyclopedia of nonprofit management, leadership and governance Table 3

Gift ranges for a typical Capital Campaign

Lead gifts

40–60% of goal

  One lead gift

  10–20% of goal

  Two–three gifts

  5–10% each

  Four–six gifts

  2.5–5% each

Mid-range gifts

30–40% of goal

  30–60 gifts in three giving categories

 

Low level gifts

10–20% of goal

  All others at several lower levels

 

Source: The Fund Raising School (2021, p. 162).

Organizational readiness An organization should assess its internal readiness to conduct a Capital Campaign. Table 4 illustrates a simple but effective Test for Readiness to help an organization understand how prepared it is to conduct a Capital Table 4 Point range

Campaign. The test may reveal issues to be addressed. For example, updated software to track cultivation and solicitation activities might be necessary. Or an organization may lack a robust donor base from which major gifts may arise. It may need to engage board or other volunteer members to execute the

Test for campaign readiness #

Criteria

0–15

Your score

1.

A sound plan for the future

0–15

2.

Qualified lead gift prospective donors

0–10

3.

Capable/qualified executive staff

0–10

4.

Capable volunteer leadership

0–10

5.

An involved, concerned governing board

0–10

6.

A history of gift support Subtotal A: Out of a possible 70 points

0–5

7.

A positive reputation/track record

0–5

8.

A capable, qualified development staff

0–5

9.

A compelling case for support

0–5

10.

A prospective donor development plan and research system

0–5

11.

A creative, function communications program

0–5

12.

An efficient record keeping system Subtotal B: Out of a possible 30 points

TOTAL out of a possible 100: A score below 75 would indicate that the organization is not ready to mount a major campaign and should work on each of the elements with a low score. Elements 7–12 may be developed during the campaign planning period if necessary.

Source: The Fund Raising School (2021, p. 111).

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campaign. Issues such as these must be corrected for campaign success. Feasibility study It is important to conduct a feasibility study using an outside consultant or independent party (e.g., a retired nonprofit executive). An organization may be prepared to move forward, but its community, constituents, and/or donors may not be ready. The study will focus on internal and external factors, including: 1. Organizational strengths and weaknesses, including leadership; 2. The case for support; 3. Availability of leadership gifts on the Gift Range Chart; 4. Environmental considerations. Time and phases Organizations often focus on the public announcement, declaring to the community that they have the strength and courage to achieve a significant fundraising goal in a set time frame. However, the activities of the campaign’s planning phase require significant energy and assures its success. Planning begins with the Test for Readiness, the first drafts of the case for support and the gift range chart, the external feasibility study, and creation of the campaign team, both staff and volunteer. This planning process may take two to three years depending on an organization’s context. Once the plan, timeline, case for support, and gift range chart have been determined, solicitation of the largest eight or ten gifts on the gift range chart (see Table 3) are completed. Successfully securing these gifts is essential to the completion of the campaign. Simultaneously insider gifts, from those closest to the organization, must be solicited. Board members, advisory board members, volunteers, and staff must make their commitments early in the campaign regardless of gift size to create authenticity for the case for support. At the same time, solicitation of the largest major gifts in the middle of the gift range chart begins. It is recommended that at least 50 percent of the total goal (although more is better) is secured before the campaign moves into its public phase. The public announcement

signals that the organization is conducting a campaign and has certainty about its success. The public announcement can range from a press release to a special event (a regularly occurring event in the organization’s calendar works well). An event has three purposes: 1. to inform constituents of the size and scope of the campaign; 2. to announce commitments already in hand and recognize donors; and 3. to engage and cultivate donors for the final phase. It is important to celebrate the achievement of the campaign and remind donors and other constituents how the completed campaign helps fulfill its mission. It is also important to thank donors, volunteers, and staff for their roles in completing the campaign. Campaigns are organized for specific time periods; organizations sometimes extend timelines near the end to achieve the goal or end early if the goal is reached. Most organizations that reach the goal early add items to the case for support and continue. Increasingly we see higher education institutions, following national guidelines, extend campaigns as long as eight years. Organization During the planning phase, nonprofits must determine how the campaign will be organized. A five to seven person planning committee comprised of board leadership, potential major donors, and key volunteers might be the first group to consider a campaign. This group must be committed to making and soliciting gifts, as must all subsequent committees. If the campaign is to move forward, this group presents the campaign to the organization’s board for approval. Once the campaign has been approved, a larger committee of ten to 12 undertakes the task of soliciting the lead gifts and the largest major gifts. This group assists with prospective donor identification, qualification, strategy, and solicitation. Once solicitation moves to major gift solicitation, a committee of 20 or more volunteers expands the solicitation efforts. This group may form subcommittees for specialized solicitation, such as corporations, foundaEugene R. Tempel and Sarah K. Nathan

64  Elgar encyclopedia of nonprofit management, leadership and governance

tions, lawyers, bankers, geographic areas, gift societies, and so on. Usually, a robust development staff will manage the campaign and track donor identification, engagement, and solicitation. Some organizations may hire a campaign manager to focus on the campaign alone, reporting to the director of development. Others hire a campaign consultant for the duration of the campaign to review progress on a regular basis and provide advice on next steps.

Current trends and issues

A strong economy and other external factors influence a campaign’s success. The Great Recession of 2009 had a negative impact on campaigns because all asset classes, including returns on CDs, affected donors’ ability to make large gifts. As the economy improved and the stock market recovered, so too did donors’ commitment to large gifts. The onset of the global pandemic in 2020 caused tremendous uncertainty and the stock market initially declined dramatically. However, the market’s “K-Shaped recovery” in which those in the top of the economy recovered fairly quickly prompted giving levels to increase. Since most Capital Campaign gifts are made by those whose financial assets were less impacted by the pandemic, the outlook for campaigns remains positive. Another important trend since 2020 is a renewed attention on social justice and racial equity issues. These shifts seem to be permanent and may be essential for organizations to consider in all aspects of fundraising, from the development of its case for support to donor engagement activities. Eugene R. Tempel and Sarah K. Nathan

Related topics

Campaign: Annual campaign Case for support Charitable giving Fundraising Industry analysis Lifecycles of nonprofit organizations Major donors Project management Stakeholder management

Judith L. Millesen

Further reading and references

Bishop, K. (2021, July 9). Capital campaigns: Trends and tips you need to know. Classy. www​ .classy​.org/​blog/​capital​-campaigns​-trends​-and​ -tips/​ Conley, A. (2022). Campaign essentials. In G. G. Shaker, E. R. Temple, S. K. Nathan & B. Stanczykiewicz (Eds.), Achieving excellence in fundraising (5th edn., pp. 405–418). Wiley & Sons. Dove, K. (2000). Conducting a successful capital campaign (2nd edn.). Jossey Bass. Kihlstedt, A. (2022). Capital campaigns 101: Ultimate guide for beginners. Capital Campaign Toolkit. https://​ca​pitalcampa​igntoolkit​.com/​ capital​-campaigns​-ultimate​-guide/​ The Fund Raising School (2021) Managing the Capital Campaign. https://​ philanthropy​ .iupui​.edu/​professional​-development/​courses​ -seminars/​the​-fund​-raising​-school/​managing​ -capital​-campaign​.html

Capacity building Definition

Capacity building is a purposive intervention focused on strengthening the ability of individuals and organizations to improve performance and achieve overall mission-related goals and objectives.

In practice

Nonprofit organizations will often proactively engage in capacity building to improve both individual and institutional knowledge and decision making; make practical changes that are responsive to environmental considerations and external demand; and to make the most of emerging opportunities. Occasionally, organizations will embark on capacity building efforts to satisfy the demands of external funders or to signal legitimacy to important resource providers. The kinds of capacity building organizations undertake as well as where and by whom those services are provided also varies. While most nonprofit organizations will elect to build capacity internally, others will access an extensive industry of external technical and consultative support service providers. Decisions about the type of capacity building and the choice of provider are occasionally externally imposed by funders who seek to

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leverage the impact of their philanthropic investments or accrediting bodies as a form of regulatory compliance. The why and how of capacity building All nonprofit organizations have capacity or core capabilities with respect to service provision, management, leadership, and governance. Moreover, nonprofits are quick to adapt to changing circumstances in order to sustain the organization and achieve its mission. Yet given the systemic challenges, critical issues, and intractable problems many nonprofits address, most could arguably use more. Surely with more capacity, nonprofit organizations could arguably do more mission. The task then is to build organizational capacity so that nonprofits are sustainable and have what they need to achieve lasting impact. Nonprofit organizations are sustainable when they are adaptive and working well; when leadership and administration is values-led and mission driven; when program development and service delivery is responsive and of good quality; when resource and revenue acquisition strategies result in what’s needed to do the work; and when the community is involved and engaged in decision making. Capacity building is both a way to assure a nonprofit organization is working well, and an important part of developing long-term adaptability and sustainability. In an effort to guide nonprofit capacity building efforts, various conceptual models summarizing the core capabilities essential to any nonprofit have been developed. The key to improved nonprofit performance and long-term sustainability lies in an organization’s ability to develop adaptive, leadership, technical (or operational), and management capacity. When nonprofit organizations build adaptive capacity, attention is focused on familiar concepts such as boundary spanning, outreach, networking, and inquiry so organizations are well positioned, yet nimble enough to respond to emergent opportunities and address the challenges that come with complex social problems. Adaptive organizations are learning organizations receiving and responding to environmental cues. In this way, they can develop strategic partnerships that involve and share power with essential stakeholders (including those who benefit from mission); innovate, test, and refine new

value-creating initiatives; and attract necessary resources. Organizations with strong leadership capacity are visionary, strategic, mission-aligned, and have a strong culture of partnership between board and staff. When leadership capacity is high, organizational leaders (board and staff) have what is needed to inspire, prioritize, make decisions, provide direction, and innovate. There are robust mechanisms in place to ensure effective communication throughout the organization; a strong working relationship between board and staff based in trust, mutuality, and partnership; and a collective esprit de corps focused on accomplishing mission-related goals and objectives. Nonprofit organizations flush with technical capacity have the right staff in key administrative positions (e.g., service delivery, financial management, evaluation, fundraising, marketing) with the requisite skills to execute essential organizational and programmatic functions. Another essential aspect of technical capacity is having operational capacity or adequate facilities and other infrastructure supports (e.g., technology, information management) required to accomplish mission-related goals and objectives. Nonprofit organizations that can demonstrate sound technical and operational capacity are often more attractive to various kinds of external stakeholders (e.g., users, donors, funders). When an organization’s management capacity is strong, its human, operational, and volunteer resources are effectively deployed. This means that the nonprofit will have well-trained, knowledgeable staff and volunteers as well as the systems, procedures, and processes required for effective and efficient operations. Moreover, clear expectations, regular performance reviews, and continued investment in professional development are likely to result in high levels of satisfaction, better performance, and low turnover. Actions undertaken to build capacity take at least three different forms. For example, a nonprofit might undergo an organizational or board assessment to take inventory of its current capacity so it can identify important factors contributing to or impeding desired results. Assessments are often undertaken with the intent to improve overall performance. It may also be the case that a nonprofit Judith L. Millesen

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organization will build capacity by seeking out some type of specialized assistance through formal education, practical training, or professional consultation. Nonprofits may also build organizational capacity by receiving direct financial support from external funders in the form of operating support, grants, or working capital (e.g., loans). While most nonprofit capacity building is done internally through knowledge sharing and ongoing professional development, some do rely on external service providers to build the needed (or desired) capacity. Nonprofit organizations have relied on mentors and board members; independent consultants and consulting firms; management support organizations (MSOs); staff members from foundations or other resource providers; researchers; technical schools, colleges, and universities; academic centers; intermediaries and umbrella organizations; Internet-based providers, and specialized professionals (e.g., attorneys, accountants, technology firms); as well as other formal and informal sources not mentioned here. Capacity building is most useful when it is contextual, continuous, and collective. When capacity building is contextual, it is specifically tailored in ways that are responsive to and reflective of unique organizational characteristics such as geography, life cycle stage, and revenue sources. It is not an off-the-shelf, one-size-fits-all intervention. To be effective, capacity building work must dedicate enough time to trust and relationship building so that there are honest and open exchanges among those involved. Continuous investment in capacity building requires a long-term commitment of time and other resources so that nonprofit organizations can reap the benefits of the intervention. It takes time to learn, whether that learning comes from success or failure. All too often capacity building is approached and undertaken as a one-time investment in skill or program development, rather than a process of on-going support, adjustment, and improvement over time that leads to the eventual integration and sustainability of new capacity. Making capacity building collective requires explicit attention to how learning and change happen both within and external to the organization. When capacity building is collective, it engages people throughout the organization as well as those who Judith L. Millesen

serve on the board. Externally, collective approaches to capacity building work to coordinate efforts among funders and consider the overall capacity of the set of organizations working toward a shared purpose. In sum, capacity building helps individuals and organizations to learn. When done well, it aids in the development of new insights, behaviors, and skills. While many small nonprofit organizations do not have the resources to purchase external capacity building assistance, there is a robust industry of consultants and other providers poised to provide a full range of leadership development and technical assistance to the nation’s nonprofit community. To produce the best results, capacity building should be contextual, continuous, and collective.

Trends and issues: Strengths and limitations of capacity building

Given the intent of capacity building is to encourage continuous learning and improvement in individuals, institutions, and communities, there are many reasons a nonprofit organization might want to make an investment in capacity building. These include: ● Capacity building is about creating an environment that encourages and supports critical reflection, continuous learning, and appreciable change in individuals, institutions, and communities, thereby strengthening the ability of nonprofit organizations to address some of the nation’s most intractable problems. ● When capacity building is an ongoing organizational process, its benefits are generative. That is, by creating the conditions under which continual learning is the norm, organizations are more likely to develop a culture of curiosity and inquiry that values new ideas, learns from failure, and attracts people who have (or will develop) the competence and confidence needed to seize opportunities and navigate future challenges. ● Most nonprofit organizations in the United States have very small annual budgets. Capacity building is an important aspect of staying mission focused, particularly when much of the money (and attention) is directed toward service provision and program development amidst a sea of growing need. All too often, nonprofits

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are so focused on making ends meet, they do not take time to assess whether programs are working as intended or if they are the best way to accomplish their mission. ● All organizations are strong in some areas and weaker in others. When capacity building is done well, it focuses first on how best to strengthen, improve, and expand existing capacity so that what is working well is deployed as an asset that can be used to improve overall effectiveness and accomplish more missions. While the benefits are many, there are some common critiques of the practice. These include: ● The amount of time, attention, and effort it takes to realize the returns of any capacity building intervention is often underestimated. Lasting improvements in capacity often require change at individual, organizational, and systemic levels. Capacity building is rarely a simple matter consisting of a one-time injection of new learning or novel skills, but rather it is an ongoing process of continual learning, adaptation, change, and growth. ● Although capacity building is promoted to enhance organizational effectiveness and sustainability, evaluation of these efforts can be difficult, in part because the field lacks a common set of performance measures to assess nonprofit effectiveness. As a result, much of the data regarding the overall effectiveness of nonprofit capacity building tends to focus on customer satisfaction and process rather than outcomes. While assessing the effectiveness of capacity building might be difficult, establishing a link between the practice and overall performance is critical to strengthening the nonprofit sector. ● Capacity building as it is currently practiced is grounded in a deficit-based approach that often relies on outside experts to improve performance. That is, the process often begins with what is deficient or weak and then recommends a strategy that relies primarily on external expertise to fix what is wrong. This can be an effective strategy, particularly if the intervention includes co-learning and builds individual as well as institutional capacity. It can be problematic, however,

if it promotes the belief that a nonprofit is only as strong as the external capacity builders that are brought in to help. ● Many nonprofits are small, community-based organizations doing impressive, essential work to tackle complex social problems with staff and volunteers who are passionate about the mission. These are the very organizations that might benefit most from capacity building. The challenge is, they lack the very capacity (broadly defined to include resources of all types) to access the burgeoning industry of help and assistance. ● Nonprofit governing boards are sometimes reluctant to make the needed investments in capacity building, viewing the expense as ancillary or perhaps even a luxury that cannot be afforded, choosing instead to deploy all resources toward meeting immediate community needs. The same hesitation might also apply to foundations, government contractors, and major donors who despite the benefits, may be reluctant to help nonprofits invest in their capacity. This mindset is likely to be even more pronounced during heightened times of community need, such as an environmental crisis or the COVID-19 pandemic, when attention is focused on service provision. When done well, capacity building can yield many positive benefits for nonprofit organizations. Taking the time to reflect on current practice with the intent to improve practice in ways that allow for more and better activity in furtherance of mission is good for all who are involved in addressing society’s most intractable problems. While not all nonprofit organizations can access external capacity building assistance, making a commitment to ongoing learning that periodically questions the status quo may be one way to start. Additionally, engaging in generative conversations with the board, staff, volunteers, and those who benefit from missions may yield important insights and open doors to new opportunities. Judith L. Millesen

Related topics

Careers and preparation Effectiveness of nonprofit organizations Judith L. Millesen

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Governance Governing board: Chairperson Leadership Managerialism Professionalism Resilience management Strategic human resource management

In practice

Career paths among social enterprise managers in the United Kingdom were examined by Maher (2015) and categorized by three distinct pathways: horizontal, cross-functional, and vertical.

● Professionals following a horizontal career path improve their skills and competencies through various trainings. These Bartek, L. (2013, December 29). Supporting training courses are often decided on by nonprofit capacity: Three principles for the organization and held at the organigrantmakers. Nonprofit Quarterly. https://​ zation or sector-wide level. An example: nonprofitquarterly​.org/​supporting​-nonprofit​ -capacity​-three​-principles​-for​-grantmakers/​ a finance officer deepening their skills in (Accessed 14 September 2023). finance and management. Connolly, P. & York, P. (2002). Evaluating ● The cross-functional career path allows capacity-building efforts for nonprofit organiindividuals to have opportunities to zations. OD Practitioner, 34(4), 33–39. http://​ broaden their set of marketable skills, nncg​.issuelab​.org/​resources/​20680/​20680​.pdf thus improving their overall chances of (Accessed 14 September 2023). ongoing employment in the sector. This De Vita, C. & Fleming, C. (2001). Building capacmay result in individuals working in ity in nonprofit organizations. Urban Institute a variety of roles and experiences within Press. Millesen, J. L., Carman, J. G. & Bies, A. L. nonprofit organizations. An example: (2010). Why engage? Nonprofit Management a finance officer acquiring skills in fundand Leadership, 21(1), 5–20. https://​doi​.org/​ raising and development. 10​.1002/​nml​.20009 (Accessed 14 September ● The vertical career path is driven by 2023). the professional. Promotion is achieved by an individual taking the initiative to seek training and educational opportunities that are provided outside the organization. The individuals are also likely to take advantage of any organizational initiatives as well. An example: a finance officer pursuing a graduate degree. Definition: Key terms and concepts A career is the prolonged occupation an According to Suarez (2010), individuindividual has throughout their life, often als working in the nonprofit sector can be including opportunities for growth and divided into four categories: Professional advancement. Whereas career paths have Administrator, Social Entrepreneur, long been imagined in the for-profit and Substantive Expert, and Nonprofit Lifer. public sectors, the professionalization and Each of these categories represents a quadgrowth of the nonprofit sector have made rant on a management-nonprofit axis. way for nonprofit careers. Career trajectories in the nonprofit sector ● The Professional Administrator has have been increasingly studied, with research a background and expertise emphasizing indicating there are opportunities for growth managerial functions with little regard for and promotion within the sector. Experience which sector of employment. This means and “street credibility” matter in the nonprofit they are not necessarily wholly committed sector. Suarez (2010) found that 60 percent to the nonprofit sector and have a knack of nonprofit executives in the San Francisco for business and management. Bay area were hired from within that non- ● The Social Entrepreneur emphasizes manprofit or another nonprofit organization. agerial aspects of their nonprofit work. This individual is dedicated to the nonprofit sector and likely to seek managerial positions within organizations as they are keen on innovation and management,

Further reading and references

Careers and preparation

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with specific interest in the financial side of the organization. ● The Substantive Expert has a deep knowledge of a specific issue or expertise but is not as driven by their sector of employment. This person relies on their experience in whatever previous field they were in and do not regularly seek out managerial roles, rather they stumble into them. This individual is not necessarily tied to the nonprofit sector but is strongly connected to their chosen area of expertise. The fields of expertise can include many that are often associated with the private sector (i.e., finance, law, facilities management, human resources, etc.) as well as other professions that may be more closely associated with the nonprofit sector (i.e., social work, child welfare experts, community development professionals, etc.). ● The Nonprofit Lifer has a significant background in nonprofit work with limited engagement with management aspects. This person is driven by a strong nonprofit ethic, having recognized a problem and wants to be a part of the solution. They will presumably want to work directly with the population served and if they have a managerial role, will likely wish to continue their hands-on approach with clients. Norris-Tirrell et al. (2018) also studied the career profiles of CEOs and other executives of national nonprofit organizations. This study underscored the importance of sector experience, with the vast majority of executives (82 percent) indicating they had over a decade of experience in the sector, and half of the executives reporting having only had nonprofit experience in their careers (Norris-Tirrell et al., 2018).

Nonprofit management education

Education and credentials are also important elements of career development in the nonprofit sector. Suarez (2010) found that the nonprofit sector “does not suffer from leadership amateurism or a lack of educated applicants for executive positions ... with nonprofit leaders being highly credentialed” (p. 702). Nonprofit management education programs have experienced explosive growth, a signal of both supply and demand in supporting the

training needs of the nonprofit workforce (Mirabella et al., 2019).

Current issues and challenges Equality in promotion between and within sector – Longevity within sector Various predictions exist about the looming wave of retirements among nonprofit executives (Carman et al., 2010; Tierney, 2006). Even more concerning is a lack of leadership development opportunities in the nonprofit sector (Landles-Cobb et al., 2015). Mentorship programs, peer coaching, and leadership training are both needed and beneficial to young professionals in the field, and while the cultivation of leadership is time intensive, the long-term benefit to the sector’s workforce makes these activities a worthy investment. Equity and inclusion in employment at all levels, but especially among nonprofit leadership, is an imperative based on the sector’s core values. Barriers to inclusion and access to promotion among women and Black, Indigenous, and People of Color (BIPOC) leaders should be addressed and proactively remedied. Individual nonprofit organizations should include a diversity, equity, and inclusion (DEI) statement, as well as a plan to address DEI in all hiring and operating practices. The Building Movement Project compiles (https://​buildingmovement​.org/​) research and is a thought leader to bring attention to the leadership gaps in the sector, as well as how bias affects BIPOC nonprofit leadership. Sector commitment “Effective leadership is the most important predictor of organizational sustainability and success” (Norris-Tirrell et al., 2018, p. 147). Many nonprofit employees choose to purposefully work in the nonprofit sector based on the mission of nonprofits or as expression of their personal or professional values, but evidence is compiling that the commitment of workers may change over time and may be impacted by factors like compensation or changes in the external environments of nonprofits (Piatak, 2017; Walk et al., 2021). With the prolonged impact of the COVID-19 pandemic on organizations and the personal lives of nonprofit workers, human resource

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management attention will need to be paid to securing nonprofit workers so that the stability of the nonprofit workforce can be sustained.

Diversity, equity, and inclusion Professionalism Strategic human resource management Wage equity within and across sectors

The future

Further reading and references

Workforce training needs In order to address concerns about the future of professional development, growth, or opportunities for promotion in the nonprofit sector, individual nonprofit organizations should prioritize these opportunities for all employees. Young professionals in particular need to be encouraged to stay in the nonprofit sector through mentorship opportunities and professional development incentives. As the internal and external dynamics of the nonprofit sector change, nonprofit management education and organizational professional development programs will need to stay attentive. For example, the Nonprofit Academic Centers Council has established curricular standards that are insightful of the contemporary knowledge and skills needed by nonprofit workers. Evolving expectations and motivations With increased competition and blurred lines between the nonprofit, public, and for-profit sectors, workers have alternatives for employment and can even cross sector lines in their own career development. Further, the donative labor hypothesis that has been used to explain why nonprofit workers may be willing to accept lower compensation for the opportunity for meaningful work may not be as durable as previously thought, as millennials who now comprise the largest portion of the workforce may feel differently about extrinsic motivators for work (McGinnis Johnson & Ng, 2016). With many nonprofits relying on workers for the delivery of their missions, nonprofits will need to monitor and update practices that attract and secure nonprofit workers. Amanda J. Stewart and Ryne A. Crout Jones

Related topics

Capacity building Curricula for nonprofit management in higher education

Carman, J. G., Leland, S. M. & Wilson, A. J. (2010). Crisis in leadership or failure to plan? Nonprofit Management and Leadership, 21(1), 93–111. https://​doi​.org/​10​.1002/​nml​.20014 Landles-Cobb, L., Kramer, K. & Milway, K. S. (2015). The nonprofit leadership development deficit.  Stanford Social Innovation Review. https://​ssir​.org/​articles/​entry/​the​_nonprofit​ _leadership​_development​_deficit Maher, C. (2015). Social enterprise manager’s career path preferences. International Journal of Globalisation and Small Business, 7(1), 59–72. https://​doi​.org/​10​.1504/​ijgsb​.2015​ .069032 McGinnis Johnson, J. & Ng, E. S. (2016). Money talks or millennials walk. Review of Public Personnel Administration, 36(3), 283–305. https://​doi​.org/​10​.1177/​0734371x15587980 Mirabella, R., Hoffman, T., Teo, T. K. & McDonald, M. (2019). The evolution of nonprofit management and philanthropic studies in the United States: Are we now a disciplinary field? Journal of Nonprofit Education and Leadership, 9(1), 63–84. https://​doi​.org/​10​ .18666/​jnel​-2019​-v9​-i1​-9598 NACC Curricular Guidelines (2015). NACC. www​.nonprofit​-academic​-centers​-council​ .org/​NACC​-WP/​wp​-content/​uploads/​2019/​01/​ NACC​_Curricular​_Guidelines​_100615​.pdf (Accessed 14 September 2023). Norris-Tirrell, D., Rinella, J. & Pham, X. (2018). Examining the career trajectories of nonprofit executive leaders. Nonprofit and Voluntary Sector Quarterly, 47(1), 146–164. https://​ doi​ .org/​10​.1177/​0899764017722023 Piatak, J. S. (2017). Sector switching in good times and in bad: Are public sector employees less likely to change sectors? Public Personnel Management, 46(4), 327–341. https://​doi​.org/​ 10​.1177/​0091026017712739 Stewart, A. (2017). Exploring board perspectives on nonprofit executive turnover. Voluntary Sector Review, 8(2), 169–185. https://​doi​.org/​ 10​.1332/​2040​80517x1494​2368265346 Suarez, D. F. (2010). Street credentials and management backgrounds: Careers of nonprofit executives in an evolving sector. Nonprofit and Voluntary Sector Quarterly, 39(4), 696–716. https://​doi​.org/​10​.1177/​0899764009350370 Tierney, T. J. (2006). The leadership deficit. Stanford Social Innovation Review, 4(2), 26–35. https://​doi​.org/​10​.48558/​603F​-9785 Walk, M., Stewart, A. J. & Kuenzi, K. (2021). Should I stay or should I go? Investigating

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municate their strengths and future viability, therefore making the case for continued funding.

Current thinking and best practices

The following are guidelines to help ensure a case for support is most effective.

Case for support

1. Establish the problem to be addressed by the proposed project.

Definition

A compelling problem statement and deep understanding of the issue at hand are critical to communicate and to give insight into where the prospective grantee’s solution/ services fit. Funders must be compelled by the problem the grant seeker is setting out to address.

A case for support is a prospective grantee’s comprehensive presentation of resources and requests to a prospective funder for a particular project. A case for support typically includes, but is not limited to, a proposed project, potential partners, communication plan, evaluation, sustainability plan, and budget. The case for support also includes a narrative of the grant seeker’s history of accomplishments, its strategy, and its capacity to successfully complete the project as described. Solicited and Unsolicited Proposals are submitted in response to a funder’s indication that they are open to funding proposals, such as a Request for Proposals/Request for Applications initiated by the funder. Unsolicited proposals are submitted to a funder outside of a designated call for proposals. Some funders require a letter of intent to assess interest in receiving a proposal. Request for Proposals/Request for Applications: Some funders may issue a Request for Proposals or Request for Applications (RFP or RFA), to call for proposals related to a specific cause or topic at a specific time. Others may accept proposals on a periodic or rolling basis.

In practice

Grant applications are a major opportunity for nonprofits to present their case for support to potential funders, in which a case for support tailored to each funder provides the framework for a compelling grant application. A case for support can take the form of a written document but can include other media, and is informed by a nonprofit’s history, impact, and future goals. A case for support is a vessel for a nonprofit to com-

2. Focus on what the grant seeking organization has to offer. An effective case for support outlines the assets the prospective grantee possesses and what the grantee will contribute to the project. Identify past successes and detail past and ongoing work relevant to the proposal. In addition, share any secured or potential partnerships for the project. Unless the grant seeker’s proposal fits within a funder’s signature initiative area in which they prefer to lead, the case for support will have a better chance of success by demonstrating placement within a network of partnerships to support the project. These details should frame the request for funding. 3. Why is now the time to fund a project to address this problem? Timing is critical for grantmakers, and the case for support should clearly show why now is the time to help the grantee to address this critical problem. Explain why the grant seeker is the right organization at present to receive funding to develop a solution. 4. Research potential funders carefully. Understand different types of funders (foundations, individuals, corporations, federal sources of funding) and the types of projects they fund. Choose the right funder for the right problem. For example, understand that the role of public philanthropy is to support or Karen Wolk Feinstein

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advance areas already funded in the public sector or that are not permitted to be funded in the public sector. Public charities and community foundations generally do not fill gaps in public sector funding but can test and advance solutions that could go to scale in the public sector. Pay special attention to each funder’s grantmaking process. Some fund by invitation only; some issue RFPs; some are open for proposals. Details can usually be found on the funder’s website or via a grantmaker database. Identify the style of each potential funder’s work; this information should inform the proper approach to proposals. National organizations will likely award a grant only once, while community-based funders are more inclined to develop long-standing relationships with well-performing grantees. Small foundations with a few individual donors or family-based foundations may have a narrower focus, compared to larger foundations with more staff. 5. Tailor a case for support to each funder. Each funder has an agenda and focus through which they filter requests. In the case of some mid-size to larger foundations, staff follow clear guidelines for discerning between acceptable and unacceptable proposals so they can make a first cut, with discretion to only bring forward to the board proposals that fit within the foundation’s wheelhouse. Grant seekers should apply to funders that are a good fit, and with a case for support that carefully illustrates the commonalities between their focus and those of the funder. Proposals that include a description of the grant seeker’s track record, forge new territory in an interest area, and use a model that has merit and likelihood of success have the best chance to advance for consideration. In addition, funders often prefer to work with vetted, trusted partners who are either previous grantees or close partners of the funder in a mutual area of interest. If a grantee has not been involved with a funder before, they should consider sending an informal inquiry before submitting a proposal (unless a funder requires a formal letter of intent process). In these initial communications and in the proposal, the grant seeker should explain Karen Wolk Feinstein

why they are requesting support from a particular funder, based on details from their history of funding. The grant seeker should show how they have researched their guidelines and areas of interest, and how their proposed project will fit into the funder’s narrative and history. They should present the proposal as an opportunity for the funder to continue their progress in an area of interest and use examples to share ideas on how the grant seeker and the funder will become effective partners for change. 6. Present “Plan B.” The case for support should describe how the grant seeker will course-correct if the unexpected happens. In 2020, for example, the COVID-19 pandemic caused many grant-funded projects to make sudden changes to their plans, as restrictions required a switch to virtual interaction and some plans ultimately had to be cancelled. What barriers can be anticipated, and how will the grantee overcome them so that the project is not derailed? 7. Include a plan for evaluation and place the project in context. The grant seeker should ensure their request includes a detailed plan of how they will evaluate the project’s outcomes and consider how the evaluation will inform future projects. This should include a detailed description of the evaluation questions that will be asked and the data that will be collected to form an effective model that the grantee and the funder could build upon. The case for support should also explain how communication tools will help the proposed model go to scale. Philanthropic funders generally value funding projects that can advocate for education, training, and quality improvement/development of best practices generated by the project.

The future

Funders are continuously improving to become better partners in building relationships with grantees and helping them to course-correct, and in communicating their changing areas of focus and guidelines. The Jewish Healthcare Foundation, for example, strives to work with prospective grantees to help develop proposals through an informal

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inquiry process prior to officially considering the proposal. Future funding opportunities will likely be built increasingly as partnerships. Co-funding relationships provide greater access to resources and accountability. In addition, there may be greater interest in cases for support related to advocacy, as more funders may become involved in advocacy to use their voices and funding in a way that supports education, in a nonpartisan manner, around issues of interest. Karen Wolk Feinstein

Related topics

Campaign: Annual campaign Campaign: Capital Campaign Crowdfunding Fundraising Grant Impact investing Program evaluation Project management Restricted / unrestricted funds

Cause-related marketing Definition

Cause-related marketing is a type of marketing strategy that focuses on using marketing techniques to publicize and capitalize on an organization’s efforts to support a “cause” in order to gain direct (i.e., increasing in sales) or indirect (i.e., good brand reputation) commercial benefits.

Context

Cause-related marketing has been widely used by for-profit organizations to promote their corporate social responsibility efforts and improve their business legitimacy. There are four different ways in which for-profit organizations can implement cause-related marketing strategies:

1. Sponsorship strategy: directly attach a for-profit organization’s commercial activity to specific charitable events/ schemes (often hosted by nonprofit organizations) or launch specific charFurther reading and references itable events/schemes in the for-profit Barbato, J. & Furlich, D. S. (2000). Writing for organization’s name. a good cause: The complete guide to crafting 2. Transaction-based strategy: for-profit proposals and other persuasive pieces for organizations donate a portion of their nonprofits. Touchstone. profits/proceeds from each product/ Collective Impact Forum. (n.d.). Funder commuservice sold to a customer to a cause (or nity of practice. www​.c​ollectivei​mpactforum​ nonprofit organization as the representa.org/​funder​-community​-practice tive of the cause). Emerging Practitioners in Philanthropy. (n.d.). Emerging practitioners in philanthropy. www​ 3. Joint promotion strategy: cooperate over .epip​.org/​ the advertising effort between for-profit Funders for Justice. (n.d.). Funders for justice. and nonprofit organizations to promote https://​fundersforjustice​.org/​ a cause. Grantmakers of Western Pennsylvania. (n.d.). 4. Donation in-kind strategy: a non-financial Grantseeker resources. https://​gwpa​.org/​ contribution towards supporting a cause grantseeker​-resources (e.g., corporate employee volunteers, new Justice Funders. (n.d.). Justice funders. http://​ buildings, equipment, etc.) in exchange justicefunders​.org/​ for direct or indirect commercial benefits. Karsh, E. & Fox, A. S. (2019). The only grant-writing book you’ll ever need (5th edn.). Basic Books. Penn State University. (n.d.). Prepare proposals. www​.research​.psu​.edu/​osp/​prepare​-proposals Robert Morris University. (n.d.). Bayer center for nonprofit management. www​.rmu​.edu/​about/​ bcnm The Writing Center at the University of Wisconsin – Madison. (n.d.). Planning and writing a grant proposal: The basics. https://​ writing​.wisc​.edu/​handbook/​assignments/​ grants​-2/​

In practice

Nonprofit organizations can engage in cause-related marketing via adopting two primary approaches. The first and most common engagement with cause-related marketing by nonprofit organizations is to be alliance partners in for-profit organizations’ corporate social responsibility activities and associated (cause-related) marketing campaigns. The design and Gordon Liu

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implementation of corporate social responsibility activities by for-profit organizations focus on fulfilling their environmental and societal goals that are philanthropical, ethical or charitable in nature. This often involves supporting or making contributions towards causes. As representatives of a cause, nonprofit organizations become attractive alliance partners for for-profit organizations in this situation. Many for-profit organizations have seen the commercial benefits by disseminating their efforts to engage in corporate social responsibility activities to their customers, stakeholders and the general public in marketing campaigns (i.e., cause-related marketing campaigns). Simply put, corporate social responsibility relates to for-profit organizations “doing” the right thing, and cause-related marketing focuses on “telling” others about the right things that the for-profit organizations are doing. By collaborating with for-profit organizations in cause-related marketing campaigns, nonprofit organizations can obtain important resources (e.g., donations, license fees – using the nonprofit organization’s brand, employee volunteers, etc.) from for-profit organizations that enable them to pursue their own strategic objectives, such as acquiring new donors, international expansion and others. The second way of engaging in cause-related marketing is not applicable to “traditional nonprofit organizations,” that only obtain funds from private donations and government grants. This is unsurprising because “typical” nonprofit organizations collaborate with their corporate partners to implement cause-related marketing due to their lack of commercial operations (cause-related marketing is a commercial, benefits-driven activity). However, this is not entirely true from the standpoint of “social enterprises.” A social enterprise is a type of nonprofit organization. More specifically, a social enterprise is a hybrid organization containing both commercial- and social-/ environmental-side (i.e., causes) business operations. This places social enterprises in an ideal position to engage in “self-made” cause-related marketing campaigns by promoting their own “causes” when marketing their commercial activities without relying on collaboration with for-profit organizations. In this context, the implementation of cause-related marketing is highly dependent on how social enterprises are operated Gordon Liu

because they need to orchestrate and deploy internal resources for such purposes.

Current and future directions

There are important issues that researchers and practitioners need to consider when applying cause-related marketing strategies in the context of nonprofit organizations: 1. Cause-related marketing is not social marketing – Despite their similarities in terms of promoting “causes,” the primary goal of cause-related marketing is to achieve commercial benefits. On the other hand, social marketing focuses on achieving the “common good” and generating positive social or environmental impacts. For example, in the context of environmental issues, a social marketing campaign may be designed to raise general awareness about environmental protection and induce changes in people’s behavior (e.g., ensuring water and energy efficiency). However, a cause-related marketing campaign related to an environmental cause may also plan to raise awareness about environmental protection but with a focus on selling more green products (e.g., hybrid cars). 2. Effective cross-sector collaboration – Many cause-related marketing strategies are implemented by establishing collaboration between for-profit and nonprofit organizations. For-profit and nonprofit organizations have different organizational missions and management styles. Therefore, effective collaboration between them is essential. The question of how nonprofit organizations can deal effectively with issues caused by cross-sector collaboration in cause-related marketing strategies needs to be addressed by both future academic researchers and practitioners. 3. Risk – As nonprofit organizations face difficulties related to obtaining resources from traditional sources (private donation and government grants), engagement in cause-related marketing campaigns enables nonprofit organizations to obtain important resources for their organizational survival via non-traditional routes. At the same time, such engagement is also associated with various risks. For example, establishing links with for-profit

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organizations in cause-related marketing may carry a reputational risk. This is especially true when for-profit organizations commit wrongdoings (e.g., perform actions that lead to financial or environmental scandals). Furthermore, nonprofit organizations on various occasions are likely to be the “weaker” party in their alliance with for-profit organizations in a cause-related marketing campaign due to the imbalance in their respective financial and managerial resources. This leads nonprofit organizations to lose control of the campaign and entails governance risk when for-profit organizations behave opportunistically by withdrawing or reducing their funding unexpectedly or weakening other terms of the agreement. 4. The emergence of the social enterprise – Social enterprises have both commercialand social-/environmental-side business operations. This allows social enterprises to engage in cause-related marketing strategies without collaborating with for-profit organizations (e.g., promoting their own “causes” when marketing their commercial activities). However, we still know little about whether and, if so, the extent to which social enterprises’ own implementation of cause-related marketing allows them to grow their business. Therefore, it is important that further research continues to explore and document how social enterprises can effectively engage in and manage cause-related marketing strategies. In conclusion, cause-related marketing is a powerful tool in affecting people’s perception of an organization (for-profit and nonprofit organizations). Used wisely, nonprofit organizations can generate additional resources (either via an alliance with for-profit organizations or a self-made campaign in the context of social enterprise) to support their social missions. At the same time, nonprofit managers also need to be aware that there are risks when becoming involved in such campaigns. It is hoped that the present discussion inspires scholars and nonprofit managers to pursue this stream of research and practices to continue to provide a fuller understanding

of the role of cause-related marketing in the nonprofit organizations’ strategic mix. Gordon Liu

Related topics

Commercialism Corporate philanthropy Corporate social responsibility Crowdfunding Earned income Marketing Public relations Social enterprise

Further reading and references

Adkins, S. (1999). Cause-related marketing: Who cares wins. Elsevier Ltd. Lafferty, B. A., Lueth, A. K. & McCafferty, R. (2016). An evolutionary process model of cause‐related marketing and systematic review of the empirical literature. Psychology & Marketing, 33(11), 951–970. https://​doi​.org/​10​ .1002/​mar​.20930 Liston-Heyes, C. & Liu, G. (2010). Cause-related marketing in the retail and finance sectors: An exploratory study of the determinants of cause selection and nonprofit alliances. Nonprofit and Voluntary Sector Quarterly, 39(1), 77–101. https://​doi​.org/​10​.1177/​0899764008326680 Liston-Heyes, C. & Liu, G. (2013). A study of nonprofit organizations in cause-related marketing: Stakeholder concerns and safeguarding strategies. European Journal of Marketing, 47(12), 1954–1974. https://​doi​.org/​10​.1108/​ ejm​-03​-2012​-0142 Liu, G. & Ko, W. W. (2011). An analysis of cause-related marketing implementation strategies through social alliance: Partnership conditions and strategic objectives. Journal of Business Ethics, 100(2), 253–281. https://​ doi​ .org/​10​.1007/​s10551​-010​-0679​-7 Liu, G. & Ko, W. W. (2014). An integrated model of cause-related marketing strategy development. AMS Review, 4(4), 78–95. https://​doi​.org/​ 10​.1007/​s13162​-014​-0061​-5 Runté, M., Basil, D. Z. & Deshpande, S. (2009). Cause-related marketing from the nonprofit’s perspective: Classifying goals and experienced outcomes. Journal of Nonprofit & Public Sector Marketing, 21(3), 255–270. https://​doi​.org/​10​ .1080/​10495140802644505 Samu, S. & Wymer, W. W. (2013). Nonprofit and business sector collaboration: Social enterprises, cause-related marketing, sponsorships, and other corporate-nonprofit dealings. Routledge.

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Celebrity philanthropy Definitions

British actor Michael Sheen sold his house to help finance the 2019 Homeless World Cup. Musician Pharrell Williams is a figure head for From One Hand To AnOTHER (FOHTA), an organization that creates education opportunities for the underprivileged. British former soccer star David Beckam has been a UNICEF goodwill ambassador since 2005. These are high-profile examples of how, today, philanthropy is part of celebrities’ professional DNA. As an umbrella term, celebrity philanthropy refers to (1) individuals who enjoy public recognition, (2) known primarily from areas other than their societal engagement, (3) who use their fame (4) to volunteer, advocate or lobby, create awareness of, and/or help raise funds for (5) a socio-political cause or nonprofit organization, (6) targeting media, (members of) nonprofit organizations, entrepreneurs, policy makers and/or the general public (Panis, 2012, as cited in Van den Bulck, 2018). Related terms include celebrity activism and celebrity humanitarianism. It is studied in different disciplines including: ● Celebrity studies focusing on relationships between philanthropic efforts, the celebrity persona and the celebrity-as-commodity; ● Marketing scholarship studying variables determining the effectiveness of celebrity endorsers; ● Communication studies analyzing how media frame celebrity philanthropy; and, ● Postcolonial studies deconstructing uneven power relations reflected in celebrity philanthropy. Celebrities’ engagement varies in degrees and frequency, from one-off performances at a fundraiser to long-term commitment to a cause/organization. A small elite of celebrities, like Irish musician Bob Geldof (Band Aid, One Campaign), demonstrates transformational commitment that eclipses their original claim to fame and that can ignite real change.

In practice

Huddart (2005) identifies three main types of celebrity philanthropy: creating awareness, Hilde Van den Bulck

fundraising and advocacy. First, celebrities can use the media and, through that, audience attention to create awareness for a cause/ organization. This can be low involvement, like being the face of a campaign (e.g., the “I’d rather go naked” campaign against wearing fur of U.K. animal rights organization PETA, every year featuring a different celebrity), to long-term engagement as spokesperson or ambassador. A prototypical example of the latter is the UNICEF Goodwill Ambassador model that started with U.S. actor Danny Kay in 1954, inspiring nonprofit organizations to this day. Second, celebrities can raise funds by calling on the public to donate and/or by taking personal initiative: from auctioning off personal items and donating performance profits to consistently sharing part of their wealth. Research suggests a positive influence of celebrity endorsement on audiences’ willingness to donate, mediated by characteristics of celebrity (attractiveness, expertise, trustworthiness, familiarity, fit) and audiences (age, gender, attitude towards donating) (Tantawi & Sadek, 2019). Advocacy, finally, involves celebrities exerting pressure on individuals, corporations or institutions, often politicians and legislators, to take action. This ranges from signing a petition, sharing a hashtag and giving a speech at a rally to persistent advocacy for structural change. Examples of the latter include U.S. actor Michael J. Fox lobbying U.S. Congress for stem cell research to find a cure for Parkinson’s disease (from which he suffers), or, in the late 2000s, U.S. actor George Clooney lobbying politicians to resolve the Darfur conflict. In their philanthropic endeavors, celebrities can either act on their own account, increasingly setting up their own organizations, or in alliance with an established organization. Engaging a celebrity has several benefits for the organizations. News selection criteria are often unfavorable to the nonprofit’s work, while celebrities are highly newsworthy. They bring visibility, capture the public’s attention and, thus, interest in a cause/organization. Media attention favors a limited group of high-profile celebrities that collaborate with big, well-known organizations, yet celebrities’ media pulling power is crucial to new and small organizations. Increased visibility also helps to reach a wider audience than a nonprofit’s traditional target audience. Famous people furthermore have

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easier access to policy makers. Politicians willingly meet with celebrities for the media attention it brings, while celebrities can more easily voice their demands in the public arena (Brockington, 2014). Celebrity philanthropy has gone through a process of professionalization and commodification, like the marketization of wider philanthropy. It has become embedded in a growing industry of specialized intermediaries that broker between celebrities and causes/organizations, often in return for a fee. Brokers like Celebrity Connection, Cause Célèbre or The Celebrity Source match a cause/organization to a celebrity based on the celebrity’s image and the characteristics of the cause/organization. Studios and talent agencies like United Talent Agency employ people that match their celebrities to the right cause/organization. Professionalization also means that contemporary celebrities are very knowledgeable about their causes as brokers provide extensive coaching and celebrities collaborate with renowned experts, such as Jolie’s and Bono’s collaboration with economist Jeffrey Sachs.

Current issues and challenges

For all its advantages, celebrity philanthropy has its pitfalls. Some relate to the celebrity. Wider audience reach does not necessarily create greater awareness as fans may show blind followship. A celebrity can also hijack a campaign, willingly or not, by attracting all the attention, overshadowing the cause/ organization. Conversely, the increased pace of celebrity culture means that celebrity is often a temporary state, affecting the potential to attract (media) attention. Worse, famous people can turn infamous overnight through a scandal unrelated to the cause/organization but discrediting it through association. Likewise, celebrities can prove untrustworthy endorsers, exhibiting views or behaviors (wearing fur, expressing racism…) that the organization is opposed to. The impact of involving a celebrity philanthropist extends to the message about the cause/organization. A celebrity can adjust the tone or interpretation of a message in a way that is incompatible with the nonprofit. This relates to celebrity’s embeddedness in commodity culture that can lead to de-politicization or de-radicalization of an

organization’s goals and message, as celebrities may fear the impact on their public image (Meyer & Gamson, 1995). Celebrities may be more comfortable asking for donations or cause-related commodity consumption (e.g., Project Red) than advocate radical change. This strengthens the idea that solutions can be “bought” and are based in individual commitment rather than societal change. Critical analyses of (mediated communication about) celebrity philanthropy in the field of development and humanitarianism, especially with regards to Africa, illustrate how celebrity philanthropy’s strong echoes of neo-colonial global relationships in which celebrities, and the organizations/solutions they endorse, demonstrate features of colonial discourses and approaches.

The future of celebrity philanthropy

Celebrity philanthropy is here to stay. However, there are new challenges ahead. The digitized media world is firmly focused on celebrity, also creating cyber and microcelebrities. Traditional mass media and “mass” audiences take a back seat to social media networks and their multitude of niche audiences. This makes it hard for celebrities to reach broad audiences and requires nonprofit organizations to have advanced expertise in digital media and algorithms to target the right audience. Engaging micro-celebrities like social media influencers could partly solve this but the hyper-commodified nature of their celebrity will further affect the cause/ organization they are willing to endorse and their believability with audiences. Hilde Van den Bulck

Related topics

Advocacy Branding and brand strategies Cause-related marketing Commercialism Fundraising Impact investing Major donors Marketing Planned giving Public relations

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Further reading and references

Brockington, D. (2014). Celebrity advocacy and international development. Taylor & Francis. Cosima, A. & Richey, L. A. (2021). Batman saves the Congo: How celebrities disrupt the politics of development. University of Minnesota Press. Duvall, S. S. & Heckemeyer, N. (2018). #BlackLivesMatter: Black celebrity hashtag activism and the discursive formation of a social movement. Celebrity Studies, 9(3), 391–408. https://​doi​.org/​10​.1080/​19392397​ .2018​.1440247 Huddart, S. (2005). Do we need another hero? Understanding celebrities’ roles in advancing social causes. McGill University. Jeffreys, E. & Allatson, P. (Eds.). (2015). Celebrity philanthropy. Intellect. Knoll, J. & Matthes, J. (2017). The effectiveness of celebrity endorsements: A meta-analysis. Journal of the Academy of Marketing Science, 45(1), 55–75. https://​doi​.org/​10​.1007/​s11747​ -016​-0503​-8 Meyer, D. S. & Gamson, J. (1995). The challenge of cultural elites: Celebrities and social movements. Sociological Inquiry, 65(2), 181–206. https://​doi​.org/​10​.1111/​j​.1475​-682x​.1995​ .tb00412​.x Tantawi, P. & Sadek, H. (2019). The impact of celebrity endorsement in cause related marketing campaigns on audiences’ behavioral intentions: Egypt case. International Review of Public Nonprofit Marketing, 16(2–4), 293–311. https://​doi​.org/​10​.1007/​s12208​-019​-00231​-5 Van den Bulck, H. (2018). Celebrity philanthropy and activism: Mediated interventions in the global public sphere. Routledge.

Charitable giving Definition

This entry briefly summarizes trends in charitable giving to nonprofit organizations by individuals, foundations, bequests, and corporations. The focus is on broad annual trends in charitable giving, primarily in the United States. Before delving into this topic, it is important to note that charitable giving is a moving target that can be influenced by catastrophic events, like the COVID-19 pandemic, changes in tax policy, geopolitics and conflict, changing demographics, and many other factors. Historically, changes in the economy have had an impact on charitable giving and the economy can, in turn, be affected by Kevin P. Kearns

sudden outbursts of global conflict and its resulting impacts on supply chains, investor confidence, and other variables. To further complicate matters, there are generational differences in individual giving as well as differences based on gender, race, and other demographic identifiers as discussed in other parts of this book. Any one of these mitigating factors would present challenging empirical problems, but their collective interacting effects make it even more difficult to confidently make sweeping statements about what impacts charitable giving. Thus, the best we can do is summarize broad trends in charitable giving and point to a few factors that seem to influence those trends.

In practice

The annual report issued by Giving USA is the oldest and most comprehensive report of charitable giving in America, broken down by sources. The report is published by the Giving USA Foundation, an initiative of The Giving Institute, but it is researched and written by the Indiana University Lilly Family School of Philanthropy. Much of the data presented below is drawn from that report. For many nonprofits giving from individuals comprises the largest single source of annual revenue. Total charitable giving in 2021 totaled $484.85 billion distributed as follows: 67 percent from individuals; 19 percent from foundations; 9 percent from bequests; and 4 percent from corporations. Individual giving in the U.S. increased from $309 billion in 2019 to $329 billion in 2021. The increase is attributed, in part, to an outpouring of support during the COVID-19 pandemic. Total giving in 2021 increased 4 percent over 2020 but was flat when adjusted for inflation. While still the dominant source of donated funds, individual giving is dipping slightly relative to other sources, accounting for less than 70 percent of total giving for the fourth consecutive year and only the fourth time on record, perhaps reflecting a larger role played by foundations and corporations (Lilly Family School of Philanthropy, 2022). Broad economic trends such as the performance of the stock market tend to have a particularly significant impact on giving by the wealthy, giving by foundations, and giving by corporations. Global events and shocks also have an impact on giving to

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individual subsectors. For example, giving to healthcare organizations increased in 2021 reflecting donor concerns and empathy for a sector overburdened by a global pandemic. Giving to the arts also increased in 2021, perhaps reflecting concern that these types of institutions would be particularly vulnerable during the pandemic due to suspension of live performances and other programming. Giving to public benefit organizations like United Way and civil rights organizations also increased significantly in 2021 reflecting, perhaps, greater concerns for issues of social justice and income inequality. Giving by the wealthy to certain Donor-advised Funds also accounted for some of the growth in the public benefit subsector. Conversely, the subsectors of education and human services did not fare as well in 2021. Certain types of individual giving, such as annual solicitations of regular donors, usually generate relatively stable income. Another positive feature of most types of individual giving is that they generate unrestricted revenue – money that nonprofits can allocate as needed, including support of administrative costs such as salaries, overhead expenses, and other important infrastructure components. Nonprofits covet unrestricted funding because it gives them the flexibility to deploy the funds as needed either to services or to administrative support. But the distribution of individual donations across the wide spectrum of nonprofit missions can fluctuate up or down in response to events or shifts in public sentiments, causing significant disruption to nonprofit services and administrative infrastructure. Giving by bequests, for example, is known to fluctuate from year to year. Many other sources of revenue, including most foundation grants, are restricted in their usage according to the terms of the donor. In addition, it is important to note that economic shocks like the COVID-19 pandemic as well as gradual socioeconomic trends have an impact on the demand side as well as the supply side of charitable giving. The pandemic forced many nonprofits to pivot away from their core programming to meet immediate needs in their communities such as food and housing insecurity, and the disproportionate impacts of the pandemic on minorities. Governing boards were pressed into greater service and attention to detail. Issues such as mask mandates and work

from home arrangements blurred the lines between governance and management. Many nonprofits are still struggling to repivot back to their core purpose and reassessing their competencies at a time when they have lost employees, when work arrangements have changed dramatically, and when the need for their services is impacted by changing demographics, technology, a polarized political environment, and an unstable economy. Nonprofits are trying to adapt to new work patterns, such as working from home, and supply chain disruptions that continue as a lasting residue of the pandemic. Thus, the needs of nonprofits are evolving at the same time as patterns of giving. Much more research is needed in the years to come to unravel these many interacting factors.

Issues and debates

An important question, particularly in the U.S. currently, is: What is the impact of public policy, especially tax policy, on charitable giving? The evidence on this question is mixed. Many people predicted that the Tax Cuts and Jobs Act of 2017 (TCJA) would have a negative impact on charitable giving in the U.S. because it significantly reduced the incentives for all but the wealthiest taxpayers, and those who make exceptionally high donations, to itemize their charitable donations to achieve a reduced tax obligation. It was estimated that the number of taxpayers who itemize would decrease by 60 percent, thus potentially dramatically shrinking the number of donors to nonprofits who are motivated in part by a reduced tax obligation. There is emerging evidence that the new law changed the patterns of giving, but not necessarily the overall amount of charitable giving. Haveman and O’Reilly (2021) suggest that dire predictions of the impact of the TCJA are due, in part, on flawed research designs that focus too narrowly on the standard deduction and ignore other nuances in the law as well as broader forces in the political economy. For example, Farmer et al. (2020) found that donors identified as “conservative” tend to give more and concentrate their giving to a few charities while “liberals” tend to give less and spread their donations over a wider spectrum of causes. Giving USA reported that megagifts from the wealthiest donors – individual gifts of $450 million or Kevin P. Kearns

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more – totaled $15 billion or about 5 percent of all individual giving in 2021. We need more research on the impact of tax policy, particularly the TCJA, on who gives, how much they give, and the beneficiaries of their giving. For example, over time, the changing pattern might tilt charitable giving even further to causes favored by the wealthy. Finally, there seems to be strong and consistent evidence that total philanthropy is related to the performance of the economy and the stock market. But these data may primarily reflect growth in institutional philanthropy from foundations and corporations, and gifts from wealthy individuals.

The future

As noted above, trends in individual giving are difficult to predict. While the general trend in the U.S. is upward but flat when accounting for inflation, there are many nuances in the trend data that are difficult to unpack. Also, the philanthropic environment is evolving in ways too numerous to mention. The COVID-19 pandemic revealed new types of vulnerability (and resilience) in certain types of nonprofits. It also radically altered our modes of social and professional interaction and, therefore, methods used by nonprofits to create a compelling story for prospective donors. Changes in career tracks, incomes, lifestyles, and perspectives will continue to affect patterns of charitable giving. The full impact on philanthropy due to the emergence of issues related to social justice, diversity and inclusion, and equity has yet to be studied. Moreover, our polarized political environment, the erosion of democratic norms, and the weaponization of political discourse may produce subtle changes in charitable giving or, in a worst-case scenario, produce an explosive disruption that challenges everything we think we know about philanthropy. Kevin P. Kearns

Related topics

Donor and donor motivation Donor retention and stewardship ePhilanthropy Faith and philanthropy Fundraising Gender and philanthropy Identity-based philanthropy Alexander C. Campbell

Further reading and references

Bekkers, R. & Wiepking, P. (2010). A literature review of empirical studies of philanthropy. Nonprofit and Voluntary Sector Quarterly, 40(5), 924–973. https://​doi​.org/​10​.1177/​ 0899764010380927 Chapman, C. M., Masser, B. M. & Louis, W. R. (2020). Identity motives in charitable giving: Explanations for charity preferences from a global donor survey. Psychology & Marketing, 37(9), 1277–1291. https://​doi​.org/​ 10​.1002/​mar​.21362 Farmer, A., Kidwell, B. & Hardesty, D. M. (2020). Helping a few a lot or many a little: Political ideology and charitable giving. Journal of Consumer Psychology, 30(4), 614–630. https://​ doi​.org/​10​.1002/​jcpy​.1164 Haveman, S. & O’Reilly, C. (2021). Tax policy and charitable giving: An evaluation of the tax cuts and jobs act 2017 and its impact on charitable contributions. Journal of Public Finance and Public Choice, 36(2), 189–207. https://​doi​ .org/​10​.1332/​2515​69121x1620​2842687921 Havens, J. J., O’Herlihy, M. A. & Schervish, P. G. (2006). Charitable giving: How much, by whom, to what, and how? In Göran Sonnevi (ed.) The Nonprofit Sector: A Research Handbook (2nd edn.) New Haven: Yale University Press, pp. 542–567. https://​doi​.org/​ 10​.12987/​9780300153439 Lilly Family School of Philanthropy. (2022). Giving USA 2022: The annual report on philanthropy for the year 2021. Indiana University. https://​philanthropy​.iupui​.edu/​news​-events/​ news​-item/​giving​-usa:​-​-total​-u​.s​.​-charitable​ -giving​-remained​-strong​-in​-2021​,​-reaching​ -$484​.85​-billion​.html​?id​=​392

Charity law Definitions and background

According to Independent Sector’s Health of the U.S. Nonprofit Sector report, in the third quarter of 2022, the nonprofit sector was responsible for 5.6 percent of the United States’ gross domestic product, and in a 2020 report by the Johns Hopkins Centre for Civil Society Studies, it was reported that nonprofits employed approximately 10 percent of the American workforce – the third largest workforce of any industry in the country. Many of the organizations that make up the nonprofit sector in the United States are so-called “charitable” organizations.

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This entry addresses, at a broad level, the state and federal laws applicable to nonprofit charitable organizations (also known as “public benefit” organizations) under United States law. This entry focuses on organizations recognized by the Internal Revenue Service (IRS) as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code (IRC), but it should be noted that so-called mutual benefit organizations, such as social clubs, trade associations, and the like, are also among the 1.8 million tax exempt organizations in the United States (as reported by Independent Sector). The traditional definition of charity, which comes from English law, encompassed four specific activities: ● ● ● ●

Relief of poverty; Advancement of education; Advancement of religion; and Other purposes beneficial to the community.

As colonists began to settle in what is now the United States of America, many brought with them this understanding of, and respect for the importance of, charity, and these historical underpinnings continue to influence our understanding of charity today. Under modern American law, the relatively limited English law definition of charity has largely given way to the definition of charity contained in the IRC and expanded upon in Treasury Regulations (“Regulations”) issued by the IRS, the details of which are discussed below. As also discussed below, organizations which conduct such charitable activities – often nonprofit corporations or charitable trusts – are governed by state law, which addresses formation and governance, and federal law, which is mostly concerned in this context with tax exemption and related tax compliance.

In practice State law Each state has its own set of laws applicable to nonprofit charitable organizations. These state laws embody certain fundamental characteristics, the most fundamental of which is commonly referred to as the “non-distribution constraint,” which means that a nonprofit charitable organization is not

permitted to distribute profits to those who control it. Similarly, all state nonprofit laws also provide that no one “owns” the nonprofit. This non-distribution constraint and the lack of equity ownership is the biggest difference between a nonprofit corporation and a for-profit corporation or entity. Under state law, the term “nonprofit” does not literally mean the entity cannot make a surplus of revenue over expenses; indeed, a financially healthy nonprofit charitable organization may (and perhaps should) seek to make a profit year after year. Nonprofit status dictates, instead, that those profits must be used in furtherance of the nonprofit’s purpose. Most nonprofit charitable organizations are organized under state law as nonprofit corporations. Many state nonprofit corporation laws mirror, in many ways, the state’s for-profit corporation law, including the limitation on personal liability for corporate debts and obligations (i.e., as with a for-profit corporation, an individual employee or board member of a nonprofit is generally not personally responsible for debts or obligations of the nonprofit). There are, however, important differences in terms of structure and governance, as set forth in this entry. Other available nonprofit structures include the charitable trust, which is not a distinct legal entity but instead a fiduciary relationship with respect to property by which the fiduciary is required to use those assets for charitable purposes, all set forth in a trust document executed by a settlor (i.e., the person putting the property in the trust). Another option is the unincorporated association, which is a less formal organization committed to charitable purposes. Finally, some states allow limited liability companies to be organized and operated for charitable purposes. In addition to these explicitly charitable options, many states permit the formation and operation of hybrid entities (such as benefit corporations and low profit limited liability companies (L3Cs) which are technically for-profit entities, but which have charitable characteristics, including a commitment to social benefit and transparency). All nonprofit charitable organizations, regardless of state and corporate form, are subject to the so-called charitable trust doctrine. This doctrine states that all property belonging to a nonprofit charitable organization is impressed with a charitable trust, Alexander C. Campbell

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meaning that those assets may only be used for charitable purposes; in other words, it is said the organization holds the assets in trust for the public benefit.  In addition to these fundamental characteristics, state nonprofit corporation laws address how a nonprofit charitable organization is formed and structured and how it is to be governed. With respect to governance, state nonprofit corporation laws include information on how the board of directors is composed, the role of the board, the corporation’s officers, and its members (if any), and how and when meetings are conducted, and how decisions are made. State nonprofit law also describes the directors’ and officers’ fiduciary (or legal) duties to the organization. In many states, these fiduciary duties (e.g., the duty of care, the duty of loyalty, etc.) are complemented by laws governing prudent investment of charitable assets.  Finally, state nonprofit laws also prescribe various regulatory and oversight roles for state agencies, including in many states the regulation of charitable solicitation. States with charitable solicitation rules generally require registration with the state before soliciting charitable contributions from the state’s residents, or holding charitable funds in the state, or both. The state regulatory authorities also address unscrupulous practices and often must be provided notice before a nonprofit may take certain actions, such as disposing of charitable assets outside of the ordinary course of business. It should also be noted that in some states there have been rancorous debates about what actually constitutes a charitable organization, often centered around an organization’s ability to claim exemption from property taxes. Federal law  Nonprofit charitable organizations are also subject to a variety of federal laws, mostly relating to the organization’s exemption from federal income taxation. As noted above, this entry focuses on entities recognized as exempt under federal income tax under section 501(c)(3) of the IRC. An organization seeking such recognition must be organized and operated exclusively for a tax-exempt purpose, and the IRC recognizes several such purposes: ● charitable, Alexander C. Campbell

● ● ● ● ● ●

religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and ● preventing cruelty to children or animals.  Each of these terms is defined in detail in the Regulations. For example, the most common tax-exempt purpose – charitable – is “used in its generally accepted legal sense” and including a wide range of activities: ● relief of the poor, the distressed, or the underprivileged; ● advancement of religion; ● advancement of education or science; ● erecting or maintaining public buildings, monuments, or works;  ● lessening the burdens of government; ● lessening neighborhood tensions; ● eliminating prejudice and discrimination;  ● defending human and civil rights secured by law; and ● combating community deterioration and juvenile delinquency. An organization described in section 501(c) (3) of the IRC must also not allow any of its earnings to inure to the benefit of any private shareholder or individual. The IRS has the statutory power to impose penalties on individuals who benefit from, and in some cases on those who approve, transactions between a charitable organization and an insider whereby the insider receives a benefit disproportionate to the consideration paid (e.g., an insider who sells property to an organization for more than the property’s fair market value). These private inurement rules are also related to but distinct from the larger concept of private benefit. As noted earlier, a nonprofit charitable organization must be organized and operated for an exempt (i.e., public) purpose, rather than a private purpose, and an organization that inverts this equation by providing too much private benefit can potentially put its exempt status at risk.  Another manifestation of the requirement that an organization must be organized and operated for an exempt purpose is the unrelated business income tax (UBIT). Exempt organizations are generally exempt from paying federal tax on their income, but those

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organizations are required to pay UBIT on revenue generated by business activity which is regularly carried on and not significantly related to the organization’s exempt purposes. As with so many tax rules, the UBIT arena abounds with exceptions and exclusions.  In addition, an exempt organization may not attempt to influence legislation as a substantial part of its activities – in other words, a limited amount of lobbying activity is permissible – and the organization may not participate in any campaign activity for or against candidates for elected office. Finally, as noted above, the nonprofit sector is not limited to charitable organizations described under section 501(c)(3) of the IRC, but those other organizations are not considered “charitable” and are thus not discussed in detail in this entry – but it is worth noting that these organizations are, for the most part, also subject to these rules. Public charity vs. private foundation The IRC also further breaks down entities recognized under section 501(c)(3) of the IRC into private foundations and public charities. An entity is, by default, a private foundation, and the entity must meet certain criteria to be deemed a public charity. The significance of this classification is that private foundations – which are typically started and funded by one family or individual – are subject to stricter standards, and less favorable tax treatment, than their public charity counterparts.  Application for exempt status and ongoing reporting An organization seeking recognition as a section 501(c)(3) organization – both private foundation and public charity – files Form 1023 with the IRS. This form asks questions about the charity’s actual and planned activities and financials, governance processes and procedures, and information regarding directors, officers, and key employees. An organization described in section 501(c)(3) is also required to file annually a Form 990 series information return, which details the organization’s revenue and expenses and other activities. Both the Form 1023 and Form 990 must be made publicly available. 

Advantages and disadvantages of charitable status There are many benefits of recognition under section 501(c)(3), including a certain credibility that comes with such status (sometimes known as the “halo effect”) and eligibility to receive tax deductible contributions, and exemption from income tax. Individuals and entities are eligible to claim deductions on their tax returns for contributions to charities; the amount of the available deduction depends on the type of property donated and whether the charity in question is a public charity or private foundation. And, of course, an organization which is recognized as exempt under section 501(c)(3) is exempt from paying federal income tax on its revenue. In addition, as noted above, many state laws also bestow certain benefits on charitable organizations (including but not always completely limited to 501(c)(3) organizations), such as exemption from state property and sales tax.  Becoming and remaining a nonprofit charitable organization does have certain disadvantages. The main disadvantage is the complex web of state and federal legal requirements discussed in this entry. Charitable organizations are also limited in their ability to engage in certain kinds of transactions available to for-profit organizations. In addition, charitable organizations are subject to significant reporting obligations, and charitable organizations must answer to many constituencies, from donors to governmental authorities to the population served by the organization. 

Recent changes to the law and potential further reform

State and federal laws relating to nonprofit charitable organizations are relatively staid, but there have been a few meaningful changes in the last several years, as well as a few more proposed. One example, kickstarted by the 2010 United States Supreme Court decision in Citizens United v. Federal Election Commission, in 2021 is the rise of so-called “dark money” in politics, which is campaign funding from groups that are not required to publicly disclose their donors (Federal Election Commission, 2023). This campaign finance issue continues to permeate the nonprofit sector; in 2021, the United States Supreme Court struck down state laws requiring disclosure of donor information, so Alexander C. Campbell

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while the nonprofit sector is largely transparent, certain aspects have become increasingly opaque. Another example of a recent legislative change impacting the nonprofit sector was the Tax Cuts and Jobs Act of 2017. In the Act, Congress included several provisions relating to the nonprofit sector, including imposition of new excise (i.e., penalty) taxes on certain executive compensation and changes to the way UBIT is calculated. The law also doubled the so-called standard deduction, which significantly reduces the number of taxpayers who itemize their tax deduction. Because charitable contributions are only claimed as deductions by itemizers, this change had the effect of significantly reducing the tax advantage of charitable giving for most taxpayers. Finally, in terms of forthcoming legislation, there has been much discussion about proposing new rules for donor-advised funds (DAFs), which are accounts at existing public charities funded by contributions from donors who retain advisory privileges. Proposed rules include restrictions on what DAF sponsors can do with funds in those accounts and how much, if any, of the funds need to be distributed over a given time frame. Alexander C. Campbell

Related topics

Accountability Antitrust Internal Revenue Service Private foundations Public charity Regulation of nonprofit organizations Tax policy: Federal Tax Policy: State and local Unrelated business income

Further reading and references

Federal Election Commission (2023) Citizens United v. FEC. www​.fec​.gov/​legal​-resources/​ court​-cases/​citizens​-united​-v​-fec/​ Independent Sector, Health of the U.S. Nonprofit Sector Quarterly Review December 31, 2022. https://​independentsector​.org/​resource/​health​ -of​-the​-u​-s​-nonprofit​-sector/​ Internal Revenue Service (2023). Exemption Requirements – 501 (c) (3) Organizations. www​.irs​.gov/​charities​-non​-profits/​charitable​

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-organizations/​exemption​-requirements​-501c3​ -organizations Johns Hopkins Center for Civil Society Studies, 2020 Nonprofit Employment Report. https://​ ccss​.jhu​.edu/​2020​-nonprofit​-employment​ -report/​ National Council of Nonprofits, Research Reports and Data on the Nonprofit Sector. www​ .councilofnonprofits​.org/​research​-reports​-and​ -data​-nonprofit​-sector

Chief executive director: Compensation Definition

Nonprofit executive directors (EDs), sometimes called chief executive officers (CEOs), hold the highest-ranking positions in their organizations, are responsible only to the board of directors, and are likely to be the organization’s top earners. In small organizations, EDs may execute almost all internal and external functions; in larger organizations, they oversee the managers and staff responsible for these functions. Given their centrality to the organization, attracting and retaining the executive is of great importance to nonprofits, making their compensation one of the essential functions of the governing board.

In practice

For organizations with paid staff, compensation is an essential human resource function. In the nonprofit sector, determining compensation can be difficult. It is complicated by factors such as the nonprofit’s unique organizational characteristics and information deficiencies as well as resource and capacity issues that may affect both decision making and the available compensation. These limitations are likely to pose serious problems for many nonprofits, but be most prevalent in smaller organizations. This is unfortunate, given the importance of compensation to employees and outcomes (Selden & Sowa, 2015). Generalizations about the executive director position and its compensation can be problematic, as the population of nonprofit organizations in the United States is

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a heterogeneous group, even when narrowly understood as 501(c)(3) public charities. Organizations range from those with hundreds of millions of dollars in assets and expenses, such as the largest hospitals and universities, to those comprised entirely of volunteers and without facilities, staff, or much that we typically attribute to formal organizations. Within the group of organizations with executive directors, compensation can range from tens of thousands to millions of dollars in salary and benefits. In the nonprofit sector, compensation at the executive level is the responsibility of the governing board, though it may be delegated to a compensation sub-committee in organizations with more complex governance structures. Decisions are likely to be based on perceptions of the labor market. High-performing organizations have been demonstrated to often use tools such as wage or salary surveys and consider internal and external equity (Selden, 2017). The literature suggests that equity should be an important concern, as offers influence recruitment (Tierney, 2009), and salaries influence retention and performance (Slatten et al., 2021). Larger nonprofits may rely on incentive pay for their highest earners, with nearly 50 percent reported to use these tools in some samples (Balsam & Harris, 2018). Research on executive director compensation demonstrates that size drives compensation (Frumkin & Keating, 2001) and shows that markets matter (Grasse et al., 2014), but findings about the relationship between performance and compensation are less clear. Studies have identified positive and negative associations between performance and compensation, as well as generating indeterminate findings. Research on executive compensation in the sector also reveals important differences across subsectors, even when focused solely on charitable organizations and excluding other nonprofit forms (Oster, 1998). The board–executive relationship has been demonstrated to influence pay in larger organizations (Feng et al., 2022).

Current and future directions Gender disparities Scholars and other stakeholders have noted gender disparities in executive director

compensation, finding female executives are compensated less than their male peers (Lennon et al., 2013). These disparities are likely to be partially a function of organizational sorting effects, with females drastically underrepresented in the largest organizations (Lee, 2019), but more information is needed on the precise nature of pay gaps to isolate sorting effects from the discriminatory components of compensation. Work suggests that the presence of female board members may reduce inequitable outcomes. It is imperative that the sector remedy the gender disparities in ED compensation as these discriminatory practices may diminish organizational performance, leadership opportunity and, ultimately, the sector’s public benefit. Racial/ethnic disparities Scholarship on nonprofit executive director compensation disparities on race/ethnicity is limited. While many longitudinal studies focus on gender and compensation differences for executive directors, many of these studies highlight a lack of data information regarding racial and ethnic differences. Even studies that use e-filer IRS 990 data highlight the limitations in acquiring accurate information on the compensation of key directors and leaders based on race and ethnicity. Of the limited studies that do focus on nonprofit executive directors and race, many studies highlight that racial diversity in nonprofit organizations both in the U.S. and internationally is lacking both in leadership and throughout the organizations generally and that increasing racial and ethnic diversity is a focus in the sector (Guest, 2019; Xie & Pang, 2018). In a study conducted on 12,095 environmental nonprofits in the United States, only 2.1 percent of nonprofit organizations were willing to disclose the ethnic/racial data of their board and staff members (Taylor et al., 2019). In fact, scholars find that many nonprofit organizations that do report demographic data of their board and staff are more likely to report gender demographic data than provide information on racial/ethnic data or LGBTQ+ data (Czarnik, 2020). A recent study that interviewed current and past executive directors in nonprofit organizations on compensation negotiation finds that there are unjust negative perceptions of a woman or person of color that negotiNathan J. Grasse and Leonor Camarena

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ates aggressively; it also finds that there are implicit biases based on gender and racial/ ethnic differences that affect the interpretation and opinions of those in a director role that are hiring for their organization (Czarnik, 2020). Executive compensation is critically important for nonprofit organizations, but nonprofits are likely to lack the information they need to make informed decisions on compensation, limiting their capacity to hire or retain executives, make equitable decisions, and fulfill their missions. While this entry focuses on executive compensation, we note the critical need for studies of non-executive compensation in the literature (Selden, 2017). Nathan J. Grasse and Leonor Camarena

Related topics

Accountability Chief executive officer: Performance review Chief executive officer: Relations with the board of directors Governing board: Responsibilities Leadership succession Strategic human resource management

Further reading and references

Balsam, S. & Harris, E. E. (2018). Nonprofit executive incentive pay. Review of Accounting Studies, 23, 1665–1714. https://​doi​.org/​10​ .1007/​s11142​-018​-9473​-z Bertrand, M. & Hallock, K. F. (2001). The gender gap in top corporate jobs. Industrial & Labor Relations Review, 55(1), 3–21. https://​doi​.org/​ 10​.3386/​w7931 Bugeja, M., Fohn, S. & Matolcsy, Z. (2016). Determinants of the levels and changes in non-executive director compensation. Accounting & Finance, 56(3), 627–667. https://​ doi​.org/​10​.1111/​acfi​.12093 Czarnik, S. (2020). Equity in Nonprofit Compensation Negotiation: Uncovering Influential Biases and Patterns. Master’s Projects and Capstones. https://​repository​.usfca​ .edu/​capstone/​1005 Feng, N. C., Hao, X. & Neely, D. (2022). Board chair–CEO relationship, board chair characteristics, and nonprofit executive compensation. Journal of Public and Nonprofit Affairs, 8(1), 78–95. https://​doi​.org/​10​.20899/​jpna​.8​.1​.78​-95 Frumkin, P. & Keating, E. K. (2001). The price of doing good: Executive compensation in nonprofit organizations. SSRN Electronic Journal.

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October, working paper 8. https://​ doi​ .org/​ 10​ .2139/​ssrn​.292253 Garner, J. L. & Harrison, T. D. (2013). Boards, executive excess compensation, and shared power: Evidence from nonprofit firms. Financial Review, 48(4), 617–643. https://​doi​ .org/​10​.1111/​fire​.12018 Grasse, N., Davis, T. & Ihrke, D. (2014). Understanding the compensation of nonprofit executive directors: Examining the influence of performance and organizational characteristics. Nonprofit Management and Leadership, 24(3), 377–398. https://​doi​.org/​10​.1002/​nml​.21099 Guest, P. M. (2019). Does board ethnic diversity impact board monitoring outcomes? British Journal of Management, 30(1), 53–74. https://​ doi​.org/​10​.1111/​1467​-8551​.12299 Lee, Y. J. (2019). Scarce as hen’s teeth: Women CEOS in large nonprofit organizations. Nonprofit Management and Leadership, 29(4), 601–610. https://​doi​.org/​10​.1002/​nml​.21354 Lennon, T., Spotts, D. & Mitchell, M. (2013). Benchmarking women’s leadership in the United States. Candid. www​.issuelab​.org/​ resources/​26706/​26706​.pdf Newton, A. N. (2015). Executive compensation, organizational performance, and governance quality in the absence of owners. Journal of doi​ Corporate Finance, 30, 195–222. https://​ .org/​10​.1016/​j​.jcorpfin​.2014​.12​.016 Oster, S. M. (1998). Executive compensation in the nonprofit sector. Nonprofit Management and Leadership, 8(3), 207–221. https://​doi​.org/​ 10​.1002/​nml​.8301 Pynes, J. E. (2013). Human resource management for public and nonprofit organizations: A strategic approach (4th edn.). Jossey-Bass. Selden, S. C. (2017). Compensation practices in nonprofit organizations. In J. A. Word & J. E. Sowa (Eds.), The nonprofit human resource management handbook (pp. 142–165). Routledge. Selden, S. C. & Sowa, J. E. (2015). Voluntary turnover in nonprofit human service organizations: The impact of high performance work practices. Human Service Organizations Management, Leadership & Governance, 39(3), 182–207. https://​doi​.org/​10​.1080/​23303131​.2015​ .1031416 Slatten, L. A., Bendickson, J. S., Diamond, M. & McDowell, W. C. (2021). Staffing of small nonprofit organizations: A model for retaining employees. Journal of Innovation & Knowledge, 6(1), 50–57. https://​doi​.org/​10​ .1016/​j​.jik​.2020​.10​.003 Taylor, D. E., Paul, S. K. & McCoy, E. (2019). Diversity, equity, and inclusion and the salience of publicly disclosing demographic data in American environmental nonprofits.

C 87 Sustainability, 11, 5491. https://​www​.mdpi​ .com/​2071​-1050/​11/​19/​5491 Tierney, T. J. (2009). Understanding the nonprofit sector’s leadership deficit. Leader to Leader, 2006(S1), 13–19. https://​doi​.org/​10​.1002/​ltl​ .347 Word, J. A. & Sowa, J. E. (Eds.). (2017). The nonprofit human resource management handbook. Routledge. Xie, M. & Pang, M. (2018). A cross-cultural examination of Chinese and American female leadership in nonprofit organizations. China Media Research, 14(1), 30–41.

Chief executive officer: Performance review Definition

Executive performance review is defined as a formal evaluation of the performance the chief executive officer or executive director (CEO/ED). Much like the evaluation of other employees this process is ideally one that takes place at least annually to provide feedback and direction to the CEO/ED as part of the oversight function of the board.

In practice

Most commonly an executive performance review in a nonprofit is undertaken by the board of directors or a committee composed by the board. Nonprofit boards are both legally and ethically accountable to oversee the work of nonprofits (Renz, 2010). One of the primary vehicles boards use for oversight comes through the selection and evaluation of a CEO/ED. The need for accountability of the chief executive is important not just for compliance with legal and oversight functions but also represents an opportunity for boards to set the strategy and direction for the organization (Akingbola, 2015). Performance review of the CEO/ED is a key opportunity for the board to examine the ties between the work of the CEO/ED and the strategic direction of the organizations and provide feedback on their performance in implementing strategies to reach defined goals. Nonprofit organizations are facing increasing calls for accountability for performance

and to prove that programs work. Much of the work done by nonprofits involves intangible and often hard to measure outcomes, such as reducing violence against women or improving conditions for the homeless. Similarly, the work of the nonprofit CEO/ ED is often complex and requires boards of directors to think strategically about how to define and evaluate the performance of the CEO/ED. This means the board must not only clearly articulate the goals and directions for the organization but also communicate their expectations of how the CEO/ED is expected to contribute to those goals. This requires both the board and the CEO/ED to work together to define key benchmarks or objectives for success. Another compelling reason to provide a regular performance review of a CEO/ED is the value it provides to the CEO/ED as a form of feedback. While oversight and feedback are often viewed as a contentious process which some may want to avoid, particularly in the absence of benchmarks of success, when done well it can be an opportunity for learning and enhanced performance. Creation of a good system can help create an ongoing dialogue between the board and the CEO/ED about performance and the type of support they need to help the organization reach its goals. The use of a formal annual evaluation can also provide important legal documentation about performance if there is a need to terminate the CEO/ED. Regular performance reviews can also help the board plan for training and development needs for both the board and CEO/ED to address needed areas. In the event of a vacancy in the CEO/ED, the annual executive performance reviews, if done well, can also provide insights into the daily tasks, skills, and operational issues which should be considered when hiring a replacement. Despite a clear need to regularly evaluate the performance of the CEO/ED many organizations either do not perform this or perform it poorly. A 2021 report from BoardSource reported only 53 percent of nonprofit boards had formally evaluated their CEO/ED and 21 percent had never been formally evaluated (BoardSource, 2021). This lack of oversight is problematic for not only individual nonprofits but also for the nonprofit sector as a whole. Jessica K. A. Word

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Why boards fail to evaluate While nonprofit boards are legally obligated to govern organizations that role is complicated by the fact that individuals who serve on nonprofit boards do so as volunteers for the organization. Their role as part-time volunteers can severely constrain the effectiveness of nonprofit boards because their involvement is limited in terms of both the amount of time they commit and their level of preparation to carry out their duty on the board. Many of the news stories involving poor management and even illegal activities involving nonprofits can be summarized by the fact that the board had either simply not performed its oversight function or did so poorly. However, much of the lack of oversight by boards stems from limitations on the ability of the board to conduct oversight effectively. Board members as volunteers often face constraints on their ability to gather independent information about the performance of the organization and the CEO/ED (Hough et al., 2014). Nonprofits, because of the complex nature of their missions, often struggle to clearly demonstrate and measure the success of their actions. Instead boards, staff, and other stakeholders tend to focus on easy to measure outputs such as fundraising success or number of individuals served as indicators of performance (Sawhill & Williamson, 2001). While these indicators are part of a successful nonprofit they are at best an incomplete picture about the performance of both the organization and its leadership. Even when organizations have more complex performance measurement systems and data, the board often rely almost entirely upon the CEO/ED and other staff to help them access and interpret the data gathered. Research examining the role of nonprofit boards in terms of oversight has found that many boards fail to follow through with their oversight function because they do not feel adequately prepared to do so. This suggest that much of the lack of an executive performance review stems from a lack of board training, development, and assessment of their own performance.

Jessica K. A. Word

Essential components of an executive performance review Much of the current practice and advice for boards has been influenced by John Carver’s Policy Governance Model and the legal obligations of nonprofit boards of directors set forth in state and federal laws. Legally nonprofit boards of directors are responsible to oversee the operations and management of the nonprofit organizations. While often the focus is on the performance of the executive director and staff, the board of directors for nonprofit organizations ultimately hold a fiduciary duty to the nonprofit organization and its mission. This means board members must put the interest of the organization and its mission above other considerations when making decisions in their role on the board. It is for this reason that not evaluating or conducting oversight of the CEO/ED may increase the legal jeopardy for the board in the event of a scandal or illegal activities. One of the major models which has shaped oversight of nonprofit organizations is the Policy Governance Model set forth by John Carver (2006). Carver’s model generally lays out the idea that a board should set the direction or strategy for an organization and delegate the means by which the organization reaches those goals to the CEO/ED and staff. This model then suggests one of the key functions of oversight comes well before any annual performance reviews take place through agreement upon the goals and strategy for the organization itself. The agreement between the CEO/ED on the goals and strategy then form the basis for the evaluation of their performance toward those goals. The basic process of performing an executive performance review is as follows: 1. The board and the CEO/ED should identify the key indicators of success and agree on the timing for the annual review process. In many organizations, these are done either on the calendar year or the fiscal year. The process and needed documentation should be agreed upon by the CEO/ED and board at the beginning of the review period so needed materials can be collected ahead of the review.

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2. The board and CEO/ED should identify annual goals or targets for the coming year/review period and metrics to measure success. These goals can include a mix of both individual and organizational goals for the coming year. 3. The board should conduct periodic informal reviews and adjustments to goals should be conducted to provide informal feedback and advice to the CEO/ED relative to those goals. 4. In preparation for the review, materials related to the performance of the CEO/ ED should be prepared for board review. These may include evaluations/surveys from employees or other stakeholders, financial documents or even a written self-appraisal or summary of accomplishments prepared by the CEO/ED. 5. The board of directors or a subcommittee appointed by the board will review performance related documents and prepare a summary of their assessment ahead of their meeting with the CEO/ED. 6. The board and the CEO/ED will meet to review performance and provide feedback. This could be tied to an annual discussion concerning raises or other changes to compensation. The CEO/ED should be asked to review, reply, and sign off on the written evaluation. 7. Following the annual review, the board and the CEO/ED should set goals for the coming year and agree on any changes to the process or timing of the evaluation needed. The board and CEO/ED should also identify ways to further support or develop performance to help them improve or build upon areas of strength. While the process outlined above may seem very formal for smaller organizations creating an agreed upon structure and process, the performance review can help keep the process from feeling overwhelming or unfair. Setting clear rules, goals, and expectations can help both the board and the CEO/ ED feel as though they understand what success looks like and make it seem far less confrontational than one that is less clearly defined. Jessica K. A. Word

Related topics

Accountability Board policies manual Chief executive officer: Relations with the board of directors Governance Governing board: Chairperson Managerialism Motivation: Paid staff Professionalism Recruitment and retention Transparency

Further reading and references

Akingbola, K. (2015). Managing human resources for nonprofits. Routledge. BoardSource. (2021, June). Leading with intent: BoardSource index of nonprofit board practices. https://​leadingwithintent​.org/​wp​ -content/​uploads/​2021/​06/​2021​-Leading​-with​ -Intent​-Report​.pdf​?hsCtaTracking​=​60281ff7​ -cadf​-4b2f​-b5a0​-94ebff5a2c25​%7C428c6485​ -37ba​-40f0​-a939​-aeda82c02f38 Accessed 12 January 2022. Carver, J. & Carver, M. (2006). Reinventing your board: A step-by-step guide to implementing policy governance (Vol. 18). John Wiley & Sons. Hough, A., McGregor-Lowndes, M. & Ryan, C. (2014). Board monitoring and judgement as processes of sensemaking. In C. Cornforth & W. A. Brown (Eds.), Nonprofit governance: Innovative perspectives and approaches (pp. 142–160). Routledge. Ostrower, F. (2007). Nonprofit governance in the United States: Findings on performance and accountability from the first national representative study. Urban Institute. https://​ webarchive​.urban​.org/​UploadedPDF/​411479​ _Nonprofit​_Governance​.pdf Accessed 10 December 2021. Renz, D. O. (2010). Leadership, governance, and the work of the Board. In D. O. Renz & R. D. Herman (Eds.). The Jossey-Bass handbook of nonprofit leadership and management (4th edn.) (pp. 127–166). Wiley. Sawhill, J. C. & Williamson, D. (2001). Mission impossible? Measuring success in nonprofit organizations. Nonprofit Management and Leadership, 11(3), 371–386. https://​doi​.org/​10​ .1002/​nml​.11309

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Chief executive officer: Relations with the board of directors Definition and context

CEO–board relations is a term encompassing the formal and informal roles, responsibilities, and related interplay between and among the appointed chief executive officer (CEO) of a nonprofit organization and the members of the organization’s governing board. Members of nonprofit boards bring a rich diversity of personal and professional profiles to their service. It is therefore wise for lead staff and governing leaders to focus with great intention when forging commitments to strong, open, mutually supportive CEO– board relationships. Research and anecdotal evidence support the idea that such relationships are critically important to the successful service of these individual actors and the organizations to which they contribute their talents.  Productive CEO–board relations are shown in research literature and known in practice to foster teamwork that leads to achievement of the organization’s goals. Such cohesive interplay pre-empts the dysfunctional fits and starts that frequently manifest when poor CEO–board relations are present. Where powerful CEO–board relationships are in place and where the CEO and board members bring complementary talent and network resources to bear, organizational goals can be achieved and surpassed. Professional literature includes a variety of studies, lists of desired relationship characteristics, and commentaries about the optimum role definitions, dynamics of strong relations, and suggested activities for nonprofit boards and CEOs in assessing and enhancing effectiveness. Nonprofit board members’ duties of care (steward of the organization), loyalty (accountability to organizational interests), and obedience (mission aligned behaviors) are best elicited through strong, positive CEO–board relations. No single list could adequately capture all dimensions of nonprofit CEO–board relations. The following items are supplied as an on-ramp to understanding. 

Scott E. Robison

In practice: Characteristics of productive nonprofit CEO–board relations Communications Successful CEO–board relations require affirmative, shared decision making about the content, frequency, and delivery of communications regarding all aspects of the organization as well as the relationships between and among the CEO and governing board members. Norms Successful CEO–board partnerships are best begun through frank discussions about normative behaviors expected of one another in daily operations, meetings, events, disputes, reporting, human resources, and other key settings and interactions that pertain to the organization. Establishing norms is key for sharing aims and frames of reference in leading the organization. Doing so facilitates an ongoing defining, repeating, and refining of these shared understandings about the “Why?” and “How?” of the organization. These shared frames of reference and aims form the foundational vision from which the organization’s actors and actions best remain in efficient alignment toward desired goals. Boards that skip deep discussion about the manner in which they perform their respective roles will often find their way to misunderstanding and dissonance. When a nonprofit CEO (or board chair/member) is new to the role, this formal discussion must be redone to ensure that all remain aligned toward the common vision. Revisiting this important, foundational understanding in the relationship during regularly scheduled meetings is easily done with a consistent “check-in” process. This is a purposeful redundancy that helps to reinforce leaders’ shared pursuit of desired outcomes. Check-in can include a brief statement of the aims of the organization by the board chair followed by a statement of some key understandings by the CEO. These statements can reiterate elements of shared focus, process, positional authority conferred, and more in a brief starter to check-in. Practically speaking, this statement can be efficiently done as follows (after the board chair convenes the meeting and states

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overarching organizational aims), “Good evening, I am Tim Smith, CEO. I appreciate your service to the organization as governing board members. Thank you for conferring upon me the leadership role as CEO to run the organization. I appreciate your leadership and counsel as we engage in this meeting’s important business.” While this may seem overly formal and redundant, it sets a tone that is unmistakable. Other standing check-in prompts can be added to suit the group. The accountability exercise in the following paragraph could be utilized in rotation with other check-in prompts that celebrate successes, honor the lessons from failures, or add personal elements so that board members get to know one another deeply. A productive nonprofit CEO–board relations activity suitable for check-in is periodic (initial relationship and then annually) discussion of those TO whom all actors in the organization (including governing board members) are accountable and those FOR whom all actors are accountable. This activity is an enlightening way to remind leaders of aims, mutual respect, commitment to communications, and role specificity while also onboarding new individuals to the CEO– board team. The simple act of discussing the flow of care and responsibility as regards clients, volunteers, donors, vendors, and others in an organization can be an important exercise worthy of revisiting again and again. Role clarity Role definitions are idiosyncratic to each organization and its board–CEO duo. Rarely are boards left exclusively to the task of a policy agenda and rarely is a CEO locked out of policy creation or related practice. A high level of mutual respect among nonprofit lead actors, appointed and governing, involves well-established roles for efficient accomplishment of their leadership activities. When development of role clarity is missed among the first steps in CEO–board relations, role confusion can be demotivating for board members and CEOs. Given the many situations, challenges, and decisions visited upon leaders of nonprofits, it is wise to set protocols for frequent after-action reviews or other ways to assess and reiterate the operation of leaders’ respective roles in various situations.

Mutual respect CEOs often possess nuanced understandings of their organizations that board members may not. Nonprofit board members’ professional endeavors and networks are typically diverse. The CEO may not fully grasp the depth of resources they each can bring to bear. This distance from the other’s “depths” can offer key areas for development of productive mutual respect and collegial deference that adds to the positive impact of role clarity. Given the imbalance of power of governing officers over appointed CEOs, it is critically important that board interactions evince respect for the CEO’s specialized understanding of the organization and its realm among nonprofits. Similarly, CEOs in healthy CEO–board relationships must display appropriate respect for governing board members’ oversight responsibilities and the diversity of knowledge and experience they often bring to the organization. Active mutual supports Mutual respect implies that active mutual supports will follow with reciprocity. Making such an assumption can pose a threat to effective CEO–board relationships. Nonprofit board leaders and CEOs who keep track of their active supports of one another often find that relations are enhanced. For example, quality two-way communications are active, mutual supports. Annual reports and other means of celebrating targets met and goals achieved are active mutual supports. Deftly handling misunderstandings or missed signals are active mutual supports. This commitment to “linking arms” in leadership helps smooth the analysis, planning, doing, reviewing, and reporting cycles common to successful people and organizations.  Terms of art Terms of art are special words born of deep meaning in a context. They can enhance cultural understanding, commitment, and adherence to norms within an organization. One example of a term of art worth establishing is a “with and for” mentality, as in, “Here at Foster Care Support Network, we work with and for clients in foster care–and those providing a bridge for youth in need!” Just as active mutual supports described above are cultural in nature, specific understandings repeatedly Scott E. Robison

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spoken and lived in an organization’s culture can be important for solidifying traditions of CEO–board relations. The example organization’s commitment to working “with and for” children and the adults who provide foster care amplifies shared frames of reference, creates a normative mindset regarding client respect, and thus impacts at the cultural level.  Two-way humility (each will teach) Nonprofit CEO–board relations that are healthy and well maintained can become stronger when a crisis calls on one to lean upon the other, no matter in which direction. Most CEOs have occasion to lead through some challenge that requires his or her positional power and nuanced knowledge of the context without board assistance. This is only possible if the CEO is empowered by relations that foster occasional, healthy overlap in leading. Similarly, a board operating in a productive relationship with its CEO can engage its governing power in scenarios that emphatically protect and assist the CEO and core mission. While many facets of CEO– board relations mentioned above are called into play, it is a highly evolved relationship that allows complementary parties’ humility to display their faces of trust and vulnerability as active, mutual supports without any loss of role clarity.  Time together Nonprofit CEO–board relations are enhanced by strategically calendared opportunities to be together in quasi-social situations. These interactions can elevate personal understandings of one another’s lives, interests, hobbies, family members, and so on. CEOs who share casual breakfast or lunch meetings on a rotating basis with individual or small groups of board members tend to indicate deeper relationship ties that pay dividends during situations of challenge. Trust Depth of trust between and/or among members in any relationship is an essential aspect of quality bonds evidencing relationship integrity. 

Scott E. Robison

Loyalty Loyalty comes last because it takes the longest to mature, requiring trust as a prerequisite, which is also often slow in development. Loyalty is the lifeblood of productive nonprofit CEO–board relations. Loyalty, a complex relationship concept, can only grow to transcend surface, quid pro quo transactions when commitments to strong, open, mutually supportive CEO–board relations are present and actively practiced. 

Conclusion

Scores of other descriptions, lists, development activities, and understandings found in the literature and known by talented nonprofit leaders can be well applied to facilitate enduring, productive CEO–board relationships. Nonprofit CEO–board relations are set in complex human traits, motivations, actions, and understandings. This dynamic interplay significantly determines the organization’s ability to meet or exceed core mission expectations.  Scott E. Robison

Related topics

Accountability Governance Governing board: Chairperson Governing board: Dynamics and meeting management Governing board: Responsibilities Leadership Professionalism

Further reading and references

Hiland, M. (2008). The board chair-executive director relationship: Dynamics that create value for nonprofit organizations. Journal for Nonprofit Management, 8(2), 1–10. http://​ orgwise​.ca/​sites/​osi​.ocasi​.org​.stage/​files/​ resources/​Developing​%20leadership​%20on​ %20boards​%20of​%20directors​.pdf​#page​=​16 Hopkins, B. R. (2019). Legal responsibilities of nonprofit boards (3rd edn.). BoardSource. Klepper, W. M. (2010). The CEO’s boss: Tough love in the boardroom. Columbia University Press. Light, P. C. (2002). Pathways to nonprofit excellence. The Brookings Institution. McKinney, L. (2020). Nonprofit governance: Board, executive director roles. MissionBox Global Networks. www​.missionbox​.com/​

C 93 article/​61/​nonprofit​-governance​-board​ -executive​-director​-roles Schneider, S. C. (1987). Managing boundaries in organizations. Political Psychology, 8(3), 379–393. https://​doi​.org/​10​.2307/​3791041 Westphal, J. D. (1999). Collaboration in the boardroom: Behavioral and performance consequences of CEO–board social ties. The Academy of Management Journal, 42(1), 7–24. https://​ journals​.aom​.org/​doi/​abs/​10​.5465/​256871

Civic agency Definition

Civic agency refers to the latent knowledge, skills, ability and will for people to come together to address a problem or work for the common good. The concept refers to the capacity to work effectively and creatively for change, not the actual work itself. Civic agency is a precursor for civic engagement, defined as working together for the common good. The definition of civic agency differs depending on whether it is used in relation to political action or more general societal good. In the political context, civic agency focuses on activities that could change policy, even if those actions are not aimed specifically at government. For example, Boyte and colleagues define civic agency as: … a political concept that refers to the capacity of diverse people to self-organize to effect change, solve problems, create common resources, and negotiate a shared democratic way of life (see https://​reference​.jrank​.org/​ governance/​Civic​_Agency​.html).

Those focused on change more generally leave out any reference to policy or politics. Speaking of successful strategies to change conditions for target populations, Puljek-Shank (2018) defines civic agency as: “the perception of capacity, and action to create change for a common good,” leading to operationalization based on the capacities and actions.

While civic agency often involves people from diverse backgrounds, different communities or who cross boundaries to work

together, diversity is not always a required attribute. For example, Dahlgren (2006) uses civic agency to describe any active citizenry involved in transformative civic action. In other cases, people with a similar concern like people with disabilities, youth, or freelancers from different communities come together to address their specific issues. The common component in these different definitions involves people coming from several sources to work together, which implies that individuals and organizations are able to reach beyond their existing social circles to address an issue. The resources inherent for civic action are sometimes confused with the activity itself. Various writers use civic agency to refer to diverse groups of individuals or organizations taking action to solve problems. However, most definitions use civic agency for the capacity for action and civic engagement for the actual action designed to foster change. As such, civic agency is a fluid concept with several stable components: 1. The skills, knowledge and interest in changing a societal or community issue. 2. Willingness to reach out to work with others outside of usual circles or community to resolve issues and access to networks or venues to achieve this goal. 3. Ability to work creatively to problem solve or achieve change.

Context and key supporting concepts

Civic agency appears in political and educational contexts; the term is generally not used in the social science and human or social services literature. As with social capital, civic and political engagement, those concerned with a perceived lack of citizen involvement see the need to generate civic agency to improve society and civic/political participation. Others track evidence of civic agency in local political or social movements. Both practitioners and scholars examine the attributes and programs that lead to successful civic agency. Programs and curriculum to foster civic agency continue to grow and develop in several arenas. On college campuses, service learning, community engagement and capstone experiences intentionally provide students with the tools for civic agency. Jo Anne Schneider

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These programs usually involve community engagement with organizations or communities combined with educational activities. For example, the American Association of State Colleges and Universities sponsored a civic agency initiative to develop effective model programs/curriculum and disseminate them to colleges and universities as a partnership with the Center for Democracy and Citizenship (see http://​civicagency​.pbworks​ .com/​w/​page/​28487011/​CivicAgency). Portland State University created a capstone course that requires all students to participate in a service learning course designed to raise awareness and offer the tools for civic agency (Kerrigan & Carpenter, 2013). Research in this arena suggests that programs also need to foster civic agency beyond college and some programs are moving in this direction. In the political arena, a variety of programs teach political action and civic agency skills to participants. Pastoral Migratoria, a program sponsored by the Archdiocese of Chicago, is one of many initiatives to teach immigrants, low-income residents and others at the margins civic agency skills along with information on the U.S. political system and issues that directly affect them (Lotus, 2020). These initiatives expand a wide array of existing religious and community-based programs with similar goals. For example, long established Alinsky-style initiatives by Industrial Areas Foundation, Gamaliel and similar organizations bring together diverse faith communities and community organizations to build civic agency for political action and social change. A third strategy involves leadership programs designed to teach community and policy engagement skills and build a cohort of members from diverse backgrounds. For example, the DeBoer fellowship program in Myanmar provides civic instruction, coaching and networking for a cohort of selected community leaders (Steffensmeier et al., 2016). Numerous local community leadership initiatives use similar strategies to expand leadership circles and civic agency. Analysis of civic agency initiatives and effective programs identify several key supporting ingredients necessary for civic agency: ● Social capital: Social capital refers to networks based on enforceable, reciprocal Jo Anne Schneider

trust that provide members with access to resources they need to achieve goals. To organize activities, civic agency requires networks to spread calls for action, information and other things. These networks need to reach relevant actors or organizations that have the specific resources needed to achieve stated goals. In most cases, civic agency would involve bridging social capital, which involves networks that cross boundaries of race/ ethnicity, religion, community or other boundaries. ● Transformative learning: Transformative learning involves educational activities that promote change in an individual’s core beliefs, world view or approach. Transformative learning often involves experiences where the individual works in a community or with people different from themselves. ● Service learning or community engagement: Service learning is an educational technique that combines formal education with an activity that provides experience in the area of study, usually in the community or with community organizations. For instance, learning about disabilities by working with people with disabilities or learning about the science of water quality through a stream restoration project. Community engagement activities also involve some educational components along with community-based projects, but are less likely to be part of a formal class.

In practice: The role of nonprofits

Just as civil society is defined as both an arena where individuals address issues and a collection of third sector organizations, civic agency appears both as movements of individuals and activities of community-based organizations. On the one hand, initiatives like Occupy, the Tea Party movement, international youth environmental initiatives and the Arab Spring indicate a groundswell of civic agency generated through social media and other networking among individuals. In some cases, these movements are seen as independent from formal organizations, with nonprofits portrayed as representing established interests or just providing services. Closer examination of these initiatives show that nonprofits and other formal organ-

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izations play a role in even the most spontaneous movements. Open Society Institute and similar foundations support these initiatives, as well as a host of nonprofits. Bakardjieva (2011) shows traditional media amplifying and supporting spontaneous environmental action in Bulgaria. Others see nonprofits as central to generating civic agency. For example, analysis of community planning in New York City and elsewhere shows community-based organizations as generating civic agency that led to active citizen involvement (Reaven, 2020; Sites et al., 2007). Nonprofits can also create forums that draw civic agency, as with Chicago Community Trust’s civic engagement initiatives (see www​.cct​.org/​tag/​civic​ -engagement/​) or nonprofit sponsored events to address issues. For community-based organizations, civic agency may be essential to achieve their missions and foster significant change. The ability of nonprofits to generate member engagement and draw members to support political action is one measure of their effectiveness. Puljek-Shank (2018) notes that nonprofits that draw support both from donors and citizens may be most effective because donor funds support events that generate civic agency and provide access to political actors.

Current and future directions

Two issues loom large in civic agency discussions. One involves the importance of “spontaneous” groundswells of civic agency by independent individuals, as opposed to civic agency generated, supported or managed by nonprofits. As discussed in the last section, this may in fact be a false dichotomy given the active presence of nonprofits or other formal organizations in most of these actions. Nevertheless, the role of civic agency in these independent citizen movements will continue as a topic of research and discussion. The other major issue involves the role of social media as a tool to generate civic engagement and civic agency. Analysis of social media describes how these forums create echo chambers of like-minded people talking to each other, the opposite of civic agency. Individuals interact with their phones instead of each other. However, social media also serves as a key mechanism in civic

agency. Bakardjieva (2011) observes that new and old media combine in complex ways for effective action. Exploring how new and old communication mechanisms interact in civic agency may prove a fruitful next direction. Jo Anne Schneider

Related topics

Civil society Community-based organizations Politics and philanthropy Social capital Social change and nonprofit organizations

Further reading and references

Bakardjieva, M. (2011). Reconfiguring the Mediapolis: New media and civic agency. New Media & Society, 14(1), 63–79. https://​doi​.org/​ 10​.1177/​1461444811410398 Biekart, K. & Fowler, A. (2012). A civic agency perspective on change. Development, 55(2), 181–189. https://​doi​.org/​10​.1057/​dev​.2012​.9 Boyte, H. C. (2004). Everyday politics: Reconnecting citizens and public life. University of Pennsylvania Press. Boyte, H. C. (2008). Against the current: Developing the civic agency of students. Change: The Magazine of Higher Learning, 40(3), 8–15. https://​doi​.org/​10​.3200/​chng​.40​.3​ .8​-15 Dahlgren, P. (2006). Doing citizenship. European Journal of Cultural Studies, 9(3), 267–286. https://​doi​.org/​10​.1177/​1367549406066073 Kerrigan, S. & Carpenter, R. (2013). Culminating a college education while fostering civic agency. Peer Review, 15(4), 16–19. https://​go​ .gale​.com/​ps/​i​.do​?id​=​GALE​%7CA367076293​ &​sid​=​googleScholar​&​v​=​2​.1​&​it​=​r​&​linkaccess​ =​abs​&​issn​=​15411389​&​p​=​AONE​&​sw​=​w​&​ userGroupName​=​anon​%7Efa5f2138 Lotus, J. (2020, February 11). The new parish ministry empowering immigrant Catholics. U.S. Catholics. https://​uscatholic​.org/​articles/​ 202002/​the​-new​-parish​-ministry​-empowering​ -immigrant​-catholics/​ Mitchell, T. D., Rost-Banik, C. & Battistoni, R. M. (2019). Civic agency and political engagement: Community engagement’s enduring influence. Journal of Student Affairs Research and Practice, 56(5), 582–594. https://​doi​.org/​ 10​.1080/​19496591​.2019​.1675678 Puljek-Shank, R. (2018). Civic agency in governance: The role of legitimacy with citizens vs. donors. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 29(4),

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96  Elgar encyclopedia of nonprofit management, leadership and governance 870–883. https://​doi​.org/​10​.1007/​s11266​-018​ -0020​-0 Reaven, M. (2020). Neighborhood activism in planning for New York City, 1945–1975. Journal of Urban History, 46(6), 1261–1289. https://​doi​.org/​10​.1177/​0096144217705446 Sites, W., Chaskin, R. J. & Parks, V. (2007). Reframing community practice for the 21st century: Multiple traditions, multiple challenges. Journal of Urban Affairs, 29(5), 519–541. https://​doi​.org/​10​.1111/​j​.1467​-9906​ .2007​.00363​.x Steffensmeier, T., McBride, J. F. & Dove, P. (2016). Developing citizen leadership in Myanmar: The DeBoer fellowship. International Journal of Public Leadership, 12(2), 129–142. https://​doi​ .org/​10​.1108/​ijpl​-12​-2015​-0031

Civil rights organizations Definition

One of the unique characteristics of the nonprofit landscape in the United States is the presence of civil rights organizations. While the various organizations in this category differ – of course – it is safe to say they share a common organizational theme or mission, which has been to advocate for and advance the social, economic, and political status of racial and ethnic minority groups in American society (Jaynes & Williams Jr., 1989). However, because of the long and oppressive conditions under which Black Americans lived during the slavery and post-slavery periods, the term “civil rights organizations” has been primarily, but not exclusively, associated with the movement to advance the social and economic status of Black people. To be more specific, until early in the twentieth century, most Black Americans were – by virtue of segregation and racially discriminatory laws – unable to work, live, or eat where they chose. In many parts of the country, Black Americans were – up until the Supreme Court Brown versus the Board of Education decision in 1954 – forced to attend racially segregated schools.

In practice

It was out of the conditions described above, along with a growing activism at the local level, that a number of prominent civil rights Leon L. Haley

organizations by early 1960 were visible and active. Among these early organizations – all of which were considered nonprofit by their charters – were the National Association for the Advancement of Colored People (NAACP), which focused on legal issues, the Congress for Racial Equality (CORE) which believed in direct action, the Southern Christian Leadership Conference (SCLC) and the Student Nonviolent Coordinating Committee (SNCC), which was heavily involved in sit-ins and protests. Using the traditional nonprofit sector taxonomy, these organizations would fall in the social advocacy subsector. Because of its primary focus on social welfare service provision, for example, housing assistance, family support, and educational advancement, the National Urban League is sometimes not considered a civil rights organization, even though its leadership saw the organization as part of the broader movement and participated accordingly. Since the League defines itself as a “historic civil rights and urban advocacy organization,” for purposes of this entry, it is included as a civil rights organization.

Challenges for management, leadership, and governance

Consistent with the organizational characteristics of many other (non-civil rights) organizations that populate the nonprofit sector, during the early years the civil rights organizations named above faced the usual management challenge of having an adequate professional staff to carry out their programs and activities. Consequently, they heavily relied on a cadre of very committed volunteers – that cut across racial lines – to carry out their advocacy and civil rights missions. Volunteerism mirrored one of the distinctive characteristics of the nonprofit sector. Further, they relied heavily on charitable contributions – from churches and other religious organizations, membership dues, and local fund-raising to finance their work. It was rare that any of these organizations were the beneficiaries of large philanthropic gifts from donors. Advocacy, which might be broadly defined as the active support and promotion for an idea or an issue, is a common activity among many nonprofits. Accordingly, it was well understood among civil rights organizations – when pursuing their agendas – that advocacy

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was essential to gaining support for public policies and legislation that would advance their agendas such as the landmark Civil Rights Act of 1964. Further, they understood the need to be careful while engaged in vigorous advocacy of not crossing the partisan line to avoid threats or risks to their 501(c) (3) status. During the early evolution of the civil rights movement, one of the challenges these organizations faced – separately and collectively – was how to retain their identities, while pursuing the obvious need to collaborate to build a stronger movement. This process was aided by the talented leadership exemplified through strong and charismatic individuals, among whom were such men as Roy Wilkins (NAACP), Whitney Young (Urban League), Dr. Martin Luther King, Jr. (SCLC), James Farmer (CORE), and John Lewis (SNCC). When necessary, each was an articulate and forceful voice on behalf of the movement, and clearly without their leadership, the movement would not have been as strong a force for change as it was. They understood the power of organizational collaboration, which, using nonprofit terminology, is broadly defined as a process of creating added value through partnering with other organizations with shared interests. During the height of the civil rights movement, the zenith of such collaboration was the historic March on Washington in 1963 to draw attention to the continuing challenges and inequalities faced by Black people in America, and in which every major civil rights organization participated. It has been regarded as a watershed event in American history and helped to change the trajectory of the movement by harnessing broad-based support for civil rights across racial, religious, and other arenas. In the nonprofit sector, at the generic level, management is defined as the process of making choices about the best and most effective ways to achieve the intended purpose of the organization (Renz, 2016). Even lacking empirical evidence to validate the day-to-day managerial performance, there is enough observational evidence to suggest the civil rights organizations which have been addressed in this entry never strayed from their intended purposes in their managerial operations. Their focus, goals, and mission remained clear. The only thing on which

management differed was which was the best action strategy to pursue.

The future

Social and political movements and the nonprofit organizations they represent evolve and change. Some do so in response to changes in their internal and external environment, some because new competitors have entered their space, and some change because their original mission has been accomplished, or at least substantial progress has been made on them. Clearly, substantial progress has been made on issues of justice, equality, racial discrimination, and as a result the old-line civil rights organizations have changed. For example, the organizational sizes of both the NAACP and the Urban League are smaller than they were during the 1950s and 1960s. Some of the other civil rights organizations, for example, CORE, SCLC, and SNCC, are now only fragmentary images of their former selves. Even though some of the initiating issues which gave birth to various civil rights organizations have not been fully solved, and because they are now faced with regression on some issues such as voting rights, which continues to be an issue of concern, their agendas have been replaced by other issues such as gender and sexual orientation equality, economic inequality or wealth gap, which finds African Americans being more disproportionately poor, reparations for past historic injustices, judicial sentencing to reduce the grave disparities in length of terms between whites and Blacks, and police profiling during arrests and overall system reform. Much of this new agenda has been driven by the Black Lives Matter movement. The historic role which civil rights organizations have played in moving the United States to being a more racially just and racially accepting society across several dimensions – education, housing, employment, and politics – will remain a cornerstone in this nation’s history. Looking into the future, however, there are several forces which will alter their role. Among these forces are the demographic shifts which are bringing other racial/ethnic groups, for example, Hispanics and Asians into the highly contested arena of civil rights, with the resultant shift in public attention toward their demands. A second factor likely to affect civil rights organizations is what might be called the genLeon L. Haley

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erational gap between older and younger African Americans. Older African Americans knew and directly lived the consequences of segregation and discrimination and were willing to sacrifice – sometimes their lives – to fight against them. Younger African Americans have – at best – a more limited cognitive knowledge of the civil rights movement, and few have ever participated actively and directly in the movement. Further, many younger African Americans – as a result of social and economic changes from which they benefited – have entered the American middle and upper middle class and now focus on upward mobility issues, with less concern about traditional civil rights issues. Regardless, however, of the future impact of these forces on the civil rights movement and the organizations that have comprised the movement, the latter’s effect on the American economic, social, cultural, and political life will remain one of the signal developments in the evolution of the nonprofit sector in this nation. Leon L. Haley

Related topics

Advocacy Black philanthropy Lifecycles of nonprofit organizations Public policy and nonprofit organizations Social change and nonprofit organizations

Further reading and references

Jaynes, G. D. & Williams Jr., R. M. (Eds.). (1989). A common destiny: Blacks and American society. National Academy Press. Renz, D. O. (Ed.). (2016). The Jossey-Bass handbook of nonprofit leadership and management. Wiley & Sons, Inc.

Civil society Definition

Civil society has developed into a popular concept and terminology, widely referred to by journalists and politicians. Simultaneously, civil society counts among the most confusing and contested approaches of the social sciences. The reason for this fuzziness is civil society’s multi-facetted character. Civil Annette Zimmer

society combines three dimensions: 1) an area or sphere of human interaction; 2) an arena for political action and problem solving; and 3) a collection of organizations that contribute to society in various ways. Highlighting the area-specific character, the American political theorist Michael Walzer defines civil society as “the sphere of uncoerced human association between the individual and the state” (as cited in Edwards, 2011, p. 4). The German philosopher Jürgen Habermas refers to civil society’s capability “to identify social problems … condense them and pass them on to the political public” (Habermas, 1992, p. 443). Accordingly, civil society’s problem-solving discourses constitute a key driver for the advancement of democracy. The World Bank perceives civil society primarily as a wide array of organizations, through which people connect with others to express common values or pursue shared interests, amongst those community groups, NGOs, nonprofit organizations, labor unions, professional organizations, faith-based organizations, and foundations. Finally, and with reference to civicness as a special motivation and individual behavior, civil society is sometimes embedded within narrower, but related, concepts of altruism, philanthropy, and community orientation. Individuals get engaged in volunteering, they donate and give money because they want to do something good. They want to change the world for the better, and they want to achieve change through peaceful engagement, through discourse and good arguments and hence without violence or with disrespect for another’s point of view. All in all, civil society is a highly complex and contingent concept whose meaning and significance depends on the individual perspective, the zeitgeist, the particular sub-discipline of the social sciences, and the specific context in which the term is used.

Context and applications of the concept

The term and concept of civil society has a long history. Civil society was referred to in ancient Greece as “societas civilis” that was related to the political community. The moral philosophers in the seventeenth and eighteenth centuries used civil society in juxtaposition to the state. Indeed, the distinction between state and society

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marked the beginning of modernity, and was pivotal for the emergence of modern statehood and modern liberal societies. However, the concept soon lost prominence and even philosophers such as Friedrich Wilhelm Hegel, who explicitly worked on the topic of society–government relations, did not use the term civil society. The same holds true for Alexis de Tocqueville, the French aristocrat and author of De la democratie en Amérique, who elegantly analyzed the nexus between civic engagement in voluntary associations and democratic self-governance that he diagnosed as the backbone of democracy without explicitly referring to civil society. However, de Tocqueville’s analysis became very influential in the late 1970s, when civil society was increasingly perceived as the democratic alternative to a non-democratic or authoritarian state. Dissidents in Eastern Europe and revolutionists in Latin America referred to civil society when they stood up against the authoritarian and undemocratic governments in their countries. This momentum was taken up by social movements in the western hemisphere that were increasingly demanding an advancement of participatory democracy in Europe and North America. The civil rights and the anti-Vietnam movements as well as movements advocating for world peace, women’s rights, and protection of the environment developed into prominent social forces with thousands of primarily young people turning to the streets. Soon, civic unrest and protest drives, organized and expressed by social movements, were looked upon as a prime manifestation of civil society (Cohen & Arato, 1997, pp. 492–563). The term “civil society” turned almost into a synonym for activities and demands, put forward by liberal social movements. Around the same time, in the U.S. and in other Western countries, such as the U.K., neo-liberalism with its focus on the market as the prime mechanism for the co-ordination of both business and government activities, developed into the macro-frame of overall governance. Step by step, the market as a mechanism of co-ordination was acknowledged as the key approach to run a country effectively and efficiently. In public administration, the market orientation resulted in the introduction of new public management as a counterpoint to clas-

sical bureaucracy. This shift from classical bureaucracy towards new public management, with its focus on the private provision of social services, coincided with the discovery of nonprofit organizations serving the public good. The American sociologist Amitai Etzioni (1973) drew the attention to a “third sector” in between the market and the state whose private but not commercial and hence nonprofit organizations combine an entrepreneurial spirit with a public good orientation. In Europe, voluntary organizations and co-operatives, based on memberships and reciprocity and embedded in local and milieu-specific communities, were re-discovered as organizations providing goods and services for their members and the general public and simultaneously offering channels for social integration and community life (Evers & Laville, 2004). Soon these multi-functional entities were exclusively termed civil society organizations, and they were increasingly perceived as a remedy for a broad spectrum of social and political problems at the local, national, and international level of governance. These and other developments prompted historians to research and appreciate the contributions of civil society organizations, and in particular voluntary associations, with respect to the integration of new classes and social milieus into modern societies in the nineteenth century. They also highlighted the prime importance of civil society organizations – in particular business and professional associations – for the development of the modern industry-based economies. In the tradition of de Tocqueville, political scientists highlighted the key importance of civil society organizations – trade unions and business associations – for the improvement of industrial relations. They also emphasized the role of civil society organizations as the predecessor of political parties, and hence as driving forces for the advancement of democratic governments. Particularly after the crumbling of the “Iron Curtain,” civil society organizations began to mushroom in the countries of the former Eastern bloc. For countries and societies in transition from autocratic to democratic rule, civil society became a cornerstone and important indicator for the success of the pathway towards the triad of liberalism, market economy, and democracy. In Annette Zimmer

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the 1990s, the American political scientist Francis Fukuyama declared “the end of history” in the sense that the battle of regimes between liberal democracy and communist authoritarianism had finally come to an end with the result that democratic rule based on a lively civil society had become without any alternative. Today, the enthusiasm is gone. Liberal democracy is no longer perceived as the only road to success in terms of economic well-being and government efficiency. Instead, authoritarianism and populism have successfully managed to re-establish themselves with the result that civil society has become a bad word in certain settings. Furthermore, civil society organizations are increasingly under government scrutiny or even repression in many countries around the world. Against this background, scholars began to research these new developments that heavily impact civil society organizations. Since the beginning of the 2000s, a debate in the social sciences emerged that focuses on the shrinking and changing spaces of civil society worldwide (Carothers, 2002). As a preliminary summary of the ongoing discussions, it might be concluded that the foundation boom of civil society organizations has not come to an end; moreover, governments worldwide continue and even intensify their co-operation with civil society organizations in terms of public–nonprofit partnerships, particularly in the welfare domain and with respect to the provision of public services, health care, and educational services. In many non-democratic countries, special programs are set up and particularly earmarked for the support of civil society organizations that are operating in the welfare domain, in environmental protection, or in areas where they specifically address the needs of vulnerable groups. However, those civil society organizations that advocate civil rights, criticize the government, or lobby for the improvement of governance are confronted with rigid actions on the side of the non-democratic governments which range from close control of their daily operations up to a general ban of their programs and individual charges, prosecutions, and even detentions of staff members as well as activists who support the particular civil society organization. Annette Zimmer

Current and future directions

In sum, it depends on the period in time and likewise on the particular sub-discipline of the social sciences, which function of civil society – societal, political, or economic – is focused on and highlighted. Those working in the tradition of political culture research are primarily interested in civil society as a terrain for political participation. Very often, the focus is on the nexus between social movements and civil society. Researchers, who are interested in social capital and social cohesion, are primarily interested in the topics of volunteering, giving, and civic engagement in terms of membership in civil society organizations. Others, who are working in the Neo-Tocquevillian tradition, primarily refer to the organizational dimension of civil society. They are either interested in civil society as the backbone of democracy, therefore, they analyze the interface between civil society as a public sphere and the political domain. Or they focus on the service providing function of civil society organizations, which, in numerous countries worldwide, regardless of whether the political regime is democratic or not, are heavily integrated into the provision of public services. In this regard, research concentrates on the size of civil society in economic terms. In accordance with the tradition of the national accounts, the research aims at providing a statistical profile of a country’s civil society, which translates into a quantitative assessment of the overall economic capacity of civil society organizations in the particular country. In general, the profile encompasses the number of civil society organizations, their labor force, and therefore the relevance of civil society organizations for the country’s overall employment, the financing of the organizations, and their fields of activities such as social services or the arts and culture, and sports and leisure. Thanks to the achievements of the Johns Hopkins Comparative Nonprofit Sector Project, statistical profiles of the civil societies of numerous countries are available (see https://​ccss​.jhu​.edu/​research​-projects/​ comparative​-nonprofit​-sector​-project/​). In the majority of countries worldwide, the service providing civil society organizations outnumber by far those that are primarily engaged in advocacy and lobbying activities. Accordingly, civil society as a societal sphere, heavily populated by economically

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active organizations, gave rise to a growing interest in the topic of how to manage these organizations professionally and efficiently. In the meantime, nonprofit management has developed into a respectable area of scholarly research, and teaching in the U.S. and also in many other countries. Management theories and governance approaches, tailored for civil society organizations, try to take into account that civil society organizations constitute a special entity: they are not just organizations that are engaged in providing services without offering the possibility of the individual accumulation of wealth. Instead, nonprofit organizations as civil society organizations have to preserve their specificity by taking care of their tradition and embeddedness in civil society as a societal sphere between the market and the state. To acknowledge and to be aware of the different logics, which are present in civil society organizations and impact heavily on the daily routines of the organizations, constitutes one and future-oriented way of maintaining and upholding the specificity of civil society organizations that are engaged in business activities and by and large have to operate in very competitive markets. Therefore, research on the hybrid character of civil society organizations has developed into a fast-growing field of civil society research with an organizational focus. Annette Zimmer

Related topics

Advocacy Authoritarian regimes and the nonprofit community Civic agency Community-based organizations Democracy and philanthropy Nonprofit sector Philanthropy: Definition and history Politics and philanthropy Social change and nonprofit organizations Voluntarism

Further reading and references

Anheier, H. K. & Toepler, S. (Eds.). (2020). The Routledge compendium to nonprofit management. Routledge. Anheier, H. K., Toepler, S. & List, R. (Eds.). (2009). International encyclopedia of civil society. Springer. Carothers, T. (2002). The end of the transition paradigm. Journal of Democracy, 13(1), 5–21. https://​doi​.org/​10​.1353/​jod​.2002​.0003 Cohen, J. L. & Arato, A. (1997). Civil society and political theory. MIT Press. Edwards, M. (Ed). (2011). The Oxford handbook of civil society. Oxford University Press. Etzioni, A. (1973). The third sector and domestic missions. Public Administration Review, 33(4), 314–323. https://​doi​.org/​10​.2307/​975110 Evers, A. & Laville, J.-L. (Eds.). (2004). The third sector in Europe. Edward Elgar Publishing. Fukuyama, F. (1992). The End of History and the Last Man. The Free Press. Habermas, J. (1992). Faktizität und Geltung. Suhrkamp Verlag. Powell, W. W. & Bromley, P. (Eds.). (2020). The nonprofit sector: A research handbook. Stanford University Press.

Collaboration strategies Definition

Collaboration strategies practiced by nonprofit organizations set and frame the conditions for two or more nonprofits or a combination of nonprofit, business or government institutions to come together for an agreed-upon purpose. At their best, collaboration strategies fulfill at least three missions: that of the originating organization, that of the partner organization(s), and that of the collaboration purpose or goal. This three-mission principle offers rewards to its partner participants through joint leverage of collective resources. Collaboration strategies should be perceived by all participants as equitable in terms of mutuality, reciprocity and fairness. These conditions are tied to sharing and exchanging expectations in performance but also through governance over collaboration arrangements. Collaboration strategies can vary in scope, intensity, and duration. They may be limited to a particular place and simplicity along a spectrum of actions, or more Stuart Mendel

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open ended and elaborate. Sometimes collaborations advance over time as performance and opportunity allow. For example, relationships may originate as low intensity business referrals and transactions then evolve toward higher intensity such as sharing and exchanging information and resources. A collaboration might advance further toward greater intensity such as joint programming, moving ahead toward yet even greater intensity in the form of formal contractual partnerships, and alliances and networks. Collaborations that are most transformative and highest in intensity may even result in union or merger. It is through these mechanisms that collaboration strategies by nonprofits create public value, contribute to the greater good and stimulate transformative outcomes.

Conceptual foundation

Collaboration and partnership are well-known features of nonprofit sector life as essential for mission fulfillment. A vast body of scholarly research points to collaboration as a condition for nonprofit organization effectiveness, but also for institutional resiliency and sustainability. From the perspective of nonprofit organization leaders and stakeholders engaged in collaboration – a view used elsewhere as nonprofit first perspective – collaboration strategies set the conditions for boards of directors and executive staff to achieve three things. First, to establish organization competence, performance and efficacy as might be perceived by public and private business sector stakeholders who may financially support them. Second, to brand an organization as a trusted and effective community actor. And finally, to craft staffing capacity and capability, operations behaviors and governance ethos that align an organization with the larger community of public, private and nonprofit actors. Benefits of collaboration Direct benefits of collaboration strategy arise when the participants come together in networked agency for a designated and agreed upon purpose. Such arrangements allow for more nimble, adaptive systems of action and shared outcomes not otherwise possible if left to the government, the market, or autonomous nonprofits acting alone. Collaboration strategy through this lens is essential to serve Stuart Mendel

the community in times of unanticipated conditions requiring emergency preparedness, responses to public health crisis such as the COVID-19 epidemic and the related dilemmas, and chronic social challenges or wicked problems such as poverty or homelessness. But there is more. Collaboration strategies can indirectly amplify mission fulfillment in three ways. First, as a tactical tool to help advance broader strategic agendas of public policy makers, philanthropic institutions and community advocates that shape the operating environment and allocation of funding resources to nonprofits. Second, through mutual accountability and other efficiencies arising from the leverage of scarce partner resources. This includes higher quality and focused information reported to funders, oversight bodies, clients and other important stakeholders such as legislators and private sector leaders. Third, as a value which sets a high standard of credibility for an organization – starting with its board of directors – signaling to third party stakeholders an organization’s readiness, professional competence and fidelity.

Nonprofit applications

Scholarly research on “partnerships the nonprofit way” suggests that nonprofit leaders recognize and appreciate the many benefits of collaboration between nonprofits, and between nonprofits, government and business. In the nonprofit workplace, collaboration is necessary where the expertise and capacity of an agency falls short to accomplish the tasks at hand or to produce amplified return on investment of resources. Consequently, experienced executives recognize collaboration as essential in their strategic planning tool kit along with other options to achieve important goals and objectives. Moreover, collaboration can help to synchronize governing board members and professional staff with the external community of policy makers and funders. Meaningful collaboration occurs when the partner parties view themselves as approximate equals in participation, decision making, risk and accountability, and are using the social, economic and/or political capital of their counterpart to gain mutual mission fulfilled benefits. Important collaborations and partnerships are those that rise to a level of transformative outcomes for advancing the

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mission of each partner organization and for the purpose the partnership is designed to address. It is in this latter aspect that transformative collaboration can set the conditions for a third mission, arising from a system of action that would not occur of its own volition. Yet collaboration is deceptively complex and elusive. Implementing a collaboration strategy requires all parties to be committed to cooperative behaviors, intentionality and deliberateness of action. Collaboration endeavors also require a willingness by participants to adapt to circumstances that arise from shifting conditions and motives of all kinds. For example, some collaborations may consist of strict and even challenging contractual performance requiring reciprocity of action, mutuality of interest and commitment by partners. Such a frame for collaboration involves a shared duty of care for the collaboration mission, a comfort with occasional situation ambiguity at times and an easing of the competitive winner-takes-all dynamics where the actors follow aggressive mission fulfillment objectives, superiority, exuberance or even greed over their counterparts. It also requires nonprofit governing bodies to embrace and promote the collaboration ethos in their fiduciary role to advance the mission of the organization.

Limitations and strengths of nonprofit collaboration strategy

Choosing when, with whom and for what purpose to engage in an endeavor are important features of the decision to enter strategic collaboration. In this view, mandated collaboration and partnerships typically generate conditions that are less than ideal. The pitfalls of partnerships that ensue from mandated collaboration include misaligned expectations between the sponsors of the collaborations and the participants. In collaboration endeavors initiated by a grantmaker for example, participants may be less inclined to embrace their partners beyond the mechanical, transactional roles required to satisfy the funder. Such induced collaboration arrangements are perceived as more to do with political expedience or the desire of the funder or other third party to model collaboration than with actual partnership processes and results. These relationships often are signaled by a fixed central

framing document such as a written contract or grant agreement where the performance benchmarks of the actors drive the relationship and outcomes.

Readiness conditions for nonprofit first collaboration

A condition of successful collaboration strategy implementation is the readiness of all participants to bear its direct and indirect costs while accepting anticipated, unanticipated and sometimes intangible benefits. Direct costs can be meeting co-ordination and administration; dedicated physical space for program endeavors; reporting requirements to third parties; budget and cash flow co-ordination; and unanticipated expenditures that accrue to one or all parties. Indirect costs are conditions such as adapting original expectations of performance; sharing information and other non-monetary resources, responsibility and accountability; and even the patience to accept that the benefits will likely arise through incremental and time-consuming processes. Among the many benefits of collaboration strategy are the contracted performance measures found in collaboration agreements. For example, there are instances wherein a formal collaboration contract has the effect of clarifying and making explicit certain performance metrics that would otherwise remain implicit or vague. Fuzzy benefits include intangible outcomes such as the legitimacy granted by actions and expectations of mutuality and commitment between peer nonprofit partners. From the perspective of the nonprofit organization, readiness is linked to collaboration timing in at least two ways. First, nonprofit actors may not be ready for a collaboration engagement if they lack the labor and resources necessary to achieve the envisioned goals. Second, public and private policy makers and funders must be patient with the nonprofits engaged in collaboration strategy due to the time-consuming process of developing trust over time through multiple interactions. In complex initiatives these time-consuming processes are not well served by short project horizons imposed and mandated by outside actors. Meaningful collaboration strategies endure because of shared values and funcStuart Mendel

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tions between the participants. Shared values, which may originate with organization governance, can stimulate each member to take on the duties of stewardship for a collaboration venture, and transcend the isolated, self-interested transactions often contrived by funders. Shared values characterize collaboration strategies just as much as mutual benefit, yet can be more difficult to nurture. According to this point of view, meaningful collaboration would form because each organization accepts certain limits on its autonomy in order to best serve inter-organization co-operation and trust.

Looking ahead: Seven principles of nonprofit collaboration strategy

Recent research noting that as many as 20 percent of all registered nonprofit organizations in the state of Ohio (Beaton, 2020) have or had considered ceasing operations since the start of the epidemic is alarming. The disruption in global societal conditions presented by COVID-19 and other unanticipated political, economic and social shifts nationally point ever-more urgently to collaboration as a necessary and essential strategic method for nonprofit managers and leaders to attain resilience. Seven seminal concepts for understanding collaboration strategy make the case for thoughtful nonprofit collaboration. These concepts will appeal to nonprofit executives, board members, policy and grantmakers, philanthropic donors and other funders who value resilient, enduring and sustainable nonprofit organizations. The first principle is the “nonprofit first” perspective (Mendel, 2015). Nonprofit first refers to the point of view of the nonprofit organization participant in a collaboration. The conceptual frame is also pertinent for those seeking to encourage collaboration, for instance third party policy and grantmakers. Second is that nonprofits must engage in strategic collaborations and partnerships to fulfill their missions. As a result of their role in civil society – creating public value, building the “commons,” serving as intermediaries and facilitating institutions – nonprofits must form partnerships to fulfill their missions. They literally and figuratively bridge or serve to intermediate the resources, authority and power of themselves and their partners who may also be public and private sector particiStuart Mendel

pants. The act of forming a partnership builds networks of problem-solving actors and strengthens civil society by bonding people of differing interests together. The third principle is that a primacy of mission fulfillment in nonprofit-first partnerships occurs when the actors align three missions: those of each actor and of the partnership endeavor. This principle is readily apparent in collaboration across nonprofit subsectors where at least two organizations each with their own missions, collaborate to create an outcome of mutual value to each, toward a third purpose. One example of collaboration leading to the fulfillment of a third mission is an arts and culture organization sharing youth summer program performance time with a local hospital as a way to build a connection between neighborhood institutions, provide healthy conditions for patients and expose youths to the medical professions. A second example involves a seniors residential public housing organization providing work opportunities for community re-entry workforce participants that serve residents care needs. A fourth principle is that the process of forming a collaboration is considered a worthy outcome for any nonprofit organization because partnerships generate public value and contribute to the greater good of society. The fifth principle is that the mutuality of rights and responsibilities among the participants should lead to the validation of each partner by the other. The perception of each participant that their partner contributes to the success of the endeavor is a sought-after benefit beyond mission fulfillment of the collaboration. This aspect of nonprofit sector life builds upon the social capital of a community that can be engaged to solve future problems of society. A sixth principle is that the benefits of partnerships accrue over time. Nonprofit collaboration strategy may have direct outcomes stated as performance goals of the partnership endeavor but there are also indirect benefits that accrue as a partnership progresses through its work and endures over time. These include positive feelings among the participants and partner stakeholders that lay the foundation for derivative benefits or future collaborations. Lastly, the seventh principle is that volunteerism and fairness are central to the part-

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nership dynamic. The values of volunteerism cascade throughout partnership governance, labor, commitment and effectiveness, contributing to the complexity of bringing differing organizational forms and cultures together. In practice, fair play is closely tied to the degree of co-operation between two organizations through mutual trust between the partners: trust that is tested through actions of reciprocity, equity and equality. Consequently, fairness sets the conditions for social capital, volunteerism and nonprofit sector ethics to take place. Stuart Mendel

Related topics

Co-production Mergers and acquisitions Mission and economics Resilience management Strategic planning

Further reading and references

Beaton, E. (2020). Ohio nonprofit COVID-19 survey: A report of the results. SSRN Electronic Journal. https://​doi​.org/​10​.2139/​ssrn​.3658394 Forrer, J., Kee, J. J. & Boyer, E. (2014). Governing cross-sector collaboration. Wiley & Sons. Mendel, S. C. (2015). Nonprofit first: The promise and potential of the Nonprofit Academic Centers Council. The Journal of Nonprofit Education and Leadership, 5(1). https://​go​.gale​ .com/​ps/​i​.do​?p​=​AONE​&​u​=​googlescholar​&​id​=​ GALE|A425460472​&​v​=​2​.1​&​it​=​r​&​sid​=​AONE​ &​asid​=​e0e9a7cb Mendel, S. C. & Brudney, J. L. (2018). Partnerships the nonprofit way: What matters, what doesn’t. Indiana University Press. Moldavanova, A. & Goerdel, H. T. (2018). Understanding the puzzle of organizational sustainability: Toward a conceptual framework of organizational social connectedness and Sustainability. Public Management Review, 20(1), 55–81. https://​doi​.org/​10​.1080/​14719037​ .2017​.1293141

Commercialism Definitions and context

In the early 1980s, for the first time ever, commercial revenue rose to make up half of all revenue supporting traditional nonprof-

its in the U.S. Over the next two decades nonprofit commercial revenue continued to gain ground over more expected forms of nonprofit revenue such as private contributions and government and foundation grants. Thus, increasing reliance on “revenue from sales of goods and services” (Maier et al., 2016, p. 71), as nonprofit commercialism is generally understood to mean, came to characterize the support structure for the nonprofit sector. Indeed, there are indications that nonprofit sectors in many countries have experienced a similar trend towards commercialism in recent decades. What is the nature of nonprofit commercialism? Why has it been increasing? What are the positive and negative consequences for nonprofit organizations, their beneficiaries and supporters, as well as the civil society that nonprofits purportedly undergird? We explore nonprofit commercialism from these perspectives to offer a multi-faceted understanding of the concept and current related debates. For nonprofits, earning revenue through the trading of goods and services is not a new phenomenon despite its recent increase. Well-documented nonprofit activities including ticket sales, tuition payments, fees for services rendered, and bake sales go back well over a century in the U.S. and longer elsewhere. At the root of these activities is the nonprofit need to support its social mission and increasingly to ensure a level of self-sufficiency and autonomy that does not necessarily come with government and private funders. Thus, while greater self-regulation and flexibility are newer hallmarks of commercial income for nonprofits, it continues to provide sustainability over time, reduce risk through diversified revenue streams, and provide a foundation for growth. Nonprofits also find that commercial activities that may do little to directly support the core mission can cross-subsidize key mission-related activities in other parts of the nonprofit. Thus, despite the “not-for-profit” label, nonprofits can and do generate large amounts of commercial profit and can do so legally as long as it is reinvested back into the organization in support of its mission (i.e., not distributed to stakeholders) and the commercial activity does not overtake the social mission of the organization (Dees & Anderson, 2003; James & Young, 2007). Janelle A. Kerlin and Meng Ye

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Understanding the rise in nonprofit commercialism

Commercial revenue generation in the U.S. nonprofit sector increased throughout the 1980s and 1990s, leveling off in the first decade of the twenty-first century. The Urban Institute reported in The Nonprofit Sector in Brief 2015 (McKeever & Pettijohn, 2015) that by 2015, commercial revenue made up 72 percent of total revenue (including government contracts) for the nonprofit sector. What is driving the increase and maintenance of commercial revenue at such a high level? A number of explanations have been put forward. First, observers often point to how the New Deal in the 1960s supported a rise in the government funding of nonprofits that was subsequently rolled back during budget cuts in the 1980s. Welfare states in West European countries also experienced government retrenchment that cut funding to nonprofits during this time. The loss of funding sent nonprofits searching for an alternative source of revenue which they found in commercial income. A second explanation is that, in the U.S. in particular, new nonprofits steadily entered the sector for decades, stretching traditional forms of revenue thin and pushing nonprofits to find market-based revenue solutions due to competition over scarce resources (Kerlin & Pollak, 2011). Third, government agencies embraced new approaches to management which shifted their practices from task-based reimbursement to results-based contracting, creating more competition among nonprofit and for-profit contractors that drove professionalization and more business-like approaches. Increasing privatization and procurement practices of government are also said to have propelled this situation forward. A fourth explanation is that neoliberal pressures in Western countries promoted a market orientation and profit-seeking as an answer to societal ills. Though these pressures were nearly universal in the U.S., they appeared to have a differential impact on specific nonprofit subsectors with some experiencing faster growth in commercial revenue than others (James & Young, 2007; Kerlin & Pollak, 2011).

Janelle A. Kerlin and Meng Ye

In practice

Commercial activities in nonprofits can appear in many different shapes and forms. They can be found at the core of mission-related activities in terms of fees paid for direct services rendered, that is, tickets for performances, counseling and medical services, and tuition as well as products sold, for example through a bakery or restaurant in a nonprofit job training situation. Other nonprofit commercial revenue generation can be viewed as a side venture that is still aligned with the mission but not a central activity. These include museum stores or the sale of Girl Scout cookies. Still other such revenue generation can be a side activity that is NOT aligned with the social mission such as a thrift store, parking facility, or T-shirt sales, though income not related to the mission earned on a regular basis is subject to business income tax (known as Unrelated Business Income Tax or UBIT). Both mission related and unrelated side ventures can remain a program within the nonprofit or be housed in a nonprofit or for-profit subsidiary that is a separate legal entity, especially when there is a desire to protect the core nonprofit social mission from association with potentially excessive for-profit activity. While the preceding description outlines more traditional forms of nonprofit commercialism, the term can also refer to a number of other more recent revenue generating practices. These include different types of relationships between nonprofits and for-profits to support revenue generation on both sides such as licensing, sponsorships, and cause-related marketing. Licensing agreements permit a for-profit to use the name or logo of a nonprofit on the for-profit’s product as a way to share its brand equity in exchange for a royalty paid to the nonprofit. Sponsorships entail the for-profit paying to have its name or logo associated with a nonprofit event, product, or facility. Indeed, corporate sponsorships seem to be ubiquitous with nonprofit fundraisers and service projects like 5K races and river clean-up initiatives. Cause-related marketing, on the other hand, partners a nonprofit and for-profit to raise funds for a specific initiative. A prime example is Dannon’s yogurt campaign with the National Breast Cancer Foundation to assist those affected by breast cancer through an advertised donation contingent on the

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purchase of yogurt. While these relationships can be financially fruitful for nonprofits and for-profits alike they can have drawbacks. A nonprofit’s credibility can be undermined if it is associated with a for-profit found to be engaged in poor business practices or by simply partnering with for-profit companies due to their profit motive. Also, such partnerships with for-profits often go to larger, more established nonprofits with name recognition, leaving out many smaller nonprofits from these often lucrative relationships. Nonprofit commercialism can also extend to nonprofit practitioners engaging in business-like behaviors, including management practices and structuring and organizing activities in ways that mimic for-profit methods. This may be more prevalent in industries where both for-profit and nonprofit actors vie for market share including hospitals, nursing homes, and day care centers. Indeed, this can be seen as a parallel process to nonprofit commercialism in terms of a for-profit encroachment on traditional nonprofit space in the fields of health and social care. Such competition can encourage nonprofits to adopt business-like practices that bring greater efficiencies and professionalism so they can better compete with for-profits. In terms of terminology, the prior discussions on fee, venture, and partnership sources of income often fall under both nonprofit “commercialism” and “commercialization” conversations, while nonprofit “marketization” more often also includes the latter discussion on for-profit encroachment on nonprofit service provision (Frumkin & Andre-Clark, 2000; Maier et al., 2016). The nonprofit sector varies significantly across its many subsectors. This variation results in sometimes large differences in the use of commercial revenue. In the U.S., for example, the arts and culture subsector relies heavily on commercial income through its sale of tickets to performances ranging from opera, to dance, symphonies, and theater. Entrance fees for museums and sales through museum stores and restaurants also contribute earned revenue. Higher education nonprofits also rely greatly on earned income through student payment of tuition. At the other end of the spectrum are international development and assistance nonprofits that are largely dependent on traditional revenue sources, including private donations to fund

humanitarian relief and poverty alleviation programs. Only a small percentage of overall income for this subsector comes from commercial sources. Thus, characteristics of the subsector, including the type of programming and the ability of interested consumers to pay, drives the use of commercial revenue. A grey area is the health subsector with its heavy reliance on Medicaid and Medicare reimbursements from the federal government which are sometimes counted as commercial income for nonprofits and other times as government funding (James & Young, 2007).

Current issues and debates: The impact of nonprofit commercialism

Finally, we turn our attention to the impact of nonprofit commercialism. Is nonprofit commercial revenue good or bad for beneficiaries, supporters, nonprofits themselves, and overall for the sector? What is its effect on civil society? Generally speaking, given its large revenue share in the sector, commercial revenue provides an indispensable source of income to support the missions of countless nonprofits undertaking a wide variety of socially beneficial activities in society. This includes nonprofit policy advocacy and the general promotion of civic participation that is said to undergird democracy. Clearly the nonprofit sector would be much curtailed and its beneficiaries left wanting if there was no recourse to commercial revenue generation. That said, observers have investigated the potential downsides of commercial revenue. One of the first concerns is whether the social mission of nonprofits has been negatively impacted. Known as mission drift, it can occur when commercial revenue generation activities take on more prominence or priority in the organization than mission-related activity, especially in terms of staff time and effort. One oft-cited example is the creaming of higher performing clients for training positions in a revenue-generating venture on the premise they will provide better quality work which will lead to better financial returns. Potentially there are a range of mission drift outcomes from a slight, mostly inconsequential shift in mission to a larger shift that undermines significant mission goals to the loss of the 501(c)(3) charitable tax status and related tax benefits due to commercial Janelle A. Kerlin and Meng Ye

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revenue generation overwhelming mission activities. In reality, the evidence surrounding mission drift is somewhat inconclusive and appears to be highly contextual. Among other findings, the introduction of fees has been shown to shift the provision of services from those in need to those who can pay for them, though other studies show diversified revenue streams may hold mission drift at bay. Findings also show commercial revenue may either further mission goals or constrain them due to the distraction of selling, especially goods unrelated to the mission. Notably, internal strategizing and staff professional development appear to help mitigate mission drift (Maier et al., 2016; Roy et al., 2021; Suykens & Verschuere, 2021). Closely related to mission drift are challenges that nonprofits face around navigating mission – market tensions when they engage in commercial revenue generation. Research has found that organizations may be able to strategically align themselves with or even influence unwritten rules by appearing to be different entities with different stakeholders in order to access resources they need to achieve both mission and market goals (Roy et al., 2021). While commercial revenue has been found to generally improve the financial stability and organizational survival of nonprofits up to a certain revenue point there are questions about its impact on other nonprofit revenue streams. Different observers speculate that commercial income can increase (“crowd-in”) donative (both public and private funding) revenues due to the perception created of a socially entrepreneurial organization or, on the other hand, decrease (“crowd-out”) donative revenues because the organization is perceived as being commercially successful. According to a meta-analysis of existing studies on this question, both “crowd-in” and “crowd-out” effects have been found. Findings tended to vary by subsector and whether or not the commercial income was mission related, with a modest crowding-out of donations on average (Suykens & Verschuere, 2021). There is also concern that nonprofit commercialism can lead to a loss of identity on different levels. On the sector level, as the boundary between the nonprofit and for-profit sectors becomes increasingly blurred, the nonprofit sector’s key distinguishing Janelle A. Kerlin and Meng Ye

characteristics may be overshadowed by business-related activities and behaviors and alienate key supporting actors. On the organizational level, there may be a loss of identity for nonprofit staff and volunteers who signed on for social mission and not market-based activities. Early research in this area indicates a more nuanced picture – what is considered meaningful nonprofit work by managers may now include enterprise values along with traditional prosocial values and a calling to something greater (Sandberg & Robichau, 2022). Attention has also been called to the potential adverse effects of nonprofit commercialism on civil society. At its core is the argument that neoliberal policies encouraged an increase in commercial activity which in turn resulted in less reliance on community stakeholders, thereby undermining stakeholder engagement in civil society and ultimately civic participation, an ingredient of strong democracy. Critics also suggest that commercial activity reduces interpersonal relations to economic transactions and social values to commodities. Though evidence-based research in this sphere is scarce and mixed, recent research shows fee-for-service activity predates the neoliberal movement in the U.S. and was associated with an inclusive rather than profit seeking ethos (Roy et al., 2021).

Future directions

As our discussion suggests, there remains a lot to learn about nonprofit commercialism. Indeed, many assertions about the phenomenon, both positive and negative, remain untested, under-tested, or inconclusive. Going forward more research is needed to gain insights into how we can constructively leverage nonprofit commercialism’s strengths and shore up its weaknesses. Such knowledge can help inform choices between policies that might target either more sophisticated restrictions or de-incentivize (through taxation) certain commercial behavior (e.g., target cost-shifting to avoid paying UBIT) and whether to have stronger incentives for charitable donations. In terms of practical approaches, nonprofit managers may be encouraged to establish internal governance strategies that forestall mission-drift and donors and fee-paying consumers of nonprofits could be made more aware of the potential

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consequences of nonprofit commercialization and how to address the associated risks. Janelle A. Kerlin and Meng Ye

Related topics

Accountability Competition Earned income Managerialism Marketing Social enterprise Triple bottom line Unfair competition Unrelated business income

Further reading and references

Dees, J. G. & Anderson, B. B. (2003). Sector-bending: Blurring lines between nonprofit and for-profit. Society, 40(4), 16–27. https://​doi​.org/​10​.1007/​s12115​-003​-1014​-z Frumkin, P. & Andre-Clark, A. (2000). When missions, markets, and politics collide: Values and strategy in the nonprofit human services. Nonprofit and Voluntary Sector Quarterly, 29(1), 141–163. https://​doi​.org/​10​.1177/​ 0899764000291s007 James, E. & Young, D. R. (2007). Fee income and commercial. In D. R. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 93–119). National Center on Nonprofit Enterprise and Mltamira Press. Kerlin, J. A. & Pollak, T. H. (2011). Nonprofit commercial revenue: A replacement for declining government grants and private contributions? The American Review of Public Administration, 41(6), 686–704. https://​doi​.org/​ 10​.1177/​0275074010387293 McKeever, B. & Pettijohn, S. L. (2015). The nonprofit sector in brief 2015: Public charities, giving, and volunteering. Urban Institute. Center for Nonprofits and Philanthropy. Maier, F., Meyer, M. & Steinbereithner, M. (2016). Nonprofit organizations becoming business-like. Nonprofit and Voluntary Sector Quarterly, 45(1), 64–86. https://​doi​.org/​10​ .1177/​0899764014561796 Roy, M. J., Eikenberry, A. M. & Teasdale, S. (2021). The marketization of the third sector? Trends, impacts and implications. In G. Donnelly-Cox, M. Meyer & F. Wijkström (Eds.), Research handbook on nonprofit governance (pp. 371–390). Edward Elgar Publishing. Sandberg, B. & Robichau, R. W. (2022). The hybridization of meaningful nonprofit work: An exploratory study of the effects of marketization on nonprofit managers’ sense of meaningfulness in work. Nonprofit and Voluntary

Sector Quarterly, 51(3), 606–632. https://​ doi​ .org/​10​.1177/​08997640211072852 Suykens, B., Verschuere, B. (2021). Nonprofit Commercialization. In: List, R.A., Anheier, H.K., Toepler, S. (eds) International Encyclopedia of Civil Society. Springer, Cham. https://​doi​.org/​10​.1007/​978​-3​-319​-99675​ -2​_540​-1 Weisbrod, B. A. (1998). To profit or not to profit: The commercial transformation of the nonprofit sector. Cambridge University Press.

Commons Definition

A Commons is a “general term that refers to a resource shared by a group of people that is subject to social dilemmas” or actions that may deplete the collective resource for the benefit of some but not all (Hess & Ostrom, 2007, p. 3). To maintain a Commons the users must develop governance arrangements that successfully protect the resource from overuse. Commons governance developed as a way to address social dilemmas over Common-Pool Resources (CPR), which is a valued natural or human-made resource that is characterized by two attributes: (1) it is a subtractable resource (e.g., the removal of a fish from a lake reduces the number of fish in that lake); and (2) it is difficult to exclude people from using that resource (e.g., it is challenging to enforce catch limits in expansive waters, like the ocean). CPRs, if overused, can suffer from degradation (reduced fish populations) and collapse (extinction of species) (Ostrom, 1990). CPRs that are Commons are ones where there are shared-governance situations. The challenge for governing CPRs in Commons settings is to collectively establish rules, norms, and strategies (e.g., institutional arrangements to establish Commons governance) to sustainably maintain the CPR.

Context

The original meaning of the term “Commons” comes from the way communities managed land that was held “in common” in medieval Europe (IASC, n.d.). Its use has evolved over time but at the heart of a Commons is a social dilemma that requires collective

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action to maintain a shared resource. Garrett Hardin’s 1968 Science article “Tragedy of the Commons” posited that self-interest leads each user to maximize use, which then leads to CPR depletion. However, drawing on game theory, scholars identified rules that can lead to co-operation. Axelrod (1984) illustrated how iterated games can lead to a cross-game equilibrium where co-operative action can be sustained; Ostrom (Ostrom et al., 1994) described social norms that encourage co-operation (covenants), that then are reinforced by punishments for defection. Extensive empirical research identified successful Commons governance for maintaining natural resource CPRs such as grazing lands, fisheries, forests, and groundwater. Elinor Ostrom won the 2009 Nobel Prize for her pathbreaking book Governing the Commons (Ostrom, 1990) and related work that identified and studied institutional arrangements (rules, norms, strategies) for sustainable CPR governance.

Nonprofit applications

While most of the applications of Commons governance focuses on natural resource CPRs, we provide two examples of Commons governance related to nonprofit governance of CPRs: voluntary giving of time and voluntary giving of money. Brudney and Meijs (2009) applied Commons governance to volunteering in which they argued that “volunteer energy” as a human-made resource is subject to positive volunteer management that sustains the resource or the opposite in which negative experience decreases the resource. Once we view volunteer energy as a CPR, it then shifts the lens to the institutional arrangements that are needed to sustainably “harvest” the resource (Brudney et al., 2019). Utilizing design principles put forth by Ostrom (1990), they applied them to analyze the institutional arrangements for successfully sustaining the voluntary energy Commons (Brudney & Meijs, 2013). More recently Commons governance has been applied to philanthropy (Never et al., 2022). At the individual level, voluntary giving is subtractable (each individual has a giving maximum; one dollar donated cannot be donated elsewhere) and it is difficult to exclude oneself from “asks” for donations. Successful asks will deplete the

giving resource, which in this scenario maximizes the individual’s contribution to the aggregate philanthropy Commons. But too many asks because of inability to exclude requests can also lead to potential “tragedies,” to use Hardin’s term, from donor fatigue and exit. Similar to governing the volunteer energy Commons, the philanthropy Commons has institutional arrangements that vary in how well they sustain or deplete the giving resource. There are many well-known philanthropic institutional arrangements such as federated campaigns (e.g., United Way), religious giving, donor-advised funds, online platforms (e.g., GoFundMe), direct appeals from charities, and self-governing giving circles. Each of these institutional arrangements are created by collective action in a particular context with rules, norms, and strategies governing donor recruitment and expenditure of charitable donations. The challenge for the individual is how to decide if and how much to donate amidst the many requests and options. For example, we can imagine donor fatigue arising from both place-based and purpose-based asks (Barman, 2006). The former represents asks that are geographically oriented (e.g., juggling asks from one’s local church/temple/mosque, school, and/or community foundation). The latter represents asks that are cause oriented (e.g., Red Cross, Doctors without Borders). The digital age made giving easier for donors and more efficient for philanthropic requests, yet the fundamental problem is that making it easier to extract (ask for donation) can lead to donor fatigue and donor exit, which harms the aggregate philanthropic giving CPR. This dilemma is at the heart of some of the best work among scholars who study Commons. The sustainability of the CPR can also be threatened when charities experience a loss of legitimacy. Recent scandals such as the U.S. National Rifle Association’s misuse of donated funds underscore the possibility that perceptions/realities of mismanagement, graft, and lack of transparency can influence donative behavior from the bottom up. Philanthropic Commons tragedies can also occur for reasons beyond the institutional arrangements for giving when top-down government policies shape the way people orient themselves to philanthropy. For example, the U.S. Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, which decreased the number of filers itemizing their

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donations. This changed the incentives for those for whom tax deduction influenced giving. But Commons can also be supported by state-reinforced self-governance in which the state strategically assists, rather than coerces, users to self-govern CPRs and avert the tragedy of the Commons (Sarker, 2013).

Essential components of Commons

The most essential component of the Commons is the resource that creates social dilemmas such as those described above. There are causes in need of funding and individuals who are willing to donate money to support them. The dilemma occurs when the institutional arrangements for extraction of those donations deplete the giving resource. In philanthropy Commons the attributes of the resource are that currency donations must be transferred from one entity to another (i.e., a transaction) and that the willingness to donate is determined by the giver. The dilemma occurs when successive requests force the giver to make choices among the options (known as “adjacent action situations”). Givers with high maximums can opt out of responding to additional requests if they give to a donor-advised fund (DAF), in which the fund determines the charities that receive funding. Or, if the donor is sufficiently wealthy they can create their own private foundation that will administer grants aligning with their priorities. For those unable to afford DAFs or foundations, the donor is left to decide among the many requests for donations. These requests come by mail, which individuals are free to ignore but the appeals will keep coming. For mass appeals through email and phone, there are technical ways to exclude oneself from asks through “do not call” and unsubscribing from charities’ email distribution lists. But these have limited impacts on the volume of appeals the average person using email and social media receives. The community attributes are also a key component in Commons governance. Is this a place-based community of parents raising funds for their child’s preschool or is it an online purpose-based community of people who raise funds to protect bees? The norms for giving and level of social capital among the community members can vary significantly, which can in turn affect individual giving. For example, giving circles are

self-governing giving communities that build norms for giving and social capital among the donors (Eikenberry, 2009). For Commons, the rules governing asks combined with attributes of the resource and community attributes affect the donor’s decision to give or not to give. These three components lead to giving “action situations” among the participants with outcomes that feedback into the three attributes. For example, if people do not follow the rules, it will affect the outcomes which can then create “action situations” in which the rules-in-use diverge from the agreed upon rules (Teaching the workshop, n.d.). This can lead to a breakdown in social capital resulting in a tragedy or a corrective action to sustain the Commons. In 1990, Elinor Ostrom developed eight design principles for natural resource CPRs for governing the Commons. We adapt these for our philanthropy example. 1. Clearly defined boundaries Individuals or households who have rights to decide to give time or money. 2. Congruence between appropriation and provision rules and local conditions Appropriation rules restrict time, place, technology, and/or quantity of time/ money. These need to align with the individual/household ability to provide the time/resource. 3. Collective-choice arrangements Users of the resource (time/money) participate in creating or modifying the rules governing the CPR. Note that this can vary extensively such as the relative lack of user participation in DAF’s allocation of charitable gifts versus giving circle users a high level of involvement in gift allocation. 4. Monitoring Monitors who actively audit appropriators (nonprofit organizations’ volunteer programs and philanthropic giving practices) and are accountable to the givers. This is especially important for maintaining nonprofit legitimacy. 5. Graduated sanctions When rules are broken, there must be punishments that fit the severity of the violation (e.g., negative social media posts by dissatisfied volunteers/donors to

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6.

7.

8.

legal action to sanction mistreatment of volunteers or misappropriation of gifts). Conflict-resolution mechanisms For volunteer management, this may be internal to the organization. For philanthropic giving, this can range from community-based organizations resolving disagreements to formal monitor actions (e.g., Internal Revenue Service audit). External government authorities recognize rights to organize For nonprofit organizations, this establishes how and under what conditions people can establish Commons governance (create philanthropic asks, call for volunteers). For CPRs that are part of larger systems The eight design principles are organized in multiple layers of nested enterprises. Rules for the local CPR will need to align within the nested rule environments for successful governance of the Commons. For example, nonprofit organizations participating in Giving Tuesday are asked to abide by blackout dates for philanthropic asks that conflict with the coordinated giving campaign.

For the philanthropy Commons, there is substantial variation in the ability of users to create or modify the rules. A DAF may allow donors to suggest charities and choose not to release funds but once the donation is made the donor has little control over the charities chosen by DAF owners (such as Fidelity Investments). To the opposite extreme, giving circles are self-governed with donors closely connected to which charities receive grants. The institutional arrangements that lead to asks have the potential to sustain and even grow the Commons. They can also have the opposite effect. The design principles have endured for natural resources and been adapted more recently for the knowledge Commons (Hess & Ostrom, 2007) and open source software (Schweik & English, 2012). For nonprofit and voluntary action research, there are many social dilemmas when people collectively organize to provide or protect a resource. Much of the nonprofit sector exists because individuals choose to self-organize to address a social dilemma. When the collective action needed is to sustain a CPR, it can be conceptualized as a Commons and the design principles can be used to identify why some

institutional arrangements help sustain a CPR while others become depleted.

Limitations and strengths of Commons

The growth of Commons scholarship and integration of Commons into general terminology runs the risk of losing the nuance of its definition. For this reason, readers need to adhere to the definition of Commons above, identify the social dilemma, and the resource. Is the resource a CPR (depletable and difficult to exclude)? If so, utilize the design principles to assess the Commons governance. For the CPR in question, it may require adapting the design principles. Empirically identify the technological attributes, the community attributes, and the rules that govern the Commons to assess what is happening in action situations that create outcomes that either sustain the resource or deplete it. The strength of the Commons is that it recognizes how self-governing institutions can sustainably manage a CPR. These arrangements are an important alternative to market and state control. The examples in this entry are drawn from the U.S. and for international comparative analysis it is important to consider the nested institutional arrangements in which the state reinforces or impedes self-governance of the Commons. Brenda K. Bushouse, Brent Never and Robert K. Christensen

Related topics

Civil society Competition Governance Principal-Agent Theory Social responsibility of nonprofit organizations

Further reading and references

Axelrod, R. M. (1984). The evolution of cooperation. Basic Books. Barman, E. (2006). Contesting communities: The transformation of workplace charity. Stanford University Press. Brudney, J. L. & Meijs, L. C. (2009). It ain’t natural. Nonprofit and Voluntary Sector Quarterly, 38(4), 564–581. https://​doi​.org/​10​ .1177/​0899764009333828 Brudney, J. L. & Meijs, L. C. (2013). Our common commons: Policies for sustaining volunteer

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C 113 energy. Nonprofit Policy Forum, 4(1), 29–45. https://​doi​.org/​10​.1515/​npf​-2012​-0004 Brudney, J. L., Meijs, L. C. & Overbeeke, P. S. (2019). More is less? The volunteer stewardship framework and models. Nonprofit Management and Leadership, 30(1), 69–87. https://​doi​.org/​ 10​.1002/​nml​.21358 Bushouse, B. K., Never, B. & Christensen, R. K. (Eds.). (2016). Special Issues: Elinor Ostrom’s contribution to nonprofit and voluntary action studies. Nonprofit and Voluntary Sector Quarterly, 45(4), (7S–174S). https://​doi​.org/​10​ .1177/​0899764016651337 De Moor, T. (2017). What are commons? [Video]. Utrecht University. https://​iasc​-commons​.org/​ about​-commons/​ Eikenberry, A. M. (2009). Giving circles: Philanthropy, voluntary association, and democracy. Bloomington: Indiana University Press. Eikenberry, A. M. & Breeze, B. (2018). Growing philanthropy through giving circles: Collective giving and the logic of charity. Journal of Social Policy & Society, 17(3), 349–364. Frischmann, B. M., Madison, M. J. & Strandburg, K. J. (Eds.). (2014). Governing knowledge commons. Oxford University Press. Hess, C. & Ostrom, E. (2007). Introduction: An overview of the knowledge commons. In C. Hess & E. Ostrom (Eds.), Understanding knowledge as a commons: From theory to practice (pp. 3–26). MIT Press. International Association for the Study of Commons (n.d.). https://​iasc​-commons​.org/​ McGinnis, M. D. (2011). An introduction to IAD and the language of the Ostrom workshop: A simple guide to a complex framework. Policy doi​ Studies Journal, 39(1), 169–183. https://​ .org/​10​.1111/​j​.1541​-0072​.2010​.00401​.x Never, B., Christensen, R. K. & Bushouse, B. (2022). Philanthropy as commons: An overview for discussion. SSRN. https://​papers​.ssrn​.com/​ sol3/​papers​.cfm​?abstract​_id​=​4065110 Ostrom, E. (1990). Governing the commons: The evolution of institutions for collective action. Cambridge University Press. Ostrom, E. (2009). Understanding institutional diversity. Princeton University Press. Ostrom, E., Gardner, R. & Walker, J. (1994). Rules, games and common-pool resources. University of Michigan Press. Sarker, A. (2013). The role of state-reinforced self-governance in averting the tragedy of the irrigation commons in Japan. Public

Administration, 91(3), 727–743. https://​doi​.org/​ 10​.1111/​padm​.12011 Schweik, C. & English, R. (2012). Internet success: A study of open-source software commons. MIT Press. Teaching the workshop (n.d.) Ostrom Workshop. https://​ostromworkshop​.indiana​.edu/​courses​ -teaching/​teaching​-tools/​index​.html

Community foundations Definition

Community foundations are public charities that engage in on-going fundraising to build endowments and distribute grants in a defined geographic community. Like a private foundation, they hold assets in permanent endowments that can respond to long-term, unforeseen needs. However, their capital comes from ongoing and multiple contributions from the public and thus are governed by and accountable to the broader community. Unlike other issue-based organizations, community foundations serve general and broad needs, rather than specific organizations or issues. The first community foundation was established in Cleveland, Ohio, in 1914 by Fredrick Goff. It arose as a secular alternative to the newly emerging private foundations (such as the Carnegie and Rockefeller Foundations). While the new private foundations were guided by managerial elites acting as trustees, Goff, a banker, envisioned that the financial assets of the new community foundation would be managed by local banks while an appointed board of community residents, aware of community needs, would advise grantmaking. This new model provided a way for elite donors to give unrestricted funds to “support purposes they cannot know” (Hammack, 1989, p. 24). Goff envisioned that the community foundation would not only be citizen led but consistent with the scientific philanthropy movement of the early twentieth century; the foundation would use scientific research to identify the needs of the local community and coordinate philanthropic efforts. Early community foundations conducted surveys of local issues – the public-school systems, recreation, criminal justice – to raise awareness of the need Laurie E. Paarlberg

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for change. The business model and approach quickly spread to communities throughout the Midwest and Northeast that shared a culture of civic leadership. Changes to the federal tax code (1969 and 1976) further spurred the development of community foundations by providing preferential tax treatment for their donors and fewer limitations on their activities. Today there are approximately 1,000 community foundations spread across the U.S., serving both large urban areas and rural communities.

Applications

The community foundation field has gone through three evolutions that have defined the characteristics of local community foundations and their role in local communities. Endowment building: Central to the community foundation movement has been the establishment of permanent place-based endowments. Rather than giving out the funds raised each year, the community foundation model was based on the practice of only distributing the investment earnings and instead building an endowment to respond to future needs. Goff argued that the wealth accumulated by individuals was made possible by the wealth and resources of the community and belonged to all its residents (Newman, 1989). Endowments provide discretionary capital to respond to community needs and visions and remain both an ends and means for community foundations (Hammack, 1989). Donor focus: The unique legal structure of the community foundation allows for multiple trusts, advised by individual donors, to be treated as a single entity rather than separate organizations (Colinvaux, 2017). As early as the 1930s donor-advised funds provided living donors the opportunity to name their funds, specify the purpose of the fund, and even advise on grant recipients from these named funds. Such donor-advised funds were codified in the 1969 Tax Reform Act and supported by later IRS rulings. By 2020, 603 community foundations reported more than 84,334 donor-advised fund accounts that provide more than $8 billion in grants (The 2021 DAF Report, n.d.). Donor-advised funds provide tax benefits to individual donors and an efficient model of philanthropic accountability that has energized giving to community foundations. Community foundations play increasingly Laurie E. Paarlberg

important roles as “donor advisors,” to cultivate and engage a diverse pool of donors. Community leadership: For more than a century, community foundations have played leadership roles in identifying community needs and mobilizing action to address community needs. Community leadership was re-emphasized through a variety of field building initiatives that emphasize the roles community foundations play in building community, facilitating local relationships, partnering with other institutions to address community needs, and mobilizing the community around issues of the common good (CFLeads, 2013). Community foundations increasingly lead community efforts on complex local issues, such as equitable education outcomes, inclusive economic development, and the politicization of the Census counts. To advance these issues, community foundations increasingly leverage a variety of philanthropic tools, including using their endowments as a source of investment (program related investments), joining collective impact efforts, supporting nonprofit capacity building, and advocating to change public policy.

Current and future directions

In 2005, a seminal report posited that community foundations were “on the brink” and their future legitimacy in local communities was less certain than their accumulated assets and historical legacy (Bernholz et al., 2005). Several key trends that were identified in 2005 continue to challenge and energize the future of the community foundation field. Commercialization of donor-advised funds While donor-advised funds propelled significant growth in assets under management for community foundations and represents a significant portion of community foundation grantmaking (The 2021 DAF Report, n.d.), community foundations face increasing competition for donors from national commercial sponsors, such as Fidelity Investments Charitable Gift Fund, and other single issue sponsors, such as Jewish Federations or universities and hospitals. National commercial sponsors have economies of scale and natural connections to high-net-worth individuals through their affiliated investment firms that provide ease of access and reduced costs for donors. The competition for donors remains

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a particularly critical issue for community foundations as fees charged for management of donor-advised funds remain an important source of operating revenue for community foundations. At the same time, increased reliance on contributions to donor-advised funds limit the discretionary grantmaking of community foundations, potentially conflict with the original intent of an informed group of community decision makers guiding local philanthropy, challenge the collective intentions of community philanthropy, and place community foundations directly in competition with other local organizations, such as United Way, for middle income donors. Identity versus geography While Goff envisioned community foundations as foundations of place, rapid changes in technology, increased geographic mobility, and changing cultural norms about what community is have weakened the importance of place in people’s giving decisions (Carson, 2014). Community foundations increasingly grapple with defining their role in a “global world” and some community foundations, such as the Silicon Community Foundation, have sought creative ways to position themselves as “global community foundations.” However, others suggest that the “globalization” of community philanthropy challenges the favored tax status of community foundations, and many community foundations have re-emphasized their “localness” by focusing on their roles as community leaders and their unique knowledge of local issues (Mazany & Perry, 2013). Legitimacy and accountability Community foundations face key challenges to their legitimacy on two fronts. While sophisticated donors increasingly challenge the value provided by funding intermediaries, others challenge the role of community foundations as institutions of the elite (Bernholz et al., 2005). Increasingly critical questions are being asked about the tax benefits provided to wealthy donors and the degree to which community foundations perpetuate class and racial inequities through their governance structures, grantmaking practices, and the actual allocation of grants (Daniels, 2021). The convergence of the COVID-19 pandemic and the

racial justice awakening of 2020 have pushed many community leaders to question the role of philanthropy in local communities and the implications for equity and social change. Community philanthropy 4.0: The next phase of development As community foundations grapple with these three tensions, some field leaders suggest that community foundations are on the brink of the next major transformation. This next transformation is in early stages and many terms are being used to describe new values and practices, including justice philanthropy and resident-driven philanthropy (Walker, 2019). Regardless of the terms in use, similar practices animate community philanthropy 4.0. First, community philanthropy 4.0 implies that community residents, particularly those residents that are from marginalized communities, will have a greater say in guiding community foundations’ strategy and grantmaking (Gibson, 2018), shifting the power of philanthropy to residents. Community philanthropy 4.0 holds community foundations accountable to the community for its accumulation and use of resources, rather than community foundations holding grantees responsible for their outcomes (Beer et al., 2021). Community philanthropy 4.0 involves a re-thinking of the norms of philanthropy that recognizes the human rights of beneficiaries and the obligations of donors, rather than the rights of donors. Finally, community philanthropy 4.0 necessitates changes in internal practices, such that community foundation staff and leadership represent community demographics and have a true say in organizational decision making. While the path forward for community foundations is still unclear, networks of community foundations may be mobilizing to envision a new future (Daniels, 2021). Laurie E. Paarlberg

Related topics

Charitable giving Donor-advised funds Endowment Foundations: History and functions Fundraising Place-based philanthropy Public charity

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Further reading and references

Beer, T., Patrizi, P. & Coffman, J. (2021). Holding foundations accountable for equity commitments. The Foundation Review, 13(2). https://​ doi​.org/​10​.9707/​1944​-5660​.1565 Bernholz, L., Fulton, K. & Kasper, G. (2005). On the brink of new promise: The future of US community foundations. Blueprint Research & Design. Carson, E. D. (2014). The future of community foundations. In T. Mazany & D. C. Perry (Eds.), Here for good: Community foundations and the challenges of the 21st century (pp. 43–58). Routledge. CFLeads. (2013). Framework for community leadership by a community foundation. www​ .cfleads​.org/​community​-engagement/​CFLeads​ -Framework​.pdf Colinvaux, R. (2017, March 26). Defending place-base philanthropy by defining the community foundation. Brigham Young University Law Review, 1, 1–56. https://​ssrn​.com/​abstract​ =​2941174 Daniels, A. (2021, January 26). Community foundations band together to fight structural racism. Chronicle of Philanthropy. www​.philanthropy​ .com/​article/​community​-foundations​-band​ -together​-to​-fight​-structural​-racism Gibson, C. G. (2018). Deciding together: Shifting power and resources through participatory grantmaking. GrantCraft. https://​doi​.org/​10​ .15868/​socialsector​.32988 Hammack, D. C. (1989). Community foundations: The delicate question of purpose. In R. Magat (Ed.), An agile servant (pp. 23–50). The Foundation Center. Leonard, J. (1989). Creating community capital: Birth and growth of community foundations. In R. Magat (Ed.), An agile servant (pp. 89–104). The Foundation Center. Mazany, T. & Perry, D. C. (Eds.). (2013). Here for good: Community foundations and the challenges of the 21st century. ME Sharpe. Newman, B. L. (1989). Pioneers of the community foundation movement. In R. Magat (Ed.), An agile servant (pp. 73–88). The Foundation Center. The 2021 DAF Report. (n.d.). NPTrust. www​ .nptrust​.org/​reports/​daf​-report/​ Walker, G. (2019). From generosity to justice: A new gospel of wealth. The Ford Foundation. www​.fordfoundation​.org/​just​-matters/​ford​ -forum/​the​-future​-of​-philanthropy/​from​ -generosity​-to​-justice/​

Community-based organizations Definition

Community-based organizations (CBOs) are small, low-budget, groupings that are started by people who want to respond to a perceived problem or common interest or who wish to engage in a process activity like musical performance, spiritual celebration, or political expression. CBOs may have few paid staff, most members are volunteers, and they tend to be informally structured, perhaps favoring with democratic or consensus decision making.

In practice

Many formal and legally incorporated nonprofit organizations had their origins as CBOs. Participatory community movements may have identified local issues in the early stages of a nonprofit organization’s existence and constituencies that supported the original undertaking may continue to participate in nonprofits as they become more institutionalized, perhaps as trustees or donors. They may remain as important stakeholders as nonprofits grow, implicitly or explicitly demanding that the nonprofit pay attention to its founding community roots. Failure to do so in established nonprofits may cause internal organizational friction or a falling away of external supporters. A second application of the CBO concept to the field of nonprofit management is that those who provide organizational advice to CBOs should be aware that CBOs not only have organizationally distinctive features (as reflected in the definition above) but are themselves, as a group, organizationally diverse. These two points about the CBO origins of many formal nonprofits and about the distinctive and diverse organizational nature of CBOs raise questions about whether management theories widely applied to other kinds of “third sector” or “nonprofit” organizations can be or should be, applied to CBOs.

Current and future directions

How then can we approach managing, leading and organizing CBOs now and in the future? One approach is to challenge widely accepted Carl Milofsky and Margaret Harris

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evolutionary theories of organizational change and growth which imply that small, informal CBOs are inevitably on a path to formalization and bureaucratization over time. Pressure to formalize over time may come from funders who expect to see clear statements of purpose and goals, familiar forms of accountability or tangible “products” from CBO activity. Pressure may also come from CBO participants themselves who have had organizational experiences in businesses or other bureaucratic structures. But when they import their experiences in formal organizations into CBOs, they can place these more informal, process-oriented organizations in danger since new participants may neither understand the reasons established procedures exist nor want to put in the time to implement them. As CBOs grow, these pressures to adopt familiar organizational arrangements may also make them more rule bound, hierarchical, and routinized in their activities – unless they make a deliberate decision to resist the pressures and exercise organizational agency. As both Rothschild et al. (2016) and Smith (1997) have shown, there are alternatives which can enable a CBO to retain, if it so chooses, participatory processes, democratic governance structures, and appreciation of participants as whole persons rather than as occupants of segmented roles. A second approach is to understand CBOs as “embedded” in local community life, rather than as bounded organizations like formal nonprofits. Local people may identify a problem or interest which they want to respond to; a process of action movements arising out of the “primordial ooze” of community life. The problem may be a practical one (such as flooding), yet sources of CBO activity may equally come from political movements, from self-help efforts, from initiatives by established organizations like churches to stimulate a community response, or from shared leisure interests such as music or chess. One consequence of diverse beginnings is that CBOs are set up and operate in diverse ways. Just as their founding principles and values are diverse, so are the traditions and organizational practices which they adopt. These latter may include a commitment to participatory or consultative forms of democracy, a constant reflection on founding principles, and an emphasis on organizational process rather than outcomes or impacts. Theories drawn from the world

of formal nonprofits will likely be resisted by participants in CBOs and can even cause damage to their long-term sustainability; for example, implementation of theories about stakeholder accountability and “correct” nonprofit governance structures may fly in the face of established tradition within CBOs and demotivate people whose loyalty is rooted in a preference for informality, high trust, and face-to-face personal interactions. A third approach is to understand CBOs as operating as relatively stable “small groups.” The actual number in the small group may vary (roughly between 15 and 50) but the size is less important to sustainability than the fact that the group meets face-to-face and that over time certain members emerge to be task leaders, while others are social leaders, status leaders, or quiet supporters of group maintenance. Once these informal roles emerge, a small group becomes more capable of identifying necessary tasks, completing them, managing conflicts, keeping members happy, and maintaining the group’s existence through time. In short, we suggest that we draw a sharp distinction between community-based organizations and more formal ways of setting up and running organizations. One reason for this is that in CBOs their processes of activity tend to be more important than the outcomes of organizational work. Principles that are familiar in the management of more formal organizations may in fact threaten the survival of CBOs which are embedded in communities and more akin to small groups than “organizations” as understood in the more formal world. Rather than using the term “management” to describe steps that can help CBOs grow and thrive, we would place emphasis on qualities of leadership and the knowledge successful leaders bring to how organizational processes can be supported, maintained, and arranged to prevent conflict and ensure organizational sustainability. Carl Milofsky and Margaret Harris

Related topics

Civic agency Civil society Community foundations Place-based philanthropy Social capital Carl Milofsky and Margaret Harris

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Further reading and references

and a recognized legal existence; as well Fleck-Henderson, A. (2017). From movement to as non-formal organizations, created more mainstream. A battered women’s shelter evolves organically to allow certain kinds of interac1976–2017. Affilia, 32(4), 476–490. https://​doi​ tions among individuals. These non-formal groups may have no legal status or identity, .org/​10​.1177/​0886109917718230 Kurland, N. B. & McCaffrey, S. J. (2016). Social but women’s clubs, work-sharing arrangemovement organization leaders and the crea- ments, neighborhood or village groups can tion of markets for “local” goods. Business & have an important presence in people’s daily Society, 55(7), 1017–1058. https://​doi​.org/​10​ lives, especially in low-income communities. .1177/​0007650314549439 Some are long-standing, traditional or Mills, T. M. (1984). The sociology of small groups customary organizations whose norms and (2nd edn.). Prentice Hall. Rothman, J. (1968). Three models of community roles have been in place for generations, especially in rural areas. Many disputes practice. Columbia University Press. Rothschild, J., Chen, K., Smith, D. H. & over land ownership, water rights, or inherKristmundsson, O. (2016). Avoiding bureau- itance are resolved by traditional justice or cratization and mission drift in associations. mediation institutions; traditional women’s In D. H. Smith, R. A. Stabbing & J. Grotz labor-sharing organizations or savings clubs (Eds.), The Palgrave handbook of volunteering, and nonformal insurance arrangements have civic participation, and nonprofit associations (pp. 1007–1024). Palgrave Macmillan. https://​ existed for hundreds of years and continue to play important roles in some rural societies doi​.org/​10​.1007/​978​-1​-137​-26317​-9​_40 Smith, D. H. (1997). The rest of the nonprofit (Chen et al., 2007). Among formal nonprofits, created to serve sector: Grassroots associations as the dark matter ignored in prevailing “flat earth” maps a defined social purpose, to advance their of the sector. Nonprofit and Voluntary Sector members’ interests, or to advance a cause, Quarterly, 26(2), 114–131. https://​doi​.org/​10​ membership organizations are an impor.1177/​0899764097262002 tant subgroup. Professional associations of Stoecker, R. (2018). About the localized social lawyers, teachers, street vendors, and sex movement. In R. A. Cnaan & C. Milofsky (Eds.), Handbook of community movements and local workers all encourage communication, set organizations in the 21st century (pp. 211–228). rules or norms for their members, and represent their interests. They are in principle Springer. Wilkinson, K. P. (1991). The rural community in accountable to those members. Every society has laws and regulations America. Greenwood Press. that govern how nonprofit organizations may be formed and should operate and define categories of organizations including, among others:

Comparative perspectives on nonprofit organizations Definitions

The vocabulary of nonprofit studies can be confusing. This entry uses the terms nonprofits and civil society organizations interchangeably. Non-governmental organization (NGO) is also often used to refer to any of the formal, nonprofit, voluntary organizations within a society; for clarity this entry will refer to nonprofits instead, unless specifically referring to international NGOs (INGOs) that operate transnationally. Nonprofit sectors are diverse and include formal organizations with rules, defined roles, Paul J. Nelson

● Not-for-profit corporations – formal, registered nonprofits with a defined public purpose ● Trusts and foundations, both of which essentially pool resources for a cause or charity, rather than being associations of people ● Mutual societies, which include a variety of associations and cooperatives. These categories vary and receive distinct treatment under countries’ different legal systems. In Japan, for example, associations and foundations are not automatically tax exempt; they receive tax privileges if the Committee for Public Interest Organizations (Kouekitou Nintei Iinkai) deems their work to be in the public interest.

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Roles, scope, issues, and challenges

Nonprofits have become significant service providers and vehicles for community organizing and for advocacy in many societies, but their size, scope, emphasis, and impact vary widely. How can we understand the scope and significance of the sector? Scholars have typically relied on several quantitative measures to track the scope of nonprofit sectors. Employment is the most widely used: the percentage of economically active people employed in the nonprofit sector ranges from less than 2 percent in Russia, India, Pakistan, and several East European countries, to more than 10 percent in Ireland, the U.K., Israel, Canada, Belgium, and the Netherlands (15.9 percent). Nonprofit jobs make up more than 6 percent of employment only in high-income countries in North America, Europe, Japan, Australia, and New Zealand. Employment in the sector is also growing rapidly, more than twice as fast as the service sector and four times the rate of employment growth economy-wide in 14 countries with time-series data – again, primarily high-income countries (Salamon et al., 2017). But employment or share of GDP only begins to tell the story. Nonprofits’ roles are often categorized as involving three kinds of activities: service delivery, expressive activities, and associative roles, connecting people and groups. These functions of civil society manifest themselves very differently across societies. Delivering services, especially through schools, healthcare facilities, and social services, involves highly varied organizations. Nonprofit hospitals in the U.S. are often large corporate institutions with considerable economic influence in communities. They deliver sophisticated medical care but may have little role in connecting people or building community solidarity. Environment-focused nonprofits provide services to their members and users of parks and trails while also speaking out on pollution, environmental justice, conservation, and climate issues. Scholarly discussion of this variation among nonprofits has been frustratingly unsuccessful, relying on variations based on culture and religion, governmental regulatory policies, and by reference to economic theories of preferences or market failures (Salamon et al., 2017, pp. 45–73). Salamon

et al. (2017) offer a much more satisfying approach that they refer to as “social origins.” The social origins approach brings together class relationships, political power dynamics, and varied social welfare regimes to construct an account that relies less on theories of the individual preferences of participants – for altruism, social trust, or efficiency – and more on the social and political power dynamics that shape social institutions. In this view, the work of nonprofits, whether overtly political or not, and their relationships with governments, are shaped by economic and political power dynamics and the society’s existing institutions for social welfare, social security, and other public functions.

Regulation, repression, and innovation

Framing nonprofit sectors in light of social and political power relations provides a perspective on the responsibilities and powers of government over the sector. Governments regulate all of the forms of associations discussed here, in principle, to provide assurance to members of society that they are operating honestly, serving the public good, and complying with relevant laws. Regulations typically require that organizations register with a government authority, maintain capital on hand, report regularly on their finances, meet standards of self-governance (usually through a board of directors), and comply with tax law. Most governments also have an interest in regulating these bodies in order to assert control and maintain power, and many use regulatory measures to harass and constrain nonprofits. The global civil society association CIVICUS reports annually on such constraints, and its 2021 report shows the space for nonprofit and civic action “repressed” by harassment and regulation, and entirely “closed” in 21 countries including China, Saudi Arabia, Nicaragua, and Belarus. Authoritarian and populist political trends result in dire warnings from CIVICUS: nine out of ten people worldwide live in societies where “civic freedoms are severely restricted,” and while 13 countries had their ratings downgraded in 2021, only one improved. Paul J. Nelson

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Governments have multiple means available to them when they wish to restrain or even silence nonprofits that are too outspoken or that gain access to scarce resources such as foreign assistance in low- and middle-income countries. Governments all too often use straightforward forms of repression: forbidding public meetings, arresting or detaining leaders or activists or clamping down on media or social media discussion. But using legal regulatory powers to slow down nonprofits’ access to resources, question their tax status, or require excessive reporting can limit a nonprofit’s influence or challenge its credibility. The monitoring and reporting work of the International Center on Nonprofit Law (ICNL) is an important source of up-to-date information, country by country, on this trend. Turning to broad government– nonprofit relations, Najam’s (2004) typology of Co-operation, Confrontation, Complementarity, and Co-optation focuses on how governments’ and NGOs’ goals align with their preferred means of advancing those goals. Disagreement over both goals and strategies produces confrontation. Shared goals with differing strategies may result in complementary efforts while agreement on both goals and strategies allows co-operation. Governments may coopt NGOs if their goals differ, but they engage in similar activities. Cooptation describes the relationship between U.S. government and nonprofit food banks and soup kitchens, whose delivery of surplus foods strives to fill the gaps and make up for inadequate benefits provided by most U.S. states through the Supplemental Nutrition Assistance Program and other initiatives. Many human rights issues provide examples of NGO–government confrontation. Collaboration may be the most varied and subtle of the relationships: in contemporary U.S. drug policy, for example, the federal government and many states and localities have refused to implement harm reduction strategies in response to the epidemic of overdose opioid deaths but have permitted or looked away when nonprofits institute needle exchanges and safe, supervised injection sites. Both governments and the nonprofits involved want to reduce overdose deaths and encourage treatment for addiction, and nonprofits’ technically illegal initiatives (strategies) help advance that goal. Paul J. Nelson

Some governments are increasingly using the form of nonprofits, creating organizations labeled and legally recognized as NGOs but are in fact controlled by government. These GONGOs – Government-organized NGOs – threaten the independence and integrity of nonprofits. A recent report on Nigeria’s “pro-government NGO sector” details “Nigerian elites’ growing use of civil society surrogates,” arguing that these “fake NGOs … should set off alarm bells both domestically and internationally” (Page, 2021).

Nonprofit sectors, societies, and daily life

Nonprofit sectors’ size and strategies are shaped by power relations and socio-political factors, dynamics that can be seen through brief reference to recent nonprofit initiatives in countries with diverse economic, political, and religious/historical contexts. Each of the cases below display not only how social and political power shapes the work and identity of nonprofits, but how nonprofit organizations figure in the daily lives of many people and communities. At times nonprofits’ initiatives grow out of large-scale movements: the Treatment Action Coalition in South Africa, which pressed for effective responses to the AIDS epidemic; India’s Right to Food and Right to Information movements have both spawned formal nonprofits and inspired support from others. In other instances, nonprofits provide important support to such movements. The Brazilian Catholic Church’s Pastoral Commission on Land has been a key supporter of the land occupation strategies of the country’s Landless Workers Movement, and environmental and human rights nonprofits have been important participants in movements for the right to water in the Philippines, Uruguay, Ghana, and elsewhere. At times NGOs collaborate with strong systems of government service provision: in Thailand, famous for its near-universal health coverage, NGOs supplement the two government schemes that have been created to provide rudimentary health services to migrant workers and other immigrants, especially people crossing the Thai–Myanmar/Burma border. In Rwanda, a government-initiated national health coverage scheme relies primarily on local associations of citizens who form health insurance pools known as mutuelles de santé. And Buddhist institutions in

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Thailand provide direct educational and other services through local pagodas, and exercise considerable influence at the national level through the authority of the national organization of monks, the sangha (Nelson, 2021). European governments may be seen as coopting nonprofits who provide services to desperate immigrants trying to enter the European Union; most governments maintain strong barriers to entry, even intercepting and returning would-be entrants on the Mediterranean Sea, while NGOs provide services that prevent humanitarian catastrophe. In the U.S., nonprofits under long-term contracts with the federal government serve as the resettlement services for immigrants. Agencies receive Federal funding and mobilize volunteer resources to oversee and assist the transition and settlement of immigrants in cities and towns across the country. Some of these same agencies also agitate for more humane and open immigration policies, while a set of activist nonprofits push that agenda, using advocacy, direct assistance to immigrants attempting to enter the U.S. illegally, and even the protection of sanctuary in houses of worship and other settings. The diversity of roles and relationships with government is on full display. Latin American societies show contrasting experiences. NGOs in Uruguay participated actively in a labor-led coalition that won a guarantee of publicly provided water in 2003. When privatization of water utilities in 2000 led to price increases and problems with coverage and water quality, opponents formed a coalition led by water and sewerage worker unions and NGOs, including Friends of the Earth and Sustainable Uruguay Program. The Comisión gained influence, attracted significant political support, and launched a petition campaign that forced a referendum on constitutional reform. In October 2004 voters approved a constitutional amendment declaring the right to water and affirming state control. Theovernent assumed control of water utilities in October 2005 and created mechanisms for public participation in water services and for inter-governmental co-ordination (Dugard & Drage, 2012). The Uruguayan nonprofits’ influence over national policy contrasts with Guatemala, where NGOs face multiple constraints. Guatemala is poorer, more rural, and civil society development has been constrained

by the country’s entrenched economic and political power structure. Large landowners’ family wealth has long been the basis for a conservative political elite that acts with impunity, marginalizing Guatemala’s large Mayan indigenous population from economic and political life and targeting them in long periods of violent suppression. Working in such a context, civil society focuses largely on delivering services and improving farm production. Movements from time to time have pressed for more open land markets or even for redistributive land reform, without major impacts. The nonprofit sector is dominated by foundations created by wealthy landed families, which tower over the smaller, less well-funded charities created by progressive actors. Even in the face of urgent needs during the first year of the COVID-19 pandemic, Guatemala’s president shut down funding to local nonprofits that he termed “destabilizing” and associated with “Communism” for their criticism of his government (Fresse & Blackwell, 2020).

Challenges and opportunities

Services, voice, and systems change: How will nonprofits balance their roles as service providers with the need to improve and transform systems? Nonprofits will need to respond to challenges that are global in scope and that cannot be addressed through traditional charitable action or service provision. Among these are the climate crisis, threats to democratic self-governance, global public health, and systematic racial discrimination. Growing reliance, growing constraints: Nonprofits are faced with political systems that increasingly turn to them to fill the gaps left by their minimal commitments to health, education, or social services; or to respond to emergency needs. There is a continuing tension between this increased reliance on nonprofits to provide services, and many governments’ increasing desire to control and restrict external funding to these same civil society groups. Finally, nonprofits will continue their ongoing efforts to establish systems of accountability and performance monitoring that anchor them in their communities, strengthen their legitimacy, and signal their reliability to donors and other partners. Their

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success in this effort, as Ebrahim (2020) shows, will be a key to their future. Paul J. Nelson

Related topics

Authoritative regimes and the nonprofit community Civil society Democracy and philanthropy Grassroots international nonprofit organizations Nongovernmental organizations Nonprofit sector

Nonprofit Management and Leadership, 10(4), 375–396. https://​doi​.org/​10​.1002/​nml​.10403 Nelson, P. J. (2021) Religious voices in international development: Faith-based NGOs as political and moral actors. Palgrave Macmillan. Page, M. T. (2021, July). Fake civil society: The rise of pro-government NGOs in Nigeria. Carnegie Endowment for Peace. https://​ carnegieendowment​.org/​files/​Page​_Nigeria​ _final​.pdf People power under attack 2021 (n.d.). CIVICUS. https://​findings2021​.monitor​.civicus​.org/​ Salamon, L. A., Sokolowski, S. W. & Haddock, M. A. (2017). Explaining civil society development, a social origins approach. Johns Hopkins University Press.

Further reading and references

Chen, M., Jhabvala, R., Kanbur, R. & Richards, C. (Eds.). (2007). Membership-based organizations of the poor. Routledge. CIVICUS. (2021). 2021 State of Civil Society Report. https://​socs2021​.civicus​.org/​ COVID-19 civic freedom tracker online database. Definition of key terms and (2020). International Center for Nonprofit Law. concepts www​.icnl​.org/​covid19tracker/​ Dugard, J. & Drage, K. (2012, June). Shields Nonprofit competition is the constant strugand swords: Legal tools for public water. gle among organizations for comparative Municipal Services Project. www​ .muni​advantages in resources that will yield supecipalservi​cesproject​.org/​publications/​ rior social value. A nonprofit organization’s OccasionalPaper17​_Dugard​-Drage​_Shields​ (NPO’s) resources include financial (e.g., _and​_Swords​_Legal​_Tools​_Public​_Water​ donations, grants), physical, legal (e.g., _June2012​.pdf tax-exempt status), human (e.g., volunteers), Ebrahim, A. (2020). Measuring social change: Performance and accountability in a complex organizational (e.g., inherent positive image, organization’s mission), informational, and world. Stanford Business Books. Fresse, R. & Blackwell, A. (2020, June 10). relational (e.g., governmental or corporate History and current context of philanthropy sponsors). Social value, on the other hand, in Guatemala. Lilly Family School of refers to the value of the NPO’s offerings, Philanthropy. https://​blog​.philanthropy​.iupui​ perceived by all appropriate stakeholders .edu/​2020/​06/​10/​history​-and​-current​-context​-of​ such as clients, donors, grantors, volunteers, -philanthropy​-in​-guatemala/​ managers, and employees. The term supeHasmath, R., Hildebrandt, T. & Hsu, J. Y. (2019). rior implies that organizations seek a level Conceptualizing government-organized non-governmental organizations. Journal of of performance exceeding some measurable Civil Society, 15(3), 267–284. https://​doi​.org/​ benchmark. This benchmark might be the performance of peer organizations, the organ10​.1080/​17448689​.2019​.1632549 Hossain, N. & Oosterom, M. (2021). The impli- ization’s previous performance, a distinct cations of closing civic space for hunger and objective set by the organization, or simply poverty in the Global South. Global Policy, the level of performance necessary to sustain 12(5), 59–69. https://​doi​.org/​10​.1111/​1758​ the organization (Topaloglu et al., 2018). -5899​.12979 Najam, A. (2004). The four C’s of government third sector-government relations: Cooperation, con- Current issues and challenges frontation, complementarity, and co-optation. The pursuit of a nonprofit mission has become

Competition

more challenging in recent decades because of the declining governmental support, growing number of NPOs, and new for-profit market entrants. As a result of these competitive pressures, nonprofit managers strive

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to balance two goals, mission and money. They attempt to adopt a more business-like approach and become more entrepreneurial. Although many nonprofits rely primarily on public and private donations to survive and sustain their social mission (e.g., the Red Cross, a food bank), others rely significantly on operational performance and market revenues generated with the social mission (e.g., credit unions, hospitals). The former is described as donative nonprofits and the latter as commercial nonprofits. Because of their similarity to for-profit organizations, commercial nonprofits may prove useful in understanding the competition in the voluntary sector through investigating the competitive dynamics in the business realm. A nonprofit competitive environment is not without its controversies. Some experts argue that NPOs competing with for-profit organizations have an unfair advantage and create market inefficiencies due to their tax-exempt status. For example, in early 2013, the American Bankers Association launched an ad campaign across Washington, DC, lobbying for implementing an income tax on credit union earnings. Conversely, others argue that NPOs are fundamentally disadvantaged as they seek to pursue two, seemingly incompatible goals; that is, there is an ongoing struggle to sustain the nonprofit organization by balancing mission and money. In other words, nonprofit managers must fulfill the primary social mission while maintaining fiscal sustainability. Competition among NPOs and between NPOs and for-profit organizations is dynamic. It is constantly changing and rarely reaches equilibrium. However, NPOs can attain competitive advantage that results in superior social value as well as financial performance. The pursuit of superior financial performance in no way diminishes an NPO’s social mission as its primary objective. Rather, it should be viewed as a means to an end that can enable the organization to better accomplish its social mission. Therefore, one can also argue that the goal of the nonprofit organization is cost effective social performance. Competition in general is prosocial and contributes to productivity and economic growth by motivating organizations to learn, innovate, and leverage resources to be more efficient and more effective. In other words, competition per se is beneficial for the

society because it leads to innovation that improves the effectiveness and the efficiency of the resources that organizations use to produce and deliver market offerings. Similar to all competitive environments, nonprofit competition is disequilibrium provoking. That is, a healthy competitive environment constantly pokes and nudges its members towards progress. A marketplace position of competitive advantage results from an NPO, relative to its peers, having a resource assortment that enables it to make an offering that is perceived to have superior value by its stakeholders (effectiveness) and/or is produced at lower costs than those of peers (efficiency). Although competition is stressful on individual nonprofit organizations, the societal benefits emerge from competition among nonprofits, as well as from competition among for-profit organizations. Considered to be a sensitive issue, discussion of financial performance has historically been avoided by nonprofits. Nonprofit scholars steer away from for-profit terminology and conceptualizations. However, extended poor financial performance not only threatens the NPO’s survival but also prevents it from accomplishing its primary, mission-driven objective – that is, to provide social value. Thus, without implying the profit motivation of a regular business, superior financial performance is as critical to NPOs’ sustainability as it is to for-profit entities. Nonprofits can reach competitive advantage by providing goods and/or services that are perceived to have superior social value, by producing comparably valued offerings at a lower cost, or by both. For instance, superior performance in acquiring donations and grants or attracting volunteers can effectively reduce costs and lead to superior social value. Therefore, the intensified competition in the recent decades that has pushed NPOs to become more business-like may in fact be a positive change for two reasons: competition among organizations to produce valued outputs is pro-social by its nature and thus contributes to the social welfare; and pursuing superior financial performance not only does not preclude an NPO from creating superior social value but may actually facilitate its ability to do so. Competition is an endogenous factor in the nonprofit sector. Organizations constantly struggle to perform better than they have Omer Topaloglu

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in the past and/or better than their peers. For NPOs, these peers might include other NPOs or for-profit organizations that provide comparable services to a common segment of constituents, or other NPOs and programs vying for limited funds from donors, governmental agencies and philanthropic foundations, or voluntary labor. This constant struggle motivates organizations to innovate through organizational learning. For nonprofits, innovation can lead to more effective and efficient delivery of services to constituents, thus better meeting the goals of the organizational mission and satisfying the wishes of NPO stakeholders. Since nonprofits represent a significant portion of a nation’s economy, particularly in the United States, competition in this sector can also foster economic growth.

The future

In a competitive setting, nonprofit organizations reach cost-effective delivery of superior social value when they obtain comparative advantage in resources. Identifying those resources that are more beneficial for particular types of nonprofit organizations and determining how they might be leveraged, particularly those resources that are uniquely available to nonprofits, are key to strategic endeavors of nonprofit managers. Furthermore, an emphasis on attaining superior financial performance is a goal that complements and facilitates the primary goal of the social mission, allowing nonprofits to create superior social value. In other words, nonprofits have two objectives: superior mission-based as well as financial performance, given that the latter enables the achievement of the former. This strategic perspective is consistent with the notion that the motivation of NPO founders, managers, or stakeholders is to serve a social need, not generate profits. At the same time, this approach removes the tradeoff between mission and money and orders them properly, with one in service to the other. In addition, donors and volunteers must be approached as resources rather than customer-like individuals. Although some of the services provided are sponsored by donations, it is not easy to accurately tie a specific donation to a service provided. Therefore, donors and volunteers

Omer Topaloglu

should be viewed as potential resources that enable organizations to produce, efficiently and/or effectively, desirable market offerings, whether these offerings are sold or given away. Overall, these new strategic perspectives attempt to guide nonprofit managers facing new challenges in the intensified competitive environment. Omer Topaloglu

Related topics

Commercialism Competitive forces Effectiveness of nonprofit organizations Growth strategies Mission and economics Performance management Strategic analysis: SWOT Unfair competition

Further reading and references

Arnett, D. B., German, S. D. & Hunt, S. D. (2003). The identity salience model of relationship marketing success: The case of nonprofit marketing. Journal of Marketing, 67(April), 89–105. https://​doi​.org/​10​.1509/​jmkg​.67​.2​.89​.18614 Chetkovich, C. & Frumkin, P. (2003). Balancing margin and mission: Nonprofit competition in charitable versus fee-based programs. Administration and Society, 35(5), 564–596. https://​doi​.org/​10​.1177/​0095399703256162 Hunt, S. D. (2010). Marketing theory: Foundations, controversy, strategy, resource-advantage theory. M. E. Sharpe. McDonald, R. E. (2007). An investigation of innovation in nonprofit organizations: The role of organizational mission. Nonprofit and Voluntary Sector Quarterly, 36(2), 256–281. https://​doi​.org/​10​.1177/​0899764006295996 Schumpeter, J. A. (1934). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. Transaction. Topaloglu, O., McDonald, R. E. & Hunt, S. D. (2018). The theoretical foundations of nonprofit competition: A resource-advantage theory approach. Journal of Nonprofit & Public Sector Marketing,  30(3), 229–250. https://​doi​.org/​10​ .1080/​10495142​.2018​.1452818 Tuckman, H. P. (1998). Competition, commercialization, and the evolution of nonprofit organizational structures. Journal of Policy Analysis and Management, 17(2), 175–194. https://​doi​.org/​ 10​.1002/​(ISSN)1520​-6688

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Competitive forces Definition

Competitive forces denote structures and incentives that impose greater rivalry between organizations that interact with each other in a marketplace. We often conceive of competing organizations as those producing similar products or services. However, organizations, especially nonprofits, also interact and compete for resources needed to produce their respective products and services.

In practice

How do we know when competitive forces are exerting themselves in a market? We often look to outcomes in a marketplace and see how those outcomes are changing. Common metrics in many organizational settings are changes to prices, quality of the good, improved health or other outcomes. However, these common metrics need to be modified when applied to nonprofit settings. As defined above, we can classify competitive forces based on the product or service, also referred to as the outputs of the organization and the resources needed to produce those outputs, referred to as the inputs in the production process. Below we decompose the areas of competition and discuss how competitive forces may be observed. Competitive forces in the input markets Labor: Nonprofits need to attract talented staff to accomplish their mission. Depending on the particular skill set required, nonprofits may be competing for similar employees with other nonprofits with similar missions, across missions, or even with for-profit and corporate organizations. In general, the larger the pool of qualified applicants the lower the competitive pressures, but holding the number of possible candidates constant, the more potential employers the greater the competitive pressures. Different from for-profit settings nonprofits often depend on volunteer staff. Organizations with similar missions may attract similar volunteers who have limited time to devote to their volunteer efforts. As the number of volunteer opportunities increases for a given volunteer pool, the greater the competitive pressures. While the nonprofit doesn’t pay the volunteers

directly, these greater competitive pressures may result in less time spent volunteering or possibly decreased quality of the volunteers. Nonprofit board of directors are also a vital component to a healthy nonprofit and can suffer from similar issues if the pool of qualified board members is low. Donations and grants: Nonprofits, especially those that provide their services at reduced rates or for free, need additional revenue to fund the operations related to their mission. Individual and corporate donors, government agencies, and foundations can be a key source for that funding and thus create a marketplace whereby nonprofit organizations vie for that funding. Similar to the labor market, nonprofits can compete for this funding within their sector, or with nonprofits in other sectors. As the number of nonprofits seeking donations and grants increases, demand for this funding generally increases and thus competition can increase. Increased funding to a sector or increased attention to a societal need (e.g., food insecurity) can reduce the intensity of that competitive pressure. Alternatively, if the increased attention is related to an increase in actual need for the service (e.g., food insecurity increases in the wake of a pandemic or recession), the competitive pressures could either increase or decrease depending on the magnitude of each of the above forces. Land, buildings: Most nonprofits require a space in which to conduct their business. These requirements depend on the size of the organization and the type of services provided by the organization. Since land in a given area, particularly metropolitan areas, is finite and expanding building capacity is a long-term investment, we can think of these factors to the production process as fixed for short-term decisions. Thus, any immediate, increased demand for additional space will likely increase competitive pressures. This increase can lead to either real increased costs for the organization (e.g., increased lease rates) or increased implicit costs (e.g., additional time and effort to find a suitable location/property). Some of these pressures can be mitigated by considering shared office arrangements. Shared space may be particularly attractive for many nonprofit sectors as their hours of operation to serve their clients/ customers may be flexible or outside of the typical nine to five working period. Teresa D. Harrison

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Competitive forces in the output markets Price and/or quality sensitivity of the consumers: The end user of a nonprofit’s product we denote as a client, customer, or consumer depending on the type of nonprofit product provided. For example, in the arts, museum goers are often called patrons; for foodbanks, the end consumer is the family obtaining the groceries; for a soup kitchen, it is often a homeless individual. When consuming the good, the end user will gain knowledge on the price and quality of the product. Any heightened sensitivity to the price or quality of the product will increase rivalry amongst the organizations providing that service as they will face increased pressure to decrease price or increase quality respectively. For some nonprofit sectors, such as healthcare or the arts, this price is generally explicit (e.g., bill for hospital services; membership or entrance fee into the museum or performance event) and the earned revenues received by the nonprofit are often a large portion of their total revenue. In such settings, pricing pressures will likely be analogous to a traditional business setting. Even if a product is heavily discounted or even free to the end user (e.g., foodbanks, soup kitchens, workforce training, etc.), clients experience the quality of the services and can shift their “purchases” to other nonprofits in the area. Preferences of the consumers: Even if price and quality sensitivity remain constant, there may be a changing desire or preference for a particular product. As preferences shift in favor of a nonprofit sector, demand will increase which in turn will generally put upward pressure on the price of the product. Price increases may be explicit through increased sticker prices or implicit through increased wait times. Such increased wait times should always be considered as part of the price as the end consumer clearly incurs opportunity costs for such activities. Increased congestion for a service could work to decrease quality in some circumstances above and beyond the increased opportunity costs. The reverse effects (i.e., lower prices or higher quality) would occur as preferences for a product decline or as the end consumer has greater bargaining power with the nonprofit. Such increased bargaining power can arise due to organizations collectively advocating for their clients or increased public attention is brought to poor quality for a service. In Teresa D. Harrison

general, we can think of increased bargaining power as increasing competitive forces and vice versa. Number of other providers: In general, as there are additional providers for a service/ product, the competitive rivalry in the sector will increase. Many of these effects can be seen through some of the examples given above (i.e., increased pressure for funding with limited funders/donors). One must consider not only the presence of nonprofit but also for-profit providers (e.g., for-profit and nonprofit hospitals). As a general rule, for-profit providers are more likely to be active in a market that depends heavily on fee-for-service or earned revenues. Another element to consider is the strategic behavior of organizations; if indeed more providers increase competitive pressures, then this creates an incentive to restrict the formation of new nonprofits – a practice defined as entry deterrence. In practice, the barriers to entry for most nonprofit sectors is quite low and there is more of a collaborative mindset within the sector in contrast to a corporate setting. However, it is important to consider particular requirements within some sectors and recognize how, intentionally or otherwise, they may limit competition. Medical licenses, regulations, and accreditation standards, while important to ensure the quality of medical services, do restrict entry. As another example, having a robust portfolio of art is a necessary requirement to enter the art museum industry and thus the nature of the capital requirements in the sector serves as a barrier to entry. Again, the idea that we aim to highlight here is not to assume nonprofits are engaging in anticompetitive behavior per se but to encourage those working in the field to consider the infrastructure and nature of market incentives when considering the competitive nature of the industry. Regulatory and policy impacts to competitive pressures: The external environment that a nonprofit operates within is also an important consideration to the competitive landscape. Many regulations and government policies (federal, state, and local) affect at least one of the areas discussed above. A few salient examples, while far from exhaustive, include: regulations related to fundraising and gaming which are administered at the state level, federal and state income tax exemptions, property tax exemptions and their respective variation across states

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and municipalities, and board governance reporting requirements. In addition, while not a direct policy, many nonprofit organizations, especially those operating in social services, complement government services. Thus, there is often a substitutability between the level of public and social services provided by state and local governments and those provided by nonprofit organizations. For a given societal need in a community, lower government provision will on average lead to greater nonprofit provision. Alternatively, the government contracts with the nonprofit to provide many social services and thus greater government support can lead to more nonprofit activity. These complex interactions are an important consideration to the nonprofit competitive landscape and their impacts are not uniform – some policies would work to increase competitive forces while others may mitigate competition.

The future of nonprofit competitive forces

Here we highlight recent changes to the nonprofit landscape that are likely to heighten competitive pressures in the future. Stagnant donations Donations as a percentage of GDP have stayed constant at about 2 percent of GDP over the last few decades. In addition, there is evidence that the rate of growth in the number of nonprofits is increasing at a faster rate than donations. These combined forces may likely imply increased competitive pressures for donation and grant revenue. Higher demands to demonstrate impact for grants and to donors There is increasing pressure on nonprofits to demonstrate the tangible impact of investments made in the organization. This “return on investment” mindset can have benefits but also puts increased demands on the sector. It is also important to note that many nonprofit services have traditionally been provided by nonprofits specifically because the end outcomes are difficult to observe and/or quantify. These pressures may also therefore bring unintended consequences of shifting resources toward sectors where out-

comes are easier to measure. However, there may be misalignment between these sectors and the greatest increases to a community’s well-being. Ratings related to both impact and expenses Related to the above, as demands to demonstrate impact have grown, so too have additional measures to rate or rank nonprofit organizations. Websites such as Charity Navigator serve an important purpose in increasing awareness of nonprofit activity but can also be misused by the public by focusing attention on one or two metrics. Boiling nonprofit missions down to a few metrics can create important targets but it is important to consider whether these targets are appropriate to the nonprofit setting in question. Data and impact analytics will continue to be an important area of policy and academic work and will continue to mature over the coming years. Increased sophistication of operations The nonprofit sector has matured considerably over the last few decades. Some of these changes are an evolution of the sector itself, such as improved governance and management structures, but some have evolved due to the increased use of technology in general. Examples include use of social media for both marketing, fundraising, and event promotion and use of software for backend operations. These innovations have countervailing effects of likely increasing the effectiveness of an organization’s operations and also increasing the needed expertise and skill to perform such operations. How such innovations impact the necessary scale of nonprofits and the needed resources is an evolving issue. Teresa D. Harrison

Related topics

Commercialism Competition Industry analysis Managerialism Performance management Strategic analysis: SWOT Strategic planning

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Further reading and references

Boris, E. T. & Steuerle, C. E. (Eds.). (2006).  Nonprofits & government: Collaboration & conflict. The Urban Institute. Brody, E. (2006). The legal framework for nonprofit organizations. In W. W. Powell & R. Steinberg (Eds.), The nonprofit sector: A research handbook (pp. 243–266). New Haven, CT: Yale University Press. Harrison, T. D. & Irvin, R. A. (2018). Competition and collaboration: When are they good for the nonprofit sector? In B. A. Seaman & D. R. Young (Eds.). Handbook of research on nonprofit economics and management (pp. 118–131). Edward Elgar Publishing. Harrison, T. D. & Thornton, J. (2021). Further evidence on competition in nonprofit donor markets. Nonprofit and Voluntary Sector Quarterly, 51(4), 713–735. https://​doi​.org/​10​ .1177/​08997640211057394 List, J. A. (2011). The market for charitable giving. Journal of Economic Perspectives, 25(2), 157–180. https://​doi​.org/​10​.1257/​jep​.25​ .2​.157

Conversion foundations Definition

A conversion foundation, also known as a “health legacy foundation,” is a charitable organization established from the proceeds of the sale of a nonprofit or for-profit hospital, healthcare system, or health plan, or from a nonprofit healthcare facility converting into a for-profit business. They may be established as private foundations or public charities and must follow the federal regulations for each.

In practice

Conversion foundations are a distinct subset of health-focused philanthropic organizations. These foundations primarily came into existence in the 1990s and into the early twenty-first century, a time in which the sustainability of many not-for-profit hospitals and insurers was increasingly coming into question. Nonprofit hospitals faced shrinking margins as care began to transition from the inpatient setting to outpatient/ambulatory facilities and smaller hospitals had to compete with larger medical centers. At the same time that consolidation within the health industry was proceeding, for-profit health Karen Wolk Feinstein

organizations were expanding and seeking to establish a presence in new markets. With long-term viability in question and sinking revenues, many nonprofit facilities had to choose between closing outright or selling. Many of the hospitals involved in these transactions were faith-based, charitable facilities while, overall, the industry was moving toward secularization. Another wave of conversion foundation emergence resulted from nonprofit insurers across the United States converting to for-profit status. This may or may not involve an outright sale. The past two decades have seen many nonprofit hospitals and insurers being acquired by, or converted to, for-profit corporations. As larger entities sought to capitalize on the declining viability of these smaller, independent facilities, and as the competitive value of consolidations and large “integrated” systems became apparent, the trustees of the nonprofits could salvage the value of the facilities’ assets by agreeing to sell rather than close. However, transactions of this nature come with a legal requirement for the proceeds of the sale to be put toward a charitable endeavor that replicates the mission of the acquired organization (as required by the cy pres doctrine, which dictates that the proceeds from such nonprofit sales serve a mission that aligns closely to the original charity and that proceeds from the sale fairly reflect the value of the asset). The assets are considered “public wealth” and are treated as such by the trustees. Lawsuits have resulted from organizations who do not adhere to cy pres. Another issue of contention involves the valuation of the assets, a process that can involve as much art as mathematics. The valuation of conversion foundations can vary dramatically and does not come without some controversy and legal action, and some have been significantly undervalued upon establishment. Likewise, the size of foundation assets can vary dramatically. A July 2021 report from Grantmakers In Health identified 303 conversion foundations within the United States with a combined value of nearly $40 billion in 2018. The vast majority of these foundations arose from the sale of healthcare facilities or insurance providers. Set up as tax-exempt organizations (501(c)(3) or 501(c)(4)), conversion foundations are governed by boards who serve as

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guardians of the assets generated from the sale, ensuring that the endowment is used in ways that benefit the communities served by the original organization. This is detailed in the bylaws established during the transaction. Conversion foundation boards of directors may include a mix of members with ties to the source organization and representatives from within the community served. Some conversion foundations also include a community advisory board. Oversight of conversion transactions has differed by state and by the size of the foundation. The auspices of the buyer (i.e., nonprofit or for-profit) can also affect the degree of oversight. Some prominent examples of conversion foundations include the following: ● Jewish Healthcare Foundation in Pittsburgh, Pennsylvania, originating from the sale/merger of Montefiore Hospital, a nonprofit hospital serving the Jewish and underserved communities, in 1990, with Presbyterian University Hospital (now UPMC); ● Quantum Foundation in West Palm Beach, Florida, originating from the sale of JFK Medical Center to Columbia/HCA in 1995; ● The California Endowment and California Health Care Foundation, originating from the transfer of Blue Cross of California’s assets to a for-profit subsidiary in 1996; and ● Episcopal Health Foundation in Houston, Texas, emerging from the transfer of St. Luke’s Episcopal Health System to a large, regional, nonprofit health system in 2013. Conversion foundations typically are local, regional, or statewide in focus. (There are rare exceptions of the creation of a national conversion foundation.) Although they vary in their size, scope, and communities served, they are inherently mission driven and deeply connected to their communities or states. They are considered stewards of the community’s health and entrusted with the endowments – viewed as the community’s wealth – to make lasting investments and impact in the communities or states that they serve. These legacy foundations generally perform such functions as grantmaking, consensus building, research, advocacy, and education within health-related areas.

They provide both responsive and strategic grantmaking.

Current issues and challenges facing conversion foundations

Although conversion foundations provide significant support to the regions they serve, they face both unique challenges as well as many of the same issues that confront other foundations and health-related nonprofits. Some of these are outlined here. Communities in the United States are changing rapidly, and the health needs of the residents are also in flux. Conversion foundations, like other foundations, must adapt. Their functions may continue to reflect the values of the foundation’s origin, but they may be broadened over time. Because many operate primarily from the value of their endowments, conversion foundations that are 501(c)(3) nonprofits do not need to compete with other nonprofits for financial resources. While operating from legacy funds may provide a sense of stability for conversion foundations, all must be prudent with allocation of funds to ensure sustainability of assets for perpetuity, if that is what was intended by the founders. Conversion foundations can facilitate partnerships with external organizations, thereby increasing their impact. A considerable number are smaller foundations – based on data from 2015, 36 percent have assets of $50 million or below – and partnerships are essential to achieve their objectives. Conversion foundations often have longstanding connections within the nonprofit, governmental, and healthcare arenas and are respected for their expertise and commitment to their health mission. Like other foundations, the ability to convene experts and to build well-informed governing boards to solve problems is a considerable strength of conversion foundations. Because the financial impact that smaller, community-focused conversion foundations can have on an issue is limited, careful thought and creativity on the part of leadership regarding allocation of resources to priorities where the greatest contribution can be made is required. By virtue of their connections, credibility, partnerships, and commitment to population health, they can make transformational change despite having limited resources. Karen Wolk Feinstein

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Issues surrounding diversity, equity, and inclusion will continue to affect the nonprofit sector, and conversion foundations need to address these factors within their organizations and in their grantmaking endeavors. One way in which this transformational system-level change is achieved is via advocacy, as previously noted. However, conversion foundations who are doing business as private foundations are subject to strict legal restrictions regarding lobbying activities and, thus, must exert caution when attempting to influence change at the governmental level.

The future of conversion foundations

The era of consolidation is not over; mergers and acquisitions within healthcare show no sign of ending anytime soon. Whether this consolidation of health systems and acquisition of smaller facilities leads to increased numbers of conversion foundations remains to be seen. Karen Wolk Feinstein

foundations. www​.gih​.org/​publication/​2021​ -conversion​-foundations​-report/​ Grantmakers in Health. (2021b, July). Update from the field: Results of grantmakers in health’s 2021 review of health care conversion foundations infographic. www​.gih​.org/​publication/​ 2021​-conversion​-foundations​-infographic/​ Kane, N. M. (1997). Some guidelines for managing charitable assets from conversions. Health Affairs 16(2), 229–237. https://​doi​.org/​10​.1377/​ hlthaff​.16​.2​.229 The power of health conversion foundations to transform communities. (2020, July). Jewish Healthcare Foundation. www​.jhf​.org/​news​-blog​ -menu/​entry/​the​-power​-of​-health​-conversion​ -foundations​-to​-transform​-communities

Co-production Definition

The role of citizens in interacting with public service organizations, both in nonprofit and public sectors, has become a major topic of interest to practitioners, policy makers and academics around the world during the past Related topics 20 years. This builds on the interest in citizen Competition participation from the 1960s onwards, and on Dissolution of nonprofit organizations the various subsequent movements and camIndustry analysis paigns, many of them strongly politicized, Mergers and acquisitions to give more voice to disadvantaged groups, Private foundations in order to ensure that a citizen participation led by the more articulate and better-off citFurther reading and references izens did not worsen the inequalities which Bell, C. & Salamon, L. M. (2021). America’s it was often claiming to fight against. More health conversion foundations: A PtP success recently, this interest has crystallized around story. A philanthropication thru privatization a particular form of citizen participation, case study. Johns Hopkins Center for Civil namely co-production. Society Studies. http://​p​-t​-p​.org/​wp​-content/​ There are many competing definitions of uploads/​Health​-Conversion​-Foundations​-Case​ co-production (Brandsen & Honingh, 2016), -Study​_FINAL​_5​.28​.2021​.pdf Conversion foundations: Defining mission and but for the purpose of this entry we will structure. (n.d.). Community Catalyst. www​ define user and community co-production .communitycatalyst​.org/​doc​-store/​publications/​ of public services and outcomes as “public conversion​_foundations​_defining​_mission​_and​ service organizations and citizens making _structure​.pdf better use of each other’s assets, resources Grantmakers in Health. (2019, November). and contributions to achieve better outcomes Making their mark: America’s health conver- or improve efficiency” (Loeffler, 2021, sion foundations. www​.gih​.org/​publication/​ p. 27). making​-their​-mark​-americas​-health​-conversion​ There are a number of important impli-foundations Grantmakers in Health. (2021a, July). Update cations of our definition. First, it is a defifrom the field: Results of grantmakers in nition of co-production by service users and health’s 2021 review of health care conversion community members, not simply by organizations. Some practitioners, policy makers and academics do indeed use the term Tony Bovaird and Elke Loeffler

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“co-production” to describe the interactions of organizations with each other – but we see no need for this approach, since such interactions are already well-captured by the phrases “inter-organizational collaboration” or “organizational partnerships.” Second, it involves contributions by both citizens and public service organizations, which include nonprofit organizations, where these involve both sides making available resources useful to the other party. Consequently, it does not include nonprofit organizations undertaking token consultations with their service users, where the contributions of the latter are insignificant. Nor does it include purely self-help initiatives by citizens, where the contributions of public service organizations are negligible. Co-production is about both parties making significant contributions to get significant results. Third, the results to be achieved by co-production are often seen in terms of improved services – but this is not necessarily the case. Where the interaction between citizens and public service organizations, each making a significant contribution, results in outcome improvements – for example, through behavior change – then this can be counted as effective co-production, even if no formal “services” have been involved. Fourth, the public service organizations involved can be from public, private or third sectors. Although nonprofit organizations are often much closer to service users and to communities than public sector organizations, so that they are often seen as more likely to be successful in co-production, this is a matter of practice, not of definition. There are certainly many bureaucratic, internally oriented nonprofits which do not practice effective co-production with their service users or other community members.

In practice

Co-production, defined in this way, has several domains in which it may play an important role (Bovaird & Loeffler, 2013) and each of these can often be seen in nonprofit organizations: Co-commissioning involves service users and communities in service planning and commissioning decisions, including prioritization decisions about which services, which service users and which service delivery

mechanisms are most important, as well as in procurement of the most appropriate service providers. For these activities, citizens who are representative of the wider community are often desired – although some of the prioritization decisions may be more appropriately made by those citizens who are ‘experts by lived experience’ in the service. This is the form of co-production which tends to be most familiar to senior managers in nonprofits, as they themselves are usually actively involved in commissioning processes. Co-design involves service users and communities in designing services which are better at meeting their needs and improving their outcomes. This is especially likely to benefit from inputs by ‘experts by lived experience.’ Co-delivery involves service users and communities in actions which actually deliver services or outcome improvements. The citizens contributing to co-delivery can come from all sections of the community, not just those who are highly involved in a service, since they can carry out many ancillary activities which help services to be effective, such as back-office tasks. Much volunteering in nonprofits falls into the category of co-delivery – although volunteering which is essentially self-help in the community, with little input from any public or nonprofit organizations, is better labeled “community self-organization” rather than “co-production.” Co-assessment involves service users and communities in evaluating what works, when and for whom, with a view to feeding back this information into the co-commissioning, co-design and co-delivery processes. Again, ‘experts by lived experience’ are especially likely to be valuable here. Of course, it is not essential that nonprofit organizations will engage in each of the four Co’s simultaneously. At any given time, it may be a high priority to involve service users in co-design of more appropriate services (e.g., in redesigning a service website to make it more user friendly), while at others it may be more important to recruit a large number of volunteers in co-delivery to help neighbors who cannot leave their house (e.g., during the COVID-19 pandemic). However, it is important that every nonprofit considers from time to time the balance of its co-production activities across the four Co’s. Tony Bovaird and Elke Loeffler

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This is especially important where senior managers are relatively little involved in the design, delivery and assessment processes, so that their awareness of co-production in these activities is very limited. While three of the four Co’s – co-commissioning, co-design and co-assessment – focus on citizen voice, co-delivery clearly focuses on citizen action (Bovaird et al., 2021). This distinction is very important as the types of people – both citizens and nonprofit staff – who tend to get involved in co-production tends to differ greatly – some prefer to keep to the citizen voice activities and are not necessarily going to actually do anything when it comes to taking action, while others are keen to do things “on the ground” but are very reluctant to spend time in “useless meetings.” While both types of people can be invaluable as co-producers, it may be important to encourage more people to engage in both citizen voice and citizen action activities, as the knowledge from both types of activities is likely to result in cross-fertilization of ideas.

Current issues and the future

There are several current debates in the literature and practice of co-production, the results of which are likely to play an important role in the future direction of user and community co-production of public services (Bovaird et al., 2019). One key issue is how to strengthen the capability of both citizens – service users and community members – and also staff in public service organizations to co-produce. Here, training of both groups is widely seen to be the answer. More fundamental is the issue of how to increase the willingness of both citizens and organizational staff to co-produce. Many citizens may need support, including financial support (e.g., for their travel costs) and incentives (e.g., the social contact that comes from joining peer support groups with other service users) to motivate them to co-produce. Nonprofit staff may have to be convinced about the desirability of sharing power with their service users and volunteers, something which may require a very unwelcome culture change for many staff. To take co-production further, then, it may be desirable to have a co-production charter, agreed by all relevant parties, to which all involved citizens and staff in public Tony Bovaird and Elke Loeffler

service organizations are invited to subscribe, when they agree to co-produce. There are also concerns that co-production may have a “dark side” (Steen et al., 2018). This includes strategic concerns, for example, about the deliberate rejection of responsibility by public organizations (“dumping governmental responsibilities on citizens”) or failing accountability as the boundaries between the responsibilities of citizens and organizations in the public, private and nonprofit sectors become blurred. There are operational concerns about rising transaction costs from bringing in yet another set of stakeholders. Politically, some stakeholders fear that a rebalancing of representative democracy, participative democracy and professional expertise may undermine their role. There is also concern that co-production may reinforce inequalities (e.g., if wealthy and highly educated citizens come to dominate such processes) or lead to illegitimate pressure on citizens (e.g., where people fear they will only get an important service if they agree to co-produce). Finally, there is the potential for co-destruction of public value, for example, where service user input is misused or manipulated by public or nonprofit managers. The extent to which concerns are justified will be one of the key issues in the future evaluation of user and community co-production of public services and outcomes (Bovaird & Loeffler, 2018). Tony Bovaird and Elke Loeffler

Related topics

Accountability Civic agency Civil society Collaboration strategies Millennial generation’s civic engagement Public trust in nonprofit organizations Voluntarism

Further reading and references

Bovaird, T. & Loeffler, E. (2013). We’re all in this together: Harnessing user and community co-production of public outcomes. In C. Staite (Ed.), Making sense of the future: Do we need a new model of public services? (pp. 1–13). INLOGOV. Bovaird, T. & Loeffler, E. (2018). Assessing the effect of co-production on outcomes, service quality and efficiency. In T. Brandsen, B. Verschuere & T. Steen (Eds.), Co-production

C 133 and co-creation: Engaging citizens in public service delivery (pp. 269–280). Routledge. Bovaird, T., Flemig, S., Loeffler, E. & Osborne, S. P. (2019). How far have we come with co-production–and what’s next? Public Money & Management, 39(4), 229–232. https://​ doi​ .org/​10​.1080/​09540962​.2019​.1592903 Bovaird, T., Loeffler, E., Yates, S., Van Ryzin, G. & Alford, J. (2021). International survey evidence on user and community co-delivery of prevention activities relevant to public services and outcomes. Public Management Review, 25(3), 657–679. https://​doi​.org/​10​.1080/​ 14719037​.2021​.1991665 Brandsen, T. & Honingh, M. (2016). Distinguishing different types of coproduction: A conceptual analysis based on the classical definitions. Public Administration Review, 76(3), 427–435. https://​doi​.org/​10​.1111/​puar​.12465 Loeffler, E. (2021). Co-production of public services and outcomes. Palgrave Macmillan. Steen, T., Brandsen, T. & Verschuere, B. (2018). The dark side of co-creation and co-production. In T. Brandsen, T. Steen & B. Verschuere (Eds.), Co-production and co-creation. Engaging citizens in public services (pp. 284–293). Routledge.

Corporate foundations Definitions: Corporate foundations in the United States

To understand corporation foundations in the United States, one must first lay the groundwork for what foundations are, legally, and then situate corporate foundations within that context. In America, the word “foundation” has assumed many meanings over time. A foundation can be an operating entity that runs charitable programs, a fundraising enterprise that seeks public support, a community supported charity offering grantmaking methods and donor services, to private charitable institutions with asset bases whose proceeds fuel charitable grantmaking by families, individuals, or corporations. Thus, a host of activities, from fundraising, to operating charitable or community programs to grantmaking or community engagement, can fall under this category of “foundations.” The term takes on specific legal meaning only when viewed in the context of the

American tax code and regulations governing charitable nonprofit organizations. The Internal Revenue Service (IRS) of the United States categorizes all tax exempt 501(c)(3) nonprofit organizations (see www​ .irs​.gov/​charities​-non​-profits/​charitable​ -organizations/​exemption​-requirements​ -501c3​-organizations) as being one of two types of organizations: either a public charity, or a private foundation. Public charities, by definition, advance charitable missions like education, religious, cultural or other activities. They derive their funding from a range of supporters, including the public, or from public sources like government contracts or grants. Public charities are supported in a marketplace where competition for resources can be significant and therefore, where public scrutiny about effectiveness is thought to be high. In contrast, private foundations (see www​ .irs​.gov/​charities​-non​-profits/​charitable​ -organizations/​private​-foundations) derive their support from a tighter circle of funders, usually one or a few entities, whether a family, an individual, or a corporation. These donors become the descriptors of what type of private foundation an enterprise is. They can be identified as independent, family or corporate foundations. Despite their varying donors, private foundations share a commitment to supporting charitable purposes but can support different missions, geographies or issue areas. They are governed by a board of directors. These directors must ensure adherence to typical nonprofit canons of responsibilities but also must uphold the tighter controls placed on private foundations since 1969 than those governing public charities. Specifically, private foundations must award 5 percent annually of the average value of their assets to charitable purposes. They cannot advocate for legislation or political candidates, must not benefit their founders or disqualified individuals directly or indirectly through foundation grants or investments, and have other limitations on holdings and assets. A corporate foundation is usually a private grantmaking philanthropic organization created and supported by a corporation. There are publicly supported corporate foundations, but this entry details the more typical form of private foundations. As such, it is a separate legal entity from the company creating Kathleen W. Buechel

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it. Despite this separate incorporation, most corporate foundations reflect the culture, community or business interests, or geographic focus of the companies that commissioned them. Corporate foundations exist to provide charitable support to the communities, causes, or nonprofit partners. Corporate foundations must adhere to all of the tax and legal regulations governing private foundations, including the 5 percent payout rule and prohibitions on self-dealing. The reasons for creating them vary, and the benefits follow.

In practice: The benefits of corporate foundations

American companies can qualify for a tax deduction for charitable contributions made directly to nonprofit entities and do not need a separate private foundation to earn this tax advantage. Such funding comes through corporate giving programs. And yet, there are distinct advantages to establishing a corporate foundation. Signaling serious intention and longer-term commitment to charitable and community activities Committing to such a structure and vesting it with assets, whether financial or through staff expertise, sends a message of serious community engagement and a longer-term strategy of philanthropic activity. As private foundations, corporate foundations must pay out 5 percent of their average annual asset value. This signals a predictable level of giving. Having assets ensures a steadier stream of funds for corporate giving, regardless of business conditions. Many companies plan charitable giving in the context of their forecast for profitability and other business or social circumstances. In years of business pressures or economic downturns, many companies cut back charitable giving derived from corporate profits. Having assets dedicated to charitable giving, and a guaranteed draw of 5 percent from those earnings, can bolster corporate charitable gifts when business is not robust. This predictability in funding streams is also a benefit for nonprofit partners and communities who rely on charitable giving from companies. While returns on corporate foundation assets can also fluctuate and affect grantmaking resources, there is a floor, and Kathleen W. Buechel

predictable formulae, that usually continues some giving opportunities despite economic uncertainties. More than money Beyond the financial commitment, most corporate foundations have staff charged with managing their giving or adherence to legal requirements. This expertise can become another resource to the communities and causes the corporate foundation supports. Corporate foundation staffers can develop expertise in business skills or issue areas that can hone grantmaking, sharpen responsiveness, and increase the impact of these charitable dollars. When this staff expertise is empowered to engage other corporate assets in these causes, like employee volunteers, technical expertise within the company, or gifts of equipment, technology, or products, the multiplier effect of the corporate foundation’s investments is significantly higher. In short, company foundations can offer gateways to enhance engagement by the corporation in a community or set of causes. This takes a company’s charitable investment far beyond money. These additional assets may become far more significant in addressing social problems than the financial support alone. Some corporate foundations have adopted principles of impact investing, making below market rate loans, program related investments, and undertaking strategic alliances with intermediary groups and advisors. These strategies can not only extend the resources corporate foundations have available; they can significantly increase the chances for greater effectiveness if the right resources and external expertise and partnerships are undertaken. Burnishing reputation and relationships Maintaining giving over time carries reputational benefits for the company with employees, shareholders, civic and political leaders, community stakeholders, and even with potential opponents. Enhancing the company’s reputation and engendering goodwill are allowable benefits for corporate foundations to accrue, despite self-dealing prohibitions against companies not benefiting directly or indirectly from charitable activities. Increasingly, public perception of how companies contribute to solutions of

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social problems matters in the marketplace. Customers, employees, government officials, and other important stakeholders predicate purchase, employment, or other “approvals” of corporate behavior on whether companies are trustworthy and positive contributors to society. How a company operates, the values it embodies, the care it takes in tending to a host of stakeholder concerns are part of a company’s reputation. These factors, along with community engagement and contributions to society overall, add to triple bottom calibrations of whether a company is a good corporate citizen or a free market pariah. While corporate contributions are one element of these calculi, offering a steadier source of expertise and grantmaking can be a positive asset that corporate foundations can offer.

Current issues and future challenges Regulatory and administrative burden Corporate foundations are more heavily regulated than making direct corporate charitable contributions to nonprofits, which belong to the financial reporting regimes of most companies. Like other private foundations, corporate foundation must file an annual 990PF report, and pay annual excise tax on assets. Compliance with other strictures must be monitored and observed. Payout requirements must be calibrated and met. Some companies have determined that such requirements are an administrative burden they do not want to undertake. In addition, if the U.S.-based corporate foundation wants to credit grants made to nonprofits outside this country in its qualifying distributions for tax purposes, a process of nonprofit equivalency must be undertaken. This process charts a path by which the charitable mission of the international nonprofit is deemed to be equivalent to a public charity within the U.S. Treaties with several countries, exercising expenditure responsibility and intermediary groups who provide such equivalencies, have streamlined this process. However, this transnational burden of certifying charitable and tax structure equivalency complicates cross-border grantmaking from U.S.-based corporate foundations.

Alignment There is a business case for corporate giving, and usually, underpinning the rationale for starting a corporate foundation. Corporate foundations often support issues or partnerships closely tied to the business and community interests of the company that spawned them. Many corporate foundations lean into and leverage the business acumen, networks, industry expertise, and other facets of their sponsoring company. In this way, they reflect the “more than money principles” discussed earlier. While definitions vary, alignment can be seen in various ways. Harnessing industry specific expertise is one dimension of alignment for social impact. Tapping into business products and services to advance the common good is another. An example of both might include technology companies providing technical expertise, equipment, software platforms for NGOs, or ensuring employment training or job opportunities for underserved youth. Using market power or supply chains to benefit communities could be another illustration. This might involve providing free vaccines or medicine below market rates in developing countries. Supporting public health initiatives, enhancing food production or distribution, providing basic civic infrastructure like clean water may be initiatives of alignment undertaken by healthcare, pharmaceutical, food, and logistics leaders in their industries. The concept of shared value, in which company and community interests converge in mutually beneficial and strategic ways, are increasingly being incorporated into corporate foundation and social responsibility programs. To be effective and remain on the right side of the line between shared value and self-dealing, which is prohibited, corporate foundation leaders must continue to ensure independence and overarching public purpose in such initiatives. Not doing so invites legal sanctions or penalties and undermines public trust. Marketing, metrics, and social impact Issues of alignment have led critics to charge that some corporate foundations are little more than veiled marketing entities, driven more by seeking visibility and media attention than by social impact results. Corporate foundations share some of the same challenges of ensuring grantmaking impacts that other private founKathleen W. Buechel

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dations encounter, especially when tackling complex social problems. As more corporate foundations measure the effectiveness of their grants, this gap between good intentions and social impact may lessen. Engaging independent experts, convening cross-sectoral partners, inviting community input, conducting regular stakeholder audits are strategies that can increase the chances that grantmaking is stronger than these charges would indicate. Adopting metrics, tracking and learning from data, adjusting approaches mid-course may help to bolster the corporate foundation’s chances for impact. Publicly reporting results, whatever they are, increases transparency and accountability for both corporate foundations and their sponsoring companies. As more companies adopt reporting systems to track triple bottom line results in their environmental, economic, and social impact, and to the extent that activities by their corporate foundations are included in these calculi, chances for social impact may increase. Kathleen W. Buechel

Related topics

Corporate philanthropy Corporate social responsibility Foundations – History and function Impact investing Internal Revenue Service Private foundations

Corporate philanthropy Definition

Building on the general definition of philanthropy as any private voluntary action for a public purpose, corporate philanthropy can be defined as the voluntary and unconditional (non-reciprocal) transfer of financial or other resources from a private company for public benefit purposes. Today, a specific focus is put on the strategic alignment of corporate philanthropy with business activities. In early definitions, corporate philanthropy is nothing more than a monetary transfer with tax deduction. Later, voluntariness gets into the focus, but there is still relation to the use of corporate resources. Additionally, corporate philanthropy is defined in differentiation to corporate social responsibility (CSR) as a discretionary manifestation that is non-reciprocal. More critically, corporate philanthropy is coined as “last in, first out” in respect to CSR activities, for example, corporate philanthropy is last to be included in corporate spending and first to be eliminated, when times are difficult.

Background

The history of philanthropy is closely connected with economic action. Generally, philanthropy is based on values and an expression of pity and interest in other people not closely connected to the benevolent. Next to this value-driven perspective, philanthropy Further reading and references entails a transaction of resources without Foundation Basics. (n.d.). Council on foundations. a valuable return. Hence, economic success https://​cof​.org/​content/​foundation​-basics​#what​ and abundance are preconditions for a signif_is​_a​_foundation Heitmann, K., Roza, L., Boiardi, P. & Serneels, S. icant role of philanthropy beyond pure altru(2020). The rise of the corporate social inves- ism. Many well-known philanthropists were tor. Stanford Social Innovation Review, 18(3), successful in business prior to their social 42–49. https://​doi​.org/​10​.48558/​89XH​-2K02 engagement. Many early philanthropists had Porter, M. E. & Kramer, M. R. (2018). Creating compiled vast fortunes and society was susshared value: How to reinvent capitalism and picious that charitable contributions by their unleash a wave of innovation and growth. In companies were thinly veiled attempts to G. G. Lenssen & N. C. Smith (Eds.), Managing increase corporate power. When looking at sustainable business (pp. 323–346.) Springer. Private Foundations. (n.d.). IRS. www​ .irs​ .gov/​ the developments in the U.S. for the last 50 years, corporate philanthropy has turned from charities​-non​-profits/​charitable​-organizations/​ a legally banned action to a widely expected, private​-foundations The game changers: Corporate foundations in but still voluntary contribution to social a changing world. (2016). Corporate Citizenship. action. The increasing legal regulation of https://​corporate​-citizenship​.com/​wp​-content/​ CSR has further delineated corporate philanuploads/​The​-Game​-Changers​-Corporate​ thropy from other social and environmental -Foundations​-in​-a​-Changing​-World​.pdf activities of companies that are closely linked to the core business (von Schnurbein et al., Georg von Schnurbein

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2016). For example, in India CSR spending of 2 percent of profits is a legal requirement for large companies and, thus, not voluntary in nature. Ever since, the debate turns around the question of who benefits from corporate philanthropy – the company, the society, or both?

In practice

Corporate philanthropy generally takes on three different forms: corporate giving, corporate volunteering, and corporate foundations. Corporate giving Corporate giving summarizes all forms of direct donations of financial and other resources to public benefit purposes. Especially in multi-national corporations, donations are part of their strategies on community engagement in the local communities of their production sites. In contrast, small and medium-sized enterprises often make donations to their local environment or to causes that are also vital to individual donors, such as social and health services, culture and leisure, and the environment. Nowadays, corporate giving is often linked to other activities such as charity events, matching of employees’ donations, and so on. Corporate giving is distinct from sponsoring which is giving with a service in return, mostly in communication and marketing. Thus, gratitude for corporate philanthropy in terms of printing labels or other forms of promotion for the company is very restricted by law in most countries. Many nonprofits receive cash and in kind donations from companies as an important source of income for their operations. In most cases, companies – as well as their corporate foundations – are segmented and treated as major donors. However, the increasing skepticism about corporate behavior and power relations has led to some retention on both sides. Companies are not willing to donate and get later criticized for their engagement, and nonprofits do not want to be too closely related with companies. As one consequence, some multi-national companies have started to offer a pre-selected number of nonprofits a standard amount as a donation and it is at their decision whether or not to take the money.

Corporate volunteering Corporate volunteering has gained growing attention by both business and academia. In short, it entails all forms of social commitment of employees. Although volunteering is giving of time, corporate volunteering actually means that companies support their employees to volunteer for nonprofit organizations aiming at enhancing the visibility of the companies’ corporate commitment. Thus, the employees are paid for those hours spent on corporate volunteering, and the donation is essentially a supply of temporary skilled labor. In contrast to corporate giving, there is a stronger connection between corporate volunteering and a company’s CSR strategy. Usually, the activities in volunteering are related to tasks at work or are envisioned as team building efforts. According to Foundation Strategy Group, approximately 40 percent of all companies worldwide are engaged in a corporate volunteering program. The forms and strategies of corporate volunteering programs are numerous. Many companies offer a certain number of hours to spend each year on corporate volunteering, others run volunteering programs that include leaves of absence up to one year to support nonprofits in developing countries. Further differentiations are based on project organization, intensity, regularity, or target group. Corporate foundations Corporate foundations, finally, can be defined as “independent legal entity for a public benefit purpose without any direct commercial benefits that is set up, funded, and controlled by a for-profit entity” (Roza et al., 2020, p. 6). Corporate foundations are usually set up to show a long-term commitment for a specific purpose. Thus, the company can outsource all of its corporate giving to the foundation or only a specific part, for example, science funding. The major difference of a corporate to a private foundation is the ongoing relationship with the parent company. Often, corporate foundations do not have an endowment, but receive annual donations from the company. Additionally, the company may cover the administrative expenses of the foundation. Although the foundation is legally separate, it is forever tied to and influenced by the parent company. Georg von Schnurbein

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Important drivers of the foundation’s activities are the alignment with the core business and the closeness of the relationship to the parent company. While less independent foundations may serve more reputational and instrumental causes, foundations with higher degrees of independence are more likely to develop their own impact strategies and may also serve as think tanks for the development of the companies’ industry.

Current and future directions

As mentioned before, corporate philanthropy is a growing field of attention. The further development of corporate philanthropy is not limited to, but will be fueled by the following aspects. First, the trend to increase entanglement of the different forms of corporate philanthropy will continue. Projects with volunteering activities accompanied by corporate donations or included in a programmatic approach of the corporate foundation offer higher chances for impact and help to concentrate the resources for the public benefit purpose. Additionally, the ability to connect stakeholder groups – especially critical ones – through corporate philanthropy activities may increase, for example, workshops organized by the corporate foundation. Second, there is a trend towards more professionalization in the field of corporate philanthropy. While program representatives used to originate from business looking for a quiet job for the final few years of their career, nowadays foundation managers or philanthropy employees often come from the field of nonprofits with a lot of practical experience. Naturally, they are more focused on the public benefit purpose than on the reputation of the company. Additionally, the exchange and networking between corporate philanthropy workers has increased, for example, the C-Summit organized by the European Venture Philanthropy Association (EVPA). As in other fields of philanthropy, the question of impact receives high attention by both business leaders and corporate philanthropy managers. Building theories of change, defining indicators, and evaluations serve as foundations for better decision making and

Georg von Schnurbein

improved knowledge about future potentials. In the context of business transformation and more sustainable business models, corporate philanthropy has become a key element to facilitate the transition of companies according to new expectations such as sustainability, inclusion, diversity, and so on. Georg von Schnurbein

Related topics

Corporate foundations Corporate social responsibility Internal Revenue Service Philanthropy: Definition and history Professionalism Venture philanthropy

Further reading and references

Davis, Keith. 1967. "Understanding the Social Responsibility Puzzle," Business Horizons, June, p. 45. Gautier, A. & Pache, A.-C. (2015). Research on corporate philanthropy: A review and assessment. Journal of Business Ethics, 126(3), 343–369. https://​doi​.org/​10​.1007/​s10551​-013​ -1969​-7 Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798. https://​ doi​.org/​10​.5465/​amr​.2005​.18378878 Grant, A. M. (2012). Giving time, time after time: Work design and sustained employee participation in corporate volunteering. Academy of Management Review, 37(4), 589–615. https://​ doi​.org/​10​.5465/​amr​.2010​.0280 Porter, M. E. & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 80(12), 56–68. https://​hbr​.org/​2002/​12/​the​-competitive​ -advantage​-of​-corporate​-philanthropy Roza, L., Bethmann, S., Meijs, L. & von Schnurbein, G. (Eds). (2020). Handbook on corporate foundations. Springer. von Schnurbein, G., Seele, P. & Lock, I. (2016). Exclusive corporate philanthropy: Rethinking the nexus of CSR and corporate philanthropy. Social Responsibility Journal, 12(2), 280–294. https://​doi​.org/​10​.1108/​srj​-10​-2014​-0149

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Corporate social responsibility Definition

The current formulation of corporate social responsibility (CSR) has been a vital and progressing topic since the 1950s–1960s. Businesses’ attempts to have a constructive impact on society date back hundreds of years, but it has grown in acceptance and importance in the past half century or so, especially in the new millennium. One of the most noteworthy aspects of CSR is how it has gradually been applied to all sizes and sectors of businesses and to nonprofit organizations as well. Interestingly, modern managers in all sectors have sought to employ the most recent nomenclature. Consequently, today many use terms other than CSR to describe their socially conscious initiatives and strategies. Some of the more popular terms today include sustainability, corporate citizenship, business ethics, stakeholder management, and purpose-driven organizations. All these concepts have more in common than their differences and they are interrelated and overlapping in their core meanings and often used interchangeably. We will continue to use the terminology of CSR because it has been and remains the centerpiece of these competing and complementary frameworks (Carroll, 2015).

In practice

To understand how CSR might be applied in nonprofit organizations, it is important to have some sense of the evolving nature of CSR definitions. Howard Bowen (1953) set forth an early definition of CSR in the 1950s as “obligations” of business people “to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.” This represents one of the earliest instances in the post-World War II period when the idea that businesses had some obligation to society beyond making and selling goods and services. It was not until the 1960s that academics started to define CSR and most of the early definitions were generic. Keith Davis (1967, p. 45), who later wrote extensively on this

topic, argued that it refers to business people’s “decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interests.” Countless definitions continued to appear and most of them were rather general, focusing on companies considering the impact of their actions on society, taking actions that protect and improve the welfare of society, and assuming responsibilities that moved beyond economic and legal obligations. In a desire to add more specificity to the CSR notion, this author set forth a definition of CSR that sought to encompass the types or categories of responsibilities organizations had to society, thus yielding the following definition: “The social responsibility of businesses encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time” (Carroll, 1979, p. 500; 2015, p. 88.). Some writers have posited that environmental responsibility ought to be included in the definition. However, environmental responsibility is a realm in which CSR is manifested; thus, in the four-part definition, the environmental responsibility would be embraced primarily in the legal and ethical categories. Often, CSR is thought of as activities in which businesses engage that extend beyond their economic and legal responsibilities. The Carroll definition, however, sought to embrace these fundamentals and add to them some of the expectations society has grown to regard as essentials in the modern era. Taken together, then, they define a broad range of obligations that comprise a more comprehensive representation of what society expects of modern-day organizations. Carroll later decided to depict his four-part definition as a pyramidal framework that is known as the Pyramid of CSR (Carroll, 1991, 2016). To help understand CSR, it is useful to describe each of the five categories of responsibility and see how they applied to businesses, and later, to nonprofit organizations. The purpose of the pyramid was to single out the definitional aspect of CSR and to illustrate the building block nature of the four-part framework. The pyramid was chosen as the geometric design because it is simple, intuitive, and built to withstand the test of time, as have the Egyptian pyramids. Archie B. Carroll

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Economic responsibilities The economic responsibility is situated at the base of the pyramid because it is a foundational expectation of businesses, especially in free enterprise economies, but also in emerging economies. Just as the footings of a house or building must be built solidly to support the entire edifice, sustained profitability and sound economic parameters must be robust to support society’s other expectations of enterprises. From its very origins, businesses were legitimized in society as an economic institution whose purpose was to produce and sell those products and services that society needed and wanted to sustain their lives. An equally important objective is that businesses provide jobs whereby the citizenry is able to build a sustainable life. Thus, the economic responsibility of businesses constitutes the raison d'être of its existence. Mission responsibility But since nonprofit organizations are not designed to be economically or financially motivated as are businesses, how would this central responsibility be articulated as a foundational requirement of nonprofits? One of the basic or primary responsibilities of a nonprofit board of directors is to determine the organization’s mission, purposes, and overall direction. Mission responsibility thus becomes the foundation of the nonprofit’s CSR. Exceptional boards are always engaging in strategic thinking so that they might always be alert to changes in the stakeholder environment that might dictate a change in the organization’s mission. One of the frequent issues with nonprofits is mission drift. It is easy for a nonprofit to lose its sense of direction and thus lose its effectiveness. On a continuing basis, therefore, nonprofit leaders are expected to be knowledgeable about its members and other stakeholders and sensitive to what represents its most accurate purpose. Missions include central goals, objectives, and policies. Allocation of resources is also fundamental. Primary among these decisions is a clear understanding of members, clients, funders, and funding projects. What programs and services should it provide? What are its top-level priorities? What stakeholders are most important and deserve utmost attention?

Archie B. Carroll

Legal responsibilities Society has not only sanctioned businesses as economic entities, but it also has established the basic ground rules under which these organizations are expected to operate. These ground rules include laws and regulations governing the operations and functioning of the organizations. Laws and regulations might be thought of as “codified ethics” because they articulate, embody, and formalize basic ideas of fair and appropriate practices that have been established by national, state, and local law makers. Nonprofit organizations are also expected to be in compliance with all appropriate laws and regulations governing their existence and practice. The legal responsibilities of nonprofits are governed not only by the laws and regulations established by societies’ lawmakers that serve as an overlay on all decisions and activities, but they also include compliance with the organization’s own official guidelines and policies created by the board. Thus, a well-managed nonprofit would have official, written strategies, plans, internal controls, policies, and oversight mechanisms intended to guide the organization and its members. These oversight responsibilities function as internal, legal mechanisms designed to guide practice in a consistent manner. Some of these legal responsibilities might embrace ensuring compliance with the law, approving budgets, reviewing financial reports, and revising bylaws as needed. Ethical responsibilities Ethical responsibilities are placed here in a separate category but in reality, the ethical responsibilities cut through and permeate the other three CSR categories as well. In the present context, they reflect what the organization is expected to do in situations where the law is not clear or where the law has been deemed inadequate due to the passage of time and the fact that laws frequently lag actual practice. In most societies, the legal responsibilities are essential but not sufficient. Ethical responsibilities embrace those activities, standards, policies, and practices that are expected or prohibited by society’s stakeholders even though they have not been codified into law. These ethical responsibilities include the full range of norms, standards, principles, values, and expectations that reflect what

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the organizations’ stakeholders believe are important. They reflect what stakeholders – members, donors, consumers, employees, and the community – regard as actions and decisions that recognize, honor, and respect stakeholders’ rights and expectations. As an overlay to what has been described, the ethical responsibility also should honor and reflect the great, universal principles of moral philosophy including the principles or rights, justice and utilitarianism. Philanthropic responsibilities Corporate philanthropy embraces all forms of business or organizational giving. Though not seen by some as a literal obligation, society today expects businesses and all organizations to be good corporate citizens and to “give back.” The nature, type, and degree of philanthropy is not required or dictated. They are regarded as discretionary or voluntary on the organization’s part. These philanthropic responsibilities are guided primarily by the desire of organizations’ leaders to participate in social activities that are not mandated, not required by law, and generally not expected in an ethical sense, although this is rapidly changing. The basic nature of both profit and nonprofit organizations today is evolving such that expectations of social responsibility are increasing. Companies fulfill their philanthropic responsibilities by engaging in a variety of giving approaches – monetary donations, product and service donations, volunteerism by management and employees, community development and other discretionary contributions to the community or relevant stakeholder groups. Some responsibilities today, such as climate change, are increasingly being expected of all organizations. Although there often is some degree of altruism at work, many organizations today give of their resources as an expected or practical way to demonstrate their good citizenship in their communities. Just as corporations engage in philanthropic activities, nonprofits are expected to do likewise. How the nonprofit engages with its stakeholders in the community is an excellent way in which the nonprofit engages in philanthropy. As an example, take the case of a thrift store run for the purpose of generating income to give away to other needy constituents in their communities.

Current issues and challenges

There are two facets of CSR regarding businesses and nonprofits. One direction in which CSR flows is when companies act in socially responsible ways employing nonprofits as instruments for implementing their initiatives. Nonprofits that specialize in various categories such as health and human services, education, civic and community activities, and culture and the arts facilitate companies targeting these various CSR topics. The second facet regards nonprofits acting in socially responsible ways on their own. Let us consider several examples of businesses using nonprofits to achieve their CSR initiatives. Companies target their CSR initiatives to various nonprofits that they are interested in supporting, often directly or through partnerships with the nonprofits. Uber has a partnership with the nonprofit No Kid Hungry to donate money to hungry children. In one recent year, Uber raised $5 million via this partnership by giving their riders the option to donate $5 to the nonprofit after their ride. LUSH, a beauty products company, started a campaign selling a product they called Charity Pot, which were little containers of lotion that had a picture of a nonprofit on the top and all the profits would go to that nonprofit. This is an innovative way the company has supported hundreds of nonprofits. As a third example, Google engages in CSR by employing a matching gift program in which it matches employee gifts to nonprofits. In addition, Google donates to nonprofit grants, volunteer hours, and products, some of which go to developing countries, disaster relief, and community nonprofits. These are some of the ways in which nonprofits are the recipients of CSR initiatives from the business community. But how can nonprofits be socially responsible in their own operations? Fulfilling its mission with fidelity, complying with all laws and regulations, operating ethically and transparently, and also being a good citizen itself in the community would guide nonprofits along a socially responsible trajectory. Being socially responsible as a nonprofit can embrace a wide range of activities and policies. Some of these pertain to their internal operations and some pertain to external stakeholders. Internally, nonprofits face many of the same challenges as businesses and some Archie B. Carroll

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of these can become controversial in their design and application. Issues nonprofits face internally include discrimination, diversity, and inclusion; employee relations, rights, wellness; conflicts of interests; and compensation rates. Externally, nonprofits are expected to be honest, transparent, and environmentally friendly. Attracting, screening, training, and retaining volunteers requires an enormous amount of attention to legal and ethical considerations. The major challenge of being socially responsible as a nonprofit begins at the governance level. This means the executive director, board, and staff need to design, implement, and monitor where the organization is going with respect to its mission, legal and ethical responsibilities, and engagement with the community. Though many nonprofit boards are dominated by volunteers, they still need to internalize a socially responsible and sustainable organization. Designing and adopting strategic plans and codes of conduct may be needed depending on the size and formality of the nonprofit. This is a lot to ask of volunteer board members but it is essential, nonetheless.

Looking forward to the future

The values and priorities of society and stakeholders have been in significant flux in the past several years. This fluidity will require the board and leadership to more carefully monitor changing social dynamics. Mission creep, as a governance challenge, never goes away and must constantly be monitored in the future. It is so tempting for nonprofits to take donations that are not squarely consistent with its mission. Fundraising, especially as it has been affected by the COVID-19 pandemic, increasingly will affect donor’s priorities. The pandemic may continue to affect scheduled fundraising events. Members and donors are tending to be more vigilant now and in the future. Technology and social media will be a huge issue in the future. Nonprofits tend to lag behind for-profits in the realm of technological innovations and solutions. This will need to change. For example, nonprofits need to be prepared to receive cryptocurrencies. Cybersecurity will be a constant threat as nonprofits engage more deeply with digital technology and more activities will be digitally and social media driven. This will pose enormous challenges in the future and Archie B. Carroll

the challenges will reside in the realms of mission, finances, laws and regulations, and ethics. Effective nonprofit leadership in the future will demand the four Es – excellence, ethics, effectiveness, efficiency – and these are all crucial elements of socially responsible organizations. Archie B. Carroll

Related topics

Accountability Corporate foundations Corporate philanthropy Diversity, equity, and inclusion Regulation of nonprofit organizations Social responsibility of nonprofit organizations

Further reading and references

51 popular companies that donate to nonprofits. (n.d.). Double the Donations. https://​ doublethedonation​.com/​tips/​companies​-that​ -donate​-to​-nonprofits/​ Accessed 16 September 2023. BoardSource. (2005). The source: Twelve principles of governance that power exceptional boards. BoardSource. BoardSource. (2012). The nonprofit board answer book: A practical guide for board members and chief executives (3rd edn.). Jossey Bass. Bowen, H. (1953). Social responsibilities of the businessman. University of Iowa Press. Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4(4), 497–505. https://​doi​.org/​10​.2307/​257850 (2023, September 16) Carroll, A. B. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34(4), 39–48. https://​ doi​ .org/​10​.1016/​0007​-6813(91)90005​-g (2023, September 16) Carroll, A. B. (2015). Corporate social responsibility: The centerpiece of competing and complementary frameworks. Organizational Dynamics, 44(2), 87–96. https://​doi​.org/​10​ .1016/​j​.orgdyn​.2015​.02​.002 (2023, September 16) Carroll, A. B. (2016). Carroll’s pyramid of CSR: Taking another look. International Journal of Corporate Social Responsibility, 1(3), 1–8. https://​doi​.org/​10​.1186/​s40991​-016​-0004​-6 (2023, September 16) Carroll, A. B. & Brown, J. A. (2018). Corporate social responsibility: A review of current concepts, research and issues. In J. Weber & D.

C 143 Wasieleski (Eds.), Corporate social responsibility (pp. 39–69). Emerald Publishing Co. Davis, K. (1967). Understanding the Social Responsibility Puzzle, Business Horizons, 10(1), 45–50. Harrison, V. (2019). “It’s a delicate dance”: Understanding CSR relationships from the nonprofit perspective. Journal of Communication Management, 23(2), 142–158. https://​doi​.org/​ 10​.1108/​jcom​-10​-2018​-0100 (2023, September 16) Lin-Hi, N., Hörisch, J. & Blumberg, I. (2014). Does CSR matter for nonprofit organizations? Testing the link between CSR performance and trustworthiness in the nonprofit versus for-profit domain. VOLUNTAS, 26(5), 1944–1974. https://​doi​.org/​10​.1007/​s11266​ -014​-9506​-6 (2023, September 16) Megan, W. (2015, September 1). 7 surprising and innovative nonprofit and corporate part.globalcitizen​ .org/​ ners. Global Citizen. www​ en/​content/​7​-surprising​-pairs​-of​-nonprofits​-and​ -corporations/​(2023, September 16)

Crisis management Definition

A crisis is a period of intense difficulty or danger, during which a difficult or important decision must be made (Stevenson, 2010a). Organizational theory defines a crisis as a surprising event that threatens the stability of an organization and requires immediate action to prevent or moderate negative consequences. Crisis events emerge because of political, technological, economic, social, criminal, organizational, or environmental events or conditions. In some instances, these conditions may interact to create complex and unforeseen crisis situations that must be managed by a nonprofit organization. Crisis management is the process by which an organization attempts to develop a strategy to deal with the crisis and reduce the negative impacts caused by the crisis event (Stevenson, 2010b). Organizations that fail to manage a crisis event can suffer reputational damage, loss of revenue, and turnover of key leadership and personnel. Additionally, organizations that fail to manage a crisis event can cause physical, psychological, and financial harm to the community or sector in which they operate. Organizations that successfully manage a crisis, however, might

innovate and experience adaptations that may lead to long-term benefits. Crisis types and phases Coombs (2007, p. 167) identifies and describes three types of crisis events. The first type consists of events where the organization is the victim. In such situations, the organization has little, if any, direct responsibility for the occurrence of the event. Examples include natural disasters, unfounded rumors, workplace violence, or product or service tampering. The second type consists of events where an accident has occurred. In such situations, an organization may have some responsibility for the occurrence of the event. As illustrative examples, a stakeholder accuses the organization of operating in an inappropriate manner, a technological failure caused harm to an individual or facility, or a technical failure led to the production or delivery of a defective product or service. The third type consists of events that are preventable, meaning the organization knowingly placed others at risk, took an inappropriate action, or violated the law. Preventable crises are the result of human error, organizational deception, or management or leadership misconduct (Coombs, 2007, p. 167). While crisis events can be classified in other ways, these three categories provide insights into the potential sources of crisis events. The literature also suggests crises events often follow a series of evolutionary stages: the crisis emerges, the crisis becomes problematic, the crisis is managed, the crisis is resolved. Fink (2002, pp. 20–28), for example, argues crisis events evolve according to a cyclical pattern. While not all crises follow this specific sequence, Fink’s cyclical pattern includes four stages. ● Prodromal Stage: This is the warning stage of the crisis, which if detected and properly managed, can enable an organization to resolve the crisis before it expands in size, scope, and complexity. Even if an expansion of a crisis cannot be prevented, early detection can enable an organization to reduce the complications and consequences caused by the crisis. ● Acute Stage: This is the point where the complications and consequences caused by the crisis can no longer be prevented. During this stage, there is no doubt that Thomas W. Haase

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a crisis has occurred. While operating in a rapidly unfolding and uncertain environment, the organization must focus on managing the crisis to prevent or minimize further complications or consequences. ● Chronic Stage: This stage, which may last for an extended period, involves clean-up and recovery. An organization may experience a change in management, financial insolvency, bankruptcy, or even dissolution. The chronic stage may also involve self-reflection, formal investigations, as well as corrective actions and future crisis planning. ● Resolution Stage: This is the point where the crisis ends, meaning an organization has returned to normal operations. During this stage, an organization should be scanning the environment for warning signs of future crisis events. If the organization detects a warning of an emergent crisis, the cycle begins anew with a return to the prodromal stage.

In practice: Crisis management steps

All nonprofit organizations must develop the capacity to manage crisis events. The challenge is that nonprofit leaders and personnel must develop this capacity even though all crisis events will differ in important ways. Despite the importance of these differences, the literature provides insights into how crises can be managed. According to Mitroff et al. (1996), organizations that engage in crisis management activities must navigate five distinct steps. Detection: The organization scans its internal and external environment for signals – or warnings – that a crisis event might occur in the future. If a signal is detected, the organization can evaluate whether it should continue to monitor the signal or take steps to prevent or prepare for the crisis. Prevention or Preparation: The organization prevents the crisis from occurring, for example, by taking corrective action. If the crisis cannot be prevented, the organization can then prepare itself – and others – for the potential negative consequences that may occur if the crisis event materializes. Containment: The organization stops the spread of the crisis and seeks to limit the nature and scope of the damage. Internally, the crisis management team will work to Thomas W. Haase

prevent the crisis from affecting the organization’s other divisions or departments. Externally, the crisis management team will work to prevent the crisis from causing further damage to individuals, organizations, or the community. Recovery: The organization seeks to resume normal operations through the implementation of recovery plans. Recovery strategies can include reducing the size and scope of operations, changing leadership and staff, shifting locations, or paying compensation or restitution to those injured by the crisis. Learning: The organization seeks to learn from its crisis experience, for example, by holding an After-Action-Review (AAR) with key personnel and stakeholders. The AAR should enable the organization to identify the performance area(s) where it operated effectively during a crisis event, the area(s) where problems or constraints were encountered, and the steps that could be taken to prevent future crises or the negative consequences of future crises. Crisis management planning To navigate the five steps of crisis management, nonprofit organizations can develop and implement a crisis management plan. This plan, which should be created after consultations with internal and external stakeholders, documents: ● The nature of potential threats and risks, ● The conditions under which the plan will be activated and terminated, ● The roles and responsibilities of internal and external stakeholders, ● The nature and scope of leadership’s crisis authority, ● The leadership and response frameworks to be followed, ● The tasks to be undertaken by leadership, individuals, and teams, ● The resources that can be deployed, ● The types of information that can be communicated, ● The channels through which information will be communicated, ● The activities that will be taken to facilitate recovery, ● The processes used to develop, maintain, exercise, update, and distribute the plan, ● Relevant appendices, contact information, checklists, and

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● Relevant terminology and acronyms. Crisis communication response strategies Crisis management scholar Coombs (1995) argued that organizations can employ different communication strategies as they navigate a crisis event. These strategies are designed to protect or improve the reputation of the organization by adjusting how others perceive the crisis or the organization’s role in the crisis. It is important to recognize, however, that these strategies do not all involve what some might consider “doing the right thing.” Nonexistence Strategies: Organizations can attempt to eliminate the crisis by suggesting that the crisis does not, or did not, exist. These strategies include: ● Denial: The organization operates as if the crisis does or did not exist. ● Clarification: The organization operates as if the crisis does or did not exist and goes further to explain why the crisis does not exist. ● Attack: The organization operates as if the crisis does or did not exist and confronts the individuals and entities that report the existence of the crisis. ● Intimation: The organization operates as if the crisis does or did not exist and uses its power to change the behavior of the individuals and entities that report the existence of the crisis. Distance Strategies: Organizations can seek to distance themselves from the crisis. These strategies include: ● Excuse: The organization seeks to minimize the organization’s responsibility for the crisis and the negative consequences generated by the crisis. ● Justification: The organization seeks to deny the seriousness of the crisis or shift perceptions about the consequences generated by the crisis. Integration Strategies: Organizations can seek the approval of the public and others during the crisis. These strategies include: ● Bolstering: The organization reminds the public that it has made positive contributions to the community in the past.

● Transcendence: The organization situates the crisis as part of some greater goal or context that is beneficial to the public. ● Praising Others: The organization seeks to win the support of others during the crisis by directing praise toward them. Mortification Strategies: Organizations can seek the public’s forgiveness for, or acceptance of, the crisis. These strategies include: ● Remediation: The organization offers some form of compensation or support to those who were negatively impacted by the crisis. ● Repentance: The organization apologizes for the crisis and asks those who were negatively impacted by the crisis for forgiveness. ● Rectification: The organization takes steps to prevent similar crises and consequences from occurring again in the future. Suffering Strategies: Organizations can adopt a strategy to win sympathy from the public and others. For example, the organization presents itself as a victim of some unscrupulous actor or organization.

Future directions

Nonprofit organizations can expand their capacity to detect and manage crisis events. To support these efforts, nonprofit leadership and personnel should consider crisis management to be an essential dimension of their professional responsibilities. Moving beyond the traditional crisis management planning activities, however, nonprofit organizations should also consider the role that social media plays in the emergence and spread of crisis events. Attention must also be directed toward how nonprofit organizations can use social media to respond to, contain, and recover from a crisis event. More broadly, and reflecting a crisis for the nonprofit sector, nonprofit organizations must also consider how they can navigate an environment shaped by political polarization, the erosion of institutional trust, and an increased demand for their goods and services. Thomas W. Haase

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Related topics

Accountability Governing board: Responsibilities Resilience management Transparency

Crowdfunding Definition of key terms and concepts

Crowdfunding – A method of entrepreneurial resource acquisition that involves the solicitation of potentially large amounts of capital Boin, A., ‘t Hart, P., Stern, E. & Sundelius, B. (2017). The politics of crisis management: from a nearly infinite set of small backers. Platform – The crowdfunding website that Public leadership under pressure. Cambridge provides a portal for entrepreneurs to match University Press. Coombs, W. T. (1995). Choosing the right words: with potential donors. Example platform The development of the guidelines for the types include reward based (e.g., Kickstarter, selection of the “appropriate” crisis-response Indiegogo), equity based (e.g., Wefunder), strategies. Management Communication microcredit (e.g., Kiva), university based Quarterly, 8(4), 447–476. https://​doi​.org/​10​ (UNT crowdfunding), focus on public school .1177/​0893318995008004003 teachers (e.g., Donorschoose), focus on Coombs, W. T. (2007). Protecting organization reputations during a crisis: The devel- various causes relevant to nonprofits (e.g., opment and application of Situational Mightycause, GoFundMe). Campaign – The content presented on Crisis Communication Theory. Corporate Reputation Review, 10(3), 163–176. https://​ the crowdfunding platform on behalf of doi​.org/​10​.1057/​palgrave​.crr​.1550049 a specific project that provides information Coombs, W. T. & Holladay, S. J. (2002). Helping about a desired amount and project goals. crisis managers protect reputational assets. Campaigns generally include a narrative Management Communication Quarterly, describing the particular concept being 16(2), 165–186. https://​doi​.org/​10​.1177/​ funded with a stated goal amount. 089331802237233 Backers – Individuals that provide funding Fink, S. (2002). Crisis management: Planning to a particular crowdfunding campaign. for the inevitable. iUniverse, Inc.

Further reading and references

Mitroff, I. I., Pearson, C. M. & Harrington, L. K. (1996). The essential guide to managing corporate crises: A step-by-step handbook for surviving major catastrophes. Oxford University Press. Pearson, C. M. & Mitroff, I. I. (1993). From crisis prone to crisis prepared: A framework for crisis management. The Executive, 7(1), 48–59. Stevenson, A. (2010a). Crisis. In A. Stevenson (Ed.), Oxford dictionary of English. Oxford University Press. Retrieved 8 Dec. 2022, from www​.oxfordreference​.com/​view/​10​ .1093/​acref/​9780199571123​.001​.0001/​m​_en​ _gb0191250 Stevenson, A. (2010b). Crisis management. In A. Stevenson (Ed.), Oxford dictionary of English. Oxford University Press. Retrieved 8 Dec. 2022, from www​.oxfordreference​.com/​view/​ 10​.1093/​acref/​9780199571123​.001​.0001/​m​ _en​_gb0191260

Jeremy C. Short

In practice

The crowdfunding process involves a number of steps: 1. Platform Selection. A critical first step in the crowdfunding process is the selection of a preferred crowdfunding platform that best matches the goals of the campaign. 2. Campaign Creation. Carefully crafting a crowdfunding narrative that outlines campaign purposes, goals, and outcomes is required before launching a campaign. 3. Campaign Launch. Campaign launch occurs when a campaign becomes live and eligible for backers to financially donate to a campaign. 4. Campaign Conclusion. After a campaign is completed, funds must be distributed. For campaigns with social goals funds are delivered to their designated beneficiary. Rewards-based crowdfunding often involves delivery of a new product as well as particular rewards-based items delivered as a function of the funding amount.

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A number of best practices should be considered for the specific content entrepreneurs should include in their campaigns. For example, successful campaigns generally include a memorable title promoting projects that offer creativity while instilling confidence that campaign goals are attainable. The content and language used in crowdfunding campaigns plays an important role in the likelihood of meeting campaign goals. Language should highlight hopefulness, optimism, and confidence towards the projects. Campaigns should instill confidence without projecting narcissism by making too many personal or grandiose comments regarding the entrepreneur or entrepreneurial team that might detract from the promise of the actual project. Campaigns should seek to build trust by outlining how funds should be spent and by attaining third-party endorsements. Campaigns that include graphics (e.g., pictures and/or videos) are also associated with campaign success. This may be especially helpful when campaign content can harness a potential fear of missing out for would-be backers. Considerable resources exist to encourage and inspire would-be crowdfunders such as blogs and podcasts; potential entrepreneurs are encouraged to examine such resources to ensure their campaign is following state-of-the-art practices (which can change rapidly as platforms develop). In addition to showing a continuous commitment to learning about this unique form of entrepreneurship by digesting such content, crowdfunding campaigns also benefit when founders show engagement by personally backing their own campaigns. Some aspects of crowdfunding are particularly nuanced in the case of social entrepreneurs or in the case of crowdfunding in the realm of nonprofits. For example, giving to social causes (where the investor does not receive a reward) is often a function of creating a positive feeling for backers (dubbed “warm glow”) rather than traditional considerations as an investment decision (e.g., return on investment). As such, successful campaigns portray potential backers as valuable allies to promote social change rather than excessively highlighting the entrepreneurial accomplishments of potentially funded individuals.

In prosocial crowdfunding, male entrepreneurs can benefit from standing out in the crowd by deviating from commonly projected narratives while female entrepreneurs seem to be punished for such actions. Partnering with a reputable microfinance institution (MFI) should also be considered by crowdfunding platforms as the MFI’s reputation has the potential to impact campaign success in relation to social ventures.

Current issues and challenges

Some nonprofits are required to register before soliciting funds via crowdfunding to ensure funds are being gathered for a legitimate beneficiary. For rewards-based crowdfunding, there is always a considerable concern that the campaign will be able to legitimately create the funded concept in the case of high-tech innovations. A classic case is found in the Zano mini-drone campaign that raised over $3 million dollars but only shipped a small number of drones, with shipped drones failing to operate as promised. A more general concern also exists regarding the ability of any campaign to deliver their goods in a reasonable time frame matching expectations of campaign backers. There is also some concern that successful crowdfunding might be a function of gender and race. While crowdfunding overall seems to favor female entrepreneurs, the impact of race may impede funding for minority entrepreneurs using crowdfunding.

The future of crowdfunding

In the wake of the COVID-19 pandemic crowdfunding has proven to be a particularly valuable resource for organizations seeking to keep their operations afloat in response to major changes in routine operations. Recent legislation has made it easier for firms to engage in equity crowdfunding, and other avenues of crowdfunding such as crowdfunding to support franchise growth hold potential as an attractive method to finance organizational growth. The future of crowdfunding is likely to include a proliferation of additional boutique and specialty crowdfunding platforms promoting specialty causes and specific markets. To that end, campaigns are also increasingly being created to align with specific political motivations and concerns. Jeremy C. Short Jeremy C. Short

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Related topics

Campaign: Annual campaign Campaign: Capital Campaign Cause-related marketing Charitable giving ePhilanthropy Fundraising Microfinance Technology and social media

Further reading and references

Allison, T. H., Davis, B. C., Short, J. C. & Webb, J. W. (2015). Crowdfunding in a prosocial microlending environment: Examining the role of intrinsic versus extrinsic cues. Entrepreneurship Theory and Practice, 39(1), 53–73. https://​doi​.org/​10​.1111/​etap​.12108 Allison, T. H., McKenny, A. F. & Short, J. C. (2013). The effect of entrepreneurial rhetoric on microlending investment: An examination of the warm-glow effect. Journal of Business Venturing, 28(6), 690–707. https://​doi​.org/​10​ .1016/​j​.jbusvent​.2013​.01​.003 Anglin, A. H., Short, J. C., Ketchen, D. J., Allison, T. H. & McKenny, A. F. (2019). Third-party signals in crowdfunded microfinance: The role of microfinance institutions. Entrepreneurship Theory and Practice, 44(4), 623–644. https://​ doi​.org/​10​.1177/​1042258719839709 Chandler, J. A., Short, J. C. & Wolfe, M. T. (2021). Finding the crowd after exogenous shocks: Exploring the future of crowdfunding. Journal of Business Venturing Insights, 15(6). https://​doi​.org/​10​.1016/​j​.jbvi​.2021​.e00245 Short, J. C. & Anglin, A. H. (2019). Is leadership language “rewarded” in crowdfunding? Replicating social entrepreneurship research in a rewards-based context. Journal of Business Venturing Insights, 11. https://​doi​.org/​10​.1016/​ j​.jbvi​.2019​.e00121 Short, J. C., Ketchen, D. J., McKenny, A. F., Allison, T. H. & Ireland, R. D. (2016). Research on crowdfunding: Reviewing the (very recent) past and celebrating the present. Entrepreneurship Theory and Practice, 41(2), 149–160. https://​doi​.org/​10​.1111/​etap​.12270 Short, J. C., Wolfe, M. T. & Cooper, D. (2021). Pursuing crowdfunding success: A practical guide and checklist. Business Horizons, 65(1), 1–6. https://​doi​.org/​10​.1016/​j​.bushor​.2021​.08​ .002 Williamson, A. J., Short, J. C. & Wolfe, M. T. (2021). Standing out in crowdfunded microfinance: A topic modeling approach examining campaign distinctiveness and prosocial performance. Journal of Business Venturing Insights, 16. https://​doi​.org/​10​.1016/​j​.jbvi​.2021​.e00261

Joycelyn Ovalle and Ji Ma

Crowding out Definition and context

Do donors withhold their charitable giving to nonprofits when they receive government grants? Crowding out theory suggests “yes.” Altruistic donors may perceive government spending on social services as a substitute for their private donations, theoretically by dollar for dollar (Roberts, 1984; Warr, 1982). As a result, the efficiency of government grants to nonprofits may not be as desired since it may not increase overall support for nonprofits. This theoretical perspective initiated the research line studying the relationship between government expenditures and private giving. However, the magnitude and direction of the crowding out effect are still inconclusive after several decades of empirical studies.

Application of the theory to the nonprofit sector and challenges

Crowding out knowledge serves as a tool for awareness, cautioning nonprofit professionals about revenue inefficiencies that may occur from governmental support. Revenue inefficiencies occur when, for example, a nonprofit only generates 28 cents in private donations for every government dollar it receives (Andreoni & Payne, 2003). Crowding out evidence should not be feared. Instead, this information can propel both nonprofit and government professionals to innovate strategies so that the two primary sources of financial revenues for nonprofits can leverage each other. And while there is no standardized approach to applying the knowledge about crowding out into practice, there are fundamental questions nonprofit professionals need to ask when assessing evidence about the effect. The questions and insights below are a good baseline to understand crowding out effects and possible mitigation strategies. Is the magnitude of the crowding out effect significant? Consensus about the direction and magnitude of the crowding out effect is mixed (de Wit & Bekkers, 2016; Lu, 2016). The issue of unobserved variables prolongs this inconsistency

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because we cannot conclude a causal relationship between the observed fluctuations in both government spending and private giving if analyses do not account for third factors that may affect both (Payne, 2009, p. 163). Several streams of research have been attempting to address this issue. The earliest research line uses archival data and advanced analysis methods of econometrics. These studies generally find that private donations indeed fall when a nonprofit receives government support. But these lower levels of private donations are more explained by decreased fundraising efforts due to governmental support rather than changes in donors’ giving behaviors (Andreoni & Payne, 2003, 2011). Later another stream of research that utilizes experimental methods became popular. In these experimental designs (e.g., survey, laboratory, and online experiments), researchers analyze if donors change their giving or are willing to give when presented with information about government grants in controlled settings. Through different approaches and platforms, for example, social media advertising (Jilke et al., 2018) and experimental giving lab games (Korenok et al., 2014), experimental studies suggest that donors are ultimately indifferent to information about government funding, and still give to the nonprofit of their choice. To obtain a definitive answer to the crowding out effect, a few meta-analyses have attempted to summarize a reliable estimation of the effect from different perspectives. Some conclude that the effect of government spending on private donations is minimal and not practically significant (Lu, 2016). Others highlight methodological differences across different studies, showing that experimental research designs yield higher estimates than nonexperimental studies (de Wit & Bekkers, 2016, p. 309).

In practice Are crowding out effects relevant to my service area? One key dynamic of the crowding out effect is that it does not affect all nonprofits equally. Nonprofits working in some service areas may be more resilient to crowding out than others. For example, crowding out effects are less

evident in art organizations than social services organizations (Lu, 2016). Explanations about why the effects vary by service area are scarce, but we know that donors may redirect philanthropic giving according to their perceived societal challenges. Some nonprofits can even benefit from crowding out effects because donors may not reduce but rather redirect their giving. For instance, governmental support to a nonprofit may prompt donors to redirect their giving to another similar nonprofit, helping sustain focal interventions within a service domain (Ek, 2017). Alternatively, donors may also redirect giving towards marginalized public services – a study of countries with high government support for health and social protection services finds donors redirecting their donations to environmental services, international aid, and the arts (de Wit et al., 2018). Social ties in the nonprofit sector may also impact how nonprofits experience crowding out effects. Nonprofits that are well-connected through board members may experience some redirection of donations from neighboring nonprofits that receive government grants (Ma, 2020). Simply put, crowding out effects are not ionized phenomena, and the funding process is a complex and interactive system. In the crowding out literature, these mechanisms in which donors redirect their giving are commonly referred to as “crosswise crowding” or “substitution of giving.” Research in this realm is a relatively new advancement and a promising direction for further studies. Are there ways my organization can proactively mitigate crowding out effects? Although there is no definitive answer to whether the crowding out effect is substantial, its awareness and implications on revenue are crucial. With this information, nonprofits can prepare mitigation strategies, for example, diversifying revenue sources or robust fundraising efforts, to mitigate the revenue inefficiencies. Nonprofits should also take advantage of government grants. They are not only a substantial source for revenue diversification but also signal a nonprofit’s financial health and encourage more giving – a phenomenon known as the “crowd-in effect” (Grasse et al., 2022; Steinberg, 1991, p. 592). However, solely Joycelyn Ovalle and Ji Ma

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relying on revenue diversification as a mitigation strategy for crowding out may be insufficient because crowding out can happen between different revenue sources, for instance, between different government grants (Zhao & Lu, 2019) or charity spending crowding out government expenditure (Cheng, 2018). These interactions are important for assessing the feasibility of mitigation strategies.

The future

While the consensus on the direction and magnitude of crowding out is weak, scholars have untangled many nuances in the relationship between government expenditures and private donations. A comprehensive discussion on how to handle crowding out effects is beyond the scope of this entry, but the guiding questions and empirical studies presented here are good sources for professionals to assess their organizations’ own risk of crowding out. For researchers, future inquiries about crowding out will continue to rest on robust methodology. There are a few promising directions, especially comparative analyses with emphasis on non-Western cultures, differentiating dynamics between substitution of giving and redirection of giving (Ma, 2020, p. 251), and the relationship between crowding out and revenue diversification. Joycelyn Ovalle and Ji Ma

Related topics

Charitable giving Financing nonprofit organizations Grant Income portfolio analysis Resilience management Revenue diversification

Further reading and references

Andreoni, J. & Payne, A. A. (2003). Do government grants to private charities crowd out giving or fund-raising? American Economic Review, 93(3), 792–812. https://​doi​.org/​10​.1257/​ 000282803322157098 Andreoni, J. & Payne, A. A. (2011). Is crowding out due entirely to fundraising? Evidence from a panel of charities. Journal of Public Economics, 95(5–6), 334–43. https://​doi​.org/​10​.1016/​j​ .jpubeco​.2010​.11​.011 Cheng, Y. (2018). Nonprofit spending and government provision of public services: Testing theories of government–nonprofit relationships. Journal

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of Public Administration Research and Theory, 29(2), 238–254. https://​doi​.org/​10​.1093/​jopart/​ muy054 de Wit, A. & Bekkers, R. (2016). Government support and charitable donations: A meta-analysis of the crowding-out hypothesis. Journal of Public Administration Research and Theory, 29(2), 301–319. https://​doi​.org/​10​.1093/​jopart/​muw044 de Wit, A., Neumayr, M., Handy, F. & Wiepking, P. (2018). Do government expenditures shift private philanthropic donations to particular fields of welfare? Evidence from cross-country data. European Sociological Review, 34(1), 6–21. https://​doi​.org/​10​.1093/​esr/​jcx086 Ek, C. (2017). Some causes are more equal than others? The effect of similarity on substitution in charitable giving. Journal of Economic Behavior & Organization, 136, 45–62. https://​doi​.org/​10​ .1016/​j​.jebo​.2017​.01​.007 Grasse, N. J., Searing, E. A. & Neely, D. G. (2022). Finding your crowd: The role of government level and charity type in revenue crowd-out. Journal of Public Administration Research and Theory, 32(1), 200–216. https://​doi​.org/​10​.1093/​jopart/​ muab019 Jilke, S., Lu, J., Xu, C. & Shinohara, S. (2018). Using large-scale social media experiments in public administration: Assessing charitable consequences of government funding of nonprofits. Journal of Public Administration Research and Theory, 29(4), 627–639. https://​doi​.org/​10​.1093/​ jopart/​muy021 Korenok, O., Millner, E. L. & Razzolini, L. (2014). Taking, giving, and impure altruism in dictator games. Experimental Economics, 17(3), 488–500. https://​doi​.org/​10​.1007/​s10683​-013​-9379​-3 Lu, J. (2016). The philanthropic consequence of government grants to nonprofit organizations. Nonprofit Management and Leadership, 26(4), 381–400. https://​doi​.org/​10​.1002/​nml​.21203 Ma, J. (2020). Funding nonprofits in a networked society: Toward a network framework of government support. Nonprofit Management and Leadership, 31(2), 233–257. https://​doi​.org/​10​ .1002/​nml​.21426 Payne, A. A. (2009). Does government funding change behavior? An empirical analysis of crowd out. In J. R. Brown & J. M. Poterba (Eds.), Tax policy and the economy (vol. 23) (pp. 159–184). University of Chicago Press. Roberts, R. D. (1984). A positive model of private charity and public transfers. Journal of Political Economy, 92(1), 136–148. https://​doi​.org/​10​ .1086/​261212 Steinberg, R. (1991). Does government spending crowd out donations? Annals of Public and Cooperative Economics, 62(4), 591–612. https://​ doi​.org/​10​.1111/​j​.1467​-8292​.1991​.tb01369​.x Warr, P. G. (1982). Pareto optimal redistribution and private charity. Journal of Public Economics,

C 151 19(1), 131–138. https://​doi​.org/​10​.1016/​0047​ -2727(82)90056​-1 Zhao, J. & Lu, J. (2019). The crowding‐out effect within government funding: Implications for within‐source diversification. Nonprofit Management and Leadership, 29(4), 611–622. https://​doi​.org/​10​.1002/​nml​.21351

Cultural competence Definitions

Cultural competence is: Inclusive: It is the respect for, and understanding of diverse ethnic and cultural groups, their histories, traditions, and value systems in the provision and delivery of services (Bush, 2000). Relational: It is the ability of individuals to understand, communicate with, serve, and meet the needs of those who look, think, and behave differently than themselves (Balcazar et al., 2009). Multilevel: It is the ability of organizations and individuals to work effectively in cross-cultural or multicultural interactions (Fernandopulle, 2007). Performance-oriented: It is a set of cultural behaviors and attitudes integrated into the practice methods of a system, agency, or its professionals that enables them to work effectively in cross-cultural situations (Cross et al., 1989). Adaptive: It is having the knowledge, skills, and values to work effectively with diverse populations and to adapt institutional policies and professional practices to meet the unique needs of client populations (Satterwhite & Teng, 2007).

In practice

The idea of cultural competence has deep roots in service fields such as health care and social work and has more recently been applied to public service settings, including government and nonprofit organizations. The growing interest in, and call for, enhanced cultural competence emerges from the broad recognition that change is an essential element of public service. As communities change, public service leaders must be attentive to the evolving needs of citizens and clients. An attention to cultural competence amid such change is expected to

help ensure organizational relevancy and effectiveness (Rice, 2007a). Developing cultural competence rests on both organizational and individual investments (Calzada & Suarez-Balcazar, 2014). At the individual level, there must be knowledge and awareness of the need for cultural competency, opportunities for skill development, and a desire to engage in this development. Organizations must provide the necessary support for these efforts. For example, organizations that wish to build cultural competency must invest in training processes that are attentive to the multidimensional nature of this concept, including culturally competent knowledge, skills, attitudes, and behaviors (Getha-Taylor et al., 2018).

Issues

To date, public service organizations may have considered cultural competence as part of their diversity management programs. However, such programs have often focused on addressing racial, ethnic, and gender discrimination, with less attention on actively welcoming and embracing differences, including those related to language, physical abilities, sexual orientation, age, culture, and perspectives. A more inclusive approach to public service can help ensure that programs and policies are meeting the needs of internal and external communities by better identifying and understanding diverse needs. Embracing cultural competence means that we not only tolerate, accommodate, and incorporate diversity into our workplaces, but we also fully embrace and harness the power of differences (Koliba, 2013). Much of the attention on this topic has focused on how to incorporate the concept of cultural competence into educational tools and pedagogies (Lopez-Littleton & Blessett, 2015). This is a critically important effort since people are not born with cultural competence and current levels can always be developed further. However, while accrediting standards and professional codes of ethics together underscore the importance of valuing diversity and acting in ways that demonstrate justice, fairness, and equity, these guidelines reach only a portion of the public service workforce. A question for those interested in advancing cultural competency is: how best to diffuse these ideas to the public service community more broadly? Heather Getha-Taylor

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Future directions

The contemporary focus on cultural competence reminds us of some of the core values associated with public service work, including the ideas of equality and equity. While equality (or fairness) means that we aspire to treat everyone the same, equity recognizes that some members of our community are marginalized or excluded based on a combination of seen and unseen barriers. Providing equitable public service may require additional supports or resources as needed. A question that emerges from this context is: how best to balance concerns for equal service provision (treating all clients/citizens the same) versus equitable service provision (responding to the unique and differing needs of clients/citizens)? Another important question for this line of inquiry is related to the best way to assess cultural competency in public service settings. Longoria and Rangarajan (2015) offer a relevant model for consideration. Emerging questions are: How best to utilize and integrate such measures into organizational management functions such as recruiting and hiring? And what are the outcomes of those efforts? Related to this point is a broader concern: Can we link organizational performance and cultural competency? Specifically, what is the impact of cultural competence development investments on clients/citizens? Finally, as cultural competency continues to gain additional attention in the public and nonprofit spheres, it is important to note that there is also a need to focus on cultural humility, which reflects our limited understanding of cultural differences (Foronda et al., 2016). Practicing cultural humility requires a commitment to ongoing self-reflection and self-awareness. The extent to which public service organizations and their employees invest in these processes as a part of the pursuit of enhanced cultural competence is an unexplored and valuable area of inquiry. Heather Getha-Taylor

Related topics

Accountability Diversity, equity, and inclusion Effectiveness of nonprofit organizations Social responsibility of nonprofit organizations Strategic human resource management Heather Getha-Taylor

Further reading and references

Balcazar, F. E., Suarez-Balcazar, Y., Taylor-Ritzler, T. & Keys, C. B. (2009). Race, culture and disability: Rehabilitation science and practice. Jones & Bartlett Publishers. Bush, C. T. (2000). Cultural competence: Implications of the surgeon general’s report on mental health Carol T. Bush, Phd, RN. Journal of Child and Adolescent Psychiatric Nursing, 13(4), 177–178. https://​doi​.org/​10​.1111/​j​.1744​ -6171​.2000​.tb00099​.x Calzada, E. & Suarez-Balcazar, Y. (2014). Enhancing cultural competence in social service agencies: A promising approach to serving diverse children and families. Administration for Children & Families. www​.acf​.hhs​.gov/​sites/​ default/​files/​documents/​opre/​brief​_enhancing​ _cultural​_competence​_final​_022114​.pdf Accessed 22 February 2022. Carrizales, T., Zahradnik, A. & Silverio, M. (2016). Organizational advocacy of cultural competency initiatives: Lessons for public administration. Public Administration Quarterly, 40(1), 126–155. http://​www​.jstor​.org/​stable/​24772945 Accessed 22 February 2022. Cross, T., Bazron, B., Dennis, K. & Isaacs, M. (1989). Towards a culturally competent system of care (vol. 1). Seattle Pacific. https://​spu​.edu/​ -/​media/​academics/​school​-of​-education/​Cultural​ -Diversity/​Towards​-a​-Culturally​-Competent​ -System​-of​-Care​-Abridged​.ashx Accessed 22 February 2022. Fernandopulle, A. (2007). A capacity building approach to cultural competency: Improving cultural competency improves organizational effectiveness. In Organizational development and capacity in cultural competence, CompassPoint NonProfit Services, 15–23. www​.compasspoint​ .org/​sites/​default/​files/​documents/​Satterwhite​ _full​.pdf Accessed 22 February 2022. Foronda, C., Baptiste, D.-L., Reinholdt, M. M. & Ousman, K. (2016). Cultural humility. Journal of Transcultural Nursing, 27(3), 210–217. https://​ doi​.org/​10​.1177/​1043659615592677 Getha-Taylor, H., Holmes, M. H. & Moen, J. R. (2018). Evidence-based interventions for cultural competency development within public institutions. Administration & Society, 52(1), 57–80. https://​doi​.org/​10​.1177/​0095399718764332 Koliba, C. (2013). Review of cultural competency for public administrators. Journal of Public Affairs Education, 19(2), 377–379. https://​ doi​ .org/​10​.1080/​15236803​.2013​.12001739 ( Longoria, T. & Rangarajan, N. (2015). Measuring public manager cultural competence: The influence of public service values. Journal of Public Management & Social Policy,  21(1), 24–41. https://​digitalscholarship​.tsu​.edu/​jpmsp/​vol21/​ iss1/​3 Accessed 22 February 2022. Lopez-Littleton, V. & Blessett, B. (2015). A framework for integrating cultural competency into the

C 153 curriculum of public administration programs. Journal of Public Affairs Education, 21(4), 557–574. https://​doi​.org/​10​.1080/​15236803​ .2015​.12002220 Norman-Major, K. A. & Gooden, S. T. (2014). Cultural competency for public administrators. Routledge. Rice, M. F. (2007a). A post‐modern cultural competency framework for public administration and public service delivery. International Journal of Public Sector Management, 20(7), 622–637. https://​doi​.org/​10​.1108/​09513550710823524 Rice, M. F. (2007b). Promoting cultural competency in public administration and public service delivery: Utilizing self-assessment tools and performance measures. Journal of Public Affairs Education, 13(1), 41–57. https://​doi​.org/​10​ .1080/​15236803​.2007​.12001466 Satterwhite, F. J. O & Teng, S. (2007). Culturally-based capacity building: An approach to working in communities of color for social change. In Organizational development and capacity in cultural competence, CompassPoint .compasspoint​ Nonprofit Services, 1–14. www​ .org/​sites/​default/​files/​documents/​Satterwhite​ _full​.pdf Accessed 22 February 2022.

Curricula for nonprofit management in higher education Definitions

The term “nonprofit management and philanthropic studies (NMPS)” refers to individual courses or programs of study, offered by institutions of higher education, that specifically address topics related to nonprofit management, leadership, governance, and philanthropy. Scholars have documented the growth of nonprofit management and philanthropic studies (NMPS) programs over the past 30 years, studying the curriculum contained within (Crowder & Hodgkinson, 1991; Mirabella & Wish, 2001; Mirabella, et al., 2019). The study by Crowder and Hodgkinson in 1991 reported only a handful of courses on philanthropy and the nonprofit sector that were designed to prepare future leaders of these organizations. Since this initial study, the number of courses in nonprofit management and philanthropic studies have grown rapidly and there are now over 2,700 courses

at the graduate level and 837 courses at the undergraduate level in colleges and universities as tracked by Seton Hall University (SHU) (http://​academic​.shu​.edu/​npo/​). These courses are offered collectively by 314 graduate programs and 150 undergraduate programs, which have grown by 145 percent and 129 percent respectively since 1996, the first year SHU began tracking these programs. Colleges and universities also provide continuing education courses and noncredit courses in this subject area, as well as an increasing number of online courses. In sum, over 400 universities deliver 646 programs through all these delivery mechanisms (see Table 5). In the following sections, we discuss the growth of NMPS programs since 1996 and employ a curricular model that categorizes courses by function (Wish & Mirabella, 1998). Inside function courses are concerned with management within the nonprofit organization, including nonprofit management skills; financial management, finance, and accounting; and human resource management in nonprofit organizations. Outside function courses “are concerned with the environment of nonprofit organizations and managing the relationship between them and their external environments” (Wish & Mirabella, 1998, p. 104), including philanthropy and the third sector, advocacy, public policy and community organizing, and fundraising, marketing and public relations. Finally, there are a group of courses that span the boundary between the inside and outside of the organization, referred to as boundary spanning courses, including strategic planning and legal issues.

Undergraduate education in NMPS

In 2022, there were 150 colleges and universities with at least one undergraduate course in nonprofit management. This represents a significant increase from 66 in 1996. An increasing number of these programs offer three or more courses in nonprofit management. There were 26 such undergraduate programs in 1996, increasing to 44 in 2002, to 61 in 2006, to 85 in 2016, and to 107 in 2022. Additionally, the number of universities with a declared undergraduate NMPS concentration increased more than twofold from 44 in 2016 to 90 in 2022 (see Table 6).

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154  Elgar encyclopedia of nonprofit management, leadership and governance Table 5

Universities with nonprofit management and philanthropic studies (NMPS) courses 1996–2016

 

% Increase

1996

2002

2006

2011

2014

2016

2022

66

86

117

136

153

149

150

129%

128

155

161

239

248

249

314

145%

51

72

75

89

93

91

89

75%

39

57

56

74

79

79

75

103%

a

10

17

62

75

82

98

880%b

Number of institutions

179

253

238

265

344

339

401

124%

Number of programs

284

380

426

600

648

651

646

127%

Universities offering NMPS undergraduate courses Universities offering NMPS graduate courses Universities offering NMPS noncredit courses Universities offering NMPS continuing education courses Universities offering NMPS online courses

(1996–2016)

Note: – data not available; – 2002–2016. Source: Mirabella, n.d. a

Table 6

b

Undergraduate nonprofit management education programs by year

 

1996

2002

2006

2016

2022

Universities offering NMPS undergraduate courses

66

86

117

149

150

Universities offering 3+ NMPS courses

26

44

61

85

107

Universities offering declared NMPS concentration

 N/A

N/A 

N/A 

44

90

Source: Mirabella, n.d.

Table 7

Institutional location of undergraduate NMPS programs by year 2022

 

1996 (n=26)

2002 (n=44)

2006 (n=61)

2016 (n=85)

Arts and sciences

35%

30%

38%

31%

30%

Business

23%

11%

10%

13%

14%

Business and public administration

0%

5%

2%

5%

4%

Public affairs and administration

11%

9%

16%

22%

22%

Other

31%

45%

34%

29%

30%

(n=107)

Source: Mirabella, n.d.

The number of universities offering undergraduate NMPS courses has remained relatively constant over the last decade. However, since 2006, there has been a major increase in courses offered across disciplines. During this time, an increasing percentage of courses have been housed in business schools (see Table 7). Following trends observed with NMPS graduate courses in the United States, we have continued to see a substantial increase in the number of inside function courses taught at the undergraduate level, particularly focused on internal skills management. In

2022, a significant plurality (35 percent) of all undergraduate courses taught at universities with NMPS courses were related to internal skills management, including nonprofit management, financial management, accounting, and human resources management. This represented a jump from 273 to 290 courses since 2016. Among the most common titles of undergraduate courses were introductory courses to the field such as “Introduction to Nonprofit Organizations,” “Introduction to Nonprofit Leadership,” “Introduction to the Nonprofit Sector,” and “Managing Nonprofit Organizations.” We also have continued to

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Undergraduate nonprofit management courses taught

 

2016

%

2022

 %

Course % Change

Strategic Planning

15

2%

13

2%

-13%

Philanthropy and the Third Sector

110

15%

135

16%

23%

Fundraising

74

10%

106

13%

43%

Legal Issues

12

2%

14

2%

17%

Internal Management Skills

273

38%

290

35%

6%

Human Resource Management

33

5%

42

5%

27%

Advocacy, Public Policy, and Community Organizing

62

9%

65

8%

5%

Marketing and PR

35

5%

39

5%

11%

Financial Management

70

10%

69

8%

-1%

Entrepreneurship

19

3%

36

4%

89%

Program Planning and Evaluation

23

3%

28

3%

22%

Total

726

 

837

 

 

Source: Mirabella, n.d.

Table 9

Regional location of nonprofit management graduate programs by year 2006, Three

 

1996 (%)

or More Courses (%)

2016, Three

2006, With Concentration (%)

or More Courses (%)

2016, With Concentration (%)

2022, Three or More Courses (%)

2022, with Concentration (%)

Northeast

27

31

30

35

33

36

33

Midwest

39

32

36

26

29

28

28

South

16

17

17

20

21

19

20

West

18

20

17

19

17

17

19

Total (n)

82

126

105

218

160

260

225

Source: Mirabella, n.d.

see significant growth of entrepreneurship courses from 19 to 36 courses in 2022, as courses focused on social entrepreneurship and social enterprise continue to be offered primarily within business schools (see Table 8).

Graduate education in NMPS

A little more than a third of the graduate courses (36 percent) are taught within a college or university in the Northeast, while one-quarter are in colleges or universities in the Midwest, and the West and South have 21 percent and 17 percent respectively. Since 2006, SHU has been keeping track of the number of programs with three or more courses and those offering a concentration since 2006 (Table 9). The Northeast region continues to be the home for the plurality of these universities (about one-third) while the Midwest is home to a little more than one-quarter of the universities in this census. The SHU Census also tracks where within the university the degree concentration is

located (Table 10). As in previous studies, we continue to find over half of all concentrations in either a College of Arts and Sciences or a School of Public Affairs and Administration (23 percent and 22 percent respectively). Social work schools reflect a much higher percentage of all programs than found in 2016. While the majority of social work programs across the country are considered “micro” programs, that is, curriculum to prepare students to work with individuals and families in the community, there is a much smaller, though growing number of programs with a “macro” focus, that is, curriculum that will prepare students to address issues of vulnerable populations on a system level through advocacy, applied research, and leadership. While our previously published censuses did not include macro social work programs without specific courses with titles such as “nonprofit management” or “philanthropy,” for this census we specifically sought out and included social work macro programs offering content with more generic course

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156  Elgar encyclopedia of nonprofit management, leadership and governance Table 10

Institutional location of graduate nonprofit management programs by year 2022,

2016,

1996,

2006,

Three

Three

2006, With

Three

2016, With

Three

2022, With

or More

or More

Concentration

or More

Concentration

or More

Concentration

Courses

Courses

(%)

Courses

(%)

Courses

(%)

(%)

(%)

Arts and sciences

32

26

26

24

28

22

23

Business

6

12

11

15

11

12

10

7

9

10

5

6

3

4

23

21

19

26

28

23

22

15

12

12

10

13

23

26

12

12

12

8

6

4

3

Interdisciplinary

1

6

7

3

3

2

2

Other college or school

4

2

2

8

6

11

10

Total (n)

82

126

105

218

160

271

225

 

Business and public administration Public affairs and administration Social work Graduate or professional school

(%)

(%)

Source: Mirabella, n.d.

Table 11

Graduate degree granted (in percentages)

 

1990 (n=17)

2000 (n=88)

2016 (n=292)

2022 (n=290)

MPA

47

47

41

42

MBA

6

6

10

10

MS

18

10

12

1

MA

N/A

11

10

4

MSW

N/A

17

8

27

Other

29

9

20

16

Source: Mirabella, n.d.

titles such as Social Work Administration and Community Practice or Advanced Seminar in Social Work Administration. While the course titles may be more generic, not specifically using the word nonprofit, we found the content of the courses to be quite similar, focused on educating future leaders of community-based organizations. Macro social work programs such as these are now included in the SHU database and account for the significant increase in the location of these programs from 13 percent in 2016 to 26 percent today. Similarly, the addition of the Macro Social Work programs to the database resulted in a proportional decrease in the percent of graduate degrees granted across the other degrees. The MPA continues as the degree most awarded for a concentration in nonprofit management (42 percent), followed by the MSW (27 percent) and much further behind, the MBA (10 percent). Of the

16 percent that are other types of degrees, there are 41 universities offering a Masters in Nonprofit Organizations or a Masters in Nonprofit Management, with an additional four offering a Masters in Social Enterprise (Table 11). Drawing on Dennis Young’s curricular model, Mirabella and Wish (2001) developed a revised curricular model categorizing courses by three content areas related to outside functions, inside functions, and boundary spanning functions needed for managing nonprofit organizations. A categorization of the over 2,000 courses offered by NMPS graduate programs in the United States shows that more than half of the courses focus on internal management skills, including nonprofit management (736 courses), financial management (245 courses), human resource and volunteer management (90 courses), and program evaluation (142 courses). A third of

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C 157

the courses provide knowledge regarding the outside function of the nonprofit organization, including overview courses on philanthropy and the third sector (115 courses), advocacy, public policy, and community organizing (308 courses), fund development (232 courses), and public relations and marketing (66 courses). A little more than 10 percent of the courses focus on boundary spanning functions, including legal issues (99 courses), strategic planning (29 courses), collaboration (41 courses), and those courses covering “private sector solutions” (123 courses) such as social entrepreneurship, corporate social responsibility, social innovation and impact, and social sector solutions.

The future of NMPS

Scholars have observed the ways in which NMPS programs have been increasingly impacted by neoliberalism, as more institutions embrace social entrepreneurship and social investing, reflective of market practices, while fewer emphasize democracy and community participation. For example, in their review of social entrepreneurship courses in the United States, Mirabella and Eikenberry concluded that “U.S. social enterprise programs reflect largely performative and managerialist values and do not focus on social aspects such as building social capital, increasing participation of the marginalized through community organizing, or boosting political engagement” (2017, p. 744). In effect, the dominant discourse in the NMPS field today shows a turn towards the market and away from democratic participation and citizenship (Eikenberry et al., 2018; Mirabella, et al., 2019; Sandberg, 2016; Sandberg, et al., 2019). As we look to the future of NMPS, we see two different paths forward. The first path would find curriculum continuing to embrace neoliberal logics, incorporating increasing amounts of market-based knowledge and solutions, with these programs and curriculum eventually absorbed, in our opinion, by business schools. The second path will find NMPS turning away from the market, incorporating more content stressing the important values of democracy and citizen participation in civil society. As expressed quite poignantly by Sandberg (2016), the goal is not to eliminate the entre-

preneur as an actor in civil society spaces as creative and novel approaches brought to the table by entrepreneurs are required to craft solutions for the wicked problems of the day, but rather to ensure that entrepreneurial approaches do not crowd out other critical values. This requires a “transition from social entrepreneurship in which economic values describe recipients as consumers to a public entrepreneurship in which beneficiaries are embraced as citizens in full partnership with entrepreneurs” (Mirabella & Eikenberry, 2017, p. 744). The following is a summary of suggested revisions to NMPS programs to move us closer to the goal of reframing nonprofit organizations for democracy, inclusion, and social change (Eikenberry, et al., 2018): ● Employ a “critical pedagogy” for NMPS courses providing students with the knowledge and skills they will need to combat wicked problems by engaging them in “discussions of diversity, inclusion and social justice” in their courses (Mason et al., 2019, p. 406). ● Educate managers for the impossible by reframing authority, creating connections through interdisciplinarity, embracing democratic feminist theories of management, designing collaborative mechanisms for accountability, and embracing praxis (Mirabella, 2013). ● Provide opportunities for student encounters with theories of social movements, political engagement, social change, and “building social capital” (Mirabella & Eikenberry, 2017, p. 744). ● As nonprofit management educators, we can create “possibilities for developing alternative frames through radical democracy, rejecting the corporatization of the university, embracing the faculty role as critical agent, and creating space for students to develop their own agency” (Mirabella & Nguyen, 2019, p. 400). ● Educate students as critical practitioners able to “dig beneath the surface of (often hidden) historically specific, social structures, and processes – such as those related to politics, economics, culture, discourse, gender, and race – to illuminate how they lead to oppression and then to

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158  Elgar encyclopedia of nonprofit management, leadership and governance

also reveal ways to change these structures” (Eikenberry, et al., 2018, p. 2).

Education, 23(2), 729–748. https://​doi​.org/​10​ .1080/​15236803​.2017​.12002281 Mirabella, R. M. & Nguyen, K. (2019). Educating nonprofit students as agents of social transforRoseanne M. Mirabella and Timothy J. mation: Critical public administration as a way Hoffman forward. Administrative Theory & Praxis, 41(4), 388–404. https://​doi​.org/​10​.1080/​ 10841806​.2019​.1643616 Related topics Mirabella, R. M. & Wish, N. B. (2001). Capacity building University-based educational programs in Careers and preparation the management of nonprofit organizations: Professionalism An updated census of U.S. programs. Public Performance & Management Review, 25(1), 30–41. https://​doi​.org/​10​.2307/​3381167 Further reading and references Mirabella, R., Hoffman, T., Teo, T. & McDonald, Crowder, N. L. & Hodgkinson, V. A. M. (2019). Philanthropic studies in the United (1991).  Academic centers and research proStates. Journal of Nonprofit Education and grams focusing on the study of philanthropy, Leadership, 9(1), 63–84. voluntarism, and not-for-profit activity: A pro- Sandberg, B. (2016). Against the cult(ure) of gress report, 1990–1991. Independent Sector. the entrepreneur for the nonprofit sector. Eikenberry, A. E., Mirabella, R. & Sandberg, Administrative Theory & Praxis, 38(1), B. (Eds.). (2018). Reframing nonprofit organ52–67. https://​doi​.org/​10​.1080/​10841806​.2015​ izations: Democracy, inclusion, and social .1130524 change. Melvin & Leigh Publishers. Sandberg, B., Eikenberry, A. M. & Mirabella, Mason, D. P., McDougle, L. & Jones, J. A. R. M. (2019). Symposium on critical perspec(2019). Teaching social justice in nonprofit tives on nongovernmental organizations and management education: A critical pedagogy action: Introduction. Administrative Theory and practical strategies. Administrative Theory & Praxis, 41(3), 195–199. https://​doi​.org/​10​ & Praxis, 41(4), 405–423. https://​doi​.org/​10​ .1080/​10841806​.2019​.1633834 .1080/​10841806​.2019​.1643615 Stivers, C. M. (2002). Bureau men, settlement Mirabella, R. M. (2013). Toward a more perfect women: Constructing public administration in nonprofit. Administrative Theory & Praxis, the progressive era (studies in government & 35(1), 81–105. https://​doi​.org/​10​.2753/​atp1084​ public policy). University Press of Kansas. -1806350106 Wish, N. B. & Mirabella, R. M. (1998). Curricular Mirabella, R. M. (n.d.). Nonprofit management variations in nonprofit management gradueducation. Seton Hall University. http://​ ate programs. Nonprofit Management and academic​.shu​.edu/​npo/​ Leadership, 9(1), 99–110. https://​doi​.org/​10​ Mirabella, R. M. & Eikenberry, A. M. (2017). The .1002/​nml​.9108 missing “social” in social enterprise education in the United States. Journal of Public Affairs

Roseanne M. Mirabella and Timothy J. Hoffman

D

Democracy and philanthropy Definitions

Democracy is a way of governing that depends on the will of the people, which is usually through elected representatives. While there are different types of democracies, they all share common features of equal citizenship and political voice. Democracy emphasizes equal rights and provides citizens the opportunity to participate in processes that generate the rules that govern their interactions. Philanthropy is the practice of giving gifts of time, talent, or money to help those in need. Philanthropic actions and activities come in a wide range of forms and sizes including, but not limited to, individual donations, major gifts, the creation of charitable and private foundations, volunteering, and informal giving circles. Ultimately, philanthropy is about solving social problems through voluntary actions. While philanthropy is often associated with democratic governance, the relationship between philanthropy and democracy is complicated. Some argue that philanthropy is based upon democratic attributes, and more broadly, is an essential component of a healthy democratic society. Others take the opposite position, arguing that philanthropy, depending on its form, can undermine democracy.

Propositions that philanthropy strengthens democracy

Scholars have long made connections between philanthropy and a vibrant civil society, which is a crucial component of a healthy democracy. The foundations for this belief were provided by Alexis de Tocqueville, who commented on the acts of association and volunteerism he witnessed during his

trip throughout the United States. In his book Democracy in America, de Tocqueville (2000) argued that voluntary associations contribute to the effectiveness and stability of democratic governance. The notion that philanthropy has a positive effect on democracy is based upon several connected lines of thought. Reich (2020, p. 67), for example, argues that philanthropy is based upon democratic attributes such as liberty and equality, which can benefit democracy. Additionally, philanthropy also allows individuals, regardless of their background, age, and condition, to exercise freedom of association and to make contributions to society by allocating their private resources to support changes that meet their preferences and needs. Furthermore, like arguments about free market efficiency, civil society driven philanthropy can be effective in addressing social problems due to the donor’s ability to adapt to local conditions, especially when compared to one-size-fits-all government programs (Pevnick, 2016). This means philanthropy helps to overcome government and market failures by addressing the unmet needs of minority populations. Philanthropy also facilitates social innovation and creative problem solving. As individuals make decisions about giving private resources to aid those in need, philanthropic programs overcome political and social divisions and advance social equality. Philanthropic programs also strengthen democracy by promoting democracy as a cause and offering an environment in which their members and participants acquire democratic skills. This happens in two ways. First, philanthropists can support nonprofit organizations that promote democracy as a cause. For example, the Democracy Fund (see https://​democracyfund​.org/​) is a private foundation that supports activities that strengthen democracy in the United States through programs that ensure accessible and fair elections. Second, voluntary associations can be

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schools of democracy that produce citizens ready and able to engage in civic life (Dodge & Ospina, 2016, p. 479). By participating in voluntary associations, citizens receive the opportunity to interact with other members in the community and can engage in the collective decision-making process used to identify the solutions to social issues.

Propositions that philanthropy undermines democracy

There are concerns that philanthropy can widen social inequalities and erode democracy. These concerns can be grouped into three primary arguments. The first argument is that philanthropy can lead to the unequal distribution of resources. Ideally, philanthropy is about the allocation of resources from the affluent to distressed communities. Due to geography and attention biases, however, philanthropic programs often do not meet the needs of the communities most in need. This is because approximately 90 percent of charitable contributions are raised and distributed locally. As affluent communities tend to be more generous than distressed communities, there is a mismatch between social needs and philanthropic resources (Eikenberry, 2009, p. 19). As an illustrative example, Galaskiewicz et al. (2005) found that nonprofit organizations that provided youth services in low-income neighborhoods received more government funding than philanthropic support. Rather than reducing social inequality, such philanthropic resource imbalances might widen social and economic divisions. The second argument is that philanthropy allows a few individuals to impose biased perspectives and desires onto society without accountability. This is because philanthropists, including individual donors and foundations, can engage in giving that affects public policy decisions, political debates, and voting outcomes, while enjoying the benefits of tax-deduction. As Reich (2020) argues, philanthropy is an exercise of power by an individual or foundation who decides when, where, to whom, and how much to give. Philanthropy can also have substantial social, economic, and political impacts, especially when wealthy donors or private foundations devote their assets toward a public purpose. This is especially a concern when a few ultra-rich donors make significant charitable Wenjiun Wang

contributions that have major impacts on public services in communities (Collins & Flannery, 2022). These powerful donors can influence public policy without the scrutiny of the electoral process. The concern is that philanthropy preserves the elite’s control over society, which violates the equal citizenship principle of democracy (Reich, 2020, p. 22). The third argument is that charitable giving can have a negative impact on intergenerational justice. This is because donors can establish a private foundation that institutionalizes philanthropic programs that are committed to finding long-term solutions to social issues. Unlike the government agencies and private corporations, which are under pressure to respond to the short-term expectations of voters and shareholders, philanthropists can create endowments that provide support to communities beyond an individual’s lifetime. For example, the Carnegie and Rockefeller Foundations were established in the early twentieth century and remain influential today. Reich (2020) indicates that philanthropic giving in the form of private foundations can lead to the emergence of institutionalized programs that can exercise powerful influence over future generations. To be fair, charitable private foundations can be an effective way to discover new strategies that lead to sustained social solutions. What is not clear is whether long-lasting philanthropic foundations are implementing cutting edge social innovations to address contemporary issues or if they are narrowly following the desires of the original donors.

Future directions

Although there are concerns about whether philanthropy can hinder democracy, the purpose of such discussions is not to eliminate philanthropy. Rather, the purpose is to recognize that philanthropic giving is an exercise of power that can have a substantial social, economic, or political impact on society. Accordingly, serious consideration should be given to exploring how a liberal democratic state treats an individual’s preference to give away their money or property for a philanthropic purpose. Additionally, specific attention should be given to understanding how mega gifts from wealthy individuals impact both democracy and social inequality.

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Building upon this idea, efforts to facilitate the positive relationship between philanthropy and democracy have been undertaken at the policy and organizational levels. At the policy level, questions are being asked about whether private foundations contribute to positive social change or are used by the wealthy to advance their political agendas without public scrunty. Recognizing that private philanthropic foundations enjoy public subsidized tax benefits, Reich (2020) argues that the role and legitimacy of private foundations in liberal democratic societies must be explored through the lens of social equity. Efforts have also been undertaken to nurture democracy through and within philanthropic and nonprofit organizations. First, resources can be given to philanthropic organizations committed to the strengthening of democracy. For example, according to the framework provided by Candid’s research on Foundation Funding for U.S. Democracy (see https://​democracy​.candid​.org/​) and the Center for High Impact Philanthropy (see https://​www​.impact​.upenn​.edu/​), nonprofit organizations can strengthen democracy by engaging causes that increase civic engagement, reinvigorate local media, provide voter education, and monitor government performance and transparency. Second, nonprofit organizations can serve as a school for democracy by democratizing their internal decision-making processes (King & Griffin, 2019). Similarly, Eikenberry (2009) explores how giving circles provide their members opportunities to experience democratic processes and to incorporate democratic principles into their giving decisions. These lines of scholarship support the notion that philanthropy plays an essential role in democratic societies. We are reminded, however, that the positive relationship between philanthropy and democracy is not guaranteed. Rather, this positive relationship must be nurtured through the efforts of individuals, the state, and private, nonprofit, and philanthropic organizations. Wenjiun Wang

Related topics Charitable giving Civil society Giving circle

Politics and philanthropy Private foundations Tax policy: Federal

Further reading and references

Collins, C., & Flannery, H. (2022). Gilded giving 2022: How wealth inequality distorts philanthropy and imperils democracy. Institute for Policy Studies. https://​ips​-dc​.org/​report​-gilded​ -giving​-2022/​accessed 18 Sep 2023. de Tocqueville, A. (2000). Democracy in America. University of Chicago Press. Dodge, J., & Ospina, S. M. (2016). Nonprofits as “schools of democracy”: A comparative case study of two environmental organizations. Nonprofit and Voluntary Sector Quarterly, 45(3), 478–499. https://​doi​.org/​10​.1177/​ 0899764015584063 Eikenberry, A. M. (2009). Giving circles: Philanthropy, voluntary association, and democracy. Indiana University Press. Galaskiewicz, J., Bielefeld, W., & Dowell, M. (2005). Networks and organizational growth: A study of community based nonprofits. Administrative Science Quarterly, 51(3), 337–380. https://​doi​.org/​10​.2189/​asqu​.51​.3​.337 King, D., & Griffin, M. (2019). Nonprofits as schools for democracy: The justifications for organizational democracy within nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 48(5), 910–930. https://​doi​.org/​10​ .1177/​0899764019837603 Pevnick, R. (2016). Philanthropy and democratic ideals. In C. Cordelli, R. Reich, & L. Bernholz (Eds.),  Philanthropy in democratic societies (pp. 226–243). University of Chicago Press. Reich, R. (2020). Just giving: Why philanthropy is failing democracy and how it can do better. Princeton University Press.

Diaspora philanthropy Definition

Diaspora philanthropy is defined as money, goods, volunteer labor, knowledge and skills, and other assets donated for the social benefit of a community broader than one’s family members, where giving is motivated at least in part by shared ancestry. This aid is targeted toward a country or region where there is a population with whom the donor(s) shares ancestral ties. Recipients of aid may live in the ancestral country or may be migrants or descendants of migrants to other countries. Shawn Teresa Flanigan

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Common use of related terms

In the related literature the terms “diaspora members” or “diasporans” are used to refer both to donors and to recipients of aid even if recipients have never left the ancestral country, so long as some portion of the ancestral group (oftentimes only donors) is dispersed to other locations. Likewise, the term “diaspora philanthropy” often refers to philanthropy targeted toward the ancestral country by individuals with shared ancestry dispersed abroad. These terms rarely if ever are used to describe donors in the ancestral country giving resources to migrants or their descendants living outside the ancestral country. In the extant literature, even those who have never left the ancestral country often are described as part of one larger “diaspora.” Central to both the common usage of these terms and the function of the emotional ties that drive giving is a sense of a people being dispersed or scattered. This is implied by the etymology of the word diaspora, coming from the Greek diaspeirein “disperse,” from dia “across” and speirein “scatter.”

Context

Members of diaspora groups often have deep emotional connections to their ancestral homelands, and to others with shared ancestry living outside their ancestral homeland. Because of these emotional ties, diaspora members are concerned with the difficulties faced by others with shared ancestry around the world. For diaspora members living outside the ancestral country, helping others in the diaspora can be an important way of expressing one’s diaspora membership. Cultural expectations that social needs should be met by the family, clan, or ethnic group can motivate diaspora aid. Giving assistance to fellow diaspora members also can be driven by feelings of responsibility, or sometimes even guilt, because of one’s comparatively greater resources. Focusing on shared ancestry rather than only geography better considers the ambiguous and contested borders that are part of the transnational dimension of diaspora communities, as well as issues of geographic displacement and migration. For example, Syrians in Germany concerned with the Shawn Teresa Flanigan

plight of individuals affected by the Syrian civil war might give to causes within Syria, or to communities of Syrian refugees in Turkey or Greece.

Mechanisms of diaspora philanthropy

Diaspora philanthropy makes up a portion of remittance flows that come from migrants back to many ancestral countries. Remittance is the common term for the money sent by migrants to their family members in their country of origin. Much research focuses on the business impacts of diaspora activity, such as the impact of remittances and private investing on small enterprises. Fewer studies have been conducted on remittances and diaspora philanthropy. Nonetheless the literature on remittances is useful for understanding mechanisms of diaspora philanthropy, though it is difficult to disaggregate what portion of remittances are intended for philanthropic purposes. Family channels and clan relations are important conduits for transmitting resources for diaspora philanthropy, with funds being passed from diaspora members back to the ancestral country or other locales hosting diaspora members through informal networks of family members, friends, and other trusted contacts. These funds often are used for short-term or one-time projects (e.g., building a new school in one’s ancestral village). Longer-term projects or ongoing investments often are facilitated by some type of philanthropic intermediary, such as a registered organization or a slightly more formalized group that can channel aggregated donations toward specific community needs. Examples of philanthropic intermediaries include ethnic and professional groups, neighborhood and regional groups, hometown associations, online giving platforms, faith-based organizations, diaspora foundations, and foreign-based ethnic nongovernmental organizations (NGOs). Philanthropic intermediaries can be especially helpful to middle- and lower-income diaspora members interested in supporting causes in the homeland. A lack of time, resources, and relevant technical abilities poses more barriers to these non-wealthy donors, making it challenging to develop and support complex projects as individuals. However, while philanthropic intermediaries are helpful, most diaspora phi-

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lanthropy is an informal, ad hoc practice that takes place through individuals or loose networks of diaspora members.

In practice

A subset of diaspora philanthropy occurs with the support of philanthropic intermediaries that help funnel assistance from diaspora members to causes in the ancestral country or other locations where populations of fellow diaspora members reside. These types of organizations play an important role in diaspora philanthropy by aggregating and coordinating many, often smaller, donations from a multitude of diaspora donors. Some of these philanthropic intermediaries are formally incorporated as nonprofit organizations or NGOs, sometimes in multiple countries. For example, ethnic and professional groups, neighborhood and regional groups, hometown associations, faith-based organizations, or diaspora foundations may choose to formally incorporate or register as a nonprofit organization or NGO. Some diaspora organizations may be formally registered as nonprofit organizations from the time of their founding. However, a more common process is for informal diaspora groups to begin to recognize the advantages of establishing a formal organization as their efforts grow in scale and sophistication. These advantages may include better access to banking institutions, more successful fundraising due to greater credibility and tax incentives offered to donors in some countries, and more formalized management mechanisms for accounting and human resources. It is not unusual for philanthropic intermediaries to operate in several countries and to be formally registered as a nonprofit organization or NGO in more than one country. For nonprofit organizations and NGOs that serve as philanthropic intermediaries for a diaspora group, many usual tenets of nonprofit management will apply. Dynamics of diaspora philanthropy deserve attention from other types of nonprofit organizations as well, particularly those operating internationally. These nonprofit organizations and NGOs may wish to consider if their mission and activities intersect with diaspora efforts in ways that could enhance fundraising and donor commitment, logistics and operations, and partnerships in local communities.

Current issues and the future of diaspora philanthropy Strengths of diaspora philanthropy Diaspora philanthropy has several strengths to offer, particularly in the fields of humanitarian aid and international development. ● Diaspora donors have high levels of commitment due to deep emotional ties to their fellow diaspora members. Diaspora members’ powerful social and emotional ties may cause them to prioritize projects or communities overlooked by other donors, or difficult to access by other donors. These committed diaspora donors also can be more resilient when faced with obstacles in the field. In fact, during situations when difficult circumstances cause other donors to withdraw (e.g., an escalation in conflict or a public health emergency), diaspora donors may instead become more motivated to provide aid because of their deep personal understanding of the local community’s reliance on that aid. ● Diaspora donors may have greater cultural competence and local knowledge than other types of donors. Diaspora members sometimes better understand local needs and locally effective strategies than non-diaspora donors or professionals in international development. Diaspora members may be familiar with a wider and less traditional array of local organizations and may be better trusted by these potential local partners. Diaspora members often are skillful at establishing potential partners’ trustworthiness due to embeddedness in social networks and better understanding of cultural context. However, greater cultural competence and local knowledge is not a guarantee for diaspora philanthropists. This knowledge can vary widely depending on the length of time (or number of generations) diaspora members have been outside the operational environment, differences in social and economic class among diaspora members, and ethnic, religious, and language differences. ● Diaspora donors’ membership in social networks can enhance accountability. Diaspora members often can use social network ties to determine the trustworShawn Teresa Flanigan

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thiness or reliability of potential partners, and can use these networks to identify resources and logistical pathways that are not always available to other types of donors or development professionals. Additionally, in places where the legal and banking systems are lacking or unreliable, diaspora members may have means of implementing agreements and contracts using reputation within social networks as a reward or sanction. ● Social remittances, or the ideas, behaviors, and social capital that diaspora members “import” to their ancestral country from their countries of residence, can be valuable as well. Some scholars suggest the values brought from new countries of residence may make diaspora organizations more willing than local organizations to address delicate issues that may be taboo in the local context, such as gender equality, human rights, or the use of violence in conflict resolution. Limitations of diaspora philanthropy Despite its advantages, diaspora philanthropy also has its limitations and should not be viewed as a universal remedy in international philanthropic efforts. ● Diaspora aid is not welcome in all ancestral countries since governments may view diasporas as politically threatening. Diaspora philanthropy can be viewed as politically partisan by governments of ancestral countries, and diaspora organizations can be viewed as competing with the local government for legitimacy. Governments of ancestral countries may be particularly uneasy about diaspora groups that act on behalf of minority concerns, depending on the political context. Governments of ancestral countries often will tolerate or even welcome smaller volunteer initiatives, but are more threatened by formal, more professionalized diaspora organizations. Economic migrants often are regarded as less threatening than political or conflict-driven migrants. ● Diaspora philanthropy can pose equity concerns. Diaspora philanthropy often relies on personal networks, and these networks may exclude the most vulnerable communities since the poorest of the poor are less likely to have connections in Shawn Teresa Flanigan

other countries. Diaspora philanthropy is susceptible to philanthropic particularism, meaning a tendency to help the donors’ own ethnic, religious, or geographic group while neglecting (sometimes unintentionally) other needier groups. This can intensify socioeconomic inequality in local communities. ● Diaspora philanthropy is prone to philanthropic amateurism, as the efforts of well-meaning donors often are amateur rather than professionalized. Diaspora donors are highly motivated, but often lack a relevant professional skillset to achieve their philanthropic goals effectively. This amateurism can decrease the effectiveness of humanitarian aid solutions. Because diaspora aid often is ad hoc and voluntary in nature and conducted by individuals whose professional expertise is in another domain, efficacy is highly variable. In addition, the priorities of diaspora donors may not align with the needs or priorities of community members. ● There is a risk of over-reliance on diasporas for humanitarian aid and economic development. Diaspora members may be comparatively wealthier than those in their ancestral country, but new migrants often are grappling with adapting to new, more expensive locations. Ancestral governments may be inclined to decrease their humanitarian efforts in hopes of depending upon diaspora philanthropy and remittances. However, new migrants are not able to support larger-scale aid efforts without help, and diaspora investments alone cannot address major societal problems. ● Diaspora members from conflict zones actively contribute to violent conflict in their ancestral countries in some instances. Though it would be misleading to suggest that diaspora support of conflict is the norm, there is evidence of diaspora aid to armed groups in the form of weapons, personnel, skills, and money in nearly all world regions. In addition, some suggest that diaspora members may be less inclined toward reconciliation than those remaining in the homeland because they are insulated from the daily effects of violence. Nonprofit and government organizations, particularly international aid organizations

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and NGOs, may benefit from partnering with diaspora organizations. Because of their social network ties, diaspora organizations may have more timely information in quickly evolving crisis situations. They may have better access to and information about locations where non-diaspora organizations have fewer contacts. Diaspora organizations have social accountability tools that allow them to assess and access reliable but non-traditional partners, which can enhance the scope and impact of non-diaspora organizations’ efforts. While diaspora organizations may have some advantages that make them nimbler at navigating intricate operational environments, aid organizations must be aware that diaspora organizations also face limitations in their capacity and scope. Diaspora philanthropy is context-specific and can be only one component of comprehensive efforts to address poverty or alleviate conflict. Nonetheless, the future holds important promise for the contributions of diaspora organizations. Innovations in technology such as increasingly widespread internet access and web conferencing technology make talent more mobile, increasing the potential that diaspora members can make meaningful contributions of expertise to more remote locations. Crowdfunding platforms and blockchain technologies may open more opportunities for mobilizing donors and correcting for accountability challenges within fragile banking systems. Additionally, there is ample room for governments that fund relief and development to use policy tools to incentivize giving and improve the capacity of diaspora donors within their own countries through the use of tax incentives, technical support, and education initiatives. Shawn Teresa Flanigan

Related topics

Authoritarian regimes and the nonprofit community Charitable giving Cultural competence Global conflict and philanthropy Grassroots international nonprofit organizations Identity-based philanthropy International aid Place-based philanthropy Refugee services

Further reading and references

Abdel‐Samad, M., & Flanigan, S. T. (2019). Social accountability in diaspora organizations aiding Syrian migrants. International Migration, 57(4), 329–344. https://​doi​.org/​10​.1111/​imig​ .12494 Brinkerhoff, J. M. (2011). David and Goliath: Diaspora organizations as partners in the development industry. Public Administration and Development, 31(1), 37–49. https://​doi​.org/​10​ .1002/​pad​.587 Brinkerhoff, J. M. (2009). Creating an enabling environment for diasporas’ participation in homeland development. International Migration, 50(1), 75–95. https://​doi​.org/​10​ .1111/​j​.1468​-2435​.2009​.00542​.x Espinosa, S. A. (2015). Diaspora philanthropy: The making of a new development aid? Migration doi​ and Development, 5(3), 361–377. https://​ .org/​10​.1080/​21632324​.2015​.1053305 Flanigan, S. T. (2016). Crowdfunding and diaspora philanthropy: An integration of the literature and major concepts. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 28(2), 492–509. https://​doi​.org/​10​.1007/​s11266​-016​-9755​-7 Johnson, P. (2007) Diaspora philanthropy: Influences, initiatives, and issues. The Philanthropic Initiative, Inc., and the Global Equity Initiative, Harvard University. https://​ www​.cbd​.int/​financial/​charity/​usa​-​diasporaph​ ilanthropy​.pdf accessed 14 Sep 2023. Newland, K., Terrazas, A., & Munster, R. (2010). Diaspora philanthropy: Private giving and public policy. Migration Policy Institute. https://​ www​.migrationpolicy​.org/​pubs/​diasporas​ -philanthropy​.pdf accessed 14 Sep 2023.

Digital divide Definition

The digital divide refers to the gap between individuals who have access to the internet and digital communications and those who are left unconnected. Since digital connectivity varies, the digital divide is a spectrum of inequality ranging from those highly connected to those entirely unconnected.

Context

Digital connectivity can range from those well connected with internet inside and outside of the home on multiple devices to those without internet access or a computer. Jaclyn Piatak

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While many people are digitally connected and the internet plays a growing role in society, some are left un- or under-connected without any or equal access to the internet and digital communications. The digital divide raises equity concerns as certain groups, like the elderly, those with lower incomes, those in rural areas, and certain racial and ethnic groups, remain at a disadvantage.

Some people, including some of our most vulnerable, could be left out of the nonprofit sector or could leave their needs unaddressed. Nonprofit organizations should consider who may be included in digital communications and who may be left out to ensure a broad and appropriate range of strategies are used to recruit, fundraise, communicate, serve, and otherwise engage with stakeholders.

In practice

Dimensions of the digital divide The digital divide is a spectrum of inequality. In addition to the gap between those with and without access to the internet, the reliability or consistency of internet access varies. For example, some may have fast, reliable internet while others have slow, spotty connections. In addition, some may have access on a computer while others rely on a mobile device. Consistency may also vary as some may only have access at work or at school or in public locations. Aside from digital access and resources, people have varying levels of technological knowledge and capabilities. These differences may also influence how nonprofits interact and engage with their stakeholders. Volunteer sign-ups online may be great for virtual volunteer opportunities since those are targeted to those already online and the technologically savvy, but they may not be the best way for other groups to get involved.

Nonprofit organizations have turned to the internet to streamline operations, quickly communicate, and enhance organizational capacity. Nonprofit organizations may use the internet to recruit staff and volunteers, fundraise, communicate with stakeholders, and even to provide services.

Current issues and challenges

Despite the benefits of information technology and digital communications, the rise of the internet and social media raises several issues for nonprofit organizations and the nonprofit sector. Certain individuals or groups may be left out The digital divide creates a gap between the haves and have nots when it comes to access to digital communications. Nonprofits should carefully consider who may or may not be reached by using the internet. This should be considered for staff, volunteers, donors, the community served, and all other stakeholders. Many nonprofits provide vital services for those who are unable to purchase goods or services from the for-profit sector and not qualified to receive services from the government sector. For example, a nonprofit serving asylum seekers or the homeless may not be able to communicate with or serve that community online. Nonprofits should also recruit broadly for employee and volunteer positions. Potential volunteers with the most time to give and the most benefits to gain may not know about volunteer opportunities, especially if they are only posted online. In terms of employees, posting a position on a website may be a quick and easy means to advertise, but may not reach those looking for a job at a local unemployment office. Jaclyn Piatak

The digital divide persists at the organizational level The digital divide exists not only at the individual level, where there is a gap between those with access and those without, but also at the organizational level where some organizations are better connected or have greater digital capacity than others. First, nonprofits serving unconnected individuals must operate differently than those serving the digitally connected. Second, nonprofits with greater resources and organizational capacity are better able to engage stakeholders online. With the rise of internet use and social media, nonprofits have enhanced their digital presence through their websites and on social media. However, nonprofit organizations vary in their ability to effectively engage stakeholders. In this sense, the digital divide persists at the organizational level in terms of connectivity and technological capabilities.

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A new and evolving role for nonprofits In the information age, a new role has emerged for nonprofits to serve as an intermediary and trusted source. The rise of polarization and the COVID-19 pandemic show the importance of this role as many people faced difficulty accessing clear, trustworthy information about the disease, vaccines, medical care, and other issues. With a greater presence online and engagement on social media, nonprofit organizations not only serve their direct populations but also serve as an intermediary and trusted source of information for the broader public. Nonprofit organizations should be aware of this role and take care in how organizations and their stakeholders portray themselves and conduct themselves online. Digital service delivery During the COVID-19 pandemic, many organizations pivoted to deliver their services online, such as tutoring services and afterschool programs. Some services can be moved online more easily (or at all) compared to others. However, providing services online is different and raises challenges with establishing trust and comfort, particularly for some services and target populations, such as those with mental health or domestic violence concerns. Providing services and communicating live online blurs the boundary between public and private life for nonprofit employees and volunteers and those served. This raised new issues about the use of virtual backgrounds, whether cameras could be required to be on, mandatory reporting, and other issues when moving the public sphere into people’s private homes. In addition, some face the difficulty of holding private meetings in public, such as at a library or coffee shop, due to the lack of internet access in a private setting. In moving or considering providing services online, nonprofits should account for the needs, capabilities, and preferences of stakeholders in determining what platform and means will best serve their communities.

The future

The digital divide has been a long-standing issue since the rise of the internet, but the COVID-19 pandemic forced nonprofit organizations to shift their operations and in many

cases the manner in which they provide services. For example, many organizations pivoted to employees working remotely from home and some nonprofits changed the way they delivered services to serve their communities online rather than in-person. The pandemic necessitated these changes but some lessons may be carried forward. First, online events and communication can reach a broader array of people. During the pandemic, some nonprofits were able to reach new individuals or re-engage with people who may have moved outside of the community since digital communication is not location bound. Given the new role of nonprofits as trustworthy intermediaries, nonprofits can play that role broadly across the globe. Second, with employees and volunteers working remotely, some nonprofits moved entire operations online. The pandemic shifting operations to remote work showed some nonprofits that it was possible to run their organization and programs remotely without the additional overhead costs of physical space. Nonprofits can provide resources for employees working remotely to be able to work from home. This opens the employment pool as the organization is no longer tied to a single location. However, some nonprofits that made this shift are already discussing having a small space for meetings and other gatherings. Nonprofit employment is evolving and it will be interesting what the future brings in terms of fully remote work and more flexible work arrangements. However, these both come with the caveat that not all nonprofits have equal resources and capacity to effectively engage with stakeholders or move operations online, nor do individuals have equal capability or access to digital communications. Hopefully nonprofits continue to engage with stakeholders on and offline and do their part to bridge the digital divide. Jaclyn Piatak

Related topics

Crowdfunding ePhilanthropy Fundraising Innovation in nonprofit organizations Marketing Recruitment and retention Jaclyn Piatak

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Stakeholder management Technology and social media Volunteer management Wealth inequality

routine actions that sustain its structure, maintain flows of resources, and retain the allegiance of its members” (Freeman et al., 1983, p. 694).

Further reading and references

In practice

Campbell, D. A., & Lambright, K. T. (2019). Are you out there? Internet presence of nonprofit human service organizations. Nonprofit and Voluntary Sector Quarterly, 48(6), 1296–1311. https://​doi​.org/​10​.1177/​0899764019852673 Carboni, J. L., & Maxwell, S. P. (2015). Effective social media engagement for nonprofits: What matters? Journal of Public and Nonprofit Affairs, 1(1), 18–28. https://​doi​.org/​10​.20899/​ jpna​.1​.1​.18​-28 Guo, C., & Saxton, G. D. (2018). Speaking and being heard: How nonprofit advocacy organizations gain attention on social media. Nonprofit and Voluntary Sector Quarterly, 47(1), 5–26. https://​doi​.org/​10​.1177/​0899764017713724 McMullin, C. (2021). Migrant integration services and coping with the digital divide: Challenges and opportunities of the COVID-19 pandemic. Voluntary Sector Review, 12(1), 129–136. https://​doi​.org/​10​.1332/​2040​80520x1607​ 6177287917 Piatak, J., & Mikkelsen, I. (2021). Does social media engagement translate to civic engagement offline? Nonprofit and Voluntary Sector Quarterly, 50(5), 1079–1101. https://​doi​.org/​10​ .1177/​0899764021999444 Piatak, J., Dietz, N., & McKeever, B. (2019). Bridging or deepening the digital divide: Influence of household internet access on formal and informal volunteering. Nonprofit and Voluntary Sector Quarterly, 48(2_ suppl), 123S–150S. https://​doi​.org/​10​.1177/​ 0899764018794907 Schneider, J. A. (2003). Small, minority-based nonprofits in the information age. Nonprofit Management and Leadership, 13(4), 383–399. https://​doi​.org/​10​.1002/​nml​.6 Te’eni, D., & Young, D. R. (2003). The changing role of nonprofits in the network economy. Nonprofit and Voluntary Sector Quarterly, 32(3), 397–414. https://​doi​.org/​10​.1177/​ 0899764003254900

Dissolution of nonprofit organizations Definition

Nonprofit dissolution occurs when a nonprofit organization “ceases to carry out the Jiahuan Lu

From a life-cycle perspective, organizations tend to evolve from birth to growth to decline. Nonprofit organizations are no exception. Over the past several decades, although the nonprofit sector has experienced unprecedented growth in various regions and countries all over the world, scholars have also noted the dissolution of many nonprofits. For example, Nunnenkamp et al. (2013) found that 293 U.S.-based international development nonprofits dissolved from 1984 to 2005. Garrow (2015) noted that approximately 14 percent of human-service nonprofits in Los Angeles County were disbanded between 2002 and 2011. Bouchard and Rousselière (2016) documented that approximately 7.6 percent of social-economy organizations dissolved in Montreal from 2007 to 2012. The regulations and steps of nonprofit dissolution may vary by country. In the United States, nonprofit dissolution is governed by state laws and thus each state may have its own procedures. However, logistically, dissolving a nonprofit requires several general steps. For example, when a nonprofit decides to terminate its operation, it will need to prepare a plan of dissolution, detailing the dissolution process. The plan should identify all the dissolving nonprofit’s assets and liabilities and describe how the liabilities will be satisfied, which nonprofits will receive the remaining assets, and the fair market value of those assets. The dissolving nonprofit’s board of directors needs to vote to dissolve the organization, approve the dissolution plan, and ensure accountability throughout the dissolution process. The dissolving nonprofit will notify the state of incorporation of its plan to dissolve and file the dissolution documents with the state attorney general or other appropriate state agencies. The dissolving nonprofit should also notify the Internal Revenue Service (IRS) by filing a final annual report to close its account in IRS records. Nonprofit dissolutions can cause a series of consequences for the dissolved organizations themselves, the clients they serve, and the communities they support. Studying nonprofits’ termination of function is thus important

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to both research and practice. Fundamentally, survival is the critical prerequisite for nonprofit growth and success. For nonprofit leaders, a robust knowledge of nonprofit dissolution could help them develop sensitivity to the risks of dissolution and formulate strategies to promote organizational longevity. For communities at large, research on this topic could help them understand the impacts of nonprofit dissolution, as nonprofits play a wide range of social, economic, and political functions in communities.

Current issues and research

The research on nonprofit dissolution started in the 1990s, although related research can be traced back even further. Within this small but growing body of literature, two themes emerge. Measures of dissolution Although nonprofit dissolution refers to a nonprofit’s complete termination, this definition brings challenges of conceptualization and operationalization for empirical studies. In the literature, “dissolution” is often used interchangeably with “demise” and “failure” (Helmig et al., 2014). However, there are some circumstances in which the terms are not synonymous. Nonprofits can terminate their operations for different reasons. For example, some nonprofits dissolve because they cannot sustain their operations due to poor management. This kind of dissolution can also be described as a demise or failure. However, nonprofits can also dissolve because they have successfully accomplished their missions, which is just the opposite of failure. Without teasing out the reasons for dissolution, empirical studies could be biased. Unfortunately, our existing knowledge of the topic is rather limited. Hager et al. (1996) interviewed dissolved nonprofits in the Minneapolis-St. Paul metropolitan area in the 1980s. Among the 74 dissolved nonprofits they studied, approximately half of them (39) closed, four merged with or were acquired by other nonprofits, four became or merged with for-profit organizations, and seven were reorganized into new organizations. Fernandez (2008) used archives and interviews to study 41 closed Spanish voluntary associations in the Madrid area and found that 16 of them

dissolved because of mission completion. It should be noted that both studies relied on small samples and thus their generalizability to larger populations is unknown. Despite that, these studies do indicate the complexity underlying nonprofit dissolution. Another challenge in studying nonprofit dissolution relates to the operationalization of dissolution. This challenge could be more severe for large-N studies in which in-depth interviews with dissolved nonprofits are largely impossible. Indeed, previous large-N studies identify dissolved nonprofits differently. For example, Walker and McCarthy (2010) relied on the availability of a nonprofit’s public information (e.g., Form 990 information and the organization’s website) to judge its survival status. Nunnenkamp et al. (2013) considered dissolved nonprofits as previously active nonprofits no longer appearing in a longitudinal dataset. Lu et al. (2020) flagged dissolved nonprofits when nonprofits failed to file annual returns or notices with the IRS for three consecutive years and had their tax-exempt status automatically revoked. Arguably, all these operationalizations may contain measurement errors. For example, researchers’ inability to locate active nonprofits could be due to such factors as organization name changes, the absence of organization websites, and a lack of contact information. However, based on the existing literature, we cannot determine whether and to what extent these operationalizations are biased. Causes of dissolution The majority of the existing literature on nonprofit dissolution focuses on the causes of dissolution. This body of literature pays close attention to nonprofits’ internal components, including organizational characteristics and financial strategies. In terms of organizational characteristics, the liabilities of smallness and newness – small and young organizations are more likely to dissolve than bigger and older ones – have been widely tested and accepted (Freeman et al., 1983). In addition, existing research also examines other organizational characteristics such as formalization and professionalization. For example, Bouchard and Rousselière (2016) found that nonprofits relying more on full-time employees and less on volunteers enjoyed better survival prospects. Jiahuan Lu

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On the financial side, how nonprofits’ revenue composition and strategy shape their likelihood of dissolution has received much attention. Given that each revenue source brings unique benefits and risks, the influence of revenue sources on nonprofits’ survival chances is a topic worth investigating. For example, government funding is largely predictable and its accountability mechanisms could improve nonprofits’ operations, which would exert a favorable effect on nonprofits’ longevity. Hager et al. (2004) and Nunnenkamp et al. (2013) found that government funding could increase nonprofits’ chances of survival. Moreover, commercial income improves nonprofits’ efficiency and financial sufficiency, but it also promotes mission drift and loss of legitimacy. Gras and Mendoza-Abarca (2014) found an interesting U-shaped relationship between commercial income and nonprofit dissolution among Canadian nonprofits: low to moderate levels of commercial income decreased the likelihood of dissolution, whereas high levels of commercial income increased this likelihood. In addition to the effects of a single revenue source, the impact of revenue diversification is also a matter for discussion. Revenue diversification can stabilize financial conditions by reducing financial vulnerability and volatility, but it can undermine financial capacity and revenue growth due to the complexity of managing diverse revenue streams (Lu et al., 2019). Existing studies tend to suggest a favorable effect. For example, Bouchard and Rousselière (2016) reported that Canadian social economy enterprises combining multiple revenue sources had greater chances of survival than those relying on a single income stream. From an open-system perspective, an organization’s survival prospects are shaped not only by internal factors but by external factors. In fact, nonprofits are often community based and locally operated. Thus, the community environment presents significant opportunities for as well as constraints on nonprofit operations. Unfortunately, the effect of the external environment on nonprofits’ survival prospects has received relatively little attention. Only a small number of studies have examined the environmental antecedents of nonprofit dissolution, and they mostly focus on nonprofits’ resource envi-

Jiahuan Lu

ronment. A consensus among these studies is that nonprofits have a higher likelihood of dissolving if they operate in an environment with fewer resources and/or more competition (Lu et al., 2020). In addition, many other aspects of the external environment, such as socioeconomic factors and political dynamics, have received less attention. For example, Garrow (2015) and Lee (2017) investigated how neighborhood characteristics affect the longevity of human-service nonprofits in Los Angeles County and New York State, respectively. They found that nonprofits were more likely to dissolve in the communities with higher percentages of Blacks and Latinos. Moreover, Baum and Oliver (1991) explored the impact of institutional linkages on the mortality of childcare centers in metropolitan Toronto, Canada. The study found that organizations with linkages to government regulators showed a significant survival advantage.

Future directions

A review of the existing literature on nonprofit dissolution suggests several areas for future research. First, the challenges of conceptualizing and operationalizing dissolution remain critical, as they lay the foundation for empirical studies. Second, given the small amount of existing literature, more research is needed to verify the findings from previous studies. Third, for a broader understanding of the causes of dissolution, new research should consider additional factors that are internal and external to nonprofits. Fourth, given the various roles nonprofits play in communities, the effects of nonprofit dissolution on the communities they serve would be an interesting line of inquiry. Jiahuan Lu

Related topics

Articles of incorporation Commercialism Conversion foundations Forming a nonprofit organization Governing board: Responsibilities Lifecycles of nonprofit organizations Limited life foundations Mergers and acquisitions Resilience management

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Further reading and references

Baum, J. A., & Oliver, C. (1991). Institutional linkages and organizational mortality. Administrative Science Quarterly, 36(2), 187–218. https://​doi​.org/​10​.2307/​2393353 Bouchard, M. J., & Rousselière, D. (2016). Do hybrid organizational forms of the social economy have a greater chance of surviving? An examination of the case of Montreal. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 27(4), 1894–1922. https://​doi​.org/​10​.1007/​s11266​ -015​-9664​-1 Fernandez, J. J. (2008). Causes of dissolution among Spanish nonprofit associations. Nonprofit and Voluntary Sector Quarterly, 37(1), 113–137. https://​doi​.org/​10​.1177/​ 0899764006298965 Freeman, J., Carroll, G. R., & Hannan, M. T. (1983). The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48(5), 692–710. https://​ doi​.org/​10​.2307/​2094928 Garrow, E. E. (2015). Racial and ethnic composition of the neighborhood and the disbanding of nonprofit human service organizations. Du Bois Review: Social Science Research on Race, 12(1), 161–185. https://​doi​.org/​10​.1017/​ s1742058x14000277 Gras, D., & Mendoza-Abarca, K. I. (2014). Risky business? The survival implications of exploiting commercial opportunities by nonprofits. Journal of Business Venturing, 29(3), 392–404. https://​doi​.org/​10​.1016/​j​.jbusvent​.2013​.05​.003 Hager, M. A., Galaskiewicz, J., & Larson, J. A. (2004). Structural embeddedness and the liability of newness among nonprofit organizations. Public Management Review, 6(2), 159–188. https://​doi​.org/​10​.1080/​1471903042000189083 Hager, M. A., Galaskiewicz, J., Bielefeld, W., & Pins, J. (1996). Tales from the grave. American Behavioral Scientist, 39(8), 975–994. https://​ doi​.org/​10​.1177/​0002764296039008004 Helmig, B., Ingerfurth, S., & Pinz, A. (2014). Success and failure of nonprofit organizations: Theoretical foundations, empirical evidence, and future research. VOLUNTAS, 25(6), 1509–1538. https://​doi​.org/​10​.1007/​s11266​ -013​-9402​-5 Lee, W. (2017). Sustainability of nonprofit human service organizations in a neighborhood context. Nonprofit Management and Leadership, 28(1), 11–24. https://​doi​.org/​10​.1002/​nml​.21264 Lu, J., Lin, W., & Wang, Q. (2019). Does a more diversified revenue structure lead to greater financial capacity and less vulnerability in nonprofit organizations? A bibliometric and

meta-analysis. VOLUNTAS, 30(3), 593–609. https://​doi​.org/​10​.1007/​s11266​-019​-00093​-9 Lu, J., Shon, J., & Zhang, P. (2020). Understanding the dissolution of nonprofit organizations: A financial management perspective. Nonprofit and Voluntary Sector Quarterly, 49(1), 29–52. https://​doi​.org/​10​.1177/​0899764019872006 Nunnenkamp, P., Öhler, H., & Schwörer, T. (2013). U.S. based NGOs in international development: Financial and economic determinants of survival. World Development, 46, 45–65. https://​doi​.org/​10​.1016/​j​.worlddev​.2013​ .01​.024 Walker, E. T., & McCarthy, J. D. (2010). Legitimacy, strategy, and resources in the survival of community-based organizations. Social Problems, 57(3), 315–340. https://​doi​.org/​10​ .1525/​sp​.2010​.57​.3​.315

Diversity, equity, and inclusion4 Definition

A critical perspective that focuses on diversity with inclusion and equity is increasingly recognized as essential for reducing inequities and achieving performance from diversity. Addressing diversity as representation is a necessary first step, but it fails to address how members interact with one another. Research has revealed that diversity often leads to decreased as opposed to increased performance. The issue is whether the broadened perspectives, information, and expertise potentially available with diversity triumph over increased interpersonal tensions that diversity typically brings. Practices for interaction common in society involve these tensions and cause inequities for various underrepresented groups by undermining inclusion – the integration of differences and involvement of diverse members in decision-making – that is essential for high performance. Due to the complexities of diversity, research-based knowledge rather than commonly prevailing thinking is necessary to understand how nonprofit leaders and staff can produce sustained, superior mission attainment and equity, namely, by establish-

4 This piece owes a tremendous debt to the ideas, efforts, and critiques of Judy Weisinger, our co-author on the book, Performance through Diversity and Inclusion (2022), that is its basis.

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ing organizational practices for accountability and inclusive interactions.

Current issues and challenges

Labor economic analyses of wage and job outcomes indicate that progress for some underrepresented groups has stalled and, for Black men, has been non-existent for over 70 years. For both men and women holding a bachelor’s degree, the Black–White wage gap has not increased but decreased over recent decades. Audit study experiments sending equivalent résumés to employers consistently confirm bias affecting hundreds of thousands of new hires from all underrepresented groups each year in the U.S. Underperformance of nonprofits in leadership positions is well publicized. These realities support a moral case for nonprofit leaders to act. In addition, a business case provides an imperative for action, since underutilization of human resources due to the operation of prejudices diminishes performance at both the organizational and societal levels. Since their dedication to mission and values provides both the moral and business cases for diversity with inclusion and equity, nonprofits are in a favorable position to lead other sectors of society. They can shape productive interactions that enhance all members’ skills, learning, and collaboration for mission success. Such leadership requires informed action. A major hurdle: several of the currently dominant actions favored by organizations, such as awareness training, are ineffective or counterproductive. Assessed on changes in rates of advancement of underrepresented groups to managerial positions, some diversity management actions considered to be fair employment practices are found to have positive effects (+), as expected, but others have negative (-) effects: Monitoring by diversity managers (+) Extended recruitment (+) Job postings and job ladders (+) Diversity committee (+) Diversity/awareness training (-) Job tests for promotion to management (-) Formal performance evaluations (-) Grievance procedures (-) Similarly, other research has found that fair employment practices designed to bring fairRuth Sessler Bernstein and Paul Salipante

ness to employee ratings and pay are insufficient, with lack of practices for accountability allowing managerial biases to operate in final decisions concerning promotions. Involving managers in organizational programs found to be inclusion-effective, such as cross-job training and cross-departmental collaboration, is one way to counter managerial bias and increase equity in promotions. The main challenge for nonprofit leaders Is to acknowledge and address the deeply embedded nature of discrimination in society and organizations, requiring moves beyond legal compliance and representation efforts. Critical thinking and action require observing and countering the ubiquitous anti-inclusive social practices that find their way into organizations: members self-segregating into homogeneous identity groups to the point of unfamiliarity and awkward interactions with differing others; stereotyping and stigmatizing; and making decisions based on implicit bias – largely unconscious, unrecognized bias. Drawing on research from several academic disciplines and fields of practice, including medicine and social work, nonprofits can establish high performance social practices that mitigate anti-inclusive practices. As shown by decades of research testing intergroup contact theory, these practices for inclusive interactions reduce prejudiced attitudes by shaping member behavior into frequent, positive interactions.

In practice: An evidence-informed framework for leveraging diversity

A transdisciplinary synthesis of research findings models how to overcome challenges associated with diverse workgroups, enabling leaders and managers to achieve higher performance, equity, and other social benefits. The framework includes two sets of practices for organizations to adopt. First, a set of structured inclusive interaction practices that shape positive, collaborative, comfortable, and frequent interactions that integrate differences and legitimize all members contributing their distinctive expertise to the workgroup mission. Structuring these practices fosters behaviors that lead to adaptive learning – how to interact productively across differences – and attitude changes that overcome otherwise common anti-inclusive practices. Second, a set of merit and accountability practices that enhance representation

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Source: Bernstein et al. (2022).

Figure 4

The framework for inclusive interactions

and equitable rewarding of various groups in different roles and at different organizational levels. Together, the inclusive interaction and merit and accountability practices move members toward sustainable inclusion that encompasses equity, individual skill development, and increased valuing of diversity and inclusion, and enhanced employee commitment and team performance at all levels (Figure 4). The framework differs from current approaches to diversity by placing behavior before attitudes, shaping positive behavior that reduces and counters often-subconscious biased attitudes. What matters for performance and equity in organizations is what people actually do with each other, their interactions and their behaviors. The framework can be thought of as a flow chart, capturing the dynamics valuable for moving from representational diversity to sustainable inclusion and its benefits. Through feedback, the benefits reduce the impact of anti-inclusive practices while enhancing inclusive practices and interactions, a virtuous long-term cycle. Anti-inclusive practices that inhibit inclusive interactions As illustrated in Figure 5, members engaging in positive and frequent inclusive interac-

tions overcome four common anti-inclusive practices. Self-segregating is the natural tendency to have homogeneous friendship groups and distance oneself from other social networks perceived as “inferior.” Interaction discomfort inhibits familiarity with those that are different through physical distancing, communication apprehension, fear of being politically incorrect, and the threat of being positively or negatively stereotyped, and this discomfort is self-reinforcing as individuals continue to experience awkward interactions. Stereotypes are the widely held but fixed and oversimplified positive or negative images of a particular type of person or thing. In contrast, stigmatizing is always negative and regards a person as worthy of disgrace and disapproval. Finally, making managerial decisions based on implicit, subconscious bias creates disparities greater than does overt discrimination, harming organizations through poor allocation of human talent. These anti-inclusive, exclusionary forces are ubiquitous, natural human phenomena triggered by everyday situations. They add tension to workgroups, reinforcing a reticence and inability to interact fairly and productively with differing others. A vicious cycle most destructive for individuals and organizational performance then results: members of underrepresented groups Ruth Sessler Bernstein and Paul Salipante

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Source: Bernstein et al. (2022).

Figure 5

Anti-inclusive practices that inhibit inclusive interactions, but can be countered

are stereotyped and stigmatized. As confirmed by field research in organizations, the stigmatizing leads to anxieties for these members and, consequently, to their lower performance, as rated by themselves and others. That lower performance then confirms in some members’ minds the negative stereotypes, rather than their recognizing that the stereotypes are a self-fulfilling prophecy. Without knowledge of these anti-inclusive practices and their effects over time, it is difficult for leaders to understand that widely relied-upon approaches to diversity and inclusion in organizations have limited or even harmful impacts. Inclusive interaction practices foster inclusive interactions Figure 5 captures the countering of anti-inclusive practices through a virtuous cycle where a set of managerially structured practices, enacted together, create inclusive interactions that drive adaptive learning. The six structured inclusive interaction practices are: 1. pursuing a shared task orientation or mission; 2. mixing members frequently and repeatedly; Ruth Sessler Bernstein and Paul Salipante

with member 3. collaborating interdependence; 4. handling conflict constructively; 5. engaging in interpersonal comfort and self-efficacy; and 6. ensuring equal insider status for all members. These practices focus on performance and not specifically on diversity, mitigating backlash. Adopting these practices builds norms and trust for offering new perspectives and information elaboration, shared workgroup functioning and performance, and the challenging of prior stereotypes, resulting in positive, social integration. As members adjust their interactions to comply with norms of inclusion, adaptive learning reduces anxieties and promotes members spending more time together, engaging in self-disclosure and developing positive emotional ties. Individuals are socialized into their workgroups in ways that support them expressing their authentic selves in their work. Practices for accountability in job outcomes and behavior Merit and accountability practices are needed to overcome implicit bias which repeatedly leads to inequitable hiring and promotion

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decisions that ignore or discount qualifications. These reward inequities create another vicious cycle that harms performance of underrepresented groups by reducing their motivation, increasing turnover, and decreasing incentives to invest in skill development. Current approaches to fair employment practices often leave gaps that allow inequities to continue. The approaches fail to achieve meritocracy but support beliefs that they do, decreasing leaders’ felt need to attend to accountability and transparency practices that address biased behavior and close discriminatory gaps in performance evaluations and final decisions on compensation, career development opportunities, and promotions. Research finds that deliberate actions taken to strengthen merit and accountability practices pay off in advancement of women and minorities to managerial positions. Together, practices for inclusive workgroup functioning and merit and accountability lead to sustainable inclusion (Figure 6) – a state of the organization in which diversity is leveraged for a combination of higher equity and organizational performance sustained over time. Sustainable inclusion supports an inclusive organizational culture that maximizes members’ performance, equity, retention of talent, skill development, and organizational commitment.

Future opportunities for nonprofits to model diversity with equity and inclusion

The sharing of mission and core values among a nonprofit’s members provides it with a head-start on instituting the practices for inclusive interactions specified above. So, too, a typical nonprofits’ limited resources which call for the most effective utilization of all its human talent and collaboration among its members, whether employees or volunteers. Since many members of a nonprofit are highly motivated by its mission, practices for personal identity socialization are especially valuable for inclusion. When new members enter, each is asked to identify and share with their work colleagues how their distinctive skills and perspectives can contribute to mission attainment. Limitations and strengths of a practice-based approach to inclusion History demonstrates that achieving sustainable inclusion and equity from diversity is not simple. Leader and member support is required at all levels, with their involvement and commitment persisting over time. Commitment, persistence, and expertise are required to constructively diffuse tensions that should be expected to arise as diversity and inclusion are spread across the organization.

Source: Bernstein et al. (2022).

Figure 6

Sustainable inclusion

Ruth Sessler Bernstein and Paul Salipante

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Rather than persistence, one-time approaches of writing new policies and mandating awareness training can remain attractive to leaders due to their limited time and effort requirements. In most communities these approaches are insufficiently comprehensive and persistent to deal successfully with diversity’s complex challenges. Achieving sustainable inclusion is not an end point but an ongoing process of structuring practices for inclusion and accountability. For committed leaders seeking to achieve equity and high performance from diversity, a key issue is whether to explicitly emphasize practices for inclusive interactions as diversity-specific or, alternatively, as the basis of achieving high performance. Labeling efforts as diversity-specific frequently leads to backlash and perpetuation of anti-inclusive practices by some groups. In contrast, organizations in some fields have successfully benefitted from instituting inclusive practices purely as high-performance work systems, such as agile teams in software development. All emphasize inclusion as a general way to incorporate all members’ differing talents and perspectives for mission effectiveness. However, for inclusion of underrepresented groups, outcomes and behavioral accountability practices are frequently necessary as well. A campus organization of students illustrates the ongoing, successful achievement of diversity with inclusion and equity through inclusive interaction practices based on its mission (community service) and values (fellowship). The organization did not develop its practices for diversity purposes but, rather, to best achieve that mission and its values. Its inclusive interaction practices create virtuous cycles that, over a period of months and years, produce prejudice reduction and warm, productive behavior among its diverse membership. Its practices include mixing through the discouragement of cliques, and equal insider status through rotation of leadership positions. Over time such inclusive practices build members’ interaction comfort and mutual engagement not only in the mission but also in personal friendships. Its practices sustain inclusion over many years as new members enter and students graduate. Ruth Sessler Bernstein and Paul Salipante Ruth Sessler Bernstein and Paul Salipante

Related topics

Governing board: Composition Social responsibility of nonprofit organizations Strategic human resource management

Further reading and references

Bernstein, R. S., & Salipante, P. (2015). Toward achieving the benefits of diversity: Connecting group practices to individual’s intercultural behavioral comfort. Equality, Diversity & Inclusion: An International Journal, 34(5), 376–394. Bernstein, R. S., Salipante, P. F., & Weisinger, J. W. (2022). Performance through diversity and inclusion: Leveraging organizational practices for equity and results. Routledge. Bernstein, R. S., Bulger, M., Salipante, P., & Weisinger, J. Y. (2019). From diversity to inclusion to equity: A theory of generative interactions. Journal of Business Ethics, 167(3), 395–410. https://​doi​.org/​10​.1007/​s10551​-019​ -04180​-1 Bertrand, M., & Duflo, E. (2017). Field experiments in discrimination. In A. V. Banerjee & E. Duflo (Eds.), Handbook of economic field experiments (pp. 309–393). Elsevier Science. https://​doi​.org/​10​.1016/​bs​.hefe​.2016​.08​.004 Bowman, N. A. (2013). The conditional effects of interracial interactions on college student outcomes. Journal of College Student Development, 54(3), 322–328. https://​doi​.org/​ 10​.1353/​csd​.2013​.0026 Castilla, E. J. (2015). Accounting for the gap: A firm study manipulating organizational accountability and transparency in pay decisions. Organization Science, 26(2), 311–333. https://​doi​.org/​10​.1287/​orsc​.2014​.0950 Dobbin, F., & Kalev, A. (2016). Why diversity programs fail. Harvard Business Review, July-August, 94(7), 1–8. https://​hbr​.org/​2016/​ 07/​why​-diversity​-programs​-fail Eberhardt, J. L. (2019). Biased: Uncovering the hidden prejudice that shapes what we see, think, and do. Viking. Guillaume, Y. R. F., Dawson J. F., Otaye-Ebede, L., Woods, S. A., & West, M. A. (2017). Harnessing demographic differences in organizations: What moderates the effects of workplace diversity? Journal of Organizational Behavior, 38(2), 276–303. https://​doi​.org/​10​ .1002/​job​.2040 Leslie, L. M., Mayer, D. M., & Kravitz, D. A. (2014). The stigma of affirmative action: A stereotyping-based theory and meta-analytic test of the consequences for performance. Academy of Management Journal, 57(4),

D 177 964–989. https://​doi​.org/​10​.5465/​amj​.2011​ .0940 Nishii, L. H. (2013). The benefits of climate for inclusion for gender-diverse groups. Academy of Management Journal, 56(6), 1754–1774. https://​doi​.org/​10​.5465/​amj​.2009​.0823 Pettigrew, T. F., & Tropp, L. R. (2006). A meta-analytic test of intergroup contact theory. Journal of Personality and Social Psychology, 90(5), 751–783. https://​doi​.org/​10​ .1037/​0022​-3514​.90​.5​.751 Weisinger, J. Y., & Salipante, P. F. (2005). A grounded theory for building ethnically bridging social capital in voluntary organizations. Nonprofit and Voluntary Sector Quarterly, 34(1), 29–55. https://​doi​.org/​10​ .1177/​0899764004270069

Donor-advised funds Definition

A donor-advised fund, or DAF, is a philanthropic vehicle established at a public charity, also known as a sponsoring organization, DAF sponsor or charitable sponsor. DAFs allow donors to make an irrevocable, tax-deductible charitable contribution and recommend grants to charitable organizations over time.

In practice

The first DAFs were established at charitable community foundations in the United States in the 1930s, though they were not recognized formally in the Internal Revenue Code until the Pension Protection Act of 2006. DAFs were little-known giving vehicles for more than 50 years. In more recent years, DAFs have experienced explosive growth when financial institutions launched their own charities to offer DAFs in the mid-1990s. Table 12

Today, there are more than one million individual DAF accounts in the U.S. that hold nearly $150 billion in charitable assets. The latter figure is an 84 percent increase in the last five years alone (National Philanthropic Trust, 2021). See Table 12 for the recent growth in DAFs. How a DAF works Donors retain advisory privileges and may recommend grants from their DAFs to other charitable organizations over time. In more detail, here are the steps to opening and using a DAF: ● Establish the DAF. First, an individual, family, corporation or other entity establishes a DAF at the DAF sponsor. The individual or entity that opens the DAF can customize the DAF, like naming the fund, designating the DAF’s advisor(s) and designing a succession plan. The DAF’s advisor retains advisory privileges to the fund, such as appointing other advisors (including financial advisors), recommending grants and investments, and establishing a succession plan. Generally, the primary advisor is also the donor, but sometimes other outside parties may make contributions or be given advisory privileges on the DAF account. ● Contribute to the DAF. After establishing the DAF, donors make irrevocable contributions for which they can claim an immediate tax deduction. Some DAF sponsors have low or no minimum contribution thresholds, while others have $10,000 or more as an initial contribution requirement. DAF donors can claim immediate tax deductions for each additional contribution to the DAF. Most DAF sponsors accept commonly held assets like cash and publicly traded securities. While some DAF sponsors only accept these more common assets, others

Growth in DAFs: 2016–2020

 

2016

2017

2018

2019

2020

Grants

$15.97

$19.71

$23.75

$27.29

$34.67

Contributions

$25.20

$30.85

$36.22

$39.69

$47.85

Charitable Assets

$86.60

$112.23

$122.37

$145.49

$159.83

Number of DAF Accounts

29,111

469,749

732,128

864,187

1,005,099

Note: $ billions except as noted. Source: National Philanthropic Trust (2021)

Eileen R. Heisman

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also accept non-cash assets such as real estate, fine arts and other valuables, cryptocurrencies or restricted stock. ● Grant from the DAF. Once the DAF has been funded, the advisor may recommend grants to charities from the DAF assets at any point, all at once or over time. The DAF sponsor processes all grant recommendations, sends the grant checks to charitable recipients and maintains all the records. The DAF sponsor is also responsible for performing all due diligence to ensure the recipients are all qualified charitable organizations and that the grant will be used for permissible purposes. ● Invest for future philanthropy. The DAF advisor may also recommend investment strategies for the DAF’s charitable assets. Most DAF sponsors offer a pre-approved menu of investments that satisfy various levels of risk tolerance and expected grantmaking horizons. Other DAF sponsors allow the advisors to recommend custom investments, usually when the DAF account balance is above a certain threshold. In all cases, advisors have only advisory privileges – hence the name donor-advised fund – and the DAF sponsor must review and approve each grant and investment recommendation. Who uses DAFs? Individuals, families, corporations, private foundations and nonprofit organizations all use DAFs for philanthropy. Below are the most common ways donors – whether individuals or institutions – use DAFs: ● Individuals. Individual donors choose DAFs as a philanthropic vehicle used to support their favorite charitable organizations and causes. Donors may make contributions to their DAF regularly or may make a large contribution during a windfall event (selling a business, inheritance, etc.). They may make grant recommendations from their DAF’s charitable assets immediately after making a contribution. Some choose to start recommending grants immediately, while others set up recurring grants over a period of time and still others take time to tailor their personal giving strategy. Eileen R. Heisman

● Families. Many donors find it important to involve their family in giving and to encourage charitable giving in the next generation. DAFs can offer donors the opportunity to give as a family when they include loved ones as secondary advisors and successors who gain full advisory privileges when the primary donor can no longer manage the DAF. Donors can also leave bequests to their DAFs with instructions to grant out either the balance or a percentage of the charitable assets over time, ensuring a giving legacy that lasts beyond their lifetime. ● Corporations. Corporations can use DAFs in several different ways. They can establish DAFs to help execute their corporate philanthropy. Corporate DAFs may represent the totality of the company’s giving or they may use it for one specific purpose, such as international giving. Increasingly, companies are also using DAFs as an employee benefit. There are rapidly growing DAF charitable sponsors that offer employee DAF services to corporations. These employee DAFs often support payroll deductions and/or corporate matching programs. ● Private foundations. Some donors utilize multiple giving vehicles and have both a private family foundation and a DAF. The two vehicles offer different advantages and using them in tandem can offer certain benefits. For example, if a private foundation has a specific mission and the foundation’s donors want to support a charitable cause that is outside of that mission, they can grant from the private foundation to a DAF and use the DAF for “off mission” grantmaking. A private foundation may use a DAF when the DAF charitable sponsor offers foreign grantmaking, saving the foundation time, administrative work and expense. Private foundations also use DAFs for collaborative giving when the foundation has bylaws that do not allow them to accept donations from external donors. In this case, the private foundation uses the DAF to partner with other like-minded donors on charitable projects that the foundation may not be able to execute on its own. Finally, private foundations sometimes use DAFs to ensure anonymity. Charitable assets in a DAF belong

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to the charitable sponsor, not the donor, which means that grants can be made in the name of the charitable sponsor only, thus granting privacy to donors. Giving anonymously through a philanthropic vehicle is a feature that is unique to DAFs. That said, anonymous grants are typically a very small percentage of a DAF sponsor’s total annual grants. ● Charitable organizations. One of the most common ways that nonprofit organizations use DAFs is to partner with a DAF sponsor to accept and liquidate complex assets. Many charities cannot or will not accept non-cash assets. Instead, the charity can suggest that the donor establish a DAF and contribute the asset – like a collection, real estate or closely held stock – to it. The DAF sponsor will liquidate the asset, then the donor can recommend a grant to the intended charity. Table 13

Regardless of who uses a DAF or what time horizon their grantmaking occurs, all charitable assets in DAFs must be used for charitable purposes. Once a DAF sponsor receives a contribution, it belongs to the DAF sponsor and cannot be used to confer any benefits that are more than incidental to the donor, DAF advisors or anyone related to either of them. The DAF sponsor retains exclusive legal control of all charitable assets. As such, donor recommendations for grants or investments are not binding on the DAF sponsor. Comparison with other giving vehicles DAFs and private foundations are the two most commonly used giving vehicles in the United States. Details in this section are specific to U.S. laws and taxation. DAFs and private foundations have similar goals, as both are structured vehicles for fulfilling

Donor-advised funds and private foundations: A comparison

 

Donor-Advised Funds

Private Foundations

Start-Up Time

Immediate

Can take several weeks or months

Start-Up Costs

None

Legal fees and other start-up costs are

Administrative and Management Fees

Depends on DAF sponsor, but typically

Can be in the range of 250–400 basis

100 basis points (0.1%) or less, plus

points (2.5% to 4% per year)

typically substantial

investment management fees Tax Deduction Limits for Gifts of Cash

60% of adjusted gross income

30% of adjusted gross income

Tax Deduction Limits for Gifts of Stock or 30% of adjusted gross income

20% of adjusted gross income

Real Property Valuation of Gifts

Fair market value*

Fair market value* for publicly traded stock; cost basis for all other gifts, including gifts of closely held stock or real property

Required Grant Distribution

None

Must distribute 5% of net asset value

Excise Tax on Investment Income

None

Privacy

Names of individual donors are not

Must file informational returns, which are

disclosed to the public, and grants can be

available to the general public, disclosing

made anonymously

detailed information on grants, investment

annually Excise tax on 1.39% of net investment income annually

fees, trustee names, staff salaries, and so on Administrative Responsibility

Recommend grants to charitable causes

Manage assets, keep records, select charities, administer grants, file state and federal tax returns, maintain board minutes, and so on

Note: *Fair market valuation of gifts for assets held longer than one year.

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a donor’s philanthropic intent. However, the two are legally very different and each vehicle has different requirements, benefits and limitations. 

-legislation​-would​-significantly​-affect​-donor​ -advised​-funds​-2021​-11​-11/​ National Philanthropic Trust (2021). The 2021 DAF report. https://​www​.nptrust​.org/​annual​ -reports/​the​-2021​-annual​-report/​

Future development

As DAFs have grown, so has the interest in them. DAFs are regularly reported on in mainstream media and have garnered both praise and critical attention. In 2021, legislation was introduced in the Senate (ACE Act, S. 1981, 2021) that would create new requirements for DAFs, establish new classifications for DAFs and modify some existing tax rules for private foundations. If this had been enacted, it would have been the first legislation to address DAFs since the 2006 Pension Protection Act. Eileen R. Heisman

Donor and donor motivation Definition

A donor is a person or institution who gives something of value to a charitable organization for which they receive nothing of material value in return. Typically, donors make gifts of money, but they can also donate other valuable things such as stock, artwork, or large capital assets such as a building. Corporate donors sometimes make gifts Related topics in-kind such as office equipment. Charitable giving A donor may be a person of substantial Corporate philanthropy wealth or a person of very modest means. Donor choice The wealthy may have financial advisors to Family philanthropy help them plan large charitable contributions Fundraising through a planned giving instrument like Grant a bequest, a trust, a donor-advised fund, Major donors a family foundation, or an endowment fund. Planned giving These instruments have become extremely Private foundations complex in their design and implementation, requiring consultation from a variety of legal and financial experts. Further reading and references People who are not wealthy often donate 5 ways philanthropists use donor-advised funds and how fundraisers can benefit. (2018). through annual campaigns, regular solicitaDonor Perfect. https://​www​.donorperfect​ tions by phone or mail, special events, or in .com/​whitepapers/​generic/​fundraising​-donor​ a spontaneous response to an appeal. These -advised​-funds/​ donors frequently funnel their gifts through ACE Act, S. 1981. (2021). https://​www​.congress​ a payroll deduction program, like the United .gov/​bill/​117th​-congress/​senate​-bill/​1981 Way, which are sometimes matched by the Herman, T. (2021, November 21). The pros and cons of donor-advised funds. Wall Street donor’s employer. This brief entry does not consider grants Journal. https://​www​.wsj​.com/​articles/​pros​ from foundations5 or government agencies to -cons​-of​-donor​-advised​-funds​-11636402901 Mann, E. N., & Calvert, J. H. (2021, November be donations, although many nonprofits will 11). ACE Act: Legislation would significantly lump all solicited funds together when referaffect donor-advised funds. Reuters. https://​ ring to their donors, supporters, or funders. www​.reuters​.com/​legal/​legalindustry/​ace​-act​ Also, volunteering, which is a gift of time and/or expertise, is not discussed in this entry. These topics are presented elsewhere in this book. 5 The initial gift by a donor to endow a family foundation is a special type of donation, which in this entry is considered to be an endowment gift. However, subsequent grants from that foundation to other nonprofit organizations are not considered donations in this entry.

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Types of donors One-time donors As the name implies, these are people who make only one donation to the organization, and they cannot be relied upon for subsequent donations. One-time donors may or may not have a commitment to the organization’s mission. For example, one might make a one-time donation to a charity bike ride to support cancer research simply because a friend is participating in the ride and has personally solicited their support. Alternatively, some one-time donors might be quite familiar with the organization, thus motivating them to give a significant single donation. Spontaneous donors Spontaneous donors are moved by a charitable impulse. For example, they may be emotionally motivated by a particular catastrophic event, like the COVID-19 pandemic or a natural disaster, to make a spontaneous donation to a food bank or to the Red Cross. Or they may be motivated by mass media portrayals of starving children, abused animals, or flood victims. Spontaneous donors may simply want to be part of an enthusiastic crowd, as would be the case at a concert when the musician asks the audience to text-to-give to a particular cause. Spontaneous donors are difficult to track and cultivate because they often give through media that partially protects their anonymity and it is therefore difficult to learn about their philanthropic interests, motivations, or goals. Often, though not always, spontaneous donors are also one-time donors. Regular donors For nonprofit organizations, regular donors are the most reliable type of individual givers and, therefore, their donations are factored into the organization’s budgeting process, within a margin of error, as a predictable source of revenue. These are people who give again and again to the same nonprofit organization, perhaps annually or even more frequently. Gifts from regular donors can be relatively modest but the total adds up if the organization enjoys strong loyalty from many donors. Regular donors generally are familiar

with and committed to the organization and its mission. Major donors Major donors are people who make relatively large donations to a nonprofit organization. They can do this through a large annual gift, a large contribution to a capital campaign or endowment campaign, or through a planned giving arrangement. What constitutes a major donation varies from one organization to another. A $1,000 gift may be major to a small social services organization whereas a university or large hospital may set the threshold for a major gift much higher. The importance of large donations is demonstrated by the fact that more than 85 percent of individual giving comes from only 12 percent of donors. Major donations can be catalytic. For example, large capital campaigns typically are not publicly announced until a very large portion of the target total, perhaps half or more, has already been raised from relatively few major donors during the so-called quiet phase of the campaign. A successful quiet phase signals to other prospective donors that the campaign is viable, thus increasing their enthusiasm and willingness to contribute. Major donors usually want a lot of information about the organization and its track record of success or failure. Thus, major donors can be one-time or regular donors, but they are rarely spontaneous donors. They require cultivation and relationship-building before they are willing to make a large financial commitment. Major donors often have specific programmatic interests and, therefore, may be less inclined to make unrestricted gifts to charities. Nonprofit organizations sometimes rely on special events, such as a golf tournament or a charity walk, to generate one-time or regular donations. They should do so with caution, however, because events always have fixed costs and variable costs driven by complicated logistics. Thus, the actual return on investment may be relatively small. Nonprofits should calculate the break-even point where revenue from ticket sales and donations exceed total fixed and variable costs for the event. Moreover, the event itself must establish a recognizable “brand” in the community such that people want to participate year after year rather than being one-time or spontaneous donors. Kevin P. Kearns

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In practice

There are myriad management and governance practices related to the recruitment and retention of donors. Here are just a few: Organization and staffing strategies Well-resourced nonprofit organizations, like universities and hospitals, usually have a large staff of skilled professionals who employ sophisticated strategies and techniques for generating large and small donations. For example, they may employ analytics, using computer software that identifies behavioral and consumption patterns of prospective donors in various market segments. The goal is to identify people who are most inclined to support the organization’s mission. These organizations may use public data on income, net wealth, investments, prior charitable giving, civic activities, major purchases, home values, political affiliation, and other measures to estimate how much the prospective donor might be able and willing to give. They may even acquire information on the activities and values of extended family members. Staff of well-resourced organizations utilize professional networks, often through board members, to make initial contact with these prospective donors and begin the long process of relationship-building prior to requesting a donation. If a donation is made, a subsequent process is mobilized to sustain and grow the relationship by demonstrating proper stewardship of the donation and probing for the donor’s willingness to make additional future donations. Sometimes in large organizations there is a subset of the fundraising staff who have specialized expertise in planned giving instruments such as trusts, endowments, or some other mechanism. Donor retention The Fundraising Effectiveness Project (FEP) is a collaboration between the Association of Fundraising Professionals (AFP) and the Center on Nonprofits and Philanthropy at the Urban Institute. The purpose of the FEP is to conduct research on fundraising effectiveness and help nonprofit organizations increase their fundraising results at a faster pace. According to the FEP the average donor retention rate has dipped from 47.2 percent in 2017 to Kevin P. Kearns

41.9 percent in 2021. However, the average retention rate for repeat donors – those who make a second gift – increases dramatically to 60.7 percent. In other words, if a nonprofit is successful in securing that crucial second gift, the retention rate increases dramatically. On the other hand, lapsed donors – those who do not make the second gift – are typically a lost cause. Roughly 70 percent of donors do not make that second gift and there is only a 4 percent chance of recapturing lapsed donors. Even small and resource-challenged organizations must make a sustained effort to identify and engage donors. It is particularly important for small organizations to have a strong base of regular donors because of the unreliability of new donors, one-time donors, and spontaneous donors and the significant expertise and costs of securing commitments from major donors. While substantial effort is required to build donor loyalty, retaining regular donors is by far the most cost-effective approach. If an organization cannot afford a staff of fundraisers, the task of donor relations and retention may be assigned to volunteers, board members, or the executive director. Donor motives A major question for nonprofits is: what motivates donors to give? Research on the question of donor motives is vast and the findings vary by subsector, by culture, by solicitation method, and other factors making it difficult to generalize (e.g., Bagheri et al., 2019; O’Brien et al., 2013). Donors to the arts, for example, may be motivated by their aesthetic tastes and their belief that a robust artistic culture is essential for a high quality of life in their community. Donors to hospitals, on the other hand, may be motivated by their own or a loved one’s health experiences. For example, most large hospitals have grateful patient solicitations to generate donations from people who received life-altering treatment from the hospital. Some of the inconsistency in research on donor motivations may be due to flawed methodologies, especially when trying to identify and measure psycho-social motivators such as altruism that may be deeply embedded in a person’s psyche and difficult to measure (Lee & Woodliffe, 2010). Nonetheless, there are a few consistent themes in research on donor motives.

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Konrath and Handy (2018) surveyed a general adult sample and used factor analysis to identify six motives for charitable donations: trust that the charity will properly use the donation for public good, altruism and compassion for those less fortunate, social benefits to the donor such as being part of a community of other donors, direct monetary incentives such as tax benefits, egoism manifested in enhanced reputation or the donor’s good feelings about themselves, and finally the extent to which financial constraints impede their ability to make a donation. Another frequent theme is the difference between intrinsic and extrinsic motives for giving. In other words, does the donor expect their gift to be of some intrinsic benefit to themselves, including intangibles such as a feeling of well-being – the so-called warm glow effect – or do they expect their gift to benefit others including future generations? Often donors expect to receive both intrinsic and extrinsic rewards, and there is some evidence that the focus on self or others may vary by subsector. For example, in a recent global study Chapman et al. (2020) found that donors to religious and research organizations were motivated by self, while donors to social services, animal rights, and international aid were motivated by a hoped-for impact on others. The emergence of venture philanthropy and the growing prominence of donor-advised funds suggests that some donors wish to give their expertise as well as their money; moreover, they want to be actively engaged in how their charitable gifts are deployed. Venture philanthropists are usually metrics-driven and interested in achieving particular types of outcomes from their charitable donations. Rather than temporarily alleviating symptoms of problems, they seek creative and sustainable solutions. Their engagement with philanthropy mirrors their approach to investing in business ventures. A relatively recent body of research coming from the field of economics and decision theory explores the impact of transaction costs – how difficult or “costly” it is for the donor to make the gift. Many nonprofits try to minimize these transaction costs by making the act of giving as simple and convenient as possible. Both large and small organizations are trying to reap the efficiency benefits

of social media and other tools of ePhilanthropy, which tend to have very low transaction costs. Note, however, that some of these newer methods of solicitation may exclude large segments of the population who do not have access to these technologies. Who gives? A growing body of research is unpacking the demographics of philanthropic giving. Factors that are presumed to drive donations including age, personal income and net worth, family income, ethnicity, religious practice, sex, and others. The research on these variables, however, has been inconsistent, perhaps due to different research methods, populations, and measurements used by the various studies (Todd & Lawson, 1999). Because of the many nuances and conflicting findings of research on donor motives and demographics, nonprofit organizations may achieve only marginal gains by immersing themselves in the extensive and complex research literature. From a practical perspective, therefore, nonprofits will likely achieve more reliable insights by periodically surveying their own donors about why they support the organization, what they expect from their charitable investment, and how the organization can best meet their expectations.

Issues and debates

There are many management and governance debates associated with donors that are well beyond the scope of this brief entry, so this section provides only a cursory examination of just a few salient issues. Ethics The Association of Fundraising Professionals (AFP) publishes a code of ethics that covers a variety of legal and professional standards of conduct (Association of Fundraising Professionals, 1964 as amended 2014). While a code of ethics is useful as a guide, it cannot address the plethora of issues associated with specialized types of fundraising in certain subsectors such as the grateful patient programs in the healthcare field mentioned above (Collins et al., 2018). Also, the AFP along with other associations published the Donor Bill of Rights in 2001 to itemize and articulate what donors should routinely expect from benefactors. The bill of rights Kevin P. Kearns

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focuses on issues such as transparency and stewardship and has been widely endorsed by many philanthropic organizations. Another ethical issue concerns donors whose wealth is perceived as somehow tainted. For example, a corporation may have a track record of poor treatment of employees or reckless business practices with respect to consumer safety, the environment, or other topics. An individual donor may be problematic if their wealth was obtained through questionable methods or if their own personal behavior has violated well-established social norms. One must take into consideration, however, that tainted donors may have genuine and laudable intentions to use philanthropy as one way of making amends for past transgressions. Donations from questionable sources must be examined on a case-by-case basis, with direct oversight and engagement from the governing board and the executive staff who are stewards of the mission and values of the organization. Diversity and inclusion In recent years we have become more attuned to systemic bias in all aspects of organizational life, and this extends to how we identify and cultivate donors. Are certain demographic groups, especially minorities of all types, excluded from lists of prospective donors because of an assumption by the organization that these groups lack the interest or means to donate – a type of implicit bias? Is there implicit bias in donor solicitation materials including writing and visual images? Is the donor relations staff dramatically unbalanced in terms of representation? Are special events targeted to a particular demographic group or are the venues for those events perceived as off limits for certain groups because they have a history of implicit or explicit exclusion? Are donor databases inherently biased with respect to their indices and market segments? We know, for example, that there is a significant and growing wealth gap between blacks and whites driven by disparities in home ownership, savings, investments, and retirement plans. If an organization’s donor research program uses only traditional metrics of personal or household wealth, it is destined to eliminate people who might be very interested in donating. Kevin P. Kearns

Professionalism and silos Nonprofit organizations must ensure that their fundraising team is fully enmeshed with the mission and with all other professional groups in the organization. Particularly in large and well-resourced organizations, donor prospecting and cultivation activities can easily be far removed from other departments and activities. Sometimes the donor relations staff develop a habit of communicating only in their own specialized language or they can develop a subculture that is at odds with that of the organization. This can also be true of other professional groups in the organization leading to silos that impede communication and collective effort. For example, universities often employ separate donor relations staff in each of the many different academic departments, fueling competition among these dispersed units rather than collaboration. Also, there is relatively high professional mobility and turnover among fundraisers, making it even more difficult to ensure that they are fully immersed in the mission and culture of the organization.

The future

While there is a vast and growing body of knowledge on donor behavior, there remain many questions on: ● Donor motivation ● The impact of tax laws on personal, household, and corporate donations ● The growing role of technology ● Generational differences in giving ● The impact, if any, of watchdog organizations on public trust in nonprofits ● Growing polarization on social issues The study of donor behavior is interdisciplinary, and much more can be done to encourage contributions from fields like behavioral economics, psychology, marketing, advanced analytics, and other fields that have great potential to expand our understanding of donors and how we can meet our obligations to this critically important group of stakeholders. Also, more needs to be done to clarify expectations of the governing board with respect to being regular donors and contributing to donor prospecting and retention. Regardless of the organization’s size, members of the governing board should be

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prepared to assist with fundraising efforts by making a personal donation within their means and helping to solicit donations from others outside the organization. The obligation to give according to one’s means often comes as a surprise to prospective board members. Before committing to serve on a governing board, one should ask if there is an expected minimum contribution to the organization. Kevin P. Kearns

Related topics

Accountability Campaign: Annual campaign Campaign: Capital Campaign Celebrity philanthropy Charitable giving Crowdfunding ePhilanthropy Identity-based philanthropy Planned giving

Further reading and references

Association of Fundraising Professionals. (1964 as amended in 2014). Code of ethical standards. https://​afpglobal​.org/​ethicsmain/​code​-ethical​ -standards accessed 12 Sep 2023. Association of Fundraising Professionals, Association for Healthcare Philanthropy, Council for Advancement and Support of Education, & Giving Institute (2001). Donor bill of rights. https://​afpglobal​.org/​donor​-bill​ -rights accessed 12 Sep 2023. Bagheri, A., Chitsazan, H., & Ebrahimi, A. (2019). Crowdfunding motivations: A focus on donors’ perspectives. Technological Forecasting and Social Change, 146(C), 218–232. https://​ doi​ .org/​10​.1016/​j​.techfore​.2019​.05​.002 Chapman, C. M., Masser, B. M., & Louis, W. R. (2020). Identity motives in charitable giving: Explanations for charity preferences from a global donor survey. Psychology & Marketing, 37(9), 1277–1291. https://​doi​.org/​ 10​.1002/​mar​.21362 Collins, M. E., Rum, S., Wheeler, J., Antman, K., Brem, H., Carrese, J., Glennon, M., Kahn, J., Ohman, E. M., Jagsi, R., Konrath, S., Tovino, S., Wright, S., & Sugarman, J. (2018). Ethical issues and recommendations in grateful patient fundraising and philanthropy. Academic Medicine, 93(11), 1631–1637. https://​doi​.org/​ 10​.1097/​acm​.0000000000002365 Konrath, S., & Handy, F. (2018). The development and validation of the motives to donate scale. Nonprofit and Voluntary Sector Quarterly,

47(2), 347–375. https://​doi​.org/​10​.1177/​ 0899764017744894 Lee, Z., & Woodliffe, L. (2010). Donor misreporting: Conceptualizing social desirability bias in giving surveys. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 21(4), 569–587. https://​doi​.org/​ 10​.1007/​s11266​-010​-9153​-5 O’Brien, S. F., Shao, Z.-J., Osmond, L., Yi, Q.-L., Li, C.-Y., & An, Q.-X. (2013). Donor motivation in Xi’an, China: Comparison with Canadian donors. Vox Sanguinis, 104(3), 200–206. https://​doi​.org/​10​.1111/​j​.1423​-0410​ .2012​.01656​.x Teah, M., Lwin, M., & Cheah, I. (2014). Moderating role of religious beliefs on attitudes towards charities and motivation to donate. Asia Pacific Journal of Marketing and Logistics, 26(5), 738–760. https://​doi​.org/​10​.1108/​apjml​ -09​-2014​-0141 Todd, S. J., & Lawson, R. W. (1999). Towards a better understanding of the financial donor: An examination of donor behaviour in terms of value structure and demographics. International Journal of Nonprofit and Voluntary Sector Marketing, 4(3), 235–244. https://​doi​.org/​10​ .1002/​nvsm​.76

Donor choice Definition

Donations are an important source of funding for many non-profit organizations around the world. In the U.S., on average 14 percent of all nonprofit revenues come from donations; in Europe, the figure is 11 percent (Salamon et al., 2017). Private individuals, followed by companies or foundations, make the most of these donations. Although one in three people worldwide donates money, we know little about how donors choose between different charities. In this context, the term donor choice has two different meanings. On the one hand, it refers to donors’ decision to direct charitable funds to particular charitable organizations. Since donors are increasingly interested in making their own choice in this respect (Bennett, 2003), such as whether their donation will benefit an art gallery or a shelter for the homeless insights into the criteria they use to make their donations are of great interest. At the same time, the term donor choice describes a workplace fundraising technique Michaela Neumayr

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widely used in the U.S., but also in Australia and the U.K. (Shaker & Christensen, 2018). This entry deals with both understandings of the term donor choice.

In practice

Donor choice offered by fundraising federations describes a campaign strategy that aims to give donors a greater say in where and how their contributions at the workplace are distributed. In Anglo-American countries, many employees are regularly asked to donate to charity at work, with the methods used to solicit workplace donations varying. Most often, nonprofit fundraising federations contract with employers to solicit donations from employees on an annual basis. Employers then direct their employees’ charitable contributions (primarily through payroll deductions) to the contracting fundraising federations, which in turn distributes those funds – based on its assessment of community needs – to its affiliated nonprofit organizations. In the U.S., the best-known fundraising federation that contracts with employers is United Way. Local elites and social service professionals founded United Way in order to reduce the multitude of solicitations for donations from individuals and to organize the delivery of social services. Local United Way branches thus centralize the collection of donations within one administrative unit as well as its distribution to affiliated nonprofits in the local community. In order to become an affiliated nonprofit and receive annual allocations, nonprofits need to meet certain standards of financial and administrative management (Barman, 2008). United Way was founded in 1913, and for a long time employees had no choice in how their workplace donations were distributed to charities. Since the 1980s, however, some local United Ways have begun to implement a donor choice policy that allows donors to place conditions on their donations. In this way, employees can use their own discretion to choose the charity that will receive their donation, rather than letting United Way decide. While in 1990 only 10 percent of local United Way organizations offered donor choice in their campaigns, by 1998 the figure had risen to 50 percent – an indication of how quickly this policy spread (Barman, 2008). In addition, over time, many local United Ways have increasingly reinforced the Michaela Neumayr

idea of allowing donors to decide for themselves where their money goes. While donors initially could only specify which nonprofit from a predetermined list should receive their donation, many branches later also allowed donors to add other nonprofits of their choice to the list as well (Shaker et al., 2017). The United Way example illustrates that workplace donor choice is an overwhelmingly popular and expected option.

Why donor choice gained in importance

There are several explanations for why donor choice has gained importance. On the donor side, expectations toward government and private actors that have changed significantly in recent decades play a role. People have less trust in politicians to solve current social or environmental problems and instead expect private companies and individuals to solve these pressing issues, following the idea of small government – big society (Edwards, 2008; Healy & Donnelly-Cox, 2016). Accordingly, private donors also want to make a difference with their donations. They are increasingly interested in how their donation is used, where it can be used most effectively and achieves a greater impact (Bekkers & Wiepking, 2011). Shaker et al. (2017) point out that younger people and people with higher levels of education are particularly interested in deciding where their donation goes. In a nationwide survey of United Way fundraising techniques across the U.S., they found that local United Ways in communities with younger and more college-educated residents were significantly more likely to offer donor choice (Shaker et al., 2017). This desire to have more of a say in where one’s donation goes is also expressed in what we call consumption philanthropy. Here nonprofits are responding to donors’ desire by offering a catalog of items that can be donated – for example, one goat for a family in Tanzania, ten chicks for a family in India, a sleeping bag for a homeless person – and allow donors to choose how their donation is used, simulating a kind of shopping experience (Li, 2017). How donors indeed choose a cause or charity is still relatively under-researched. What we know is that the mechanisms are known to influence whether and how much people give also help explain the purpose of giving (Bekkers & Wiepking, 2011;

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Wiepking, 2010). These include awareness of need, which means that people are more willing to donate to causes they know about, underscoring the importance of media outreach and awareness campaigns. Another mechanism is the benefit of donating, such as improving social standing or reputation. In the arts, for example, most donors give to prestigious arts organizations; consequently, newer museums or those that promote more innovative artistic content have difficulty generating revenue (Barman, 2008). A very simple explanation for donors’ choice between different nonprofit organizations, but one that has very high explanatory power, is formed by the fact of being asked to donate by a particular organization (Neumayr & Handy, 2019). In addition, there is evidence that individuals’ attitudes are associated with the incidence of giving to a particular cause (Neumayr & Handy, 2019; Shaker et al., 2017; Wiepking, 2010). People with higher levels of general social trust are more likely to donate to nonprofits that address issues that cannot be easily monitored. Typical examples are international relief or environmental protection since the achievements of nonprofits in these fields cannot be directly traced back to the efforts of the donors or take place many years later (Neumayr & Handy, 2019). Human resources and sociodemographics have also been found to be associated with giving to particular causes. For example, people with higher levels of education are more likely to donate to arts, culture, and education. Younger people are more likely to donate to environmental protection, while older people are more likely to donate to health, arts, and national and international aid (Neumayr & Handy, 2019). Overall, the studies confirm the growing attention to the importance of purpose-based giving in comparison with community-based giving (Barman, 2008; Shaker et al., 2017). The growing importance of donor choice is also the primary explanation for why fundraisers offer it. In their study of United Ways, Shaker et al. (2017) found that local United Ways give donors choices when asked by donors, that is, that it is resident preferences that lead local entities to offer donor choice. In contrast, no influence on donor choice offerings comes from competition in the fundraising market, that is, the presence of

competitors for workplace donations, or the structure of the local economy. Finally, there is also a case for a policy of donor choice on the part of employers. By offering employees more choices, the employer facilitates broader social preference for purpose-based giving and, in particular, facilitates more favorable employee–employer relationships by accommodating employee preferences (Shaker et al., 2017).

Issues and debates

One of the most important consequences of implementing donor choice at United Way is that it motivates workplace giving (Barman, 2008). Studies have shown that campaigns that added more charities raised higher totals without decreasing support for the original charities. In contrast to a couple of other fundraising techniques (e.g., company matching, public recognition, solicitation support), donors’ ability to earmark their donation works, implying that it is effective in raising higher amounts of money (Shaker et al., 2017). Donor choice is also beneficial for nonprofits that were not affiliated with United Way prior to its implementation and therefore did not receive any donations from the workplace charity at all. The opportunity given to donors to add nonprofits of their choice to the list of recipients has particularly benefited nonprofits in the areas of women’s issues, the environment, minority and ethnic rights, and social action. Because United Way has historically distributed its funds to a narrow set of charities, these organizations have been neglected for decades. Donor choice gave them access to workplace funds for the first time (Barman, 2008). However, donor choice also has disadvantages. Above all, it restricts local United Ways’ coordination function, which consists of distributing donation income among individual nonprofits. United Way sees itself as an intermediary between donors and charities, allocating donations based on community needs, which ensures nonprofits a high degree of planning security in terms of annual revenues from workplace charity. The policy of donor choice severely limits United Way’s intermediary presence and instead creates a free market of nonprofits competing for donations (Barman, 2008), with negative consequences for nonprofits affiliated with Michaela Neumayr

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United Way, since their revenues from donations are no longer predictable. This means that some nonprofits receive large donations, while others are left out because donors follow their own preferences and are hardly in a position to know which causes need how much money. Letting donors decide for themselves which charity should receive their donation leads back to the question discussed above: what criteria do donors use to choose between different causes?

The future

Donors’ ability to attach strings to their contributions has become increasingly prevalent in nonprofit fundraising, whether in the context of donor choice or consumption philanthropy. This makes it all the more important to understand how donors choose between different causes. Today’s technology makes it easy for each of us to use online platforms to participate in others’ private charitable initiatives or launch our own fundraising campaigns. Millennials and subsequent younger generations, in particular, are accustomed to “making their own decisions” and having more influence over what happens with their money. This poses huge challenges for nonprofits. They depend on donor revenue and must value or at least accept the choices of their donors, but their donors’ intentions do not necessarily align with the needs of their clients. In any case, nonprofits need to address the consequences of this development and channel co-determination desires constructively. For example, they can better educate donors about what criteria are useful for selecting projects and how priorities can be set. Michaela Neumayr

Related topics

Charitable giving Donor and donor motivation Donor retention and stewardship Fundraising United Way

Further reading and references

Barman, E. (2008). With strings attached: Nonprofits and the adoption of donor choice. Nonprofit

Michaela Neumayr

and Voluntary Sector Quarterly, 37(1), 39–56. https://​doi​.org/​10​.1177/​0899764007303530 Bekkers, R., & Wiepking, P. (2011). A literature review of empirical studies of philanthropy. Nonprofit and Voluntary Sector Quarterly, 40(5), 924–973. https://​doi​.org/​10​.1177/​ 0899764010380927 Bennett, R. (2003). Factors underlying the inclination to donate to particular types of charity. International Journal of Nonprofit and Voluntary Sector Marketing, 8(1), 12–29. https://​doi​.org/​10​ .1002/​nvsm​.198 Edwards, M. (2008). Small change. Why business won’t save the world. Berrett-Koehler Publishers, Inc. Healy, J., & Donnelly-Cox, G. (2016). The evolving state relationship: Implications of “big societies” and shrinking states. In T. Jung, S. D. Phillips, & J. Harrow (Eds.), The Routledge companion to philanthropy (pp. 200–212). Routledge. Li, V. (2017). “Shopping for change”: World vision Canada and consumption-oriented philanthropy in the age of philanthrocapitalism. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 28(2), 455–471. https://​doi​.org/​ 10​.1007/​s11266​-016​-9801​-5 Neumayr, M., & Handy, F. (2019). Charitable giving: What influences donors’ choice among different causes? VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 30(4), 783–799. https://​doi​.org/​ 10​.1007/​s11266​-017​-9843​-3 Salamon, L. M., Sokolowski, W., & Haddock, M. (2017). Explaining civil society development: A social origins approach. Johns Hopkins University Press. Shaker, G. G., & Christensen, R. K. (2018). I give at the office: A review of workplace giving research, theory, and practice. International Journal of Nonprofit and Voluntary Sector Marketing, 24(1), 1–11. https://​doi​.org/​10​.1002/​ nvsm​.1628 Shaker, G. G., Christensen, R. K., & Bergdoll, J. J. (2017). What works at work? Toward an integrative model examining workplace campaign strategies. Nonprofit Management and Leadership, 28(1), 25–46. https://​doi​.org/​10​.1002/​nml​.21270 Wiepking, P. (2010). Democrats support international relief and the upper class donates to art? How opportunity, incentives and confidence affect donations to different types of charitable organizations. Social Science Research, 39(6), 1073–1087. https://​doi​.org/​10​.1016/​j​.ssresearch​ .2010​.06​.005

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Donor retention and stewardship Definition

Nonprofits want to have donors who make contributions on a regular basis either through various fundraising campaigns or as part of their philanthropic portfolio. Whether part of online ePhilanthropy outreach, direct mail annual giving campaigns, or more face-to-face requests with major gift donors, nonprofits need their donors’ reliable and consistent support to continue to be able to deliver quality programs and services. Donor retention, quite simply, is the ability of nonprofits to have their donors continue to give year after year. Loyal donors are more likely to stay with an organization and make a financial contribution to various fundraising efforts. Also, donor loyalty, like consumer loyalty in business, is sometimes used as a measure of organizational quality. Finally, donor loyalty provides nonprofits with predictable streams of income, unlike other revenue sources that are less reliable. Donor loyalty is not measured by the size of a donation. Instead, it focuses on how many donors continue to donate to the organization on a regular and predictable basis. Nonprofits with a high donor retention rate have long-term supporters. Nonprofits with a low donor retention rate need to continually acquire new donors or larger gifts from their existing donors to keep up. A nonprofit’s donor retention rate has a significant impact on the organization. Organizations with higher donor retention rates do not have to invest in various methods to find new donors. Because of the transaction costs in securing new donors, retaining existing donors is a more cost-effective approach to fundraising. Donor recruitment involves a variety of fixed and variable costs which, when added together, may actually be more than the amount of the donation. Donors who have demonstrated loyalty to the organization require fewer mailings and other forms of communication to persuade them to donate because they are already supportive of the organization and its work. Donor stewardship is the process of demonstrating accountability to donors for the responsible use of their gift. It involves

ongoing communication with the donor as well as clear accounting for expenditures and outcomes achieved as a result of the donation. Stewardship also involves long-term relationship-building with donors, keeping abreast of their interests and working in partnership with them to achieve their philanthropic objectives. Nonprofit organizations should invest in donor retention efforts so that their organizations can continue to grow. Each year, nonprofits must add new prospects to their fundraising efforts to replace those donors that have left the organization. Donor attrition is a connected concept to donor retention. Donor attrition is simply the percentage of donors that an organization loses from one year to the next.

In practice Why is donor retention important? Nonprofits must be aware of their donor retention rates so they can assess the health of their fundraising efforts and potentially donors’ satisfaction with the work of the organization. Generally, a nonprofit with a donor retention rate of 50 percent or more is doing quite well with its retention efforts. In the United States, the average donor retention rate hovers around 40 percent. This might sound discouraging for fundraisers, but industry research points out that most donors only give once to a nonprofit organization. Nearly 70 percent of individuals who donate to a nonprofit will not give a second donation to the same nonprofit. Recent research from the Association of Fundraising Professionals found that the donor retention rate increases as the average size of the donation increases. Donors who make smaller size gifts to nonprofits tend to be more willing to donate elsewhere, while donors who make gifts of at least $100 are more invested in the nonprofit. They are also more likely to be more supportive in other behaviors such as volunteering or advocating for the organization. The true benefit of acquiring new donors can only come when that donor is retained over the long term. Another reason for nonprofits to be concerned with their donor retention rates is the impact of retention on an organization’s growth strategy. For example, steady and Richard D. Waters

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reliable donations can help the organization build an operational reserve that can be invested in the development of new programs and other innovations essential for survival and growth. This is analogous to research and development (R&D) in private firms. Moreover, a loyal donor is more likely to use their own personal and professional networks to promote the work of the organization. This word-of-mouth marketing could enhance the reputation of the organization and possibly result in more donations. Nonprofits concerned with donor retention and attrition should also review their databases and identify lapsed donors. A lapsed donor is someone who has given in the past but has stopped giving. Once donors stop giving, the chances of them giving again are quite small. Recent research from fundraising software providers (Boomerang, 2023) reveals that the average recapture rate of lapsed donors is only 5 percent in the United States. One trend that emerges from examining recaptured donors – those who decide to donate again to a nonprofit after quitting donating to that organization for one or more years – is that the longer the time it has been since the donor gave money to the nonprofit, the less likely they are to give again. Thus, it is extremely important to reach out to lapsed donors as soon as possible because as time passes, they become less and less likely to be recaptured. How to increase the donor retention rate Throughout the fundraising life cycle, nonprofit organizations have ample opportunity to continue reaching out to donors to stoke their interest and engagement with the nonprofit. When the potential donor is first introduced to the nonprofit organization, information should be given about the organization’s mission, its work, and its outcomes. The individual should also be invited to join the organization’s digital outreach – whether that takes place exclusively on social media platforms or also includes listservs and e-mail blasts. Volunteer opportunities as well as invitations to open houses and community presentations should be sent to potential donors to give them ample opportunities to become more involved with the nonprofit’s work. Nonprofits must be prepared to jump into action when a donation has been received. Research has shown that one of the most Richard D. Waters

important factors in keeping an individual engaged with a nonprofit is the speed with which genuine acknowledgment of a donation is made. Ideally a handwritten thank you note should be sent to the donor within 48 hours of receiving a donation. A personal acknowledgment should be sent to donors even for donations made online through e-giving platforms that send automatic receipts when accepting credit/debit card or other digital payments such as Venmo, PayPal, or cryptocurrency. Naturally, in extremely large organizations it may not be possible to send a hand-written note to all donors. The point is that the donor should receive a note of genuine thanks as soon as possible following receipt of the gift. After the first solicitation, the nonprofit organization should continue to cultivate the relationship with the potential donor turned actual donor. The donor should receive informational updates and opportunities to participate with the organization. The period immediately following a first donation is a critical stage in a nonprofit-donor relationship. Many experts believe that the second gift is more important than the first. Given the large percentage of donors who make one donation to a nonprofit and then move on to support other causes, the second gift is a key demonstration of loyalty for the donor, and it is a sign that the nonprofit is successfully reaching the donor with its communication efforts and, just as important, that the donor believes they have made a wise charitable investment because the organization is making progress toward its mission. Among the reasons cited for stopping their gifts to a nonprofit include the organization not acknowledging the donor’s support; not informing donors how money had been used; and not updating the donor about their programs/services. Stewardship of donated funds The four R’s of Stewardship (Kelly, 2001) are reciprocity, responsibility, reporting, and relationship nurturing. Reciprocity is the demonstration of gratitude for the donation made to the organization and a prompt and appropriate acknowledgment of that gift. After the gift is made, the nonprofit has the responsibility to do exactly what it told the donor that it would do with the gift. Then the organization reports back to the donor with informational updates so they remain

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informed about how their gift helped the nonprofit. The final stage of stewardship focuses on relationship nurturing and requires organizations to keep donors close to the organization by extending opportunities for them to be meaningfully engaged in its work. Nonprofits now have at their disposal fundraising tools, computer software, and databases to help them track individual donors and to calculate the lifetime value of a donor.

Current and future directions

The Fundraising Effectiveness Project is a current initiative that is a joint collaboration between the Association of Fundraising Professionals and the Center on Nonprofits and Philanthropy at the Urban Institute. This joint effort is designed to conduct research on fundraising effectiveness to help nonprofits increase their fundraising results at a faster pace. The project collects fundraising data from nonprofits annually so that nonprofits can compare their results to the fundraising gain and loss ratios to similar organizations. AFP offers this industry data free of charge so that nonprofits can make better-informed, growth-oriented decisions to grow their donor revenue. Additionally, the Fundraising Effectiveness Project offers a variety of online tools, such as the “Fundraising Fitness Test” and the “Fundraising Net Analyzer,” that allow organizations to assess the well-being of their fundraising efforts. The “Fundraising Fitness Test” allows nonprofits to evaluate their fundraising programs against more than 100 performance indicators against five different levels of donor types, while the “Fundraising Net Analyzer”

is a revenue-based analysis tool that includes fundraising expenses in a robust way of assessing the fiscal health of the organization. Richard D. Waters

Related topics

Charitable giving Donor and donor motivation ePhilanthropy Fundraising

Further reading and references

Barra, C., Pressgrove, G., & Torres, E. (2018). Trust and commitment in the formation of donor loyalty. The Service Industries Journal, 38(5–6), 360–377. https://​doi​.org/​10​.1080/​ 02642069​.2017​.1405937 Boomerang. (2023). A guide to donor retention. https://​bloomerang​.co/​blog/​donor​-retention/​ accessed 15 Sep 2023. Kelly, K. S. (2001). Stewardship: The fifth step in the public relations process. In R. I. Heath & G. M. Vasquez (Eds.), Handbook of public relations (pp. 279–290). Sage. O’Reilly, N., Ayer, S., Pegoraro, A., Leonard, B., & Rundle-Thiele, S. (2012). Toward an understanding of donor loyalty: Demographics, personality, persuasion, and revenue. Journal of Nonprofit & Public Sector Marketing, 24(1), 65–81. https://​doi​.org/​10​.1080/​10495142​.2012​ .652910 Sargeant, A. (2001). Managing donor defection: Why should donors stop giving? New Directions for Philanthropic Fundraising, 2001(32), 59–74. https://​doi​.org/​10​.1002/​pf​ .3204 Sargeant, A., & Jay, E. (2004). Building donor loyalty: The fundraiser’s guide to increasing lifetime value. Jossey-Bass. Wester, L. M. (2019). The 4 pillars of donor relations (2nd edn.). Academic Impressions.

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Earned income Definition

Earned income is the selling of products or services by a nonprofit organization (NPO) to generate revenue outside of traditional philanthropy.

In practice

Nonprofit organizations have historically relied on a combination of philanthropy and funding from or contracts with the government. Some subsectors, such as healthcare and education, have also historically relied on generating income by charging fees or tuition for the services they provide. Traditional philanthropy is defined as funding from individual and institutional donors and foundations that do not expect a financial return on their “investment” and are simply providing funds to support the creation of social good. While the revenue mix for a nonprofit differs based on organizational structure, mission, and geographic location, in general, the primary revenue sources for today’s NPOs are a combination of philanthropic funding, government funding, and earned income. Earned income has existed for centuries within the nonprofit sector, tracing its roots to religious orders selling food, candles, beer, and other commodities to support their missions. Globally, the activity of selling products or services to support the mission is also called social entrepreneurship, fee-for-service programming, or commercialization. In the U.S., approximately 49 percent of revenue generated by nonprofits is through earned income. Some well-known examples of earned income include the Girl Scouts of the USA supporting their mission through the annual sale of Girl Scout Cookies, the Salvation Army running Thrift Stores, or the

YMCA selling gym memberships. Earned income can also include performance fees, conferences, events, tuition, food, magazines, advertising sales, and membership fees. While many earned income activities are mission-related, other earned income activities, such as renting a parking lot or running a coffee shop, may not be. In the U.S., these unrelated activities, defined as those that do not actively support the mission of the organization, are taxed. While the majority of earned income activities take place within the existing nonprofit, some NPOs have chosen to break out their profit-generating activities as wholly owned, for-profit subsidiaries. Examples include a university that establishes a venture capital fund to attract investors for promising start-ups developed by university students or a non-profit hospital that operates a for-profit medical equipment company. More NPOs are developing for-profit subsidiaries to limit liabilities for the NPO and to prevent the NPO from veering away from its primary exempt purpose. A NPO can also create commercial co-ventures and cause-related marketing, which are partnerships with for-profit entities that typically involve the for-profit providing a portion of sales revenue to a nonprofit. Over the past decade, earned income has remained relatively stable, although the amount of program service revenue by subsector varies significantly. Recent research (Lam, 2020) also demonstrates that the ability of a NPO to generate a positive net margin on earned income is decreasing. A study of over 400,000 U.S. 501(c)(3) nonprofits demonstrates that the median net margin of U.S. nonprofits decreased from a median of 3.7 percent to 2.8 percent over the past decade even though program service revenue increased slightly in all sectors except for healthcare.

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Strategic and tactical issues Earned income started expanding in the 1980s, primarily in the human services subsector. In the 1990s, a broader base of NPOs started pursuing earned income opportunities in response to stakeholders who valued operational efficiencies and a more business-like approach to managing an organization and reducing reliance on fundraising. Today, the nonprofit sector faces an environment that includes increased competition for limited funds while it also attempts to meet demands for more technical and specialized services from the communities it serves. As a response to these demands and higher expectations for organizational efficiency and capacity, many NPOs feel pressure to develop creative strategies for survival, including earned income initiatives. While earned income is increasingly viewed as a positive way for a nonprofit to diversify its revenue mix, research demonstrates that there are pros and cons to implementing earned income initiatives. One way to address the pros and cons of earned income is to view it through the lens of Resource Dependence Theory (RDT). Pfeffer and Salancik (1978) developed RDT to consider the sources and consequences of power in relationships within and between organizations. Pfeffer and Salancik believe that organizations are never truly self-sufficient but are interdependent with other organizations that are in their environment. Within this context, RDT encourages an organization to establish partnerships that allow them to minimize uncertainty and dependence and maximize autonomy. RDT becomes particularly relevant for nonprofits facing resource constraints, as each constraint is a dependence, and the most successful organizations are those that can effectively manage their dependencies. From an earned income perspective, a critical shift is that paying clients and customers are increasingly providing resources to nonprofits instead of the traditional philanthropy of individual and institutional donors. As a result, organizations navigate the competing values of profit generation and social value creation while satisfying multiple stakeholders who may have differing views on the balance between the two. Several industries, including healthcare, education, and fitness, include both for-profit and non-profit entities, and the for-profit corporations have lobbied against and some-

times sued nonprofits for unfair competition, believing that a nonprofit should have to pay taxes on revenue generated through the sale of goods or services. Diversification of funding sources is the primary reason why a NPO pursues earned income. Additional revenue sources provide flexibility for NPOs, especially as they continue to face strong competition for more traditional funding sources. Earned income can also help advance the mission of the nonprofit, particularly if the product or service offered engages the NPO’s clients. For example, a NPO that provides job training for hard-to-employ individuals can run a coffee shop staffed by the clients it serves. The NPO’s mission is being fulfilled as it generates revenue through the sale of products at the coffee shop. However, a NPO must consider the operational impact of earned income. First, diversification may result in increased administrative costs. It can be difficult for a NPO to pursue multiple sources of funding, especially if they have been historically reliant on government contracts, collective impact funders, or other large donors who require extensive reporting and annual funding applications. Adding an earned income component can increase expenses for a NPO, including rent, accounting, administrative oversight, and supplies. All of these can be considered transaction costs and, consistent with RDT, must be taken into account when a nonprofit embarks on an earned income strategy. Second, the pursuit of earned income can be a diversion for the nonprofit. In fact, pressure to pursue earned income initiatives can result in a lack of innovation that can limit future opportunities for collaboration and resource generation. Earned income can also erode organizational legitimacy. For example, if a well-respected homeless shelter opens a coffee shop, and customers have negative experiences, it may have a negative impact on the perception of the sponsoring NPO. Third, the combination of profit generation to support missional activities can result in mission drift. The establishment of an earned income initiative can be seen as shifting the NPO’s focus from having charitable goals to having pecuniary goals. From a stakeholder perspective, the addition of earned income initiatives can also result in some funders Kimberly M. Reeve

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questioning the need for their support considering these new revenue-generating activities. The pursuit of profit can also cause internal division, as many nonprofit employees join an organization to fulfill its mission, not to generate as much profit as possible. The concept of a NPO maximizing profit can also conflict with social goals and public values. Fourth, research demonstrates that NPOs seeking to launch earned income opportunities have overly optimistic revenue projections. In fact, resource diversification through earned income typically has a relatively minimal impact (positive or negative) on a NPO. Businesses are difficult to run, and not every NPO is realistic about the challenges they will encounter. Policy issues Nonprofits incorporated in the U.S. are typically exempt from paying taxes on income generated through traditional philanthropy. A nonprofit can also generate earned income that is not taxable provided that the business-related activity is substantially related to the charitable purpose that is the basis for the organization’s exemption. From a tax perspective, the Internal Revenue Service (IRS) considers earned income to be “unrelated business income” and therefore taxable if the activity generating the income meets three requirements: “It is a trade or business, it is carried on regularly, and it is not substantially related to furthering the organization’s mission or purpose for which it received an exemption from taxes” (Internal Revenue Service, 2021, p. 2). Under this definition, an after-school program that provides math tutoring to high school students could run a coffee shop and be exempt if it employs eligible students. Meanwhile, a childcare center that also ran a coffee shop would have to pay taxes, because the coffee shop would be considered unrelated to the organization’s primary mission of providing childcare. However, the IRS guidelines are broad enough to make it difficult for some NPOs to determine if their activities are mission-related or not. In these cases, the NPO should consult an accountant who is familiar with the IRS’ guidelines. In 2017, the Trump administration passed the Tax Cuts and Jobs Act (TCJA). Intended Kimberly M. Reeve

to simplify taxes for the average individual, it doubled the standard deduction for married couples and individuals. In addition, the TCJA capped the amount taxpayers can write off at $100,000 for singles and $200,000 for couples filing jointly. Policy watchdog agencies immediately warned that this legislation would reduce the incentive to itemize deductions of cash and gifts to charities and would therefore lead to a decline in donations. Interestingly, donations increased in both 2019 and 2020, with individuals representing 69 percent of all charitable giving. However, declines in giving were seen in the arts and health sectors. The COVID-19 pandemic also forced nonprofits to adapt, with many revising or revisiting earned income initiatives. Arts organizations, reliant on the earned income of ticket sales to performances, became more reliant on philanthropic donations and the sale of merchandise. Most Americans received Economic Impact Payments, and it is thought that a portion of these were donated primarily to human services organizations, resulting in an increase in giving in these subsectors. As we emerge from the pandemic, charitable giving trends remain uncertain, causing NPOs to continue to explore earned income initiatives as a way to diversify and stabilize their revenue. During the pandemic many businesses were forced to close either temporarily or permanently. The IRS recognized that NPOs faced similar closures with their earned income streams and, through the CARES Act, provides for carryback of any net operating loss (NOL) arising in a tax year beginning after 2017 and before 2021 to each of the five tax years preceding the tax year of the NOL. However, beginning in 2021, there are also new reporting requirements, including the requirement for nonprofits that have more than one unrelated business must compute the Unrelated Business Taxable Income (UBTI) separately for each trade or business.

Future trends

Nonprofits will continue to struggle with limited resources (human and financial), increased demands based on increased community needs, and need for board members and volunteers to be effective advocates. This alone will cause nonprofits to inves-

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tigate or expand earned income opportunities. Relatedly, law and regulations around earned income continue to evolve. As an example, over 22 states now have regulations around commercial co-ventures that involve special registrations. Since 1990, the world has seen the rise of social entrepreneurship – the combination of a social mission and profit generation that is pursued by nonprofits, for-profits, or hybrid organizations. This significant rise of social entrepreneurism has demonstrated that generating a profit through the provision of products or services might allow an organization to fulfill its mission effectively and sustainably. Consumers, especially Millennials and Gen Z, want to support values-driven organizations and view “entrepreneurial” earned income activities favorably. Kimberly M. Reeve

Related topics

Commercialism Income portfolio analysis Managerialism Revenue diversification Social enterprise Social entrepreneurship Unfair competition Unrelated business income

Further reading and references

Albrecht, K., Varkey, S., Colville, K., & Clerkin, R. (2018). Perceptions of nonprofits and for-profit social enterprises: Current trends and future implications. Journal of Nonprofit Education and Leadership, 8(3), 254–276. https://​doi​.org/​10​.18666/​JNEL​-2018​-V8​-I3​ -9134 Foster, W., & Bradach, J. (2005). Should nonprofits seek profits? Harvard Business Review, 83(2), 92–100. https://​hbr​.org/​2005/​02/​should​ -nonprofits​-seek​-profits Hung, C., & Hager, M. A. (2019). The impact of revenue diversification on nonprofit financial health: A meta-analysis. Nonprofit and Voluntary Sector Quarterly, 48(1), 5–27. Internal Revenue Service. (2021, March). Publication 598: Tax on unrelated business income of exempt organizations. https://​www​ .irs​.gov/​pub/​irs​-pdf/​p598​.pdf Lam, M. (2020). Public leadership under resource constraints: An examination of the U.S. nonprofit sector. Journal of Leadership

Studies, 14(1), 89–95. https://​doi​.org/​10​.1002/​ jls​.21686 Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. Harper & Row.

Education-focused organizations Definition

Learning-focused nonprofits support learning by helping to meet the academic, social-emotional, and material needs of youth, families, and educators.

In practice

Across the country, countless nonprofits support the learning of children and youth by 1) augmenting and enhancing the work of school systems and other public institutions, and/or 2) providing out-of-school services directly to learners, families, and educators. A typical American city may contain hundreds of learning-focused nonprofits focused on everything from afterschool programming to early learning to educator professional development. These nonprofits may be supported in turn by regional or statewide intermediaries and national parent organizations. In Pittsburgh, Pennsylvania, for example, nearly 150 nonprofits provide mentoring services to learners of different ages, schools, and neighborhoods. These nonprofits are supported at the regional level by the Mentoring Partnership of Southwestern Pennsylvania, which curates research and best practices and delivers training, technical assistance, and professional development for the staff and volunteers of local programs. The Mentoring Partnership is further supported by MENTOR, a national organization working to expand access to quality mentoring through advocacy, research, and policy. Similar infrastructures exist for afterschool organizations, childcare organizations, and nearly every other sector that affects young people’s learning. Along with school systems, cultural institutions, and other entities both public and private, learning-focused nonprofits and the infrastructures that support them play an essential role in the “learning Gregg Behr

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ecosystems” or “learning landscapes” that youth and families navigate.

Current issues and challenges

On the one hand, learning-focused nonprofits must attend to the same building blocks that define any high-performing organization. They must invest in great leaders and a pipeline of promising talent. They must attend to sound fiscal management, risk management, strategic planning, and the other ingredients of organizational stewardship. On the other hand, learning-focused nonprofits face unique issues and challenges. Many (though not all) such nonprofits work in tandem with public school systems. Some offer in-school services for students and teachers; others offer out-of-school-time programs for students in a given district or neighborhood. Still others offer professional development for educators or experiences for students that schools cannot otherwise provide, whether due to funding constraints, staff capacity, or other limitations. Such arrangements require thoughtfully crafted and well-maintained partnerships among nonprofits, schools, and other external entities such as transportation companies and information technology networks. Among the most important elements of these partnerships are genuine relationships and clear communication. Learning-focused nonprofits and school personnel must dedicate time and space to building and maintaining these relationships, co-designing plans for data sharing, program evaluation, and stakeholder engagement. Such plans must likewise reflect a shared understanding of the partnership’s purpose, roles, timelines, and target outcomes. Those outcomes may include improved academic results for learners. Indeed, many learning-focused nonprofits aim to supplement and/or deepen the content delivered by schools and classroom teachers. At the same time, nonprofits may also attend to the extracurricular factors that affect learners’ growth and development, including issues of food insecurity, access to counseling and mental health services, parent and caregiver education, technology access, and more. In Pittsburgh, for example, dozens of learning-focused nonprofits have partnered with Pittsburgh Public Schools to create the Summer Dreamers Academy – a free, 27-day Gregg Behr

summer learning camp in which K-8 students take academic classes in the morning and participate in enrichment activities in the afternoon. In partnership with district staff, nonprofit personnel offer learners ceramics, kayaking, cycling, and more, helping students build confidence, gain new experiences, and apply academic concepts in relevant, real-world contexts. Another issue to which learning-focused nonprofits must attend is quality. While all nonprofits face questions of programmatic effectiveness, the stakes are especially high when working with children, families, and educators. Just as high-quality programming can improve young people’s trajectories for years to come, poorly executed programs carry the potential for both short- and long-term harm. Many mentoring organizations warn against programs that violate evidence-based best practices; for learners, having a bad mentor can be more harmful than having no mentor at all. Therefore, the prioritization of proven, high-quality programming is paramount for any learning-focused nonprofit that aims to serve constituents responsibly.

Criticisms and debate

Low-quality programming has, at times, drawn scrutiny of learning-focused nonprofits. In addition to potentially harming individual learners, low-quality programming may exacerbate systemic inequities. Moreover, because some nonprofits wield enormous influence – whether due to their reputation, the stature of their donors and boards, or the critical importance of the niche they aim to fill – they have the potential to affect how public systems operate. These systems may include schools, districts, and contracted affiliates from early learning centers to out-of-school-time programs. This last point has been the source of several controversies. Because learning-focused nonprofits often partner closely with schools and/ or receive government funding for the services they provide, their work invites questions about the role private entities should play within public systems. Though most nonprofits aim to advance public interests and work toward the common good, they aren’t subject to the same scrutiny as, say, a public school district. Their leadership is not elected and holding them accountable is generally more difficult.

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Other critics accuse learning-focused nonprofits of treating the symptoms of systemic problems rather than addressing the root cause. Such an arrangement, they argue, leaves systemic injustice to fester, perpetuating the very problems that nonprofits exist to address. Nonprofits’ time and resources would thus be better spent advocating for political change. Advocates counter that while political change is necessary, learners and families have immediate needs that nonprofits are uniquely equipped – and morally obligated – to meet. Developed during a different industrial era, the nation’s education system was not designed to address the myriad factors that impact modern learners: widening wealth inequality, a growing demand for advanced degrees, and rapid societal and technological shifts. Despite the invaluable work of individual educators, schools alone have not been equipped to meet such challenges. “Fewer young people today experience the empowerment of education through conventional schooling alone,” notes Hannon et al. (2019). However, “when they engage with a range of resources within a broader community, charged with the power of social interaction in the connected world, learners of all ages, temperaments, and aptitudes can seize greater opportunities that better meet their needs”. With their unique missions, funding sources, and capacities, learning-focused nonprofits help provide that “range of resources” in a variety of contexts, from the national to the hyperlocal. Moreover, nonprofits’ programs and projects can, when successful, be adopted by public systems accountable to democratic controls.

Looking ahead

Among learning-focused nonprofits, the COVID-19 pandemic and the nation’s continuing struggle against social inequity have sparked a renewed push for educational justice; innovative methods and programming; and genuine relationships with schools, communities, and individual stakeholders. These trends are likely to accelerate, changing how learning-focused nonprofits design and deliver programs, engage communities,

and build partnerships with both public systems and private entities. ● A focus on educational justice will drive nonprofits to reconsider where and to whom they distribute resources, strategically providing support to the learners who need it most. As learning-focused nonprofits work toward educational equity, many will examine their work through a lens that’s conscious of – and responsive to – the ways that race, class, gender, ability, and more may affect learners’ trajectories and needs. ● A focus on innovative methods will drive nonprofits to think critically about how they design and deliver programming to learners, families, and educators. Learning-focused nonprofits will deploy technology to reach new stakeholders and better support existing ones. They will offer alternatives to traditional paths to success, creating personalized opportunities for learning, credentialing, and ongoing development tailored to learners’ unique needs. ● A focus on genuine relationships will drive nonprofits to create and support opportunities for staff, school leaders, community members, and others to collaborate on new approaches to teaching and learning. By listening, first and foremost, to the needs of learners, nonprofits will create programs designed for – and with – the stakeholders they aim to serve. This focus on relationships will strengthen nonprofits’ partnerships with schools and other public-facing institutions. School systems, for example, may decide to hire district-level “Relationship Directors” tasked with building learners’ social capital. Such a position would draw upon the resources of learning-focused nonprofits able to support the specific goals of schools and learners alike. Finally, communities may find that supporting tomorrow’s learners will require investments not only in schools, but also in “learning ecosystems” or “learning landscapes” more broadly, leveraging and supporting the collective efforts of science centers, libraries, museums, afterschool programs, makerspaces, and other learning-focused nonprofits. These landscapes, with components both public and private, will better reflect our Gregg Behr

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connected, interdependent society. The partnerships forged within them will spark and spread high-impact innovations; support collaboration among formal and informal educators; provide opportunities for young people to solve real-world problems; and build more equitable, resilient communities. Gregg Behr

tion to help young people thrive. Brookings Institution Press. Winthrop, R., Barton, A., Ershadi, M., & Ziegler, L. (2021). Collaborating to transform and improve education systems: A playbook for family-school engagement. Brookings. https://​ www​.brookings​.edu/​essay/​collaborating​-to​ -transform​-and​-improve​-education​-systems​-a​ -playbook​-for​-family​-school​-engagement/​

Related topics

Accountability Accreditation Effectiveness of nonprofit organizations Performance management Public policy and nonprofit organizations Social responsibility of nonprofit organizations Transparency Wealth inequality

Effectiveness of nonprofit organizations Definition and context

Since the 1970s, the nonprofit sector has been besieged by demands that nonprofit organizations (NPOs) pay greater attention to organizational effectiveness and the need to Further reading and references demonstrate it. To a greater degree than ever, Behr, G., & Rydzewski, R. (2021). When you the concept of organizational effectiveness wonder, you’re learning: Mister Rogers’ has grown in importance. And as nonprofit enduring lessons for raising creative, curious, leaders and funders experience constant prescaring kids. Hachette Books. sure to document results and prove impact, Hannon, V., Thomas, L., Ward, S., & Beresford, T. (2019). Local learning ecosystems: more and more NPOs and their stakeholders Emerging models. World Innovation Summit have sought to understand what effectiveness for Education. https://​www​.innovationunit​ is and how to attain and sustain it. However, it turns out the construct of organizational .org/​publications/​local​-learning​-ecosystems​ effectiveness is highly contested, in research -emerging​-models/​ Learning Policy Institute & Turnaround for and in practice. For all that has been written, Children. (2021). Design principles for schools: there is to date no true consensus for any Putting the science of learning and develop- single or agreed upon definition of organiment into action. Learning Policy Institute. zational effectiveness. Nonetheless, scholars https://​files​.eric​.ed​.gov/​fulltext/​ED614438​.pdf Lechterman, T. (2022). Philanthropists seeking to and researchers have provided a range of fix big problems must tread carefully – Here’s models and perspectives on effectiveness and how they can make their efforts more compati- how to best achieve it and, collectively, these ble with democracy. The Conversation. https://​ offer useful insight for how nonprofits can understand and address the continued press theconversation​.com/​philanthropists​-seeking​ -to​-fix​-big​-problems​-must​-tread​-carefully​ to enhance NPO impact, accountability and -heres​-how​-they​-can​-make​-their​-efforts​-more​ effectiveness. -compatible​-with​-democracy​-173711 Maier, A., Daniel, J., Oakes, J., & Lam, L. (2017). Community schools as an effective school Current directions improvement strategy: A review of the evidence. There are several perspectives of particular Learning Policy Institute. https://​lea​rningpolic​ value as we work to understand effectiveness. yinstitute​.org/​sites/​default/​files/​product​-files/​ For many, the obvious starting place has been Community​_Schools​_Effective​_REPORT​.pdf Remaking tomorrow: What comes next? (2021). to utilize the rational goal attainment model. Remake Learning. http://​ remakelearning​In this model, organizations are viewed as rational instruments – mechanisms to achieve .org/​wp​-content/​uploads/​2021/​06/​Remaking​ something. Thus, NPO effectiveness is -Tomorrow​-What​-Comes​-Next​-web​.pdf Winthrop, R., Barton, A., & McGivney, E. (2018). assessed by the degree to which an organizaLeapfrogging inequality: Remaking educa- tion has accomplished its goals. This model

makes intuitive sense to many, yet it can be

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inadequate given the complexities of NPOs. For example, should an organization be considered effective if it accomplishes the goals it identifies for a year but fails to generate adequate funds or manage them well enough to remain in operation? Or is an organization effective if they set goals that are too easy to achieve, or of little relevance to the needs or interests of their clients, constituents, or other stakeholders? Many would judge a closed NPO as ineffective, no matter what goals it did accomplish. Useful as it may be, such concerns highlight the motivation for many to look beyond the goal-attainment model when seeking to explain the complicated construct of organizational effectiveness. A widely appealing alternative has been the “system resource” approach, which explains NPO effectiveness in terms of securing needed resources (especially financial). Thus, systems resource analysts (Yuchtman & Seashore, 1967) use financial measures such as total revenues generated per year, or success in fundraising, as indicators of effectiveness. Of course, while resource acquisition undoubtedly is a component of organizational effectiveness, its overall importance will be valued differently by different stakeholders. Given this, certain stakeholders may highly value resource acquisition while others are likely to place greater importance on measures of mission accomplishment when judging NPO effectiveness. Another alternative to the goal-attainment model is the “internal process approach” (Steers, 1977). Instead of focusing on the ends or goals, this approach assessed effectiveness by examining internal processes, such as measuring performance on a specific set of management practices (i.e., the means) that are perceived to result in organizational effectiveness. Such assessments often manifest as judgments about the degree to which an NPO uses “best practices.” Each of these approaches provides useful insights on the challenges confronted by NPOs. And yet, even when considered collectively, the research finds they fall short when it comes to understanding and assessing NPO effectiveness. To develop a more complete and integrative understanding of NPO effectiveness, Herman and Renz complement these approaches with the use of two additional perspectives, the multiple constituency perspective and social

constructionist perspective. The multiple constituency perspective holds that organizations have multiple different constituencies, or stakeholders, and that each constituency is likely to evaluate a NPO’s effectiveness by using criteria important to that constituency. Thus, NPO effectiveness is not a single reality but rather a more complicated matter of addressing differing interests and expectations. For example, clients may pay closer attention to changes in their personal condition (are they improving or achieving what they want from their relationship?), while funders may attend more to whether the organization is following correct management procedures (e.g., engaging in strategic planning or outcomes assessment) or whether the NPO is providing consistently accurate client and financial reports. The second perspective, social constructionism, holds that reality or some parts of reality are created by the beliefs, knowledge, and actions of the people involved. Therefore, reality is not something independent of people and their judgments, even though they may believe that what they examine exists as an independent, objective reality. Thus, reality (effectiveness) is a function of one’s perceptions rather than a singular objective reality. For example, individual organizational members and stakeholders are likely to communicate with one another about certain aspects of an NPO’s effectiveness. In so doing, they may also hear communications from people in the NPO about how well they and the organization are doing. Through these interactions, judgments of effectiveness are shaped and even changed. However, given the socially constructed nature of effectiveness, it is not uncommon for different constituencies to differ in their judgments of the same organization’s effectiveness, even when evaluating the same information. Herman and Renz (2008), in incorporating these two perspectives, conclude that overall nonprofit organizational effectiveness is whatever its relevant multiple constituents or stakeholders judge it to be.

In practice

Building on the integrative work of Herman and Renz (2008), we find there is a specific set of themes that are especially important to our understanding of effectiveness and how David O. Renz and Elizabeth Ireland

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these insights can be applied to the practice of nonprofit management. They are: ● NPO effectiveness is always a matter of comparison ● NPO effectiveness is multidimensional ● NPO effectiveness is a social construction ● NPO effectiveness and board effectiveness are related, but in what ways remains unclear ● NPO effectiveness is related to the use of good management practices ● NPO effectiveness is highly related to organizational responsiveness for all stakeholders ● NPO effectiveness relates to yet must be understood as separate from effectiveness at program and network levels. Effectiveness is always a matter of comparison When considering effectiveness, it is critical to clarify, “to what are we comparing our organization’s effectiveness?” Is it a comparison with the same organization but at an earlier time, or to similar organizations at the same time, or to some ideal model, or something else? Another key consideration is whether others are using the same bases for comparisons. This is key to making sense of conflicting judgments of effectiveness, and the bases for comparison often are implicit, hidden or unknown (sometimes even to those doing the judging). Effectiveness is multidimensional NPOs typically have multiple criteria by which to judge their effectiveness, and these often are independent of one another. This is important to understand because it means overall NPO effectiveness cannot legitimately be assessed with any single indicator or measure. Also, strategies focused on maximizing a single criterion (e.g., surplus, or growth, or total revenues) are inadequate. Similarly, this means it is inappropriate to assess organizational effectiveness by using the results of only one individual program. Effectiveness is a social construction Since effectiveness is a social construction, it is whatever significant stakeholders “think” it is. There is no single objective reality “out there” waiting to be judged. This premise is David O. Renz and Elizabeth Ireland

a challenge to many because they want effectiveness to be an objective condition that can be observed, measured, and understood in the same way by everyone. Unfortunately, it is not so simple. In the world of nonprofits there are activities and accounts of activities, such as annual reports, program outcome reports, stories told by CEOs to board members, funders, and others. These accounts have little importance until someone important interprets them and attaches meaning to them, thereby forming judgments of effectiveness (and usually communicating those judgments) and then acting on their judgments. And, because nonprofits have multiple constituents, each type is inclined to make their own judgments of effectiveness – and we know from our research that they will not all agree! Further, some stakeholders will be more credible, some will be more influential, and (as confounding as it may seem) research shows that stakeholders’ judgments do change over time. Given this reality, NPO leaders need to take care to identify what is meaningful to their key constituents and use this insight to inform their own judgments. Effectiveness and management practices The idea that the use of certain board and management practices (best practices) will lead to improved organizational effectiveness is popular, and there is some basis in reality for this. Research by Herman and Renz (2004) and others affirms that NPOs that are deemed more effective are often more likely to use “correct” management practices – practices such as use of a mission statement, a recent assessment of client needs, a planning document, a system to measure client satisfaction, a formal CEO and employee appraisal process, an independent financial audit, and a statement of organizational effectiveness criteria. Research indicates that for funders, board members, and senior managers, organizations rated as more effective do in fact use more of these “correct” management practices and that greater use of more of these correct practices was positively correlated with higher ratings of organizational effectiveness. However, the weight placed on correct management practices varied significantly among these various categories of stakeholders, which challenges popular belief that any set of practices are “best.”

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The concept of “best practices” has become somewhat of a holy grail for nonprofits trying to enhance their effectiveness. However, NPOs should proceed with care when adopting “best practices” because the research suggests there are no universally applicable practices that are relevant to all NPOs under all circumstances. There are important foundational practices all NPOs need (such as an engaged governing board), but these are different from “best.” Herman and Renz (2004) assert it is more appropriate to consider practices labeled “best” as “promising practices” – practices that may warrant consideration but need to be assessed in terms of the specific mission, context, and needs of the organization at the time. Furthermore, it generally is true that what is deemed “best” will change over time. Effectiveness and organizational responsiveness One of the limitations of much research on NPO effectiveness is that the researchers tend to focus on specific objective criteria to study. But, as explained earlier, researchers have not succeeded in identifying universal indicators of effectiveness, suggesting that this is not very useful. Herman and Renz (2004) report a high degree of correlation, across a variety of stakeholders, for a strong positive relationship between stakeholders’ ratings of an NPO’s responsiveness and their ratings of that NPO’s effectiveness. From a practical standpoint, this suggests that responsiveness can be used as an indicator of effectiveness or, at least, a kind of effectiveness. Further, it suggests that, in the development of an effectiveness assessment process, it is likely to be useful to invite key stakeholders to identify what they deem important to assess. Differentiating program, organization, and network effectiveness As we have explained, the work of understanding and assessing NPO effectiveness can be a challenge. The result is that many NPOs will rely on whatever effectiveness results they have available to judge effectiveness. However, too often these assessments use program outcomes as a proxy. There is no question that NPO effectiveness is related to effectiveness at the program level, yet these are not the same. This is true for network

effectiveness, too, for those NPOs that are part of larger service delivery networks. It is becoming increasingly important to understand NPOs’ effectiveness in relationship to their service delivery networks, when they are in such networks, because the perceived effectiveness of such an NPO often relates to the effectiveness of others in the network. It is important to assess effectiveness at each of the program, organization, and network levels.

Future directions

In general, the research and understanding of the construct of nonprofit organizational effectiveness continues to grow in ways that build on the themes identified in this entry. Many new scholars and researchers are joining our search for a greater understanding of nonprofit effectiveness, seeking novel ways to elaborate on our current understanding through new methods, new strategies, and new directions of inquiry. We highlight two notable directions. One stream of ongoing research focuses on the relationship between governing boards and their effectiveness and organizational effectiveness. While largely a separate body of literature, it is useful to highlight certain aspects of this research because there is strong interest in understanding more deeply the nature and core elements of the positive relationship between board effectiveness and overall organizational effectiveness (Herman & Renz, 2008). Some want to claim this relationship is unidirectional, that board effectiveness leads to NPO effectiveness. Others conceive it as the opposite. Herman and Renz (2008) report the direction of this relationship is mixed. Further, DuBois et al. (2007) recently examined this relationship in a meta-analysis of previous studies, comparing results of studies that utilized board effectiveness versus organizational effectiveness as the dependent variable (with regard to each influencing the other). They found about the same number of studies testing causality in each direction. Earlier studies contribute nuanced insights related to the question of board effectiveness contributing to organizational effectiveness (or certain elements of it, such as financial performance). A study by Jackson and Holland (1998), in a study on measurement of board effectiveness, also reported a posiDavid O. Renz and Elizabeth Ireland

202  Elgar encyclopedia of nonprofit management, leadership and governance

tive relationship between board effectiveness and organizational effectiveness. Herman and Renz (2004) report that CEOs and board leaders both consider NPO financial condition related to board effectiveness, but this is perceived without any empirically derived basis. Brown (2005) found a slight positive relationship between board performance and organizational performance but, once they controlled for organizational size and age, there was essentially no relationship between board performance and NPO performance. Clearly there is room for more research, and some of the newer research methods (such as structural equation modeling) offer some promise for teasing out the relationships, elements, and contingencies associated with these questions. But for practitioners, the implication is that it is best to invest in improving both board and organizational performance because they are likely to enable each other. Another recent study (Willems et al., 2016) examines NPO reputation for effectiveness, with emphasis on assessing the subjective nature of NPO effectiveness through the inclusion of stakeholder perceptions of inputs, outputs, and outcomes. They find that these judgments of effectiveness are shaped by trust, satisfaction, involvement, and output ambiguity. An organization’s effectiveness reputation (i.e., the stakeholder’s subjective perception of effectiveness) has an impact on their supportive behaviors towards the organization, making this a notable aspect of organizational effectiveness. David O. Renz and Elizabeth Ireland

Related topics

Accountability Managerialism Mission and economics Performance management Professionalism Social change and nonprofit organizations Social responsibility of nonprofit organizations Social return on investment Stakeholder management

Further reading and references

Brown, W. A. (2005). Exploring the association between board and organizational performance in nonprofit organizations. Nonprofit

Thad D. Calabrese and Todd L. Ely

Management and Leadership, 15(3), 317–339. https://​doi​.org/​10​.1002/​nml​.71 DuBois, C., Caers, R., Jegers, M., De Cooman, R., De Gieter, S., & Pepermans, R. (2007). The non-profit board: A concise review of the empirical literature. Zeitschrift für öffentliche und gemeinwirtschaftliche Unternehmen: ZögU/Journal for Public and Nonprofit Services, 30(1), 78–88. https://​doi​.org/​10​.5771/​ 0344​-9777​-2007​-1​-78 Herman, R. D., & Renz, D. O. (1997). Multiple constituencies and the social construction of nonprofit organizational effectiveness. Nonprofit and Voluntary Sector Quarterly, 26(2), 185–206. https://​doi​.org/​10​.1177/​ 0899764097262006 Herman, R. D., & Renz, D. O. (2004). Doing things right: Effectiveness in local nonprofit organizations, a panel study. Public Administration Review, 64(6), 694–704. https://​doi​.org/​10​ .1111/​j​.1540​-6210​.2004​.00416​.x Herman, R. D., & Renz, D. O. (2008). Advancing nonprofit organizational effectiveness research and theory: Nine theses. Nonprofit Management and Leadership, 18(4), 399–415. https://​ doi​ .org/​10​.1002/​nml​.195 Jackson, D. K., & Holland, T. P. (1998). Measuring the effectiveness of nonprofit boards. Nonprofit and Voluntary Sector Quarterly, 27(2), 159–182. https://​doi​.org/​10​ .1177/​0899764098272004 Renz, D. O., & Herman, R. D. (2016). Understanding nonprofit effectiveness. In D. Renz (Ed.), The Jossey-Bass handbook of nonprofit leadership and management (4th edn.) (pp. 274–292). Jossey-Bass. Steers, R. M. (1977). Antecedents and outcomes of organizational commitment. Administrative Science Quarterly, 22(1), 46–56. https://​ doi​ .org/​10​.2307/​2391745 Willems, J., Jegers, M., & Faulk, L. (2016). Organizational effectiveness reputation in the nonprofit sector. Public Performance & Management Review, 39(2), 454–475. https://​ doi​.org/​10​.1080/​15309576​.2015​.1108802 Yuchtman, E., & Seashore, S. E. (1967). A system resource approach to organizational effectiveness. American Sociological Review, 32(6), 891. https://​doi​.org/​10​.2307/​2092843

Endowment Definition

Endowments are assets owned by a nonprofit organization that are invested, usually in the capital markets, with the intent of generating

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income for the organization. This income might take liquid forms such as dividends or interest, or less liquid forms such as the unrealized gains and losses of these investments. The American Institute of Certified Public Accountants (AICPA) defines endowment as: [A]n established fund of cash, securities, or other assets to provide income for the maintenance of a not-for-profit entity (NFP) … Endowment funds generally are established by donor-restricted gifts and bequests to provide either of the following: a) A permanent endowment, which is to provide a permanent source of income [or] b) A term endowment, which is to provide income for a specified period. Alternatively, an NFP’s governing board may earmark a portion of its unrestricted net assets as a board-designated endowment fund. (AICPA, 2013, section 4.64)

This definition of endowment makes clear that the assets that comprise the corpus (that is, the original endowment assets) may be a mixture of donor-restricted contributions or unrestricted (that is, with no donor restrictions) residuals; while these types of endowments are reported separately on a nonprofit’s balance sheet, they may be functionally commingled for investment purposes. Endowments might be managed directly by the nonprofit itself or through a separate organization that is legally distinct from the main organization. This might be done to protect the corpus of the endowment from potential legal issues, to have its management be the sole focus by someone, or to aggregate endowment funds that are in separate legal entities into a single entity for management or investment purposes. Calabrese and Ely (2017) find that about 13 percent of nonprofits with endowments manage them through a separate legal entity. The literature on endowment specifies several reasons why nonprofits might seek to accumulate these assets in the first place. Most basically, endowment is viewed as a financial buffer and protection against revenue disruptions from normal business cycles. Indeed, one reason donors might contribute to a nonprofit’s endowment rather than its operations is to help ensure the long-term viability of the organization (Bowman et al., 2007). Bowman (2007) notes that endowments are not rainy-day funds themselves however, and it is the endowment

income that provides a minimum amount of resources to the organization by establishing a “floor under spending”; nevertheless, the endowment corpus itself cannot be used in most cases to replace lost revenue or increase spending. In addition, Hansmann (1990) speculates that endowments enhance the long-term reputations of organizations and help transmit inter-generational values and goals of organizations through time. From a financial management perspective, endowment generates income that is independent from any organizational output; in that sense it is “fixed,” meaning it is not dependent upon performing some service unlike other variable revenues. Endowment income may be best viewed as a tool to match some portion of an organization’s fixed costs (such as interest, salaries, depreciation, etc.) with a fixed revenue that is independent from other business activities. That said, endowment returns vary over time based on investment allocation and performance. While investment strategies for endowment assets vary, approaches depend on the associated restrictions, capacity, and governance structure of the nonprofit. In general, management of endowment assets tends to be relatively conservative to avoid inordinate risk to the corpus which might potentially alienate future donors by incurring substantial losses. Approaches to building endowment range from intentional and strategic to idiosyncratic and reactive. The backbone for building endowment, though, is typically a nonprofit’s major and planned gift program (Bowman, 2007). The primacy of major gifts is highlighted by Hager and Pollak (2004) when they note, with regards to performing arts organizations, “endowments are primarily built through connections to the individual power brokers and institutional donors in the community” (p. 64). Sources of endowment funds typically include bequests, major gifts (cash, donated securities, other assets), a one-time sale of an asset, operational requirements (e.g., endowments tied to conservation easements for land trusts), and growth of investments. While some nonprofits accumulate endowments through periodic donations or board action, endowment campaigns are an organized effort by a nonprofit to raise funds specifically to build an endowment rather than to spend resources on current or capital Thad D. Calabrese and Todd L. Ely

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programs (as in annual or capital campaigns, respectively). The funds might come from a single major donor or many smaller donors, but the end results are the same – to have a significant amount of investable assets that will support the nonprofit’s activities in the future. These campaigns might seek donations for an endowment that will generate income for general operations or restricted income for specific programs or activities of the nonprofit (e.g., a scholarship program of a school rather than the general operations of the school). Endowment campaigns, though, are not without meaningful costs of time, effort, and financial resources (Bowman et al., 2007), as well as the threat of cannibalizing fundraising for current operations and priorities.

In practice

Different laws and regulations apply to different types of nonprofits with endowments. Due to their more limited base of public support and a desire to ensure that they serve the public good, private foundations are required by federal law to pay out 5 percent of the average annual balance of “noncharitable use assets” which are mostly investments. This requirement is in reality more complicated than this, and private foundations might give more or less in any given year and account for the differences in subsequent years (Renz, 2012). Notably, public charities are not covered by this payout requirement. Rather, most of these nonprofits’ endowments are governed by the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which is the law in 49 states and the District of Columbia. UPMIFA provides guidance on endowment investment and payout behavior of charitable organizations. Specifically, most states limit spending from endowment to 7 percent unless the board can demonstrate that spending in excess of this limit still meets the law’s standards of prudence. Nonprofit public charities may not face legal payout requirements, but there are, in general, four types of spending rules that govern how organizations determine how much endowment income to spend in any given year. In other words, most nonprofits, 6



even in the absence of legal payout requirements, do have systematic rules that guide distributions. As outlined by Qu (2020), these spending rules may be classified as simple, inflation-based, smoothing, or hybrid. Simple spending rules permit the spending of liquid income generated by the endowment (interest and dividends) or some pre-determined percentage of the endowment corpus at the beginning of the year. Inflation-based rules adjust spending from an endowment based on a given inflation rate, and this rate might be bounded to prevent large annual swings. A smoothing spending rule first calculates the moving average of the endowment over some longer period of time (that is, over the past 12 to 36 months) rather than at a single moment of time (that is, at the beginning of the year), and applies a predetermined spending percentage to this moving average. The longer time span of the moving average helps mitigate significant endowment changes in both directions (that is, extreme swings up or down in value). Finally, hybrid spending rules combine inflation-based and smoothing techniques to determine annual spending. Smoothing techniques are the most common method used in nonprofit organizations that own endowments (Qu, 2020). Importantly, these spending rules guide spending from endowment but the final actual amount spent may not match for a variety of reasons. Dahiya and Yermack (2021) estimate a median nonprofit endowment payout of less than 2.5 percent annually, perhaps in part due to investment returns that are significantly below relevant benchmarks. By comparison, Calabrese and Ely (2017) find a higher mean payout rate between 2008 and 2012 of 5.2 percent with wide variation across subsectors (ranging from 3.8 percent for education to 10.1 percent for human services). Nonprofits that are public charities disclose their endowment holdings in Form 990, Schedule D, Part V. Further, in Part IV line 10, Form 990 requires nonprofits to disclose if they hold assets in an endowment. In 2018, more than 11 percent of nonprofit filers reported endowment data in Part IV.6 Form 990 does not require disclosure of endowment campaigns and so the extent to which this practice is used remains relatively unknown. Nevertheless, in one study, Hager

Based on the IRS Form 990 Annual Masterfile Extract from 2019 (tax year 2018).

Thad D. Calabrese and Todd L. Ely

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Reported endowments and size, by public charity subsector Median

Total Amount

% of Total Endowment

of Endowment,

Assets by Public Charity

($millions)

Subsector

Arts

43,466

5.7%

42.2

1.0

Education

60,337

7.9%

26.9

0.0

Environment

7,797

1.0%

13.8

0.0

Health

31,248

4.1%

12.0

0.0

Higher Ed

455,010

59.4%

290.0

46.9

Hospitals

58,263

7.6%

22.6

0.0

Human Services

21,716

2.8%

3.2

0.0

International

21,963

2.9%

87.5

0.0

Mutual Benefit

1,046

0.1%

0.4

0.0

Public Benefit

63,042

8.2%

21.0

0.0

Religion

2,061

0.3%

6.0

0.0

Total

765,949

100.0%

32.8

0.0

Subsector

Average Endowment Size ($millions)

Endowment Size ($millions)

Source: Information based on the IRS Statistics of Income (SOI) sample of Form 990 data filed for the 2018 tax year.

and Pollack (2004) find that about 10 percent of sampled arts nonprofits likely established an endowment within the past ten years. Table 14 reports the amounts and sizes of charitable nonprofit endowments by industry subsector. In 2018, the Internal Revenue Service (IRS) sample of nonprofit public charities reported more than three-quarters of a trillion dollars in endowments, and this number no doubt understates increases since then and endowment of the sector as a whole. Unsurprisingly, nonprofit endowments are concentrated in higher education with nearly 60 percent of the sector’s total endowment assets. The median endowments for most nonprofit subsectors are quite small, suggesting that most endowed public charities hold very little in terms of endowment wealth. The data in Table 14 further suggests that endowment assets are concentrated in a small number of organizations in each subsector. Understanding the distribution of endowment across the nonprofit sector is critical, but so too is determining the flexibility in the use of endowment funds based on restrictions. In 2018, public charities classified nearly half of endowment funds as permanently restricted (true) and more than a quarter as board-designated (quasi) endowment.



7

In addition to public charities reported in Table 14, private foundations report an additional $868 billion in assets, most of which are in endowments (Foundation stats, 2015). The average size of endowments in private foundations is approximately $10 million,7 suggesting that public charities (with no payout requirements) have larger average endowments than private foundations (with payout requirements). Sansing and Yetman (2006) report significant variations in payouts from these private foundation endowments, with average rates of 8.7 percent. By contrast, Deep and Frumkin (2001) find the 5 percent payout requirement creates a ceiling for giving rather than the floor envisioned by policymakers. In a similar vein, Afik et al. (2019) report that the minimum distribution requirement is simply the default for most private foundations.

Current and future directions

The primary and enduring debate around endowments – whether they are owned by public charities or private foundations – is whether society would be better served by immediate spending of these assets for charitable purposes or whether ensuring wealth is maintained in perpetuity by these organizations better serves the public good. The intergenerational equity theory posits that

Calculated from Foundation Center (2015) data.

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governing bodies have a responsibility to maintain the purchasing power of the endowment in perpetuity for an organization. But this theory does not speak to society’s (rather than the organization’s) goals. Public charities currently have no payout requirements and undoubtedly efforts to remedy this will emerge. Private foundations already have payout requirements, but some believe this requirement should be increased or that certain factors included in meeting these payout requirements – such as administrative spending – should be excluded. Such changes have been debated for decades but no significant changes have been implemented. From a management perspective, Weisbrod and Asch (2010, p. 47) raise the related and neglected question of “how large an endowment is enough?” Future research should continue to analyze the payout behavior of both endowed nonprofits and private foundations. The rules surrounding private foundation payouts are quite complex, with over and under distributions being made up in subsequent years. Analyzing these payouts in light of these rules will begin to help clarify how minimum distribution requirements actually influence private foundation giving. Future research should also analyze the investment strategies of both public charities and private foundations. Current research has not focused on the investment portfolios of endowed entities, with the notable exception of higher education endowment, primarily because of the lack of data on the topic (Heutel & Zeckhauser, 2014). Further, the Form 990 Schedule D does not provide straightforward data that would permit systematic analyses of this important topic. In terms of endowment campaigns, nonprofits without endowment are likely to retain their desire to accumulate endowment – whether this goal is driven by the desire to smooth consumption, intergenerational equity, or reputation building. However, recent scholarship by Ely et al. (2020) shows that building a meaningful endowment that provided a significant portion of annual spending is an elusive goal, and less than 2 percent of nonprofits in their national and multiyear sample were able to do so. Those that did were Thad D. Calabrese and Todd L. Ely

more likely to require program service subsidization, rely more upon donations, and have higher fundraising costs than those nonprofits unable to build an endowment. Nevertheless, certain public charities with differing characteristics are likely to assume an endowment is worth pursuing and will try to fundraise for one against the odds. Thad D. Calabrese and Todd L. Ely

Related topics

Charitable giving Donor retention and stewardship Financing nonprofit organizations Internal Revenue Service Major donors Planned giving Restricted / unrestricted funds Revenue diversification

Further reading and references

Afik, Z., Benninga, S., & Katz, H. (2019). Grantmaking foundations’ asset management, payout rates, and longevity under changing market conditions: Results from a Monte Carlo simulation study. Nonprofit and Voluntary Sector Quarterly, 49(2), 424–447. https://​doi​.org/​10​.1177/​0899764019873972 American Institute of Certified Public Accountants. (2013). Audit and accounting guide: Not-for-profit entities. AICPA. Bowman, W. (2007). Managing endowment and other assets. In D. R. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 271–289). Rowman-Altamira. Bowman, W., Keating, E., & Hager, M. A. (2007). Investment income. In D. R. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 157–181). Rowman-Altamira. Calabrese, T. D., & Ely, T. L. (2017). Understanding and measuring endowment in public charities. Nonprofit and Voluntary Sector Quarterly, 46(4), 859–873. https://​doi​ .org/​10​.1177/​0899764017703712 Calabrese, T. D., & Ely, T. L. (2021). How U.S. private foundations change payouts based on financial shocks: Revealed publicness or revealed privateness? Journal of Public Administration Research and Theory, 32(1), 166–182. https://​doi​.org/​10​.1093/​jopart/​ muab015 Dahiya, S., & Yermack, D. (2021). Investment returns and distribution policies of non-profit endowment funds. European Corporate Governance Institute (ECGI) – Finance Working Paper No. 582/2018, Georgetown

E 207 McDonough School of Business Research Paper No. 3291117. https://​ssrn​.com/​abstract​ =​3291117 Deep, A., & Frumkin, P. (2001). The foundation payout puzzle. SSRN Electronic Journal. https://​doi​.org/​10​.2139/​ssrn​.301826 Ely, T. L., Katz, J., & Calabrese, T. D. (2020). Starting from scratch: Building of meaningful endowments by public charities. Nonprofit Management and Leadership,  31(1), 33–55. https://​doi​.org/​10​.1002/​nml​.21410 Foundation stats. (2015). Foundation Center. http://​data​.foundationcenter​.org/​#/​ foundations/​all/​nationwide/​total/​list/​2015 Hager, M. A., & Pollak, T. H. (2004). Haves and have-nots: Investment capital among performing arts presenters in the United States. International Journal of Arts Management, 6(2), 54–65. http://​www​.jstor​.org/​stable/​ 41064820 Hansmann, H. (1990). Why do universities have endowments? The Journal of Legal Studies, 19(1), 3–42. https://​doi​.org/​10​.1086/​467841 Heutel, G., & Zeckhauser, R. (2014). The investment returns of nonprofit organizations, part I. Nonprofit Management and Leadership, 25(1), 41–57. https://​doi​.org/​10​.1002/​nml​ .21100 Hopkins, B. R. (2004). Planning guide for the law of tax-exempt organizations: Strategies and commentaries. John Wiley & Sons. Pollak, T. H., & Durnford, J. D. (2005, May 31). The scope and activities of 501(c)(3) supporting organizations. Urban Institute. https://​www​.urban​.org/​sites/​default/​files/​ publication/​51826/​411175​-The​-Scope​-and​ -Activities​-of​-​-c​-​-Supporting​-Organizations​ .pdf Qu, H. (2020). Endowment for a rainy day? An empirical analysis of endowment spending by operating public charities. Nonprofit Management and Leadership, 31(3), 571–594. https://​doi​.org/​10​.1002/​nml​.21440 Renz, L. (2012). Understanding and benchmarking foundation payout. Foundation Center. http://​foundationcenter​.org/​gainknowledge/​ research/​pdf/​payout2012​.pdf Sansing, R., & Yetman, R. (2006). Governing private foundations using the tax law. Journal of Accounting and Economics, 41(3), 363–384. https://​doi​.org/​10​.1016/​j​.jacceco​ .2005​.03​.003 Weisbrod, B. A., & Asch, E. D. (2010). Endowment for a rainy day. Stanford Social Innovation Review, 8(1), 42–47. https://​doi​ .org/​10​.48558/​ZMXG​-R862

ePhilanthropy Definition

ePhilanthropy is defined as the use of web-based tools like websites, emails, and more recently social media platforms like Facebook, Twitter, and Instagram by nonprofit organizations to continuously communicate and engage their stakeholders about their mission, advocacy, volunteering, and also raising donations.

In practice

The internet has woven itself into our lives. The number of internet users has grown exponentially from less than 0.5 percent of the world population connected to the web, to over 65 percent of the world population connected today (World Stats, 2021). It is not surprising that nonprofits have taken the advantage of internet-based ePhilanthropy services such as websites, emails, and social media platforms to engage with their stakeholders both locally and at the same time globally. In recent years, ePhilanthropy has seen phenomenal growth. For instance, between 2017–2020, nonprofits of all budget sizes in the U.S. have seen a 32.4 percent increase in online giving (Online Giving Trends, 2020). The growth of ePhilanthropy is also seen in new types of online fundraising events such as #GivingTuesday launched in 2012. Within eight years, #GivingTuesday has raised $10 million in its inaugural year, to over $808 million in 2020 (Bhati, 2020). The success of global ePhilanthropy initiatives such as #GivingTuesday and, more generally, the use of technology by nonprofits to connect and raise donations by stakeholders is fueled by growth of giving through mobile phones and also comfort of donors soliciting donations for their favorite nonprofits through social media platforms (Online Giving Trends, 2020). Contrary to popular belief, demographics of online donors are fairly the same as offline in terms of age – 47 percent of online donors are over the age of 60 and donors aged between 55–64 are most generous crowd funders (Fundraising statistics, 2021). Similarly, Hong et al. (2017) found that the motivations of offline and online donors are the same.

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ePhilanthropy has received a tremendous push due to COVID-19 restrictions as nonprofits were not able to conduct usual fundraising events and also had difficulty engaging with volunteers. In 2020, only 54 percent of organizations viewed virtual volunteer opportunities as important, now that is 82 percent (Sterling Volunteers Staff, 2021). Due to COVID-19 virtual opportunities have become more widespread where, for example, before the pandemic only 19 percent of people performed their volunteer activities virtually, it has now increased to 65 percent (The Future of Philanthropy, 2021). In the next section, we will discuss historic changes in the use of technology by nonprofit organizations to promote ePhilanthropy and also some recent criticism of its usage. Technology and ePhilanthropy The main reason ePhilanthropy has seen a steep growth is “for nonprofit organizations the internet represents unprecedented and highly cost-effective opportunities to build and enhance their relationships with supporters, volunteers, clients and the community they serve” (Hart, 2006, p. 354). Traditionally within the context of ePhilanthropy, websites and emails have been important tools used by nonprofits to communicate with their supporters and convert their interest in organizations’ mission to both volunteering and giving. As the use of the internet among nonprofits developed, organizations quickly realized that communication with stakeholders using both website and email is often “one-way,” but real-time interaction with the stakeholder can be provided by social media platforms like Facebook and Twitter. Hence, the later 2000s saw a rise in nonprofits joining social media platforms and using them to raise donations and awareness about their mission. One of the first studies on this topic by Bortree and Seltzer (2009) analyzed 50 Facebook profiles created by environmental advocacy groups and found that most organizations at that time are not utilizing the dialogic communication opportunities (i.e., two-way communication or back and forth communication) of social media with their stakeholders. In other words, at that time they were merely using these platforms as one-way communication tools similar to the use of websites and do not use the interactive mechanism of social media to strengthen the Abhishek Bhati and Andrew Douglas Burk

relationship among stakeholders (Saffer et al., 2013). Adhering to the calls by scholars, nonprofits closely paid attention to the use of social media to develop a “two-way communication” strategy as it provides a low-cost medium to interact with diverse and geographically dispersed stakeholders. Lovejoy and Saxton (2012) analyzed Twitter utilization of the 100 largest nonprofits in the U.S. They concluded that nonprofits are using social media as “one-way” communication to share information about the organization’s mission, activities or events and not really engaging with donors in “two-way” communication, that is, back and forth communication between stakeholder and organization to develop a more robust relationship and engagement. However, the question remained, could social media usage among nonprofits shift from “one-way communication” to engaging social media to build relationships, develop social capital, and use this engagement to raise more donations from new and recurring donors. Previous studies argue that switching towards two-way communication requires a large network size, such as the number of followers or number of likes on their Facebook page, which are more likely to attract donor attention as their messages get amplified to not just their network but also their followers’/friends’ network (Saxton & Wang, 2014). Studies also suggest that network activities, such as the number of tweets or posts and the frequency of the posts, increase donor engagement and attention towards the organization (Guo & Saxton, 2018). Bhati and McDonnell (2019) found that both network size such as number of likes, number of posts, and number of shares positively correlated to the amount of donations and the number of donors supporting a nonprofit organization. That is, organizations that posted more, had a larger number of followers and stakeholders sharing those posts led to a large amount of donations and a greater number of donors supporting them. Social media enables nonprofits to connect with their stakeholders directly but also stakeholders can share posts of nonprofits they support. Nonprofits are able to access the network of their stakeholders and potentially reach much larger audiences than their direct network. Despite the growth of ePhilanthropy and its potential to connect with a larger number of donors at a relatively

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low cost, there is growing criticism of ePhilanthropy especially in respect to “donor fatigue” since social media is a noisy platform where several avenues are competing to get stakeholders’ attention (Guo & Saxton, 2018). In order to reduce donor fatigue or also compassion fatigue, nonprofits often use stereotypical images and messages to get donor attention. These issues have recently become heightened due to the COVID-19 pandemic; due to restrictions on gatherings, nonprofits are unable to have traditional fundraising events and have become even more than usual dependent on ePhilanthropy to raise donations. In the next section, we will discuss these issues in greater detail.

Criticism of ePhilanthropy

“Donor fatigue” refers to a phenomenon when donors do not donate to the charity, or they are slow to give. Almost all nonprofits experience donor fatigue at some point in the giving cycle. Concerns about donor fatigue increased drastically as a majority of fundraising is occurring online and donors have been receiving increasing amounts of solicitation requests both due to the virtual nature of fundraising but also the growing need to support the community during the ongoing COVID-19 pandemic. One of the ways nonprofits are attempting to reduce donor fatigue is by sharing or emailing more eye-catching images or messages to get donors’ attention. Often these messages or images are stereotypical in nature. For example, nonprofits are circulating images of single mothers or sad faced/crying child(ren) to get donor attention as these images distress the donors and motivate them to give. In a recent study, Bhati (2021) analyzed the Facebook images of 32 of the largest international nonprofits in the U.S. and found that approximately 30 percent of all images focused on girls and women, followed by 27 percent of images of children or children with a single mother. These messages potentially may create a bias in the mind of the donor that all poor people are single mothers and girls which is not always true. This further becomes a concern during the pandemic when donors are not able to physically go and see the work done by the nonprofit and are dependent upon images shared by an organization using social media and emails. In order to have two-way communications, nonprofits encourage donors to

share these images and these images eventually become echo chambers. Though ePhilanthropy is potentially a revolutionary idea, there are criticisms by scholars that it encourages spontaneous giving which might promote stereotypes about the lives of the beneficiaries which are often marginalized and/or poor. For example, exploring the relationship between implicit color tone bias and giving using Skin-tone IAT scores of 750 participants and their willingness to give, Bhati (2020) found that participants with higher implicit color bias (i.e., preference for lighter skin-tone over darker skin-tone) are less likely to give more than $10 after controlling for education, gender, race, religiosity, income, political identity, and past giving behavior. The author argues that these donors who have higher skin-tone bias may harbor more discriminatory beliefs based on racial lines and less likely to consider that all human beings are equal. Another criticism of the over-reliance on ePhilanthropy is certain issues or types of causes get more attention when compared to more complex issues. For instance, Knudsen and Bajde (2016) found a strong relationship between campaigns focusing on a cute puppy’s solicitation requests going viral compared to a call for help for a homeless shelter. People are generally fond of cute animals and likely to support them compared to more complex issues such as homelessness. Hence, social media could give a more twisted sense of reality and also a need to support some causes over others.

Conclusion

The last two decades have seen unprecedented growth in ePhilanthropy among nonprofit organizations and COVID-19 has further expedited its usage. Today, the majority of nonprofits have a website and are active on social media platforms advocating their cause, seeking volunteers, and also raising donations. Studies have also shown that a website increases a nonprofit’s reputation and sending emails has a direct relationship with fundraising success. Further, scholars have argued that active social media engagement such as posting on Facebook or Twitter and actively asking donors to share the post has a direct relationship with organizations reaching their fundraising goals. Moving further, ePhilanthropy Abhishek Bhati and Andrew Douglas Burk

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will be central to the functioning of nonprofits, and organizations that effectively use internet-based tools such as websites, emails, and social media will continue to grow. Abhishek Bhati and Andrew Douglas Burk

Related topics

Crowdfunding Digital divide Donor retention and stewardship Fundraising Stakeholder management Technology and social media

Further reading and references

Bhati, A. (2020). Does implicit color bias reduce giving? Learnings from fundraising survey using Implicit Association Test (IAT). VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 32(2), 340–350. https://​doi​.org/​10​.1007/​s11266​-020​ -00277​-8 Bhati, A. (2021). Is the representation of beneficiaries by international nongovernmental organizations (INGOs) still pornographic? Journal of Philanthropy and Marketing, e1722. https://​doi​.org/​10​.1002/​nvsm​.1722 Bhati, A., & McDonnell, D. (2019). Success in an online giving day: The role of social media in fundraising. Nonprofit and Voluntary Sector Quarterly, 49(1), 74–92. https://​doi​.org/​10​ .1177/​0899764019868849 Bortree, D. S., & Seltzer, T. (2009). Dialogic strategies and outcomes: An analysis of environmental advocacy groups’ Facebook profiles. Public Relations Review, 35(3), 317–319. https://​doi​.org/​10​.1016/​j​.pubrev​.2009​.05​.002 Castillo, M., Petrie, R., & Wardell, C. (2014). Fundraising through online social networks: A field experiment on peer-to-peer solicitation. Journal of Public Economics, 114, 29–35. https://​doi​.org/​10​.1016/​j​.jpubeco​.2014​.01​.002 Fundraising statistics: Incredible insights to raise more. (2021). Qgiv. https://​www​.qgiv​.com/​ blog/​fundraising​-statistics/​ Guo, C., & Saxton, G. (2018). Speaking and being heard: How nonprofit advocacy organizations gain attention on social media. Nonprofit and Voluntary Sector Quarterly, 47(1), 5–26. https://​doi​.org/​10​.1177/​0899764017713724 Hart, T. (2006). ePhilanthropy: Using the internet to build support. International Journal of

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Nonprofit & Voluntary Sector Marketing, 7(4), 353–360. https://​doi​.org/​10​.1002/​nvsm​.192 Hong, C., Chen, Z. F., & Li, C. (2017). “Liking” and being “liked”: How are personality traits and demographics associated with giving and receiving “likes” on Facebook? Computers in Human Behavior, 68, 292–299. https://​doi​.org/​ 10​.1016/​j​.chb​.2016​.11​.048 Knudsen, G., & Bajde, D. (2016). Feed the dogs: A case of humanitarian communication in social media. Journal of Media and Communication Research, 32(60), 196–215. https://​doi​.org/​10​ .7146/​mediekultur​.v32i60​.21261 Lacetera, N., Macis, M., & Mele, A. (2016). Viral altruism? Charitable giving and social contagion in online networks. Sociological Science, 3, 202–238. https://​doi​.org/​10​.15195/​v3​.a11 Lovejoy, K., & Saxton, G. D. (2012). Information, community, and action: How nonprofit organizations use social media. Journal of Computer-Mediated Communication, 17(3), 337–353. https://​doi​.org/​10​.1111/​j​.1083​-6101​ .2012​.01576​.x Online Giving Trends. (2020). Blackbaud Institute. https://​institute​.blackbaud​.com/​charitable​ -giving​-report/​online​-giving​-trends/​ Saffer, A. J., Sommerfeldt, E. J., & Taylor, M. (2013). The effects of organizational Twitter interactivity on organization–public relationships. Public Relations Review, 39(3), 213–215. https://​doi​.org/​10​.1016/​j​.pubrev​.2013​.02​.005 Saxton, G. D., & Wang, L. (2014). The social network effect: The determinants of giving through social media. Nonprofit and Voluntary doi​ Sector Quarterly, 43(5), 850–868. https://​ .org/​10​.1177/​0899764013485159 Sterling Volunteers Staff. (2021). 2021 Industry insights: Nonprofit volunteer perspecwww​ tives. Sterling Volunteers. https://​ .sterlingvolunteers​.com/​blog/​2021/​09/​2021​ -industry​-insights​-nonprofit​-and​-volunteer​ -perspectives/​ The Future of Philanthropy. (2021). Fidelity Charitable. https://​www​.fidelitycharitable​.org/​ insights/​2021​-future​-of​-philanthropy​.html Waters, R. D., Burnett, E., Lamm, A., & Lucas, J. (2009). Engaging stakeholders through social networking: How nonprofit organizations are using Facebook. Public Relations Review, 35(2), 102–106. https://​doi​.org/​10​.1016/​j​ .pubrev​.2009​.01​.006 WorldStats. (2021). Internet World Stats. https://​ www​.internetworldstats​.com/​emarketing​.htm

F

Faith and philanthropy Definition

The intersection of faith and philanthropy is deep. However, faith-based giving is often considered “charity” that is need based and short term, whereas newer forms of “philanthropy” are long term and can address more strategic goals, both at the individual and societal levels.

Context

With an estimated one-third of all charitable giving going to faith-based institutions or organizations in the U.S., the scope of this form of giving is enormous, at around $100 billion or more. This fact alone can make the study of faith-based philanthropy important. This percentage of total giving to religious-based institutions is down from almost one-half of total giving in the 1950s and 1960s, due to a decrease in religiosity and religious-based giving. However, this form of philanthropy and charity remains a force to be reckoned with.

In practice

Consider that some of the first universities that were established in the U.S., and are Ivy Leagues today, including Harvard University, University of Pennsylvania and others were faith-based. The roots of higher education in the U.S. are a history of religious education. It was only in the later decades and centuries that increasing secularization of public education and higher education gave us the non-religious character of universities that we see today. We see many challenges to faith-based organizations (FBOs) as they navigate the complexities of a world beset by the COVID-19 pandemic, global conflicts and reconfigurations and movements of people.

The challenges to hiring people of the same faith, for example, and the many tricky situations that may arise, with claims of discrimination and the like, that can occur as a result are also hard to navigate. Many minority religions in the U.S. face hostility in the form of social resistance (think of antisemitism) or Islamophobia. These are not just social issues but also managerial and legal issues that the courts and other institutions are having to navigate and adjudicate, on a case-by-case basis. This holds true of many other forms of institutions too, including healthcare, social service entities and so on. With the increased diversity of the American population and the concomitant rise of non-Christian institutions, including nonprofits, there has been an increased focus and understanding of Jewish, Muslim, Buddhist and other forms of nonprofit institutions and their impact on local and national communities. Here are a few ways that faith and philanthropy are seen in action, around the U.S. and the world. Humanitarian aid and emergencies This is one of the most visible areas where faith and philanthropy meet. One can recognize Catholic World Relief, HIAS, Islamic Relief, Helping Hands for Relief and several other faith-based nongovernmental organizations (NGOs) in the humanitarian aid space. Red Cross, the quintessential international NGO that has been a template for all others, also emerged out of the Calvinist traditions in Europe. From the days of Henry Dunant and Red Cross, the world of faith and philanthropy has come a long way, both in terms of richness of ideas and also possibilities for conflict. Given that religious based giving can be in conflict with secular principles of modern societies, particularly in the West, there have been several challenges to the practice of religious giving.

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In several instances, there has been active legal battles and in others, more social debate and discussions on the limits of faith in the public sphere. The battle lines are over the extent to which religion should play a role in the public sphere, including the principle of separation of church and state, rather than the very idea of religious-based philanthropy. With the rise of more diverse forms of giving and philanthropy among minority religions in the U.S., there has been some pushback among certain quarters that have not fully accepted the emergence of such forms of institutions, in a predominantly Protestant Christian context. An example of this could be restrictions against sending money to organizations working in conflict zones. While these restrictions are not religion based, however, they impact a large number of organizations that work in Muslim majority countries. Forms of giving such as Zakat and Sadaqa, which amount to hundreds of millions of dollars, can be effectively used through NGOs, but are not able to be utilized in these contexts, for many legal and other reasons, in a post 9/11 world where financial flows are seen primarily through a security lens as opposed to a humanitarian lens. In the case of emergencies too, several nonprofits such as Mercy Corp, Islamic Relief and so on, have emerged as players that can contribute significantly to contexts where help is needed, both from a technical and human resources perspective. For work in the Muslim majority countries, post U.S. invasion of Afghanistan and Iraq and the troubles in the Middle East, there has been a greater reliance on the work of Islamic NGOs, as they have emerged as allies, due to their knowledge of the culture, language and other nuances, while working in these spaces. There has been a greater collaboration between governments and faith-based institutions at the local and national levels, despite the separation of church and state in the U.S. A good example is the Office of Faith-based and Neighborhood Partnerships (formerly the Office of Faith-based and Community Initiatives), created by President George W. Bush as a White House program to facilitate closer partnerships between government and faith-based organizations.

Sabith Khan

Refugee resettlement With millions of refugees leaving war-torn Syria, Iraq, Afghanistan, Libya and now more recently Ukraine, there is a great need for resettling these refugees both in the global south, where a majority of them are resettled, and also the global north, which houses some of them. In Lebanon, Jordan, Turkey and other countries which receive millions of refugees from neighboring countries, there has been a concerted effort on part of the faith-based communities – Christian, Muslim and Jewish – to help address the needs of the refugees that are seeking safety and shelter. During periods of high charity, such as Ramadhan, there are large campaigns which raise millions of dollars from individuals, through crowd-funding and raising money through congregations. Community-based groups – both self-help groups as well as organized nonprofits – have emerged in a significant way as supporters in this cause. Volunteering remains an important factor Millions of hours are donated to nonprofits in the U.S., accounting for a significant portion of giving of time and effort in the nonprofit sector. This is another factor that must be considered when thinking about nonprofits which are faith-based or faith inspired and philanthropy. The nature of giving and amount of time has changed significantly since the COVID-19 pandemic. However, there is a trend in greater volunteering, as many scholars and practitioners have pointed out. There is a greater awareness among young and old of the need to support their communities. Increasing diversity in faith-based philanthropy There is greater diversity of faith-based philanthropy actors on the global stage. In the early nineteenth century, among the large international NGOs, faith and philanthropy was affiliated primarily with Christian faith-based entities, whereas in 2022, one can find a wide range of organizations including Muslim, Jewish, Buddhist and Hindu organizations that are actors in the world of philanthropy. This has made the landscape of philanthropy a bit more competitive and at the same time more interesting, from a scholarly perspective.

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Faith and philanthropy can be a deadly mix of ideas too The challenge of faith and philanthropy while seemingly benign can also give rise to several tensions in the public sphere, the most obvious one being whether these faith-based entities should be able to proselytize with the aid of government subsidies in the form of tax exemptions. This combined with the need for controlling the influence of religious based entities when delivering services meant for all – especially if it is funded by the government – is another layer of complexity that makes this space particularly open to criticism. Several attempts have been made to address this thorny issue and it remains a problem in international affairs where, for example, some faith-based charities have been accused, rightly or wrongly, of using charitable donations to fund armed conflicts. Technology is adding new layers of creativity Technology is being adopted by faith-based NGOs in a big way, not only for communications and fund-raising, but also for other purposes such as sending and receiving funds, communicating with people and managing information flow (data privacy and security aspects have changed). This shift is a very big one and one that needs to be studied in the years to come.

The future of faith and philanthropy

As Jonathan Benthall pointed out “throw religion out the window, it comes flying through the window,” this is a facet of faith and philanthropy. Even when societies secularize, as in the case of Turkey or the U.S., there are vast pockets of people who believe that religious action in the public sphere is the best way to address the needs of people and that government action is ultimately limiting. This makes the future of faith and philanthropy tricky, at best. However, as NGOs and individuals from different faith-based traditions collaborate with each other, there is hope that they will learn to work together towards common and shared goals. Sabith Khan

Related topics

Charitable giving Faith and volunteering Faith-based organizations Philanthropy: Definition and history Politics and philanthropy

Further reading and references

Benthall, J. (2003). The charitable crescent: Politics of aid in the Muslim world. Bloomsbury. Dromi, S. (2020). Above the fray: The Red Cross and the making of the humanitarian NGO sector. University of Chicago Press. Khan, S., & Siddiqui, S. (2017). Islamic education in the U.S. and emergence of Muslim nonprofit institutions. Edward Elgar Publishing. Moody, M., & Breeze, B. (2016). The philanthropy reader. Routledge Press. Payton, R., & Moody, M. (2008). Understanding philanthropy: Its meaning and mission. Indiana University Press.

Faith and volunteering Definition

Religious faith is the embrace and adherence to an established system of spiritual and sometimes cultural beliefs. Most religious systems require corresponding behavioral attestations and deliberate actions that mark true faith with assent to established doctrines. This includes but is not limited to belonging to a community with fellow believers, giving, and voluntary activities. Volunteering is the act of serving an organization or a cause, without expectation for pay. The intersection of faith and voluntarism is evident when one considers existing data. Over 35 percent of U.S. adults volunteered in 2019, contributing an estimated $195 billion to preferred causes. According to the Nonprofit Trust, Americans gave $471 billion in 2020. Most of that giving (28 percent) went to religious institutions – primarily churches. Thus, giving and volunteering to religious organizations were the largest compared to all other sectors (NP Trust, 2020). Organizations like the American Red Cross, Goodwill, March of Dimes are nationally recognized for their reliance on volunteers. Indeed, over 80 percent of the 1.5 million nonprofits registered in the U.S. utilize volM. D. Kinoti

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unteers in the process of carrying out their mission (AmeriCorps, 2022). More than 70 percent of the world’s population belongs to a religious faith tradition (Hunt & Penwell, 2008). Additionally, several studies using self-reported measures have recognized a strong connection between religiosity and helping behaviors, including practices associated with formal volunteering and charitable giving (Wiepking et al., 2014). Although most people volunteer for different interests, religious-motivated voluntarism often stems from specific religious principles and doctrines, especially expectations to act according to prescribed beliefs. Overall, voluntarism is linked to altruism and charity and as a means for believers to live out their religious beliefs. Hence, benevolence and compassion towards others are taught in most religions as marks for true faith and to distinguish believers from unbelievers. On the other hand, most religions urge voluntarism to attract followers to their cause and beliefs. Most religious systems call the believer to live beyond self, which is the inspiration towards voluntarism. In these religions, a true believer is one who not only embraces the prescribed beliefs but also spends their resources to aid the religious organization – the local meeting place, propagation programs, and so on – but also commits in person and resources to aid others. In most cases, this aid is directed to other believers and others in need.

In practice

Few religions do not require their members to be involved in some selfless activity – one that is beyond the member’s benefit from the faith. Many of the older traditions, including Judaism, Buddhism, Confucius, and Hinduism, emphasize good works – which primarily entail service to others (Yeung, 2017). In some cases, voluntarism goes hand in hand with other forms of giving, both in finance and offering one’s expertise in service. Religiously motivated voluntarism includes acts that help transcend selfishness and one’s weaknesses and can take several forms, from substantial long-term investments of one’s time and talent to spontaneous actions such as assisting a homeless person. It helps that most religions provide opportunities within which the believer is encouraged M. D. Kinoti

to give. Unlike monastic separation and other asceticism, an active practice of spirituality in serving humanity equal to serving God helps establish religion as a positive force in society. That is because many religious groups are involved in community development through direct efforts, as in a local spiritual body serving the needs of its community and supporting other organizations that carry out social programs for the benefit of those in need. Historically, religion accounts for a wide variety of social goods, including building places of worship, schools, hospitals, and setting up learning communities. Most religious systems have international nongovernmental organizations (NGOs) and foundations, such as Bread for the World, Aga Khan Development Network (AKDN), and others, that serve their global missions through applying their unique blend of religious beliefs and, in some cases, a need to show relevance. Adding to these international organizations are extensive efforts through locally formulated faith-based NGOs worldwide. These NGOs aid people in need through relief interventions during times of need, run schools, build and maintain infrastructures, and in some cases, even run governments. All these are done in large part by faithful volunteers. This engenders strong volunteer cultures in societies where any religion is prominent. For example, Indonesia, which has the most prominent Islamic population, has been top of the giving and voluntarism charts worldwide for several years. Research for the Global Giving Index by the Charities Aid Foundation indicates that the prevalence of Islamic belief is a predominant motivation for most Indonesians’ drive to give and serve. Similar results for reasons to provide towards social causes have been recorded worldwide (Bennett & Einolf, 2017; Luria et al., 2017). These are estimated to continue. Many nonprofit organizations and NGOs depend heavily on voluntarism to meet their goals. This is valid in the United States, where churches and faith-based organizations form a significant portion of the nonprofit sector. Although churches have paid staff and clergy, they primarily meet their goals through believers who volunteer time and resources to meet the church or organization’s goals. These volunteer acts include service within the organization, community, and beyond.

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Mormons and Jehovah’s Witnesses follow this volunteering philosophy as do other faith-based organizations like the Catholic Volunteer Network, Hindu Community Outreach, and Ismaili Volunteer Corps.

Current and future directions

The COVID-19 pandemic and the rising impacts of climate change will significantly impact local and global volunteer efforts. Although the world was closed to travel and service across boundaries, giving to causes and nonprofits is reported to be stable or above average. There are no good predictions for how voluntary efforts will change as the world re-opens after COVID. However, as climate change impacts much of humanity, we estimate that more voluntary efforts to aid individuals and communities affected will rise. This has been the case in places affected by climate disasters, for example, fires, floods, and so on. There is also a growing appreciation for online-driven social activism and civic engagement, rising forms of voluntarism. The advent of the internet and significantly social media have heightened awareness of various causes and uplifted opportunities for public engagement – beyond the local constituencies and direct contacts. Through these avenues, more people can volunteer for causes like research, fundraisings, petition writing, coding, and so on, all activities that have a profound impact for whatever reason. The possibilities for harnessing faith-motivated volunteers worldwide offer opportunities for faith to be a more significant driving force towards voluntarism. Religious-motivated voluntarism is not without its critics. Some argue that this means that acts done within the religion are required and therefore egoistic and not altogether altruistic. In other words, they question the motivations for giving in these contexts, arguing that giving and voluntarism that is mandated religion might have a limited impact on the believers’ sense of altruism (Saroglou, 2006). Other arguments against religious voluntarism include claims that these acts are isolating and are a means for cultural disconnectedness. This is primarily where adherents focus their activities all for the benefit of the religion and less for the general society. In

these cases, believers pursue only religious community-focused goals to exclude the wider community. There are also the arguments that voluntarism is a class-defining action, favoring the haves and leaving out the have-nots. With growing inequalities, the wealthy can volunteer because they can find the time and space to be away from struggling to provide for their survival, which the poor and economically stressed cannot do. Hence, volunteering is not necessarily a mark of generosity but a display of means and therefore futile in addressing the deeper needs of society. Considering this reality, one wonders if religious groups would do better to volunteer efforts to address systemic inequalities, and in so doing, aid in the development of an equal society. Although promoted as good for society, one can also argue that religious-motivated voluntarism has not addressed deeper issues of mistrust between religions and their adherents. Specifically, inter-religious collaborations that effectively serve community welfare are rare because of existing suspicions between different faiths. To be beneficial for all, these efforts must be organized by secular bodies. Even then, there is a danger that there might be opportunities for tension – depending on the type of work and level of engagement between religious groups. Finally, specific voluntary actions in some religions involve obedience to divine order, and they carry an aura of insuperability that may brunt moral reasoning leading to religious fundamentalism and violence. For example, beliefs invoking a divine command have been cited as the motivations for sometimes atrocious activities in human history (e.g., the Christian crusades, Islamic terrorists, etc.). Many of these evils were carried out by religious-motivated volunteers who believed they were acting in concordance with the dictates of their religion. M. D. Kinoti

Related topics

Faith and philanthropy Faith-based organizations Motivation: Volunteers Social capital Voluntarism

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Further reading and references

AmeriCorps. (2022). Bringing out the best of America. https://​www​.americorps​.gov/​ accessed 15 Sep 2023. Bennett, M. R., & Einolf, C. J. (2017). Religion, altruism, and helping strangers: A multilevel analysis of 126 countries. Journal for the Scientific Study of Religion, 56(2), 323–341. https://​doi​.org/​10​.1111/​jssr​.12328 Charities Aid Foundation (CAF). (n.d.). https://​ www​.cafonline​.org/​accessed 15 Sep 2023. Hunt, J., & Penwell, D. (2008). AMG’s handi-reference: World religions and cults. AMG Publishers. Luria, G., Cnaan, R. A., & Boehm, A. (2017). Religious attendance and volunteering: Testing national culture as a boundary condition. Journal for the Scientific Study of Religion, 56(3), 577–599. https://​doi​.og/​10​.1111/​jssr​ .12360 Mayestha, N., & Ferrell-Schweppenstedde, D. (2021). Indonesia ranked as the most generous country in the world. Wings. https://​members​ .wingsweb​.org/​news/​71630 accessed 15 Sep 2023. NP Trust. (2020). Charitable giving statistics. https://​www​.nptrust​.org/​philanthropic​ -resources/​charitable​-giving​-statistics/​ accessed 15 Sep 2023. Saroglou, V. (2006). Religion’s role in prosocial behavior: Myth or reality? Psychology of Religion Newsletter, 31(2), 1–8. https://​doi​.org/​ 10​.1037/​e568472011​-002 Wiepking, P., Bekkers, R. H. F. P., & Osili, U. O. (2014). Examining the association of religious context with giving to nonprofit organizations. European Sociological Review, 30(5), 640–654. https://​doi​.org/​10​.1093/​esr/​jcu064 Yeung, J. (2017). Religious involvement and participation in volunteering: Types, domains and aggregate. Voluntas: International Journal of Voluntary & Nonprofit Organizations, 28(1), 110–138. https://​doi​.org/​10​.1007/​s11266​-016​ -9756​-6

Faith-based organizations Definitions

There is not one universal definition that describes faith-based organizations. The original terminology of sectarian or sectarian agencies described organizations formed to meet the needs of those who were within a particular public, ethnic, or religious group (Netting & Ellor, 2004). Gaynor Yancey

Faith-based organizations is not a legal term. Detractors of the term argue that the inclusion of the word “faith” represents the religious tradition(s) of Christianity and distances other religions such as Islam or Buddhism, for example (Jeavons, 2004). Being faith-based means: 1. The mission and values of the organization derive from religious beliefs and practices. 2. The organization identifies with one or more religious congregations or other religious organizations, often expressed in the organization’s name and funding streams. 3. The policies reflect the organization’s religious mission, such as hiring only persons who are members of a religious group or requiring or inviting staff or clients to participate in religious practices. 4. The goal of service is that service recipients embrace religious beliefs and values, and program evaluation strategies may measure this outcome. Jeavons (2001) argues that calling a nonprofit organization “faith-based” is a linguistic construction, because all organizations hold basic beliefs about ultimate truth. Organizations, like people, are value-based. The term “religiously-affiliated,” on the other hand, implies that there is some organizational affiliation with a religious group. It is congruent with the term “church-related” first used in this area of research by Ellen Netting (Netting, 1982). Netting (1982, 1984a, 1984b) then used the term, religious affiliates to describe organizations that had some type of faith dimension included in their mission and goals. Garland and Yancey (2014) broadened that term to religiously affiliated agencies. Boddie (2008) captures these nuances by positing that “faith-based is a term coined to describe a range of organizations with religious authority and leadership, religious culture and practices, or religious sponsorship and resources” (p. 169).

In practice Historical context Programs in the U.S. welfare system are rooted in England’s Poor Laws of the 1600s.

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From the 1700s, U.S. congregations and faith-based organizations have been pivotal in their provision of human services to underserved populations. Voluntary and charitable societies were the historical organizations that were the foundation for what we now refer to as faith-based organizations or faith-based nonprofits. Faith-based organizations Organizations such as the Charity Organization Society (COS) were formed in England to address the immense issues of deep poverty. By the 1900s, the Settlement House Movement, often religious in nature, resulted in community-based settlement houses being introduced in the U.S. The settlement houses were focused on community change and involvement. They, and other faith-based organizations, hired their own staff and established their own governance procedures and by-laws by which they operated while still staying connected to a religious group. A few examples are Catholic Social Charities USA, Habitat for Humanity International, Jewish Funders Network, Lutheran Services in America, Volunteers of America, and the YMCA/YWCA, all of which are a part of the vast national network of faith-based organizations in the U.S. Congregations Historically, congregations have always been the source of care for the poor and the underserved, from children through to older persons. Although they have been the center of caring activities for communities for hundreds of years, they are relatively new to this discussion of being considered as faith-based organizations. The two key characteristics of congregations in the United States is that they are voluntary and they are communities as much or more so than they are organizations. People gather not only for worship, religious education, and service, but also for “fellowship,” or simply to be together. Many congregations provide human services to their members or the larger community and employ volunteers. In an early study coinciding with Bill Clinton’s election to the presidency, Wineburg (1992) studied 128 congregations in Greensboro, North Carolina, to determine the response to the Reagan era cuts. Findings in this entry show the various

levels of involvement in volunteering, giving money, and donating goods by these congregations. La Barbera (1991) reported similar findings. Churches were involved in soup kitchens, shelters, day care, health services, counseling, transportation, and tutoring. President Ronald Reagan was the major proponent of the importance of nonprofit and voluntary organizations, particularly congregations, in meeting the social welfare needs of the people. This time the government put the responsibility on the nonprofit sector and congregations to meet the social welfare needs of society. Local religious congregations, in general, took this call quite seriously. Quietly, but consistently, local religious congregations expanded what they had already been doing throughout history of feeding the hungry, giving blankets in the winters to those who were homeless and living on the streets, besides giving some of their budget money, volunteer service, and special “love” offerings to those agencies that were helping meet the needs of their neighbors and society, in general (Wineburg, 1990–1991). The presidencies of George H. W. Bush, a Republican, and Bill Clinton, a Democrat focused on reducing dependence on public assistance and counting on the voluntary and nonprofit sector to assist the federal and state governments in achieving that goal. Clinton proposed a new approach to welfare that would provide healthcare and job training to welfare recipients and, after two years, would require work of those who were capable of working. Internal Revenue Service (IRS) regulations The definitions that describe an organization, what it does by mission, who it serves, and its funding practices are all important aspects of how it practices, including the receiving of charitable contributions. These are accounted for in documents like articles of incorporation or in IRS standards. The Charitable Organization, 501(c)(3) designation is particularly important for faith-based organizations and congregations. This designation allows these organizations to receive contributions from individuals, specifically, that permit the individuals to count as charitable contributions on their annual income tax returns. Congregations must apply for this designation independently of their parent Gaynor Yancey

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religious body unless that parent religious body has a blanket exemption for all the congregations who are affiliated with them. Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104–193) Clinton’s welfare reform ideas, sketched out broadly in the 1992 campaign, triggered a congressional Republican response in 1993 and 1994. By September 1994, congressional Republicans released their “Contract with America,” which included a promise to reform welfare. Simultaneously, a Republican majority Congress, conservative Democrats, and House Speaker Newt Gingrich (R., Ga.) were being influenced by a 1992 book, The Tragedy of American Compassion, by Marvin Olasky, a journalism professor at the University of Texas who suggested the role that congregations had in addressing the social welfare needs of people impacted, economically, during the Great Depression could also be a focus of their work during this current era. Presidents Reagan, both Bushes, and Clinton, all shared in that focus. The Personal Responsibility Work Opportunity and Reconciliation Act (PRWORA) of 1996 is the first and largest overhauling of the U.S. welfare system since the enactment of Social Security in 1935. It was passed under President Bill Clinton and the 104th Congress. Within the PRWORA, there is a section titled “Charitable Choice.” Cnaan and Boddie (2002) explain what happened before the PRWORA was implemented. All efforts were made to maintain the separation of church and state. a faith-based organization contracting with the government had to remove all religious symbols from the room where service was provided; forego any religious ceremonies (such as prayers at meals); accept all clients—even those opposed to the beliefs of the providers; hire staff that reflected society at large and not the organization’s spirit and belief system; adhere to government contract regulations; and incorporate separately as … [a] nonprofit organization (p. 225).

Charitable Choice now permits the following changes according to Cnaan and Boddie (2002).

Gaynor Yancey

faith-based service providers “to” retain their religious autonomy … In addition, the government cannot curtail the religious expression or practice of faith-based services providers by requiring them to change their internal governance or remove from their property any “religious art, EPs, scripture, or other symbols” (S104 (a) (2)) … [The legislation also] allows faith-based organizations to have discretion in hiring only those people who share their religious beliefs or traditions and to terminate employees who do not exhibit behavior with the religious practices of the organization (p. 226).

With the passage of the PRWORA of 1996, the government has made it possible for all providers (secular or religiously based) to apply for government funding for the provision of social services. This is a recognition of the continued work that faith-based organizations and nonprofits are doing in meeting the social welfare needs of the underserved populations in the U.S. As a part of this Act, there was an Office of Faith-Based Initiatives (the name has changed under each president) that was created. The office did not have a named director, however, until the election of President George W. Bush, who enjoyed the favor of the Christian Right that enabled him to fill this position immediately. Every president since then has placed someone in this pivotal position of elevating the social welfare work of faith-based organizations and congregations in addressing the needs of the underserved.

A closing example

There are numerous examples of faith-based organizations that were started during the changing welfare scene in the U.S. in the 1990s. One faith-based organization that was started was The Christian Women’s Job Corps (CWJC). It was established in 1995 by Woman’s Missionary Union, a national faith-based organization of women. The first model was established in San Antonio, Texas, in 1995. There are approximately 53 sites located in Texas alone within rural, urban, suburban, and regional communities. Many of these sites were started as a program of congregations. Through the years, the sites in Texas, specifically, have become a network of independently operated 501(c)(3) organizations. In their original focus, the partici-

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pants were women who had been on welfare and must return to work. Some of the women were assigned by the state government to participate in this program; others heard of the program and enrolled themselves without referral from the state government. Some of the participants were assigned to CWJC as a condition of their parole. These sites teach job readiness/job skills (trades), Christian mentoring, or adult education. All funding for this program comes from individuals, congregations, and private foundations. Originally, because of the belief in separation of church and state, each site was encouraged not to accept government funding. Any site must comply with state government regulations related to welfare to work training concerning the length of time in the training sessions. One of the eight criteria for each site is that Bible study must be provided for the participants. No particular denominational perspective is required to be taught, but it is expected that Bible study will be from a Christian perspective. This faith-based organization is now the Christian Job Corps. It is comprised of not only CWJC sites but also of the Christian Men’s Job Corps (CMJC). Some of these sites remain under the auspices of congregations while many have spun off from those relationships to become a network of 501(c) (3) faith-based organizations. Because of the freedom provided through the PRWORA, they are able to apply for government grants to assist them in doing their work if they choose to do so. Collaboration of faith-based organizations and government can be a positive experience for all concerned. This type of public/ private partnership can be a benefit not only to the faith-based organizations but also to the persons who benefit so well from these partnerships. Gaynor Yancey

Related topics

Faith and philanthropy Faith and volunteering Nonprofit sector Voluntarism

Further reading and references

Boddie, S. C. (2008). Faith-based agencies and social work. In T. Mizrahi & L. E. Davis

(Eds.), Encyclopedia of social work (20th edn.) (pp. 169–175). NASW Press. Bolger, D. (2021). The racial politics of place in faith-based social service provision. Social Problems (Berkeley, Calif.), 68(3), 535–551. https://​doi​.org/​10​.1093/​socpro/​spz061 Chowdhury, S. R., Wahab, H. A., & Islam, M. R. (2019). The role of faith-based NGOs in social development: Invisible empowerment. International Social Work, 62(3), 1055–1074. https://​doi​.org/​10​.1177/​0020872818767260 Cnaan, R. A., & Boddie, S. C. (2002). Charitable choice and faith-based welfare: A call for social work. Social Work, 47(3), 224–235. https://​doi​ .org/​10​.1093/​sw/​47​.3​.224 Cnaan, R. A., Boddie, S. C., Handy, F, Yancey, G. I., & Schneider, R. (2002). The invisible caring hand: American congregations and the provision of welfare. University Press. Garland, D. R., & Yancey, G. I. (2014). Congregational social work: Christian perspectives. NASW Press. Harmon, Schmidt, M., Escobar, F., San Diego, E. R. N., & Steele, A. (2020). Filling the gaps: The role of faith-based organizations in addressing the health needs of today’s Latino communities. Journal of Religion and Health, 60(2), 1198–1213. https://​doi​.org/​10​.1007/​s10943​ -020​-01002​-x Jeavons, T. H. (2001). Being faithful. Nonprofit Quarterly, 8(2), 37–39. https://​ nonprofitquarterly​.org/​being​-faithful/​ Jeavons, T. H. (2004). Religious and faith-based organizations: Do we know one when we see one? Nonprofit and Voluntary Sector Quarterly, 33(1), 140–145. https://​doi​.org/​10​ .1177/​0899764003257499 La Barbera, P. A. (1991). Commercial ventures of religious organizations. Nonprofit Management and Leadership, 1(3), 217–234. https://​doi​.org/​ 10​.1002/​nml​.4130010304 Netting, F. E. (1982). Secular and religious funding of church-related agencies. Social Service Review, 56(4), 586–604. https://​doi​.org/​ 10​.1086/​644049 Netting, F. E. (1984a). Church-related agencies and social welfare. Social Service Review, 58(3), 404–420. https://​doi​.org/​10​.1086/​644215 Netting, F. E. (1984b). The changing environment: Its effect on church-related agencies. Social Work & Christianity, 2(1), 16–30. https://​www​ .jstor​.org/​stable/​30011737 Netting, F. E., & Ellor, J. W. (Eds.). (2004). Faith-based initiatives and aging services. Haworth Pastoral Press. Olasky, M. (1992). The tragedy of American compassion. Regnery Publishing. Thurman, W., Moczygemba, L. R., Welton-Arndt, L., Kim, E., Hudzik, A., Corley, K., & Tormey, K. (2021). Faith-based health and social services for people experiencing homelessness in

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220  Elgar encyclopedia of nonprofit management, leadership and governance the United States: A scoping review of the literature. Journal of Health Care for the Poor and Underserved, 32(4), 1698–1719. https://​doi​ .org/​10​.1353/​hpu​.2021​.0160 Turner Haynes, S. (2021). Government funding for faith‐based international development: Empirical evidence from a U.S. survey. Politics & Policy, 49(3), 594–618. https://​doi​.org/​10​ .1111/​polp​.12410 Wineburg, R. J. (1990–1991). A community study on the ways religious congregations support individuals and human service networks. The Journal of Applied Social Sciences, 15(1), 51–74. https://​psycnet​.apa​.org/​record/​1991​ -19458​-001 Wineburg, R. J. (1992). Local human services provision by religious congregations: A community analysis. Nonprofit and Voluntary Sector Quarterly, 21(2), 107–117. https://​doi​.org/​10​ .1177/​089976409202100202 Zigan, Héliot, Y., & Le Grys, A. (2019). Analyzing leadership attributes in faith-based organizations: Idealism versus reality. Journal of Business Ethics, 170(4), 743–757. https://​doi​ .org/​10​.1007/​s10551​-019​-04358​-7

Family philanthropy Definition

Family philanthropy is a deliberate and concerted process by a family to share their time, talent, treasure, ties, or any other resource with the intent to make a positive social or environmental impact together through multiple generations. Time: Volunteering together Talent: Volunteering a specific skills-based service Treasure: Providing monetary or other assets (real estate, artwork) to be used for impact Ties: Sharing their networks and connections with others for impact This definition focuses on families giving monetary support, not other types of philanthropy such as volunteering, technical assistance, or lending one’s name to a particular initiative.

In practice

Characteristics of family philanthropy include a deliberate definition of the family’s core values that drive giving through genera-

tions, an external mission statement guiding the intent of the giving, a minimum process the family uses to make decisions, often a multi-generational mentoring approach that inspires upcoming generations to continue the work, and in some cases an internal mission statement making clear the intent the family has for how the giving process will play a role in the family and its impact over time. Giving USA includes family philanthropy in three major elements: ● Gifts from individuals: Assuming more than one person is involved in the decision to give, family philanthropy includes direct gifts of cash, gifts from donor-advised funds, appreciated securities, real estate, or other assets that can be converted to cash for operations. ● Family foundations: Included in the larger category of foundations in Giving USA, family foundations are legal entities funded by a family characterized by a governing body consisting of majority family members. These foundations may be endowed with a permanent asset that is invested for return and grant a minimum 5 percent each year, or they may be pass-through foundations without permanent assets. ● Bequests: Assuming the decision to make a testamentary gift via an estate plan is made within the context of a couple or family unit, gifts made in this manner are also considered family philanthropy. This includes vehicles such as charitable remainder trusts (CRTs), charitable lead trusts (CLTs), charitable gift annuities (CGAs) and many other planned giving tools. Community foundations often facilitate family philanthropy through the creation and stewardship of donor-advised funds (DAFs). Community foundations also provide guidance for families regarding local needs and impact organizations. If utilized by a family, DAFs at commercial providers may serve the same purpose. Within the context of leaders and organizations seeking family philanthropy, the concept includes major gifts, annual giving, planned giving, and other forms of development designed to engage families in philanthropy.

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Current and future directions Growth of family philanthropy Individual giving and family philanthropy have been growing in alignment with income disparities across the U.S. and globe. As a result, DAFs have experienced explosive growth in recent years as donor families seek to be more strategic with their giving and desire a place to house philanthropic resources before they are designated. Originally designed to provide an alternative to creating the legal structure necessary to operate as a foundation, debate exists as to whether DAFs should have minimum payout rates like foundations. While there are differing views, the advent of DAFs sponsored by commercial investment houses like Fidelity has further accelerated growth. With more than 40,000 family foundations in the U.S. that range from very small and unstaffed to billions in assets with hundreds of employees, the average family foundation has assets of $6M and gives away about $500,000 a year. Impact investing Families engaged in philanthropy have begun to embrace the concept of utilizing other financial vehicles for impact in addition to outright gifts and grants. This practice is sometimes referred to as impact investing. Examples include loans to organizations, investments in social entrepreneurs, strategic cash deposits in Community Development Financial Institutions, and a growing movement toward values-aligned investing. Characterized by a family seeking to align all their invested assets with their values, this element of impact investing is growing as families begin to understand their invested assets are also having an impact on the world and the issues they hope to address with their giving. While there are many views on whether values-aligned investing will play a permanent role in the landscape, it is clear that pressures to better understand the impact of traditional investing vehicles will remain. Longevity of family foundations Traditionally, family foundations have been endowed with assets that are invested per-

manently to fuel grantmaking. In the U.S., foundations must distribute a minimum of 5 percent of their assets each year. Due to growing need for philanthropic support and advocacy from the field, there is growing pressure to increase annual payout rates. Some family foundations are known as spend-down or sunset foundations that plan to distribute the entire asset base within a specified period of time. Other family foundations see the 5 percent minimum distribution as a floor from which much more than 5 percent is given annually. The debate regarding payout rates and longevity will continue for some time in the halls of family offices and policymakers. Engagement of the next generation A great deal of attention is being paid to engaging successive generations in the work of family philanthropy. Shifts in wealth, changing interests, geographic dispersion of the family, and the growth in the number of family members as generations progress create dynamics within the work that can be both positive and potentially destructive to family philanthropy. Equity Generosity is the natural expression of family philanthropy. In its highest form, the desire to return to the larger society some portion of what a donor has accumulated ideally is done equitably: with humility, respect, and a commitment to understanding systemic issues rather than just the consequences of an imperfect system. Family philanthropy donors are increasingly moving from a charity mindset to a justice-centered perspective. Donors can research issues and understand how racism, sexism, misogyny, and homophobia have placed certain communities and individuals at a disadvantage. This awareness should inform how to fund, and which organizations are doing the work to address the communities most in need. Donors can share power with the communities and organizations they serve. Sharing power requires actively listening to the voices of the community, asking organizations and community members what they need and want, and recognizing grantees as trusted partners in the work. This type of grant funding produces a more equita-

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ble process. General operating grants that are less restrictive enable organizations to enhance sustainability. Capacity building grants strengthen infrastructure and help organizations to withstand the test of time. Lastly, giving funds to organizations for several years, or even decades, can ensure donors build relationships with communities and organizations and lighten the burden of annual fundraising. Organizations can then focus on building their capacity, expanding their programs, and creating more meaningful impact. The emerging philosophy of Trust Based Philanthropy (citation) addresses some of the needs that have been expressed by grant seekers for years such as openness to general operating support, making multi-year grants, and being more committed to transparency and mutual learning with grantees. Also, a central feature is working closely with grantees to determine outcomes while relying more on qualitative evaluation (story telling) versus quantitative evaluation. Julie Fisher Cummings, Douglas Bitonti Stewart and Caitlen Macias

Related topics

Charitable giving Donor-advised funds Impact investing Planned giving Private foundations

Further reading and references

Fleishman, J. L. (2007). The foundation: A great American secret. PublicAffairs. Generations of giving. (2021). National Center for Family Philanthropy. https://​www​.ncfp​.org/​ collection/​generations​-of​-giving​-leadership​ -and​-continuity​-in​-family​-foundations/​ Splendid legacy 2: Creating and re-creating your family foundation. (n.d.). National Center for Family Philanthropy. https://​www​.ncfp​.org/​ splendid​-legacy​-2/​ Tierney, T. J., & Fleishman, J. L. (2012). Give smart: Philanthropy that gets results. PublicAffairs. Trends 2020: Results of the second national benchmark survey of family foundations. (n.d.).

Patricia Bradshaw and Madeline Toubiana

National Center for Family Philanthropy. https://​www​.ncfp​.org/​trends​-2020/​ Villanueva, E. (2018). Decolonizing wealth. Berrett-Koehler Publishers. Walker, D., Alexander, E., Arrillaga-Andreessen, L., Ballmer, S. A., Frazier, K. C., Hanauer, N., Hobson, M., Poo, A.-jen, Rockefeller, D., & Skorton, D. J. (2019). From generosity to justice: A new gospel of wealth. Ford Foundation.

Federation Definition

There is a growing interest across the nonprofit sector in inter-organizational networks, both horizontal and vertical in form. Within the nonprofit sector, federations are one common and long-standing form of inter-organizational network. Federations are formed when two or more affiliated nonprofits establish formal linkages structured hierarchically around a shared purpose or mission (metaphorically they can be best described as nested stacking Russian dolls).

In practice

Federations can have various levels of sub-systems (e.g., local, regional/state/district, national and/or international) and can be called societies, federations, confederations, associations, meta-organizations and affiliations. One important feature is that membership in federations is voluntary and local autonomy is typically preserved with independent boards for each affiliate. Some notable federations include the Red Cross, March of Dimes, United Way and various national health focused federations such as the Cancer Societies or the MS Society.

Current issues and challenges

Federations are inherently tension filled and complex since they connect multiple independent and, to differing degrees, autonomous nonprofits united around a set of goals. Federations can vary immensely in the approach they take to organizing and managing the relations between affiliates, some are highly cohesive and centralized, while others are decentralized, franchised and highly dif-

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ferentiated. Leading these structures involves balancing, facilitating and “crafting” rather than managing and controlling. Like so many contexts, there is no one normative model of an ideal federation. Their structure and effectiveness depend on a range of internal contingency factors such as their identity, mission, leadership, age or life-cycle stage, location, nature of activities, strategy and degree of standardization of services or products. History is another critical factor and it is important to understand whether they started as a centralized nonprofit that spun off other affiliates or started as separate nonprofits who came together to advance shared interests under a central or umbrella structure. Their founding story impacts culture and expectations of affiliates and can contribute to power struggles and conflicts. Similarly, external factors are critical contingency variables including demands from funders and donors for accountability, need for flexibility and adaptability in times of environmental turbulence and uncertainty, rate of technological changes, geographic differences, domain elites, availability of resources, policy context and even competitors. Within this challenging context, leaders, managers and board members have adopted a variety of different approaches to fulfilling their respective functions. Leadership challenges The function of the leadership is to articulate, share and enact the federation’s vision/ mission and execute on strategy. Federations provide a unique leadership context because of their shared and distributed leadership, which includes all the Executive Directors/ CEOs of the nonprofit affiliates that make up the federation. When leadership is distributed and fragmented there are often power struggles over scarce resources such as money, information, networks, technology, brand identity, legitimacy, personal reputation and autonomy. To navigate the tensions between power held by leadership in the center versus power held in the affiliates, leaders have adopted various approaches. 1. Putting mission first. Some federation leaders successfully use a shared mission as a way of gaining buy-in across all affiliates of the federation. This can help connect everyone and resolve conflicts

over whether actions of various affiliates are aligned strategically. Some federations have complex and multi-faceted missions (e.g., both advocacy or research as well as service or local support). When possible having a big picture meta-mission that connects different goals will lend itself to greater clarity and consistency for the federation’s leaders. 2. Building a value-driven collective identity. Leaders, similarly, work to construct commitment to the work of the federation, by building a collective identity rooted in shared values. Operational values go beyond the mission by addressing “who we are” and the way we do things together. Complicating matters, some federations are made up of nonprofits that can span countries where cultures and values may differ vastly. Finding the common ground and values that comprise the federation’s shared identity is essential for overcoming the tensions that can arise when culture or affiliate conflicts emerge. 3. Leveraging structural configurations. Leaders also attempt to address structural complexity and to remain responsive to local needs while also maintaining overall coherence, central control, and standardization. Consequently, if they are not strategic a federation can oscillate between centralization and decentralization in their efforts to leverage, suppress or disengage from the complexity. Some areas in which they often centralize are in finance, marketing, fundraising and communications or administration. Ideally a federation can jointly optimize both centralization and decentralization simultaneously. For example, they can use hierarchical modes of integration (e.g., standardization of services) while simultaneously employing non-hierarchical mechanisms that foster higher degrees of local autonomy that allows affiliates to connect with local volunteers, meet unique client needs and serve their communities. If federation leaders do not understand that these dynamics are systemic, then the solution to the complexity becomes a matter of tension filled restructuring and more oscillating efforts to control. This can result in disengagement and ultimately collapse. Patricia Bradshaw and Madeline Toubiana

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Managerial challenges Management is the function that involves the implementation of the federation’s strategy, and this has its own unique challenges. Management of a federation is also shared across all affiliated nonprofits. The overall managerial function in federations includes activities such as networking, convening and information sharing, advocacy, negotiations and brokering as well as service provision. Researchers have identified a number of approaches that management can leverage to address these challenges. 1. Perspective shifting focuses on selecting, promoting or giving preference to staff with the capacity to hold multiple perspectives within the federation and who understand differences across the federation. These uniquely positioned and talented staff members can adeptly negotiate federation tensions and act as boundary spanners when positioned in intermediary roles mediating between different perspectives. 2. Shaping interactions involves establishing communication systems or protocols to facilitate or limit the interactions between affiliates and the core. Federations seek to manage interactions across the federation in three ways: by actively promoting and facilitating interactions, limiting and constraining interactions, or avoiding involvement in interactions. For example: ● Establishing processes that build relationships and trust such as peer support systems or online forums to share information and facilitate mutual learning. ● Exchange visits across affiliates or with central offices, cross attendance at regional meetings, agreeing on common messages and themes, internships at central office, inter-staff coordinating bodies such as management committees that bring people together around issues. ● Building management systems, shared brands and compliance requirements and forging agreements on fundraising. ● Designing conflict resolution and communication processes (board to board, board to staff and staff to staff). ● Creating systems of mutual accountPatricia Bradshaw and Madeline Toubiana

ability such as reporting models and shared metrics and dashboards designed around elements of a shared set of strategic priorities. 3. Managing standards involves adopting standards and frameworks for operations and norms that clearly bound acceptable practice within the federation. This establishes the overarching central features that bring the federation together, and either encourage or limit what is possible. Some federations seek to establish norms to encourage affiliates to adopt standards of practice while others enforce standards with formal rules and regulations. In extreme situations, the core can take coercive and dramatic action to revoke an affiliate’s status within the federation. Some areas of negotiation around standards include: ● Allocation of human resources. For example, agreeing to have a small central office that focuses on coordination and facilitation while depending on local resources to get the work done. Alternatively, having a large core office with many supports for the affiliates, which reduces their staffing needs. ● Resource sharing agreements such as establishing membership dues based on ability to pay. ● Establishing mechanism for association and disassociation of member affiliates. Governance challenges The governance function within federations is also unique given that governance is nested, distributed and complex. Given the size and number of affiliates, some federation boards are very large and constituency based, with members appointed to represent a geographic area, resulting in tensions as some board members are inclined to advocate for the interests of their own affiliate or area. Leaders of federations need strong governance to help them frame issues holistically and act in the best interests of the federation as a whole. Boards should assist federation leaders in avoiding mission drift, in crafting a compelling shared strategy and resolving structural tensions.

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To do this board members in federations need to be systems thinkers and cannot fall into patterns of systems blindness. This also applies to boards of the affiliates as well. For example, boards of member organizations can assume that they have complete autonomy and are not aware their nonprofit is an affiliate of a federation and that they have mutual accountabilities with other affiliates across the network and with the core. Strategies that boards use to help address these challenges include: 1. Finding common ground and making concessions and compromises. Boards of member organizations need to understand both the unique needs of their constituents/region, and advocate for those interests, while simultaneously find ways to create win–win outcomes that benefit the federation as a whole. Often persuasion not authority or top-down rules are key to decision making across systems levels. 2. Creating structures and processes that facilitate integration at the board level. Ways federation boards facilitate this process include: ● Holding meetings where all affiliate board chairs and EDs/CEOs come together to discuss hot issues, emerging trends and build trust. ● Establishing agendas of board meetings that include reports from member organizations, or visits from chairs of affiliated boards. ● Ensuring strategic planning exercises at each system level are not done in isolation or without recognition of needs of the federation as a whole. ● Board policies written to reflect the scope and limitations of authority and autonomy so as to facilitate the success of the federation as a whole. 3. Selection and orientation of diverse board members. Board members need to be able to think systemically, concurrently hold multiple perspectives and see the big picture and this ability needs to be a criterion in board recruitment. Boards also need to orient new board members, so they understand the purpose and operations of the federation as a whole and its history. Research has shown that boards that are diverse in all respects are more effective, especially when they make efforts

to value and bridge their differences. Valuing diversity and making equity and inclusion a fundamental aspect of governance will facilitate better governance of federations as different perspectives can be articulated and examined.

The future

Nonprofit federations are moving into a post pandemic world characterized by significant uncertainty and newly framed and identified challenges. We are already observing federations responding by closing or merging affiliates, exploring new governance models (e.g., umbrella boards that govern multiple affiliates), selling capital and shutting programs, changing hiring models to be more diverse and to address shortages of volunteers and staff, moving programs online or shifting service models and exploring social enterprise options. They are being pushed to do things differently, to innovate and take risks. Based on our research, and work in the nonprofit sector, we believe that federations benefit from intentional adoption of systems thinking. By “seeing systems” they may be able to avoid or mitigate systems blindness and perceive the federation’s inherent complexity differently. A systems perspective enables federations to frame their structural tensions in a new way, and to move beyond the frustration of trying to ride the pendulum swings and political machinations between centralization and decentralization, or between standardization and enhanced local variation. Instead, they move towards facilitating or jointly optimizing the tensions in order to capitalize on the creative possibilities that the complexity engenders. Perhaps the inherent complexity of federations will be what enables them to adapt and thrive more easily than other nonprofits. The Law of Requisite Variety says that systems struggle to survive when the variety or complexity of the environment exceeds the variety or complexity of the internal systems. With the growing turbulence and uncertainty of our post-pandemic world, we might posit that federations, with their internal complexity and repertoire of responses, are well positioned to adapt and thrive. The future may be one where we see the emergence of more federations as the nonprofit sector embraces the need to build networks, collaborate and lead change across many subsectors from social Patricia Bradshaw and Madeline Toubiana

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justice and social services, to environmental and advocacy. Patricia Bradshaw and Madeline Toubiana

Related topics

Financial documents and control Definitions

Financial documents include paper and electronic data elements, forms, and reports useful in describing, assessing, or projecting the financial results or financial position of an organization. Vital financial information is presented via financial documents. Financial leaders and board members use documents to Further reading and references tell the story of a nonprofit’s financial health Bradshaw, P., & Toubiana, M. (2012). Dynamics (strength). of nested governance in nonprofit organizaStandard definitions for accountations. In C. Cornforth & W. Brown (Eds.), bility, control, and stewardship follow. Nonprofit governance: Innovative perspective Accountability is defined as “liable to being and approaches (pp. 231–248). Routledge. Grossman, A., & Rangan, V. K. (2001). Managing called to account; answerable.” Stewardship multisite nonprofits. Nonprofit Management denotes “managing another’s property, and Leadership, 11(3), 321–337. https://​ doi​ finances, or other affairs.” Briefly, a control, .org/​10​.1002/​nml​.11306 in a financial context, is defined as “a restrainProvan, K. G. (1983). The federation as an inter- ing device, measure, or limit; a curb.” More organizational linkage network. Academy of formally, financial controls are the methods, Management Review, 8(1), 79–89. https://​doi​ techniques, and tools used by organizations to .org/​10​.5465/​amr​.1983​.4287668 Selsky, J. (1998). Developmental dynamics steward financial resources. Controls enable in nonprofit-sector federations. Voluntas: organizations to allocate resources to proInternational Journal of Voluntary and grams, administration, and funding activities Nonprofit Organizations, 9(3), 283–303. https://​ to achieve their missions effectively and effiwww​.jstor​.org/​stable/​27927616 accessed 14 ciently. Policies, procedures, budgets, cash Sep 2023. forecasts, audits, finance committees, enterTaylor, M., & Lansley, J. (2000). Relating prise resource planning software systems, the central and local: Options for organiza- delegated authority, and financial reports are tional structure. Nonprofit Management and Leadership, 10(4), 421–433. https://​doi​.org/​10​ examples of financial control methods, techniques, and tools. .1002/​nml​.10405 Collaboration strategies Membership associations Multisite nonprofit organizations United Way

Toubiana, M., Oliver, C., & Bradshaw, P. (2016). Beyond differentiation and integration: The challenges of managing internal complexity in Federations. Organization Studies, 38(8), 1013–1037. https://​doi​.org/​10​.1177/​ 0170840616670431 Young, D., Koenig, B., Najam, A., & Fisher, J. (1999). Strategy and structure in managing global associations. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 10(4), 323–343. https://​doi​.org/​10​.1023/​A:​ 1021434424549

John T. Zietlow

Context

A nonprofit’s primary financial objective is to ensure that financial resources are available when needed, as needed, and at a reasonable cost, and are protected from financial impairment and spent according to mission and donor purposes. Practically speaking, organizations should monitor the amount of cash and near-cash holdings (unrestricted cash and short-term investments) and the unused part of a credit line, if any. These items are summed up and their adequacy is evaluated considering forecasted operating cash flow. Organizations vary in their control processes with respect to achieving this primary financial objective. In order of degree of adoption, they transition from Phase 1 – Muddle, into Phase 2 – Survive, then Phase

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3 – Progress, and finally Phase 4 – Thrive. Phase 1 organizations are more focused on breaking even or making a small surplus than they are achieving a liquidity target. As they grow, age, and become more professionalized or institutionalized, they begin to focus on being “cash-positive” in their operations. Progressing organizations explicitly adopt an appropriate liquidity target, either in the form of cash (as a percentage of annual expenses, quite often), cash and short-term investments, or cash and short-term investments and an unused credit line. In this phase, formal policy might target three to six months of annual expenses held in the form of cash – often termed an “operating reserve.” Organizations eventually embrace what Gordon Donaldson (1969) called a strategy for financial mobility, managing cash position, cash flows, financial flexibility, and funding sources. Managers project financial statements of five years or more, and plan to have ample liquidity to fund growth, preserve the liquidity target, and have contingency funding sources in mind. A financial control system may mitigate against risks that threaten the organization’s financial well-being. Consider the financial control system as part of a broader risk management structure. Some view embezzlement and altered financial records as control breakdowns, concluding that a control system has only a protective role. A control system, however, also works positively to provide critical information to management and the board in an accurate fashion and a real-time or near-real-time basis. As part of the broader risk management structure, the financial control system improves survival prospects, expands mission opportunities, and builds an enduring organizational reputation.

In practice

A three-level accountability framework may guide nonprofit managers and boards in selecting and implementing appropriate financial documents and control. The foundation level is basic integrity. Second-level issues embody good stewardship. The final level is all-encompassing risk management, usually seen in practice when the nonprofit adopts an enterprise risk management (ERM) framework.

Level 1: Integrity level Integrity is the foundation of any organization’s accountability and stewardship. Integrity may be defined as follows: “(1) Steadfast adherence to a strict moral or ethical code. (2) The state of being unimpaired; soundness. (3) The quality or condition of being whole or undivided, completeness.” Nonprofits are inherently values-expressive and are expected to “practice what they preach.” Honesty and trustworthiness necessarily guide actions and communications. Good governance ensures a singular pursuit of the mission of the organization, with employee or board member self-interest kept secondary. Agency problems, in which employee or board member interests are placed at or above those of service recipients, are to be monitored and guarded against. Basic financial policies, including those addressing budgeting, financial reporting, document retention, whistleblowing protections, and conflicts of interest, are part of the integrity level. Level 2: Stewardship level Organizations with strong integrity certainly exhibit basic components of stewardship, but more is required to be classified as “good stewards.” Good stewards also evidence efficiency and effectiveness and ensure that working controls and control processes are in place. Although some accountability mechanisms are part of the integrity level, additional accountability processes and controls are in place: internal financial reviews (including ensuring grantor and donor stipulations are met), budget variance reports, outcomes assessment, performance reporting, and board involvement. Cost control and spending reasonable amounts for administration or fundraising are further markers. A strong, well-functioning financial management system is observed. More detailed financial policies, addressing debt use and limits, investment parameters and performance evaluation, and audit procedures and committee guidelines, also evidence a stewardship mindset. Level 3: Risk management level Best-in-class nonprofits operate at a higher level of accountability, the risk management level. Most substantive threats to the organJohn T. Zietlow

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ization’s financial viability are monitored and managed – reducing the chance of not achieving the primary financial objective. Managers embrace what we might term a “no cash, no charity” philosophy by actively managing the net surplus – present and future – to ensure adequate liquidity. Reputation risk is central: nonprofits that are susceptible to lawsuits, negative publicity, or negative word-of-mouth from either service recipients, members, or grantors/donors may fall short. Threats to the future cash position emerge from traditional financial risk factors – interest rate risk, foreign exchange rate risk, and commodity price risk – or less obvious deficiencies in insurance coverage, personnel hiring and firing policies and actions, and manager or board integrity as addressed earlier. The COVID-19 pandemic brought with it added risk factors such as cybersecurity from offsite workers, employee shirking, cyber property and liability exposures such as vulnerability to ransomware or data breaches that were uninsured or partly insured, and added health costs for organizations that chose to be self-insured. Very few nonprofits have reached this third level in the accountability pyramid. There are five components of internal control incorporated in an internal control framework: 1. Control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring Note that these components map into the accountability framework as follows: ● Integrity level: Control environment, information and communication ● Stewardship level: Control activities, monitoring ● Risk management level: Risk assessment The most critical financial documents that a nonprofit should develop and update to monitor its financial performance and health are presented in the next two sections. External financial documents and control Foremost in external accountability and reporting are the organization’s operating John T. Zietlow

budget, its annual report, and other periodic grantor/donor mailings and publicity. Having and using a revenue and expense budget serves in a control function by allowing planned allocations to actually occur. Knowing that your organization has and uses a budget assures donors and other funds as well as the general public that governance is in place. Changes in one year’s budget versus the past year’s reveals priority changes even as it shows resources being reallocated. Occasional changes in spending priorities are necessary to maintain mission integrity, and revised budget funding may be communicated to interested publics. An annual report, which may be made available on the organization’s website or emailed or mailed to some or all donors, regulatory agencies or offices, the media, and members or select clients/beneficiaries, is a second accountability tool. Relevant financial information that might include key elements from major financial statements, including the statement of activities, financial position statement (balance sheet) and statement of cash flows; a breakdown of revenues by source and expenses by program; and cost reductions, information technology investments, or other efficiencies achieved during the past year. This information, taken together, evidences that the organization is on the stewardship level on the accountability pyramid. Visual data presentations include pie charts or bar charts to show program expenditures and revenue sources, as well as the natural expense breakdown (salaries, utilities, etc.). The organization thereby documents that it is a good steward of the resources entrusted to it. Internal financial documents and control A major way to demonstrate integrity is through a carefully designed and implemented and fully operational internal control structure. No matter how small the organization, there are six areas to consider: 1. Cash receipts – ensures that cash inflows are received, promptly deposited, properly recorded, reconciled, and adequately secured. 2. Cash disbursements – ensures that payments made are only disbursed after management authorizes them, are for valid purposes, and are properly recorded.

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3. Petty cash – includes safeguarding, properly recording, and ensuring that disbursements from petty cash are for approved purposes. 4. Payroll – ensures the validity of disbursements (amounts are authorized and correct and routed to actual employees), proper recording, and withholding taxes are correctly calculated and remitted on a timely basis. 5. Grants, gifts and bequests – ensures they are received, reported, and managed according to any stipulated restrictions. 6. Fixed assets – ensures proper authorization for acquisition and disposal, that they are safeguarded, and recorded correctly. Note the common elements: authorization, recording, and safeguarding – these serve to make and keep the organization accountable. An important document for monitoring and documenting the cash position is a “flash report” showing bank and book (general ledger) balances each morning. The organization’s accountability structure and budgeting process are essential to good stewardship. Managers periodically review the accountability structure to ensure it is adequate for (1) overseeing and ensuring the integrity of all present and anticipated programs and operations; (2) determining how well the organization is doing in meeting its primary financial objective; (3) assessing progress in meeting budget (more below); (4) gauging adequacy of financing for the next three or five years; and (5) summarizing the overall financial health of the organization. Financial health metrics (also known as financial ratios) may be calculated from numerical data in the statement of activities, statement of financial position (balance sheet), or statement of cash flows. Determining the need for an external audit, or if an audit firm is already retained, the adequacy of the audit firm’s services and any additional advisory services the firm offers, are essential. Finally, regarding fundraising, managers (as overseen by the board) consider (1) is the degree of fundraising appropriate; (2) is it focused appropriately (online versus direct mail versus in-person appeals, etc.); and (3) is it done in an ethical way? Budgets are plans but at the same time function as control devices. If spending exceeds budgeted amounts, was it due to

controllable or uncontrollable causes? If controllable, how can the spending be brought back into line with the budget, or what other items can be pared to bring the overall budget into balance? If uncontrollable, what change to the budget should be made now so that the budget serves as an adequate standard for the remainder of the fiscal year? What mistakes were made in establishing this year’s budget that can be avoided in developing next year’s budget? Vital internal financial document and control management activities may also include: ● reviewing withholding tax remittance and electronic submission requirements (this may change as your organization becomes larger) ● reviewing directors’ and officers’ insurance and relevant bylaws, property and casualty insurance, and liability insurance ● reviewing health insurance for employees ● retaining an auditing firm having nonprofit expertise ● retaining an outside investment advisor (if have significant investable amounts) ● assessing the effect of inflation ● assessing the effect of higher or lower interest rates ● adding to or revising financial and investment policies ● conducting a cash management study, including rebid of banking services and possible new services ● evaluating working capital (current asset and current liability) management ● assessing the cash flow effects of the business cycle ● establishing an endowment fund ● revising your organization’s liquidity position ● developing a more accurate or longer-term cash budget ● developing a long-range financial plan, perhaps for the next three or five years Demonstrating risk management and control comes when the organization monitors and manages potential threats to the organization’s financial viability. Managers who carefully monitor the organization’s financial position and take steps to ensure that the organization achieves its primary financial objective have reached a good stewardship level of proficiency. Signs that an organizaJohn T. Zietlow

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tion suffers from low morale, high employee turnover, lawsuits, negative publicity, or negative word-of-mouth from either clients/ members or funds providers often reveal that the organization has not progressed to this level. Threats to the future cash position come not only from traditional financial risk factors – interest rate risk, foreign exchange rate risk, and commodity price risk – but insurance coverage, personnel hiring and firing policies and actions, and a possible lack of integrity (especially in fundraising).

Developments and trends

Recapping, nonprofit organizations that are good stewards utilize internal financial reviews and budget variance reports, outcomes assessment, performance reporting, and board involvement. A strong, well-functioning financial management system is at the heart of such organizations. Boards that are interested in and actively involved in financial decisions are a tremendous asset to nonprofits. Managers keep board members involved with brief financial presentations, supplementing with graphs and annotated comments to highlight key developments and new trends. Board members are reminded of their duties of care, obedience, and loyalty, which clearly include financial decisions. Regarding risk management, scenario planning is widely employed. Managers may brainstorm with their board, employees, and volunteers (and network with other officers at organizations similar to their own) to determine the factors that could adversely affect their service provision and/or cash flows and financial position within the next five or ten years. Recently, the resurgence of inflation and the corresponding loss of purchasing power re-emerged as a chief risk factor, and external parties will want to know how and to what extent this affects the nonprofit. For example, let’s say an organization provides a homeless shelter. Higher inflation rates cause interest rates to rise. High interest rates may make housing less affordable and worsen the housing accessibility problem – both for potential buyers and potential multifamily housing developers – in the nonprofit’s com-

John T. Zietlow

munity. The homeless shelter experiences additional demand for its services, and it will likely not receive additional donations immediately to meet the additional demand. Decision makers study the joint influence of each force working in the environment. Higher interest rates may pose a problem here, but what if a shortage of affordable housing, increasing unemployment, and recession are compounding the problem? The organization’s risk increases because these factors worsen homeless sheltering demand at the same time they diminish the donation stream. We see in our example how effective risk management characterizes proficient financial management. John T. Zietlow

Related topics

Accountability Accounting practices, rules, and standards Audit Budget process Financial performance indicators Financing nonprofit organizations Risk management

Further reading and references

Donaldson, G. (1969). Strategy for financial emergencies. Harvard Business Review, November– December, 67–79. Merino, B. D. (1980). Effective internal accounting control for nonprofit organizations: A guide for directors and management. Journal of Accountancy (pre-1986), 150(000006), 87. Zietlow, J. (2000). Developing financial accountability and controls. In E. L. Queen (Ed.), Serving those in need: A handbook for managing faith-based human services organizations (pp. 119–148). Jossey-Bass. Zietlow, J. (2020). Treasury, cash, and liquidity management in nonprofit organizations. In I. Garcia-Rodriguez & M. E. Romero-Merino (Eds.), Financing nonprofit organizations (Chapter 10). Routledge. Zietlow, J., Hankin J., Seidner, A., & O’Brien, T. (2018). Financial management for nonprofit organizations: Policies and practices (3rd edn.). Wiley.

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Financial performance indicators Definition

Financial performance indicators are measures of financial and organizational performance that are prized for their conciseness. Often built into collections such as performance dashboards, these metrics are generally based on accounting measures. Both nonprofit and for-profit managers widely use financial performance indicators to analyze the financial status and health of their organizations. Analyzing financial performance indicators can provide valuable insights about whether the nonprofit organization is financially satisfactory or inadequate; comparing these measures from year to year can give a better understanding of whether the financial position is improving or deteriorating.

In practice

Financial performance indicators are employed in several ways, depending on what question needs to be answered. Since such indicators are narrowly targeted, they are often used in a portfolio that is assembled to provide as much insight as possible while still having a manageable number of indicators. Though the number of individual metrics is practically infinite, most indicators are grouped according to the underlying concept for which they provide insights. Most of the indicator portfolios in the nonprofit sector use four individual metrics, though there is some disagreement over what those metrics should be. For example, the nonprofit vulnerability literature continues to test the four indicators introduced by Tuckman and Chang (1991): ● Equity Balance (Net Assets / Total Revenue) ● Revenue Concentration (Herfindahl Index) ● Administrative Costs (Administrative Expenses / Total Expenses) ● Operating Margin ((Total Revenues – Total Expenses) / Total Revenues) Though the contextual variables such as size and subsector also matter, most of these indicators play a role in predicting which non-

profit organizations will experience financial vulnerability. However, these same ratios are not necessarily useful in measuring current financial performance. This is particularly the case for administrative costs, where an active debate regarding the ideal levels continues to rage in both academic and practitioner circles. Instead, metrics reflect four key areas, as outlined in Bowman (2011): solvency, liquidity, profitability, and growth. Solvency Solvency can be defined as the ability of an organization “to be a going concern” while satisfying all continuing financial obligations when expected (Bowman, 2011, p. 28). In other words, solvency tells how likely an organization is to remain in business in the long term. In the context of the nonprofit sector, solvency measures financial resilience and vulnerability of a nonprofit organization (Prentice, 2016). Solvency indicates how much debt a nonprofit has accrued (compared with its assets) and whether it would be able to cover the financial promises it has already made. Alternatively, its complementary concept, insolvency, is predictive of a nonprofit’s “demise at the hands of its creditors” (Bowman, 2011, p. 28). There are three types of solvency: balance sheet solvency (solvency in liquidation), cash flow solvency (operational insolvency or bottom line), and capital adequacy (Bowman, 2011). In this entry, we focus on the balance sheet. In balance sheet solvency, net assets are greater than zero and the nonprofit would be able to discharge all existing obligations to creditors. Nonprofit solvency also typically means its unrestricted net assets are positive, which indicates it will be able to fulfill commitments made to donors of restricted grants as well as its creditors. In nonprofit financial performance literature, solvency can be calculated by a few different financial indicators: total net assets divided by total revenue (Tuckman & Chang, 1991), total net assets divided by total assets (Bowman, 2011), total assets less total liabilities, and total liabilities divided by total assets (also known as “debt ratio” or LTA). In general, a universal standard of these solvency metrics is that nonprofit organizations should aim to have enough assets to cover liabilities. For instance, in terms of debt ratio, Tianyi Li and Elizabeth A. M. Searing

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nonprofits should at minimum have an LTA of one, with a lower ratio being better. In other words, when a nonprofit has an LTA of one, it owes one dollar for every dollar of stuff it possesses; therefore, a lower number means that less than a dollar is owed per dollar of stuff it possesses and it has a positive net worth. Liquidity Liquidity refers to the ability to raise cash quickly to meet current obligations. In the context of nonprofit, liquidity is a measure of available cash that can be used to finance operations in the short term. Liquid assets include cash or financial resources which can be efficiently converted into cash quickly, and they should not be subject to donor restrictions (Bowman, 2011). Most of nonprofit liquidity indicators include current assets as an essential component in ratio calculation. Current assets help finance operations and pay daily expenses; they consist of “cash and cash equivalents or assets that can be converted to cash in less than one year without discount from their fair market value” (Seaman & Young, 2010, p. 69), such as account receivables, inventory, marketable securities, and prepaid expenses. Scholars argue that the most important financial objective of a donative nonprofit is to manage liquidity. This is because revenue recognition can occur far before actual payment is received (in accrual accounting), so relying purely on the income or activity statement may result in a liquidity crunch and the inability to pay wages and vendors. Therefore, even with a positive net income and a budget surplus, nonprofits can have severe cash flow problems (Chabotar, 1989). Early data indicated that the majority of nonprofits have the equivalent of one month or more of nonprofit working capital (Bowman, 2011), though the level of reserves that nonprofits can and should have likely have been changed by the pandemic. Liquidity can be measured in several different ways, such as the current ratio, quick ratio, available funds ratio, months of spending, days of cash on hand, working capital, and working capital divided by total assets. We will briefly describe the most common. First, the quick ratio is one of the standard measures of liquidity in both nonprofit and for-profit sectors; it consists of cash, cash Tianyi Li and Elizabeth A. M. Searing

equivalents and various receivables divided by current liabilities/payables (Seaman & Young, 2010). The current ratio also measures the ability to pay current obligations. The difference between the current ratio and quick ratio is that quick ratio excludes inventories as part of current asset calculation, as they can be illiquid. A ratio of one means that a nonprofit has just enough to pay its current liabilities. The rule of thumb for the current and quick ratios range from two to four. Additionally, months of spending is another typical measure of liquidity, and it refers to the number of months a nonprofit could survive after losing all current income and maintaining its spending on operations at a constant level (Bowman, 2011). The recommended benchmark from 2011 is one to two months of spending, though this is likely higher after the pandemic. Profitability Profitability measures the amount of resources left after expenses, and it generally reflects the long-term sustainability of the organization. Unlike for-profit enterprises that strive to maximize profit, nonprofit organizations do not exist primarily to generate profits, either directly or indirectly; however, profit (surplus) is still a relevant concept for nonprofits. In fact, “nonprofits should not try to maximize surplus, because they have a public service mandate to ‘spend’ it to produce more, to increase quality, to lower their price, to grow to meet future demand, or all of these at once” (Bowman, 2011, p. ix). However, sustainability principle requires consistency between the short run (as measured by annual surpluses) and the long run (as measured by asset growth). In other words, although nonprofits are not supposed to maximize profits (surpluses), they should retain annual surpluses that are significant enough to sustain the organization into the future, including growth (Bowman, 2011). In addition to the trade-off of providing services today versus tomorrow, nonprofits must also weigh surpluses (profits) against maintaining their assets. In the context of long-term sustainability, nonprofits must be able to keep their assets in good shape and maintain operating reserves at a level commensurate with anticipated risks. In the accounting-based nonprofit literature, profitability is commonly represented by

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two financial indicators: net income (which is revenue less expenses) or net income divided by total assets. In nonprofit practice, as Prentice (2016) suggested, profitability can also be measured in a few other ways. First, practitioners often use return on assets to describe profitability, which can be calculated as change in total net assets divided by total assets. Alternatively, nonprofit decision-makers often consider the impact of restricted net assets separately, so they would use the change in unrestricted net assets to replace the change in total net assets in the calculation. Second, like the return on assets calculation, nonprofits may also use return on investments to represent profitability, which is investment income divided by invested financial assets. This might be particularly applicable for a foundation or endowed operating nonprofit. Third, some nonprofit practitioners prefer surplus margin (also known as total margin or profit margin) to measure profitability and long-term sustainability. Its calculation is also similar to the return on assets, with net income being the numerator, but total revenue being the denominator instead of total assets. Interchangeably, operating margin can be viewed as a financial indicator of nonprofit sustainability, which can be calculated as net operating income divided by total operating revenue. Growth Although nonprofits do not maximize profits, they can and should manage their revenue composition to maximize growth potential and to go beyond sustainability. Sustainability is a necessary but insufficient condition for nonprofit long-term success. Once an organization is sustainable, it has a foundation on which to grow. However, managing growth is more challenging for nonprofits due to the variety of revenue (compared to the for-profit reliance only on earned income) (Bowman, 2011). More revenue options could potentially bring more dollars to a nonprofit, but at the same time, more options mean more strategic decisions are required about which sources of revenue to pursue and more comprehensive fundraising skills needed. In other words, a diversified revenue portfolio does provide some degree of protection from potential financial shocks of any one of the revenue sources drying up; however, each revenue channel presents different manage-

ment issues and requires different skill sets to manage (Bowman, 2011). According to the benefits theory of nonprofit finance, each type of revenue is appropriate to a different type of nonprofit activity (Young, 2017). In some cases, this may lead to reliance on a single type of revenue, while others require revenue diversification. Recent nonprofit revenue diversification studies have revealed that types of revenues for survival and types for growth may differ (Searing, 2018). On the one hand, in nonprofit demise studies, diversification has been shown to provide a hedge against risks and to promote longevity (Carroll & Stater, 2008; Tuckman & Chang, 1991). On the other hand, in nonprofit growth studies, diversification has been viewed as an obstacle which prevents specialization and hinders growth (Foster & Fine, 2007). Revenue growth calculations are common and relatively straightforward. The difference between last year’s revenue and this year’s revenue should then be divided by last year’s revenue; to express the growth rate as a percentage instead of a decimal, multiply the result by 100. A positive growth rate indicates that a nonprofit has obtained more revenue this year than the previous year, which is generally considered a good sign.

Hazards, limitations, and future directions

Though financial indicators are very convenient, they can be easy to use improperly. First, single (or even several) ratios are only one small measurement of multiple factors and conditions that guide nonprofit managerial decision making (Chabotar, 1989). Therefore, we suggest more use of them as components of financial dashboard rather than singly or in isolation of other contextual elements; further, presentation of such analysis should include multiple years of data in order to establish trends and themes. For researchers, this research gap would be suited for mixed-methods analysis that would provide new insights into the decisions behind the numbers. Second, stakeholders in a nonprofit’s financial well-being should be careful not to attach too much meaning to a single metric. For example, the administrative or overhead ratio has become an inaccurate proxy of nonprofit Tianyi Li and Elizabeth A. M. Searing

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efficiency for donors and managers; this has led to a starvation cycle that has undermined the long-term health of the sector (Lecy & Searing, 2015). With proper use, ratio metrics can serve as an “early warning detector” that highlights the financial situation and signifies possible problems, yet more customization in analysis are often recommended to get closer to actual impact metrics. More work should be conducted on how to gauge social impact and returns on investment for the nonprofit context, if only to keep people from using inadequate proxies. Finally, nonprofit decision-makers should be cautious about the “rules of thumb” of financial performance indicators. Even though it sometimes offers a useful context for a nonprofit’s ratio analysis, a nationwide average does not necessarily represent a suitable benchmark to compare with nor a desirable financial standard to follow. In practice, financial performance metrics need to be adapted based on other properties and characteristics of a nonprofit, such as organizational size, age, subsector, and so on (Trussel & Greenlee, 2004). Tax-exempt status is not limited to the U.S., so the applicability of the U.S.-dominated literature to the conditions in other countries or in particular situations and subsectors will help bridge the gap between research and practice. Tianyi Li and Elizabeth A. M. Searing

Education,  60(2), 188–208. https://​doi​.org/​10​ .2307/​1982176 Foster, W., & Fine, G. (2007). How nonprofits get really big. Stanford Social Innovation Review, 5(2), 46–55. Lecy, J., & Searing, E. A. M. (2015). Anatomy of the nonprofit starvation cycle: An analysis of falling overhead ratios in the nonprofit sector. Nonprofit and Voluntary Sector Quarterly, 44(3), 539–563. https://​doi​.org/​10​ .1177​%2F0899764014527175   Prentice, C. R. (2016). Why so many measures of nonprofit financial performance? Analyzing and improving the use of financial measures in nonprofit research. Nonprofit and Voluntary Sector Quarterly,  45(4), 715–740. https://​ doi​ .org/​10​.1177/​0899764015595722 Seaman, B. A., & Young, D. R. (2010). Handbook of research on nonprofit economics and management. Edward Elgar Publishing. Searing, E. A. M. (2018). Determinants of the recovery of financially distressed nonprofits. Nonprofit Management & Leadership, 28(3), 313–328. https://​doi​.org/​10​.1002/​nml​.21296 Trussel, J. M., & Greenlee, J. S. (2004). A financial rating system for charitable nonprofit organizations. Research in governmental and nonprofit accounting, 11, 105–127. Tuckman, H., & Chang, C. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445–460. https://​doi​.org/​10​.1177/​089976409102000407 Young, D. R. (2017). Financing nonprofits and other social enterprises: A benefits approach. Edward Elgar Publishing.

Related topics

Administration costs Effectiveness of nonprofit organizations Financial ratios Financing nonprofit organizations Resilience management Revenue diversification

Further reading and references

Bowman, W. (2011). Finance fundamentals for nonprofits, with website: Building capacity and sustainability. Wiley.  Carroll, D. A., & Stater, K. J. (2008). Revenue diversification in nonprofit organizations: Does it lead to financial stability? Journal of Public Administration Research and Theory, 19(4), 947–966. Chabotar, K. J. (1989). Financial ratio analysis comes to nonprofits. The Journal of Higher

Christopher R. Prentice

Financial ratios Definition

Financial ratios are created from information contained in financial statements and are used by managers to compare an organization’s financial performance to predetermined internal goals, industry benchmarks, or peer organizations to facilitate decision making.

Context

Nonprofit managers in the United States are legally required and normatively expected to be good financial stewards. Federal and state laws require nonprofits to disclose annual tax returns to allow for public scrutiny (IRS, 2021; North Carolina Nonprofit Corporation Act, 1993).

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Managers also face normative pressures from external stakeholders, including donors, grantors, and charity watchdog groups (e.g., Charity Navigator) that create generally accepted boundaries for nonprofit financing, spending, and other activity. Research shows that pressures exerted by external stakeholders influence organizational decision making and reporting (Prentice, 2018). Finally, sound financial management is key to effective organizational management and governance (Bowman, 2011). Consequently, it is important for nonprofit managers to understand how to use financial information to make good organizational decisions. Financial ratios and ratio analysis are integral to that process.

In practice

Financial ratios help managers and external stakeholders understand the strengths and weaknesses of an organization and can provide insights into whether an organization is: 1) effectively deploying its resources; 2) financially stable and sustainable; and 3) operating efficiently (Finkler et al., 2020). However, ratio analysis is as much art as it is science. There is no one-size-fits-all approach and insights derived from ratio analysis should be combined with other organizational input in managerial decision making.

Financial ratios and how to use them

In a comprehensive literature review, Prentice (2016) identified 154 different financial measures. Even after standardizing the measures to produce consistent calculations, 70 unique measures remained (all are published in the appendix of the aforementioned article). Knowing which of those 70 financial measures can and should be used by nonprofit managers is one example of the artful character of ratio analysis. The vast number of financial measures used to ascertain the health and efficiency of a nonprofit is in part a product of the fact that single measures considered in isolation rarely produce useful insights. Managers should take into account multiple measures simultaneously to produce a fuller and more multidimensional understanding of an organization’s finances and operations.

Ratios are particularly useful when multiple years of data are available. Snapshots can be misleading given seasonality in revenue and/or expenses. Therefore, trend analysis is necessary when analyzing financial measures to produce insights for management. Further, managers should benchmark their performance over time against industry averages and similar peer organizations. What follows is a brief presentation of 15 of the most commonplace financial ratios. Nonprofits can use these as a starting point to develop the set of financial measures most useful for their purposes. Liquidity ratios These financial measures focus on whether an organization has enough cash or other liquid resources to meet its near-term financial obligations and sufficient cash to continue operations. To be considered a liquid resource, funds must be easily converted to cash without significant expense within the current fiscal year. Examples of non-cash liquid resources include short-term investments and marketable securities. What follows are the three most commonly used liquidity measures. When possible, a general rule of thumb or best practice for the ratio is provided. ​ urrent Ratio ​= ​_ C   Current Assets  ​​;  Current Liabilities rule of thumb is 2.0 or higher Cash ​+  Marketable Securities ​+  Accounts Receivable __________________________      ​​; ​ uick Ratio ​= ​    Q Current Liabilities rule of thumb is 1.0 or higher

Both the current ratio and the quick ratio (sometimes referred to as the acid test) answer the question of whether an organization can meet its current obligations as they become due. However, the quick ratio is more conservative and only considers whether the entity has sufficient liquid resources to meet those obligations. The ratio excludes other current assets like inventory or prepaid expenses from the calculation. ​ ays of Cash on Hand ​=​ D Cash ​+  Marketable Securities        ​​; ​ __________________________ ​  ​(​Operating Expenses ​−  Bad Debt ​−  Depreciation​)​ / 365 no rule of thumb, but higher is better (within reason)

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Calculating and tracking days of cash on hand helps managers know whether they have enough cash to survive a collections crisis and could signal if they have too much cash that might be more productively used otherwise – for example, to provide more services, reduce high-cost debt, or invest in higher-yielding investments.

Profitability ratios These ratios give an indication of the sustainability of an organization in the near and long-term. Margin ratios are used to observe the short-term profitability of an organization. Long-term profitability is determined by looking at flow relative to the stock of an organization.

Solvency ratios Whereas liquidity ratios consider an organization’s short-term ability to meet obligations and continue operations, solvency ratios have a long-term focus. Solvency ratios focus on an organization’s use of debt and its financial capacity to meet long-term debt obligations.

​ otal Margin ​= ​_ T   Net Income  ​​;  Total Revenues no rule of thumb, but higher is better (within reason)

​ ebt to Assets ​= ​_ D  Total Debt  ​​;  Total Assets rule of thumb is 0.5 or lower ​ ebt to Equity ​= ​_ D   Total Debt ​​;  Total Net Assets rule of thumb is 1.0 or lower

Debt to assets and debt to equity are both common measures for assessing whether an organization has sufficient funds to pay back long-term debt. Either ratio may be tracked by a nonprofit manager to evaluate leverage and use as a basis for future debt-financing decisions. Total Net Assets ​ quity Ratio ​= ​_ E   ​​;    Total Assets rule of thumb is 0.5 or higher

The equity ratio shows the portion of an organization’s assets it owns clear of obligation. A higher number is preferred because it illustrates that an organization is not highly dependent on borrowed assets. The rules of thumb offered for all three ratios above are recommendations offered from a purely financial viewpoint. Managers should consider additional factors in making financing decisions, including normative boundaries and external stakeholders who expect nonprofits to maintain low levels of debt. For example, Charity Navigator – a watchdog group that scores nonprofits based on their finances – uses much lower thresholds in their calculations than recommended here.

Christopher R. Prentice

Net Operating Income   ​​;    ​ perating Margin ​= ​___________ O Total Revenues no rule of thumb, but higher is better (within reason)

Total and operating margin show the short-term profitability of an organization. From a financial perspective, a higher ratio is better because it indicates greater profitability. Nonprofits need to turn a profit to be sustainable and continue to deliver on their mission. However, nonprofits operate in a different context than for-profit firms and must weigh how much profit is needed to be sustainable versus how much can be cycled back into programming. Here again, external stakeholders can be wary of nonprofits with high profit margins. _ ​ eturn on Assets ​= ​Total Assets R  Net Income  ​​;  no rule of thumb, but higher is better (within reason)

Return on assets shows the long-term profitability of an organization. A higher ratio indicates that an organization is efficiently managing its resources to produce a profit. A very low ratio could mean an organization does not have a sustainable financial model. According to Bowman (2011), organizations must maintain a return on assets greater than or equal to 3.4 percent to exceed the average long-term inflation rate. Common size ratios For these ratios, managers compare items on a financial statement to one key number and track those ratios over time. One could divide each asset on the balance sheet by total assets or divide each item on the income statement by total revenues. Organizations should determine which common size ratios

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are most useful for their situation. The following examples show how ratios are calculated and offer preliminary insights into what these ratios represent. ​ ash to Assets ​= ​_ C   Cash  ​​;  Total Assets no rule of thumb

When monitored over time, managers can learn the seasonality of their cash position and determine whether an organization is holding too much – or too little – cash. If the ratio is too low, then an organization may be at risk of failing to cover current obligations. If the ratio is consistently high, then an organization could decide to use the surplus cash for other purposes. Grant Revenue ​ rants to Revenue ​= ​_ G  ;​​   Total Revenue no rule of thumb

This common size ratio shows an organization’s dependence on government, corporate, and foundation grants over time. When compared to peer organizations and industry averages, managers can gauge whether they are too highly dependent on this revenue stream and if so whether to diversify their financing activities. ​Administration to Expenses ​=​

Fundraising Expenses ​+  Management  &  General Expenses _____________________________ ​          ​​; Total Expenses

no rule of thumb

The administration to expenses ratio (sometimes referred to as the overhead ratio) is closely monitored by external stakeholders – for example, grantors, watchdog agencies – and also many board members. Scant evidence exists that having a high ratio negatively influences organizational outcomes, and yet normative boundaries exist. Many stakeholders prefer to see low ratios with as many dollars as possible going to programming. Despite these pressures, managers should be cautious of trying to keep the overhead ratio too low. Research demonstrates that maintaining a very low overhead ratio can produce a starvation cycle that hampers a nonprofit’s ability to fulfill its mission (Lecy & Searing, 2015; Mitchell & Calabrese, 2019). Moreover, some organizations with “controversial” missions (e.g., a needle exchange program) may have higher

fundraising expenses than organizations with emotionally appealing missions. Efficiency ratios Efficiency ratios are used by nonprofit managers and external stakeholders to assess the productivity and proficiency of an organization’s operations. Higher ratios indicate less efficiency, so managers can use these measures to identify potential operational issues that require managerial attention. 365 ​ ays Receivable ​= ​_______________ D        ​​, Accounts Receivable Turnover where accounts receivable turnover is calculated as _ ​​;  ​Accounts Receivable   Net Credit Sales  no rule of thumb, but lower is better

A low days receivable ratio indicates an organization is efficient in its collections and has a short average collection period. A higher ratio might warrant managerial attention – for example, producing and monitoring an accounts receivable aging report or altering the collections process. 365 ​ ays of Inventory on Hand ​= ​_ D     ​​,  Inventory Turnover where inventory turnover is calculated as Cost of Inventory _   ​ Inventory  ​​;  no rule of thumb, but lower is better

A low days of inventory on hand ratio indicates an organization is efficient in its purchasing and use of inventory. By acquiring inventory just in time, organizations can free up liquid assets for alternate uses. A higher ratio could mean an organization is acquiring inventory too soon and potentially expending surplus resources to properly store the goods. Fundraising Expenses ​ undraising Efficiency ​= ​___________ F  ​​;  Total Contributions no rule of thumb, but lower is better

Fundraising efficiency shows how much an organization spends to generate $1 in charitable contributions. A low ratio is preferred because it indicates an organization is raising funds without having to deploy many resources. A high ratio could indicate that an organization should revisit its fund development plan and employ alternate methods or pursue new market segments. Christopher R. Prentice

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Limitations of financial ratios

Financial ratios offer insights into the financial health, efficiency, and sustainability of an organization. However, they have limitations. First, no single ratio or class of ratios is sufficient for ascertaining the financial health of an entity. Rather, managers should analyze ratios in concert with one another and over time to obtain a fuller picture of an organization’s financial position and performance. Similarly, when questions specific to one class of ratios arise – for example, Do I have enough liquidity to cover short-term obligations? – managers would still be wise to calculate all three liquidity ratios recommended above (and perhaps others) simultaneously. Second, ratio analysis is not a one-size-fits all solution suitable for a diverse nonprofit sector. Mission foci and business models are very different between a homeless shelter, food bank, school, and museum. The selection of financial ratios and the ranges for their values should likewise vary from subsector to subsector. Managers should look to peers to identify the most useful financial ratios for their subsector and to benchmark their ratios against similar organizations or industry standards. Third, financial ratio analysis is as much art as it is science and must be balanced by other organizational needs and priorities. For example, an organization may want to maintain a higher debt ratio than watchdog agencies recommend because interest rates are low or they determine it is cheaper to capitalize through a loan than through a capital fundraising campaign. Similarly, an organization may maintain a higher number of days of inventory on hand than recommended because they took advantage of a great price, purchased a non-expiring good, or operate in a disaster-prone area where sudden spikes in demand can occur. Financial ratios rarely give you an answer, and usually just give you a sense of where to look next. Therefore, insights derived from ratio analysis must be combined with non-financial organizational information to be helpful in making good managerial decisions. Christopher R. Prentice

Christopher R. Prentice

Related topics

Administration costs Effectiveness of nonprofit organizations Financial performance indicators Financing nonprofit organizations Resilience management Revenue diversification

Further reading and references

Bowman. W. (2011). Finance fundamentals: Building capacity and sustainability. Wiley. Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2020). Financial management for public, health, and not-for-profit organizations (6th edn.). Sage. Internal Revenue Service. (2021, November 1). Exempt organization public disclosure and availability requirements. https://​www​.irs​.gov/​ charities​-non​-profits/​exempt​-organization​ -public​-disclosure​-and​-availability​ -requirements accessed 14 Sep 2023. Lecy, J. D., & Searing. E. A. M. (2015). Anatomy of the nonprofit starvation cycle: An analysis of falling overhead ratios in the nonprofit sector. Nonprofit and Voluntary Sector Quarterly, 44(3), 539–563. https://​doi​.org/​10​ .1177/​0899764014527175 McLaughlin, T. A. (2016). Streetsmart: Financial basics for nonprofit managers (4th edn.). Wiley. Mitchell, G. E., & Calabrese, T. D. (2019). Proverbs of nonprofit financial management. American Review of Public Administration, 49(6), 649–661. https://​doi​.org/​10​.1177/​ 0275074018770458 North Carolina Nonprofit Corporation Act, North Carolina General Statutes, Chapter 55A. (1993). https://​www​.ncleg​.gov/​EnactedLegislation/​ Statutes/​PDF/​ByArticle/​Chapter​_55A/​Article​ _1​.pdf accessed 14 Sep 2023. Prentice, C. R. (2016). Why so many measures of nonprofit financial performance? Analyzing and improving the use of financial measures in nonprofit research. Nonprofit and Voluntary Sector Quarterly, 45(4), 715–740. https://​doi/​ org/​10​.1177/​0899764015595722 Prentice, C. R. (2018). Misreporting nonprofit lobbying engagement and expenses: Charitable regulation and managerial discretion. Nonprofit Policy Forum, 9(2), 1–13. https://​doi​.org/​10​ .1515/​npf​-2018​-0018

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Financing nonprofit organizations Nonprofit finance

Nonprofit organizations, like other types of organizations, must raise capital to support their operations. But because they are mission-driven, nonprofits are often said to have a double or triple bottom line that includes fiscal sustainability, mission effectiveness, and increasingly, environmental responsibility. Although the phrase nonprofit management is sometimes used to describe all financial elements of managing a nonprofit (Schatteman & Waymire, 2017), here we limit it to the mixture of resource types used by nonprofits to deliver on their missions. Financial capitalization can be challenging for nonprofits. The non-distribution constraint – or prohibition against private inurement – that defines the nonprofit institutional form prevents nonprofits from selling equity shares to investors as a means of raising capital, eliminating a major potential source of financing. Many nonprofits may also have difficulties capitalizing with debt, particularly if they maintain low or zero profit margins, which makes repayment risky for lenders. Additionally, stakeholders may be averse to the attendant risks involved in the event of insolvency, and some funders may be concerned that money intended to support programs could potentially be diverted to service borrowing costs. Counterbalancing these capitalization constraints are significant tax advantages that nonprofits enjoy relative to other types of organizations (Hansmann, 1981). Specifically, public charities organized under section 501(c)(3) of the U.S. Internal Revenue Code are exempt from most forms of taxation and are eligible to receive tax-deductible contributions from donors. These policies encourage both nonprofit incorporation and philanthropic giving, resulting in a relatively large U.S. nonprofit sector and relatively generous levels of philanthropy. This ability to raise capital from philanthropic contributions tax free is an important financial advantage of the nonprofit institutional form. Ultimately, a nonprofit’s financial capital must be used to further its mission. This can happen in the short term through the imme-

diate spending of resources, or in the longer term via savings or reinvestment to support future programming. Since nonprofits do not have the ability to sell equity shares (as they do not have owners) and access to debt is often limited (due to low or nonexistent profit margins), nonprofits must rely heavily on revenues to finance their work. Nonprofits must obtain not only the right amount of revenue to achieve their objectives but also find the right mix of revenue types and sources. Revenue types vary widely by nonprofit subsector. By far, the largest type of revenue in the nonprofit sector is earned income. This is driven by the healthcare and education subsectors, where organizations typically charge fees for services. Donations (often called “support” rather than revenue) are also a significant type of revenue, whether through individual, foundation, corporate, or government sources. Any particular nonprofit will likely have a unique mix of revenue sources. Young (2017) proposes that a nonprofit match its revenue sources with the types of benefits that it provides. For example, private benefits that accrue to individuals can be financed with earned income as individuals are paying for the use of a particular good or service. In contrast, public benefits that accrue to society as a whole can be financed with government grants and contracts to the extent that a nonprofit’s mission is aligned with the mission and purpose of government. Benefits that accrue to a narrow segment of society or group can be financed with contributions or memberships, and redistributive goods (private benefits used by those other than the payer) are also appropriate candidates for contributions. The “benefits theory” approach provides guidance on what revenue sources are the best fit for different service types.

In practice: Types of nonprofit finance

Nonprofit organizations can acquire resources in many ways. Traditionally, nonprofit finance is categorized by type (e.g., contributions, program service fees, etc.) rather than by source (e.g., individuals, foundations, government agencies, etc.). This is due to the influence of the Internal Revenue Service (IRS) Form 990, which serves as the primary source of information for the

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public on the finances of nonprofit organizations. The information from this form is available in varying levels of detail from different sources, such as the National Center on Charitable Statistics (NCCS), Guidestar/ Candid, and the IRS itself. It can be difficult to find full forms, particularly with the supporting schedules, although electronic filing is making this easier. Other regulators such as states (for the U.S.) or national agencies (such as the Charity Commission in the U.K. or the Charities Directorate in the Canadian Revenue Agency) provide access to additional information collected from charities. Many of these systems have their own reporting rules, however, so the preferred source for comparative nonprofit financial data is from an organization’s audited financial statements, when available. Contributions Called “contributions” on the IRS Form 990, these are assets given by a person or entity to the nonprofit that are not in exchange for a good or service. This category includes donations, but also sources such as membership dues that are not considered market exchange transactions. Federated campaigns are the first type of revenue listed on the Form 990, but play a diminishing role in the financing of the nonprofit sector. These are fundraising campaigns hosted by nonprofits (such as United Way) that then grant resources to other nonprofits. These differ from funds from a related organization. “Related” implies that organizations are legally linked, such as through a parent nonprofit or an affiliated supporting foundation. Fundraising events are also included, but this only represents the portion of the event that is not in exchange for something of value. For example, if gala sponsorship costs USD $1,000 and the dinner is worth $100, then the $900 donation would be included as a contribution (see ‘Other Sources of Income’ below for where to report the $100). Contributions from individual donors are reported on Form 990 in the “all other contributions” category, despite their monetary and ideological importance to the sector. Corporate donations are likewise found here, making the source difficult to identify based solely on the form. Further, government grants are reported in contributions, while government contracts are reported in

program service fees. However, there has historically been significant confusion about the classification of government funds such that these numbers (especially those involving Medicaid and Medicare) are often interpreted with skepticism by cautious observers (Gantz, 1999). Finally, the value of noncash contributions such as gifts-in-kind are also consequential to many nonprofits. Even aside from the gift of investments, gifts of land to conservancies and gifts of canned goods to food pantries are both well-known. However, such in-kind gifts also come with costs that monetary gifts do not, such as storage for items and some form of sorting and quality assurance that needs to be done by paid or volunteer staff. Program service fees In the U.S., program service fees are a major source of revenue for the sector. This is because many nonprofits have at least one program where there is an exchange of money for a good or service. This does not mean that the price of the good is at market rate, but that there is some component of market exchange. For example, a nonprofit hospital providing medical care and then billing the individual, an insurance company, or the government in exchange for the care is a market transaction. A nonprofit selling tickets to an opera or providing shelter to the homeless as a contractor for the local government also represent program service fees. The types of program service fees are often listed in Form 990, although this level of detail is not always included in publicly available sources of data. Some nations limit the amount of program service fees that a charity can utilize, and there continues to be significant discussion on the impact of market mechanisms in the nonprofit sector (Eikenberry & Kluver, 2004). As such, the United States and England/Wales regulate differently based on whether the earned income is mission-related rather than the nature of the revenue itself. Other sources of income Although donations and fees are the main sources of income for many organizations in the U.S. nonprofit sector, there are several other ways for nonprofits to earn revenues. Organizations with investments earn investment income, and this can be substantial if the organization has an endowment. Earnings

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from tax-exempt bonds and royalties are also counted separately, if applicable. Nonprofits can also charge rent or host games such as raffles. Because gaming activities are often regulated at the state level, these also have their own category. Finally, the sale of assets and inventory both involve the selling of items, but they are different in terms of scale and normality. For example, a museum selling posters of art constitutes inventory sales while selling the actual piece of art constitutes an asset sale. Of special note, fundraising events are evaluated separately from raising donations on a non-event basis. Although this adds another layer of record-keeping, it can be very useful from a managerial perspective in evaluating the monetary success of the event. This is because fundraising events (like sales of inventory) are a type of revenue where the expenses directly associated with their production are included and netted out in the revenue section of Form 990.

Current trends and controversies

There are a number of general considerations related to nonprofit finance, including (1) cross-subsidization, (2) risk, (3) transaction costs, and (4) interaction effects. First, cross-subsidization allows a particular good or service to be supported by multiple income streams. First proposed in-depth by James (1983), this approach means that a nonprofit can charge a below-market price for a good or service to make it more accessible to those who need it but cannot afford it at market rates. The nonprofit could then combine this income with donations from other individuals desiring to make such goods more accessible. So cross-subsidization unites funds from multiple stakeholders in achieving the goal of more accessible goods or services. Proponents argue that this gives service recipients a commitment mechanism, while others are concerned that not all situations can or should involve the extraction of fee income. Second, nonprofit revenue sources typically experience some degree of volatility, which presents a risk to the nonprofit that it may become unable to meet its financial obligations if one or more revenue sources experiences decline. The risk is elevated if the nonprofit lacks sufficient financial reserves to compensate for potential shortfalls. To miti-

gate the risk in a nonprofit’s revenue portfolio, nonprofits can strategically manage variance and covariance. Variance measures the volatility and thus the risk of a single revenue stream. Nonprofits can generally achieve lower variance by accepting lower financial returns as part of a risk–return tradeoff. Covariance measures the extent to which two revenue streams rise and fall together. To mitigate financial risk, nonprofits can diversify their income sources to include income streams with negative covariance. A negative covariance means that gains and losses from different revenue sources will tend to cancel out in the aggregate, thus reducing overall financial risk. Diversification of revenue sources is a common risk mitigation strategy, although it may result in slower revenue growth and higher transaction costs. Third, in this context, transaction costs refer to the administrative costs associated with managing revenue sources. The greater the number and complexity of a nonprofit’s revenue sources, the greater these costs are likely to be. Finally, nonprofit income sources may be susceptible to interaction effects such as crowding in and crowding out. Crowding in occurs when revenue from one source attracts revenue from other sources. For example, obtaining a prestigious grant from a well-respected foundation may confer greater legitimacy upon an organization and thus attract contributions from additional sources. Crowding out occurs when revenue from one source repels revenue from other sources. For example, contributions from a tainted donor could damage a nonprofit’s reputation, thereby reducing contributions from other individuals. In some cases, a given revenue source could both crowd in and crowd out revenue. For example, Grasse et al. (2022) found that Canadian donors reacted differently depending on the level of government providing funding and whether it was traditional for that level of government to provide such funding.

Future prospects

Various rule changes have increased the electronic filing of nonprofit financial information with the IRS and has made this information more readily available to the public. As a result, researchers have more extensive and timely data available about nonprofit

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finance in the United States. Advances in tools for processing and analyzing so-called big data present new opportunities for improving the accessibility, understandability, and timeliness of nonprofit financial information. This trend is likely to result in new insights into nonprofit financial management as more stakeholders are drawn to analyze the available data. Recent research informed by such data has already begun to question many conventional nonprofit financial management practices, calling for new research taking advantage of improving data availability (Mitchell & Calabrese, 2019). Occasional policy changes may influence nonprofit finance. The 2017 Tax Cut and Jobs Act, for example, reduced the number of tax filers able to claim the charitable tax deduction, likely affecting charitable giving patterns. A 2021 Supreme Court decision ruled that California cannot require nonprofits to disclose information about large donors, establishing a precedent that arguably protects donors to controversial causes but deprives states of potentially useful information to aid regulation. The federal government’s response to the COVID-19 pandemic included policies affecting charitable giving and nonprofit finance through provisions of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act. The growing phenomenon of donor-advised funds may attract the attention of regulators in the future, potentially affecting the amount of charitable giving and the speed with which money is transferred from donors to end recipients. Over the past several years, many stakeholders, including major foundations, have taken a greater interest in nonprofit financial sustainability. In part, this is reflected in the so-called full cost funding movement. This movement is aimed at providing nonprofits with more unrestricted funding relative to restricted funding to ensure that funding covers the entire cost of program delivery, including both direct and indirect costs. Finally, the bulk of research in nonprofit finance has been limited to the United States context. However, as data becomes more accessible and academic journals prioritize international and comparative work, more information is likely to emerge about how nonprofits around the globe are financed.

Conclusion

Nonprofits are mission-driven organizations that transform financial resources into mission impact. Being nonprofit confers certain advantages and disadvantages for organizations, which impacts financial management in a variety of ways. Although every nonprofit is different, and organizations in different subsectors tend to adopt different financial models, there are nevertheless some general considerations surrounding various revenue types and sources that are common for nonprofits. These considerations are likely to evolve over time as more becomes known about nonprofit financial management and as the environment in which nonprofits operate continues to change. George E. Mitchell and Elizabeth A. M. Searing

Related topics

Budget process Crowding out Earned income Financial performance indicators Income portfolio analysis Internal Revenue Service Resilience management Revenue diversification Triple bottom line

Further reading and references

Eikenberry, A. M., & Kluver, J. D. (2004). The marketization of the nonprofit sector: Civil society at risk? Public Administration Review, 64(2), 132–140. https://​doi​.org/​10​.1111/​j​.1540​ -6210​.2004​.00355​.x Gantz, M. (1999). Who do you trust? Comparing data on skilled-nursing facilities from the Internal Revenue Service and health care financing administration. Nonprofit and Voluntary Sector Quarterly, 28(4), 476–490. https://​ doi​ .org/​10​.1177/​0899764099284006 Grasse, N. J., Searing, E. A., & Neely, D. G. (2022). Finding your crowd: The role of government level and charity type in revenue crowd-out. Journal of Public Administration Research and Theory, 32(1), 200–216. https://​ doi​.org/​10​.1093/​jopart/​muab019 Hansmann, H. (1981). The rationale for exempting nonprofit organizations from corporate income

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F 243 taxation. The Yale Law Journal, 91(1), 54–100. https://​doi​.org/​10​.2307/​795849 James, E. (1983). How nonprofits grow: A model. Journal of Policy Analysis and Management, 2(3), 350–365. https://​doi​.org/​10​.2307/​3324446 Mitchell, G. E., & Calabrese, T. D. (2019). Proverbs of nonprofit financial management. American Review of Public Administration, 49(6), 649–661. https://​doi​.org/​10​.1177/​ 0275074018770458 Schatteman, A. M., & Waymire, T. R. (2017). The state of nonprofit finance research across disciplines. Nonprofit Management and Leadership, 28(1), 125–137. https://​doi​.org/​10​.1002/​nml​ .21269 Young, D. R. (2017). Financing nonprofits and other social enterprises: A benefits approach. Edward Elgar Publishing.

Fiscal sponsor Definition

A fiscal sponsor is an already existing not-for-profit organization with 501(c) (3) status agreeing to provide a legal home and support for one or several currently non-tax-exempt entities or projects.

In practice

The nonprofit sector is a vast and plural home for millions of individuals and groups that address critical needs, solve problems, express their values, and elicit change at the local, national, and global level. With its low entry barriers, the nonprofit sector has long been an attractive place for nonprofit entrepreneurs to take action, often by organizing and launching new organizations. Still, finding a way to make an emerging and/ or small nonprofit operational and sustainable can be a formidable task, and involve many challenges, including acquiring sufficient financial and human resources, creating a board structure and recruit board members, developing administrative and financial systems and so on. For those lacking the know-how or interest, or simply feels overwhelmed by the task of creating and operating a full-fledged nonprofit organization, one available option for tackling some of these challenges is to use a fiscal sponsor. A fiscal sponsorship

is initiated when an already existing nonprofit organization, that is, the fiscal sponsor, commits to supporting the charitable undertakings of an individual(s) or unincorporated group(s) by extending its legal and tax-exempt status to also include them. From a practical perspective, this means the fiscal sponsor accepts financial and legal liability for the work being done by the group or individuals, thereby alleviating them from some of the challenges mentioned earlier, including the need to formalize any new organizational structures or incurring the expense of applying for incorporation- and tax-exempt status. Furthermore, many fiscal sponsors offer additional administrative and/ or operational support for the entities they sponsor, for example, IT support, bill paying, or HR services. Fiscal sponsorships are not a new phenomenon. In a survey of over 100 fiscal sponsors, Green et al. (2006) reported that 15 percent of the respondents indicated they first started acting as a fiscal sponsor between 1950–1979, and an additional 20 percent started between 1980–1989. In the past, these arrangements were often depicted using the term fiscal agent. However, fiscal agent suggests that the entity or project being sponsored actually controls the nonprofit organization providing the sponsorship, that is, the sponsor is an agent of the sponsored. Yet, what the law currently permits is for a tax-exempt nonprofit to sponsor a project or nonexempt organization, meaning it is really the reverse of what the term fiscal agent implies. Thus, the term that correctly defines the sponsor is fiscal sponsor. It is important to note that the notion of fiscal sponsorship does not refer to a single mechanism, instead it entails a number of relational options that can exist between the nonprofit entrepreneur and the sponsor organization. A thorough and coherent depiction of some of the various fiscal sponsorship options can be found in Colvin’s (2005) outline and explanation of six fiscal sponsorship models. Although each model discussed by Colvin has certain specific characteristics, they are not mutually exclusive. Different models can be combined into various hybrid types and/or serve as the basis for alternative models. Some of the key distinguishing features among the different models include the level of financial independence enjoyed by Fredrik O. Andersson

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the sponsored individual or group, to what extent the activity of the individual or group is a separate legal entity, the liability of the fiscal sponsor to third-party stakeholders, and how and where the economic transactions between the sponsor and sponsored individual/group are reported (Colvin, 1993).

Current and future directions

Perhaps the most consistent and lively discussions around fiscal sponsors have occurred among practitioners, especially in the philanthropic community. Foundations, for example, have long looked to fiscal sponsorships as a path to support a wide variety of important areas ranging from international aid, environmental activism, health, and art. When asked, nonprofits serving as a fiscal sponsor indicate that some of the main reasons for engaging in fiscal sponsorship include, among other things, (i) to assist worthy groups and projects that would not otherwise be able to operate; (ii) to help create a community of groups/projects working on a particular issue or in a particular field; and (iii) to contribute to social change by serving as an incubator of new organizations (Green et al., 2006). The incubator role is pertinent for at least two reasons. First, from the perspective of the sponsored project, incubation can help mitigate some of the liabilities of newness and smallness that often threatens the survival of new ventures. Second, from the perspective of external stakeholders and funders/donors, fiscal sponsorship is a laboratory to test the viability of new ideas before launching a full-fledged independent new organization. In 2012, an advisory committee to the IRS Exempt Organizations office recognized and recommended fiscal sponsorship as an alternative arrangement to the growing number of nonprofit corporations being formed and seeking IRS approval of their 501(c)(3) exemption, and in the wake of hurricanes Sandy and Katrina, the IRS explicitly proposed using existing organizations, rather than forming new ones, for community relief efforts (Colvin, 2012). Still, a defining characteristic of the fiscal sponsorship phenomenon is the tremendous heterogeneity in terms of the type of organizations serving as fiscal sponsors, both in terms of organizational characteristics as well as the services and practices they offer and employ. In other words, there is no such Fredrik O. Andersson

thing as a typical fiscal sponsor. Furthermore, fiscal sponsorship is not a fringe activity, but something that can be found and utilized by a variety of individuals, groups, and projects across most of the nonprofit spectrum. Not surprisingly, much attention has been focused on fiscal sponsorship as a mechanism for facilitating funding, but it is equally essential to recognize that fiscal sponsors also offer a wide range of other types of administrative support functions. Also, utilizing a fiscal sponsor can still incur costs. Some fiscal sponsors do offer their services for free, but others expect to be compensated for providing certain services such as bookkeeping or IT support. Even though fiscal sponsors provide critical support to nascent and grassroots nonprofits, and is a well-established practice, research focusing on fiscal sponsors, the sponsored individuals/groups/projects, and the antecedents and/or implications of fiscal sponsorship, as Andersson and Neely (2017, p. 490) notes, “remain somewhat of a scholarly blind spot.” As a result, there are currently many more questions than there are answers. To date, little is known about shortand long-term implications for those individuals and projects utilizing a fiscal sponsor. That is, scholars still have an incomplete understanding of how effective fiscal sponsorship really is for emerging and start-up nonprofit activity. Another question is what motivates individuals or groups to seek out fiscal sponsors? Is it because they want to avoid, for example, recruiting a board of directors or undertake administrative tasks, or is the fiscal sponsor mostly a springboard and legitimizing factor that enables new projects to attract board members and funding? Some of the most intriguing questions regarding fiscal sponsorship has to do with accountability. It is unquestionable that an organization electing to serve as a fiscal sponsor accepts significant financial and legal liability. Thus, how the relationship between the fiscal sponsor and the individual, group or organization being supported is structured, and ultimately governed by the fiscal sponsor and its board of trustees, is a fundamental, yet scarcely researched topic. In particular, how are sponsored projects overseen and by whom? What happens if and when a fiscal sponsor and, for example, a nonprofit entrepreneur want to go separate ways? Furthermore, Andersson and Neely

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(2019) examined the extent to which nonprofits engaging as fiscal sponsors publicly disclose their fiscal sponsor activities, and found a distinct lack of transparency. The limited public disclosure of fiscal sponsorship activity is not just an oversight concern for policy makers and regulators, poor transparency also camouflages the internal use of resources to other external stakeholders, including donors. Hence, a vital future question is how to best provide, at least some cursory level, disclosure of fiscal sponsorship activity to stakeholders? The existence of fiscal sponsors, and those looking to take advantage of this unique agreement, has long been, and will mostly likely continue to be, an intriguing and important element of the nonprofit sector. Still, the practice of fiscal sponsorship is running ahead of the academic research about fiscal sponsors, and assuming fiscal sponsors are here to stay, it calls for additional and more robust research and data on fiscal sponsors. Finally, while the fiscal sponsorship phenomenon is often assumed to be “good,” it is essential to remember that fiscal sponsorship agreements are not risk free. As reported and illustrated by Cohen (2012a, 2012b), nonprofit entrepreneurs, boards of existing nonprofits, policy makers and regulators must remain vigilant that fiscal sponsorships can have potentially negative effects. Fredrik O. Andersson

Related topics

Accountability Financing nonprofit organizations Forming a nonprofit organization Internal Revenue Service Nascent organizations Transparency

Further reading and references

Andersson, F. O., & Neely, D. G. (2017). Examining the role and diversity of fiscal sponsors in the nonprofit sector. Nonprofit and Voluntary Sector Quarterly, 46(3), 488–504. https://​doi​.org/​10​.1177/​0899764016664030 Andersson, F. O., & Neely, D. G. (2019). Bringing fiscal sponsor activity to light. Nonprofit Policy

Forum, 10(1), 20190021.  https://​doi​.org/​10​ .1515/​npf​-2019​-0021 Blair, J., & Cheplick, T. (2007). More than the money: Fiscal sponsorship’s unrealized potential. BTW. Cohen, R. (2012a). A global nonprofit Ponzi scheme? Lessons learned from a fiscal sponsor’s collapse. Nonprofit Quarterly Online. https://​ nonprofitquarterly​.org/​2012/​02/​14/​a​-global​ -nonprofit​-ponzi​-scheme​-lessons​-learned​-from​ -a​-fiscal​-sponsors​-collapse/​ Cohen, R. (2012b). Vanishing act: Activist groups say donations disappeared with fiscal Sponsor. Nonprofit Quarterly Online. https://​ nonprofitquarterly​.org/​management/​19616​vanishing-act-activist-groups-say-donationsdisappeared-with-fiscal-sponsor.html Colvin, G. L. (1993). Fiscal sponsorship: Six ways to do it right-a synopsis. Alder Colvin. https://​ www​.adlercolvin​.com/​wp​-content/​uploads/​ 2017/​12/​Fiscal​-Sponorship​-Six​-Ways​-To​-Do​ -It​-Right​-A​-Synopsis​.pdf Colvin, G. L. (2005). Fiscal sponsorship: Six ways to do it right (2nd edn.). Study Center Press. Colvin, G. L. (2012). Brushes with the Law. Fiscal Sponsorship. http://​www​.fiscalsponsorship​ .com/​brushes​_with​_the​_law​.pdf Geering, E. (2021). The legal value of fiscal sponsorship: A proposal of new law. Hastings Law Journal,  72(5). https://​repository​.uchastings​ .edu/​hastings​_law​_journal/​vol72/​iss5/​6 Green, R., Kvaternik, J., & Alarcon, I. (2006). Fiscal sponsorship field scan: Understanding current needs and practices [White paper]. https://​s3​.amazonaws​.com/​nnfs/​file​_assets/​ fa03b6d4364c/​Fi​scalSponso​rFieldScan​.pdf Takagi, G. (2016). Fiscal sponsorship: A balanced overview. Nonprofit Quarterly Online. https://​nonprofitquarterly​.org/​2016/​01/​19/​fiscal​ -sponsorship​-a​-balanced​-overview/​

Forming a nonprofit organization Definition

A nonprofit is an entity that is dedicated to some nonbusiness purpose and that does not distribute dividends or otherwise share profits with its constituents. The organizers of a nonprofit must address two principal questions: What organizational form will the nonprofit take and what tax status will it seek?

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In practice: Organizational forms

The Internal Revenue Service (IRS) currently recognizes four types of entities as eligible for tax-exempt status: nonprofit corporations, unincorporated nonprofit associations, charitable trusts, and nonprofit limited liability companies. Each entity type has advantages and disadvantages, and so organizers should consider all of the relevant factors when choosing the form of their new nonprofit organization. Nonprofit corporations By far the most common form of nonprofit organization is the nonprofit corporation. Every state permits the general incorporation of a nonprofit corporation. For example, United Way Worldwide is a nonprofit corporation incorporated in New York State. Nonprofit corporations are organized on either a membership or a directorship basis. Membership corporations were quite common in the past and remain so for certain kinds of charities, but today, most new charities are organized as directorship corporations without voting memberships. In either case, most nonprofit corporations are governed by a board of directors, which has full authority over the organization, usually delegated to officers and in turn to staff and volunteers, and which in turn owes fiduciary duties to the corporation. The nonprofit corporation’s advantages are several: a corporation is a separate, usually perpetual legal person that can own property, contract, sue and be sued, and the liabilities and obligations of which are not imputed to its fiduciaries and other stakeholders. It is a common business form, which is recognized in every jurisdiction in the United States, which makes for easy interstate activity. Corporate status also has disadvantages: corporate governance can be cumbersome, requiring the meeting or consent of the board of directors (and sometimes the membership) for corporate action. Corporations must file publicly accessible governing documents and regular reports and may owe annual franchise or business taxes or fees. Unincorporated nonprofit associations An unincorporated nonprofit association is generally defined as two or more persons joined under an agreement for a common William M. Klimon

nonprofit purpose. Although they can also be highly formalized, unincorporated nonprofit associations are generally the least formal type of nonprofit organization. Examples of the more formal type of unincorporated association include the National Football League, the National Hockey League, and Major League Baseball. While unincorporated nonprofit associations are highly flexible, little regulated, and require neither public filings nor private formalities, their legal status is ambiguous. At common law, an unincorporated association was not a legal person and so could not own property, contract, or sue or be sued, and its liabilities were solely those of its members, officers, or other stakeholders. That rule still holds in a few states, like New York. On the other side, 18 states have adopted a version of the Uniform Unincorporated Nonprofit Association Act, and some other states have adopted their own statutes that treat an unincorporated nonprofit association like a corporation. Yet other states have a mixture of rules that ascribe some but not all corporate-like features to unincorporated nonprofit associations. Given the legal unpredictability about how an unincorporated nonprofit association will be treated across the country, it is not surprising that few large or wealthy nonprofits organize as unincorporated associations, and those that do often operate through affiliated corporations for liability protection. Charitable trusts The charitable trust is a popular form for organizing a nonprofit, but surprisingly it is not an entity at all. The charitable trust is more properly described as a relationship between trustees, empowered by a settlor who has established the trust, who hold property for the benefit of the public. A charitable trust is not a legal person and so all of the attributes of legal personality must be exercised by the trustees. Despite those legal circumstances, charitable trusts are considered separate taxpayers by the IRS and are informally viewed as entities separate from their trustees. The wealthiest charity in the United States, the Bill and Melinda Gates Foundation, comprises two charitable trusts: an operating and grantmaking trust and an investment-management trust. Trustees used to operate under very strict rules regarding their standards of conduct,

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personal liability, and ability to delegate their authority. All of those rules can be relaxed under modern trust law, like the Uniform Trust Code, now adopted in almost three-quarters of the states, so that charitable trusts can now operate more like nonprofit corporations. That freedom coupled with the settlor’s power to bind the trustees in perpetuity to specific purposes and manners of acting (which an incorporator cannot do to the directors of a nonprofit corporation), make the charitable trust an attractive option for some kinds of nonprofits, like private foundations. The downsides of a charitable trust are connected to its lack of legal personality: it is difficult to register a charitable trust to do business or to obtain a business license in many jurisdictions. There remain doubts about how property must be titled, and contracts signed. And trusts are a unique Anglo-American legal concept and so are hard to explain and operate in foreign contexts. Nonprofit limited liability companies A limited liability company is frequently described as a hybrid business entity. It combines the limited liability and separate legal personality of the corporation with the flexible governance and pass-through tax status of a partnership. In the past 25 years, the limited liability company has gone from a rarity in American law to the single most common form of new business entity. That popularity has been driven by its hybrid nature. With that increased popularity has come the desire to use LLCs as nonprofit entities. While the IRS will recognize an LLC as a tax-exempt charitable entity, its long-standing position, recently reaffirmed (2021), is that all of the members of a nonprofit LLC must themselves be tax-exempt charities or governmental units. If maintained, that position effectively limits nonprofit LLCs to serving as joint-venture vehicles for partnering charities and would preclude a real stand-alone nonprofit LLC from being recognized as a tax-exempt charity.

Tax status

While “nonprofit” is popularly thought to be synonymous with “tax-exempt,” nonprofit refers to an entity type that prohibits the distribution of profits, while tax exemption

refers to the freedom from paying tax, principally income tax on profits. Given that distinction, it is perfectly possible for a nonprofit organization to also be a taxable entity. Taxable nonprofit status Taxable nonprofits fall into two groups: entities that chose taxable status and those that failed to obtain or maintain recognition of tax-exempt status. Nonprofit organizations choose taxable status, among other reasons, because they don’t believe their activities qualify as exempt or, more typically, because they want to remain outside of the IRS’s scrutiny of exempt organizations and its disclosure requirements, which require the organization’s application for recognition of exempt status, its governing documents, and its annual information tax returns all to be made public. Nonprofit organizations that fail to be recognized as exempt or that have their exemption revoked are more common than is thought. They are of course required to pay income tax on their profits and a surprising number of such organizations do that without reorganizing on a for-profit basis. Tax-exempt status It is not well understood that under the Internal Revenue Code (IRC), the IRS does not grant tax-exempt status. Rather, tax-exempt status attaches to nonprofit organizations that are organized and operated so as to fall within the IRC’s definition of various categories of exemption. The IRS’s role is to recognize and certify that certain organizations meet the IRC’s requirements. So while most charities must submit an application for recognition of exemption to the IRS on Form 1023, many other types of tax-exempt organizations have the option of filing an application (on Form 1024) or simply self-declaring their exempt status and reporting that to the IRS on their annual information tax return. IRC section 501 includes two dozen different types of tax-exempt organizations. Best known are the charitable organizations exempt under section 501(c)(3), but section 501 also describes social welfare organizations, labor unions, trade associations, social clubs, fraternal organizations, and employee benefit funds, among others. If they want their organizations to qualify for tax exemption, William M. Klimon

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nonprofit organizers will have to determine which category their proposed organization best fits and structure their proposed organization accordingly. For example, charities must be organized and operated exclusively for charitable purposes, they must adhere to limits on lobbying and political activity, and they can distribute neither profits to their constituents nor their assets to anything other than another charity in dissolution. William M. Klimon

Related topics

Articles of incorporation Governance Internal Revenue Service Regulation of nonprofit organizations Tax policy: Federal Tax policy: State and local

Further reading and references

Boyd, W. L., III, & Frey, J. C. (Eds.). (2012). Guidebook for directors of nonprofit corporations (3rd edn.). American Bar Association, Business Law Section. Committee on Nonprofit Organizations. (2009). Model nonprofit corporation act (3rd edn.). American Bar Association Section of Business Law. Hopkins, B. R. (2017). Starting and managing a nonprofit organization: A legal guide (7th edn.). John Wiley & Sons. Hopkins, B. R. (2019). The law of tax-exempt organizations (12th edn.). John Wiley & Sons. Sorokin, C., Cion, J. A., Frey, J. C., & Sevcik, R. (Eds.). (2011). Nonprofit governance and management (3rd edn.). American Bar Association, Business Law Section.

Foundations – History and functions Definition

Philanthropic, or charitable, foundations are a type of nonprofit organization that principally consist of assets that the founding donor devotes to public purposes, either permanently or with sunsetting provisions. The term philanthropy literally means love of humankind, but often emphasizes the use of resources to examine and combat the Stefan Toepler

“root causes” of social problems. As such, philanthropy is different from charity which can be understood as an eleemosynary use of resources to ameliorate the symptoms of social ills. Foundations can pursue either approach through their activities. Foundation assets can be either endowments comprising financial or other income-producing assets, or physical assets. If the principal assets are physical, such as an art collection or facilities to operate programs, the organization takes the form of an operating foundation. In many European countries operating foundations account for large sections of, or even dominate, local foundation sectors. Grantmaking foundations, by contrast, use investment income generated by their endowments to support other nonprofit organizations. The grantmaking form is the most common within the U.S., although prominent operating foundations, such as the John Paul Getty Trust and the Kettering Foundation, also exist. A further distinction is made between private and public foundations. The former includes independent foundations, founded by a single donor or family, and corporate foundations, which are funded by their parent company. Public foundations include community foundations which aggregate smaller endowment gifts from members of their communities and fundraising foundations, which typically do not hold endowments of their own, but engage in fundraising for their causes.

Current issues and challenges

Historically, foundations evolved in the Middle Ages to operate hospitals and other charitable institutions under ecclesiastical control. The removal of their assets from worldly control caused early conflicts with the state. In France, for example, the French Revolution abolished the foundation form, which was not legally re-established until the late twentieth century. Other European welfare states, such as Sweden and to some extent Germany, maintained unfavorable postures during the twentieth century. In the U.S., some of the earliest modern grantmaking foundations emerged in the early 1910s at the height of the Progressive Era, in which public and political sentiment had turned against the monopolies of the so-called robber barons, who were the ones using their

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“ill-gotten gains” to establish the large new foundations. The concern at the time was that these nstituteions might use their vast resources to influence the political process in favor of the industrial interests of their founders. Despite the initial distrust, foundations began to proliferate without special regulatory oversight until critical political interest intensified in the 1950s and 1960s. Driven by concerns about economic misuse as tax dodges, Congress imposed regulations on private foundations in the Tax Reform Act (TRA) of 1969. A key provision of the Act was the introduction of a pay-out requirement for grantmaking foundations of either all income or the equivalent of 6 percent of the asset value, whichever was greater. In essence, this prevented foundations from retaining parts of their investment income to maintain the real value of their capital and forced them to draw on their assets for spending where investment yields remained below the 6 percent mark. In combination with the stagflation of the 1970s, this resulted in a decline of the U.S. foundation sector in the following decade. In the early 1980s, the pay-out requirement was changed to a flat 5 percent of asset value, allowing foundations to retain excess income and to keep giving below asset growth. The growth of the foundation field then began to pick up again. Beyond the pay-out requirement, a number of other restrictions were imposed on foundations, including an excise tax, that is, a levy on income that was intended to be used to fund government oversight of foundations; a prohibition of self-dealing between foundation and donors, board members, managers, and so on; restrictions on foundation ownership and control of businesses; and a ban on any kind of political activity, including lobbying. The tech boom of the 1990s generated a new growth spurt for foundations as post-industrial wealth started to pour into the field, signified by the Bill and Melinda Gates Foundation overtaking the Ford Foundation as the largest grantmaking philanthropy. One hundred years after the first modern foundations emerged, the creation of new mega-philanthropies stirred new concerns about undue influence over public policies and institutions and the generally plutocratic and undemocratic nature of big philanthropy,

essentially reprising arguments that had dogged foundations since the Progressive Era. While these re-emerging concerns are not likely to pose any political dangers for the time being, they signify the ongoing legitimacy issues that foundations face as private institutions controlling public resources. Over time, several societal roles or functions have been ascribed to foundations to justify the privileged position they hold. Among the oldest and most prominent ones is the innovation or societal venture capital role which focuses on a unique characteristic of the foundation form: its virtual lack of dependence on outside resources (except indirectly for legitimacy). As is often pointed out, whereas governments are accountable to voters, businesses to owners and shareholders, and other nonprofit institutions to their members and funders, there is no outside stakeholder group to which foundations are directly accountable. At the organizational level, foundations are therefore not subject to sanction if they fail in what they set out to do. Given this independence, foundations have therefore the capacity to act as agents of change through taking funding and programmatic risks and providing seed money for innovative projects and ideas whose outcomes are uncertain and failure-prone, but potentially highly beneficial. A similar line of argument suggests that their risk-taking ability allows foundations to provide early support for social change initiatives. Having the capacity to act as a change agent, however, does not equal an imperative to do so, and accordingly, the evidence for foundation innovation, beyond the anecdotal, is rather limited. Likewise, foundations are typically seen as following, rather than leading, social movements and social change initiatives. Foundation roles are also often conceptualized vis-à-vis the state, as they increase the amount of resources available for social, educational, cultural, and other public purposes. As another funding source for nonprofits, foundations can have a substitutional or a supplementary function. Supplementary, or complementary, funding takes place where government cannot garner sufficient public support to directly address certain issues or causes or face constitutional or other barriers to doing so. Substitutional funding, by contrast, takes place where governments attempt to cut existing subsidies in the hope that founStefan Toepler

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dations and other private funders will step in to fill emerging funding gaps. Foundations typically prefer to provide supplementary rather than substitutional support, as foundation resources are generally too limited to support a basic financing function in most policy arenas. Other common roles are pluralism and redistribution. The pluralism argument closely relates to the complementary function, casting foundations as supporters of a variety of diverse initiatives, approaches and values that strengthen overall pluralistic discourse in society through their funding of nonprofits. Given the relatively small contribution of foundations to overall nonprofit sector revenues, however, the pluralism case is inherently weak, and the proliferation of foundations may thus be seen as a sign rather than a cause of pluralistic societies. Foundations may also function as a means of facilitating a voluntary redistribution of wealth, with the affluent using their wealth to support causes that may benefit the poor. In practice, foundations frequently support causes, such as high culture or elite education, which may benefit the affluent more than the disenfranchised and empirical support for the redistribution function is mixed at best. On the other hand, some foundation efforts, such as experimenting with public school reform, are often criticized as inappropriate plutocratic meddling: foundations – claiming superior expertise – force changes in communities or institutions, which are left bearing the consequences, however, when experiments and programs fail.

Future directions

The perennial legitimacy challenge will continue to be an issue for the foundation field and might turn politically risky again if foundation resources were indeed to become as sizable as the discretionary part of the federal government’s budget, as some have seen to predict in recent years. Facing the challenge and addressing the accountability of foundations might require unpacking the black box that foundations have practically remained despite decades of study, and which has obscured the decision-making processes that guide strategies and grantmaking.

Stefan Toepler

Among the more constructive recent reform proposals is the argument to decolonize wealth by bringing grantmakers into the communities they intend to serve and open the decision-making to participation by those affected by their funding. This approach would fall somewhat short in foundations that are not oriented toward redistributive goals in the first place and is principally prone to capture by the professionals in the nonprofits through which foundations work and who might direct resources more towards organizational survival needs than a community-based participatory process might do. Between effective community representation on foundation boards and the creation of a program officer cadre with the skills to tap beneficiary communities directly but that is resistant to professionalization, there is a continuing need for foundations to rethink their internal operations against the broader societal functions they aim to pursue. Stefan Toepler

Related topics

Charitable giving Charity law Corporate foundations Financing nonprofit organizations Nonprofit sector Public charity Public trust in nonprofit organizations

Further reading and references

Abramson, A., Soskis, B., & Toepler, S. (2014). Public-philanthropic partnerships: A review of recent trends. The Foundation Review,  6(2), 52–66. https://​doi​.org/​10​.9707/​1944​-5660​.1201 Anheier, H. K. (Ed.). (2018). Philanthropic foundations in comparative perspectives: Assessments from twelve countries. American Behavioral Scientist, 62(12 & 13). Hammack, D. C., & Anheier, H. K. (2013). A versatile American institution: The changing ideals and realities of philanthropic foundations. Brookings Institution Press. Katz, S. N., & Soskis, B. (2018). Looking back at 50 years of U.S. Philanthropy. Maecenata Institut für Philanthropie und Zivilgesellschaft. https://​nbn​-resolving​.org/​urn:​nbn:​de:​0168​ -ssoar​-56900​-9 Leat, D. (2016). Philanthropic foundations, public good and public policy. Springer. Prewitt, K., Dogan, M., Heydemann, S., & Toepler, S. (Eds.). (2006). Legitimacy of philanthropic

F 251 foundations: United States and European perspectives. Russell Sage Foundation. Villanueva, E. (2021). Decolonizing wealth: Indigenous wisdom to heal divides and restore balance. Berrett-Koehler Publishers.

Founder’s syndrome Definition

Founder’s syndrome can occur when an organization’s identity, activities, and survival are contingent upon the actions and interests of the founder. After creating the organization, the founder goes on to become too invested or involved in the decisions, operations, or sustainability of the nonprofit organization. As a result, the nonprofit organization is unable to sufficiently respond to changing circumstances, such as the emergence of new community needs, pressures for the organization to adapt and grow, or greater accountability expectations from stakeholders. As the term suggests, founder’s syndrome typically occurs when the person (or persons) responsible for creating or sustaining the nonprofit organization has too much power and control. However, it can also occur later in the organization’s lifecycle as will be illustrated below.

In practice

By design, nonprofit organizations are intended to be organized and operated for the benefit of the community to provide charitable, religious, educational, scientific, amateur sports, or other services that prevent cruelty to children or animals. The organization is supposed to be governed collectively by a board of directors, operated according to written rules and regulations (bylaws, annual meeting requirements, quorum rules), and accountable to stakeholders and regulators (service recipients, donors, the Internal Revenue Service, secretaries of state, accreditors). In contrast, nonprofit organizations are not supposed to provide its primary benefits to the board members, officers, executives, or other insiders.

Formative period During the formative period, the founder is central to the geneses of a new nonprofit organization. First, the founder identifies the need for the new organization, which is usually to provide a new or different service to the community, often in response to a personal experience (e.g., Mothers Against Drunk Driving was created after the founder’s daughter was killed by a drunk driver). Next, the founder decides where the organization will incorporate (which dictates the governance requirements of the organization), assembles the board of directors (which governs the organization and ensures the mission is carried out), and completes the applications needed to incorporate and secure tax exemption (which vary by state). Then, the founder and the board of directors work to get the organization up and running, seeking out funding and resources, cultivating supporters, and implementing activities designed to carry out the mission. At this point, the founder typically chooses what role they wish to have: serving on the board of directors (as chairperson or board member) or becoming a staff member (typically, the president or CEO). It is ill-advised, and often illegal, for the founder to serve in both roles. These formative activities require substantial investments from the founder, in the form of personal financing (investing their own money), sweat equity (investing their time and energy), and social and political capital (using their personal networks and connections). Once the organization is up and running, the founder might view the newly formed organization as their passion project, excited to work with others who care about the mission and provide the community with a new and valued resource. Alternatively, the founder might emerge from these efforts with a sense that the newly formed nonprofit organization is their brainchild and personal company, which can lay the groundwork for founder’s syndrome. Founder’s syndrome also might be more likely if the initial board of directors and/or key staff personnel are hand-picked by the founder on the basis of personal friendship or other type of relationship that could jeopardize their independence.

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Organizational crisis or long-standing tenure Founder’s syndrome can also occur later in the organization’s lifecycle. For example, suppose a nonprofit organization experiences a substantial financial crisis and needs to secure new resources in order to survive. A CEO or board chairperson could “save the day” by bringing in a sizable donation or grant, which helps to elevate and escalate their power within the organization. Alternatively, a strong and charismatic CEO or board chairperson might serve as the leader of a nonprofit organization for a long or extended period of time, making it so the other members of the board of directors and/ or staff eventually become disengaged or too deferential. Regardless of when founder’s syndrome occurs, the symptoms are the same. The organization revolves around the founder. Decisions are autocratic and not inclusive. Debate and dissent are discouraged, and the mission, vision, and future of the organization are constrained by the founder’s interests and control. Risk factors and signals There are risk factors that can make certain nonprofit organizations inherently more susceptible to founder’s syndrome than others. For example, some nonprofit organizations are created as namesake organizations (organizations named after an individual or family). These organizations might be governed or staffed (wholly or in part) by a founder (or founders) who is a family member and, as such, exercises a great deal of control over the organization because of the power and legitimacy afforded to them by their name. Some nonprofit organizations, especially small nonprofits that are essentially sole-proprietorships and serve as the only source of income for the founder, can create a situation whereby the founder uses the organization as a self-employment and financial enrichment vehicle as opposed to a resource for the broader community. Other founders use the nonprofit organization as a vehicle to enrich themselves with power by controlling decisions and internal processes, refusing to delegate, discouraging participation and inclusiveness, and building a personal empire. Finally, nonprofit organJoanne G. Carman

izations with boards of directors that aren’t engaged or serve as “rubber stamps” for the CEO’s actions and activities are also at risk of founder’s syndrome. Regardless of the situation, there are some signals that can suggest that founder’s syndrome is alive and well (or perhaps starting to brew). For example, the culture of the organization may be one where others routinely defer to a charismatic leader’s vision and views. Conversely, the board may come across as being insular, not inclusive, and excessively private. And, warning bells should ring if a board member or CEO talks about the organization as their own personal company!

Current and future directions

Founder’s syndrome places the board members of the nonprofit organization at risk of some legal consequences. For example, if the board is allowing the founder to put personal interests above the organization’s interests, they are at risk of not upholding the duty of loyalty. If the board is allowing a founder to refuse to consider new ideas or more effective ways of doing things, they are at risk of not upholding the duty of care. If the board is allowing a founder to ignore the laws and rules that are supposed to govern the organization, they are at risk of not adhering to the duty of obedience – all of which can have legal consequences. In addition to these issues that can potentially compromise the board of directors, founder’s syndrome poses challenges to the future leaders of the organization. For example, future leaders will have to serve in the founder’s shadow, fighting an uphill battle to earn the respect and trust of others in the organization. Externally, the future leaders will have to make efforts to disentangle the organization’s current identity from the founder’s identity in the eyes of the larger community. Internally, future leaders will have to build the capacity and trust of others within the organization to assist in carrying out the mission, as well as invest in policies and procedures to promote inclusion and participation, and dismantle the founder’s legacy (e.g., “This is how we did things before”). That said, in recent years, there has been greater attention and awareness about the risks of founder’s syndrome, as nonprofit

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organizations and their boards have begun to recognize the need for succession planning, talent management, and transition planning at all levels of the organization. In addition, there are many resources available to nonprofit organizations that offer guidance about best practices relating to board training and development, evaluating and compensating the CEO, and about building resilient organizations. Moreover, funders and other external stakeholders are also more attuned to recognizing the risk factors and signs of founder’s syndrome, and they can make funding contingent upon having the organization reduce these risks (e.g., changes in the board’s composition, strategic planning, and evaluation requirements). Joanne G. Carman

Related topics

Chief executive officer: Performance review Forming a nonprofit organization Governance Governing board: Responsibilities Leadership succession Lifecycles of nonprofit organizations

Further reading and references

Bharath, D. M. N., & Kahl, S. C. (2021). Founder or flounder: When board and founder relationship impact nonprofit performance. Journal of Public Affairs Education, 27(2), 238–253. https://​doi​.org/​10​.1080/​15236803​.2021​ .1911289 Block, S. R., & Rosenberg, S. (2002). Toward an understanding of founder’s syndrome: An assessment of power and privilege among founders of nonprofit organizations. Nonprofit Management and Leadership, 12(4), 353–368. https://​doi​.org/​10​.1002/​nml​.12403 Carman, J. G., & Nesbit, R. (2013). Founding new nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 42(3), 603–621. https://​doi​.org/​10​.1177/​0899764012459255 Ellis, G. (2019). Founder’s syndrome. Communities: Life in Cooperative Culture, 184(Fall), 27–31. Internal Revenue Service (n.d.) Charities and Nonprofits. https://​www​.irs​.gov/​charities​-and​ -nonprofits accessed 1 Nov 2021. Mcnamara, C. (1998). Founder’s syndrome: How founders and their organizations recover. Nonprofit World, 16(6), 38–41. National Council of Nonprofits (2021). Principles and practices – Where can you

find “best practices” for nonprofits? https://​ www​.councilofnonprofits​.org/​tools​-resources/​ principles​-and​-practices​-where​-can​-you​-find​ -best​-practices​-nonprofits accessed 1 Nov Sep 2021.

Fraud and corruption Definition

Fraud has devastating effects and can lead to organizational failure. It is suggested that fraud perpetrated inside and by nonprofits is even more shocking as nonprofits present themselves as ethical organizations. Definitions for fraud and corruption vary, nevertheless it is commonly agreed that fraud is private gain at public expense. Archambeault et al. (2015), divide internal fraud into: (i) asset misappropriation such as theft of cash, fraudulent disbursements, or misuse of assets; and (ii) financial statement fraud such as misstatement of assets, misstatement of revenues, improper valuations including of pension liabilities, or improper disclosures. This latter may be used to mask fraud or to actively misappropriate nonprofit resources. Fraudulent financial statements may make the nonprofit more attractive for donors by, for example, manipulating program-spending ratios, however when fraud is discovered, donors will remove support due to decline in trust. When regulators mandate financial statement filing, fraud can be reduced. Organizational insiders typically make the greatest gains from fraud; they may also use the nonprofit as a front to steal money from other organizations by, for example, over-billing, or establishing a nonprofit in order to engage in a tax fraud or otherwise gain funds from government through a fraudulent scheme. Corruption, being fraud perpetrated by those in power includes bribery, conflicts of interest, and “soft corruption” that does not result in criminal prosecution. An example of soft corruption is an overly generous compensation package (Fremont-Smith & Kosaras, 2003; Gibelman & Gelman, 2004).

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Context

The classic Cressey (1953) fraud triangle explains why individuals undertake fraud, especially when all three reasons are present. These three reasons are: 1) because individuals have the opportunity to commit fraud often enabled by poor internal controls; 2) because they can construct a rationale to justify the fraud such as feeling they deserve more from the nonprofit than they currently receive; and, 3) because they are under pressure to gain resources such as, for example, having a financial need that motivates them to commit fraud. When pressure and a rationale are present, a fraudster may neutralize internal controls to provide them with opportunity, unless deterred by the fear of detection. While internal and external audits can expose fraud (particularly asset misappropriation), often fraud leaves little documentary evidence, meaning these issues are hard to detect. One method to unearth fraud is to encourage staff to report suspicious activity (“whistleblowing”). While employees of nonprofits have been found to be less likely to whistle blow than those in for-profits, in the U.S., nonprofits are bound by two provisions in the Sarbanes-Oxley Act – preservation of records and protection for whistleblowers (Archambeault et al., 2015). U.S. nonprofit regulatory filings (Form 990) require statements about nonprofit policies in these regards. Weak internal controls in the nonprofit sector are often blamed for fraud and corruption occurring. When there are few staff, segregating duties may not be possible. In these cases, it is possible that there is no capacity for internal oversight by, for example, a separate accountant or finance director. Alternatively, a charismatic leader may collude to override or bypass internal controls facilitated by segregation of duties. Furthermore, when others are aware that staff can operate without supervisory arrangements, such weak internal controls may give rise to these staff being accused of fraud when losses are found, even if they are innocent. Internal controls are vitally important. Certainly, board responsiveness is required when fraud is detected. Authors who have analyzed fraud incidents in the nonprofit sector have found little difference between the type of person who perpetrates fraud in the nonprofit and Carolyn Cordery

for-profit sectors. Organizational size is associated with smaller losses in the nonprofit sector, likely because small nonprofits have fewer resources to commission external audits and implement whistleblowing “hotlines.” Research has used newspaper reports (Fremont-Smith & Kosaras, 2003; Gibelman & Gibelman, 2004) and nonprofit fraud survey data as undertaken regularly by the Association of Certified Fraud Examiners (ACFE) since 1996 (Archambeault et al., 2015; Greenlee et al., 2007; Holtfreter, 2008; Scheetz et al., 2020). The ACFE report can be found here: https://​www​.acfe​.com/​fraud​ -resources.

External factors impacting the perpetration and detection of fraud

Accountability is the catchword of the twenty-first century and underpins the ethos of most regulatory and stakeholder expectations of nonprofits. This rise in accountability demands has brought growing expectations of transparency, which is essential if fraud is to be minimized. For example, in the U.S., the regulatory Form 990, filed annually by many organizations with the Internal Revenue Service (IRS), requires reporting of diversions of nonprofit assets if frauds exceed US$250,000 or 5 percent of gross receipts or total assets. Despite this, nonprofits are known to significantly under-report fraud (Archambeault et al., 2015). In addition to mandatory financial reporting, some regulators seek voluntary disclosures, for example, the Office of the Scottish Charity Regulator (OSCR) requires charities to disclose serious incidents that may threaten their organization including fraud and theft, but does not publish details, instead it uses this data for its risk-based monitoring (McDonnell & Rutherford, 2019). Monitoring is costly both for nonprofits and the regulator. In the U.S., for example, it is commonly believed that the IRS lacks the resources to carefully monitor over 1.5 million charities and oversight by the various states is also under-resourced (Irvin, 2005). Moreover, even with regulation, successful fraudsters operate “around the rules.” Therefore, making regulatory filings publicly available means they can be scrutinized by multiple “eyes” with public watchdog organizations, like Charity Navigator, assisting

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stretched regulators to focus resources on suspicious actions. Scheetz et al. (2020) find that international nonprofits are less likely to report fraud. Further, Othman and Ali (2014) suggest that the Global South experiences less transparency and possibly greater levels of fraud and corruption due to lower levels of regulation and enforcement. Nonprofits can also be victims of fraud. For example, nonprofit procurement may be subject to bribery or corrupt officials, or those violent settings may demand bribes for delivery of international aid. A further example of fraud victimization is cyber-crime, including phishing attacks, ransomware, viruses and denial-of-service attacks. While nonprofits have moved many of their financial and operations systems online to make efficiency gains, this places them at a greater risk of cyber-crime, particularly when they do not operate adequate security measures to prevent, detect and repair any cyber breaches. To reduce this risk, nonprofits require basic controls to protect their data and may need additional resources to develop and apply anti-virus software, regular data back-ups, cyber-safety policies, staff training and two-factor authentication for accessing systems, as a start.

Strengths, limitations, and critique

A good deal of the research on fraud relates to audit failure, but it should be noted that the principal role of auditors is not to find fraud. Therefore, depending solely on external audit is a poor strategy. Fraud can be insidious and hard to detect, and because of its strong role in organizational collapse as well as its impact on donations, nonprofits must take steps to prevent and detect fraud in progress. Poor internal controls in nonprofits can make it easy for fraudsters to deflect nonprofits’ resources to their own ends. It is therefore imperative that nonprofits have 1) excellent internal controls to safeguard assets, including for revenue collection and approving expenditure and making payments; 2) comprehensive anti-fraud policies, including requiring employees and governing boards to declare any personal interest that may affect, or could be seen to affect, their impartiality in any aspect of their work; 3) whistleblowing policies to ensure that the suspicion of poor

practice can be readily reported and acted upon; and 4) a good fraud risk register to ascertain and monitor vulnerabilities. Nonprofits must also be alert to external fraud being perpetrated upon them. Here, procurement controls should ensure that only bona fide entities are used, which should result in goods and services being legally procured. Particularly when nonprofits are dealing with contexts with which they are unfamiliar, they must ensure they are not a victim of bribery by unscrupulous officials. Further, with increasing incidences of cyber-fraud, nonprofits must work to ensure their IT systems are maintained with excellent virus protection and staff training to ensure unwanted attacks are not successful. Carolyn Cordery

Related topics

Accountability Accounting practices, rules, and standards Audit Financial documents and control Fraud detection and investigation Intermediate sanctions Public trust in nonprofit organizations Sarbanes-Oxley Act Transparency

Further reading and references

Archambeault, D. S., Webber, S., & Greenlee, J. S. (2015). Fraud and corruption in U.S. nonprofit entities: A summary of press reports 2008–2011. Nonprofit and Voluntary Sector Quarterly, 44(6), 1194–1224. https://​doi​.org/​10​ .1177/​0899764014555987 Cressey, D. R. (1953). Other people’s money: A study of the social psychology of embezzlement. Free Press. Fremont-Smith, M. R., & Kosaras, A. (2003). Wrongdoing by officers and directors of charities: A survey of press reports 1995–2002. SSRN Electronic Journal. https://​doi​.org/​10​ .2139/​ssrn​.451240 Gibelman, M., & Gelman, S. R. (2004). A loss of credibility: Patterns of wrongdoing among nongovernmental organizations. Voluntas: International Journal of Voluntary and Nonprofit Organisations, 15(4), 355–381. https://​doi​.org/​10​.1007/​s11266​-004​-1237​-7 Greenlee, J. S., Fischer, M., Gordon, T. P., & Keating, E. K. (2007). An investigation of fraud in nonprofit organizations: Occurrences and deterrents. Nonprofit and Voluntary Sector

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256  Elgar encyclopedia of nonprofit management, leadership and governance Quarterly, 36(4), 676–694. https://​doi​.org/​10​ .1177/​0899764007300407 Holtfreter, K. (2008). Determinants of fraud losses in nonprofit organizations. Nonprofit Management and Leadership, 19(1), 45–63. https://​doi​.org/​10​.1002/​nml​.204 Irvin, R. A. (2005). State regulation of nonprofit organizations: Accountability regardless of outcome.  Nonprofit and Voluntary Sector Quarterly,  34(2), 161–178. https://​doi​.org/​10​ .1177/​0899764004272189 McDonnell, D., & Rutherford, A. C. (2019). Promoting charity accountability: Understanding disclosure of serious incidents. doi​ Accounting Forum, 43(1), 42–61. https://​ .org/​10​.1080/​01559982​.2019​.1589903 Othman, R., & Ali, N. (2014). NPO, internal controls, and supervision mechanisms in a developing country. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 25, 201–224. https://​doi​.org/​10​.1007/​s11266​-012​ -9335​-4 Scheetz, A., Wall, J., & Wilson, A. B. (2020). Do employee fraud reporting intentions differ between for-profit and nonprofit organizations? Journal of Governmental & Nonprofit Accounting, 9(1), 94–117. https://​doi​.org/​10​ .2308/​JOGNA​-18​-008

Fraud detection and investigation Definition

Fraud has many definitions depending on the particular context. In general, fraud occurs when one person obtains money or property from another person based on false statements or misleading omissions. Embezzlement occurs when a person takes money or property that belongs to their employer and uses it for their own benefit. It can also occur when a person takes money or property that they hold in trust for another person and uses the money or property for their own benefit. As used in this entry regarding fraud in nonprofit organizations, fraud is intentional deception to secure unfair or unlawful gain. Fraud schemes in nonprofits can include check fraud, embezzlement, ghost employees, expense fraud, misappropriation of funds for personal use, fictitious vendor schemes, kickbacks from unscrupulous

vendors, and outright theft of cash or assets – to name a few.

Fraud in nonprofit organizations

Embezzlement and fraud within nonprofit organizations has reached epidemic proportions. According to the Association of Certified Fraud Examiner’s (2020) Global Study which contains an analysis of 2,504 cases of occupational fraud that were investigated between January 2018 and September 2019, 70 percent of frauds occurred in nonprofit organizations. The study points out that nonprofit organizations only reported 9 percent of fraud cases and suffered the smallest median loss of $75,000 and an average loss of $639,000; however, as the study points out, many nonprofits have limited financial resources to begin with, so a loss of these amounts can be particularly devastating to these entities. Why are nonprofit organizations susceptible to fraud? There are a multitude of factors that make nonprofit organizations susceptible to fraud including a lack of internal oversight and controls, inadequate training, high turnover with low employee investment, and poor technological resources. Nonprofit organizations often have limited operating budgets with more money allocated to core programming than to internal audit and compliance departments. The fraud triangle: Who commits fraud and how to prevent its commission Many students of fraud investigation have described a 10-80-10 rule about who commits fraud. Approximately 10 percent of the general population would never, under any circumstances, commit a fraud, 10 percent of the general population would commit a fraud under almost any circumstances and the remaining 80 percent of the population would commit a fraud only if ALL of the following circumstances existed: (1) they were under serious financial pressure; (2) they had the opportunity to commit a fraud; and (3) they could rationalize the reason that they were committing the fraud. Long ago, these three factors were identified by noted criminologist and sociologist Donald R. Cressey (1953) and even today are known as the three corners

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of a Fraud Triangle. Removal of any one of these three factors could significantly reduce the probability of fraud. Programs to identify employees who are under serious financial pressure and then assisting those employees with that burden could eliminate the first point of the Fraud Triangle; having good internal control could eliminate the opportunity for an employee to commit the fraud; and having fair employment policies and practices could eliminate the ability for an employee to rationalize a fraud. Subsequently, Wolfe and Hermanson (2004) added another factor, an individual’s ability to carry out the fraud. How are frauds in nonprofit organizations usually discovered? According to the Association of Certified Fraud Examiners’ (2020) Global study on occupational fraud and abuse, 43 percent of frauds are discovered by tips, 15 percent by internal audit, 12 percent by management review, 5 percent by accident, 4 percent by account reconciliations, 4 percent by external audit, 3 percent by document examination, 3 percent by surveillance, 2 percent by notification by law enforcement, 2 percent by IT controls, 1 percent by confession and 6 percent by other means. The typical scheme lasted two years before discovery. First steps to take when a fraud is suspected or actually discovered If anyone who is not an officer of the nonprofit organization becomes aware of or suspects a fraud, they should report it to the president, executive director, chair of the board, chair of the audit committee or the organization’s general counsel. If one of the above officers becomes aware of or suspects a fraud, they should report it to the organization’s general counsel, if any. The general counsel, or appropriate officer, will provide guidance on how to handle the suspected wrongdoer, putting together the fraud investigation team, reporting the fraud to the appropriate authorities, contacting the organization’s insurance company, interim steps to be taken between the discovery of a fraud or the suspicion that a fraud has occurred and the conduct of the forensic investigation and related matters. If the fraud is suspected or if it has been confirmed whether or when to tell the suspect of a fraud investigation will inevi-

tably depend on a variety of factors: Does the employee have discretion to spend money or make important contracting decisions? How senior is the employee within the organization? Are the charges so serious that the employee needs to be suspended immediately in order to prevent harm to the organization? The organization should document these reporting procedures in a whistleblower policy adopted by the board. Such policies may be required under state law and organizations are required to disclose whether a policy is in place on their annual federal tax return (Form 990). It is a violation of federal and state law to retaliate against a whistleblower for raising concerns about fraud or other misconduct in a business organization, including a nonprofit organization. The whistleblower policy should make this explicit and take care that whistleblowers are not punished with reduced salary or worsened job conditions. Putting together the fraud investigation team The right team should be established to investigate and handle actual or suspected fraud. The organization’s general counsel, if any, will often serve as the captain of the fraud investigation team. Other members of the fraud investigation team typically should include outside counsel and outside forensic accountants with experience in conducting internal investigations. In many cases, the nonprofit will need to retain an outside computer forensics specialist in order to oversee the collection of emails and other data, and/or a private investigator to assist in the collection of evidence from outside the organization. In general, the chair of the audit committee and/or the chair of the board should be kept abreast of important developments in the investigation. In some cases, there will also be a need to coordinate with the organization’s public relations staff or consultants and the head of the organization’s Human Resources Department. Importance of the fraud investigation team being engaged by counsel It is very important that the members of the fraud investigation team be engaged by counsel. This will help ensure that the work of the members of the fraud investigation team and the conversations between the members of the fraud investigation team will

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be protected by the attorney work product doctrine and the attorney client privilege. It is important to remember that neither the attorney work product doctrine nor attorney client privilege are bulletproof (the former can be overcome based on a showing of compelling need), but they provide important protections to the organization and its directors, officers, and staff. Preliminary decision as to what remedy to pursue The decision about what remedies to pursue will inevitably depend on the facts involved and indeed the organization’s decision may change as the fraud investigation unfolds. First, there may be civil remedies against the wrongdoers. This means that the organization can sue the individuals who are directly or in some instances indirectly responsible for fraudulent conduct. Second, if there is potential criminal responsibility, the organization can make a criminal referral of the wrongdoing to a federal or local law enforcement agency. It is often the case that when responsible individuals are convicted of federal or state crimes, they are ordered to pay restitution to the victims of the crime. In federal cases, the Mandatory Victims Restitution Act makes restitution a mandatory part of the resolution of most fraud prosecutions. Third, in some cases, the organization may have insurance that covers losses caused by culpable employees, as well as the costs of investigation. Contacting the insurance broker after realizing that there has been misconduct is a good idea, in order to see if there is coverage. Which governmental bodies or oversight organizations need to be notified at the discovery of a fraud? The answer to this question will differ based on the nature of the fraud. In many cases, voluntary disclosure of criminal activity by a nonprofit organization’s executives will be advisable or required. First, if the fraud is significant (even if not material from an accounting perspective) or involves senior executives of the organization, the organization may wish to contact the appropriate charities regulator (often the state attorney general) in order to advise them of the fraud and to describe the steps being taken to investigate and remediate the fraud and to

prevent future fraud. For example, in New York, where many nonprofit organizations are located, the Charities Bureau of the Office of the Attorney General will often expect to be kept informed about these types of developments. Second, if a crime has been committed, it may be advisable to report the crime to federal or state authorities. The magnitude of the fraud may influence the decision about whether to do so and which prosecutor or law enforcement agency should be notified. For example, if the case involves significant white-collar fraud, the Federal Bureau of Investigation or the U.S. Postal Investigation Service may be interested in conducting an investigation. Third, the fraud may involve misuse of federal or state funds in which case the government agency that oversees the use of the funds should be told (and in some cases must be told pursuant to regulation or agreement). Fourth, when the fraud involves a charitable grant from a foundation or charity, it may also be appropriate or even required under the terms of the grant agreement to notify the grantor. Fifth, insurance coverage in some cases will be conditioned on the organization making a report to law enforcement. Given that a criminal referral can have unwanted side effects – adverse publicity, the costs of cooperating with an investigation, and a loss of control over the investigation – the organization should be advised by counsel and decide whether to refer the matter in consultation with the board. The difference between an audit and a fraud investigation Even when an organization engages an outside accounting firm to conduct an independent audit of its financial statements, the auditors do not guarantee that the organization is free from fraud. Independent audits only provide reasonable assurances that the financial statements are free of misrepresentations (subject to a standard of materiality) and appropriately identify, assess, and respond to fraud risks as required by the relevant auditing standards. As noted above, only 4 percent of frauds are discovered by an independent audit. The independent auditor and the fraud examiner do not perform similar services or have equivalent responsibility for fraud detection; the services are distinctly different and are planned and performed to fulfill dis-

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tinct purposes. The basic goals for most fraud examinations are (a) to determine whether fraud occurred and if it did in fact occur; (b) to determine who perpetrated it; (c) to quantify the amount of the fraud; and (d) to determine how the fraud was perpetrated. The conduct of the fraud investigation Once the fraud investigation team has been established, it should conduct initial discussions to obtain background information about the fraud allegation, identify individuals with relevant information, establish the availability of evidence, and define the organization’s end goal as a result of conducting the investigation. The next steps of the fraud investigation, in broad terms, involve conducting a preliminary assessment of the actual or suspected fraud, collecting and preserving evidence (using the chain of evidence standards), analyzing records, conducting interviews and reporting the findings of the fraud investigation. For a more detailed description of the process, we refer the reader to sources such as the 2022 fraud examiners manual (ACFE, 2022), and an article entitled How to conduct a fraud examination (Snook, 2019). Conducting interviews An important part of a fraud investigation is conducting interviews of fact witnesses and the subject under investigation. Conducting these interviews requires a very special set of skills and it may be worthwhile to engage someone who is very well trained in this area to conduct these interviews. Former prosecutors are often selected to conduct internal investigations because they have experience in conducting witness interviews, building fraud cases, assessing the strength of the evidence, and dealing with law enforcement. It is usually a good idea to conduct witness interviews after most of the financial, business and electronic records have been collected and analyzed. In this way, the questions can be more focused. In some cases, where the alleged wrongdoer is still employed and remains in a role in which they have access to funds, it may be necessary for such a person to have limited access during the investigation.

The deliverable from the fraud investigation team Very early in the process the fraud investigative team should reach an understanding with the organization and the organization’s outside counsel on what deliverable is expected to be produced. The deliverable could be a presentation to the organization’s board and/or the organization’s audit committee. It could also be a presentation to regulatory authorities or law enforcement agencies. The presentation could be oral or written. There are advantages to each approach. In any event, the deliverable from the fraud investigation team should include statements regarding: (a) whether or not, in the opinion of the fraud investigation team, a fraud actually occurred; (b) if a fraud did in fact occur, who perpetrated the fraud; (c) how the fraud was committed; (d) the best estimate of the amount of the fraud; and (e) what preventative steps could have been taken and should be taken to prevent future fraud. Unless specifically engaged to do so, the fraud investigation team would not report on the organization’s system of internal control and should not contain specific recommendations as to changes to the organization’s system of internal control (except as those items relate to the fraud that was investigated). Attempt to recover embezzled or stolen funds As discussed above, once the organization has gathered the necessary facts and assessed the pros and cons of different possible strategies, the nonprofit can decide how to attempt to recover embezzled or stolen funds. Whether a civil lawsuit against the wrongdoers makes sense may depend on whether the wrongdoers still retain those or other substitute funds. If they have used the money, it may not make sense to expend additional funds needed to initiate civil litigation. Criminal restitution will not require the filing of a civil lawsuit and may be more efficient for the victim of a crime. As noted, insurance coverage should always be investigated by the organization. Liability of board members Whether board members of a nonprofit organization may have liability in the wake of fraud is a question of law and fact. In general, board members may be protected from liability to the extent they obey the fiduciary duty of

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care, which requires them to act as a reasonably prudent person would under similar circumstances, and the fiduciary duty of loyalty, which requires them to act in the best interest of the organization. These duties are generally codified under state law. In addition, board members of nonprofit organizations which are organized as corporations may avail themselves of statutory protections for corporate officers and directors (nonprofit organizations created as trusts may have different levels of statutory liability protection). Standing to bring suit against nonprofit board members is generally limited to the attorney general, corporate members and board members, although under certain circumstances donors and beneficiaries of the organization’s work may have standing. It is important to maintain up-to-date director and officer liability insurance to cover the costs associated with defending suits against board members. What information needs to be reported on Form 990? Form 990 requires disclosure of a “significant diversion” of the organization’s assets, including an explanation of the nature of the diversion, dollar amounts and/or other property involved, corrective actions taken to address the matter, and pertinent circumstances. According to Form 990 instructions, the organization should not identify the person or persons who diverted the assets by name. A diversion of assets is defined to include any unauthorized conversion or use of the organization’s assets other than for the organization’s authorized purposes, including but not limited to embezzlement or theft. The organization should report diversions by the organization’s officers, directors, trustees, employees, volunteers, independent contractors, grantees (diverting grant funds from the organization), or any other person, even if not associated with the organization other than by the diversion. Because a diversion could, in some cases, constitute private inurement to disqualified persons of the organization (including individuals in a position to exercise substantial influence over the affairs of the organization and their related parties), disclosure may also be required for certain organizations as an excess benefit transaction taxable under section 4958 of the Internal Revenue Code and reportable on Schedule L of Form 990.

Recommended preventative measures Preventative measures will depend on the size of the organization and its resources. While space limitations prevent a full list, here are some prominent preventative measures: ● Remove one or more of the three points of the Fraud Triangle discussed above, in particular the opportunity to commit fraud, ● Perform a background and credit check on all new employees to the extent permitted by law, ● Have the organization’s financial statements audited by an outside independent accounting firm, ● To the extent possible, have an internal audit team, ● Establish a “hotline” where employees, vendors, contributors and others can anonymously report suspected fraud, ● Follow up on ALL tips, no matter how insignificant they may seem, ● Have the best system of internal control possible considering the cost–benefit of each control, ● Install computer security measures, ● Board members and executive-level employees must actively exercise oversight of the organization, ● A code of ethics should be created that includes fraud policies and how to respond to hints of wrongdoing, ● Conduct a regular review of insurance policies so that if a fraud does occur, the organization and its directors and officers are adequately protected, ● Establish a comprehensive set of policies and procedures that set and enforce the organization’s expectations for ethical conduct, including a whistleblower policy.

Conclusion

Besides the loss of assets, fraud in a nonprofit organization can have adverse public relations consequences that in turn can have a direct impact on the ability to attract contributions to the organization or to recruit talented and committed employees and board members. The board has a fiduciary obligation to investigate actual or suspected fraud. If a fraud does occur, or if a fraud is suspected, the officers and directors must take immediate action and commence an investigation to determine if a fraud has actually occurred, to prevent the fraud from continuing, to determine how the

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fraud was perpetrated and to quantify the amount of the fraud. Although such investigations can be challenging for the organization on many levels, they are essential and in the long run will be beneficial by remediating fraud, punishing wrongdoers and preventing the recurrence of fraud. Dennis Neier, Harry Sandick and Justin Zaremby

Related topics

Accountability Audit Financial documents and control Fraud and corruption Private inurement prohibition Transparency

Further reading and references

Association of Certified Fraud Examiners. (2020). Occupational fraud 2022: A report to the nations. ACFE. Association of Certified Fraud Examiners. (2022). 2022 fraud examiners manual. ACFE. Cressey, D. R. (1953). Other people’s money: A study of the social psychology of embezzlement. Free Press. Snook, A. (2019, November 7). How to conduct a fraud investigation: The complete guide. I-sight. https://​www​.i​-sight​.com/​resources/​how​ -to​-conduct​-a​-fraud​-investigation​-the​-complete​ -guide/​accessed 14 Sep 2023. Tully, J. B. (2021). Fraud, theft and embezzlement in nonprofit organization. Venable LLP. Wells, J. T., Bell, C. J., Geis, G., Kramer, W. M., Ratley, J. D., & Robertson, J. (1989). Fraud examiners manual. ACFE. Wolfe, D. T., & Hermanson, D. R. (2004). The fraud diamond: Considering the four elements of fraud. CPA Journal, 74(12), 38–42. https://​ digitalcommons​.kennesaw​.edu/​cgi/​viewcontent​ .cgi​?article​=​2546​&​context​=​facpubs accessed 14 Sep 2023.

Fundraising All organizations must secure funds to operate. Governments do so by passing and enforcing tax laws, businesses by selling products or services at a profit, and membership associations by provid­ ing services to dues-paying members. Nonprofit organizations have access to most of these types of revenues but may also secure voluntary donations to finance their operations in full or part. Donations are important – accounting for perhaps a third of combined nonprofit revenues. Donations may support ongoing organizational activities (the annual fund), but may also be designated for special purposes, such as building facilities or growing an endowment (capital campaigns). Securing donations may involve special efforts to obtain large gifts from major donors or planned gifts that are part of a donor’s estate plans. Each purpose – annual funds, capital campaigns, major gifts, and planned giving programs – requires targeted and dedicated efforts.

Definition and scope

Fundraising is often used interchangeably with fund development although they have different connotations. Fundraising implies a focus on the funds raised. Fund develop­ ment broadens the focus to include developing relationships with donors to secure ongoing funding. An even broader term, “advancement,” is used by institutions of higher education to include communications, marketing, and government relations (CASE, 2022). Fundraising, or fund development, refers to the practices and efforts by nonprofits to generate donated funds to support their activities. Nonprofits that are organized and operated exclusively for specific charitable purposes and recognized as tax-exempt entities under section 501(c)(3) of the IRS code, have special advantages in fundraising, since only donations to recognized “charities” can provide tax benefits to the donors.8

8 To be eligible to receive tax-deductible donations, nonprofits must seek recognition by the Internal Revenue Service (IRS) as tax-exempt entities under section 501(c)(3) of the Internal Revenue Code. However, very small nonprofits (total revenues of $5,000 or less) and churches or other religious bodies are exempt from IRS registration. Some member associations (cemeteries, veterans’ organizations, and some fraternal associations) may also receive tax-deductible donations, but only for general charitable purposes, not for the benefit of their members (IRS, 2022a). Those recognized under section 501(c)(3) are usually referred to as charities. They are designated as “public

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Charities that secure “substantial” support from the general public are classified by the IRS as “public charities” and as such can provide more generous tax benefits to donors than the remaining charities (private foundations); they also have fewer disclosure requirements. Because charitable donations count towards public support (along with government grants or contracts and mission-related fees), fund­ raising plays an important role in helping charities secure and maintain status as public charities. In 2021, total charitable contributions reached $485 billion in the U.S. (Giving USA Foundation, 2022) with the largest share going to religion (27 percent), followed by education (14 percent), human services (13 percent), and gifts to grantmaking foundations (13 percent). Donations to public and societal benefit and health nonprofits received 11 and 8 percent respectively, with the rest spread

among the relatively few charities engaged in international affairs (5 percent), arts, culture, and humanities (5 percent), and environment and animals (3 percent). About 2 percent of donations went directly to individuals (e.g., scholarships). These percentages partially obscure how important donations are to different nonprofit fields. As data from Indiana shows (Figure 7), donations are very important to religious organizations (64 percent of total revenues), but also account for about half of total revenues by public/societal benefit nonprofits (includes United Way and Community Foundations) and arts and culture nonprofits (45 percent). Donations account for 29 percent of total human service revenues, but only 19 percent for education nonprofits and 10 percent for health nonprofits (for this analysis, the latter two categories exclude institutions of higher education and hospitals).

charities” if they receive substantial support from the general public, otherwise as “private foundations” (IRS, 2022b).

Note: Data is based on the 2017–2018 survey of Indiana nonprofits. The survey excluded hospitals and institutions of higher education. Definition of nonprofit field is based on National Taxonomy of Exempt Entities (NTEE) used by the IRS for capturing the primary purpose of exempt entities. Revenue sources that account for less than 4 percent of total revenues for a given nonprofit field do not have actual percentage values listed. Source: Indiana Nonprofits Project, n.d. https://nonprofit.indiana.edu/.

Figure 7

Aggregate sources of funding by nonprofit field, Indiana Charities, 2017

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Nationally, more than three-quarters of the $485 billion in donations in 2021 were donated by individuals – 67 percent in vivo and 9 percent in the form of bequests (Giving USA Foundation, 2022). Private foundations accounted for almost a fifth (19 percent), but corporations (including corporate foundations) only 4 percent. Individual donations are clearly important, but so are the other sources. Data from Indiana shows that almost all charities (91 percent) receive contributions from individuals, while about half reported grants from foundations (50 percent) or corporations (46 percent, excluding corporate sponsorships or marketing fees) and 29 percent received bequests or trust funds.

In practice

The actual organizational work involved in securing donations varies considerably. The amount of time and attention nonprofits devote to it likely reflects the extent to which they depend on donations for their operations (compared to other sources of revenues, such as government funding or fees). In addition, the various sources of donations – individuals, bequests, foundations, corporations – require somewhat different approaches, as do the purposes for which donations are raised (e.g., annual fund vs. capital campaigns). Some nonprofits approach these tasks haphazardly and reactively, others more systematically and strategically. Regardless of approach, fund development involves securing resources from the external environment. The likelihood that those efforts will be successful will depend on answers to two key questions derived from organizational theory. First, organizational ecology theory asks whether the organization fits the environment. This includes whether its mission is relevant and meets the needs and interests of the community it serves. But it must also effectively portray its relevance and importance in how it presents its case to donors, using consistent and targeted communication statements. Second, resource dependency theory asks whether the organization is acquiring resources, specifically donations, and managing its resource dependencies. This requires understanding major dependencies and finding ways to engage those that control the resources in order to explore how interests align or could align more effectively. Some

constituency groups may interact with the organization and have interests that align well with it (e.g., volunteers, service collaborators), although not necessarily as donors. Nonprofits often overlook constituency and stakeholder groups that are not major sources of donations or don’t control key resources. Ideally, fund developers seek to identify constituency groups broadly defined, monitor and understand their respective interests, find ways to actively engage them, and build stronger relationships with them over time. To do so, fund developers may use a variety of concepts and tools, including: ● Implement a fundraising cycle: A sequence of steps wherein a nonprofit organization reviews its case for support (see below); examines current economic and political conditions that may impact donors; defines its fundraising objectives and goals; identifies potential donors (individuals, foundations, businesses); determines how to approach them; assesses how likely and able they are to give; cultivates a relationship with prospective donors to ensure interests are aligned; solicits gifts from the donor at the appropriate time; and, if successful, ensures proper stewardship of donated funds with the goal of strengthening relationships with the donor. ● Develop a case for support: A carefully crafted document designed to appeal to potential donors by describing why the organization and its mission are important. This includes what it does – what methods (programs and services) it uses to meet its goals and objectives; and why the organization is capable of accomplishing these efforts – its governance, staffing, facilities, finances, history, and record of strategic planning and program evaluation. The primary purpose is to convey why the organization deserves support and to request a specific donation from a donor. ● Identify constituencies: All groups the organization interacts with – or might interact with – that have a linkage to the organization, shared interests (or involvement) with it, and/or ability to support it in some way (not just by donations), LIA for short. Nonprofits may employ a constituency model to map these groups Kirsten A. Grønbjerg

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systematically. The model consists of a series of concentric circles radiating out from the center (board, executive leadership, and major donors) – those that score high on all three LIA indicators. Groups in the following rings score lower on the LIA indicators: other groups currently involved with the organization (clients, staff, volunteers, donors) but at a less intense level; those previously involved with in some capacity; those with similar or complementary interests, but no linkages; and finally, others with connections or linkages, but unknown interests and abilities. The goal here is to build and strengthen the LIA of constituency groups, drawing the group closer to the center, and with shared interests being the most important building block. ● Analyze existing donations: The organization’s record of donations, segmented in at least two ways: by size of gift and by the donor’s history with the organization. By examining the number of gifts at various size ranges, fund developers can develop a gift range chart. The chart is useful for determining how dependent the organization is on top level donors (usually very dependent) and for planning how best to raise more money by identifying how many more gifts will be needed – and can likely be raised – at various levels. The donor’s history with the organization – amount of donations over a period of years (at least three) – allows the fund developer to undertake a growth-in-giving analysis. This involves each year identifying donors who had never given before (new donors) or didn’t give the prior year (recaptured donors); donors who didn’t give the current year and have only given once the prior year (lapsed new donors), or had given for several prior years, but not the current year (lapsed repeat donors). The rest – donors who gave both in the current and the prior year – either gave the same in both years (same level donors) or increased (increased donors) or decreased their donations (decreased donors). The analysis then examines what percent of prior year’s donors (and of total donations) fall into the seven different categories and what the average gift level is for each segment. The analysis Kirsten A. Grønbjerg

often reveals that nonprofits gain many new donors (often at substantial costs), but that the losses from lapsed donors are substantial, suggesting that more efforts should be devoted to keeping current donors engaged with the organization. The analysis requires a good, clean database of donations that uniquely identifies donors and tracks their donations over time. ● Implement fundraising “vehicles” and communication strategies: Fund developers use a variety of communication strategies to reach and engage donors, ranging from mass marketing advertise­ ments and social media platforms to direct personal cultivation and solicitation, and everything in between (emails, letters, phone calls, special events). This requires careful attention to how the organization’s “case” is presented and an understanding of how donors are likely to respond to particular stimuli. In general, the more personalized the communication is – directed towards that particular donor and that donor’s ability to make a particular type or amount of donation, while also acknowledging the donor’s interests and history with the organization – the more effective the strategy will be. However, personalized approaches can be costly in terms of collecting and verifying information, so nonprofits must assess their ability to do so. This includes determining whether they can afford the time and expense involved in the short term and whether they are using these vehicles effectively. The more important – and difficult – question is whether the investment will pay off over time, in the hopes that it results in longer and more substantial engagement of the donor; or in economic efficiency terms, creates a higher donor “life-time value.” This summary only highlights some of the most important fundraising concepts and tools. But as should be clear, fund development is demanding and requires dedicated and systemic efforts by nonprofits. There are important roles for volunteers (particularly board members) but having experienced professional fund development staff will help ensure that the work is done. Some wealthy nonprofits, such as elite universities, have moved to an almost entirely paid staff

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(or consultant) model. However, the many smaller nonprofits will have to use a combination of volunteers and/or paid staff that also have other responsibilities.

Current and future directions

Fund development is shaped by trends and concerns in the broader environment. Some of these have pervasive and direct implications for how nonprofits approach fund development – particularly technology, regulatory developments, and concerns about fundraising costs. Others are more systemic – reflecting political, economic, and cultural trends or preferences that nonprofits may not even be aware of. This includes a wide range of ethical issues, including whether and how fund development and philanthropy reinforce inequality. Technology Like everything else, fund development is profoundly influenced by the rapid evolution of technology, including the internet and social media. New sources of data and information (or disinformation) and ways to use them are available to both nonprofits and those they interact with. On the one hand, nonprofits can more easily analyze their fund development processes and secure information about their constituencies, competitors, and communities. Some now use artificial intelligence algorithms to scour the internet for information about donors to create enriched profiles. They can also more easily interact with them – if both parties have access to the necessary technology, but as COVID-19 taught us, many do not. Effectively processing and using the masses of information to advance their mission and make themselves known and understood is likely to remain a major challenge, particularly for smaller nonprofits. Technology has also changed the competitive landscape, including whether nonprofits can or should accept Venmo or crypto currency contributions and the associated risks. Likewise, a variety of fundraising platforms have emerged (including donor-advised funds) that funnel gifts to nonprofits from donors but may not allow nonprofits to connect with donors to build relationships. And nonprofits must compete with the many “GoFundMe” and similar initiatives (Bernholz, 2021) that

seek to raise money directly for more or less needy individuals or special causes (https://​ www​.gofundme​.com/​). Fundraising and overhead costs A second development concerns persistent efforts to establish guidelines for fundraising and overhead costs. An entire watchdog industry – Guidestar (now Candid), Charity Navigator, Wise Giving Alliance, Charity Watch – has emerged with the goal to help donors avoid donating to “inefficient” charities. They do so by highlighting whether charities meet or exceed particular fundraising and overhead “standards” based on simple financial ratios from Form 990 and occasionally audited financial statements. The standards differ among the watchdogs, but favor nonprofits that have access to major donors and/or well-healed boards of directors, allowing them to raise large amounts of funding at relatively low costs from major gifts and bequests. The standards penalize small and new nonprofits, or those pursuing unpopular causes, that lack such access. Despite efforts to downplay the standards as an “overhead myth” they persist in dominating the fundraising narrative. While careful communication can counteract their impact, the growth and persistence of such standards is part of a much broader and increasingly pervasive pattern of prioritizing economic efficiency above all other goals, including “new public management” to make government more business-like and improve its efficiency (Berman, 2022). Regulatory/legal developments There are also important regulatory developments related to fund development. Nonprofits are likely to pay attention to changes at the federal level, such as changes in tax policies that impact incentives for donations or Form 990 reporting requirements for nonprofits required to file the form. The forms require information on contributions and special events revenues (Schedule A), details on large contributors (Schedule B), type of fundraising undertaken (Schedule G), and non-cash contributions received (Schedule M). However, there are also important developments at the state level. These include ongoing efforts by state charity officials to Kirsten A. Grønbjerg

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protect consumers by investigating charity fraud and clamping down on misleading fundraising claims. State officials have jurisdiction only in their own state but can require charities domiciled in other states to register if those charities target consumers in their state (much facilitated by the internet and robocalls). There are signs that states are increasingly collaborating on curbing problematic fundraising, but they vary greatly in whether and how they regulate fundraising and the resources they devote to it. As a result, many nonprofits, especially in low-regulatory states, may be unaware of their need to register with or report donations received from other states. Ethics and equity Professional fund developers pay much attention to the ethical treatment of donors and have developed an elaborate Donor Bill of Rights (Association of Fundraising Professionals, 2022). However, there has been less attention to whether donors behave ethically. Some deliberately seek to exert power over or extract special favors from charities or fundraisers. In other cases, nonprofits and fund developers invite such influence in the hope of securing major gifts. As a result, major donors, foundations or corporations may shape how nonprofits define their mission and deliver programs, contributing to one of the four nonprofit failures identified by Salamon (1987) – paternalism. Growing income and wealth inequality in the U.S. increases the risk that wealth – and those controlling it, primarily whites – will dominate the work of the nonprofit sector (well as public policy). There has been less attention to whether fundraising appeals portray beneficiaries ethically or how beneficiaries would wish to be portrayed. Images of desperate people generates sympathy and the wish to help, but also reinforce stereotypes of all kinds – race, ethnicity, gender, physical or mental ability, age, poverty. This tension is particularly problematic for nonprofits serving those groups. But income inequality and persistent racial disparities are deeply ingrained in American culture and present major ethical challenges to all nonprofits and their fund developers.

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Conclusion

The developments listed above will present continuing challenges to nonprofits and those seeking to raise philanthropic donations for them. The first two – technology and fundraising costs – are likely to be obvious to nonprofits. They can be addressed, although both may be losing battles. Many nonprofits pay only scant attention to regulatory and legal developments, but the loss of tax incentives imposed by the 2017 Jobs and Tax Cut Act, which effectively put the charitable deduction out of the reach of almost 90 percent of U.S. taxpayers (National Council of Nonprofits, 2018), will likely present more enduring challenges. However, preoccupation with inefficiency, as well as high and growing inequality, and persistent racial disparities are deeply ingrained in American society – and impact many aspects of fund development – but many nonprofits are only dimly aware of their implications. Kirsten A. Grønbjerg

Related topics

Campaign: Annual campaign Campaign: Capital Campaign Case for support Charitable giving Crowdfunding Donor and donor motivation Donor retention and stewardship ePhilanthropy

Further reading and references

Association of Fundraising Professionals. (2022). The donor bill of rights. https://​afpglobal​.org/​ donor​-bill​-rights accessed 15 Sep 2023. Berman, E. P. (2022). Thinking like an economist: How efficiency replaced equality in U.S. public policy. Princeton University Press. Bernholz, L. (2021). How we give now: A philanthropic guide for the rest of us. The MIT Press. BoardSource. (2022). Measuring fundraising effectiveness. https://​boardsource​.org/​ research​-critical​-issues/​measuring​-fundraising​ -effectiveness/​accessed 15 Sep 2023. Boris, E. T., & Lott, C. M. (2022). Regulation of nonprofits and philanthropy project. Urban Institute. https://​www​.urban​.org/​policy​-centers/​ center​-nonprofits​-and​-philanthropy/​projects/​

F 267 regulation​-charitable​-sector​-project accessed 15 Sep 2023. Council for Advancement and Support of Education. (2022). https://​www​.case​.org/​ accessed 15 Sep 2023. Giving USA Foundation. (2022). Giving USA 2022: The annual report on philanthropy for the year 2021. Qgiv. https://​www​.qgiv​.com/​blog/​giving​ -usa​-2022​-annual​-report/​ accessed 15 Sep 2023. Grønbjerg, K. A. (2022). Philanthropic funding for human services. In D. Bailey, & T. Mizrahi (Eds.), Encyclopedia of macro social work. Oxford University Press. Hopkins, B. R. (2019). The law of tax-exempt organizations (12th edn.). John Wiley & Sons, Inc. Indiana Nonprofits Project (n.d.) https://​nonprofit​ .indiana​.edu/​accessed 15 Sep 2023. Internal Revenue Service. (2022a). Charities and nonprofits. https://​www​.irs​.gov/​charities​-and​ -nonprofits accessed 15 Sep 2023. Internal Revenue Service. (2022b). Private foundations. https://​www​.irs​.gov/​charities​-non​-profits/​ charitable​-organizations/​private​-foundations accessed 15 Sep 2023. National Council of Nonprofits. (2018). Tax Cuts and Jobs Act, H.R. 1. Nonprofit analysis of

the final tax law. www​.councilofnonprofits​.org/​ sites/​default/​files/​documents/​tax​-bill​-summary​ -chart​.pdf accessed 15 Sep 2023. Salamon, L. M. (1987). Of market failure, voluntary failure, and third-party government: Toward a theory of government-nonprofit relations in the modern welfare state. Journal of Voluntary Action Research, 16(1–2), 29–49. https://​doi​.org/​ 10​.1177/​089976408701600104 Sargeant, A., & Shang, J. (2017). Fundraising principles and practice (2nd edn.). John Wiley & Sons, Inc. Shaker, G. G., Tempel, E. R., Nathan, S. K., & Stanczykiewicz, B. (Eds). (2022). Achieving excellence in fund raising (5th edn.). John Wiley & Sons, Inc. The Fundraising Effectiveness Project. (2022). Growth-in-Giving Initiative. AFP. https://​ afpglobal​.org/​F​undraising​Effectiven​essProject accessed 15 Sep 2023. Types of planned gifts. (2022). PlannedGiving.com. https://​plannedgiving​.com/​resources/​types​-of​ -planned​-gifts/​accessed 15 Sep 2023.

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G

Gender and philanthropy Definition

Gender and philanthropy is the study of how and why men and women differ in their philanthropic actions and charitable giving. Philanthropic activities include giving of money, volunteering (both formal and informal), as well as advocacy and other forms of civic and nonprofit engagement. Theoretical frameworks that inform gender differences in giving come from a diverse set of academic perspectives including economics, psychology, sociology, and organizational theories – each bringing their methodological perspectives and research questions to the study of philanthropy and gender and other prosocial behaviors. Economic theories address why motivations for giving may be different in men and women; these theories tend to focus on the impacts of price of giving, attitudes toward risk, and competition to explain gender differences. Psychology literature, which addresses underlying dispositional characteristics that influence giving, include prosocial motivation and behavior, empathy and altruism, and donor identity. Sociological theories such as social context and social capital in giving also pertain to gender and philanthropy research questions as well as the organizational literature, which addresses theories of institutions – including support for the nonprofit sector in society, and the place of women in nonprofits and society (Mesch et al., 2015). Methodologies that address research questions on gender and philanthropy are also varied. Survey methodologies use samples of the population to ask questions about gender and giving and volunteering behaviors, as well as attitudes and motivations for giving. The most comprehensive U.S. household survey data on charitable giving comes from the Philanthropy Panel Study

(PPS), the philanthropy module of the Panel Study of Income Dynamics (PSID). Fielded by the University of Michigan Institute for Social Research (ISR), the PSID tracks the same families biennially over time and collects data describing their income, wealth, health and demography. The PPS is a partnership between the Indiana University Lilly Family School of Philanthropy (LFSOP) and Michigan’s ISR that collects data describing these families’ charitable giving. The PPS is the United States’ authoritative survey data describing charitable giving. Much of the research conducted on gender and philanthropy at the Women’s Philanthropy Institute (WPI) at the LFSOP makes use of this data set. Additionally, survey data from the Bank of America/U.S. Trust Studies of High-Net-Worth Philanthropy, collected every two years since 2006 and also conducted by the LFSOP, provide a random selection of high-net-worth households to provide a comparative sample with average-income households. Experimental research also contributes to the study of gender and philanthropy. Examples of lab experimental research include ultimatum, trust, and dictator games examining sex differences in inter-personal interactions, cooperation, and giving; shedding light on various motivations or behaviors that lead to giving. Field experiments, often using nonprofit organizations as natural settings to reach a sample of donors or volunteers, range from helping a stranger on the street to responding to a request for a donation. One example of this would be sending out different fundraising appeals to a nonprofit’s mailing list and examining gender differences. Finally, institutional data also have been used to explore questions about gender and philanthropy. These data include information from nonprofits as to financial management and payment services such as Blackbaud, Charity Navigator, and other corporate enti-

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ties, colleges and universities, and electronic data. Over the past several decades, there also has been a growing interest in the role that women play in improving their local and global community. One area that has assumed recent prominence in the area of gender and philanthropy is how investing in the rights and well-being of women and girls has increased economic development, education, and health, among others, not only for the women themselves, but also for their families and the communities around them. The study of gender and philanthropy includes how increased funding to women’s and girls’ issues impact the way women participate in philanthropy, as donors and as recipients.

In practice

This multidisciplinary approach to the study of gender and philanthropy has direct implications for the nonprofit sector. The practice of philanthropy is not gender neutral. Gender impacts how, why, where, and when people give to, and engage with, nonprofits. Understanding how gender influences philanthropy can help unlock a new era of philanthropy and ultimately drive more giving to nonprofits. CEOs, fundraisers, board members, volunteers, and donors must recognize that neither philanthropy nor fundraising follow a one-size-fits-all format (Sager & Mesch, 2022). Research, demographics, and increased visibility by and for women in philanthropy attest to their growing influence and power. Research from the WPI shows that women’s growing wealth is good news for the philanthropic sector. Women are more likely to give more and give differently than their male counterparts, across age, race/ethnicity, and income levels. The more women’s wealth grows, the more they will give to charitable organizations (see report, Do Women Give More? Findings from Three Unique Data Sets on Charitable Giving).9 How women think about wealth differs, too. According to a U.S. Trust (2013) study of high-net-worth donors, women are nearly twice as likely as men to say that giving to charity is the most satisfying aspect of having wealth. Considering

the dramatic pace at which women’s roles in society have changed over the past 40 years, demographics that increasingly favor women in education, employment, and earnings, research documenting women’s power and influence in charitable giving, and pressure from women themselves, what prevents more nonprofit institutions from leveraging the resources women bring to philanthropy? Several assumptions in working with women donors should encourage nonprofits to pay more attention to women as donors. Societal perceptions persist that suggest women are less philanthropic than men, they defer to their husbands in charitable decision making, and women do not make big gifts. Women remain underrepresented and overlooked as donors. Recent research counters these perceptions (Sager & Mesch, 2022). Women are more philanthropic than men The WPI Women Give series and other research reports provide empirical data affirming that, in general, women are more likely to give to charitable organizations, compared to similarly situated men. WPI has built a body of research around the foundational finding that single female households give more than comparable single male households across income and marital status. Since this initial study, WPI research has delved deeper seeking insight into which women are most philanthropic. The findings around single female households remain true across age (Brown et al., 2016), race (see report, Women Give 2019), and season of life (see report, How Women & Men Give Around Retirement, Osili et al. 2018). Women drive decision making Women are deeply involved in household charitable decision making and women tend to take more responsibility for charitable decisions than men. Most U.S. couples make giving decisions jointly (see report, Women Give 2021). However, women are more likely than men to be the sole decider. Young Generation X/Millennial married women have more of a say in charitable decisions than their Boomer/pre-Boomer counterparts 40 years earlier (see report, Women Give

9 For all WPI research reports cited in this entry see: The Women Give series. https://​philanthropy​.iupui​.edu/​ institutes/​womens​-philanthropy​-institute/​library/​index​.html

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2016). Couples in the younger generation are giving higher amounts now than their counterparts in the older generation did 40 years ago. Both single and married women have increasing influence on their own and within their families and have the capacity to give at ever-greater levels. Women make big gifts For example, Women Moving Millions (WMM), an initiative started by sisters Helen LaKelly Hunt and Swanee Hunt, raises million-dollar gifts from women for women’s and girls’ causes. According to their website (https://​womenmovingmillions​.org/​about/​our​ -story/​), since its founding in 2007, WMM has committed nearly $800 million to organizations with over 340 high-net-worth women around the world, pledging to donate at least $1 million during their lifetimes. A search of the Lilly Family School of Philanthropy’s Million Dollar List (https://​milliondollarlist​ .org) offers more evidence that women make substantial gifts. The database includes hundreds of publicly announced gifts of $1 million or more by women to all subsectors. Nonprofit leaders and fundraisers should feel confident in approaching more women and creating donor identification approaches to increase the number of women in active portfolios. Practitioners should develop questions to explore philanthropic decision making considerations for married couples. These conversations can explore giving decision processes and identify ways in which fundraisers can aid women in talking to their families about giving and/or encourage men to bring their female spouses into the conversation. As Millennials and Gen Xers come into their own as donors, organizations should consider how they are inviting younger donors to learn about their missions and create appealing opportunities for engagement and giving for these groups. Engaging more women requires examining the full spectrum of fundraising, including marketing, communications, special events, and stewardship practices to ensure that they appeal to both men and women. This includes knowing how and who to thank and capturing this information in your database. Most importantly, development professionals should ask women to give. Most gifts follow a request for support and failing to invite Debra Mesch

women to give is a mistake based on false assumptions. Nonprofit leaders and development officers need to use this research to better understand how and why women give. Gender matters in philanthropy and the structures that support fundraising have not fully developed tools and strategies that resonate with women. Research has identified four tangible ways in which women’s giving differs from men’s: women distribute their gifts more broadly, often give together, leverage technology, and look at giving holistically. This information can be used to help nonprofits in their fundraising strategies. Give broadly A consistent finding is that women tend to spread out their charitable giving to more organizations than men and may be more constant in supporting organizations throughout their lives (see report, Where Do Men and Women Give, Mesch et al. 2015). If a woman gives $100 to each of ten organizations, no one fundraiser will appreciate the full sense of her generosity. Because of this, women are less likely to appear on lists as prospective major or planned gift donors. Careful review of the database for these hidden contributors, especially women who have given gifts of $100 to $500 for years, may well reveal significant gift potential. Women are drawn to an expanded definition of philanthropy that encompasses both formal and informal definitions of the word rooted in the idea of “giving back.” Research shows that women tend to give more than money, using their time, expertise, advocacy, and networks to apply all of their resources to work for good (see report, Women Give 2020). This is especially important for communities of color, where women can be seen as “bridge builders” within philanthropy, embracing a rich and broad definition of philanthropy and using their giving to celebrate and support their communities (see report, Women Give 2019). As we consider giving during the pandemic and other disasters, this broader definition resonates and is reflected in a larger reimagining of philanthropy that considers indirect giving and mutual aid. Examples of indirect giving include ordering takeout or buying a gift card to support a local restaurant or continuing to pay individuals and businesses for services they could not

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render (see report, COVID 19, Generosity, and Gender, Skidmore & Ackerman 2021). Nonprofit leaders should reflect on their fundraising portfolio to gauge whether they are engaging men and women, as well as donors of all racial and ethnic groups. Recognizing and acknowledging the importance of individuals’ intersecting identities is central to engaging them. Many women are interested in involvement with causes and building a relationship with an organization through volunteering, leadership, or educational opportunities, prior to giving to it. Once engaged, women tend to be loyal donors and give more over time to the causes in which they are actively engaged.

study affirmed that women engaged in giving circles: give more, give more strategically and proactively, and give to a wider array of organizations and causes. They are also more likely to engage in civic activity. Organizations that host giving circles realize significant benefits that include building a culture of philanthropy, reaching new donors, attracting a more diverse set of donors, and increasing community visibility. Fundraisers who develop strategies and opportunities that speak to women’s interest in giving together can not only increase giving for their organization but also create a more satisfying giving experience for their female donors.

Give collectively Many women prefer to give collectively to fully maximize their impact (see report, Giving Circle Membership: How Collective Giving Impacts Donors, Carboni & Eikenberry 2018). Giving circles appeal to women because of their collaborative and democratic process. In a giving circle or collective giving group, individuals pool their contributions and decide together how and where funding will be allocated. The number of giving circles has tripled in the last decade and they have granted nearly $1.3 billion since their inception. While women represent the majority of giving circle members, the ecosystem is becoming more diverse with LGBT, men-only, Jewish, African American, Latinx, and Asian American groups forming. The growth of the giving circle movement has provided countless opportunities for women in philanthropy. Women have stepped fully into leadership roles, learned about their communities, and engaged deeply with nonprofits and in some cases, influenced public policy. Because giving circles are deeply embedded in their communities and partner closely with the non-profits they support, giving circles often become frontline responders in addressing pandemic and disaster relief in their local communities (Wright, 2020). Female giving circle members may access their social networks more strategically for philanthropic advice and have more diverse philanthropic networks than donors not engaged in giving circles (see report, Giving Circle Membership: How Collective Giving Impacts Donors). Furthermore, the

Use technology Research shows women use tech platforms more than men and give more than men online (see report, Women Give 2020). On digital platforms and social media, women give nearly two-thirds of total online gifts and more than 50 percent of total dollars. These online gifts tend to be smaller and go to smaller charitable organizations. Nonprofits and fundraisers should be using digital platforms to foster community, build trust, and appeal to women and a diverse range of donors in general. At a minimum, organizations should not only have a social media presence, but they also need to make giving online easy. Fundraisers can encourage online connectivity of their volunteers to help amplify messaging and create personal fundraising campaigns to bring in new gifts. Organizations should leverage technology at all stages of the fundraising cycle with confidence that such efforts will resonate with women. Give holistically Women are more motivated than men by empathy for others. For men, giving is often about self-interest. This is a matter of degree and priority; it is not that men are not empathetic. Because women are socialized from an early age into more helping, nurturing, and caring roles, these behaviors become ingrained and form the basis for many of their actions, including philanthropy. Empathy also drives women’s deep engagement with nonprofits. Research has shown that women are more likely to give to organizations where Debra Mesch

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they have a personal connection or an alignment with political or philosophical beliefs. Single women are more likely than single men to cite being on a board or volunteering for an organization as motivations for their giving (see report, Where do Men and Women Give? Mesch et al. 2015). High-net-worth women are known to approach giving in strategic and holistic ways. A study seeking to understand high-net-worth donors’ support for women and girls revealed that women donors connect wealth with responsibility, seek to educate themselves before making funding decisions, are willing to take risks with their philanthropy, value return on investment, and prefer investing in organizations and programs focused on systemic change (see report, Giving by and for Women: Understanding High-net-worth Donors’ Support for Women and Girls, O’Connor et al. 2018). Nonprofit leaders and fundraisers that can position themselves as educators and actively engage women in conversations that speak to these important elements can better advance their relationships. In addition, when looking at high-net-worth donors who support women’s funds and foundations, research found that philanthropy is a fully integrated aspect of their lives. They identify as activist donors and philanthropic leaders who give during their careers and are motivated to give through board service and volunteering (see report, All in for Women and Girls, Dale et al. 2019). Gender differences in impact investing also highlight women’s holistic approach to giving. This relatively new model in the philanthropy landscape involves financial investments in companies or funds to generate social as well as financial returns. Men are more likely than women to use impact investing in place of charitable giving. Women are more likely to use it to complement their charitable giving (see report, How Women and Men Approach Impact Investing, Osili et al. 2018). Perhaps these women donors are thinking comprehensively about all the financial resources and assets they can bring to address their priority issues. Fundraisers should learn about these new tools and facilitate conversations about how they can be added to donors’ giving rather than replace it.

Debra Mesch

Current and future directions

We need to have a deeper understanding of philanthropy within different identity groups and demographics. Some work has begun in this area by examining gender and giving in communities of color (see report, Women Give 2019). More research needs to be done on how younger generations are engaging with new forms of philanthropy and more data collected on LGBTQ+ individuals and households. In order to better understand how different identity groups engage in philanthropy, we need to broaden our traditional definitions of philanthropy to incorporate different groups and cultures, as well as consideration of the challenges we currently face today. How can we reimagine what we think of as philanthropy in a more expansive form? This includes understanding how women and men use volunteering, social entrepreneurship, social or impact investing, donor-advised funds, spending on social good, crowdfunding, social media platforms, as well as consideration of the current social, political, and health challenges of the present environment. We know that for women, in particular, a broad definition of philanthropy includes a variety of actions that promote social good beyond donating money – including policy advocacy and testimony. We need a greater understanding of the differences in how women and men give in a global context. Thus far, research has primarily been U.S.-centric and data needs to be collected to expand the understanding of gender and philanthropy globally. Finally, we need to better understand how to increase giving by both men and women. What innovations are effective in growing giving and donor engagement? What are the gender differences in outcomes? Some ideas for where to start include corporate matching opportunities and benchmarking giving. Experimental research may be the most effective way to address these research questions. Debra Mesch

Related topics

Charitable giving Donor and donor motivation Fundraising Giving circle Identity-based philanthropy Millennial generation’s civic engagement

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Further reading and references

bitstreams/​35ccf3e8​-1849​-4b54​-a4a6​ -32827d207771/​content Brown, E., Mesch, D. J., & Hayat, A. D. (2016). U.S. Trust. (2013). Insights on wealth and Life expectancy and the search for a bag lady worth: Women and wealth. Bank of America effect in charitable giving. Nonprofit and Corporation. www​.ustrust​.com/​publish/​content/​ Voluntary Sector Quarterly, 45(3), 630–645. application/​pdf/​GWMOL/​ARS7ME57​.pdf https://​doi​.org/​10​.1177/​0899764015620901 Women’s Philanthropy Institute Research Carboni, J. & Eikenberry, A. (2018). Giving Library. (n.d.) The women give series. https://​ circle membership: How collective giving philanthropy​.iupui​.edu/​institutes/​womens​ impacts donors. Indianapolis: IUPUI Women’s -philanthropy​-institute/​library/​index​.html Philanthropy Institute. https://​ scholarworks​ Wright, A. (2020). Here’s how giving circles .iupui​.edu/​server/​api/​core/​bitstreams/​16b49448​ prepared international donors to respond -58be​-4692​-80f2​-e87496b830d6/​content quickly and effectively to COVID-19. Forbes. Dale, E.J., Watkins, B., Mesch, D., Osili, U., www​.forbes​.com/​sites/​alyssawright/​2020/​ Bergdoll, J., Pactor, A., Ackerman, J. & 09/​23/​heres​-how​-giving​-circles​-prepared​ Skidmore, T. (2019). All in for women and girls. -international​-donors​-to​-respond​-quickly​-and​ Indianapolis: IUPUI Women’s Philanthropy -effectively​-to​-covid​-19/​?sh​=​244e15df1968 Institute. https://​scholarworks​.iupui​.edu/​server/​ api/​core/​bitstreams/​20be1345​-1135​-43f0​-a116​ -86d68041180f/​content Loehr, K. E. (2018). Gender matters: A guide to growing women’s philanthropy. Council for Advancement and Support of Education. Mesch, D., O’Gara, E. L., Osili, U., Pactor, A., Ackerman, J., Bergdoll, J., Kalugyer, A. D., Scholl, J., Ware, A. & Hyatte, C. (2015). How Definition and why women give: Current and future direc- Giving circles are a form of collaborative tions for research on women’s philanthropy. giving in which members decide collectively IUPUI. https://​scholarworks​.iupui​.edu/​handle/​ where to donate pooled money (Bearman et 1805/​6983 O’Connor, H. A., Mesch, D., Osili, U., Pactor, al., 2017). Giving circles also traditionally A. & Ackerman, J. (2018). Giving by and for involve learning among members about comwomen: Understanding high-net-worth donors’ munity issues and organizations and philsupport for women and girls. Indianapolis: anthropic activities beyond giving money, IUPUI Women’s Philanthropy Institute. including board service, technical support, https://​scholarworks​.iupui​.edu/​server/​api/​ and general volunteering (Eikenberry & core/​bitstreams/​07508c4a​-ec1e​-4d78​-ab40​ Bearman, 2009). -73378acb073f/​content Giving circles are growing in popularity Osili, U., Mesch, D., Ackerman, J., Bergdoll in the United States and the rest of the world J., Preston, L. M. & Pactor, A. (2018). How women and men approach impact investing. (Bearman et al., 2017; Franklin & Bearman, Indianapolis: IUPUI Women’s Philanthropy 2021). Since researchers began tracking Institute. https://​scholarworks​.iupui​.edu/​server/​ giving circles in 2004, the number of giving api/​core/​bitstreams/​8eed421d​-f6d3​-4b18​-b885​ circles has more than tripled and represents -73270437c47b/​content an estimated 150,000 giving circle members Osili, U., Mesch, D., Ackerman, J., Pactor, A., and $1.29 billion in philanthropic impact Han, X. & O’Connor, H. (2018) How men and (Bearman et al., 2017). women give around retirement. Indianapolis: IUPUI Women’s Philanthropy Institute. https://​scholarworks​.iupui​.edu/​server/​api/​ In practice core/​bitstreams/​ec539804​-4dd2​-4873​-af7f​ There are a wide variety of giving circle -b5c22eeb650f/​content Sager, J., & Mesch, D. (2022). Women and philan- structures. Most have a fiscal sponsor or instithropy. In G. Shaker, S. Nathan, E, R. Tempel, tutional host such as a community foundation & W. Stanczykiewicz (Eds.), Achieving excel- though a small number are formally incorpolence in fundraising (5th edn.) (pp. 329–336). rated as tax exempt nonprofit organizations John Wiley & Sons. (Bearman & Franklin, 2018; Bearman et al., Skidmore, T. & Ackerman, J. (2021). COVID-19: 2017). About half of giving circles have paid Generosity and gender, Indianapolis: IUPUI staff, though most paid staff are not full time Women’s Philanthropy Institute. https://​ (Bearman et al., 2017). Giving circles use scholarworks​.iupui​.edu/​server/​api/​core/​ a range of meeting formats including online

Giving circles

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and face-to-face meetings, with many shifting to online meetings during the COVID-19 pandemic. The giving circle movement was initially dominated by white women (Eikenberry & Bearman, 2009) but in recent years has expanded to include many more identity groups (Bearman et al., 2017). While women still dominate the giving circle movement, there are an increasing number of giving circles associated with nonwhite identity groups including Black giving circles, Latinx giving circles, and Asian/Pacific Islander giving circles (Bearman et al., 2017; Brousseau & Ramos, 2014; Loson-Ceballos, 2022). There are also an increasing number of male and LGBTQIA+ giving circles and an increasing number of giving circles that identify with religious traditions such as Judaism, Christianity, Islam, and Hindu faiths (Bearman et al., 2017). Most giving circles are comprised of adults though younger people are increasingly joining giving circles (Bearman et al., 2017). The majority of giving circles require a minimum of one year commitment. Member donation amounts vary from a few dollars to over $100,000, though the median donation requirement per member is $400 (Bearman et al., 2017). Most giving circles use a majority vote to determine funding allocations. This is especially true for larger giving circles though some smaller giving circles make decisions by consensus (Bearman, 2007; Bearman et al., 2017). An estimated 85 percent of giving circle dollars stay in the local community (Bearman et al., 2017). Giving circles give to a variety of causes with the most popular causes being human services, women and girls, and education related causes. Other popular causes include youth, health, and arts/culture/ humanities causes. These funding areas have remained consistent over time (Bearman et al., 2017). Almost half of giving circles are also supported by giving circle platforms or networks that provide infrastructure and support such as Philanthropy Together, 100+ Who Care, The Awesome Foundation, Amplifier, Asian Americans/Pacific Islanders in Philanthropy, Community Investment Network, and the Latino Community Foundation among others (Bearman et al., 2017).

Julia L. Carboni

A study comparing giving circle members’ philanthropy to non-giving circle members found that giving circle members give more time and money than their counterparts. They are also more prosocial and community oriented in their giving (Carboni & Eikenberry, 2018). Giving circle members are also more likely to leverage social networks for philanthropic advice and more likely to give to groups that do not share a common identity (e.g., men giving to women’s causes) (Carboni & Eikenberry 2018, 2021).

The future

Giving circles represent a growing movement in collaborative giving. As the movement has grown, it has become more diverse and inclusive and provides a path for individuals at all income levels to invest in and support their communities. Based on these trends along with investments by major philanthropic institutions like the Bill and Melinda Gates Foundation and the advent of organizations like Philanthropy Together that support and connect giving circles, it is likely the giving circles movement will continue to grow and be a powerful engine for elevating community voice and supporting community driven initiatives. Julia L. Carboni

Related topics

Charitable giving Philanthropy: Definition and history

Further reading and references

Bearman, J. (2007). More giving together: The growth and impact of giving circles and shared giving. Candid. https://​search​.issuelab​.org/​ resource/​more​-giving​-together​-the​-growth​-and​ -impact​-of​-giving​-circles​-and​-shared​-giving​ .html Bearman, J., & Franklin, J. (2018). Dynamics of hosting: Giving circles and collective giving groups. IUPUI. https://​scholarworks​.iupui​.edu/​ handle/​1805/​17744 Bearman, J., Carboni, J., Eikenberry, A., & Franklin, J. (2017). The landscape of giving circles/collective giving groups in the U.S. IUPUI. https://​scholarworks​.iupui​.edu/​handle/​ 1805/​14527 Brousseau, R., & Ramos, M. (2014). Asian Americans/Pacific islanders in philanthropy: The national giving circle campaign mid-term

G 275 check-in. Community Investment Network. www​.th​ecommunity​investment​.org/​ Carboni, J., & Eikenberry, A. (2018). Giving circle membership: How collective giving impacts donors. IUPUI. https://​scholarworks​.iupui​.edu/​ handle/​1805/​17743 Carboni, J., & Eikenberry, A. (2021). Do giving circles democratize philanthropy? Donor identity and giving to historically marginalized groups. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 32(2), 247–256. https://​doi​.org/​10​.1007/​s11266​-020​ -00299​-2 Eikenberry, A., & Bearman, J. (2009). The impact of giving together: Giving circles’ influence on members’ philanthropic and civic behaviors, knowledge, and attitudes. Public Administration Faculty Publications, 42. https://​ digitalcommons​.unomaha​.edu/​pubadfacpub/​42 Franklin, J., & Bearman, J. (2021). Global giving circles. Dorothy A. Johnson Center for Philanthropy. https://​johnsoncenter​.org/​ wp​-content/​uploads/​2021/​01/​Giving​-Circles​ -Webinar​-Presentation​.pdf Loson-Ceballos, A. (2022). Understanding the benefits of Latino giving circles: An emancipatory research study. University of San Diego. https://​digital​.sandiego​.edu/​dissertations/​924/​

Global conflict and philanthropy Definition

Philanthropy seeks to address the root causes of injustice in society and create a better place for everyone to live. Philanthropy is sometimes used interchangeably with charity, which tends to be aimed at more immediate needs such as a call for citizens to respond with financial aid or in-kind assistance to natural disasters such as hurricane Eta in Central America or to respond to humanitarian crises in conflict zones such as Afghanistan, Yemen, or Ethiopia. Simply stated, philanthropy generally involves a sustained investment to address the root causes of problems whereas charity attempts to mitigate the immediate effects. Given the breadth of the topic, this entry will illustrate how one philanthropy attempted to tackle the root causes of conflict. Atlantic Philanthropies is a limited-life foundation that made grants in eight countries around the world between 1982 and 2017, with the

philosophy of tackling global inequalities and injustice. Their primary objectives were to: 1. Promote and enhance opportunities for people, especially in places where systemic barriers unfairly hold them back. 2. Address the root causes of inequity rather than the symptoms. 3. Challenge and change destructive practices and public narratives. Examples of their work include: ● Hastening the end of the U.S. juvenile death penalty. ● Increasing the number of children with health insurance in the U.S. and helping to win passage and implementation of the Affordable Care Act. ● Supporting the peace process in Northern Ireland. ● Securing life-saving medication for millions afflicted with HIV/AIDS in South Africa. ● Reducing racial disparities in destructive zero-tolerance discipline policies in U.S. schools. ● Enabling Vietnam to develop a more equitable system for delivering health care throughout the country. In Northern Ireland Atlantic Philanthropies addressed ethno-national conflict which lasted over 30 years, beginning in 1968, and resulted in a fragile peace process and constitutional change. An important ingredient in this story was the mobilization of nonprofit organizations working directly with Atlantic Philanthropies to advocate for, and embed, social change. In the context of conflict-torn Northern Ireland Atlantic Philanthropies supported three thematic areas: aging; children and young people; and reconciliation and human rights.

In practice

One of the key challenges in philanthropic work is how to ensure sustainability in the activities which they support. So, for example, Atlantic Philanthropies made significant grants to nonprofits working in the three thematic areas above with the aim of “doing things differently,” coming up with models of conflict resolution which would challenge the status quo and secure lasting peace and Colin Knox

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reconciliation. One example of this was to work with nonprofits at interface areas where Catholic and Protestant communities abutted. These areas were often the flashpoint for wider community tensions. With the aid of external funding from Atlantic Philanthropies, nonprofits engaged in various cross-community activities aimed at building trust between Catholics and Protestants (shared parenting classes, joint sporting events, and inter-school collaboration on the teaching curriculum). One short-term challenge is whether nonprofits have sufficient capacity to engage in this type of peace-building work. The longer-term challenge is how to sustain successful practices of social change. The model used by Atlantic Philanthropies was threefold. First, nonprofits were funded to tackle the root causes of conflict rather than its symptoms. Often these were directly linked with social disadvantages. Geographical areas most impacted by violence tended to be interface communities which also suffered from the highest levels of multiple social deprivations. Paramilitary groups lived and controlled these areas which were neglected by the state. Nonprofits operating from within these communities were the obvious conduit for philanthropic support. They knew the issues on the ground and their workers resided in the communities concerned. Second, Atlantic Philanthropies leveraged match funding from government to support their work on the ground. This ensured the government had a stake in the interventions in the short term. Finally, Atlantic Philanthropies partnered directly with government to embed the social changes they had secured through work with nonprofits. While this model proved to be successful, when philanthropy progressed to work as a partner with government, the nonprofits that initiated the programming felt “side-lined.” They had “tested” the social change model on the ground but as these changes became embedded in mainstream government policy, the role of nonprofits diminished. One example which illustrates the important groundwork which nonprofits did in the Northern Ireland context is in the field of education. North Belfast is a highly polarized community with several interface area communities, where segregated communities are geographically abutted. The schooling system

Colin Knox

is segregated for Catholic and Protestant children. Nonprofit organizations including Barnardo’s, Parenting NI, and a suicide support group (PIPS) adopted a “common needs” model where they identified those socio-economic issues which transcended traditional Catholic/Protestant sectarian cleavages and supported activities for parents and pupils. In these socially deprived areas, adults often lack parenting skills, such as basic reading and mathematical knowledge, to help their children. Nonprofits offered classes to parents on a cross-community basis without focusing on their religious difference. The “common need” was to improve the life chances of their children through support services. Similarly, courses were offered in discipline/behavioral management, mental health issues, and structured play activities between parents and their children. It is important to note that because nonprofits have their roots within communities, there is a level of trust in what they do compared with statutory bodies which had been seen to have neglected highly segregated communities. Much of this work was funded by Atlantic Philanthropies which had finite resources. The role played by nonprofits was therefore to demonstrate the effectiveness of these interventions in conflict settings. However, to sustain this work, the intervention or social change model needs to be embraced by government. Hence nonprofits were able to provide the evidence base that Atlantic Philanthropies used to lobby for systemic change in government policies. The other significant benefit of nonprofits’ involvement in peace-building work is their capacity to act quickly if changes were needed in the type of interventions on the ground. Generally, nonprofits were relatively small organizations, fleet of foot, and hugely pragmatic in a way in which government bodies found difficult to emulate. Philanthropic funding also allowed for a deftness in response to changing demands in conflict zones. Wider political upheaval played out in communities. Nonprofits were able to respond quickly to help avert violent responses by paramilitary organizations.

The future

The Northern Ireland example may offer wider lessons that philanthropies should be cogni-

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zant of before deciding to intervene in conflict settings, in no order of importance: 1. Any conflict will have protagonists and antagonists which may include the state as one of these actors. Philanthropies need to exercise caution that their funding does not label them as “taking sides,” hence exacerbating the very divisions they are seeking to ameliorate. In the highly sensitized circumstances of conflict settings, conflict adversaries will scrutinize what is funded, by whom, and for what end goals. Seemingly innocuous funded projects may be seen as supporting “the other side.” 2. By its nature, philanthropic funding tends to be time-limited in search of short-term impacts. Tackling social injustice, at the heart of a conflict, is a long-term pursuit. Philanthropic funding may therefore focus on addressing the manifestations of conflict rather than its root causes. 3. The ultimate goal of supporting social change through philanthropic funding is to embed these changes in the governance arrangements so that they become sustainable. Partnering with government is one effective way of doing this. Yet there is a danger that governments under financial pressure in a conflict setting see this funding as a substitute for, rather than an addition to, its revenue budget. As philanthropies leave the stage, there is therefore no guarantee that the changes which they supported will be sustained. 4. Philanthropic organizations entering a conflict setting can see nonprofits as their access point because of their strong community credentials and adeptness at experimenting with new initiatives. There is however a risk that nonprofits will feel abused when the same philanthropy progresses to working exclusively with government. There is merit in philanthropic organizations adopting a “do no harm principle” which recognizes the foundational work done by nonprofits, sometimes in high-risk settings. 5. By their nature conflicts tend to be deep-seated and historic. Philanthropies need to be realistic in what can be achieved in the short term. Better to focus on a smaller number of initiatives where real benefits can accrue than a broad-stroke

approach to funding high-profile projects. There is a trade-off here in the “need” for philanthropies to publicize the kind of work they are doing to their benefactors versus more impactful but less prominent community engagement. To conclude, the above example illustrates the role which nonprofits can play as interlocutors between protagonists in conflict zones and key stakeholders in post-conflict societies. They remain a transient sector that needs to shift focus at different stages of the conflict. The key strength of the sector is that it is rooted in communities experiencing the worst impact of violence and hence can move quickly to implement interventions supported by philanthropy. The limitation is that philanthropic money is time limited, and nonprofits can experience capacity issues upskilling in the short term and repositioning their work in the medium term as philanthropies exit. Colin Knox

Related topics

Diaspora philanthropy Grassroots international nonprofit organizations International aid Nongovernmental organizations Refugee services

Further reading and references

Anheier, H. K., Simmons, A., & Winder, D. (2007).  Innovation in strategic philanthropy. Springer. Greenberg, M. (2006). Coordinating philanthropy for peace. International Negotiation, 11(1), 163–183. https://​doi​.org/​10​.1163/​ 157180606777835720 Knox, C., & Quirk, P. (2000). Peace building in Northern Ireland, Israel and South Africa: Transition, transformation and reconciliation. Macmillan Press. Knox, C., & Quirk, P. (2017). Partnership with government: An exit strategy for philanthropies? The Foundation Review, 9(1), 23–39. https://​doi​ .org/​10​.9707/​1944​-5660​.1348 Stubbs, P. (2013). Flex actors and philanthropy in (post-) conflict arenas: Soros’ Open Society Foundations in the post-Yugoslav space. Politička misao: časopis za politologiju, 50(5), 114–138. www​.proquest​.com/​openview/​75f​c3bf644cc2​ e0a33b17ba​83b3599f4/​

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Governance Definition

Governance is a leadership function designed to facilitate accountability, resilience, and sustained impact over time for an individual nonprofit organization and its mission and purpose in the world. Governance is generally the work of a governing board in partnership with the chief executive. Governing boards are populated by individual board members.

In practice

In the nonprofit sector, governance is centered on ensuring that an organization has a positive impact on the social good purpose for which it was created. This is a contrast to corporate governance, which is centered on the success of the organization itself, typically defined as creating shareholder value through financial profits. Governance, as a set of responsibilities, includes both collective responsibilities of the governing board and individual responsibilities of board members. Generally, individual board members or trustees have no individual decision making power or control, but they do have individual expectations of leadership, also called fiduciary duties, as well as a responsibility to play an active and engaged role in the collective board role. Governance relies on a partnership between the governing board and the chief executive of the organization. This partnership is essential, as a board is unable to govern effectively without the productive engagement of a staff partner. A weak or dysfunctional partnership impedes the effectiveness of both the board and the executive, which can manifest as lack of strategic alignment or direction, executive turnover, or a toxic organizational culture, just as a few examples. Generally, the governing role of the board includes three core roles: 1. Setting strategic direction: Boards are deeply involved in establishing an organization’s purpose and setting its strategic direction. Boards work in partnership with the chief executive to articulate the organization’s purpose and guiding values, agree on a shared vision for the future, establish major goals and develop strategies for achieving those goals, and

identify how to measure progress against goals. 2. Providing oversight: Boards ensure that the organization is accountable to its purpose and operates ethically and responsibly in all ways. The board’s oversight role provides an essential safeguard for addressing impropriety or lack of performance that could threaten the organization, its work, and its reputation in the community. Key components of this role include evaluating and supporting the chief executive, ensuring legal and ethical integrity, providing financial oversight and strategic deployment of resources, managing risk, and monitoring progress toward implementing organizational strategy. 3. Ensuring organizational resources: Boards work in partnership with the chief executive and staff team to ensure that the organization is resourced in a way that enables it to fulfill its social good purpose. This includes having the necessary people and expertise to do the organization’s work; having the financial resources the organization needs to support people, systems, and programs; and having the trust and connection of those the organization seeks to support and serve, as well as the broader community of support for the organization. Staff members partner with the board and support them in these three roles and lead planning and implementation efforts that flow from the broad, macro-level decisions made by the board within their governance role. As an example, we might consider the way that board and staff work together to create an annual plan and budget. Typically, the staff would take responsibility for drafting an annual plan and budget that aligns with broader goals and priorities outlined in a board-approved strategic plan. The board would have played a formative role in outlining major organizational priorities as a part of that strategic planning process, and then delegated the creation of more detailed plans and budgets to the staff. The board would review and approve the budget, which is a final assurance that the plans reflect those broad agreements around top organizational priorities and strategies. This example highlights how early-stage sensemaking, strategic thinking, and fidu-

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ciary oversight can interact and show up at different stages of an organizational process. These different modes within governance were first articulated as a part of an important publication, Governance as leadership: Reframing the work of nonprofit boards (Chait et al., 2004). These three modes of governance include: ● The generative mode – the board works collectively to frame and make sense of critical issues affecting the organization. It is early-stage, formative work that seeks to cultivate a shared understanding around key issues and dynamics, versus tactical planning or decision making. ● The strategic mode – the board works in collaboration with the chief executive and staff to navigate strategic questions about organizational priorities and resource deployment. It is planning and priority-setting work that is organized around current and future decision making. ● The fiduciary mode – the board acts on its responsibility to ensure that the organization is operating legally and responsibly in a way that builds and maintains trust with stakeholders and the general public. It is often specific and tactical in nature, with an emphasis on accountability and oversight. Each mode of governance is important and necessary. For example, if a board fails in its fiduciary duties, the organization could be at legal or reputational risk. If the board is ineffective in the strategic mode, the organization is unlikely to have as positive an impact over time. And if the board is weak or simply disengaged from its generative mode, it may crumble under the weight of unresolved dissonance about the organization’s core purpose or values.

Current and future directions

There are different models of governance that organizations may choose to follow – some that are flexible and adaptive and others that are more prescribed. Some define governance narrowly as a set of oversight functions related to ensuring legal and ethical compliance and preventing the misuse of organizational assets or ineffective executive leadership. Some center entirely on the

board’s role in setting policy. And some don’t center on the board’s role at all, arguing that governance is a leadership function distinct from the board structure, but in which the board typically participates. BoardSource, a national organization for research and information sharing on nonprofit governance, believes in the power of boards and the importance of governance as a broad leadership function, versus a narrow oversight or policy-setting role. Also, in a world marked by significant disruption and increased distrust and skepticism of organizational entities and their leaders, governance – and the board’s governing role – has become more complex. Increasingly, the power and influence of boards and their governing role is being called into question, and organizations are struggling to make sense of how to adapt and change to be more responsive and connected to the communities they seek to serve. BoardSource also has emphasized the need for more explicit conversations about a board’s most essential work, and how boards must shift to support that critical work. There are so many things that boards are asked to do, and not enough attention paid to a fundamental question: What’s most important? BoardSource has always centered on the board’s role in setting direction and strategy and has begun articulating that more definitively as a part of a new set of principles that it believes boards should be embracing within their strategic role. First introduced in an article in Stanford Social Innovation Review (Wallestad, 2021), the principles of Purpose-Driven Board Leadership include: ● Principle 1: Purpose before organization The traditional frame for board thinking has focused on the organization and ensuring that it is advancing its mission. A purpose-driven board moves its emphasis from the organization to its purpose – the fundamental reason why the organization exists. When putting purpose before organization, a purpose-driven board views the organization as a means to an end, not the end itself. ● Principle 2: Respect for ecosystem Every organization exists and operates within larger ecosystems, which can be thought of as all of the systems and

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networks that impact – or are impacted by – the organization’s decisions. The organizational ecosystem most certainly includes the other organizations working within the organization’s area of focus or geographic region, but also things like the public policy environment, the current funding landscape, and other macro trends or dynamics that are at play. The choices that individual organizations and their boards make influence the overall strength and success of the ecosystem. A purpose-driven board understands this and considers what will enable the overall ecosystem to do the most good. ● Principle 3: Equity mindset A board that understands how systemic inequities have affected our society and the people the organization seeks to serve can create powerful opportunities to deepen the organization’s impact by prioritizing the advancement of equitable outcomes, as well as interrogating and avoiding the ways in which the organization’s strategies and work may reinforce systemic inequities. ● Principle 4: Authorized voice and power The individual leaders who make up a nonprofit board reflect an organization’s values and beliefs about who should be empowered and entrusted with its most important decisions. A purpose-driven board recognizes that organizational power and voice must be authorized by those impacted by the organization’s work. BoardSource believes that Purpose-Driven Board Leadership – as a governance philosophy versus a governance model – describes the transformation that is needed to enable nonprofit governance to better serve the needs of nonprofit organizations and our social good purposes. Anne Wallestad, Joy Folkedal and Andrew Davis10

Related topics Accountability

Board policies manual Chief executive officer: Relations with the board of directors Governing board: Chairperson Governing board: Composition Governing board: Dynamics and meeting management Governing board: Membership Governing board: Responsibilities

Further reading and references

BoardSource. (2010). The handbook of nonprofit governance. BoardSource. BoardSource. (2021). Putting purpose first: Nonprofit board leadership today. BoardSource. Chait, R. P., Ryan, W. P., & Taylor, B. E. (2004). Governance as leadership: Reframing the work of nonprofit boards. Wiley. Wallestad, A. (2021). The four principles of purpose-driven board leadership. Stanford Social Innovation Review. https://​doi​.org/​10​ .48558/​S4ZJ​-Q994

Governing board: Chairperson Definition

The chairperson (hereafter “chair”) of the governing board plays an essential leadership role in a nonprofit organization. First and foremost, the chair is the designated leader of the governing board, generally elected to the office by a majority of board members. Because of the many demands on the office, the chair is considered the chief volunteer of the organization. The board chair and the organization’s chief executive are usually the two most influential people in the organization. The chair has a significant role in setting agendas for meetings, appointing committees, presiding at board meetings, and carries all the normal responsibilities of a board member. The chair works in close collaboration with the organization’s chief executive

10 At the time of writing the three co-authors were employees of BoardSource, a widely recognized organization devoted to research, leadership, and support of nonprofit organizations with a special emphasis on improving the governance of nonprofits. At the time of writing Anne Wallestad was President and CEO of BoardSource. The three co-authors wish to note this entry draws heavily from the accumulated body of knowledge produced by BoardSource and that many of the views expressed here are those of the organization as well as the co-authors.

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on these and other duties and generally has more direct contact with, and supervision of, the chief executive than do other board members. If the organization has no professional staff, the chair of the board often acts as a chief executive by overseeing and coordinating nearly every activity of the organization. This entry, however, presumes there is at least one professional staff person who serves as the chief executive of the organization. Typically, the chair’s term in office is specified in the bylaws of the organization. If there are term limits for board members, the bylaws would specify if the chair’s term in office may extend beyond their normal term as a board member.

In practice

In addition to the formal duties outlined above, the board chair plays a leadership role that is nuanced and multifaceted. The following are among the many informal, but important, responsibilities of effective board chairs. Establishing and maintaining a working relationship with the chief executive First and foremost, the board chair must establish and maintain a constructive relationship with the organization’s chief executive officer. The chair usually converses frequently with the chief executive between board meetings and must be accessible as a sounding board for ideas and issues as they arise. This responsibility also involves discretion on the part of the chair such that the chief executive can have fully candid, and sometimes confidential, conversations with the chair of the board. For example, the chief executive may benefit from the chair’s informal advice on an idea that is not yet fully formed or ready for presentation to the full board. The building blocks of a successful relationship are trust, mutual respect, effective communication, and efficient distribution of duties. The most important product of this relationship is a workable consensus among the board and the professional staff on the overall priorities for the organization as well as specific agendas for board meetings. The chair is the principal liaison between the

board of directors and the executive leadership of the organization and, as such, must have the ability to effectively communicate with both the board and the executive; in effect, speaking two “languages” to understand the technical and professional needs of the organization as well as its governance responsibilities. Establishing boundaries between matters of policy and management Nonprofit boards must make maximum use of their time and talent to advance the mission of the organization. This requires that they focus their attention on matters of policy and oversight without getting lost in the details and challenges of daily management. In theory, the board establishes policies, and the management team executes those policies. In reality, there is a thin and fluid line between the respective domains of the management team and the governing board. The chair bears primary responsibility for ensuring that the governing board exercises sufficient oversight of operations to ensure accountability without drifting into micro-management of the professional staff (Kearns, 2019a). Managing meetings and tasks The chair works with the chief executive to set the agenda for each board meeting but the chair alone bears responsibility for convening and managing those meetings. In this role the chair must be able to make decisions on the spot with respect to ensuring wide participation by board members, maximizing the use of their respective areas of expertise, motivating them to become even more involved, being attuned to competing perspectives and values, reaching consensus, articulating action items, and delegating tasks in preparation for subsequent meetings. This requires expert communication skills, including active listening, and the ability to keep the dialogue focused within time constraints. The chair is most likely the one member of the board who has a holistic and systemic understanding of all facets of the organization and, therefore, must be able to synthesize and reach closure on agenda items while also coordinating the work of various board committees to minimize redundancy or conflict.

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Representing the organization to external constituencies The board chair, either alone or with the chief executive, often represents the organization to various external audiences including donors, volunteers, oversight bodies, legislative and policymaking bodies, partner agencies, media professionals, and others. The chair must be an effective spokesperson and advocate for the organization and its mission. Ideally, the board chair will have their own professional and personal network to expand the visibility of the organization. Leadership of fundraising efforts While the board chair is not a professional fundraiser, they must be actively engaged in fundraising efforts, especially annual campaigns, capital campaigns, and certain grant seeking activities. As noted above, this often involves representing the organization to various sources of funding, but it also likely involves making a personal financial contribution within their ability to do so. Crisis management Every nonprofit organization should have a crisis management plan in place to handle a wide range of unexpected and negative events. There may be a team appointed to handle emergency protocols and communication. The chair of the board would likely be an integral part of that team along with professional staff and other board members who have relevant expertise in operations, communication, logistics, legal affairs, and public relations. Leadership development and mentoring The board chair likely has prior experience as a board member and can be a vital source of information and insight on various leadership roles like those discussed here. Indeed, the chair should keep a watchful eye for board members who demonstrate the potential and inclination for leadership, giving them opportunities to enhance and refine their leadership capabilities. Doing this will be especially valuable when the time comes for a leadership transition.

Kevin P. Kearns

Issues

Fulfilling all, or even most, of the roles and duties discussed here is a difficult task requiring a significant investment of time, talent, and energy. Because of these demands, many board members will be reluctant to ascend to the position of chair. As a result, two things can happen. In one instance, the board chair rotates out of the office leaving a significant leadership vacuum to be filled by whomever reluctantly volunteers or is pressed into service. Alternatively, the effective board chair is persuaded to extend their service well beyond their presumed term in office and perhaps even beyond their capabilities. In the second instance, the organization develops a dependency on the board chair that is not healthy for the organization. Clear plans and protocols need to be in place to ensure that transitions in board leadership are as smooth as possible. Another pressing issue for nonprofit boards in general and board chairs in particular is placing a priority on increasing diversity, equity, and inclusion (DEI) with respect to board membership and board leadership. Setting and achieving DEI goals is not only the right thing to do it is the smart thing to do because it increases connections with people served, adds new and creative perspectives, and broadens networks of support, among many other benefits. A recent study by BoardSource (2021) notes that there has been only a little progress with respect to diversifying governing boards. Moreover, the study found that nonprofit chief executives appear to be more concerned about the lack of diversity on their board than do board chairs. Significant changes in board recruiting practices will be required to achieve meaningful gains.

The future

A current and future challenge for many communities and, therefore, for many nonprofits is how to identify, recruit, and cultivate effective leaders in civic life. To some extent this problem is the result of increasingly hectic lives, competing professional and personal demands, and perhaps even skepticism about the value of public service. Another viable explanation is that people simply do not know how to engage with and become leaders of nonprofit organizations. Some communities

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sponsor leadership development programs for experienced and young professionals, exposing participants to civic life and helping to pair them with nonprofit governing boards. Some universities promote civic leadership among their students; some even provide experiential learning by placing students on nonprofit boards (Kearns, 2019b). Primary and secondary schools also can play a role. Although some aspects of leadership require certain inherent traits, the most important leadership skills can be taught and learned with practice. In other words, leadership is not a role reserved for a chosen few. It is incumbent upon nonprofit governing boards, and chairs in particular, to create and sustain a governing culture that is welcoming for aspiring leaders and for people who have too long been marginalized. Kevin P. Kearns

leadership to graduate students. Teaching Public Administration, 37(3), 255–273. https://​doi​.org/​ 10​.1177/​0144739419851143 Wallestad, A. (2021). The four principles of purpose-driven board leadership. Stanford Social Innovation Review. https://​doi​.org/​10​ .48558/​S4ZJ​-Q994

Governing board: Composition Definition

The governing board is a group of people, typically volunteers, who are responsible for the organization and its stated purpose. Collectively and individually, the governing board has a fiduciary duty to act in a manner that advances the mission of the organization. Related topics These specific responsibilities are discussed elsewhere. This entry discusses factors that Accountability might account for who governs nonprofits. Bylaws This includes theoretical explanations and Chief executive officer: Relations with the contextual factors that potentially explain board of directors why particular groups gain access to governDiversity, equity, and inclusion ance roles. This entry identifies five theoretGoverning board: Dynamics and meeting ical perspectives and considers composition management expectations inherent in those theories. In Leadership addition, this entry reviews several internal Leadership succession and external factors and considers how these forces might guide or influence composition Further reading and references characteristics. BoardSource. (2021). Leading with intent: The perineal question of who should Reviewing the state of diversity, equity, and govern a nonprofit organization is actually inclusiveness on nonprofit boards. Leading with Intent. https://​leadingwithintent​.org/​wp​-content/​ quite tricky to ascertain. There are a number uploads/​2021/​06/​2021​-Leading​-with​-Intent​-DEI​ of parameters that might inform and guide who has the right and responsibility to govern -Report​.pdf. Accessed 12 September 2023. Harrison, Y. D., & Murray, V. (2012). Perspectives (Brown, 2020). Board composition refers on the leadership of chairs of nonprofit organ- to the overall mix of characteristics among ization boards of directors: A grounded theory people on the board. Understanding compomixed-method study. Nonprofit Management sition of the governing body, typically the and Leadership, 22(4), 411–437. https://​ doi​ board of directors, although the board is by .org/​10​.1002/​nml​.21038 no means the only entity involved in governKearns, K. P. (1995). Effective nonprofit board members as seen by executives and board ance (Cornforth, 2012), has a long history chairs. Nonprofit Management and Leadership, in governance research. The composition of 5(4), 337–358. https://​doi​.org/​10​.1002/​nml​ the board is important because boards hold formal legal and moral responsibly to oversee .4130050403 Kearns, K. P. (2019a). Framework for focus. and guide the organization. Concern for the Trusteeship: The Journal of The Association of composition of the governing board reflects Governing Boards of Colleges and Universities, an understanding that individual actors influJanuary/February(2019), 15–19. ence priorities and practices undertaken. Kearns, K. P. (2019b). The leadership portfolio These actors are imbedded in structures and program at the University of Pittsburgh: Teaching

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Summary of selected theoretical perspectives on governance board composition

Theory

Governance Functions

Composition Expectation

Agency

Oversight and accountability

Independent outside directors

Stewardship

Functional and strategy partnership with

Power and competency

leadership Resource dependence

Secure and manage resource demands

Resource engagement and contribution

Institutional

Legitimacy concerns

Reputational attributes

Stakeholder

Relationship management

Representation from key groups

processes that facilitate or constrain behaviors. The chapter identifies theoretical and contextual factors that explain why particular individuals are responsible for governance.

Theoretical background

This section summarizes several theoretical frameworks and the implications in relation to composition expectations and needs (see Table 15). These theories explain key functions and/or responsibilities (i.e., oversight and accountability) of governing boards and consequently those functions suggest characteristics potentially enacted by board members. So, for instance, an organization concerned about accountability and oversight might look for board members with financial and/or accounting backgrounds to provide insight into financial issues and practices (i.e., budget oversight). Therefore, while the theories may seem a bit abstract, they align with practical functions carried out by governing boards (see column 2), which in turn suggests who might serve in a governing capacity. Agency theory posits the need for the board to monitor and control the behavior of the organization’s management team (Eisenhardt, 1989). Agency theory is concerned with the potential that managers who are not owners of the institution may waste resources, either through malevolent misappropriation or poor judgment (Jegers, 2009). One solution to this oversight concern is for the board to contain a sufficient number of “outside” or independent directors who can ensure accountability to owners or, in the case of nonprofits, the public. These concerns exist in nonprofit organizations and the incorporation of some aspect of “independent” or outside directors may mitigate some of these concerns. Independent directors are defined as having “no material relationship” with the William A. Brown

firm (Clarke, 2007) and can also be referred to as “outside” directors. Stewardship theory is a corollary to agency theory to understand management behavior that is organizationally focused as opposed to self-interested (Davis et al., 1997). Stewardship theory provides an excellent perspective to consider the dynamics of a negotiated relationship in which the board and management are partners who share or are perceived to share a more balanced resource dynamic, which is reflective of boards working with staff to help create strategic direction. This suggests that in order for boards to be an equal partner in guiding the organizations, board members must possess sufficient knowledge, skills, and understanding to contribute substantively to the designing and monitoring of strategic priorities. Resource dependency theory is based on the assumption that organizations are dependent on their environment for crucial resources and that the board is part of both the organization and the resource environment (Hillman et al., 2009). Consequently, the board functions as a boundary-spanning unit that reduces external dependencies through links to necessary resources. Directors can serve as a critical link to mitigate resource power differentials. In a governance capacity, this is commonly fulfilled by inviting influential or high-status individuals on to the boards. One implication of resource dependency theory is that individuals that bring key resources will gain power. Institutional theory recognizes that legal, regulatory, and normative forces have an impact on governance priorities and structures enacted (Powell & DiMaggio, 1991). A key concern for nonprofit organizations is the establishment and maintenance of legitimacy. Institutional forces are exerted through compliance, mimetic, and isomorphic mechanisms to influence how organizations are

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governed. Institutional theory suggests board members will be chosen to bring greater legitimacy to the organization. Stakeholder theory considers how governance mechanisms can account for and manage stakeholders more broadly (beyond resource-based stakeholders) (Ackermann & Eden, 2011). From this perspective, boards serve to manage relationships with principal stakeholder groups often through the incorporation of stakeholders onto the board. A stakeholder informed governance system must find the right balance of different constituencies to support the mission and sustain the organization, while ensuring the organization can maintain sufficient strategic focus.

Factors that influence governing board composition characteristics

In addition to theoretical perspectives, Ostrower and Stone (2010) propose a contingency based approach to understanding nonprofit governance and call for more research on the relationship between context and board practices. Central to the contingency based framework is a recognition that context informs governance needs or roles and how organizations may enact different compoTable 16

sition characteristics. Ostrower and Stone (2010) suggest that there are three general areas that influence governance functions and board composition. These factors are 1) features of the external environment; 2) internal organizational characteristics; and 3) board attributes. Environmental factors are the most distal and include concepts such as complexity and stability in the operating environments of nonprofits. Organizational factors include historical patterns of engagement, how the organization is structured, and strategic priorities. Board-level attributes reflect interpersonal and group dynamic features that inform decision processes, such as who exerts influence and how those constituencies exert control. The next section summarizes macro and micro context factors that influence governance needs and by extension composition expectations. Table 16 summarizes the contextual factors considered and implications for governance and composition. External factors A classic approach to organize or interpret the external environment considers how to describe and interpret significant environmental forces (Schmid, 2009). The most basic of

Summary of context factors and implications for governance composition

Context aspect

Governance implications

Composition implications

External  Simple

Clear stakeholder groups and power dynamics

Easier to identify potential stakeholder participants and processes

 Complex

Multiple and potentially conflicting stakeholder Lack of clarity about who and how to groups

include and as a result potentially larger

 Stable

Easier to determine long-term plans

Historical knowledge and depth of power

 Turbulent

Changes in pressures and priorities

Smaller core group to respond quicker

Difficult to understand internal operations and

Potential need for internal expertise

boards

Internal/organizational   High level complexity

stakeholders Structure  Decentralized

Potential complex political dynamics

Representatives from constituencies

 Centralized

Dominate power disposition

Smaller dominate coalition

 Prospector

Need for entrepreneurial perspectives

Larger more open systems

 Defender

Need for efficiency and stability

Smaller more internal

Strategic approach

Historical/cultural patterns   Clear power disposition

Influential internal stakeholders gain power

Dominate coalition

  Complex or changing power

Mediation and negotiation

Potential for conflicting interests and fault-lines

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these consider the degree to which the external environment is simple vs. complex; and stable vs. turbulent. Environmental features can be fairly simple and easy to understand, or they can be highly complex and variable. A complex environment has many different components, participants, or forces that enact on the organization. Another feature is the extent to which the various stakeholder groups are relatively similar to each other (homogeneous) and alternatively stakeholder groups could be very heterogeneous suggesting that there are different priorities. Complex environments require more effort to monitor and respond to different constituencies, while a simple environment tends to require less attention to nuance and distinction among constituencies. Research suggests that organizations in highly complex task environments may be less likely to engage in monitoring functions and more likely to engage in boundary spanning activities. Internal factors Internal factors relate to features of the organization such as structure, complexity, strategic approach, and history of the organization. These factors influence management and governance priorities (Bradshaw, 2009) and consequently have implications for the composition demands. These influences extend to micro-interactions in groups and among board members and the power disposition of different stakeholders to have influence in the organization. A distinction to consider is the difference between centralized decision making structures that consolidate decisions to core individuals or groups and a more decentralized structure that disburses decision authority downward and across the organization. Different decision making arrangements place different demands on management and the board. There is a tendency to use age and size as a proxy for the stage of development or structure. Larger, older organizations are typically conceptualized as having more formal structures with professionalized staff and hence accountability controls in place. Smaller, younger organizations might exhibit less formal structures with fewer accountability policies. Developmental changes such as organizational growth can impact governance structures and practices. Understanding the stage of development and patterns of organWilliam A. Brown

izational growth (or decline) implies how governance needs might shift. Another significant contingency is the strategic disposition or approach an organization might utilize. A classic distinction of strategic priorities is to consider if an organization is more entrepreneurial or more conservative in regard to new programs and services (Miles & Snow, 1978). Those organizations that prioritize developing and experimenting with new programs, referred to as a prospector type strategy, need a board to support innovation and accept risk. Conversely organizations that seek consistency and efficiency in services, referred to as a defender, needs a board to prioritize performance systems and accountability measures that drive that aspect of the organization. Historical patterns and norms of behavior are also going to influence governance priorities. Prior work suggests the need to acknowledge cultural forces that operate in organizations and how those forces inform priorities and practices. There are broad trends in that some nonprofits are more community based, while others tend to be more professionalized, and others are more market-oriented. Appreciating these forces and factors helps to explain variation in governace systems. The disposition and inclination of significant internal stakeholders do influence governance structures and priorities. Internal power dynamics are salient to changes in governance systems as powerful groups and individuals can exert influence to facilitate or thwart change initiatives. It is not necessarily clear how CEOs, for instance, can influence governance process changes. CEOs are not the only constituency that might exert influence. The prestige or wealth of board members suggests that they may exert influence. Table 16 summarizes the context factors discussed and the implications for governance priorities and composition. It is the interplay of external environmental forces and multiple and at times conflicting internal dyanmics that ultimatley make the determiniation about how governance is enacted in nonprofit organizations. The extent that any particular force or influence is going to override others is difficult to explain or interpret in the nonprofit context as the variability of organizational priorities, structures, and developmental influences creates a het-

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erogeneity that complicates simple questions and tendencies to draw conclusions that are widely applicable. This brief entry cannot fully summarize or identify all contextual factors that may influence governance priorities and composition. These are some of the most prevalent with some empirical studies suggesting them as substantive, but there are clearly other factors that might be more relevent for different organizations, industries, or locations. William A. Brown

Related topics

Diversity, equity, and inclusion Governing board: Chairperson Governing board: Dynamics and meeting management Governing board: Membership Governing board: Responsibilities Principal-Agent Theory Stakeholder management

Further reading and references

Ackermann, F., & Eden, C. (2011). Strategic management of stakeholders: Theory and practice. Long Range Planning, 44(3), 179–196. https://​ doi​.org/​10​.1016/​j​.lrp​.2010​.08​.001 Bradshaw, P. (2009). A contingency approach to nonprofit governance. Nonprofit Management and Leadership, 20(1), 61–81. https://​doi​.org/​ 10​.1002/​nml​.241 Brown, W. A. (2020). Composition of nonprofit boards. In H. K. Anheier & S. Toepler (Eds.), The Routledge companion to nonprofit management (pp. 139–151). Routledge. Clarke, D. C. (2007). Three concepts of the independent director. Delaware Journal of Corporate Law, 32(1), 73–111. Cornforth, C. (2012). Nonprofit governance research. Nonprofit and Voluntary Sector Quarterly, 41(6), 1116–1135. https://​doi​.org/​10​ .1177/​0899764011427959 Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. The Academy of Management Review, 22(1), 20–47. www​.jstor​.org/​stable/​259223 Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74. https://​doi​ .org/​10​.5465/​amr​.1989​.4279003 Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of Management, 35(6), 1404–1427. https://​doi​.org/​10​.1177/​0149206309343469 Jegers, M. (2009). “Corporate” governance in nonprofit organizations. Nonprofit Management

and Leadership, 20(2), 143–164. https://​ doi​ .org/​10​.1002/​nml​.246 Miles, R. E., & Snow, C. C. (1978). Organizational strategy structure and process. McGraw-Hill. Ostrower, F., & Stone, M. M. (2010). Moving governance research forward: A contingency-based framework and data application. Nonprofit and Voluntary Sector Quarterly, 39(5), 901–924. https://​doi​.org/​10​.1177/​0899764009338962 Powell, W. W., & DiMaggio, P. J. (1991). The iron cage revisited: Institutional isomorphism and collective rationality. In P. J. DiMaggio & W. W. Powell (Eds.), The new institutionalism in organizational analysis (pp. 41–62). University of Chicago Press. Schmid, H. (2009). Agency-environmental relations: Understanding external and natural environments. In R. J. Patti (Ed.), The handbook of human services management (pp. 411–434). Sage.

Governing board: Dynamics and meeting management Definitions

Board dynamics: Refers to the structures, individuals, relationships, and interactions present on a governing board. Board dynamics can be passive, including board size and method of appointment, or active, including patterns of conflict and cooperation. Meeting management: Refers to the rules, actions, and formal roles in overseeing a governing board meeting. Meeting management can be passive, including specific governing models and rules for debates, or active, including the way in which a board president manages a meeting.

Context

A core tenet of governance is the idea that the way in which policy decisions get made impact the quality of those decisions. Understanding how decisions get made first requires understanding the collective role of the individuals involved in the governing process. Governing actors in nonprofit organizations include the volunteers serving on the governing board, the executive director and their employees, and external stakeholders. Michael R. Ford

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Though it is taken for granted that nonprofit governing boards matter, exactly how and why is subject to debate. There is a limited perspective that views governing boards’ roles as strictly fiduciary. While sound financial oversight is certainly a necessary task for any governing board, a broader perspective in which nonprofit boards are viewed as legitimizing agents, policymakers, and guarantors of organizational performance has emerged in the academic literature. Though research on governance and performance is sprawling, there is growing evidence that governing boards can impact organizational performance. Specifically, there is evidence that the dynamics of governing boards, and the management of their meetings, impacts organizational functions in ways that influence overall organizational performance.

In practice

The application of board dynamics to the nonprofit governing process begins with a discussion of governing board structure. First, what is the appropriate size of a governing board? There is no perfect answer to this question; rather, the size of a board should facilitate the board decision making process. For a small nonprofit organization with limited stakeholders, a small board meeting the IRS minimal threshold of three members may be enough. For larger membership nonprofits, it is not uncommon to see dozens of board members representing a larger population of stakeholders. Overall, a board should be large enough to ensure a voice for all stakeholders, and that all necessary competencies are present in the board membership. But a board should be small enough to ensure productive discussion and timely decision making. In general, board size should be a function of the size and sophistication of the nonprofit organization. The method of appointment, and length of terms of board members, also varies across organizations. As nonprofits mature there should be some type of nomination committee, or formal application process, to ensure that board members are not being selected by the executive director nor dominated by organization employees. Board terms should be scattered to provide governing continuity even during periods of board member turnover. Board structural characteristics like Michael R. Ford

size, method of appointment, and terms of service all impact the capability of a board to make a good decision for the organization. As a rule of thumb, structures should facilitate the ability of the organization to fulfill its mission. An emerging and understudied aspect of board structure is diversity and inclusion, specifically the extent to which diversity and inclusion on a board can be measured, and ultimately linked to overall organizational performance. While structures are important, it is the individuals serving on the board that ultimately deliberate and make key governance decisions. Thought should be given to the representativeness, and expertise, of all those asked to serve on a nonprofit board. Ideally job descriptions should be created and filled based on criteria for stakeholder representation and needs. A representative board with key competencies creates credibility in the eyes of organizational stakeholders and ensures the governing board as a whole possesses the skills to oversee organizational performance. As previously stated, there is growing acceptance that the small group dynamics on governing boards influence overall governance outcomes. Creating the right board structures and individual competencies removes barriers to a high-functioning group dynamic but are passive steps that merely enable the possibility of success. Small group dynamics are the active steps taken through the process of board governance. Creating a positive group dynamic starts with the level of engagement among board members. Board members should have full access to all the information they need to make decisions and should have opportunities to connect with the mission of the organization outside the board room. These small steps can minimize the chance of creating a rubber-stamp board that is not truly engaged in governing decisions. A board that is not engaged can quickly become dominated by the executive director, and ultimately fail in their oversight duties. A body of research connects the patterns of conflict, and cooperation, to governing board outcomes. Conflict is a multi-dimensional concept that can have a positive, or negative impact, on organizational outcomes. A healthy governing dynamic should encourage conflict over specific policy items. Disagreement among board members ensures ideas are thought out, that alternatives are

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considered, and that decisions are not rushed into. However, conflict can become a net negative if it is based on relationships, that is, two people that do not like each other personally, coalitions, that is, factions that vote against one another regardless of the policy item being discussed, or entrenched, that is, people do not support board decisions after they are made. All of these negative conflict types are symptoms of a lack of trust between board members, and an inability to focus on specific governing tasks. On the other side, the complete absence of conflict can devolve into groupthink. In a state of groupthink, nonprofit board members are afraid to differ from a consensus opinion, self-appointed gate keepers ensure alternative opinions are quickly dismissed, and the deliberations necessary to advance organizational goals are sacrificed so as to avoid any uncomfortable debates. To put it another way, it is important for boards to allow for substantive debate over policy decisions, and to stay on task during debates. Meeting management is the tool for keeping nonprofit board members on task during the governance process. Good meeting management begins with having a clearly defined governing philosophy. Such a philosophy may be a formal governance model (e.g., policy governance), adherence to Robert’s Rules of Order, or a hybrid philosophy specific to the board. The specific philosophy is less important than the fact that it exists, is understood by all involved in the governance process, and is used consistently. A board president should be elected by the board and tasked with educating new board members on meeting logistics, developing the board agenda, running meetings, and keeping deliberations on task. Weak meeting management opens the door to deliberations that veer off topic or are dominated by coalitions or personalities. Ultimately, poor meeting management creates a barrier to quality policy decisions. Annual evaluations of the board president by the rest of the board and/or an outside consultant are a good way to address problems with meeting management.

Current and future directions

Research on board dynamics and meeting management is progressing from study of board structures, that is, passive board dynamics, to study of interactions between board

members, that is, active board dynamics. Much of the work on active board dynamics attempts to identify the determinants of conflict and cooperation among governing board members, and the links between active board dynamics and organizational performance. For example, there is a link between negative board conflict types and diminished overall organizational performance. Extremely active boards with positive dynamics are most likely to serve high-performing organizations, while passive boards with negative dynamics are most likely to serve low-performing organizations. Future research is needed to better understand exactly how board dynamics translate into organizational outcomes. Current studies mostly rely on correlations, and there remains questions about the direction of the relationship between positive board dynamics and performance. Do positive board dynamics lead to performance gains, or are high-performing organizations more likely to attract high-performing board members? Research on the linkages between board governance, executive director leadership, employee motivation, and stakeholder outcomes could help fill in the black box connecting governance to outcomes. In addition, there is a growing behavioral subfield that attempts to link psychological insights to nonprofit governing questions. The subfield uses experiments and simulations to determine how board members, and boards as groups, process and use information. The results of such research will aid the meeting management process by providing a road map for putting the right personalities and competencies in situations that maximize the likelihood of success in the governing process. Finally, there is need for more longitudinal, and qualitative, research on how board dynamics and meeting management affect organizational performance. The challenge of showing causation is consistent with the widespread use of cross-sectional analysis of limited data sources, like Form 990, for studying nonprofit governance. Increasing methodological diversity, like interviews, focus groups, and longitudinal surveys, will push the study of board dynamics and meeting management in new fruitful directions. However, the research thus far does show that the dynamic present on a governing board, Michael R. Ford

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and the way in which governance meetings are managed, translates into organizational operations and outcomes (Brimhall, 2019). Michael R. Ford

Governing board: Membership

Related topics

A board member is an individual member of a governing board who assumes individual and collective governance responsibilities on behalf of a nonprofit organization.

Board policies manual Chief executive officer: Relations with the board of directors Governance Governing board: Chairperson Governing board: Composition Governing board: Membership Lifecycles of nonprofit organizations

Further reading and references

Definition

In practice

Board members are responsible for actively participating in the collective functions of governance as an individual member of a governing board. As individuals, they each have a fiduciary duty to the organization and its social good purpose. This means that – as individual board members – they must be trustworthy, which is generally about being unselfish, responsible, honest, and unbiased. This responsibility for trustworthiness is well-established within nonprofit corporation law, which outlines that every board member must meet certain standards of conduct and attention in carrying out their responsibilities to the organization. These are formulated as three legal duties:

Brimhall, K. C. (2019). Inclusion and commitment as key pathways between leadership and nonprofit performance. Nonprofit Management and Leadership, 30(1), 31–49. https://​doi​.org/​10​ .1002/​nml​.21368 Brown, W. A. (2005). Exploring the association between board and organizational performance in nonprofit organizations. Nonprofit Management and Leadership, 15(3), 317–339. https://​doi​.org/​ 10​.1002/​nml​.71 Brown, W. A., & Guo, C. (2010). Exploring the key roles for nonprofit boards. Nonprofit and Voluntary Sector Quarterly,  39(3), 536–546. https://​doi​.org/​10​.1177/​0899764009334588 ● The Duty of Care requires every board Ford, M. R., & Ihrke, D. M. (2020). Connecting member to exercise the same care that an group dynamics, governance, and performance: ordinary, prudent person would exercise Evidence from charter school boards. Nonprofit in a similar position or under similar and Voluntary Sector Quarterly,  49(5), circumstances. This means that board 1035–1057. https://​doi​.org/​10​.1177/​ members must use their best judgment, 0899764020911206 actively participate, pay attention, prepare Gazley, B., & Nicholson-Crotty, J. (2018). What for and attend meetings, and ask pertinent drives good governance? A structural equation model of nonprofit board performance. Nonprofit questions. and Voluntary Sector Quarterly, 47(2), 262–285. They must also exercise reasonable care https://​doi​.org/​10​.1177/​0899764017746019 in all decision making, without placing Nobbie, P. D., & Brudney, J. L. (2003). Testing the the organization at unnecessary risk. implementation, board performance, and organBoard members need to consider and izational effectiveness of the policy governance discuss relevant information and context model in nonprofit boards of directors. Nonprofit before casting votes, regularly review the and Voluntary Sector Quarterly, 32(4), 571–595. organization’s financials and policies, and https://​doi​.org/​10​.1177/​0899764003257460 adhere to the appropriate roles between Stone, M. M., & Ostrower, F. (2007). Acting in the public interest? Another look at research on board and staff. nonprofit governance. Nonprofit and Voluntary Examples of breaches of the Duty of Sector Quarterly,  36(3), 416–438. https://​ doi​ Care could include: excessive meeting .org/​10​.1177/​0899764006296049 absence, failing to ask questions or read Tacon, R., Walters, G., & Cornforth, C. (2017). advance materials about a proposed Accountability in nonprofit governance: action, or going along with a majority A process-based study. Nonprofit and Voluntary vote with which one disagrees so as not Sector Quarterly,  46(4), 685–704. https://​ doi​ to create dissent or conflict. Put simply, .org/​10​.1177/​0899764017691637

a board member cannot fulfill the Duty

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of Care unless they have been present, prepared, engaged, and independent. ● The Duty of Loyalty refers to pursuing the best interests of the community and the purpose the organization serves above all else. This entails acting in good faith and avoiding all conflicts of interest, both personal and professional. Board members carry out their Duty of Loyalty by adhering to the organization’s conflict-of-interest policy, avoiding using board or organizational opportunities for personal or corporate gain, and maintaining the confidentiality of information about the organization. An example of a breach of the Duty of Loyalty would include sharing confidential information about a CEO search with individuals not on the board or advocating for an organizational decision that would result in a personal benefit to the board member. ● The Duty of Obedience means acting in accordance with the organization’s stated purpose, as well as all relevant laws and the organization’s own bylaws and policies. Board members carry out the Duty of Obedience by ensuring compliance with all regulatory and reporting requirements, such as filing the annual information return, the IRS Form 990, and paying employment taxes. Additionally, boards need to examine all documents that govern the organization and its operation, such as the bylaws, and make decisions that fall within the scope of the organization’s purpose and governing documents. Examples of a breach of the Duty of Obedience would include knowing that the organization is in violation of city regulations and not taking action or spending organizational resources on projects not aligned with its purpose. These standards are essential to serving effectively as a board member, and to ensuring that an individual board member is not held legally liable for a violation of their fiduciary responsibility. Several states, in fact, have statutes adopting some variation of these duties that would be used in court to determine whether a board member acted improperly. So as to reduce the risk of personal liability, board members are wise to ensure that an organization holds Directors

and Officers Insurance (sometimes referred to as D&O insurance) prior to joining a nonprofit board. Box 1: Directors or trustees? Although the term trustee is sometimes used to refer to board members of nonprofit organizations, the vast majority of board members serve as directors of nonprofit corporations. This distinction is important because trustees are held to a higher legal and fiduciary standard than directors of corporations. So long as they comply with the three duties, directors are unlikely to be held liable for anything short of gross negligence. Trustees, however, can face liability even if they acted in good faith. To avoid any confusion, BoardSource does not recommend that directors (board members) be referred to as trustees unless the legal entity is in fact a trust, as is the case for some grantmaking institutions (BoardSource, 2021b).

Building on these legal duties, each individual board member should seek to embody these characteristics of an effective board member: ● Attend and prepare for every board meeting by fully reviewing all advance materials ● Actively participate in assigned committees and committee meetings ● Fully review board minutes and meeting materials for any meetings that are unavoidably missed (and ensuring that minutes accurately reflect their absence) ● Bring perspectives and insights that are informed by their lived experience, and the awareness of how that lived experience imbues their world view ● Bring humility and curiosity to the way that they embody their board leadership role ● Treat all board members and staff members with appreciation and respect

Current and future directions

Beyond an individual board member’s role in governance, they may be asked to play an individual role in other organizational activities, such as fundraising, advocacy, program activities, or other supportive roles. BoardSource believes in the value of having board members engaged in the advocacy

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and public policy work of the organization, a position that was codified as a part of the most recent edition of its Ten Basic Responsibilities of Nonprofit Board Members and outlined more explicitly as a part of a collaborative initiative called Stand for Your Mission (www​.standforyourmission​ .org). While board engagement in fundraising efforts is valuable, too many boards are prioritizing the board’s role in giving and soliciting charitable gifts above all else, a dynamic that is explored more fully in BoardSource’s Leading with Intent study. It is important to note, however, that in their work on advocacy and fundraising, the board member is generally operating as a volunteer reporting to staff, versus in a governing role. This distinction is important as board members can sometimes be guilty of overstepping – or micromanagement – if they forget that they do not have governing power as an individual board member when engaging in these activities. This potential risk of micromanagement should not discourage organizations from engaging board members in advocacy and fundraising; instead, it should encourage them to do so in ways that are explicit about the enormous value they can provide through their engagement, and how to do so in a way that is most helpful. Anne Wallestad, Joy Folkedal and Andrew Davis11

Related topics

Board policies manual Chief executive officer: Relations with the board of directors Governance Governing board: Chairperson Governing board: Composition Governing board: Dynamics and meeting management Governing board: Responsibilities

Further reading and references

BoardSource. (2021a). Leading with intent: BoardSource index of nonprofit board practices. https://​leadingwithintent​.org/​wp​-content/​

uploads/​2021/​06/​2021​-Leading​-with​-Intent​ -Report​.pdf. Accessed 15 September 2023. BoardSource. (2021b). Putting purpose first: Nonprofit board leadership today. BoardSource. Ingram, R. T. (2015). Ten basic responsibilities of nonprofit boards. BoardSource.

Governing board: Responsibilities Definition

A governing board is a group of individual board members that are individually and collectively responsible for a nonprofit organization.

In practice

All independently incorporated nonprofit organizations are required to have a governing board. The governing board is legally responsible for the organization and its social good purpose, a responsibility that is referred to as the board’s fiduciary duty. The concept of the fiduciary is all about trust – the trust the public places in the board to ensure that the organization will benefit society, comply with the law, and steward its assets in service to its social-good purpose. This responsibility for trustworthiness is well-established within nonprofit corporation law, and is detailed in another entry. But the fiduciary role of the board is the starting point – versus the end – of the board’s responsibilities as shown in Table 17. The nonprofit board’s governing role generally includes three core components: 1. Setting strategic direction: Establishing an organization’s purpose and setting its strategic direction. Boards work in partnership with the chief executive to articulate the organization’s purpose and guiding values, agree on a shared vision for the future, establish major goals and develop strategies for achieving those

11 At the time of writing the three co-authors were employees of BoardSource, a widely recognized organization devoted to research, leadership, and support of nonprofit organizations with a special emphasis on improving the governance of nonprofits. At the time of writing Anne Wallestad was President and CEO of BoardSource. The three co-authors wish to note this entry draws heavily from the accumulated body of knowledge produced by BoardSource and that many of the views expressed here are those of the organization as well as the co-authors.

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Responsibilities of a governing board

Setting Strategic Direction

Providing Oversight

● Determine mission and purpose and

● Support and evaluate the chief executive ● Select the executive

advocate for them ● Ensure effective planning

Ensuring Organizational Resources

● Monitor and strengthen programs and

● Ensure adequate financial resources ● Build and sustain a competent board

services ● Protect assets and provide financial

● Enhance the organization’s public standing

oversight ● Ensure legal and ethical integrity

goals, and identify how to measure progress against goals. 2. Providing oversight: Ensuring that the organization is accountable to its purpose and operating ethically and responsibly in all ways. The board’s oversight role provides an essential safeguard for addressing impropriety or lack of performance that could threaten the organization, its work, and its reputation in the community. Key components of this role include evaluating and supporting the chief executive, ensuring legal and ethical integrity, providing financial oversight and strategic deployment of resources, managing risk, and monitoring progress toward implementing organizational strategy. resources: Ensuring organizational 3. Working in partnership with the chief executive and staff team to ensure that the organization is resourced in a way that enables it to fulfill its social good purpose. This includes: having the necessary people and expertise to do the organization’s work; having the financial resources the organization needs to support people, systems, and programs; and having the trust and connection of those the organization seeks to support and serve, as well as the broader community of support for the organization. Given the scope of the board’s responsibilities, boards frequently organize themselves into committees, which enables the board to deploy smaller groups of board members who are empowered by the full board via a committee charter to lead specific board functions. The most common board committees and common responsibilities include: ● Governance Committee: A governance committee is responsible for board self-management and effectiveness, which means that it typically plays a lead

role in building and sustaining a competent board. This includes defining the board’s ideal composition; identifying, recruiting, and onboarding potential board candidates; and ensuring that board members – and the board as a collective – is leading effectively. BoardSource, a national organization that conducts research and shares information on governance in the nonprofit sector, recommends that the governance committee take responsibility for initiating a board self-assessment, which BoardSource recommends be completed every two years. ● Finance and Audit Committee: The finance and audit committees – whether separate or connected – are responsible for helping to facilitate the board’s role in financial, legal, and ethical oversight. Finance committees often play a lead role in understanding and analyzing the board’s business model and budget, as well as playing a role in regular financial oversight functions. The audit committee plays a lead role in working directly with the organization’s audit firm to conduct an annual audit of the financials, which is an essential oversight practice. Often, the audit committee also plays a role in risk management, which includes playing a role in ensuring legal and ethical integrity. ● Development or Fundraising Committee: The fundraising committee helps facilitate the board’s role in raising funds for the organization and leveraging individual board members as volunteer fundraisers, a role and dynamic that is explored more fully in another entry. This committee also works to understand fundraising assumptions and strategies as a part of the annual budgeting process and recommends policies related to gift acceptance and fundraising oversight.

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The fundraising committee often also plays a role in working to enhance the organization’s public standing, particularly with the segment of the public that could be considered potential donors to the organization. ● CEO Evaluation and Compensation Committee: Some boards have a separate committee (or task force) responsible for facilitating the board’s work to evaluate and define compensation for the chief executive. If not a separate committee, this responsibility may be taken on by an executive committee or the board as a whole. ● Executive Committee: Often, boards create an executive committee, which may play a role in setting board meeting agendas and addressing urgent board-level issues that cannot wait until the next scheduled board meeting. While executive committees are not inherently fraught, it is worth noting that they often exert more power than they should, which can create a range of board challenges. Box 2: Facilitation versus delegation It is important to note that when a committee takes responsibility for facilitating the board’s work in a particular area, it does not mean that the full board – and individual board members – no longer have responsibility for that area. For example, just because there is a finance committee that takes a closer look at financial reports and performance does not mean that the rest of the board does not have responsibility for financial oversight. Or just because there’s a CEO evaluation and compensation committee doesn’t mean that the full board isn’t responsible for CEO oversight.

As such, it is essential that there are clear notes and reports from committees about actions that they have taken and that all board members take responsibility for understanding – at a summary level – the work being done within committees. This can be especially important in the case of the executive committee, which – as noted above – often exerts more power and decision making than it should. This can create increased legal risks to the organization and individual board members not serving on the executive committee if the executive committee is exclud-

ing the rest of the board from decisions for which the full board – and therefore individual board members – still have a legal responsibility. Other structural considerations for boards include: ● What’s the ideal size for our board? ● What skills, expertise, perspectives, and networks of trust do we need to have included in terms of our board composition? ● How will we structure terms both for individual board members and board officers, and what will we allow in terms of the maximum number of terms served? ● Will our chief executive serve as an ex officio member of our board and – if so – will they have voting rights? Often, these questions are answered as a part of the organization’s bylaws, though it is notable that bylaws can usually be updated or changed if the board chooses to do so. Generally, boards have quite a lot of flexibility – and therefore variety – in terms of how they are structured and populated, though it is worth noting that some states and authorizing entities have more specific parameters about board size, composition, and structure. In some states, this includes specific rules about specific board committees that must be created and who can and cannot serve on them.

Current and future directions

Traditionally, the governing board has seen its role as being centered on the organization. Recent thinking from BoardSource is challenging that orientation, and arguing that the board’s role should be centered on the reason the organization exists – its purpose – instead of the organization itself. First introduced in an article in Stanford Social Innovation Review (Wallestad, 2021), the concept of Purpose-Driven Board Leadership is rooted in the idea that boards are stewards of the organization’s purpose, and all of the organizational resources and capacities available to serve that purpose, more so than the organization itself. As BoardSource has framed it, this is in some ways a rethinking of the way that the duty of loyalty has been classically inter-

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preted. Anne Wallestad, author of the article, argues: The duty of loyalty is often interpreted as the responsibility to think only of the organization when making governing decisions. This interpretation unnecessarily focuses board members on loyalty to the organization as a corporate entity. Instead, boards should focus their loyalty to the organization’s purpose or reason for being, fidelity to the reason that the organization exists and – by extension – to the people and communities its work impacts. What is best for purpose and community is not always synonymous with what’s best for the organization.

This shift in the board’s center of gravity and orientation to the organization and its work is not insignificant. And it is sparking significant conversation and reflection within governing boards about what a shift to purpose-driven board leadership – a set of governance philosophies and principles that are outlined in the entry on Governance – might mean for their organization. A key part of this conversation is an acknowledgment that the way that boards have traditionally conceived their roles and responsibilities, combined with the ubiquitous demand for more charitable support for nonprofit missions, has led to deep and persistent challenges with board composition. This is especially evident as it relates to the board’s ability to establish and maintain the trust of the public and the people and communities the organization seeks to serve. BoardSource’s (2021a) Leading with Intent study released in 2021 finds that boards are: ● Disconnected from the communities and people they serve: Half (49 percent) of all chief executives said that they did not have the right board members to “establish trust with the communities they serve.” Despite this, only a third of boards (32 percent) place a high priority on “knowledge of the community served” in board recruitment, and even fewer (28 percent) place a high priority on “membership within the community served.”12 ● Ill-informed about the ecosystems in which their organization is operating:

Chief executives and board chairs agree that too many boards don’t understand the context in which the organization is working as it relates to the public policy environment, other organizational players, and the funding landscape. Despite that, only 25 percent of boards say that “knowledge of the organization’s work or field” is a high priority in board recruitment, and only 11 percent place a high priority on “prior or current experience with a similar organization/mission area.” ● Lacking in racial and ethnic diversity: Not only are boards overwhelming white (78 percent of board members are white and 19 percent of boards are all white), but boards lacking in racial/ethnic diversity self-report that their boards’ racial/ ethnic makeup negatively impacts their ability to do all of these things: ● understand the organization’s operating environment and work, ● attract and retain talent for both the board and staff, ● enhance the organization’s standing with funders, donors, and the general public, ● understand how to best serve the community, and ● cultivate trust and confidence with the community served. ● Preoccupied with fundraising above all else: The board has a wide range of essential responsibilities, but its fundraising responsibilities are frequently prioritized over others. When asked how important the board’s performance is across 18 areas of board responsibility, 70 percent of chief executives rated fundraising as “very important” – above most other categories of board performance, including: ● thinking strategically as a board; ● setting the strategic direction of the organization; ● knowledge of organizational programs; and ● understanding the context in which the organization is working. To many, the challenges of this current reality are obvious. They point to a dangerous lack

12 Notably, this question was not a forced ranking – meaning that respondents were not limited to only one “high priority” area, and were able to select high priority for any of the criteria listed.

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of proximity and perspective that leaves boards vulnerable to bad decisions that can do real harm. Others may push back, asking why current board composition is inherently problematic – arguing that any group of thoughtful people can do the work of a board, regardless of who they are and what they bring in terms of expertise and experience. At BoardSource, we hear both of these perspectives with some frequency. What we have come to understand – both through our research and the work that we do directly with nonprofit boards and leaders – is that too many boards do not see a connection between who the board is and how they occupy their leadership role. As such, they are not recognizing how current board composition is a direct challenge to the board’s most essential role – serving as fiduciaries that guard the public trust. Increased understanding of systemic inequities along racial and other demographic lines have made current board composition an existential threat to boards as they exist today. Power structures that are held primarily by those that are white and wealthy are no longer trusted or tolerated, particularly when the scope of the power structure’s responsibilities place them in direct control of decision making that disproportionately impacts people of color and those living in poverty. This describes far too many nonprofit boards. The good news is that boards have the power to change themselves. Boards are typically responsible for identifying and selecting their own members. As such, it is within boards’ power to bring themselves closer to the people and communities their organization seeks to serve by engaging programmatic and community stakeholders in board leadership. For many organizations, this will require a deconstruction of the way that board members conceive of their role in fundraising, and the way that fundraising potential can be a litmus test in board recruitment. For many boards, this change will be incremental, as it will take time to build toward a more diverse, inclusive, and equity-focused leader-

ship body. But that is all the more reason for boards to get started as soon as possible. Anne Wallestad, Joy Folkedal and Andrew Davis13

Related topics

Accountability Audit Bylaws Chief executive director: Compensation Chief executive officer: Relations with the board of directors Diversity, equity, and inclusion Financial documents and control Fundraising Governance Governing board: Membership Resilience management Strategic planning

Further reading and references

BoardSource. (2016). Recommended governance practices. https://​boardsource​.org/​wp​-content/​ uploads/​2016/​10/​Recommended​-Gov​-Practices​ .pdf BoardSource. (2018). Nonprofit board committees. BoardSource. BoardSource. (2021a). Lending with intent. https://​ leadingwithintent​.org/​ BoardSource. (2021b). Putting purpose first: Nonprofit board leadership today. BoardSource. Wallestad, A. (2021). The four principles of purpose-driven board leadership. Stanford Social Innovation Review. https://​doi​.org/​10​ .48558/​S4ZJ​-Q994

Government failure theory Definition

From an economic perspective, government failure occurs when government fails to produce an efficient outcome. Efficient outcomes are typically thought of as the optimal balance between demand (the quantity or

13 At the time of writing the three co-authors were employees of BoardSource, a widely recognized organization devoted to research, leadership, and support of nonprofit organizations with a special emphasis on improving the governance of nonprofits. At the time of writing Anne Wallestad was President and CEO of BoardSource. The three co-authors wish to note this entry draws heavily from the accumulated body of knowledge produced by BoardSource and that many of the views expressed here are those of the organization as well as the co-authors.

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quality of services and/or goods that people want) and supply (the quantity or quality of services and/or goods that government can or is willing to provide). When government supply of services and/or goods fails to match the quality or quantity of goods and services that people demand, those whose needs are not met seek to fulfill their unmet demand elsewhere. People dissatisfied the quality or quantity of government service turn to the commercial marketplace, through nonprofit and philanthropic activities or through informal (neighbor, family, and friends) relationships. Political science offers additional conceptions of government failure. Government failure can be programmatic or political in nature (Hughes, 2021). Programmatic government failure is performance-based failure; government fails programmatically when policies and programs fail to achieve their stated goal or outcomes. In extreme cases, programmatic government failure occurs when policies and programs are detrimental or harmful to those they are meant to serve (e.g., the Flint Water Crisis). Programmatic government failure may occur when government lacks the competency (e.g., human capital) or capacity (e.g., resources like time, money, or technology) to successfully implement programs or policy. Government programs and policies may also fail politically. Political government failure occurs when a policy or program generates significant criticism or opposition from the electorate, thereby damaging politicians’ electoral prospects. Government failure also occurs, politically, when programs or policies erode people’s trust in government. Both programmatic and political government failure produce inefficient outcomes.

In practice

Weisbrod’s theory of government failure (1988) is perhaps the best-known theoretical application of government failure to the nonprofit sector. Weisbrod conceptualizes government failure as a function of the diversity of citizen preferences. In homogenous societies, people are more likely to demand similar quantities and/or quality of government services. Thus, by supplying goods and services that match the preferences of the “typical” voter, government is largely able to meet citizen demand and avoid government failure in homogenous societies. On the other hand,

government failure – according to Weisbrod (1988) – is more likely in diverse societies. In diverse societies, the “typical” voter is less likely to reflect the diverse preferences of the public, and thus, government is more likely to fail to meet citizen demand when supplying goods and services. In diverse societies, these under-satisfied citizens turn to nonprofit organizations to satisfy their unmet demand. Government failure theories of the nonprofit sector are often used to explain variations in the development of the nonprofit sector across place, positing that nonprofit service provision is larger in more diverse places. For example, Weisbrod suggests that the U.S. nonprofit sector is much larger than the Japanese nonprofit sector due to differences in diversity within these two countries. Others have adapted Weisbrod’s argument to describe why nonprofits meet particularistic interests. For example, nonprofits may arise when people’s preferences about a good or service vary widely, or to meet niche interests when the market is too small to support for-profit or public service provision. For example, more arts nonprofits than policing or defense nonprofits exist because citizen preferences about the arts vary widely compared to citizen preferences about policing and defense; relatedly, there are many nonprofits focusing on social service outcomes because people frequently change their preferences about these services or have particular needs for services (Young, 2000). Douglas (1987) applies Weisbrod’s logic to political support. Douglas argues that interests without majority political support will manifest in nonprofit organizations, while interests with majority political support will be addressed by government. Furthermore, government may encourage the emergence of nonprofits to meet these minority interests in order to increase overall citizen satisfaction with government. In general, these different applications are united by the perspective that nonprofits supplement government (Young, 2000): nonprofits provide services when government fails to do so.

Current and future directions

The theory of government failure is frequently tested using the demand heterogeneity hypothesis: as demand heterogeneity increases, the size of the nonprofit sector Laurie E. Paarlberg and Samantha Zuhlke

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increases. Current empirical tests of the demand heterogeneity hypothesis are inconclusive (Matsunaga & Yamauchi, 2004). Various studies find that increasing demand heterogeneity increases, decreases, or has no effect at all on the size of the nonprofit sector. Thus, the ability of government failure theory to explain the nonprofit sector is debated. This mixed empirical support could be due to the other roles assumed by nonprofits. In addition to supplements, nonprofits may also be complements or adversaries to government (Young, 2000). As adversaries, nonprofits conflict with government. Within complementary models, nonprofits and government work together (Salamon, 1995). As government increasingly relies on private providers like nonprofits to provide services, future work should consider hybrid theoretical models of these three perspectives. For example, Paarlberg and Zuhlke (2019) find that diversity directly decreases the size of the nonprofit sector but indirectly increases nonprofit expenditures via increased government expenditures. These alternative perspectives suggest that a vibrant nonprofit sector depends upon the presence of a robust government. In addition to the role of diversity within the theory of government failure, government failure itself merits future consideration. Traditionally, empirical applications of government failure theory have used demographic measures, such as race and education, as proxies for policy preferences. However, other forms of diversity, such as political diversity, may impact the formation of the nonprofit sector as well as nonprofit operations through multiple mechanisms. Nonprofits may play an important role in exacerbating or alleviating the growing political polarization across the globe. Furthermore, future consideration should be given to how nonprofits respond to the real-world consequences of government failure. Within nonprofit research, government failure is typically conceptualized as dissatisfaction with service quantity or quality. However, government failure can manifest in multiple ways. Consider the extreme case of Flint, Michigan, wherein the nonprofit sector substitutes for government service in the absence of government capacity or reliability (Reckhow et al., 2020). As local government retrench-

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ment continues, many questions remain about the implications for the development and role of nonprofits in our local communities. Broadening our understanding of government failure can broaden our understanding of the nonprofit sector. Laurie E. Paarlberg and Samantha Zuhlke

Related topics

Civil society Commons Co-production Mission and economics Nongovernmental organizations Nonprofit sector

Further reading and references

Douglas, J. (1987). Political theories of nonprofit organization. In W. W. Powell (Ed.), The nonprofit sector: A research handbook (1st edn.) (p. 45). Yale University Press. Hughes, S. (2021). Flint, Michigan, and the politics of safe drinking water in the United States.  Perspectives on Politics,  19(4), 1219–1232. https://​doi​.org/​10​.1017/​ S153759272000136X Matsunaga, Y., & Yamauchi, N. (2004). Is the government failure theory still relevant? A panel analysis using U.S. state level data. Annals of Public and Cooperative Economics, 75(2), 227–263. https://​doi​.org/​10​.1111/​j​.1467​ -8292​.2004​.00251​.x Paarlberg, L. E., & Zuhlke, S. (2019). Revisiting the theory of government failure in the face of heterogeneous demands. Perspectives on Public Management and Governance, 2(2), 103–124. https://​doi​.org/​10​.1093/​ppmgov/​gvz002 Reckhow, S., Downey, D., & Sapotichne, J. (2020). Governing without government: Nonprofit governance in Detroit and Flint. Urban Affairs Review, 56(5), 1472–1502. https://​doi​.org/​10​ .1177/​1078087419847531 Salamon, L. M. (1995). Partners in public service: Government-nonprofit relations in the modern welfare state. JHU Press. Weisbrod, B. A. (1988). The nonprofit economy. Harvard University Press. Young, D. R. (2000). Alternative models of government-nonprofit sector relations: Theoretical and international perspectives. Nonprofit and Voluntary Sector Quarterly, 29(1), 149–172. https://​doi​.org/​10​.1177/​ 0899764000291009

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Government funding and contract management Definition

Many nonprofit organizations receive direct and indirect funding from federal, state, or local governments. Government funding is often in the form of grants, for which nonprofits must submit applications. Some grants are for very specific purposes while others – sometimes called categorical grants – cover a spectrum of goals. Some grants are made directly to the nonprofit organization while others pass through successive levels of government such as from federal to state to local. Increasingly, many grant awards are contractually governed and competitively bid. Contract awards also legally bind the nonprofit agency recipient to provide certain goods and services or achieve certain outcomes. Government contracting with private nonprofit service agencies has emerged as a central government strategy to address urgent social problems in many countries. But widespread contracting also creates significant management challenges for nonprofit organizations especially in the context of the contemporary era of greater competition and uncertainty. Nonetheless, contracting also offers opportunities that require careful planning and program implementation.

Context: Increased performance management and competition

Government funding of nonprofit service organizations has a long history in the U.S. and abroad. Yet, formal contracting with competitive bidding for services such as child welfare, job training, and international development only started to become more common in the 1960s and thereafter in the U.S. Further, government contracting with nonprofits increased substantially and fundamentally changed with the development of the New Public Management (NPM) in the late 1980s and 1990s. NPM had its origins in the U.K. and elsewhere where scholars and policymakers strove to improve public services by tapping market-based incentives. In the U.K., U.S., Australia, and New Zealand, NPM led to increased formal contracting

with nonprofit agencies and competition for funding (Smith & Phillips, 2016). Many contracts are now so-called performance based, with government specifying contract goals and priorities that nonprofits are required to meet in order to receive reimbursement for their services. From the perspective of the nonprofit agency, performance contracts are especially challenging because they increase organizational and revenue uncertainty and because these contracts offer at least the threat of contract termination for poor performance (although in practice losing contracts is still relatively rare). Nonprofit service agencies also have an incentive to compete with their fellow agencies since each could potentially grow through additional contracts. Also, performance contracts are usually structured so that agencies receive graduated payments as they hit their performance targets; hence agencies may receive less revenue than planned, reducing their available cash flow. Performance contracting reflects the broader movement for greater social impact and results and reflects the adoption of various types of “Pay-for-Success” models to deliver public services (Rangan & Chase, 2015). For example, social impact bonds (SIBs) which were pioneered in the UK in 2010 are a tri-sector form of performance contracting in which private investors provide essentially a loan for a service delivered by a non-profit with an agreement by government to pay a return once a specified social outcome has been achieved. SIBs have been widely adopted with many projects throughout the world in the last ten years. However, they can be expensive to formulate and implement which calls into question the ability of these bonds to efficiently deliver improved services. SIBs are also part of a broader trend in impact investing – using private capital such as corporate donations and investments, pension funds and foundation endowments to deliver social benefits as well as financial returns (Brest & Born, 2013). Overall, impact investing has attracted broad interest from policymakers, foundation leaders and philanthropists as an opportunity for private capital to pursue socially responsible goals. Impact investing has also led to more complicated public–private arrangements to provide public services as exemplified by SIBs. Impact investing also tends to reinforce the emphasis on outcomes in the context Steven Rathgeb Smith

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of government contracting with nonprofit organizations. Importantly, the expansion of contracting has encouraged the entry of for-profit firms into services traditionally dominated by nonprofits such as community care and counseling. Further, for-profits may possess some notable advantages vis-à-vis nonprofits in competition for government contracts (and private fees). For example, for-profit chains have access to capital and operate at a sufficient size to enable substantial economies of scale, allowing them to operate at least some programs more efficiently. Many community-based nonprofits may also be very ambivalent about expansion (or even lack the capacity for expansion.) For-profits typically do not have these mission constraints and are thus more willing or able to serve a more diverse mix of clients. For-profits, for their part, may also find that government policymakers may continue to favor or restrict for-profit firms from bidding on certain types of services. More competition for contracts has been abetted by the overall diversification of government support – or policy tools – to address public problems (Phillips & Smith, 2015). In the last 50 years, governments have shifted from a reliance on direct government service delivery to greater use of many different forms of direct and indirect government support and subsidies to address public problems. For example, vouchers for individuals to use to choose child-care providers, educational programs, and affordable housing are increasingly common. State and local governments use tax-exempt bond money to support the capital needs of nonprofit agencies. Overall, these different policy tools help to support local nonprofits and facilitate greater reliance of government on nonprofits through contracting.

In practice Challenges in managing the contracting relationship Government contracting presents unique management issues for nonprofit agencies. First, the overall emphasis on impact means that nonprofits receiving government contracts must invest in adequate capacity including the required administrative infrastructure. More financial and programmatic Steven Rathgeb Smith

reporting requires up-to-date systems. Further, increased competition for resources means that nonprofits need to invest in the necessary levels of professional staff in order to successfully compete for public contracts (as well as private donations). Greater professionalization can also have important implications for nonprofit governance and program implementation. Nonprofit community service organizations tend to emerge to serve a particular community such as a geographic area or a group of individuals with similar concerns or problems such as a neighborhood or local disadvantaged individuals. This focus tends to encourage nonprofit agencies to be responsive to the presenting problems of these individuals even if it means serving these individuals at substantial expense. Government contracting makes it much more difficult to sustain this focus on responsiveness to client interests due to government regulations and reimbursement policies (Smith & Lipsky, 1993). To be sure, some contracting arrangements may face less intensive accountability requirements. Some contracts for example are short-term. A government agency might provide an award for a contract to a small community agency to create a new innovative program but the nonprofit would be expected to find alternative revenue after the end of the initial contract. Or an agency might receive a contract for a low-intensity service such as recreation where participation is the key result rather than community-wide or individual measurable results. However, even in these circumstances, government increasingly requires extensive documentation of program services and finances. Also, the competition for contract funds means that even when an agency receives a short-term project, it may be relying on its renewal or extension in spite of the uncertainty that competition creates. As noted by Grønbjerg and Smith (2021), nonprofit agencies receiving government grants and contracts will also vary depending upon the policy field such as social services, health care, or the arts. The social services, for example, has a high dependence on government funding with many nonprofit agencies receiving almost their entire budget from public sources. The management of these organizations is likely then to differ from other policy fields like the arts where government contracts are much less prev-

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alent. To be sure, local circumstances can vary. Rural communities may have relatively few local nonprofit organizations in specific fields whereas urban areas may have a comparatively dense number of nonprofit organizations. Local politics may also influence public funding as politicians may use government funding to signal support for valued constituency groups. Policy fields without substantial government funding such as the arts are also likely to have quite different leadership patterns. Their boards will also be much more dependent on individuals with substantial resource connections to help them raise corporate and individual donations. The challenge of managing government contracts has also become more complicated due to the increase in the many different hybrid organizational arrangements. For example, a government might award a contract to a community nonprofit agency to help at-risk youth. But the nonprofit would jointly produce this program through a collaboration with the local school district to provide the program on school property after regular school hours. Many new low-income housing projects are joint efforts of a nonprofit housing developer and a social service agency which provides supportive services to the poor, disabled, and or elderly clients who reside in the housing projects. Further, the widespread interest of policymakers in “collective impact” where important social and health interventions have community-wide impact often entails multiple nonprofit, public and for-profit partners to achieve desired performance goals (Kania & Kramer, 2011). These initiatives have high potential but can be difficult to successfully implement unless the various parties to the collaboration have a high level of trust. In responding to these enhanced expectations on accountability and performance, nonprofit managers can face specific difficulties due to important programmatic and organizational characteristics of nonprofits. ● Many nonprofits provide complex services – such as residential care for the chronic mentally ill or humanitarian relief – with uncertain, sometimes contested outcomes. ● Nonprofit programs such as home care, counseling, hospice care, and workforce development are very labor intensive;

thus, it can be difficult to achieve productivity gains or significantly reduce costs over time. ● Individuals using nonprofit agencies may be unable or unwilling to exercise their own voice to provide feedback on the quality of services or register complaints with services, although increasingly client input and feedback is sought and/or expected by nonprofit managers. ● Smaller and newer community-based nonprofit agencies are often undercapitalized, particularly when compared to more established nonprofits as well as for-profit firms. Undercapitalization can create bedeviling management challenges pertaining to agency cash flow, infrastructure development, exercising political influence, and long-term financial sustainability. ● Nonprofits are often quite specialized and mission driven which can create challenges for agencies in a contracting relationship as government program priorities may be at odds with the mission focus of the nonprofit agency. Successfully managing the contracting relationship Successfully navigating the complexities of government contracting requires careful planning and investments including: ● Adequate and Responsive Agency Governance. Nonprofit agencies need to adapt their management and organizational structure to emphasize flexibility, nimbleness, and efficiency while retaining a commitment to their mission. Further, agencies will need to ensure that their governance structure, including their bylaws, promotes this responsiveness to the political and fiscal environment. ● Collaborative Networks. Nonprofits with contracts are, as noted, in a more competitive funding environment, although it varies depending upon local circumstances. However, nonprofits are also faced with pressure to develop more collaborative networks. Given the interest of policymakers in collective impact and reducing the fragmentation of local services, government may require, as part of the contract, for an agency to work with local partners. Nonprofits also may Steven Rathgeb Smith

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find that their advocacy efforts are more successful if they work collaboratively with other agencies with similar missions, especially through alliance-type coalitions and associations. Professional collaborative networks can also promote program innovation and help with staff recruitment. ● Investments in infrastructure and organizational capacity. Nonprofits may have new pressures to invest in their administrative and programmatic infrastructure, including current technology and qualified administrative and professional staff. This effort is especially important in the current context of higher expectations by government managers and policymakers for accountability and performance. Financial reporting requires a sound financial team and accounting systems and providing data on service and program outcomes necessitate qualified staff. ● Developing Community and Philanthropic Support. Many nonprofit agencies were started by individuals who were very passionate about addressing a specific problem such as substance abuse, low-income housing, or the arts. The boards of these agencies were often small and government contracts encouraged passivity by boards in their governance responsibilities since many board members were not familiar with the intricacies of government contracts. Also, government funding was frequently adequate in the initial stages of contracting to support agency programs; consequently, agency boards had little incentive to seek broad-based community support. The competitive funding environment means that nonprofits can greatly benefit from broad-based community support including diverse community representation on boards of directors. The development of a private donor base can also be essential to building capacity, especially given the competition for scarce public contracts. Fundraising may not produce large benefits for the organization in the short term but, in the long term, may become very important as a way of cross-subsidizing programs inadequately funded by government contracts. ● Citizen and Service User Engagement. Agencies may find it very helpful to develop – with government encouragement and support – new ways to engage Steven Rathgeb Smith

service users and local citizens in agency governance. This important effort can help with program evaluation, promote local agency support, and facilitate more informed client service choices. ● Advocacy in support of Agency Programs. Prior to extensive contracting, many nonprofit agencies were primarily dependent upon private philanthropic resources and private fees; thus they had little incentive to actively engage in advocacy to government officials or policymakers. Contracting, however, profoundly changes the incentives faced by nonprofit agencies regarding political activity: funding levels and relevant contract regulations could be directly influenced through nonprofit advocacy in the policy process. Nonprofits receiving contracts can advocate individually through their own efforts or via coalitions of nonprofits such as the Maryland Association of Nonprofits or the Providers Council, which represents human service agencies in Massachusetts. In short, an active advocacy plan for a nonprofit can be potentially very helpful to an agency in managing its government contracting relationship. To be sure, nonprofit agencies can face significant obstacles to political activity. Many nonprofit agencies are relatively small and the staff and boards of directors may possess little advocacy experience. Also, the board and staff of the agency may be concerned that political activity might jeopardize their relationship with government and affect their existing or future contracts, indeed, many board members may believe (erroneously) that political activity is illegal. Importantly, government contract managers can play an important role directly and indirectly in supporting nonprofit leaders in building resilient and effective organizations receiving government funds. They can support nonprofit agencies with their capital costs by facilitating and supporting the access of nonprofits to tax-exempt bonds. They can work with nonprofits to develop appropriate regulations and performance targets. The overall contracting process is likely to operate more smoothly if it is transparent and fair to prospective nonprofit agencies interested in obtaining contracts. Government managers also need to invest in their own staffing infrastructure in order to maintain adequate accountability and

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oversight of nonprofit agencies and to facilitate effective program delivery and impact.

Looking ahead

Government contracting with nonprofit agencies has greatly expanded in the U.S. and around the world in the last 50 years. In addition, the landscape of contracting has certainly changed in recent years, as public and private funding have increasingly emphasized social impact and accountability. Thus, performance contracting and pay-for-success funding models including social impact bonds are likely to continue to become more common. The global pandemic was a worldwide tragedy with profound effects on nonprofit organizations including their staff and beneficiaries. Many agencies immediately lost funding and were forced to reduce staffing even as demand for services surged. Many governments did provide temporary aid through grants and contracts to these organizations to help them weather the pandemic crisis, but this aid is mostly gone. Overall, nonprofit organizations face an unpredictable and competitive funding environment. Consequently, the nonprofit organizations with administrative and programmatic capacity will likely have an edge in the competition for contracts since they will be in a position to respond to government contract expectations and better able to weather funding uncertainties and austerity. Thus, government policymakers have a great opportunity to support local nonprofits with adequate funding and technical assistance in order to ensure a robust, diverse, and effective local service system. Steven Rathgeb Smith14

Related topics

Accountability Competition Crowding out Impact investing Institutional isomorphism Performance management

14 entry.

Further reading and references

Brest, P., & Born, K. (2013). Unpacking the impact in impact investing. Stanford Social Innovation Review. https://​doi​.org/​10​.48558/​ 7X1Y​-MF25 Grønbjerg, K., & Smith, S. R. (2021). The changing dynamic of government-nonprofit relationships: Advancing the field(s). Cambridge University Press. Kania, J., & Kramer, M. (2011). Collective impact.  Stanford Social Innovation Review,  9(1), 36–41. https://​doi​.org/​10​.48558/​ 5900​-KN19 Phillips, S. D., & Smith, S. R. (2015). A dawn of convergence? Third sector policy regimes in the “Anglo-Saxon” cluster. Public Management Review, 16(8), 1141–1163. https://​doi​.org/​10​ .1080/​14719037​.2014​.965272 Rangan, V. K., & Chase, L. A. (2015). The payoff of pay-for-success. Stanford Social Innovation Review, 13(4), 28–38. https://​doi​.org/​10​.48558/​ RDHQ​-5W31 Smith, S. R., & Lipsky, M. (1993). Nonprofits for hire: The welfare state in the age of contracting. Harvard University Press. Smith, S. R., & Phillips, S. D. (2016). The changing and challenging environment of nonprofit human services: Implications for governance and program implementation. Nonprofit Policy Forum, 7(1), 63–76. https://​doi​.org/​10​.1515/​ npf​-2015​-0039

Grant Definitions

A grant is defined as an award of funds given to support an organization, project, or individual. Grants are typically awarded for charitable purposes and often are restricted to nonprofit or nongovernmental organizations. The universe of grants is characterized by its own specialized terminology. The organization awarding a grant is referred to as a grantmaker, while the recipient of funds is categorized as the grantee. The term grantmaking may be used to describe any or all of the processes that a grantmaker would employ in designing a grants program, identifying and selecting grantees, and managing grant awards. Grantseeking refers to the pro-

The author would like to thank Putnam Barber for his very helpful comments on an earlier version of this

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cesses a prospective grantee might follow to research grantmakers and apply for a grant. The term grantsmanship is used in relation to grantseeking to describe the art and skill of obtaining grant awards. The term grant is often used synonymously but mistakenly to refer to the proposal or application submitted in consideration for a grant award. The phrase “grant writing” is also commonly used to refer to the process of developing a proposal for a grant. However, in its correct usage, the word grant refers to the award given in response to a proposal, and not to the proposal itself. The term “proposal writing,” therefore, is more appropriate to describe the steps involved in composing a proposal for a grant. Grants may be differentiated from gifts or donations by their source, the nature of the award, and the contractual relationship between grantmaker and grantee. Funds provided by an organization are often referred to as a grant, while charitable contributions from individual donors are typically labeled gifts or donations. Grants are often, but not always, limited to use for a specific project or purpose and may require the submission of a formal proposal or request for funds. Once an award is made, the grantee is usually required to sign a grant agreement and the provision of funds is subject to certain restrictions on their use and on future reporting requirements. Gifts or donations, by contrast, are usually given without such stipulations or contractual obligations and typically represent a voluntary, irrevocable transfer of funds.

In practice

Sources of grant funds may include foundations, corporations, grantmaking public charities, and government agencies. There are approximately 120,000 private and community foundations in the United States (Candid, 2020). These foundations account for between 15 and 20 percent of all private contributions to U.S. nonprofits annually (Giving USA, 2021). Corporations account for less than 5 percent of private contributions each year and may award grants directly or through related company-sponsored foundations. Grants are often part of a range of giving strategies employed by corporations, including sponsorships, employee matching gifts, volunteer programs, and in-kind

contributions. Grantmaking public charities, including issue-oriented or population-based funds, may award grants as a complement to other, direct programs and services. Government agencies at the federal, state, and local levels will award both competitive and formula-based grants. Awards from government sources may be categorized as either grants or contracts for services depending on the sponsoring agency and the nature of the funding opportunity. Government grants and contracts account for nearly a third of all revenue for U.S. nonprofits. Grants may be awarded for a range of purposes depending on the grantmaker’s interests and the type of support requested by a grantee. Many grants are provided as program support and are restricted to use for specific projects or programs. A general operating grant may be awarded to support the day-to-day operating costs of an organization rather than for a specific purpose or project. These types of grants may also be referred to as unrestricted grants. Capital support grants are awarded for an organization to acquire, upgrade, or develop capital infrastructure such as buildings, land, or equipment. Capital support is often provided in larger, one-time grants. Capacity building or technical assistance grants are meant to enhance an organization’s sustainability and effectiveness through such processes as strategic and long-range planning, organizational assessment and development, business planning, and the use of outside consultants. Matching or challenge grants are awarded to match contributions provided by another donor or institutional funder. Challenge grants are often paid only if the grantee organization raises a predetermined amount of funds from other sources. Additional types of support include planning grants, endowment funds, seed money for new initiatives, and research grants. Grantmakers may adopt varying approaches to how they award grants. Orosz (2000) identifies four main styles of grantmaking, which he labels the “4-P continuum.” At one end of the continuum, a passive grantmaker will accept unsolicited proposals from prospective grantees and will determine awards based on general guidelines and broad funding criteria. Next, a proactive grantmaker may also accept unsolicited proposals but is much more intentional about promoting its funding opportunities and soliciting propos-

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als from potential grantees. In addition, the proactive grantmaker typically has several well-defined funding priorities. A prescriptive grantmaker operates with relatively narrow priorities and may structure its grantmaking around strategic initiatives, each with a formal request for proposals (RFP). The prescriptive grantmaker may also direct its program officers to recommend potential grantees. Lastly, a peremptory grantmaker might accept proposals by invitation only and will strive to identify potential grantee organizations that align with its strategic priorities. The peremptory grantmaker rarely accepts unsolicited proposals and may often operate its own programs in addition to its grantmaking activities. Most foundations will fall somewhere in the middle of this spectrum, while government grantmakers may skew more toward the prescriptive or peremptory end of the continuum.

Current issues and challenges

There are several areas of tension between grantmakers and grantees, and specifically between foundations and nonprofits. There are differing views on the degree to which grantmakers should provide continuing support for grantees. Some funders prefer to support innovative programs or initiatives that will eventually become self-sustaining and therefore view grants as a form of seed money. Others will continue to fund the same organizations and programs, provided they demonstrate ongoing results and growth. Still others may vary their approach by grantee. Studies of nonprofit organizations have shown the need for sustained funding to build capacity and reduce the fundraising burden on grantees. Another issue is the type of support provided by funders. Grants have historically trended toward restricted, program-specific, or project-specific awards. The lack of general operating support grants, coupled with limits on the amount of overhead expenses allowed in other awards, has led to what practitioners have called the nonprofit starvation cycle (Gregory & Howard, 2009). Grantees may underreport or underfund mission-critical functions such as fundraising and staff development to keep overhead ratios down or to meet caps on administrative expenses set by funders. Following several studies on this issue over the past decade, several key foun-

dations have pledged to either raise caps on overhead or to provide more multi-year, general operating support for nonprofits. Low overhead allowances remain a key issue with government grants. Impact measurement and accountability are two key aspects of the post-award grantmaker–grantee relationship. An increasing emphasis on program effectiveness among donors and grantmakers has placed a heavier burden on grantees to demonstrate the impact of grant-funded programs and services. This has had implications for both proposal development and grant reporting. As part of a proposal, grantmakers will often request information on a project’s goals and objectives, evaluation methods, and anticipated outcomes. If a grant is awarded, the organization may be asked to compare planned objectives with actual outcomes as part of an interim and/or final grant reporting process to assess the relative success or impact of the project. Accountability, especially as it relates to grant compliance, is of particular importance for government grantmakers. Agencies may have detailed reporting guidelines, and grantees may be required to keep strict accounting of all funds allocated as part of a grant. Legal and tax considerations are a strong determining factor as to which organizations or individuals may be eligible for grants and may pose barriers to funding for non-traditional grantees. In the United States, private foundations are generally required to pay out a minimum of 5 percent of the fair market value of their assets each year as qualifying distributions – distributions that serve a charitable purpose (see the entry Payout Requirement in this volume). Foundations primarily meet this requirement by awarding grants to charitable organizations classified as 501(c)(3) public charities under the Internal Revenue Code. Certain institutions, such as instruments of government (e.g., a local fire department) and churches and other houses of worship are also considered charitable by their very nature and are therefore eligible in a broad sense for grant funding. Among the exceptions to this general rule, foundations may award grants to individuals for certain specific purposes such as support for academic study. When awarding grants to non-U.S. charities, foundations must follow a process of

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either expenditure responsibility or equivalency determination for awards to count as qualifying distributions. Expenditure responsibility encompasses a set of monitoring and oversight procedures intended to ensure that funds awarded to a foreign grantee or non-charitable organization are used exclusively for charitable purposes. Equivalency determination is a narrower process by which a U.S.-based grantmaker can evaluate whether an intended foreign grantee would be the equivalent of a 501(c)(3) public charity. Foundation grants to organizations without 501(c)(3) status are fairly uncommon but can be accomplished through expenditure responsibility or by using an intermediary 501(c)(3) organization as a fiscal sponsor (see the entry Fiscal Sponsor in this volume). The rules governing these unusual grants are complex and can be a significant deterrent to many small-staffed foundations. The overwhelming majority of grants, both from foundations and government, are subsequently awarded to 501(c)(3) nonprofit organizations.

The future

Existing tensions between grantmakers and grantees have given rise to efforts to address the power imbalance in philanthropy. Foundations, especially, have faced pressure from within the sector to adapt their grantmaking strategies and processes to better fit the needs and capacity of nonprofits. Varying initiatives have focused on streamlining application processes, reducing the reporting burden on grantees, increasing the amount of general operating support, and providing greater transparency around funding decisions. Some foundations have also adopted the practice of seeking grantee feedback to inform both their grantmaking processes and their strategic priorities. Adoption of many of these practices by foundations accelerated in response to the events of 2020 and amid the need to rush funding to communities and nonprofits in need at an unprecedented pace and scale. Systemic inequities evident in the impact of the COVID-19 pandemic, alongside worldwide protests for racial equity, emphasized the need for grantmakers to re-examine their grantmaking processes and their distribution of funds through an equity lens. Grantmakers are also responding to increased need in communities by expand-

ing their support beyond the grant award. Corporate funders have historically offered a wider range of support for nonprofits, from employee engagement to product donations. Other foundations have partnered with consultants to provide management, technical, or evaluation support to accompany a grant award. In a broader sense, foundations are seeking ways to use their non-financial assets to complement their grantmaking and amplify their impact. Ambassador James Joseph, past president of the Council on Foundations, coined the acronym SMIRF to refer to philanthropy’s social, moral, intellectual, reputational, and financial capital (Joseph, 2014). In terms of financial tools, some foundations are leveraging their endowments through mission-related investing to better align their assets with their stated funding priorities. In addition to diversifying their support for grantees, grantmakers are also seeking ways to provide more funding to social enterprises and grassroots organizations. Program-related investments (PRIs) are one way for private foundations in the U.S. to award low-interest loans to hybrid for-profit, mission-centered organizations. Grantmakers are also exploring collaborations with intermediaries, sometimes involving fiscal sponsorship, to direct funds to smaller, localized nonprofits. At the same time, the potential sources of funding for nonprofits have expanded to include non-traditional forms of philanthropy such as giving circles, LLCs, and, most prominently, donor-advised funds. Each of these emerging forms of giving has the potential to disrupt the traditional grantmaker–grantee paradigm and the way in which grants are awarded. Janine Lee, David Miller and Stephen Sherman

Related topics

Capacity building Corporate foundations Financing nonprofit organizations Income portfolio analysis Program evaluation Project management Regulation of nonprofit organizations Restricted / unrestricted funds

Further reading and references

Bauer, D. G. (2011). The “how to” grants manual: Successful grantseeking techniques for

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G 307 obtaining public and private grants (7th edn.). Rowman and Littlefield. Candid. (2020). Key facts on U.S. nonprofits and foundations. Collins, S. (Ed.) (2008). Foundation fundamentals (8th ed.). Foundation Center. Giving USA Foundation. (2021). Giving USA: The annual report on philanthropy for the year 2020. https://​givingusa​.org/​giving​-usa​ -2020​-charitable​-giving​-showed​-solid​-growth​ -climbing​-to​-449​-64​-billion​-in​-2019​-one​-of​ -the​-highest​-years​-for​-giving​-on​-record/​. Accessed 15 September 2023. Gregory, A. G., & Howard, D. (2009). The nonprofit starvation cycle. Stanford Social Innovation Review, 7(4), 49–53. https://​doi​.org/​ 10​.48558/​6K3V​-0Q70 Joseph, J. A. (2014, October 20). Beyond grantmaking: Reimagining the potential of the community foundation in its second century [Speech transcript]. Council on Foundations. www​.cof​ .org/​content/​beyond​-grantmaking​-reimagining​ -potential​-community​-foundation​-its​-second​ -century. Accessed 15 September 2023. Orosz, J. (2000). The insider’s guide to grantmaking: How foundations find, fund, and manage effective programs. Jossey-Bass.

Grassroots INGOs Definition

Grassroots INGOs or GINGOs are small-scale development initiatives that rely on volunteer labor and donations from private individuals to fund development projects in the global South. In the U.S., GINGOs are usually formally incorporated as nonprofit organizations and have an annual budget of less than $250,000, often much less. However, this is not only a U.S. phenomenon. GINGOs exist in Canada; in the Netherlands they are called private development initiatives; and several other global North countries have documented small-scale development organizations that provide assistance to the global South. GINGOs and their supporters are known to embrace nonexpert approaches to service delivery and can best be described as committed, everyday people leading and man-

aging international exchanges of resources. Founders and supporters of GINGOs are simultaneously the aid worker, the volunteer, and the donor and represent expressive qualities rather than technical solutions. GINGOs underline unique person-to-person exchanges in the name of development among communities in the North and the South.

In practice: Two illustrative examples of GINGOs in action

Two illustrative examples of typical GINGOs are presented: (1) a nonprofit organization created in the U.S. to support an organization that already existed in a recipient country; and (2) a nonprofit organization formed in the U.S. to then later set up a formal partner organization in the recipient country. Advance and Embrace Community–USA15 engages in socioeconomic development projects in west Kenya. Its mission “is dedicated to more equitable use of world resources.” The organization came to be after a trip to Kenya in the early 2000s by Diana Walker and Eleanor Smith to volunteer at an established community-based organization called Advance and Embrace Community–Kenya (AEC-Kenya). AEC-Kenya was founded in 1985 by Kenyans and coordinates several development projects, from reforestation to healthcare provision for HIV/AIDS patients and educational services. Diana and Eleanor collaborated with AEC-Kenya for several years and then in the U.S. they committed to a more formal structure. In 2005, they created AEC-USA and set out an organizational commitment to “equal rights for everyone; and co-responsibility to safeguard the environment for current and future generations.” Jajja’s Kids’ mission is to “creat[e] possibilities for former street children” in Kampala, Uganda. It has a similar origin story to AEC-USA in the sense it began after a trip by its founder, Diane Reiner, to Uganda. She returned to the U.S. to create Jajja’s Kids to raise funds for projects in Kampala. The founding of Jajja’s Kids in the U.S. then led to the creation of Jajja’s Kids Africa in Kampala, which is staffed entirely by Ugandans. Ronnie Sseruyange, Diane’s point person in Uganda, is not only

15 Pseudonyms in lieu of the names of the people and the organization are used for this first illustrative example.

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a Kampala native but also a former street child. Jajja’s Kids permanently houses 20 children providing them with food, shelter, social interaction, and education. The U.S. organization provides the financial support Jajja’s Kids Africa needs to operate, and the individuals providing direct services to the children are employed by Jajja’s Kids Africa. These brief illustrative examples are consistent with the thousands of GINGOs in the U.S., in that they are the result of personal experiences usually involving international travel. They manifest in ways that become profoundly personal, developing relationships in the global North and the global South alike. These characteristics require a major role for the organizational founders in the leadership and management of GINGOs.

Current directions: Leading and managing GINGOs

GINGOs rely heavily on the founder and the relationships forged with their partners on the ground. Given this heavy reliance on the personal, organizational challenges like “founders’ syndrome” or “founderitis” and/or burnout by founders and supporters engaged in the day-to-day operations emerge as organizational liabilities for GINGOs. For a GINGO, a founder is often the primary actor who has ties with the recipient community, donor relations, experience with organizational record keeping, and other major organizational duties. In most GINGOs, the founder initially contributed a majority of the resources, including time, money, and the personal and institutional networks. Founders have “a remarkable capacity to translate their visionary ideas into organizational realities” (Block & Rosenberg, 2002, p. 353). They are “called to act and serve others – based on a perceived need or a specific interest or passion – and using the nonprofit organization as the institutional form for action” (Carman & Nesbit, 2012, p. 616). For GINGOs, “the motivations, characteristics, and personal commitment of nonprofit founders … deeply shape” the organizations (Appe & Oreg, 2020, p. 504). There are challenges to the reach and splendor of the founder of any organization, including GINGOs. One concern is the limited succession planning and challenges with leadership change in these organizations. Of the illustrative examples, one of the organSusan Appe

izations, AEC-USA, has transitioned from its original founder. After a year-long battle with leukemia, the founder and board president who was engaged in the day-to-day running of the organization, Eleanor, passed away in 2020. Described by the board of AEC-USA, Eleanor “in her role as President of the Board, was the heart and soul of [AEC-USA].” The organization has committed to its donors and other supporters to continue Eleanor’s work. Recent research finds that four out of ten GINGOs will be inactive within 15 years of their founding (Schnable et al., 2023). Eleanor’s death was precisely at this 15-year mark for AEC-USA, suggesting that the organization has perhaps consolidated and built a strong network of supporters to be able to continue even after the loss of its passionate founder. Jajja’s Kids (started in 2006) has also sustained into the 15-year mark, suggesting that the organization has developed strong relationships and sound operations. However, conversations about leadership succession are often not deliberate across GINGOs like Jajja’s Kids, whose founder remains involved in its day-to-day operations. Limited succession planning in GINGOs poses challenges to the sustainability of these organizations. In addition to leadership succession, other managerial challenges for GINGOs are linked to their amateur status. For example, many GINGO leaders do not have technical development skills which can result in ineffective projects. The consequences are real; for example, for those GINGOs which build wells, many report a clear learning curve: initial wells dry up or sink into the ground. That is, GINGOs often learn development work through trial and error, missing the lessons learned from decades of development practice. Another challenge that has managerial implications is that GINGOs at times do not have a full grasp of the political and social contexts where they provide services. Perhaps due to the personal and emotional components of GINGOs, they often work in isolation, choosing not to partner with other development organizations or local governments, when collaboration might produce more efficient and effective services in some contexts. Other challenges that should be considered in the context of GINGOs include the accountability mechanisms used, navigating banking regulations, as well as having the cultural competence needed to do cross-border work.

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Conclusion: The future of GINGOs

Even with the distance embedded in these international exchanges, limited succession planning and their amateur nature with minimal experience in formal management, GINGOs are establishing themselves as contributing to the new decentralized and mainstreamed realities of North–South exchanges. GINGOs are personal efforts that allow people in the global North to engage in the expressive functions of international collective action. Scholars note that these organizations also provide an important dimension to raising awareness in the North. While we have limited evidence about the actual effectiveness of these organizations, proponents argue that while impact might be small, it is decidedly there, both for communities in the North and in the South. Susan Appe

Related topics

Cultural competence Founder’s syndrome Global conflict and philanthropy Leadership succession Nongovernmental organizations

Further reading and references

Appe, S. (2020). Beyond the professionalized NGO: Life-history narratives of grassroots philanthropic leaders in Africa. Nonprofit Management and Leadership, 31(2), 335–353. https://​doi​.org/​10​.1002/​nml​.21434 Appe, S. (2022). Grassroots international NGOs in Africa: Perspectives on what they are (and are not?). Nonprofit and Voluntary Sector Quarterly, 51(1), 125–147. https://​doi​.org/​10​ .1177/​0899764021991672 Appe, S., & Oreg, A. (2020). Philanthropic entrepreneurs who give overseas: An exploratory study of international giving through grassroots organizations. Nonprofit and Voluntary Sector Quarterly, 49(3), 502–522. https://​doi​.org/​10​ .1177/​0899764019878785 Appe, S., & Schnable, A. (2019). Don’t re-invent the wheel: Possibilities and limits to building capacity of grassroots international NGOs. Third World Quarterly, 40(10), 1832–1849. https://​doi​.org/​10​.1080/​01436597​.2019​ .1636226 Block, S. R., & Rosenberg, S. (2002). Toward an understanding of founder’s syndrome: An assessment of power and privilege among

founders of nonprofit organizations. Nonprofit Management and Leadership, 12(4), 353–368. https://​10​.1002/​nml​.12403 Carman, J. G., & Nesbit, R. (2012). Founding new nonprofit organizations: Syndrome or symptom? Nonprofit and Voluntary Sector Quarterly, 42(3), 603–621. https://​doi​.org/​10​ .1177/​0899764012459255 Develtere, P., Huyse, H., & Van Ongevalle, J. (2021). International development cooperation today: A radical shift toward a global paradigm. Leuven University Press. Fechter, A.-M., & Schwittay, A. (2019). Citizen aid: Grassroots interventions in development and humanitarianism. Third World Quarterly, 40(10), 1769–1780. https://​doi​.org/​10​.1080/​ 01436597​.2019​.1656062 Schnable, A. (2021). Amateurs without borders. University of California Press. Schnable, A., Appe, S., & Jock, J. (2023). Perpetual effervescence? The life trajectories of American grassroots international NGOs. In H. Haaland, S. Kinsbergen, L. Schulpen, & H. Wallevik (Eds.), The rise of small-scale development organisations: The emergence, positioning and role of citizen aid actors, 72-88. Routledge. https://​doi​.org/​10​.4324/​9781003228257​-6

Growth strategies Definition

Growth strategies refer to the plans and methods by which organizations of any type, including nonprofits, may expand – be it regarding their social impact, number of donors, amount of income, geographic locations, or otherwise.

Context

There are many typologies, taxonomies, and frameworks to organize and explain the growth strategies that an organization may pursue. One of the most well-established, widely utilized, and straight-forward among these is Ansoff’s Product/Market Matrix (Figure 8). Introduced in 1957 by Igor Ansoff, “the father of strategic management” and author of the bestselling book Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion, the matrix remains a staple of business theory and practice across the globe. David Gras and Gavin Williamson

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Essential components of, and growth strategy insights from, Ansoff’s Product/Market Matrix

Ansoff’s Product/Market Matrix – originally developed in commercial settings – suggests that organizations essentially have two main considerations when formulating a growth strategy: products and markets. Products (this also encompasses services, which are more common for nonprofits) refer to the things that an organization makes or sells. Markets (or customers) refer to the people who buy or use what the organization makes or sells. This includes both nonpaying clients and paying consumers (common in the arts, healthcare, and education). The tool is formed by differentiating existing products and markets from new ones and creating a 2x2 matrix with four corresponding growth strategies, as illustrated in Figure 8. The unbracketed, bolded terms pertain to the original matrix and (primarily) pertain to the for-profit domain. The bracketed terms are edits for the nonprofit realm, to be discussed in the next section. Market Penetration, located in the upper-left quadrant is a growth strategy whereby an organization sells more of their current product offerings to its current customers. For example, an organization may run a “buy one, get one half-off” sale to encourage customers to buy more of their existing products at a discount. This growth

strategy is considered the least risky of those in the Matrix, as it involves dealing with the familiar. Product Development, located in the upper-right quadrant, is a growth strategy whereby an organization develops and sells new products to its current customers. As an example, a confectioner may develop new flavors of candy that are likely to be enjoyed by its existing patrons. Market Development, located in the bottom-left quadrant, occurs when an organization sells existing products to new customers. A classic example is when an organization begins exporting its products to another country. Both Product Development and Market Development are considered riskier than Market Penetration, as organizations must engage with something unfamiliar. Organizations must therefore invest in gaining new competencies – either in products or markets – often at substantial cost with unknown returns. Finally, Diversification, located in the bottom-right quadrant, occurs when a company pursues new customers through the offering of new products. Diversification is considered the riskiest strategy as pursuing new products and new markets simultaneously is often costly and the resulting returns are more difficult to predict without experience in either facet of the growth strategy.

Note: Unbracketed, bolded terms pertain to the original matrix. The bracketed terms are modifications for the nonprofit realm.

Figure 8

Ansoff’s Product/Market Matrix

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In practice

experimentation that can lead to incremental growth. Once nonprofit organizations have exhausted the opportunities present in the first cell, The Management Centre recommends Program Development, or asking “what else might your current [revenue providers] be interested in?” As the revenue providers are already engaged with the nonprofit organization, they are ideal partners to test new programs or offerings. Should the responses prove positive (i.e., commitment of greater revenue), the nonprofit will have uncovered a promising growth strategy. Third, and once opportunities for Program Development are tapped, The Management Centre suggests moving on to Revenue Source Development. Once the nonprofit capitalizes on Program Development opportunities, they may have a range of programs and offerings that would be of interest to a larger base of revenue providers. As such, the nonprofit should search for new providers interested in their current activities. Finally, and after the other strategies are tried, The Management Centre recommends consideration of the riskiest option – Diversification. Developing new programs and pursuing new donors at the same time may be cumbersome, but it may also open new and exciting possibilities that none in the organization had previously considered.

Although Ansoff’s Product/Market Matrix was developed in the for-profit sector, the underlying logics are applicable to the nonprofit sector. For those nonprofits that attain revenue through the sale of goods and services (i.e., earned income), the Matrix is directly applicable as-is. For all others, the Matrix requires minor tweaks to be useful. Specifically, one need only substitute “products” with similar offerings such as the nonprofit’s programs or fundraising activities, and “markets” with other stakeholders such as donors or board members. For the sake of parsimony, we will provide examples through the substitution of “products” with programs (or related activities) and “markets” with revenue sources. The upper-left quadrant – Revenue Source Penetration – involves coaxing more revenue out of existing providers using existing programs or offerings. For example, a museum that is funded through ticket sales may create a new marketing campaign, seeking to get patrons to visit more often. The upper-right quadrant – Program Development – involves revenue generation through new programs or offerings. For example, the museum may create a new exhibit related to their core collection in an effort to get current patrons to visit more often. The bottom-left quadrant – Revenue Source Development – involves the cultivation of new financial providers with the existing programs or offerings. For example, Limitations and strengths of the museum may form a revenue-sharing Ansoff’s Product/Market Matrix agreement with the local zoo such that tickets There are several limitations to pursuing to one of the organizations also allows entry growth through Ansoff’s Product/Market into the other. Finally, the bottom-right quad- Matrix: rant – Diversification – involves the pursuit of new revenue sources in conjunction with ● The Matrix provides little guidance on new programs or offerings. For example, the the “how” of achieving growth. For museum may begin offering its facilities as example, while it may lead organizations a venue for weddings. to consider expansion into a new geoThe Management Centre (www​ graphic market, further analysis is needed .managementcentre​.co​.uk), a nonprofit conto plan the particulars of this expansulting and support organization based in the sion. It is important to consider whether United Kingdom, advocates for a particular a nonprofit’s existing human and knowlprogression among the Matrix cell options as edge resources are sufficient to pursue nonprofits pursue growth. The Management a particular growth strategy, and when the Centre suggests that organizations first conorganization should stop if the strategy is sider the Revenue Source Penetration option. unsuccessful. The low risk of expanding existing offerings ● Construction of the Matrix does not entail and deepening connections with well-known a cost–benefit analysis. Evaluation of both donors is ideal for quick and competent costs and benefits of each strategy against other options helps organizations priorDavid Gras and Gavin Williamson

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itize growth alternatives. For example, transaction costs will likely be different in each of the four cells. ● Ansoff’s Matrix is isolationist – peer nonprofits and their strategies are omitted from the framework. Yet, the viability of any strategy is dependent on the actions of other organizations that compete for similar resources. Despite these limitations, Ansoff’s Product/ Market Matrix has remained a central and enduring growth planning tool for for-profits and nonprofits alike due to several strengths: ● The Matrix presents, and forces users to choose between, broad yet simple choices. Its simplicity makes it a handy framework to begin growth strategy discussions and planning. ● It provides useful rules of thumb regarding prospective risk of various strategies. ● The Matrix can easily be deployed alongside other planning tools like SWOT analysis that enable more comprehensive planning than any one tool could alone. David Gras and Gavin Williamson

Related topics

Commercialism Competitive forces

David Gras and Gavin Williamson

Financial performance indicators Income portfolio analysis Lifecycles of nonprofit organizations Managerialism Revenue diversification Strategic analysis: SWOT Strategic planning

Further reading and references

Andreasen, A. R., & Kotler, P. (2008). Strategic marketing for nonprofit organizations (7th edn.). Pearson Education. Ansoff, H. I. (1957). Strategies for diversification. Harvard Business Review, 35(5), 113–124. Ansoff, H. I. (1965). Corporate strategy: An analytic approach to business policy for growth and expansion. McGraw-Hill. Bryson, J. M. (1991). Strategic planning for public and nonprofit organizations. Jossey-Bass. Courtney, R. (2002). Strategic management for voluntary nonprofit organizations. Routledge. Moore, M. L., Riddell, D., & Vocisano, D. (2015). Scaling out, scaling up, scaling deep: strategies of non-profits in advancing systemic social innovation.  Journal of Corporate Citizenship, 2015(58), 67–84. https://​doi​.org/​10​.9774/​gleaf​ .4700​.2015​.ju​.00009 Westley, F., Antadze, N., Riddell, D. J., Robinson, K., & Geobey, S. (2014). Five configurations for scaling up social innovation: Case examples of nonprofit organizations from Canada.  The Journal of Applied Behavioral Science,  50(3), 234–260. https://​doi​.org/​10​ .1177/​0021886314532945

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Housing organizations Definitions

In practice

Nonprofit housing organizations (NHOs) in the U.S. play a significant role in the production and management of high quality housing that is affordable to lower income households. Community Development Corporations (CDCs) are the most dominant type of NHO, with thousands of such organizations across the country (National Congress for Community Economic Development, 2005). Some CDCs are very small, with only a few dozen units in a local area, while others own and operate thousands of units in several states and have large, professional staffs. Many, if not most, of the largest CDCs in the country are members of the Housing Partnership Network, which includes about 100 large, highly professional NHOs. Another type of NHO, community land trusts (CLT), own land in perpetuity, with the housing built on the land subject to long-term affordability restrictions. In limited equity cooperatives and mutual housing association developments, residents own shares, but not their actual unit. Further, as with CLT units, these homes cannot be sold at prevailing private market rates. Instead, deed restrictions and other regulatory agreements cap asset appreciation based on improvements to the property and the rate of inflation. Habitat for Humanity presents a further NHO model. It depends on local public and private contributions of material and labor, as well as “sweat equity” on the part of the new homeowners, to produce low-cost homes that are required to be affordable for lower income households in perpetuity. The first Habitat for Humanity efforts were based in the U.S., but the model has spread throughout the world.

NHOs are the major component of the U.S. social housing sector. Although this term is not common in the U.S., it is widely used in other parts of the world, particularly Europe. In addition to housing that is owned and managed by NHOs, social housing also includes units owned and operated by local housing authorities and funded through federal subsidies. While precise numbers are difficult to determine, one analysis estimated about five million social housing units in the U.S. with approximately 70 percent owned by NHOs (Bratt, 2020). In the U.S., social housing units supported with federal funding must remain affordable for at least 30 years and are targeted to low-income, very low-income and extremely low-income households (defined as earning no more than 80 percent, 50 percent and 30 percent of area median income, respectively). To be considered affordable, a household cannot pay more than 30 percent of income for housing. Units solely subsidized through rental certificates or vouchers are not included as part of the social housing stock. There are both for-profit and nonprofit owners of affordable housing developments, but only the latter are considered part of the social housing stock, due to NHOs’ commitment to long-term affordability. Of the 50 largest owners of affordable housing, only 12 are NHOs; the remainder are for-profit corporations. The largest nonprofit owner, Mercy Housing, owns nearly 24,000 units across the U.S. The largest owner – a for-profit (The Michaels Organization) – has more than double that number in its portfolio (49,403) (Affordable Housing Finance, 2023).

Historical overview

The history of nonprofit involvement with housing is about 100 years old, starting with some modest philanthropic and

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limited-dividend housing efforts. Yet, for much of this time, the story has been discontinuous with changes in the nonprofit sector’s activities being circumstantial and based on political, economic and social needs, rather than on an analysis of prior efforts and an attempt to strengthen nonprofit productivity or spur a nonprofit housing movement. It was not until 1959 that the federal government, through the Section 202 program, singled out NHOs as developers of housing for low-income older adults and for people of any age with disabilities, by providing direct, federal low-interest rate loans. Yet, Congress’s decision to use nonprofits did not appear to be part of a conscious policy shift to support NHOs which, at that time, were rooted in religious, occupational or fraternal groups. During the 1960s, two major initiatives provided support to nonprofit community-based organizations: the Ford Foundation’s Gray Areas Program and the U.S. Economic Opportunity Act’s Special Impact Program. NHOs also were included as eligible sponsors of the federal Below-Market Interest Rate programs of 1963 and 1968. Yet, the major growth in the nonprofit housing sector did not start until the 1970s. NHOs have been assisted with financial and technical resources (such as educational and training programs) by three national nonprofit intermediary organizations (i.e., NeighborWorks America, Local Initiatives Support Corporation and Enterprise Community Partners). The National Community Development Initiative, which provided NHOs with loans and grants for operations and development, was a major intermediary-sponsored effort. Over the past several decades, NHOs, as a group, have become more professional, and they often work closely with for-profit firms, social services providers and public officials in collaborative development efforts. NHOs have been singled out by the federal government for special consideration. The Low-Income Housing Tax Credit program (LIHTC), which provides the major federal rental housing subsidy, requires each state to assign at least 10 percent of its tax credit allocation to NHOs. Similarly, the HOME program requires each state or local government recipient to designate at least 15 percent of its block grant funds to NHOs Rachel G. Bratt

(termed Community Housing Development Organizations).

Attributes and challenges

The benefits and positive attributes of NHOs are compelling. As a group, NHOs are committed to long-term affordability of their units, often work in seriously distressed areas, and are typically focused on assisting very low- or extremely low-income households. In addition to their affordable housing agenda, NHOs usually provide or coordinate the delivery of a range of services that promote resident well-being and economic security. This also may include opportunities for resident involvement, capacity-building, and possibly ownership of their units or shares of the development. Central to the work of NHOs is their clear focus on the residents of the housing, as well as the larger community. Although nonprofits seek to cover their costs and create reserves for emergencies and new development, their work is not aimed at producing capital gains or extracting profits. One example of NHOs’ commitment to residents is the significant support and services they provided during the COVID-19 pandemic. For example, a survey of the members of the Massachusetts Association of Community Development Corporations, a membership organization of the state’s locally based community development entities, revealed that two-thirds had provided some type of food assistance during the COVID-19 pandemic (Brochin, 2020; MACDC & LISC, 2020). Particularly noteworthy was the response by 2Life Communities in the Boston area. As the owner and manager of over 1,300 housing units that are occupied by extremely low-income older adults, for about 12 months starting in Spring 2020, the organization provided residents with a free hot meal each day, as well as free groceries and laundry services. In this way, residents were encouraged to quarantine in place, thereby protecting health and safety (Bratt 2022). NHOs’ concern for their residents and for the affordable housing mission is also apparent when the 30-year affordability restriction for LIHTC developments expire; their approach differs from the typical orientation of for-profit affordable housing developers. A recent report noted that: “LIHTC properties with nonprofits in the ownership struc-

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ture are less likely to convert to market-rate” compared with for-profit owners (National Low Income Housing Coalition Public and Affordable Housing Research Corporation, 2018). Unfortunately, the great majority of LIHTC properties are owned by for-profit firms (about 81 percent), rather than NHOs (about 19 percent), thus making these units vulnerable to market-rate conversion. While the specific challenges that an NHO is likely to face are dependent on its size, asset base, organizational capacity and the characteristics of the local market in which it operates, the lack of a single source of significant federal subsidies for development, management and resident services represents the major challenge facing NHOs. As a result, NHOs face the accompanying problem of needing to assemble multiple funding resources, each of which has different requirements. To be successful in locating these funds, NHOs need to collaborate with a range of public, private and nonprofit organizations. Most of the research on challenges facing NHOs has focused on CDCs (see, e.g., the summary in Bratt, 2020). NHOs typically require long hours of work and staff “burn-out” is common, with salaries typically lower than in comparable jobs in the for-profit sector. This can make assembling a strong leadership team, board and professional staff even more difficult. NHOs also are likely to experience long timeframes to complete developments and to observe appreciable changes in the local environment. In addition, measuring CDC outcomes is difficult both because of these long timeframes, as well as because of the complexity and intertwined nature of their work – housing, social services and economic development. Since NHOs often work in collaboration with several partners, the unique role of the NHO also may be difficult to discern, thereby making it hard to demonstrate their value to funders, lenders and other stakeholders. Furthermore, the organizational structure of NHOs requires them to walk a fine line between developing a close working relationship with financial institutions and city governments, while staying true to their mission to serve the interests of low-income people.

Future agenda

Despite the growth and importance of NHOs, we still do not have a coordinated set of programs and subsidies to support their work. Bratt (1998) has proposed the creation of a “nonprofit-centric housing system,” that would streamline and support the production and management of affordable housing by NHOs. In addition to significantly improving the productivity and efficiency of NHOs, it would also support the work of the for-profit affordable sector. Given that most affordable housing is developed by the latter, it is critical that their skills and resources are utilized. Regardless of the type of developer, the housing must be high quality with available resident services, and affordability must be assured long into the future, with programmatic options for the for-profit-owners to sell the buildings to groups, presumably NHOs, who are committed to preserving affordability in perpetuity. A “nonprofit-centric housing system,” would include adequate development and operating subsidies to bring projects to fruition; enable developments to be managed efficiently over the long term; make units affordable to the lowest income households; and facilitate the provision of a resident services program, either on-site or in collaboration with other local groups. In addition, a “nonprofit-centric system” would offer technical assistance and operating support to help address organizational needs; assemble a group of experts in a variety of fields who could help package development deals at low or no cost; develop land-banking programs that would encourage local and state governments to set aside land and buildings suitable for affordable housing development; provide construction and long-term debt financing at attractive interest rates; and offer opportunities for NHOs to share information and lessons learned through trade, education, and support networks. Many of these components exist in locales across the country, and programs offered by the national nonprofit intermediaries and some state governments fill some of the gaps. However, there is no place where all the pieces are in place, particularly the deep subsidies needed to make affordable housing deals work, without layering multiple financial resources. Rachel G. Bratt

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A “nonprofit-centric housing system” would, at the same time, take important steps to support a larger agenda: A Right to Housing. Indeed, this movement and NHOs have a shared mission: to provide long-term affordable housing with support services that promote resident well-being and economic security. Rachel G. Bratt

National Congress for Community Economic Development. (2005). Reaching new heights: Trends and achievements of community-based development organizations. National Low Income Housing Coalition and Public and Affordable Housing Research Corporation. (2018). Balancing priorities: Preservation and neighborhood opportunity in the Low-Income Housing Tax Credit Program beyond year 30. NHPD. https://​ preservationdatabase​.org/​wp​-content/​uploads/​ 2018/​10/​Balancing​-Priorities​.pdf Related topics Stone, M. E. (2006). Social ownership. In R. G. Bratt, M. E. Stone, & C. Hartman (Eds.), A right Community-based organizations to housing: Foundation for a new social agenda Human service organizations (pp. 240–260). Temple University Press. Public policy and nonprofit organizations von Hoffman, A. (2003). House by house, block Social economy by block: The rebirth of America’s urban neighborhoods. Oxford University Press. Zdenek, R. O., & Walsh, D. (2017). Navigating Further reading and references community development: Harnessing comparAffordable Housing Finance. (2023, May 25). Top ative advantages to create strategic partner50 affordable housing owners of 2022. www​ ships. Palgrave Macmillan. .housingfinance​.com/​management​-operations/​ top​-50​-affordable​-housing​-owners​-of​-2022​_o Bratt, R. G. (1989). Rebuilding a low-income housing policy. Temple University Press. Bratt, R. G. (1998). Nonprofit developers and managers: The evolution of their role in U.S. housing policy. In C. T. Koebel (Ed.), Shelter and society: Theory, research, and policy for nonprofit housing (pp. 139–156). SUNY Press. Bratt, R. G. (2020). The U.S. approach to social housing. In K. B. Anacker, M. T. Nguyen, & Definitions: Key terms and D. P. Varady (Eds.), The Routledge handbook concepts of housing policy and planning (pp. 173–188). Human service organizations provide assisRoutledge. tance in response to poverty and other social Bratt, R. G. (2022). Planning for the Extraordinary Requires Close Attention to the Ordinary: 2Life welfare needs in diverse community-based Communities’ Efforts to Protect Low-Income settings. Examples of these services include Older Adults During the Pandemic. Joint Center low-income housing and employment assisfor Housing Studies, Harvard University. www​ tance, disability supports, mental health care, substance abuse prevention/treatment, elder .jchs​.harvard​.edu/​sites/​default/​files/​research/​ files/​harvard​_jchs​_2life​_communities​_bratt​ care, food and nutrition assistance, and child _2022​_0​.pdf abuse prevention/treatment and child, youth, Brochin, E. (2020). CDC’s respond to COVID-19. and family support services. While many MACDC. www​.macdc​.org/​news/​cdcs​%E2​%80​ human services are delivered by private non%99​-respond​-covid​-19 Davis, J. E. (1994). Beyond the market and the profit organizations, this field of service also state: The diverse domain of social housing. In includes government agencies and, to a lesser J. E. Davis (Ed.), The affordable city: Toward extent, some for-profit businesses. a third sector housing policy (pp. 240–260). Temple University Press. In practice Glickman, N. J., & Servon, L. J. (1998). More than bricks and sticks: Five components of Foundational knowledge of nonprofit human community development corporation capacity. service organizations reflects two interrelated Housing Policy Debate, 9(3), 497–539. https://​ themes: the complexity of human service doi​.org/​10​.1080/​10511482​.1998​.9521306 delivery; and nonprofit resource dependMACDC & LISC Boston Joint Newsletter. (2020). ence on public revenues. As described by MACDC. www​.macdc​.org/​sites/​default/​files/​ Hasenfeld (2010) and elaborated on by subdocuments/​macdc​_and​_lisc​.pdf

Human service organizations

sequent scholars, the complexity of human

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services involves three features that characterize the task and technical environment of human service organizations. First, service participants – ranging from young children to elderly adults, families, and community groups – may reflect multiple and often highly complex needs. For example, in a nonprofit child welfare program, a parent may be required to complete drug treatment and attend parenting classes in order to increase the likelihood of parent–child reunification. Second, the planned work of nonprofit service delivery may be highly uncertain at the frontline service and program levels. Managers and workers may not know exactly how, by whom, when, and with what effects services were delivered or are to be delivered. Human service work may also reflect planned and unplanned variability in the supply of key human and financial resources. Third, the lack of service-related knowledge and tools may result in nonprofit managers struggling to ensure that services are delivered equitably, effectively, efficiently, and reliably. Implications can include calls for the strengthening of intra- and interorganizational human service supply chains, thereby improving the governance of nonprofit human service programs (Smith, 2018). The other essential concept concerns nonprofit resource dependence on governmental funding. In the U.S., nonprofit human services originated in response to emerging community needs in industrializing urban areas, as can be seen in the rise of charity organization societies and settlement houses. While nonprofit human service organizations were historically funded through charitable donations and religious sponsorships, since the rise of the War on Poverty they have become increasingly dependent on public program revenue. It has been suggested that upwards of two-thirds of nonprofit human services are now funded by governmental sources, with smaller proportions of funding reflecting foundation grants, donations, and fee-for-service payments (Mosley, 2020). The dependence on government-based program grants and contracts can involve different local, county, state, and federal sources, each with its own program and fiscal requirements. The organizational consequences of resource dependence on diverse funding streams cannot be underestimated. Nonprofit

human service organizations have had to adapt in response to the multiple and often competing expectations of public and private funders (Mosley & Smith, 2018). The general tenor has involved a multi-decade shift “from cost-reimbursement to pay-for-success” (Shick & Martin, 2020, p. 15) in response to regulatory calls for accountability. These calls have required nonprofit providers to do more, and differently, with less.

Current issues and challenges

Human service management has generally involved the following three practice domains: ● Analytical: leveraging resources, managing resources, policy practice, evaluation; ● Interactional: communicating, facilitating, supervising, advocating; and ● Leadership: teaming, aligning, boundary spanning, and envisioning future challenges and opportunities (Austin, 2018; Menefee & Patti, 2009). The intention of human service management is to showcase good governance in terms of service effectiveness, program outcomes, and fiscal stewardship that are internal to the nonprofit organization as well as interorganizational partnerships and community benefits, that are external. Internally, nonprofit managers and leaders have adapted their service programs by recasting existing service models, often involving a modest transformation in the underlying service. Other service adaptations have required the redevelopment of existing service models, involving resources, workforce, and managerial and technical knowledge that had been largely unfamiliar or significantly underutilized. Regardless of whether the service adaptations are more cosmetic or involve structural shifts in production, the framing of nonprofit human service adaptations has generally involved careful attention to how managers, staff, and community members respond to best practice approaches (McBeath & Hopkins, 2020). Finally, nonprofit human service organizations have developed service innovations in response to calls by public human service organizations and/or foundations. These innovations serve to address under-identified community needs, advance interorganizaBowen McBeath and Michael J. Austin

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tional service collaboration, and enhance civic engagement. A key factor in the management of human service innovations involves ongoing assessment of their relevance to service participants, community members, workers, and institutional partners (Mosley, 2020). Externally, nonprofit service delivery has increasingly reflected the formation and maintenance of service collaborations. These interorganizational arrangements can involve one or more public institutional lead organizations (which in the U.S. is usually the state or the county human service department) and multiple private, largely nonprofit providers. They can range from basic coordination to formal collaboration to more complex service networks, as public and private organizational staff liaise to ensure that needed services are provided (Collins-Camargo et al., 2019). Despite the stated internal and external objectives, nonprofit managers face challenges in delivering, monitoring, and ensuring accountability for human services. First, nonprofit managers and leaders face ongoing difficulties in ensuring that frontline staff assess service needs and provide services in response to authorized needs. Second, there are questions of how to measure, capture, and use service metrics internally (for program improvement) and externally (via reporting of performance measures). Finally, nonprofit managers can struggle to address multiple program performance and policy goals. They often lack the specialized knowledge and technical assistance that are needed to clarify contract deliverables, service methods, and workforce supports (Shick & Martin, 2020; Smith, 2018).

Toward the future

The future presents several related challenges. First, there is the need for nonprofit managers, leaders, and governors to acknowledge the continuing challenge of addressing the complexity of service delivery. Managing the service routines that connect nonprofit frontline staff to service participants will require several capabilities: (a) classifying service participants based on authorized understandings of “deservingness”; (b) providing services directly or connecting them with service providers through public referrals; and (c) tracking, managing, and reporting program service flows (Smith, 2018). Bowen McBeath and Michael J. Austin

Addressing this challenge will likely involve the following efforts: ● Modifying human service policies and procedures in order to enhance service workflows (e.g., to ensure an adequate supply of appropriate services and referrals); ● Changing the types and number of nonprofit paid staff and volunteers, including the professionalizing of “essential” staff members who are often paraprofessionals; ● Continuing to invest in data and information technologies in response to changing practice standards and program reporting objectives; and ● Altering program training and supervision in response to the requirements of different funders and the expectations of community partners (Benjamin, 2021; Collins-Camargo et al., 2019). A second and related challenge concerns the question of how to advocate to promote social equity in nonprofit human service organizations. While nonprofit human service organizations are increasingly expected to promote diversity, equity, and inclusion, carrying out this ambitious and needed mission requires enhancing service responsiveness to persons of color, and the hiring and development of leaders of color (staff, board members, and other volunteers) who reflect the communities in which the service programs are located. It also requires a recommitment to culturally responsive operations (Chow & Austin, 2008). Addressing this second challenge will involve the exploration of less-bureaucratic approaches to practice. More participatory leadership is needed to create team-based opportunities for work redesign, while advancing human service goals. In transformational service settings, teaming can involve people playing less-traditional roles, with nonprofit managers serving as co-facilitators and boundary spanners in support of collaborative problem-solving (Chow & Austin, 2008). For example, co-roles are well-represented in some nonprofit human service innovations in which the participation of nonprofit board members, staff, volunteers, service participants, and other community stakeholders is designed to support instrumental objectives (e.g., to innovate and compete) and reinforce

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core values (e.g., to empower) (Benjamin, 2020). Third, there is the novel challenge of viewing the nonprofit human service organization as a laboratory of social equity and civic innovation. Exploring the laboratory concept can involve (a) engagement in practice research to support (b) the use of trial-and-error program improvement approaches (Austin & Carnochan, 2020). For nonprofit human service organizations, practice research involves the development of collaborative, trust-based relationships between nonprofit managers and practice researchers. This effort is intended to identify practice challenges and improvements, enhance program service delivery, and support organizational learning. The overall intention is to use a shared approach to knowledge production and sharing to reduce power differentials while trying to resolve fundamental service delivery dilemmas. Also, there are two external challenges. First, there is the need for relational leadership to promote public–nonprofit collaboration among public managers (who administer human service contracts) and nonprofit managers (who organize and deliver contract-based services). This challenge reflects the fundamental interdependence of public human service organizations as funders and regulators, and nonprofit human service organizations as service providers and those most directly responsible for ensuring accountability in the community context. Relational leadership emphasizes the importance of regular cross-sector communication and the development and sustainment of social norms of trust and reciprocity (Austin & McBeath, 2022). For public and nonprofit managers, it also involves the following knowledge sources: ● Practice-based knowledge of human services; ● Understanding of the organizational challenges facing nonprofit providers; and ● Knowledge of and facility in cross-sector problem-solving and conflict resolution. The goal is to promote collaborative decision-making based on a shared understanding of the challenges and opportunities involved in human service programming.

Second, because relational leadership can create new problems while resolving current problems, there is the need to develop and maintain a public–nonprofit platform that can support relational leadership in human service delivery. Scholars have suggested that public–nonprofit collaborations can impose informal hierarchies in place of formal hierarchies organized by public authorities, thereby complicating the boundaries of formal and informal accountability (Saidel & Searing, 2020). Other external challenges involve changes in public funding, policy and program priorities, and regulation. While these challenges may be experienced by both sectors, they will likely fall foremost on nonprofit human service organizations as a result of public policy impacts that reflect changing socioeconomic needs. External advocacy is particularly important in spurring investments in cross-sector collaboration. Collaborative forms of advocacy will likely reflect calls for increased efforts to account for what is feasible and to negotiate for increased financial support for what are seen as extra governmental expectations for accountability (Collins-Camargo et al., 2019). External advocacy may also reflect the need to address the changing human service workforce, in some cases including staff unionization pressures and decreased voluntarism. Efforts to sustain advocacy agendas over time will require significant professional and political acumen and social networking among leading nonprofits in a network of providers as well as with public and private policymakers and funders. Addressing these external efforts will require the management and leadership skills we noted earlier. Bowen McBeath and Michael J. Austin

Related topics

Crowding out Cultural competence Diversity, equity, and inclusion Effectiveness of nonprofit organizations Performance management Public policy and nonprofit organizations Social change and nonprofit organizations

Further reading and references

Austin, M. J. (2018). Social work management practice, 1917–2017: A history to inform the

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320  Elgar encyclopedia of nonprofit management, leadership and governance future. Social Service Review, 92(4), 548–616. https://​doi​.org/​10​.1086/​701278 Austin, M. J., & Carnochan, S. (2020). Practice research in the human services: A university-agency partnership model. Oxford University Press. Austin, M. J., & McBeath, B. (2022). Connecting practice research with the process of theorizing. Research on Social Work Practice, 32(7), 731–742. https://​doi​.org/​10​.1177/​ 10497315221078961 Benjamin, L. M. (2021). Bringing beneficiaries more centrally into nonprofit management education and research. Nonprofit and Voluntary Sector Quarterly, 50(1), 5–26. https://​doi​.org/​ 10​.1177/​0899764020918662 Chow, J. C.-C., & Austin, M. J. (2008). The culturally responsive social service agency: The application of an evolving definition to a case study. Administration in Social Work, 32(4), 39–64. https://​doi​.org/​10​.1080/​03643100802293832 Collins-Camargo, C., Chuang, E., McBeath, B., & Mak, S. (2019). Staying afloat amidst the Tempest: External pressures facing private child and family serving agencies and managerial strategies employed to address them. Human Service Organizations: Management, Leadership & Governance, 43(2), 125–145. https://​doi​.org/​10​ .1080/​23303131​.2019​.1606870 Hasenfeld, Y. (Ed.). (2010). Human services as complex organizations. Sage. McBeath, B., & Hopkins, K. (Eds.). (2020). The future of human service organizational & management research: Navigating complex frontiers. Routledge. Menefee, D., & Patti, R. J. (2009). What human services managers do and why they do it. In R. J. Patti (Ed.), The handbook of human services management (2nd edn.) (pp. 101–116). Sage. Mosley, J. E. (2020). Social service nonprofits: Navigating conflicting demands. In W. W. Powell & P. Bromley (Eds.), The nonprofit sector: A research handbook (pp. 251–270). Stanford University Press. Mosley, J. E., & Smith, S. R. (2018). Human service agencies and the question of impact: Lessons for theory, policy, and practice. Human Service Organizations: Management, Leadership & Governance, 42(2), 113–122. https://​doi​.org/​10​ .1080/​23303131​.2018​.1425953 Saidel, J. R., & Searing, E. A. (2020). Public agency strategies, collaborative contracting, and Medicaid Managed Care. Perspectives on Public Management and Governance, 3(3), 239–255. https://​doi​.org/​10​.1093/​ppmgov/​gvaa011 Shick, R. A., & Martin, L. (2020). A brief history of human service contracting. In R. A. Shick & L. Martin (Eds.), Human services contracting (pp. 9–19). Routledge.

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Smith, S. R. (2018). The future of nonprofit human services. Nonprofit Policy Forum, 8(4), 369–389. https://​doi​.org/​10​.1515/​npf​-2017​-0019

Hybrid organizations Definition

Hybrid organizations can be seen as organizations combining multiple conventional organizational forms. For example, if an organization’s activities, structures, processes, and goals demonstrate as a combination of both a private business firm and a charity, this organization can be seen as a hybrid organization. Hybrid organizations combine the organizational forms that do not often go together. Organizational theorists such as Battilana, Lee, Smith, and Besharov indicate that existing literature reflects at least three lenses in defining hybrid organizations: (1) combining multiple organizational identities; (2) combining multiple organizational forms; or (3) combining multiple institutional logics (Battilana & Lee, 2014; Besharov & Smith, 2014). Institutional logic is defined as “taken-for-granted beliefs and practices that guide actors’ behaviour in a field of activity” (Battilana & Lee 2014, p.402) Friedland and Alford articulated the logic of the market, the logic of the state, the logic of the corporation, the logic of the professions, the logic of religion and the logic of the family. There also are logics that are unique to the organization. For example, Reay and Hinings (2009) studied a hospital as a hybrid organization practicing both a “care logic” and a “science logic.” Battilana and Dorado (2010) studied microfinancing firms as hybrid organizations combining the “banking logic,” and the “social development logic.”

In practice

The earliest scholarly literature on the topic of hybrid organizations emerged from the literature of business and focused on developing a theory of the hybridizing phenomenon with a focus on nonprofit organizations, such as healthcare organizations, universities, and social service agencies. More recent literature on hybrid organizations in the nonprofit

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sector displays a more practical focus, driven primarily by the need for nonprofit organizations to generate more sustainable and unrestricted revenues by engaging in business activities. The COVID-19 pandemic accelerated the push for sustainable sources of unrestricted funding as many nonprofits needed the flexibility to respond to rapidly changing needs in their communities. Government funding and many types of charitable grants impose restrictions on how the money can be spent, thereby limiting the flexibility of nonprofits. Since the late 1980s, with the emergence of New Public Management as an operating paradigm, many developed democratic countries have adopted a neoliberal regime that advocates for a government that is lean, efficient, and plays a role of governance – or “steering” instead of “rowing.” Modern governments are expected to “contract out” or “partner out” their service delivery functions to nongovernmental entities that can operate more efficiently and more flexibly. This paradigm encourages governments to work with a network of service providers, with various service delivery arrangements such as contracting, licensing, partnership, or cash transfer. The practice of this “new public governance” paradigm in the public sector has led to a belief that nonprofits should constantly be able to “do more with less” because of their inherent efficiency or performance relative to government bureaucracies. However, the “steering” role creates anxiety from the government about whether services are delivered by nongovernmental entities with quality and care. Hence, more oversight mechanisms and private business management tools are introduced such as performance measurement and applying public sector accounting principles in nonprofit organizations. Somewhat ironically, while the New Public Management paradigm frees government entities of some of their bureaucratic constraints, these same bureaucratic constraints have been imposed on nonprofits in the form of highly restricted funding, more oversight, and less autonomy. Therefore, in the nonprofit sector there is growing interest in social enterprises, which is one form of hybrid organizations, that mixes charity with business. In addition to the practical concerns of social enterprises, nonprofit scholars also

joined business scholars to examine the theoretical foundations of hybridizing in the nonprofit sector. For example, Knutsen (2012) identified how a nonprofit organization’s nonprofitness can be manifested by different institutional logics such as the logic of democracy, the logic of family, the logic of religion, and the logic of the professions. She then further illustrates how, within a nonprofit organization, these logics often have to internalize (or “hybridize”) external logics from the state or the logic of capitalism due to resource dependency. Skelcher and Rathgeb Smith (2015) developed a typology of hybridity in public and nonprofit organizations and Hustix and De Waele (2015) identified coping strategies by organizational members in response to the stressors sometimes attributed to hybridization. Nonprofit organizations are fertile ground for studying hybridity because the nonprofit form of organization contains vast variations and flexibility that neither private business nor public organizations display. Conventional business firms tend to demonstrate an overwhelming dominance of the business logic of pursuing profits, hence other logics are more limited. If researchers are interested in hybrid organizations beyond the category of social enterprises, nonprofit organizations can provide more variety of logics such as the logic of religion, the logic of family, and other more ad hoc logics within certain organizations, such as the logic of production vs. the logic of care vs. the logic of science vs. logic of safety in healthcare organizations. In addition, because many nonprofit organizations are funded by public sources, the public organizations’ dynamics can also be manifested via nonprofit organizations, such as the logic of the state and the logic of political interest. In sum, from a practical perspective, nonprofit organizations are specifically interested in the social enterprise form of hybrid organizations due to revenue generation concerns and its behavioral effects. Nonetheless, nonprofit organizations also contribute to theory development about hybrid organizations because the rich dynamics lie in the nonprofit sector.

Current and future directions

The emergence of hybrid organizations has been fairly recent and the emergence of Wenjue Knutsen

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scholarly literature on hybrid organizations perhaps did not receive wide attention until the late 1990s to early 2000s. However, hybrid organizations have always existed in our society. For example, hospitals, business schools, and private–public partnerships have been studied as hybrid organizations combining multiple institutional logics. These organizations or institutional arrangements have always existed before the articulation of hybrid organizations as a new concept. The current interest in studying hybrid organizations can be attributed to some underlying drivers. Conventional sector-based organizational boundaries are becoming increasingly blurry. The boundary of private organizations started to permeate when governments started practicing “bailing out” using taxpayers’ dollars in economic depressions. The boundary of public organizations started to permeate when government partnered with private organizations in order to access private investments. Nonprofit organizations in general are interested in the option of engaging in business activities in order to generate revenues to fund their charitable mission. Businesses, following a larger societal shift of citizens to be more conscientious to environmental protection and other social concerns, started practicing corporate social responsibility, impact investment, or even establishing social enterprises. Whether hybrid organizations can be solutions of these underlying socioeconomic drivers depends on answering some important questions from both theoretical and practical views. Theoretically, how can hybrid organizations sustain themselves especially considering some combined organizational logics are potentially conflicting to each other? Universities can be a good example in terms of practicing both research logic and teaching logic. Practically, hybrid organizations ask, from a management perspective, how can different logics operate simultaneously? From a legal perspective, how can legislation assist with establishing legal forms of hybrid organizations that can achieve multiple goals ethically? For example, should an enterprising charity have two separate boards? How can tax law prevent the business side of the charity taking unethical advantage of the charity’s mission pursuit such as fundraising activities? Through three decades of research and practice, we have answers to some of these Wenjue Knutsen

questions. For example, research generally demonstrates that it is possible for multiple institutional logics to co-exist within one organization. This overturns the previous assertion that multiple institutional logics have to compete until the winning logic becomes dominant. Organizational theorists observed that there are three major hybridization approaches: one approach aggregating multiple logics, one approach separating multiple logics, and the last approach is to create a new logic. In terms of legislation, some countries have made significant progress. For example, in the U.S., low-profit limited liability companies and community interest companies are offered as the official choice of the legal form for social enterprises. For managing competing logics, organizations are offered four primary responses: deletion, compartmentalization, aggregation, and synthesis. Organizational theorists such as Marya Besharov, Julie Battilana, and Anne-Claire Pache proposed directions to the future work on hybridity. For example, with respect to the level of analysis, future research might shift from an organizational level to an individual level of analysis. What do people do in these organizations? How do they bridge gaps, to relate to each other? How can hybrid organizations make contributions to achieving larger social impacts, addressing social challenges, or achieve system changes? These questions are interesting and important. Hybrid organizations emerged as responses to new socioeconomic issues, and indeed, it is time to step back to see the big picture and examine the role of hybrid organizations as a collectivity in our society. Wenjue Knutsen

Related topics

Commercialism Social enterprise Triple bottom line

Further reading and references

Battilana, J., & Dorado, S. (2010). Building sustainable hybrid organizations: The case of commercial microfinance organizations. Academy of Management Journal, 53(6), 1419–1440. https://​doi​.org/​10​.5465/​amj​.2010​.57318391 Battilana, J., & Lee, J. (2014). Advancing research on hybrid organizing-insights from the study of social enterprises. The Academy of Management

H 323 Annals, 8(1), 397–441. https://​doi​.org/​10​.5465/​ 19416520​.2014​.893615 Besharov, M. L., & Smith, W. K. (2014). Multiple institutional logics in organizations: Explaining their varied nature and implications. Academy of Management Review, 39(3), 364–381. https://​doi​.org/​10​.5465/​amr​.2011​.0431 Hustinx, L., & De Waele, E. (2015). Managing hybridity in a changing welfare mix: Everyday practices in an entrepreneurial nonprofit in Belgium. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 26(5), 1666–1689. https://​doi​.org/​10​.1007/​s11266​-015​ -9625​-8 Knutsen, W. L. (2012). Adapted institutional logics of contemporary nonprofit organizations.

Administration & Society, 44(5), 985–1013. https://​doi​.org/​10​.1177/​0095399712438371 Pache, A., & Santos, F. (2013). Inside the hybrid organization: Selective coupling as a response to competing institutional logics. Academy of Management Journal, 56(4), 972–1001. https://​ doi​.org/​10​.5465/​amj​.2011​.0405 Reay, T., & Hinings, C. R. (2009). Managing the rivalry of competing institutional logics. Organization Studies, 30(6), 629–652. https://​ doi​.org/​10​.1177/​0170840609104803 Skelcher, C., & Smith, S. R. (2015). Theorizing hybridity: Institutional logics, complex organizations, and actor identities: The case of nonprofits. Public Administration, 93(2), 433–448. https://​doi​.org/​10​.1111/​padm​.12105

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Identity-based philanthropy Definition

Philanthropy is often defined in both the scholarly literature and in practice through a White-wealthy-heterosexual-male monetary lens. Thus, excluding many marginalized people from research, being seen as philanthropists, or understanding that a person’s social identity and conception-of-self impact their prosocial behaviors. The concept of identity-based philanthropy was first defined by The W. K. Kellogg Foundation in 2012. In their report Cultures of giving: Energizing and expanding philanthropy by and for communities of color (p. 2), they argued that identity-based philanthropy is as a growing movement to democratize philanthropy from the grassroots up by activating and organizing its practice in marginalized communities, particularly communities of color. Simply described, identity-based philanthropy is the practice of raising and leveraging resources by and from a community on its own behalf, where ‘community’ is defined not by geography but by race, ethnicity, gender, or sexual orientation.

Scholars have pointed to links between identity and philanthropic giving. An emerging approach, both within the more general philanthropic literature and within the subfield exploring giving toward higher education, is identity-based fundraising (Drezner & Huehls, 2014). Often grounded in social identity theory, the identity-based fundraising literature has shown that donors’ identities are a factor in their decisions to give and in how those gifts are manifested (Drezner, 2013). Scholars have suggested at least three reasons why identity affects philanthropic giving. First, shared identity creates a sense

of collective. Second, interdependence drives prosocial behaviors. Third, people are more sympathetic toward those who are closer to them. Scholars have explored the importance of identity within philanthropy (Aaker & Akutsu, 2009) and specifically within the context of higher education along the lines of race and ethnicity, ability, religion, and sexuality. Overall, scholars have found that when nonprofits engaged donors’ social identity, giving increased. In other words, donors will give more when fundraisers connect their cause or the need with the donor identity(ies). As such, it is important for nonprofits to think about their cases for support in dynamic ways that speak across social identities. This is often easier when there is a diverse leadership, fundraising staff, and board of directors. These levels of diversity not only increase the ability for offices to think about their work and the implications for diverse communities, but also has the opportunity to build trust with the minoritized communities in which they want to fundraise.

Social identity theory and the identity-based motivation model as a basis for identity-based philanthropy

Group-identity formation is the basis of significant literature in the disciplines of psychology and sociology. Social identity theory is one foundational explanation for intergroup behavior. The theory posited that individuals create their own identities based on ingroups and outgroups; in other words, they place themselves in relevant groups to which there is another group to which they can be compared. Stemming from social identity theory, self-categorization theory suggests that group identity drives some behaviors and informs individual identity and further behaviors. In other words, they theorized

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that when an identity category is “activated,” a person is likely to treat others who share that identity better than those who have different identities.

In practice

The identity-based motivation (IBM) model argues that people are motivated to act in identity-congruent ways when they feel that actions are aligned with their identity. According to the IBM model, both personal and social identities evoke identity-congruent behaviors and cognitive processes. People act in a way that aligns with salient social identities, especially when that identity might feel threatened. Further, identity saliency and situational context are considered when explaining a person’s actions. Further, the IBM model predicts that a salient identity can trigger a mental process that will guide subsequent perceptions and actions (Oyserman & Destin, 2010). As such, the IBM model has been a theoretical framework to explore philanthropic actions. Kessler and Milkman (2018) found that priming donor and community identities in fundraising solicitations can increase philanthropic giving. Similarly, identifying with those that would benefit from philanthropic giving, either dollars or volunteerism, increases the likelihood of participation. For example, within higher education, colleges and universities might prime a donor’s identity as a scholarship recipient before asking for a gift. They can do this by reminding prospective donors what it was like to have alumni support scholarships that made it possible for them to afford tuition. By reminding them of the importance of other donations that helped them and the feeling of relief that they had when they learned about receiving a scholarship, alumni are more likely to “pay it forward.” Similarly, when it comes to social identities, donors with minoritized identities often want to support others that share those identities. This can be out of pride and also out of concern. For example, Drezner and Garvey (2016) found that LGBTQ alumni often wanted to support queer students because they did not want current students to experience the discrimination and marginalization that they did as students because of their

identity. Others have found similar findings when it comes to race and ethnicity.

The future

However, it is not that simple. Researchers found that donors are strongly influenced by other donors that share an identity with them, other scholars have found that identity-based philanthropy and the motivations to support, go beyond simple ingroups. For example, Drezner (2018) found that it is not just about “supporting your own”; it is that people with marginalized identities assign importance to the support of others who are in the minority. For example, he found that what he calls “philanthropic mirroring” within marginalized populations did not result in giving only to those who shared the same identity (e.g., Blacks supporting other Blacks); rather, he found a greater propensity to support others with marginalized identities (e.g., Blacks supporting LGBTQ students). Further research is needed to better understand how identity impacts giving and other prosocial behaviors. Noah D. Drezner

Related topics

Black philanthropy Community-based organizations Donor and donor motivation Faith and philanthropy Gender and philanthropy LGBTQ+ philanthropy

Further reading and references

Aaker, J. L., & Akutsu, S. (2009). Why do people give? The role of identity in giving. Journal of Consumer Psychology, 19(3), 267–270. https://​ doi​.org/​10​.1016/​j​.jcps​.2009​.05​.010 Drezner, N. D. (Ed.). (2013). Expanding the donor base in higher education: Engaging nontraditional donors. Routledge. Drezner, N. D. (2018). Philanthropic mirroring: Exploring identity-based fundraising in higher education. The Journal of Higher Education, 89(3), 261–293. https://​doi​.org/​10​.1080/​ 00221546​.2017​.1368818 Drezner, N. D., & Garvey, J. C. (2016). LGBTQ alumni philanthropy: Exploring (un) conscious motivations for giving related to identity and experiences. Nonprofit and Voluntary Sector

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326  Elgar encyclopedia of nonprofit management, leadership and governance Quarterly, 45(1_suppl), 52s–71s. https://​ doi​ .org/​10​.1177/​0899764015597780 Drezner, N. D., & Huehls, F. (2014). Fundraising and institutional advancement: Theory, practice, and new paradigms. Routledge. Kessler, J. B., & Milkman, K. L. (2018). Identity in charitable giving. Management Science, 64(2), 845–859. https://​doi​.org/​10​.1287/​mnsc​ .2016​.2582 Oyserman, D., & Destin, M. (2010). Identity-based motivation: Implications for intervention. The Counseling Psychologist, 38(7), 1001–1043. https://​doi​.org/​10​.1177/​0011000010374775 W. K. Kellogg Foundation. (2012). Cultures of giving: Energizing and expanding philanthropy by and for communities of color.

Impact investing Definition

The term impact investing was coined in 2007 when the Rockefeller Foundation invited leaders in finance and philanthropy to discuss how best to address the social needs and build a global industry striving for investments that can achieve social/environmental outcomes. Impact investments are part of an emerging asset class that offers investors not only financial returns but also generate social or environmental benefits. Impact investment is attractive and creative because traditionally, investors were faced with a choice between either gaining financial returns from investments or providing donations for social causes. Impact investment carries promises of both. Impact investment is more like a “donation capital” that can be “recycled” instead of the conventional one-time donation. Impact investments are different from “ethical investment,” “socially responsible investment,” or “sustainable investments,” whose primary objective is still financial return while only mitigating negative environmental or social outcomes. Impact investment deliberately pursues social/environmental benefits. Why would private investors be interested in social/environmental impacts? This question can be understood if we see the emergence of impact investment as responding to the shift of some parts of our society to a more social/environmental conscientious one. For example, this shift is reflected by the popular Wenjue Knutsen

practice of corporate social responsibility, the emergency of social enterprises, and the rise of certified B-corporations. People who work in the conventional business sector are increasingly more conscientious about social/ environmental issues, and more interested in responsible investment and even directly engaging in mitigating poverty, environmental protection, and other ways to contribute to the larger society. These activities contribute to the increasingly blurry boundaries between the private, public, and nonprofit sectors. In addition to the internal drive from the business sector itself, externally, the government often finds itself without adequate funding to satisfy the demands of public services and public projects. The government also has a growing interest in capitalizing privately sourced investments to address social issues and carry out public projects. Therefore, there is an appetite from both the investor side and the beneficiary side. How can impact investment achieve both financial and social/environmental goals for the investors? J. P. Morgan’s research team identified a two-dimensional sector approach that matches a business activity with social/ environmental outcome(s). They argue that, to achieve both objectives, investors can choose to invest in production processes in a business sector which is capable of simultaneously yielding positive social/environmental outcomes for the people in need. Examples include a company that sells solar home systems to people without access to the electrical grid. This business provides access to electricity for people while incorporating environmental benefits by using solar energy. If an environmentally friendly fertilizer company invests in agricultural activities, this company can generate environmental benefits through its products while providing food security. Investors can also purchase supplies from a poor region, such as cocoa beans for coffee, or supply jobs in poor regions for people in need. From an organizational perspective, investors can also achieve both financial and social/environmental returns if they choose to invest in social enterprises. Social enterprises are organizations combining both the organizational forms of business and charity. Social enterprises always have faced difficulty in financing their founding and growth, because conventional financing sources to businesses such as debt or philanthropical sources are

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not readily available to social enterprises. Government grants are also not typically available to all social enterprises. Therefore, impact investors seem to be a natural match for social enterprises. From this perspective, impact investment markets can be expanded beyond developing countries to developed countries, such as the U.S., Canada and European countries that are the pioneers in social enterprises and impact investing. How much are the financial and social returns for impact investors in comparison to the traditional investment choices? A survey done by J. P. Morgan’s research team in 2010 found that investors have varied expectations regarding financial return, ranging from trade-off financial return for social impact to financial returns higher than traditional investments. Another survey done in 2015 in Australia shows that impact investors do not perceive there should be a trade-off between financial and social returns, but they do perceive impact investing as riskier. The expected financial return of impact investment ranges from 0–8.9 percent annually. According to GIIN’s (Global Impact Investing Network) 2020 survey, 67 percent of investors pursue competitive, market-rate returns, while 18 percent expect below-market-rate returns, and 15 percent expect little financial return and close to capital reservation.

In practice

Some nonprofit organizations, such as private foundations, can participate in impact investing. For example, commonly, a private foundation in the United States can invest in either a mission-related investment (MRI) or a program-related investment (PRI). While both MRI and PRI seek social and financial returns. MRIs often are understood as seeking market-rate returns while PRIs are required to be charitable and can tolerate below-market returns. For example, a private foundation can allocate 5 percent of the total endowment to PRIs and pursue MRIs with the rest of the 95 percent. PRI and MRI face different tax consequences. Another aspect of impact investment that is relevant to nonprofit organizations is the participation of nonprofits in social impact bond (SIB) initiatives. SIB is a complicated arrangement involving the private investor who funds a public program, a nonprofit organization who carries out the program,

the government who will repay the investor the investments if the nonprofit organization’s performance is able to hit the minimum performance target. Nonetheless, a SIB also often involves an intermediary that makes the arrangement and another independent agency that measures the performance of the nonprofit organization. The proponents of SIBs argue that SIBs allow the government to use private-sourced investments to fund public projects and transfer risks to private investors. From the nonprofit organization’s perspective, SIBs offer more flexible and stable funding sources in comparison to government grants or contracts. However, critics argue that SIBs are costly to set up and the government eventually still bears the costs and the risks if the performance target is not achieved. Skeptics also say that some SIBs are a form of profit making for the investors using taxpayers’ dollars. SIBs as a form of impact investing have been implemented in at least 24 countries since and during this period there have been more than 100 SIBs launched. The challenges facing SIBs and other impact investing is not an unfamiliar one: how can we protect the social mission from being crowded out by the financial interest? This challenge applies not only to SIBs but all social innovations striving to achieve “blended values” such as social enterprises. Social investors also can directly invest in nonprofit organizations through financial institutions. For example, a study has been done of a bank in Germany that focuses on social and environmental missions. This bank supplies loans to for-profit firms, social enterprises, as well as nonprofit organizations in the form of equity (funds) and bonds.

Current and future directions

The research on impact investing is limited and generally lags behind practice. Research is carried out by both practitioners and scholars. The current focus has been largely descriptive, such as how to understand the phenomenon of impact investing, how to define impact investing, who are the investors, what are the expectations of impact investing in its financial and social performances, and in what ways impact investing can achieve its blended values. Two prominent issues have emerged from the literature on impact investing. One is the Wenjue Knutsen

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aforementioned challenge of how to balance the financial goal and social mission. The other is the difficulty in measuring social impact. Both issues are intertwined, as without a rigorous measurement of social performance, it will be difficult to monitor whether social mission is achieved or being trumped by the financial goal. Critics depict impact investing as “a wolf in sheep’s clothing,” or as a financing tool that has the potential to exploit the poor for the sake of profits. A study done in Australia shows that there is a dominant investment logic (versus social logic) of the impact investors in terms of their own professional background, their expectations of the investment, and their approaches in managing the investment. Despite these criticisms, the impact investing market has been growing steadily, as observed by GIIN’s 2020 survey. Measuring social impact and social performance is another difficulty facing social impact investors. Surveys show that, in practice, organizations developed their own metrics, used both quantitative and qualitative data, or adopt measurements that can be antidotal, subjective, and overall lack rigor. This weakness is particularly alarming because when the performance data lacks validity and consistency in comparison to the measurement of financial performance, the social performance can be easily crowded out. An information source that supplies comprehensive guidance on measuring social impact can be found on GIIN’s website. Impact investing as a financing tool is still in its infancy, but it has already proven it will continue to develop and attract more investors. Although not without criticisms, impact investing offers innovative and sustainable ways to finance projects that are conventionally only funded by public dollars, private donations, or not to be funded at all. These unique characteristics open many opportunities for the future. The growth of the impact investing market is encouraging as it is accompanied by the growing scale of social/environmental benefits achieved. More research can be done in many areas to help future investors or governments to understand impact investing and further support its development, such as the characteristics

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of impact investors, what public policies are supportive of impact investing, and tools to effectively measure social impacts. Wenjue Knutsen

Related topics

Corporate social responsibility Financing nonprofit organizations Program related investment Social economy Social enterprise Social return on investment

Further reading and references

Castellas, E. I.-P., Ormiston, J., & Findlay, S. (2018). Financing social entrepreneurship. Social Enterprise Journal, 14(2), 130–155. https://​doi​.org/​10​.1108/​sej​-02​-2017​-0006 [Accessed 11 September 2023] GIIN (Global Impact Investing Network). (2020). Annual Impact Investor Survey 2020. https://​thegiin​.org/​assets/​GIIN​%20Annual​ %20Impact​%20Investor​%20Survey​%202020​ %20Executive​%20Summary​.pdf [Accessed 11 September 2023] Global Impact Investing Network. (n.d.). Getting started with impact measurement & management (IMM). https://​thegiin​.org/​imm/​ [Accessed 11 September 2023] Global Impact Investing Network (n.d.). What you need to know about impact investing. https://​thegiin​.org/​impact​-investing/​need​-to​ -know/​#what​-is​-impact​-investing [Accessed 11 September 2023] Höchstädter, A. K., & Scheck, B. (2015). What’s in a name: An analysis of impact investing understandings by academics and practitioners. Journal of Business Ethics, 132(2), 449–475. https://​doi​.org/​10​.1007/​s10551​-014​-2327​-0 [Accessed 11 September 2023] O’Donohoe, N., Leijonhufvud, C., & Saltuk, Y. (2010) Impact investments: An emerging asset class. The Rockefeller Foundation. https://​thegiin​.org/​assets/​documents/​Impact​ %20Investments​%20an​%20Emerging​ %20Asset​%20Class2​.pdf [Accessed 11 September 2023] Schrötgens, J., & Boenigk, S. (2017). Social impact investment behavior in the nonprofit sector: First insights from an online survey experiment. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 28(6), 2658–2682. https://​doi​.org/​10​.1007/​s11266​-017​-9886​-5

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Income portfolio analysis Definitions

Income portfolio analysis involves a detailed examination of the performance, composition, and characteristics of an organization’s source(s) of revenue. Nonprofit income portfolio analysis applies this examination to nonprofit organizations. Revenue is the total amount of money an organization obtains from various sources. Income represents total profits, or net income, after expenses are deducted from revenue.

In practice

Income portfolio analysis is a widely used analytic tool for financial management in the for-profit world. Indeed, for-profit managers frequently engage in extensive examinations of the performance, composition, and characteristics of their source(s) of revenue in order to improve overall returns for their shareholders. Nonprofit organizations also rely on income portfolio analysis for sound financial management. However, unlike in the for-profit world, the goal of this analysis is not to maximize shareholder investments but to maximize mission-related outcomes. Maximization of these outcomes allows nonprofits to build and maintain critically needed income required for them to pursue their missions and “do the work” they were established to do. Undoubtedly, then, having an intimate understanding of the performance, composition, and characteristics of revenue sources, whether charitable donations, government and corporate grants, service fees, and/or private philanthropy, is one of the most important responsibilities that nonprofit leaders have to uphold. In this chapter, we review several key concepts and considerations regarding nonprofit income portfolio analysis, and we conclude with a brief overview of how this analysis is undertaken. Components of nonprofit income portfolio Defining revenue sources for nonprofit organizations typically include private donations, government funding, program service revenues, and investment income. Private

donations are voluntary monetary contributions. Government funding includes government grants, contracts, and cooperative agreements. Program service revenue generally consists of direct payments received from nonprofit service provision. Investment income refers to dividends, interest, and capital gains. Although these definitions appear to be straightforward, nonprofits categorize the income received from each of these sources of revenue in different ways. For example, some nonprofits only consider private donations to include income received from individuals, foundations, and corporations. Other nonprofits, however, consider private donations to include income received from additional sources, such as fundraising events, special events, federated campaigns, government grants, and other nonreciprocal transactions. Nonprofits also categorize program service revenue in different ways. Indeed, this type of income can include any combination of direct payments received from service provision, net rental income, royalties, and the sale of other assets. Moreover, while commercial income generally refers to income obtained from commercial investments related to a nonprofit’s tax-exempt purpose(s), this type of income can also signify profits made from commercial activities that are unrelated to an organization’s tax-exempt purpose(s), which the organization categorizes as program service revenue. Given the wide variability in how sources of nonprofit income can be categorized, it is important for nonprofit managers to have a complete and accurate picture of their own organization’s income landscape; and, a useful financial management tool for doing so is the income portfolio. An income portfolio provides a risk-focused analysis of the net income received from each revenue source that an individual nonprofit relies on. At a minimum, this analysis focuses on income derived from each of the defining sources of nonprofit revenue (i.e., private donations, government funding, program service revenue, and investment income). However, as a nonprofit’s revenue source(s) becomes more complex, additional income categories are included (e.g., gaming income and income generated from the sale of inventory).

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Determinants of nonprofit income portfolio Several factors determine whether a nonprofit relies on a particular revenue source more than others for obtaining income. For one, organizational mission dictates the revenue sources that are appropriate for an organization to pursue. Indeed, the mission of a nonprofit is the “North Star” that (at least in theory) guides every activity that takes place in the organization. Nonprofits with missions focused on assisting vulnerable populations (e.g., shelters, soup kitchens, and food pantries) tend to rely more on private donations than nonprofits with more commercially oriented missions (e.g., hospitals and universities). Another factor that contributes to the make-up of a nonprofit’s income portfolio is its organizational life cycle stage. At the start-up stage of organizational life, nonprofits often rely on seed funding to launch programs and sustain their operations. As nonprofits grow and mature, they rely less on seed capital and more on community support in the form of individual donations. This type of support helps the organization build legitimacy and expand its market share. By the time nonprofits reach maturity, they often possess the capacity to diversify revenue streams, and in turn, income sources, as needed. Perhaps most determinative among factors that make up a nonprofit’s income portfolio, however, are the accounting and managerial decisions that must be made prior to pursuing a particular source of income. Indeed, there are long-standing debates about the effects of crowding-in and crowding-out on different nonprofit revenue sources. As such, nonprofit managers must consider a number of possibilities, such as whether greater funding from the government will reduce the public’s willingness to donate to their organizations or whether more earned income will crowd out their ability to obtain government funding. Income portfolio diversification Although not originally developed to assess variability in income, the HerfindahlHirschman index (HHI) is a commonly used measure of diversification. For income analysis, HHI is calculated by taking the ratio of each income stream, squaring each one, and then summing them together. A low(er) HHI suggests greater diversification of income. Hanjin Mao and Lindsey McDougle

One might ask: Should nonprofits maintain a diversified income portfolio? Hung and Hager (2019) synthesized the advantages and disadvantages of revenue diversification in the nonprofit sector. On the advantages side, nonprofits with diversified income portfolios are often more stable and resilient to shocks in the market. Diversification can also provide nonprofits with greater organizational autonomy as well as balance stakeholder voices. On the disadvantages side, however, a diversified nonprofit income portfolio inevitably means greater complexity in management. Indeed, adding new sources of income requires adaptation, which can create uncertainty and risk for many organizations. Managing multiple income sources can also increase administrative costs and burdens, lead to organizational mission drift, and (as noted above) crowd-out income derived from other sources. Analyzing a nonprofit’s income portfolio To conduct an income portfolio analysis, Kearns (2007) suggested a multiattribute utility approach that involves mapping income attractiveness and capacity. According to this approach, a nonprofit should consider five attributes when assessing the percentage of each income stream that is most attractive for their organization: 1. Mission appropriateness: the consistency of the income source that supports the mission of the organization. 2. Significance: the amount and potential growth of the income source to fulfill the financial need of the organization. 3. Risk: the likelihood of significant decline of the income source. 4. Opportunity costs or trade-offs: the effort and resources required to pursue and sustain an individual income source. 5. Autonomy: the level of restriction(s) that the income source brings to the organization. Once a determination has been made about the attractiveness of a particular income source, organizations must then decide whether there is enough capacity to generate and/or sustain that income. This capacity includes staff and volunteer competence, infrastructure support, community reputation and image, and culture and tradition.

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Obviously, income sources high in both attractiveness and capacity are appealing to nonprofits, and Kearns (2007) suggests that this type of income should be prioritized. High attractiveness but low-capacity income sources, while generally not advisable for most nonprofits, require careful scrutiny and examination since these income sources may require a significant reallocation of resources. Efforts to pursue income sources that are low in attractiveness and high in capacity should be diverted to other income options. Nonprofit income portfolios vary from organization to organization. As such, nonprofit managers must consider the variance and covariance between different revenue streams and balance their portfolio’s attractiveness with their organization’s own capacity. Hanjin Mao and Lindsey McDougle

theory into practice (pp. 291–314). Rowman Altamira. Kingma, B. R. (1993). Portfolio theory and nonprofit financial stability. Nonprofit and Voluntary Sector Quarterly, 22(2), 105–119. https://​doi​.org/​10​.1177/​089976409302200202 Qu, H. (2019). Risk and diversification of nonprofit revenue portfolios: Applying modern portfolio theory to nonprofit revenue management. Nonprofit Management & Leadership, 30(2), 193–212. https://​doi​.org/​10​.1002/​nml​ .21385 Tinkelman, D., & Neely, D. G. (2018). Revenue interactions: Crowding out, crowding in, or neither? In B. A. Seaman & D. R. Young (Eds.), Handbook of research on nonprofit economics and management (pp. 35–61). Edward Elgar Publishing. Young, D. R., Wilsker, A. L., & Grinsfelder, M. C. (2010). Understanding the determinants of nonprofit income portfolios. Voluntary Sector Review, 1(2), 161–173. https://​doi​.org/​10​.1332/​ 204080510x511229

Related topics

Financial performance indicators Financing nonprofit organizations Resilience management Revenue diversification

Further reading and references

Calabrese, T. D. (2020). Nonprofit finance: A synthetic review. Voluntaristics Review, 4(5), 1–89. https://​doi​.org/​10​.1163/​9789004428713 Chang, C. F., & Tuckman, H. P. (1994). Revenue diversification among non-profits. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 5(3), 273–290. https://​doi​.org/​10​.1007/​bf02354036 Chikoto, G. L., Ling, Q., & Neely, D. G. (2016). The adoption and use of the Hirschman– Herfindahl Index in nonprofit research: Does revenue diversification measurement matter? VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 27(3), 1425–1447. https://​doi​.org/​10​.1007/​s11266​ -015​-9562​-6 Grasse, N. J., Whaley, K. M., & Ihrke, D. M. (2016). Modern portfolio theory and nonprofit arts organizations. Nonprofit and Voluntary Sector Quarterly, 45(4), 825–843. https://​ doi​ .org/​10​.1177/​0899764015603204 Hung, C., & Hager, M. A. (2019). The impact of revenue diversification on nonprofit financial health: A Meta-analysis. Nonprofit and Voluntary Sector Quarterly, 48(1), 5–27. https://​doi​.org/​10​.1177/​0899764018807080 Kearns, K. (2007). Income portfolios. In D. R. Young (Ed.), Financing nonprofits: Putting

Industry analysis Definition

Industry analysis is a type of environmental scanning that relies on data-driven assessments of trends that affect the performance of all organizations, or a subset of organizations, in a specific field of service, often called an industry.

Context

Businesses examine industry-wide trends in order to compare their performance with their peers and with industry leaders. They also monitor external factors that affect all firms in their industry. This analytical process is generally known as industry analysis. Many large firms have internal staff whose primary job is to monitor industry trends on a continuous basis. They may even have one or more people responsible for competitive intelligence.

In practice

Nonprofit organizations also operate within industries, but many people prefer terms like field of service instead of industry and peer organization instead of competitor. For Kevin P. Kearns

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example, many people would recoil at a term like the child welfare industry, the unhoused industry, or the food insecurity industry. Regardless of the terms we use, nonprofit organizations, like businesses, operate within fields of service and markets composed of comparable organizations with shared supply and distribution chains, similar political and economic pressures, similar sources of revenues and expenditures, and similar business models for financial viability and health. This is especially true of nonprofits that depend on earned income as well as charitable contributions. An example might be helpful. The field of preschool childcare is quite a competitive industry in which both charitable and for-profit organizations compete and must adapt to the same external forces. For example, suppose that the government decides to subsidize preschool childcare costs for qualified families in the form of vouchers that parents can use just like cash to purchase childcare at any facility that meets their needs. This policy will give parents choice, thus introducing a significant competitive element as parents “shop” for the childcare center that meets their needs. Suppose further that the government either lowers or raises the standards that centers must meet to qualify as an approved childcare center where parents can spend their vouchers. This will either decrease or increase the so-called entry barriers to the industry. Lower entry barriers will force providers to adapt to newly entering competitors and a more nuanced decision criteria used by parents such as convenience versus quality. Higher entry barriers will contribute to consolidation in the industry where only relatively large and professionalized centers will thrive. If there are only a few providers, they may be powerful enough to actually dictate the decision criteria used by parents. Due to relatively low wages combined with high stress, there is a lot of personnel turnover in the childcare industry. Thus, the stability of the personnel supply chain is extremely important in the childcare industry and other industries like healthcare, education, the arts, emergency services, food pantries, shelters, and many other domains of service. The COVID-19 pandemic demonstrated very painfully the supply chain vulnerabilities in many nonprofit industries. Kevin P. Kearns

To summarize this brief illustration, industry analysis is designed to illuminate issues like entry barriers, supply chain volatility, competitive forces, concentration or decentralization of the industry, consumer choice and factors affecting their choices, and many other variables that are just as relevant in nonprofit fields of service as in for-profit industries. Essential components of an industry analysis Here are the elementary steps in conducting an industry analysis: 1. Identify the boundaries of the industry including peer organizations that provide almost identical services and organizations perceived by consumers as viable substitutes. 2. Assess the important economic characteristics of the industry including its size and growth rate, its supply and distribution chains, and its stage in the industry life cycle. Also, it is important to assess exit barriers to an industry. Especially in the nonprofit sector, there may be ethical or even legal barriers to leaving an industry and abandoning vulnerable populations. Continuing the childcare example above, a center that is forced to close for competitive reasons would not simply inform parents not to drop off their children tomorrow. They would be pressured, and perhaps assisted by the funders, to close in an orderly way, allowing families time to find suitable alternatives. Finally, it is important to determine whether there is a dominant business model used by successful organizations in the industry. Some analysts recommend comparing financial ratios of organizations to assess how well they are performing with respect to that dominant business model. Some financial information is readily available from the IRS 990 forms of others in the industry. 3. Assess the competitive or collaborative characteristics of the industry. If the industry is competitive, assess the basis for competition such as service quality, price, cost-effectiveness, or convenience. If the industry is predominantly collaborative or at least not adversarial, assess emerging opportunities for collaboration with other organizations. Even in com-

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petitive industries, there are opportunities for collaboration. A strategy that is sometimes called coopetition refers to circumstances where nonprofits compete on some issues, such as recruiting and retaining talent, but cooperate on other issues, such as community needs assessments. Finally, identify exemplary organizations or so-called industry leaders that are widely recognized as the standard of excellence for all others in the industry. 4. Assess industry-wide driving forces such as demographic trends, societal attitudes / values, economic trends, technology and innovation, public policy and regulation, and even international forces. Some organizations find it helpful to summarize all the data collected in a short written description – or scenario – that briefly describes where the industry is currently positioned and its likely trajectory in the foreseeable future. In volatile industries, it is helpful to write a best-case, worst-case, and most-likely scenario.

The future: Limitations and strengths of industry analysis

Here are some legitimate criticisms of industry analysis as applied in both the business world and in the nonprofit sector: ● Industry analysis provides only a “snapshot” of a moving target and rarely accounts for rapidly changing trends or catastrophic events like the COVID-19 pandemic. ● Industry analysis can give too much attention to business models, competitors, and simplistic metrics of the performance of industry leaders. ● Organizations that rely too much on industry analysis can be subtly drawn into a copy-cat mindset, wherein they try to mimic the actions of industry leaders when, in fact, such an approach could be infeasible or even disastrous. Even a rudimentary industry analysis is certainly preferable to doing no environmental scanning at all and, in many cases, it is far superior to a generic SWOT analysis recom-

mended by many strategic planners. Here are a few of those advantages: ● Industry analysis rivets the attention of staff members and the governing board on the factors most directly impactful for the organization and its peers. ● Industry analysis is data-driven and therefore moves decision makers beyond subjective or biased assessments like those generated in casual environmental scans based on anecdotal evidence or brainstorming. ● Industry analysis forces decision makers to examine not just peer organizations but also those in the supply and distribution chains and those that produce substitute products. These important organizations are sometimes forgotten until a crisis arrives. ● Industry analysis is particularly helpful, perhaps even essential, if an organization is adding new programs and services, expanding to a new market, or attempting a vertical integration strategy to gain greater control over supply and distribution chains. A thorough industry analysis requires data-intensive research, which would be a significant strain on the resources of most nonprofit organizations. Fortunately, there are a number of easily accessed databases that can be helpful. IBISWorld, for example, provides industry and market research on thousands of global industries, many of which are in the nonprofit domain (www​ .ibisworld​.com/​). Local libraries and colleges will likely have subscriptions to these and other databases. Also, there are many other sources of industry data such as trade journals that are easily accessible. Kevin P. Kearns

Related topics

Commercialism Competition Managerialism Strategic analysis: SWOT Strategic planning

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Further reading and references

Kearns, K. P. (2000). Private sector strategies for social sector success. Jossey-Bass. Lakdawalla, D., & Philipson, T. (2006). The nonprofit sector and industry performance. Journal of Public Economics, 90(8–9), 1681–1696. https://​doi​.org/​10​.1016/​j​.jpubeco​.2005​.11​.004 LaPiana, D. (2018). The nonprofit strategy revolution: Real-time strategic planning in a rapid-response world (2nd edn.). Turner Publishing. Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. Free Press. Seaman, B. A., Wilsker, A. L., & Young, D. R. (2014). Measuring concentration and competition in the U.S. nonprofit sector: Implications for research and public policy. Nonprofit Policy Forum, 5(2), 231–259. https://​doi​.org/​10​.1515/​ npf​-2014​-0007

Innovation in nonprofit organizations Definition

Innovation is a process by which organizations generate new ideas internally or access external ideas for new products, services, processes, procedures, structures, practices, or interventions and transform those ideas into outputs that have the potential for positive impact. The innovation process encompasses idea generation and idea transformation into practical outputs that add value to the customers. During the first subprocess, innovative ideas, whether for incremental or radical change, can be generated internally or borrowed from the external environment. During the transformation process, practical applications for the idea are generated, evaluated, formalized, and routinized. The reasons nonprofit organizations must innovate are numerous: face the competition, do more with less, challenge themselves to do better, exploit the power of technology, build on the opportunities created by eroding sectoral boundaries, and take on global opportunities (Berzin & Camarena, 1998). It is clear that to face numerous social problems, nonprofit organizations must engage in innovation. Kristina Jaskyte

Types of innovations

While a separate entry could be dedicated to an overview of field-specific types of innovations, this entry focuses on several major types of innovations that can be found across different fields. Innovations can be grouped into technological such as product, service, and process innovations, and non-technological innovations that are organizational in nature. These two types of innovations are related to different systems – the social and the technical – and are usually initiated in different parts of the organization. The focus of technological innovations is on economic productivity and financial performance. Product innovations include new or improved products designed to meet the needs of external clients. Service innovation focuses on the introduction of new or the redesign of existing services to existing or new clients. Process innovations can be defined as new or improved elements introduced into an organization’s production or service operation that creates a product or provides a service. Organizational innovation, also known as administrative or management, is internally focused and aims to increase the efficiency and effectiveness of an organization’s internal functioning. It can be defined as the implementation of new organizational methods – introduction of new organizational structures, management techniques, processes, systems or practices. Examples include a new performance evaluation system or a new method for employee training or recruitment. More recently, social entrepreneurship and nonprofit literature have seen a boom in publications focused on social innovation. Social innovation entails the development and implementation of new ideas to meet neglected social needs. It is socially oriented, and its overarching aim is to improve human well-being. Social innovation is open and collaborative and involves more bottom-up, grassroots involvement compared to other innovation types. It seeks to impact the well-being of beneficiaries and those involved in the process (Anheier et al., 2019) and to change the beliefs and relationships that underlie the existing structures. Social innovations can be found across numerous fields of activity, including arts and culture, health care, environmental sustainability, social services, and community development.

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One promising type of social innovation is open innovation, where an open and participatory approach to innovation is based on collective action that is expedited with technology. Open innovation creates opportunities for participation for a variety of stakeholders across different countries and continents. Open Ideo provides an excellent platform for social innovation through their open challenges (https://​challenges​.openideo​ .com/​) by putting the power of coming up with solutions into the hands of those who have an interest in participating. Technology innovation can be seen as developing and implementing new or redesigning existing technologies to create new opportunities for customers, increase outputs, and decrease production costs. This type of innovation became especially important during the pandemic crisis.

In practice: Innovation examples in nonprofit organizations

A Mile in My Shoes (https://​www​ .empathymuseum​.com/​a​-mile​-in​-my​-shoes/​) is one of many fabulous exhibits at the Empathy Museum and constitutes an example of social innovation. Housed in a shop shaped like a giant shoebox, the exhibit invites visitors to walk a mile in someone else’s shoes. Literally. Visitors are encouraged to pick out a shoe box out of hundreds of shoe boxes and to walk a mile in the shoes of a stranger while listening to their story. This project aims to send visitors on a physical journey that would help them develop empathy for strangers while listening to stories of loss and grief, love, and hope. An example of a product innovation comes from Truth Initiative (https://​truthinitiative​ .org/​), which decreases smoking rates among youth. Their ads against e-cigarettes and vaping have been highly effective. Their free, text-based “This is Quitting” program allows users to receive daily texts by signing up to receive them by texting “DITCHJUUL.” The texts have tips tailored to their age and the particular device they’re trying to break up with. Upsolve is a nonprofit organization that came up with a seamless process to generate bankruptcy paperwork for free on any mobile or desktop web browser. Simplifying the process of filing for bankruptcy constitutes

an example of process innovation (https://​ upsolve​.org/​). An organizational innovation example comes from the Aga Khan Foundation (https://​www​.akfusa​.org/​), which employed a new way of working in response to the COVID-19 pandemic. Because the organization’s work involves a significant collaboration element, they used the online platform MURAL to collaborate and ideate within teams (https://​www​.mural​.co/​blog/​driving​ -global​-impact​-remotely). The WATERisLIFE (https://​ waterislife​ .com/​) campaign is an excellent example of a nonprofit that used technology in a highly effective way to raise money. They used the hashtag #firstworldproblems and created a video that highlights the living conditions of people in developing countries in stark contrast to our relative wealth. The video shows people in actual dire situations of need reading out these first world problems, such as “I hate when I have to write a check to my maid, and I can’t remember her last name,” “I hate when my house is so big that I have to install two wireless routers.”

Factors related to innovation process

While any nonprofit can innovate once, the key to tackling multidimensional, intertwined, wicked problems is to develop capacity for sustained innovation, which starts and lives inside a nonprofit organization. Innovating from within sustainably is impacted by numerous internal and external factors. We know a lot about internal organizational processes and contextual factors that affect innovation. An extensive set of individual, group, and contextual level factors have been found to influence innovation in nonprofit organizations. Considering those factors that support innovation is essential; recognizing those that might inhibit innovative performance is equally important. A comprehensive model of individual, organizational, and environmental factors related to innovation subprocesses shows a large set of factors that have been found to influence innovation in nonprofit organizations (Jaskyte, 2019). For idea generation subprocesses, those factors are grouped into personal and work environments. Among the personal factors related to idea generKristina Jaskyte

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ation are intrinsic motivation, personality, cognitive style, domain-relevant skills, and creativity-related skills. Those factors are related to internally generated (original) innovative ideas. Work environment factors influencing idea generation are job characteristics, leadership, supervisory support, group climate, organizational culture, and social networks. Those factors are linked to “borrowed” ideas that are accessed from the external environment. Two sets of factors influence the idea transformation subprocess. One set of factors is related to the work environment and encompasses leadership from the executive and the governing board, clear mission and vision, organizational culture, and structure. The second set pertains to external factors – institutional environment, funder relations and funding priorities, and collaboration. The relationship between those two subprocesses – idea generation and idea transformation – are moderated by personal and relational factors – implementation instrumentality, ability to network, and strong buy-in ties (Jaskyte, 2019). Finally, several factors have been shown to be central for sustained and continuous innovation. Catalytic leadership, which empowers employees to solve problems, is one of the factors that are important for sustained innovation. A curious culture, diverse teams, and ready resources

Figure 9

Innovation outcomes

Kristina Jaskyte

also constitute critical elements for building sustained innovation capacity. Porous boundaries and idea pathways are two other vital elements that allow for the flow of information and insights across the organization and from outside the organization and provide the processes and structures for turning the ideas into solutions (Sahni et al., 2017).

Innovation outcomes

While it is essential to recognize that innovation is a complex process that depends on numerous internal and external factors, it is equally important to explore innovation’s external and internal organizational impact. While innovations are seen as sources of growth, sector change, competitive advantage, public service, adaptive behavior, organizational performance, improved operational efficiency, and effectiveness, most existing studies tend to treat innovations as outcomes. Figure 9 captures a list of potential outcomes suggested to be associated with different types of innovations.

Current and future directions

Nonprofits are operating in environments that are characterized by problems that are multidimensional, intertwined, and wicked. When seeking to innovate and create impact,

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nonprofits are faced with different types of uncertainty: ● Problem Frame Uncertainty: not understanding problems correctly. ● Adoption Uncertainty: are people and communities willing and able to adopt innovations? ● Solution Uncertainty: can we create effective solutions to the problems? ● Unintended Consequences: can we foresee the negative consequences? ● Identity Uncertainty: does this innovation fit our identity? ● Managerial Uncertainty: how do we manage innovation process productively? (Seelos & Mair, 2017) Dealing with these uncertainties while facing wicked problems requires tools and methodologies that will allow for the continuous generation and implementation of innovative ideas. One such methodology to creative problem solving that has been widely used in the business field and is increasingly gaining recognition and application in the nonprofit field is Design Thinking, or Human-Centered Design. The Design Thinking process entails the stages of Empathizing, Defining, Ideating, Prototyping, and Testing, and results in developing multiple new solutions to various challenges. In addition to generating new solutions, the Design Thinking process has been shown to impact various intermediate outcomes. It results in improved implementation and adaptation of developed solutions, increased individual psychological outcomes, network capability and resource enhancements, increased solution quality, and trust-building among the stakeholders (Liedtka & Jaskyte Bahr, 2019). Going through the Design Thinking process has also been shown to be a transformative experience that results in increased creative confidence and creative efficacy. As is the case with all methods, Design Thinking is not flawless. Among some of the criticisms of this method is its potential to produce solutions that are not scalable, are not based on sufficient evidence underlying the new solutions, and are not based on diverse points of view. Several authors recognized those shortcomings and provided suggestions for developing the Design Thinking model further. The Liberatory Design builds on Design Thinking and seeks to address

equity challenges and change efforts in complex systems. This model has Notice and Reflect at its center, recognizing the importance of self-reflection and self-awareness for the success of the process (https://​www​ .liberatorydesign​.com/​). The Liberatory Design process itself is expected to result in greater collective liberation. The use of this new model serves as a fertile ground for future research. When describing the next chapter in Design Thinking for social innovation, Wyatt et al. (2021) recognizes the importance of supplementing the Design Thinking process with more intensive mapping of social systems, a more in-depth assessment of the organization’s capacity to implement and scale new solutions, and new phases that go beyond a prototype pilot and involve learning, optimization, and measurement/ evaluation to produce information needed for scaling. The authors suggest that social problems are grounded in systemic issues, and therefore designers should use a more systemic approach in their design that includes multiple interventions with multiple actors. The authors further argue that while there has been a significant investment in evaluating the methodology itself, little investment has been made in assessing whether the innovative solutions produced desired outcomes. Measurement of the outcomes that newly designed services and products result in is a fertile area for future research and is critical for their replication and scaling. In addition to filling the gaps in the Design Thinking literature, researchers and practitioners should examine the current pro-innovation bias and replace it with an evaluative perspective that emphasizes the importance of evaluating innovation by its outcomes and the impact it generates compared to the effort expanded. The link between innovation and desired social outcomes/social progress is assumed but explored empirically much less often. Kristina Jaskyte

Related topics

Capacity building Hybrid organizations Resiliency management Social change and nonprofit organizations Social enterprise Kristina Jaskyte

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Further reading and references

strategies and practices. It can also occur when a government enforces its mandates or expects conformity from organizations within its jurisdiction. Mimetic isomorphism occurs without the external pressures that characterize coercive isomorphism. Organizations that follow this process do not find themselves in a position in which they are compelled to change and conform to mandated or imposed patterns of behavior. In many cases, organizations are internally driven to homogeneity and conformity due to ambiguities in their missions or uncertainties in their environments; thus, they model themselves after others in order to lessen uncertainties and ambiguities in their missions and environment. Some leading organizations may or may not know that they are being copied or modeled as pace setters. Sometimes, mimetic isomorphism happens as a result of employee leakages and hiring within the industry or among the same institutions. Normative isomorphism surfaces due to the professionalization of some occupations. The development of standards of practice by and for actors in the field results in the professionalization of such a field. These norms become a part of standard practice for all of the actors in such a profession.

Institutional isomorphism

Examples in the context of international organizations

Anheier, H., Krlev, G., & Mildenberger, G. (Eds.). (2019). Social innovation: Comparative perspectives. Routledge. Berzin, S., & Camarena, H. (1998). Innovation from within: Redefining how nonprofits solve problems. Oxford University Press. Jaskyte, K. (2019). Innovation and creativity in non-profit organizations. In M. Nandan, T. Bent-Goodley, & G. Mandayam (Eds.), Social work entrepreneurship, intrapreneurship, and social value creation: Relevance for contemporary social work practice (pp. 3–26). NASW Press. Liedtka, J., & Jaskyte Bahr, K. J. (2019). Assessing design thinking’s impact: Report on the development of a new instrument. Darden Working Paper Series. https://​doi​.org/​10​.5465/​AMBPP​ .2020​.10167abstract Sahni, N., Lanzerotti, L., Bliss, A., & Pike, D. (2017). Is your nonprofit built for sustained innovation? Stanford Social Innovation Review. https://​doi​.org/​10​.48558/​1JCV​-R152 Seelos, C., & Mair, J. (2017). Innovation and scaling for impact: How effective enterprises do it. Stanford Business Books. Wyatt, J., Brown, T., & Carey, S. (2021). The next chapter in design for social innovation. Stanford Social Innovation Review, 19(1), 40–47. https://​ doi​.org/​10​.48558/​YEN6​-4T17

Definition

Individual organizations go through a process of homogenization that can be described as isomorphism. The end result of this process is that organizations, particularly those that fall in the same organizational field, end up resembling each other in organizational structures as well as in the actions and functions they perform. Their main characteristics are gradually modified in the direction of greater compatibility with others that may be larger, older, more dominant, and/or more successful and enjoy legitimacy in their environment.

Types

Coercive isomorphism occurs when a principal (such as a franchisor or a parent company in a firm) or a dominant organization within a certain organizational field exerts pressure to ensure conformity with certain norms, Nadeen Makhlouf

Although multilateral development banks operate within a global system that is dominated by nation states, they use their resource base, among other means, to enforce their agreements and ensure their effectiveness. For example, here are functional and operational similarities between the World Bank and regional development banks. Structurally, they have governing boards comprising of representatives of the member countries, usually the finance ministers. Day-to-day business is handled by an executive board, chaired by the president who is also head of staff. Like the World Bank, the regional development banks are mandated to provide development assistance to member states, and cooperate with other organizations to serve the interest of their members. Membership in these banks is also open to all sovereign nation states, regardless of their location. Homogeneity among regional development banks reflects normative isomorphism

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in play in a small organizational field in which the World Bank is seen as a model. For example, an area in which several similarities may be noted is the independent accountability mechanisms among international institutions, which has gained importance since the early 1990s. There are isomorphic similarities in the regional banks’ accountability mechanisms, which also resemble the World Bank’s pioneering mechanism. Competition for influence among major shareholders can curtail isomorphic tendencies among the regional multilateral development banks. For example, multilateral development banks are supposed to be apolitical, in that their decisions are expected to be made solely on the basis of financial, economic, and technical considerations. In practice, however, they are occasionally subjected to political pressure exerted by some of their major contributors and shareholders or major geopolitical events. For example, the United States, which is a major shareholder and contributor to all multilateral development banks, uses its substantial voting power to ensure that at least some of those institutions’ important decisions would remain in line with its own priorities and foreign policy objectives.

Current trends

There are several important consequences of isomorphism: external legitimization, promoting success and survival of organizations, maintaining stability, reducing turbulence, and buffering some organizations from failure. Isomorphism allows organizations that lack legitimacy because they are new, lack resources, or are small to gain external legitimacy by conforming to institutional norms, and incorporating practices that other organizations have successfully instituted. As they gain legitimacy, their prospects for survival are enhanced in addition to gaining the level of stability that would have otherwise been difficult to attain. In spite of such isomorphic changes in organizational structures and functions, there is little threat to the bureaucratic form of organizations. Organizations that become isomorphic do not become less bureaucratic but tend to adopt prevailing norms and practices or simply adhere to recognized best practices that leading organizations have successfully adopted and institutionalized. In

fact, the bureaucratic form of organization itself leads to homogeneity since it prescribes a general approach to organizing activities, distributing responsibilities, and establishing authority relationships. Organizations that follow the bureaucratic model end up having a great deal of similarity in their organizational structures.

Future considerations

Institutional theory has brought attention to the tendency among organizations in the same field or in a common environment to resemble each other, that is, become isomorphic. Various explanations have been advanced to show the motives behind such isomorphic changes that do not always lead to greater efficiencies or innovative operational or service delivery strategies, but more towards gaining legitimacy and dealing with mission ambiguity and environmental uncertainty. Multilateral institutions have grown in number and importance since World War II, and many of them have emerged into international bureaucracies. Unlike domestic organizations, they are staffed and operated by international civil servants, and culturally and nationally diverse specialists who bring into play different organizational and managerial concepts and procedures that impact the internal dynamics of such institutions. In most cases, they have successfully adapted various components of modern institutional theory to their portfolios and individual circumstances. Since the legal structures and missions of international institutions differ, not only from domestic organizations but also from each other, one would expect some variations in adopted strategies, norms, priorities, and power structures. A question, therefore, arises as to the extent to which isomorphism, that is, the tendency of one or more organizations in the same organizational field or environment to favor homogeneity, has had an impact on such diverse institutions. Nadeen Makhlouf

Related topics

Competition Government funding and contract management Grant Professionalism Nadeen Makhlouf

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Further reading and references

Bakker, A. F. B. (1996). International financial institutions. Longman. Bradlow, D., & Fourie, A. (2011). Independent accountability mechanism at regional development banks. In T. Hale & D. Held (Eds.), Handbook of transnational governance, institutions and innovations (pp. 122–137). Polity Press. Deephouse, D. L. (1996). Does isomorphism legitimate? Academy of Management Journal, 39(4), 1024–1039. https://​doi​.org/​10​.5465/​ 256722 DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160. https://​doi​.org/​10​.2307/​2095101 DiMaggio, P. J., & Powell, W. W. (Eds.) (1991). The new institutionalism in organizational analysis. The Chicago University Press. Meyer, J., & Rowan, B. (1991). Internationalized organizations: Formal structure as myth and ceremony. In P. J. DiMaggio & W. W. Powell (Eds.), The new institutionalism in organizational analysis (pp. 41–62). The University of Chicago Press.

Intermediate sanctions Definition

Intermediate sanctions refer to coercive or punitive actions or measures resulting from incompliance with regulations imposed on tax-exempt organizations and their top officials/staff not to receive excessive compensation from their organization (IRS, n.d.-a.). The term implies that these sanction measures are short of revocation of tax exemption status of public charity organizations or social welfare organizations.

Context

The enactment of IRC 4958 of 1996 is considered the most significant change in the federal income tax law regulating tax-exempt organizations since the 1959 regulations under 501(c)(3) established the governance and administrative rules for charitable activities. This enactment intends to impose sanctions on influential persons who take improper advantage of public charities for their personal benefit. Rather than penalizing Bok Gyo Jeong

the exempt organization itself, this enactment takes an approach to sanction persons who get excessive economic benefit from a public charity or social welfare organization (Brauer & Henzke, 2003). The Internal Revenue Service (IRS) imposed extensive regulations over certain tax-exempt organizations and their high-level officials. These new regulations allow the IRS to impose penalties when it determines that such officials have received excessive compensation from their organization. The IRS is allowed to impose penalties when an organization and/or its officials receive compensation exceeding the limit (IRS, n.d.-a.). Intermediate sanctions were introduced as an alternative to revocation of the exempt status of 501(c)(3) public charity or 501(c) (4) nonprofit organization, when influential persons benefit from transactions. Before the enactment of intermediate sanctions in 1996, the IRS had a single enforcement option of revocation of tax-exempt status, inappropriately punishing a public charity or social welfare organization and its employees. On the other hand, this revocation measure allowed those who benefited from the exploitative transaction to retain the benefit of their misconduct. The idea of intermediate sanctions for charities was introduced into the Internal Revenue Code with the private foundation rules enactment of 1969. These rules established a penalty tax system for self-dealing transactions. In 1969, the Joint Committee on Taxation assessed that the arm’s length standards require disproportionately heavy enforcement efforts, causing the ineffectiveness of sanctions. According to the arm’s length standard, a controlled transaction (i.e., related party transaction) meets this standard, if the results of the transaction are consistent and comparable with the results from an uncontrolled transaction under the same circumstances (arm’s length result) (IRS, n.d.-c.). An arm’s length transaction implies a business deal that involves parties who act in their own interest, independently of one another. Sanctions based on the arm’s length standards were often ineffective and discouraged due to the high-cost single option of exemption status deprivation. This created reluctance in enforcement, given the subjectivity in the application of arm’s length standards. As a result, the prior law created

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challenges in preserving the integrity of private foundations. In the 1977 report of the Commission on Private Philanthropy and Public Needs (a.k.a. Filer Commission), the extension of the intermediate sanctions to public charities was suggested. In 1976 and 1987, Congress also created a form of intermediate sanctions for public charities that engage in lobbying or political activities in violation of the 501(c) (3) requirements. In the early 1990s, concerns were raised about the IRS’s inability to deal with abusive transactions involving tax-exempt charities short of revocation of tax exemption. During the Clinton Administration, Congress publicly addressed that the existing tax law did not adequately regulate these transactions. IRS Commissioner Margaret Richardson testified about this inadequate sanction at a hearing of House Ways and Means Oversight Committee. The Commissioner pointed out that the revocation of the exempt status is often exceedingly proportionate to the violation, penalizes the wrong target groups/parties by threatening the public charity’s exemption status, and allows those abusing the charity to maintain the benefits from their misconduct (Cerny & Livingston, 1998).

In practice Excise tax on excess benefit transactions Section 4958 of the Internal Revenue Code imposes an excise tax on excess benefit transactions between a disqualified person and an applicable tax-exempt organization. If a person is in a position that can exercise substantial influence over an applicable tax-exempt organization’s affairs during the lookback period, the person is considered a disqualified person. To be a disqualified person, the person does not necessarily exercise actual influence. The person is disqualified if he or she is in a position with potential influence and authority. If the disqualified person gets benefits from an excess benefit transaction, the liability for the excise tax is constituted. The lookback period refers to the five years before the excess benefit transaction occurred. An excess benefit transaction means that a direct or indirect economic benefit is provided by an applicable

tax-exempt organization, to or for the use of a disqualified person. The financial benefit offered by the organization should be more significant than the consideration received (IRS, n.d.-b.). Interaction between section 4958 taxes and revocation of exemption The substantive standards for tax exemption under section 501c(3) or 501c(4) are not affected by section 4958. Regardless of the status of the section 4958 excise tax imposition, the revocation of tax exemption status may be proposed by the IRS (IRS, n.d.-a.). Criteria for reasonable compensation A “rebuttable presumption” was established to determine whether the compensation was reasonable and made at fair market value. This means that compensation is presumed reasonable if it meets the following three criteria. i) An authorized body of the applicable tax-exempt organization (e.g., independent board or committee) should approve the compensation. This board or committee should consist of individuals who do not have conflicts of interest regarding the compensation in question. ii) The authorized body is responsible for obtaining and relying on appropriate data on the payment and comparable options. iii) The basis for the authorized body’s determination should be adequately documented (IRS, n.d.-e.). The level of penalties An excise tax as part of penalties is imposed on disqualified persons and organizational managers. Penalties on disqualified persons amount up to 25 percent of the excess benefit as a first-tier tax. The tax is computed by the following three considerations: the amount by which a transaction differs from fair market value, the amount of compensation exceeding reasonable compensation, and the amount of a prohibited transaction based on the organization’s gross or net income. When the transaction is not revised in a timely manner, a second-tier tax is imposed, equal to 200 percent of the excess benefit. An excise tax penalty on organization managers is imposed, if the 25 percent first-tier tax is imposed on a disqualified person. An additional 10 percent tax may be imposed against any organizational manager who is involved Bok Gyo Jeong

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in the excess benefit transaction knowing that it was improper (IRS, n.d.-f.).

Current issues Duty of loyalty rules for nonprofits Unlike for-profit corporations, nonprofits do not have shareholders who will monitor unreasonable executive compensation or certain forms of self-dealing. In the case of for-profit corporations, shareholders have direct financial incentives to monitor self-dealing. In public companies, shareholders can exit through the public markets, imposing threats and a certain form of discipline toward companies. The IRC 4958 implies articulation of duty of loyalty rules for nonprofits in the absence of shareholders and other principals (Eisenburg, 2011). Implication for colleges and universities This enactment affects and involves colleges and universities and their influential parties. Compensation for the chief administrative officers as well as for influential academic officers, athletic coaches, and board members are subject to these taxes. Sales and purchases of the property from suppliers with a close connection to the institution, including substantial donors, can also be subject to these sanctions (Cerny & Livingston, 1998). Uncharitable hospitals and intermediate sanctions Although tax-exempt hospitals receive a significant amount of tax breaks, there is a lack of evidence that these tax breaks lead to benefits for communities. Even if hospitals do not meet the federal standards for tax exemption, there is a lack of methods for the IRS to enforce or regulate these hospitals. Intermediate sanctions provide the IRS with the option to regulate tax-exempt hospitals’ behaviors without revoking their tax-exempt status. This sanction allows communities to continue to benefit from these hospitals’ services (Weisblatt, 2014).

Nonprofits’ accountability and intermediate sanctions

The enactment of intermediate sanctions may reveal the interaction, tension, or complementarity among types of nonprofit accountBok Gyo Jeong

ability. Nonprofits have legal accountability to comply with laws and regulations by government or oversight agencies. Nonprofits also have discretionary accountability that allows professional judgment for the executives or board members, as well as negotiated accountability to demonstrate responsiveness toward the performance standards of various stakeholders (Kearns, 1996). This enactment of intermediate sanctions can be interpreted as incorporating legal accountability by explicitly enforcing nonprofits to follow these regulations, when discretionary or negotiated accountability does not serve itself well as intended. Bok Gyo Jeong

Related topics

Chief executive director: Compensation Internal Revenue Service Principal-Agent Theory Private inurement prohibition Regulation of nonprofit organizations

Further reading and references

Brauer, L., & Henzke, L. (2003). Intermediate sanctions (IRC 4958) update. Internal Revenue Service. https://​www​.irs​.gov/​pub/​irs​-tege/​ eotopice03​.pdf Cerny, M., & Livingston, C. E. (1998). IRS intermediate sanctions: How they will impact colleges and universities. Journal of College & University Law, 25(4), 865–900. Eisenburg, C. B. (2011). Agents without principals: Regulating the duty of loyalty for nonprofit corporations through the intermediate sanctions tax regulations. Journal of Business, Entrepreneurship & the Law,  5(2), 243–272. https://​digitalcommons​.pepperdine​.edu/​jbel/​ vol5/​iss2/​2/​ Internal Revenue Service. (n.d.-b.). Excess benefit transactions. https://​www​.irs​.gov/​charities​-non​ -profits/​charitable​-organizations/​intermediate​ -sanctions​-excess​-benefit​-transactions Internal Revenue Service. (n.d.-a.). Intermediate sanctions. https://​www​.irs​.gov/​charities​-non​ -profits/​charitable​-organizations/​intermediate​ -sanctions Internal Revenue Service. (n.d.-f.). Intermediate sanctions: Excise tax. https://​www​.irs​.gov/​ charities​-non​-profits/​charitable​-organizations/​ intermediate​-sanctions​-excise​-taxes Internal Revenue Service. (n.d.-c.). LB&I international practice service transaction unit. https://​ www​.irs​.gov/​pub/​int​_practice​_units/​ISI9422​ _09​_06​.PDF

I 343 Internal Revenue Service. (n.d.-d.). The nature of self-dealing. https://​www​.irs​.gov/​pub/​irs​-tege/​ eotopicq85​.pdf Internal Revenue Service. (n.d.-e.). Rebuttable presumption – intermediate sanctions. https://​ www​.irs​.gov/​charities​-non​-profits/​charitable​ -organizations/​rebuttable​-presumption​ -intermediate​-sanctions Kearns, K. P. (1996). Managing for accountability: Preserving the public trust in public and nonprofit organizations. Jossey-Bass. Weisblatt, R. (2014). Uncharitable hospitals: Why the IRS needs intermediate sanctions to regulate tax-exempt hospitals. Boston College Law Review, 39, 1–45. https://​ssrn​.com/​abstract​=​ 2308561

Internal Revenue Service Definition

The Internal Revenue Service (IRS) is a federal bureau. It operates under the legal authority of the Commissioner of Internal Revenue within the United States Department of Treasury. It primarily serves to collect taxes for the country and enforce tax laws. It is in the enforcement role that the IRS interacts with nonprofit organizations in numerous and complex ways, often appearing contradictory.

Context

There are four divisions in the IRS. The Tax Exempt/Government Entities Division is the one of the four that primarily focuses on nonprofit organizations. Within the Tax Exempt/ Government Entities Division is Exempt Organizations (EO). EO creates policies pertaining to tax-exempt law as well as enforcing the law. This includes processing requests from nonprofits to be recognized as tax exempt through submitting the Application for Recognition of Tax Exemption. The EO’s key authority includes determination letters, including denying recognition of tax-exempt status, and revoking tax-exempt status when organizations violate the terms of their exemption. The Examination Office within the Tax Exempt/Government Entities Division provides audit services impacting nonprofits. The Examinations Office creates the exempt organizations enforcement strat-

egy, including policies and procedures for examining nonprofits. The role of the IRS in tax exemption law enforcement is nuanced and multi-layered. An organization being chartered or established under state law does not automatically qualify for federal tax exemption. Tax exemption of a nonprofit is achieved by satisfying the requirements of the applicable legal provision for the exempt status. Except in certain instances, there is not a required process to have the determination conferred, it is a matter of law. In certain instances, the authority of the IRS is limited to responding to a request to recognize an organization’s exempt status. There are also conditions where the IRS can revoke tax-exempt status and retroactively reinstate exempt status. Another key operation impacting nonprofits is the IRS Office of Chief Counsel, the chief legal advisor to the IRS. For example, the Associate Chief Counsel for EO is responsible for various official pronouncements and communications including technical advice memoranda. Technical advice memoranda are prepared in response to a request by certain directors in the IRS or certain other questions arising out of a proceeding. It usually involves a specific situation pertaining to a taxpayer and represents the final determination of the IRS. The most significant determination letters are prepared by the Office of Chief Counsel, including the controversial involvement of the IRS in nonprofit governance (e.g., IRS concluding a small board, or one totally comprised of related individuals is an indication of private benefit rather than public benefit and cause for tax exemption revocation).

In practice

Nonprofit organizations are regulated at the federal and state levels. A substantial endorsement of nonprofits’ value in the United States are the various tax benefits provided in the Internal Revenue Code (IRC), the statutory law on matters of tax domestically. Only certain state tax benefits are conferred by being incorporated as a nonprofit organization under state law. Federal tax benefits, such as exemption for federal corporate income tax, are bestowed by satisfying the eligibility requirement under federal law. Moreover, only the federal government can determine if charitable contributions to David A. Bell

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organizations are deductible from the taxable income of the donor. The interaction of the IRS with nonprofit organizations is required and constrained by federal law. An important basic point often overlooked is that the IRS generally does not grant federal tax-exempt status. Congress confers it pursuant to enactment of the IRC, as amended (see Table 18 listing selected federal tax-exempt organizations). There are many types of federal tax-exempt organizaTable 18

tions. For instance, there are over two dozen ways for a nonprofit to meet the federal legal definition of charitable, the type of nonprofit eligible to receive contributions that qualify for deduction from income for tax liability purposes. The IRS processing an Application for Recognition of Tax Exemption is the function of recognizing the exemption provided under law, it is not granting tax-exempt status.

Select federal tax-exempt organizationsa

Type of Exempt Organizationa

I.R.C. Section

Corporations Organized Under Act of Congress

501(c)(1)

Title Holding Corporations for Exempt Organizations

501(c)(2)

Charitable, Religious, Educational, Scientific, Literary, et.al., Organizations

501(c)(3)

Civic Leagues and Social Welfare Organizations

501(c)(4)

Labor, Agricultural, and Horticultural Organizations

501(c)(5)

Business Leagues, Chambers of Commerce, etc.

501(c)(6)

Social and Recreation Clubs

501(c)(7)

Fraternal Beneficiary Societies and Associations

501(c)(8)

Voluntary Employees Beneficiary Associations

501(c)(9)

Domestic Fraternal Societies and Associations

501(c)(10)

Teachers’ Retirement Fund Associations

501(c)(11)

Local Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies

501(c)(12)

Cemetery Companies

501(c)(13)

State Chartered Credit Unions, Mutual Reserve Funds

501(c)(14)

Mutual Insurance Companies or Associations

501(c)(15)

Cooperative Organizations to Finance Crop Operations

501(c)(16)

Supplemental Unemployment Benefit Trusts

501(c)(17)

Organizations of Past or Present Members of the Armed Forces

501(c)(19)

Black Lung Benefits Trusts

501(c)(21)

Withdrawal Liability Payment Funds

501(c)(22)

Trusts Described in Section 4049 of ERISA

501(c)(24)

Title Holding Corporations or Trusts

501(c)(25)

State-Sponsored High-Risk Health Coverage Organizations

501(c)(26)

State-Sponsored Worker’s Compensation Reinsurance Organizations

501(c)(27)

National Railroad Retirement Investment Trusts

501(c)(28)

Qualified Nonprofit Health Insurance Issuers

501(c)(29)

Religious and Apostolic Associations

501(d)

Cooperative Hospital Service Organizations

501(e)*

Cooperative Service Organizations of Operating Educational Organizations

501(f)*

Amateur Sports Organizations

501(j)*

Child Care Organizations

501(k)*

Charitable Risk Pools

501(n)*

Credit Counseling Organizations

501(q)*

Political Organizations

527

Notes: * Organizations whose exemption falls under §§ 501(e), 501(f), 501(j), 501(k), and 501(n) file as 501(c)(3). a IRS information on various tax-exempt organizations can be found in Publication 557 “Tax-Exempt Status for Your Organization” (https://www.irs.gov/pub/irs-pdf/p557.pdf#page=57).

David A. Bell

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Certain nonprofits are required under law to file for this recognition (e.g., charitable organizations). Most categories of nonprofits are not required to file; however, most of these do file an application. The determination of exemption is issued absent, a controversy or unresolved aspect of law. The IRS examines these applications thoroughly. It is not uncommon for the IRS to request additional information from the nonprofit upon examining the application. Completion of the application in the manner required is no small undertaking and is similar to a prospectus completed under federal security laws. The experience requires nonprofit leaders to carefully consider the nonprofit’s objectives, how it will be financially sustained, and various key aspects of the operation. Beyond determination of exemption, the IRS provides other functions important to nonprofits. The IRS is processor of filed annual notices and returns. With rare exceptions, nonprofits claiming tax exemption must satisfy some annual filing requirement. Most file Form 990, Form 990-EZ (those with annual gross receipt less than $200,000 and total year-end assets less than $500,000), or Form 990-N (those with annual gross receipts of $50,000 or less). As a matter of law, if an organization misses the filing requirement for three consecutive years its tax-exempt status is revoked. To again be considered tax exempt the organization must apply to the IRS for recognition, irrespective of a requirement to do so originally. In 2011 it was determined that over 280,000 organizations had their tax-exempt status automatically revoked due to not filing for three consecutive years. Key among the functions the IRS performs is providing guidance to comply with federal tax law. The IRS is authorized to issue regulations in service to enforcement of tax laws. Tax regulations represent the official interpretation of the IRS with respect to tax laws. Tax regulations are promulgated in accordance with several laws, including requirements for public disclosure of proposed regulations and the opportunity for public comment. Official regulations and other guidance on tax law are issued weekly in the Internal Revenue Bulletin. The IRS provides guidance through a host of other devices including websites, online interactive tools, and instructional media presentations. The IRS contends only

guidance in the Bulletin represents its official position on law. The IRS also audits the compliance with tax laws by nonprofit organizations. Although the probability of being audited is low, audits do occur. The audit normally entails a review of books, records, various documents, and other types of information, likely involving the following issues: ● ● ● ●

Eligibility for tax exemption Payment of employment taxes Payment of unrelated income taxes Filing of required returns and reports

The IRS employs some basic approaches to audits: ● Field Examination. A common approach involving one or more revenue agents at the office of the nonprofit or its representative. ● Office and Correspondence Examinations. This approach entails the agent reviewing information at the IRS office and could include an interview with a representative of the nonprofit. These examinations are normally narrow in scope; however, may be upgraded to a field examination. ● Team Examinations. This approach is normally broad in scope (involves more complex issues than those above), involves several agents, and spans more than one year. It normally involves large nonprofits such as universities and hospitals.

Current trends and oversight

In recent years the IRS has increasingly sought to require nonprofit organizations to adopt certain policies. This activity has been particularly aggressive in matters related to governance and has been highly controversial. For example, there have been several positions regarding nonprofit boards that have been imposed upon nonprofits, especially public charities. The IRS has taken the position that the board composition should represent the community, be independent, and active in the management of the nonprofit. Especially when seeking recognition of exempt status, nonprofits should seriously consider having adopted a conflict-of-interest policy prior to application as this is a policy the IRS expects to see. David A. Bell

346  Elgar encyclopedia of nonprofit management, leadership and governance

Though the importance of good governance is generally understood by nonprofits, it is believed by many to be outside of the purview of the IRS. Some argue that it is beyond the competence of the IRS. Those processing applications for exemption recognition or conducting audits have not been trained in governance law and have been requiring larger boards and that parties not be related (e.g., family). Examining the IRS backlog of proposed regulations and the high demand of applications for recognition of exempt status suggests in the mind of some the IRS involvement in governance matters is hindering performance in the other areas central to its purpose. That said, the 2007 revision of the nonprofit annual return (Form 990) includes numerous questions indicating the IRS posture on nonprofit governance principles. In addition, there has been some indication the courts support this involvement. Recent regulations have impacted nonprofit activities such that the effectiveness of IRS tax compliance efforts have been questioned. The IRS rescinded its requirement to report the names of donors as part of the annual return by certain tax-exempt organizations not receiving tax deductible contributions. It is believed that this contributed to the increase in “dark money” contributions. Dark money describes a way people can influence elections while being an anonymous donor. Beyond the campaign finance controversy, is the matter of enforcing tax-exempt requirements. For example, there is concern that large anonymous donors are able to influence the nonprofit’s decisions in a manner to obtain improper payments and benefits. David A. Bell

Related topics

Accountability Charity law Financial documents and control Regulation of nonprofit organizations Tax policy: Federal Unrelated business income

Further reading and references

Brulle, R. J., Hall, G., Loy, L., & Schell-Smith, K. (2021). Obstructing action: Foundation funding and U.S. climate change counter-movement organizations. Climatic Change, 166(1–2). https://​doi​.org/​10​.1007/​s10584​-021​-03117​-w

David A. Bell

Hackney, P. (2022). Dark money darker? IRS shutters collection of donor data. Florida Tax Review, 25(1), 140–213. https://​doi​.org/​10​ .5744/​ftr​.2021​.1004 Hopkins, B. (2017). Starting and managing a nonprofit organization: A legal guide (7th edn.). Wiley. Internal Revenue Service. (2022). Tax exempt & government entities division at-a-glance. https://​www​.irs​.gov/​government​-entities/​tax​ -exempt​-government​-entities​-division​-at​-a​ -glance Internal Revenue Service. (2022). Understanding IRS guidance – A brief primer. https://​www​ .irs​.gov/​newsroom/​understanding​-irs​-guidance​ -a​-brief​-primer

International aid Definition

International aid (IA), often referred to as foreign aid, takes the form of money (e.g., grants, subsidized loans), commodities, and technical assistance. This aid originates with one or more governments or organizations and flows to one or more governments and organizations. IA is just one form of assistance. For instance, financial flows from developed countries (e.g., Australia, Switzerland, United Kingdom, United States) to developing countries (e.g., Afghanistan, Zimbabwe, Guatemala, Malaysia) include flows such as private investments, bank lending, and remittances by migrants. The main definition and measure used in virtually all aid goals and evaluation of aid performance is official development assistance (ODA). ODA is a term defined by the Organization for Economic Coordination and Development (OECD), a collaboration of developing countries. ODA is government aid that promotes and targets the economic development and welfare of developing countries. These OECD countries provided aid such as technical cooperation, humanitarian aid, debt forgiveness, and bilateral loans (i.e., involving two countries).

In practice

IA is best understood when viewed in the context of financial flows. Although IA, understood as official development assistance, has an important impact on develop-

I 347

ment, other financial flows are larger. For example, in 2019 ODA totaled $103.3 billion while remittances from migrants to low- and middle-income countries alone totaled $548 billion. The Development Assistance Committee of the OECD is an international forum comprised of 30 member countries representing many of the largest providers of IA. The Development Assistance Committee defines and monitors resource flows, such as ODA. The current members are: ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

Australia Austria Belgium Canada Czech Republic Denmark European Union Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg the Netherlands New Zealand Norway Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland United Kingdom United States

These countries account for approximately $132 billion of ODA in 2015, down from 2014 (approximately $137 billion) and 2013 (approximately $135 billion). There are approximately 150 recipient countries. Recipient countries in 2020 include all low- and middle-income countries published by the World Bank (as measured by per capita gross national income), with a few exceptions such as Group of Eight (G8) and European Union countries. Also, included are all the Least Developed Countries as defined

by the United Nations (e.g., Bangladesh, Nepal, Sierra Leone). ODA flows in 2015 for these recipient regions are as follows (in billions): ● ● ● ● ● ● ● ● ●

Europe $97.8 Africa $27.9 Caribbean $ 1.3 Central America $ 1.0 South America $ 3.1 Far East Asia $ 3.8 South and Central Asia $ 1.2 Middle East $ 7.5 Oceania (Melanesia, Micronesia, Polynesia) $ 1.6

Central to the donor–recipient relationship is the aim of efficiently employing IA to effectively achieve the desired ends through managing and governing the process. There are numerous challenges embedded in the nature of the relationship and the IA managing and governing process. Defining the desired ends is a ubiquitous significant challenge. Donors defining the desired ends in a manner to not include indigenous voices have long been condemned as neo-colonialism, white savior industrial complex, and paternalistic charity. More decentralized, locally shaped international development ends are acknowledged as important while illustrating a broken feedback loop where the direct beneficiaries of the initiatives are not the taxpayers funding the IA. For instance, citizens of a developed country providing IA do not have voting rights in the developing country receiving the aid and defining effectiveness. The relationship of governments and nonprofits (including nongovernmental organizations) reflects the challenges of managing and governing the IA process. Concerns about the efficient use of IA in recipient countries were foundational to government and private donors looking to international nonprofit organizations. The challenges continued as international nonprofit organizations were not providing more effective aid strategies in areas such as poverty relief. An increased emphasis on decentralization emerged, advocating partnership with indigenous nonprofits. Government and private donors preferred to use large international nonprofits to manage the transaction costs of providing funds to smaller, indigenous nonprofits. The IA landscape underscores some important management and governance challenges. David A. Bell

348  Elgar encyclopedia of nonprofit management, leadership and governance

The demand for increased efficiency and a greater role for networks and collaborations requires increased capacity and professionalism for nonprofits. Concerns regarding legitimacy, accountability, and effectiveness drive the search for better IA outcomes and innovative approaches to providing IA. The ineffectiveness of centralized approaches in terms of aid outcomes and relationship building has underscored the importance of collaborative management and governance techniques and mechanisms. Partnerships including not only governments and nonprofits, but for-profit firms are increasing in acceptance. An increased focus on geopolitical changes, technological developments, demographic shifts (e.g., aging populations, immigration), and multinational corporations has emerged. For example, for-profit firms receive multiples more in ODA funds than nonprofits. Many of these contracts are for services similar to those provided by nonprofit organizations, such as health services, economic development, and building capacity. Moreover, government reductions in the amount of IA have provided pressure to constrain services and political protection while also creating opportunities for greater volunteer participation, local authority, and new partnerships. Researching partnerships of development nonprofits and indigenous nonprofits in Kenya illustrate the vibrancy of proactive volunteers and an emphasis on relationship building and legitimate co-producer initiatives. The importance of addressing entrenched poverty is a major challenge of IA. While employing multifaceted strategies there has been an increased focus on the root causes, including politics and technical-structure changes (e.g., fighting corruption and supporting good governance) rather than symptoms. With deficiencies and flaws acknowledged, there is substantial agreement that not having IA is bad. There are numerous countries, such as Botswana and Brazil, that were IA recipients and have improved to middle-income status. Moreover, many development metrics have shown improvement in areas such as poverty and health. The focus is on changing how IA is done.

Current trends and oversight

The conceptualization of aid is changing from a view of charity to one of rights and empowDavid A. Bell

erment. This change involves those served as being partners in employing IA rather than voiceless recipients. IA has the aim of building capacity of indigenous peoples to engage with legal institutions and improve accountability between governments and citizens. Market approaches and strategies are seen as important to decreasing poverty, with social entrepreneurship as a conceptual framework. IA as an investment with the aim of making market approaches work for the poor is being explored. Viewing the poor as workers, customers, and entrepreneurs is embraced over the identity of a victim needing charity. Perhaps the most important aspect of this development is the increasing calls for IA organizations to account for and justify their work before the public and donors. The importance of nonprofits in IA work has been called into question as well as their effectiveness. As UN Secretary-General Ban Ki-moon is attributed to saying, “Africa does not need charity; it needs investments and partnerships.” Concerns about IA oversight, including nonprofit organizations, have been fueled by scandals and performance issues. Greg Mortenson is a mountain climber in the U.S. After an accident in Pakistan, he started a nonprofit with the aim of building schools and providing support for girls’ education. The Central Asia Institute he founded had an annual income of $20 million by 2010. It was discovered that his support of the schools did not occur or was exaggerated. An investigation by the Montana attorney general concluded no criminal act was committed but that Mortenson had improperly spent $6 million. He was required to repay $1 million and resign as the nonprofit’s executive director. An example of performance failure that included sustainability issues is PlayPump, a onproofit organization in South Africa. An advertising executive in South Africa had the idea of creating a water pump consisting of a merry-go-round. Children would have a place to play while pumping water rather than the time-consuming hand pumps traditionally used. The idea won the World Bank’s Development Marketplace Award. USAID and private foundations provided $16 million in funding. The musical artist Jay-Z held concerts and hosted an MTV documentary. Having an abundance of cash and installation goals to be met, PlayPump went into areas

I 349

to remove existing simple hand pumps and replaced them with Play-Pumps that community members did not want. The pumps required specialized skills to maintain and could not be fixed by the locals. In addition, their opponents complained of child labor due to the need to theoretically play for over 24 hours every day to meet the target of providing 2,500 liters of water. PlayPump went out of business in 2010. An important development in IA involves the impact of counter terrorism efforts. Securitization in IA involves the increased alignment of the aims of IA with the goals of defense. For instance, in the United States, many believe scarce resources require the integration of a national security perspective of IA to effectively respond to human needs. They contend that countries that demonstrate similar governance and economic capacities, such as shared values and economic and political systems, should be a key focus of IA. Especially when U.S. strategic interests are involved, increased capability to prevent conflict, peacemaking, and state-building is emphasized. Stronger civilian–military cooperation, for instance, is viewed as critical when IA is employed in conflict situations where military, political, and economic competence are all important. David A. Bell

Related topics

Diaspora philanthropy Global conflict and philanthropy Grassroots international nonprofit organizations Nongovernmental organizations Refugee services Wealth inequality

Further reading and references

Appe, S. (2021). Grassroots INGOs in Africa: Perspectives on what they are (and are not?). Nonprofit and Voluntary Sector Quarterly, 51(1), 125–147. https://​doi​.org/​10​.1177/​ 0899764021991672 Organization for Economic Coordination and Development (OECD) (n.d). Official development assistance – definition and coverage. https://​www​.oecd​.org/​dac/​financing​-sustainable​ -development/​development​-finance​-standards/​ officialde​velopmenta​ssistanced​efinitiona​ ndcoverage​.htm.

Pallas, C., & Sidel, M. (2020). Foreign aid reduction and local civil society: Recent research and policy guidance for donors and international NGOs. Nonprofit Policy Forum, 11(1), 1–8. https://​doi​.org/​10​.1515/​npf​-2019​-0045 United Nations (n.d.) Least developed nations category. https://​www​.un​.org/​ohrlls/​content/​ldc​ -category

Investment policy statement Definition

The investment policy statement (IPS) articulates the nonprofit portfolio’s purpose, objectives, risk tolerance, liquidity needs, and constraints. A well-written IPS is also clear and concise in outlining procedures and principles to govern future investment decisions.

In practice

The IPS is critical to the ongoing oversight of the investment process. It sets the parameters by which the investment committee, which typically reports to the governing board, will monitor responsibilities and track the progress of associated parties. It also outlines the procedures for fund oversight and continuity of that oversight. It’s not uncommon for committee members to serve limited terms, sometimes as short as one or two years. A well-written IPS is indispensable as the committee rotates members over time as it helps educate new members. It acts as a manual to provide new and existing members with a clear, concise description of the fund’s objectives and strategy. Organization is key to drafting a policy. The IPS should provide a clear road map for the investment committee members. Specifically, it must provide policy direction and procedural guidelines. It is important to customize the document to address the organization’s specific needs, but the following are elements that should be included in an IPS. Statement of purpose The purpose section of the IPS summarizes why the fund or organization exists. Avoid the temptation to be long-winded. A concise Matthew Rice

350  Elgar encyclopedia of nonprofit management, leadership and governance

summary can be more effective. A simpler statement makes it easier for the “main thing” to remain at the forefront of investment committee members’ thinking. The following is an example of a purpose statement for a nonprofit fund: The Great State University Endowment Fund’s mission is to promote, encourage, and advance education and to improve degree and non-degree educational functions by establishing scholarships, professorships, fellowships, academic chairs, and other academic endeavors as determined by Great State University’s board of directors.

Statement of objectives The statement of objectives articulates the definition of success. The objective is an expression of goals; the strategy is implemented by the investment committee to pursue that objective. Objectives vary significantly among different types of nonprofit investors. Even nonprofit funds that seem similar may have vastly different objectives. Objectives span a wide spectrum, ranging from “short-term capital preservation” to “multi-generational growth.” The statement of objectives should include return targets, risk constraints, and time horizons. The statement of objectives should be reasonable and attainable. The best-written statements of objectives are straightforward. They can be understood by an investment committee with rotating membership (and varying world views). Inevitably, all investment committees face market turmoil as well as periods of excessive optimism. During such times, the investment policy’s statement of objective anchors the committee to the “main thing.” The following is an example of a statement of objectives for a nonprofit fund. The primary objective of the Great State University Endowment Fund is to preserve the purchasing power of the endowment after spending. This means that the Great State University Endowment must achieve, on average, an annual total rate of return equal to inflation plus actual spending. This purchasing-power-preservation objective emphasizes the need for a long-term perspective in formulating spending and investment policies.

Matthew Rice

Liquidity constraints Some liquidity constraints might be necessary to maintain the integrity of the investment strategy and rebalancing policies and to ensure that spending obligations can be met. Other constraints may be needed for some nonprofits to meet bond covenants or ratings requirements. For example, bond covenants may require nonprofits to maintain a minimum collateral allocation to daily liquid investments. The following is an example of a liquidity constraint. The Great State University Endowment Fund will limit investments with less than annual liquidity to no more than 30 percent of total portfolio assets. Total daily liquid assets must exceed 50 percent of portfolio assets (at the time of investment).

Unique constraints or priorities Other portfolio constraints may also include anything that is unique or specific to a nonprofit institution’s mission. For example, it is common for nonprofits to practice Environmental, Social, and Corporate Governance Focused (ESG) Investing. The following is an example of a unique constraint. The Great State University Endowment Fund’s emerging markets stock investment manager must refrain from purchasing securities of companies that have been identified as doing business in Sudan or with the government of Sudan when the same investment goals can be achieved through the purchase of another security.

Investment strategy The investment committee must develop an investment strategy to pursue the portfolio’s objectives as articulated in the statement of objectives. The investment strategy must also accommodate all liquidity and other unique constraints outlined in the investment policy. The investment strategy is usually reflected in a target asset allocation (or ranges among assets) to various asset classes or investment strategies. Mutual funds are often used as the investment vehicle to access various asset classes and investment strategies, particularly for smaller nonprofit portfolios. Since portfolio rebalancing is a critical component of any

I 351 Table 19

Statement of objectives of the Great State University Endowment Fund

 

Min

Max

Global Fixed Income (cash, tips, U.S. bonds, foreign bonds, high yield bonds)

5%

25% 80%

Global Public Equity (domestic, developed foreign and emerging markets)

50%

Real Assets (real estate, infrastructure commodities, natural resources, etc.)

5%

15%

Marketable Alternatives (hedge funds)

5%

20%

Private Equity (buyout, venture capital, etc.)

5%

20%

investment action, the investment strategy should also include rebalancing procedures. There are typically two ways to reflect the investment and asset allocation strategy within an IPS. The first is to establish specific targets for each underlying asset class (e.g., 25 percent large cap stocks, 10 percent small caps, 14 percent hedge funds, etc.). The second method is to establish ranges for asset classes (e.g., 45 to 60 percent U.S. stocks, 10 to 20 percent bonds, etc.). This second method allows the investment committee to evaluate and revise the explicit target asset allocation without revising the IPS. Depending on internal processes both methods have merit. If the investment committee plans to revisit the target asset allocation on an annual basis and draft explicit targets, the nonprofit needs a mechanism for timely revisions to the IPS. This either requires the board to delegate that authority to the investment committee, or for the board to be able to make timely responses to the investment committee’s investment policy recommendations. The Great State University Endowment Fund’s investment strategy (shown below) is broad enough that it does not require revision if the asset allocation strategy changes modestly. It gives significant latitude to the investment committee to design and implement investment and rebalancing strategy. This approach puts a premium on establishing a very clear statement of objectives. The Great State University Endowment Fund’s investment strategy will be reviewed by the investment committee on at least an annual basis to ensure it remains consistent with investment objectives. In addition to meeting investment objectives, the goal is to outperform (on a risk-adjusted basis) a custom benchmark of underlying indices (reflected in the quarterly performance report) that reflect its asset class allocation over full market cycles. The investment committee will be charged with rebalancing the portfolio to make sure the portfolio allocation remains consistent with investment

objectives. The investment committee will establish explicit target asset allocations within the following guidelines.

Duties and responsibilities The IPS should include a summary of duties and responsibilities of all parties involved in overseeing fund assets. There can be some natural overlap among parties. In particular, board and investment committee duties and responsibilities should be clearly delineated. Nonprofit investors should customize the list based on their structures, but various parties might include a board of directors (or trustees), investment committee, investment consultant, investment managers and custodians. Investment manager evaluation The broad procedures to select, monitor, and terminate managers should be outlined in the investment policy. Virtually all quality investment managers will experience stretches of underperformance. Similarly, investment managers who deviate from their processes and investment styles may undergo periods of outperformance, but that should not make them immune from termination. Therefore, be careful to use language that doesn’t arbitrarily force the committee’s hand and allows it to use its collective talent and insight when making manager hiring and termination decisions. Firing a good manager at its performance nadir is a classic rookie mistake.

Conclusion

The IPS states the fund’s objectives and outlines processes. Once finalized and approved, it serves as the blueprint for governing the investment program, so it requires careful thought and must be “executable.” Generic template language included in this chapter may be a helpful place to start, but the most effective investment policies are customized to fit the fund’s specific objectives, priorities, Matthew Rice

352  Elgar encyclopedia of nonprofit management, leadership and governance

and constraints. Rarely are any two nonprofit funds identical. An effective IPS is the anchor to windward during turbulent times. Matthew Rice

Related topics

Board policies manual Endowment Governing board: Responsibilities

Matthew Rice

Income portfolio analysis Professionalism Risk management

Further reading and references

Rice, M. M., DiMeo, R. A., & Porter, M. (2012). Nonprofit asset management: Effective investment strategies and oversight. Wiley.

J

Journals, periodicals, and associations This entry identifies academic journals, periodicals, and associations where scholars and practitioners who are interested in nonprofit management, leadership, and governance can learn about current issues and engage in discussions about the nonprofit sector. The nonprofit sector is growing in sheer size and in the depth and breadth of niche missions, distinctive stakeholders, and special interests. Likewise, the number of journals, periodicals, and associations is growing, making this topic somewhat of a moving target. Adding to this complexity is the growing number of virtual forums for engagement such as blogs and online discussion groups. Thus, we have chosen to limit our selection to well-established outlets or those that are rapidly gaining credibility and showing evidence of sustainability into the future. Moreover, we focused our attention on journals, periodicals, and associations that address nonprofit management, leadership, and governance broadly defined at the expense of excluding forums with specialized or niche purposes, including those appealing to specific subsectors such as child welfare or specialized nonprofit career paths such as fundraising or law. We readily acknowledge that an entry addressing this topic is prone to errors of omission that are compounded by space limitations. Thus, we apologize in advance to those entities we have not discussed in this brief entry.

Definition: Academic and scholarly journals

As noted elsewhere in this book, there has been dramatic growth in recent years in the number of colleges and universities offering

programs of study on nonprofit management, leadership, and governance. This, in turn, has spurred growth in the number of scholars and students who are interested in doing basic and applied research on the nonprofit sector, publishing their research for the benefit of peers, and learning about the research of others. Dissemination of new knowledge on the nonprofit sector takes place primarily through regularly published academic journals, associated with an institution of higher learning, a professional association, a think tank, or a recognized publishing house. Traditionally, the most respected journals are those where the work submitted by authors must meet strict quality control standards. These standards are usually established and enforced through the process of peer review, wherein submitted work is evaluated by respected experts. To ensure impartiality, the reviewers do not know the identity of authors and the authors do not know the identity of reviewers. This is called a double-blind review process. Moreover, these well-established journals usually have a managing editor (or editor-in-chief), who is a respected scholar in the field, a modest staff to handle logistics, and an editorial board that helps to develop the journal’s strategy and governance. Some academic journals are widely read and have particularly significant impacts on teaching and research. The prestige of a journal is measured through its impact factor, a measure of how often the work that is published in the journal is in turn cited by other scholars in the field. High-impact journals are very selective, publishing only a small fraction of the work submitted to them. Critics say that the process described above is cumbersome, time-consuming, non-transparent, and in some cases can even discriminate against authors whose ideas are not consistent with mainstream thinking. They claim that traditional publishing is a byzantine and elitist process that is out of

353

354  Elgar encyclopedia of nonprofit management, leadership and governance Table 20

Examples of nonprofit-focused high-impact academic and scholarly journals

Journal

Aim and Scope

Publication

Nonprofit and Voluntary Sector

The official journal of the Association for Research on Nonprofit

Bimonthly

Quarterly

Organizations and Voluntary Action (ARNOVA) that publishes

(https://journals.sagepub.com/home/

research articles on civil society, philanthropy, voluntary action, and

Frequency

nvs)

nonprofit organizations.

Nonprofit Management Leadership

Publishes scholarly work that advances understandings of nonprofit

(https://onlinelibrary.wiley.com/

governance, management, and leadership. The journal accepts full

journal/15427854)

articles and research notes that articulate substantial knowledge and

VOLUNTAS: International Journal

The official journal of the International Society for Third-Sector

of Voluntary, and Nonprofit

Research (ISTR) that aims to be the central forum for interdisciplinary

Organizations

research in the area between the state, market, and household sectors

(https://www.springer.com/

worldwide. The journal publishes research articles and book reviews

Quarterly

implications for practice relevant to the field. Bimonthly

journal/11266)

in a style accessible to practitioners and policymakers.

Human Service Organizations:

Publishes manuscripts that advance current research and practice in

Five issues per

Management, Leadership &

nonprofit and public sector human service organizations. Formerly

year

Governance (https://www.tandfonline. known as Administration in Social Work, 1977–2013. com/journals/wasw21)

step with contemporary models of discourse, networking, and social media technology. Thus, alternative scholarly outlets have emerged such as online journals not necessarily associated with an institution or publisher, blogs, podcasts, professional discussion boards, and other forums. As the traditional publishing industry evolves, these emerging forums are growing in popularity as a vehicle for the rapid dissemination of research and new insights on the nonprofit sector. Rightly or wrongly, some of these emerging outlets are not highly regarded in academic circles; we do not foresee a complete transformation of the traditional publishing process. Tables 20 and 21 lists some of the more widely recognized academic and scholarly journals and emerging nonprofit related journals.

Definition: Periodicals

As the nonprofit sector has grown, so has the number of periodicals targeted at a wider audience, including practitioners, policymakers, media professionals, and oversight organizations. Typically, periodicals are published more frequently than academic journals, sometimes weekly. Moreover, some periodicals maintain informative websites that give readers the most current information on emerging issues or opinion pieces on timely topics. While some periodicals solicit Wenjiun Wang and Kevin P. Kearns

or accept articles submitted from the outside, they often employ their own staff or have contractual relationships with regular contributors. Table 22 lists some nonprofit-related periodicals.

Definition: Associations

As with other sectors of the economy, the nonprofit sector has spawned a variety of professional associations that provide a venue for people to gather, in person or virtually, to exchange ideas. Some of these associations offer institutional and individual memberships with representation of both scholars and practitioners. Others, however, cater to one or the other. Some associations encourage and support the formation of special interest groups or tracks to provide a forum for members with specific interests. Some of these associations either publish or are affiliated with journals or periodicals. While members of the association usually have input on its governance, some employ paid professionals to manage their affairs and an elected governing board to steer the organization. The challenges and issues facing membership associations are addressed elsewhere in this book. Associations are difficult to track because some cater only to a small group of professionals or are focused on a specific geo-

J 355 Table 21

Examples of emerging nonprofit-related journals

Journal

Aim and Scope

Publication

Canadian Journal of Nonprofit and

Publishes original submissions in English or French that focus on

Frequency Biannual

Social Economy Research (https://

nonprofit organizations and the social economy from the scholarly

anserj.ca/index.php/cjnser)

fields of business and management, public administration, sociology, anthropology, economics, social work, history, law, education, psychology, and political science.

Foundation Review (https://

Publishes articles written by and for foundation staff and boards

scholarworks.gvsu.edu/tfr/)

to share evaluation results, tools, and knowledge about the

Quarterly

philanthropic sector. The journal aims to improve the practice of grantmaking, yielding great impact and innovation. International Review on Public and

Publishes articles, case reports, and book and doctoral thesis

Nonprofit Marketing (https://www.

reviews related to public and nonprofit marketing. It aims to provide

springer.com/journal/12208)

a forum for researchers interested in examining public and nonprofit

Quarterly

marketing related issues from practical and theoretical viewpoints. Journal of Nonprofit Education and

Publishes manuscripts on the topics of nonprofit education and

Leadership (https://js.sagamorepub.

leadership to help develop theory and practice.

Quarterly

com/jnel) Journal of Philanthropy and Marketing Publishes papers on the latest techniques, thinking, and best practice Quarterly (https://onlinelibrary.wiley.com/

within nonprofit and voluntary sector marketing.

journal/26911361) Journal of Public and Nonprofit Affairs An open-source journal that focuses on providing a connection (https://www.jpna.org/)

between the practice and research of public and nonprofit affairs.

Journal of Social Entrepreneurship

Publishes submissions on the topic of social entrepreneurship from

Triannual Triannual

(https://www.tandfonline.com/journals/ multidisciplinary perspectives, including social policy and political rjse20)

science, anthropology, sociology, nonprofit management, finance, organizational theory, strategy, social geography, economics, ethics and moral philosophy, and social psychology.

Nonprofit Policy Forum

Publishes research and analysis on public policy issues and the

(https://www.degruyter.com/journal/

public policy process critical to the work of nonprofit organizations

key/npf/)

worldwide. The journal aims to provide nonprofit leaders and

Quarterly

policymakers with readily accessible and relevant scholarly research. Social Enterprise Journal

Publishes international interdisciplinary scholarship with a focus on

(https://www.emerald.com/insight/

the social enterprise aspect of entrepreneurial activity.

Quarterly

publication/issn/1750-8614) Third Sector Review

Publishes theoretical and empirical papers from both practitioners

(https://www.anztsr.org.au/

and academics on third-sector issues with a focus on Australia, New

third-sector-review/)

Zealand, and the Pacific region.

graphic area. Thus, with apologies to those we have excluded, below are some of the more prominent and lasting associations. Table 23 provides examples of nonprofit sector-related professional associations.

Current issues and future prospects

All three of the forums addressed above – journals, periodicals, and associations –

Biannual

are significantly impacted by contemporary trends and events. Journals and periodicals The publishing industry has been impacted by technological change, economic forces, competition, global supply chains, and other factors. Electronic publication is gradually replacing hard copy and institutional, versus individual, subscriptions are increasingly the Wenjiun Wang and Kevin P. Kearns

356  Elgar encyclopedia of nonprofit management, leadership and governance Table 22

Examples of nonprofit-related periodicals

Periodical

Aim and Scope

Publication

Alliance

Provides philanthropy sector practitioners with independent

Frequency Quarterly

(https://www.alliancemagazine.org/

opinion, expert debate and news with a global focus. In addition

magazine/)

to the print magazine, Alliance provides daily news, opinion, and analysis on its blog, and holds regular events to discuss key issues with practitioners.

Nonprofit World Magazine

Provides educational articles, advice, case studies, webinars

(https://www.snpo.org/publications/

on current and challenging topics in nonprofit leadership and

nonprofitworld.php)

management. Educational content is provided by industry experts

Quarterly

to help nonprofit executives and professionals manage their organizations. The content of the magazine is available in print and digital format. Stanford Social Innovation Review

Published by the Stanford Center on Philanthropy and Civil

(https://ssir.org/)

Society at Stanford University and aims to bridge research, theory,

Quarterly

and practice on the topics of human rights, impact investing, and nonprofit business model. It publishes print and online articles, webinars, conferences, and podcasts related to social innovation worldwide across sectors, including nonprofits, foundations, business, government, and citizens. The Chronicle of Philanthropy

Provides articles, news, opinion, research, and advice to

(https://www.philanthropy.com/)

nonprofit professionals, foundation executives, board members,

Monthly

and fundraisers. In addition to print magazines, it also provides webinars and digital content on their website. The Nonprofit Quarterly

Publishes print and online magazines that covers civil society,

(https://nonprofitquarterly.org/)

social movement, philanthropy, and leadership with a focus on

Quarterly

economic, racial, climate, and health justice. The magazine’s target audience includes social movement organizers, activists, nonprofit leaders and researchers, and foundation officers. The NonProfit Times

Publishes news, information, reports, and insights on fundraising, Monthly

(https://www.thenonprofittimes.com/)

marketing, social media, human resource management, and financial management in the nonprofit sector. The Nonprofit Times also provides content in both print and digital formats and offers training and webinars.

option of choice for readers who are affiliated with institutions. Gone are the days when a professor’s bookshelf would be jammed with hard copies of various journals, spanning years of publication. Access to, and the use of, these publications has been made much more efficient by library databases and search engines. Regarding marketing and distribution, publishers sometimes bundle their various journals for sale to academic libraries and other institutions, making it more difficult to track trends in subscriptions or sales of particular journals. Even the industry’s oldest and most traditional publishers are rapidly moving Wenjiun Wang and Kevin P. Kearns

toward online publications and taking other steps to reduce costs, reach broader markets, and align themselves with modern trends in networking and communications. Also, as noted above, there is growing criticism of traditional processes for vetting and publishing research articles. Publication and dissemination are also impacted by greater awareness of and institutional commitment to diversity, equity, and inclusion. For example, some educational institutions are encouraging professors to ensure that required readings for courses include items authored by people who have been historically underrepresented. In some

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Examples of nonprofit sector-related professional associations

Association

Description

Association for Research on Nonprofit

Aims to strengthen nonprofit and philanthropic research and practice that improves civil

Organizations and Voluntary Action

society and human life. ARNOVA holds annual conferences that bring together scholars

(ARNOVA)

and educators studying nonprofit, civil society, voluntary action, and philanthropic

https://www.arnova.org/

topics across disciplines to address contemporary practice. ARNOVA publishes the

Association of Governing Boards of

Focuses on empowering college, university, and foundation boards to govern with

Colleges and Universities (AGB)

knowledge and confidence, and provides counsel, services, and resources to member

(https://agb.org/)

boards, chief executives, organizational staff, policymakers, and other key industry

Nonprofit and Voluntary Sector Quarterly.

leaders in higher education. Australian and New Zealand Third Sector Supports, encourages, and disseminates multidisciplinary research from scholars and Research (ANZTSR)

practitioner researchers in Australia and New Zealand to advance knowledge about the

(https://www.anztsr.org.au/)

Third Sector and promotes social change. ANZTSR publishes the journal, Third Sector Review, and holds biennial conferences.

Council of Foundations

Provides programs, guides, and services to the philanthropic community, including

(https://cof.org/)

community foundations, private, corporate and global grantmakers, public grantmaking charities, and philanthropy serving organizations and individuals with a focus on professional development, integrity, and advocacy.

Grantmakers for Effective Organizations Serves the community of grantmakers to improve grantmaking practices and transform (GEO)

philanthropic practices by providing resources, networking opportunities, and facilitating

(https://www.geofunders.org/)

knowledge sharing and peer learning among grantmakers.

International Society for Third Sector

Promotes the development of research and education internationally on Third Sector

Research (ISTR) (https://www.istr.org)

related issues, theories, and policies and enhances the application of knowledge throughout the world. ISTR publishes VOLUNTAS: International Journal of Voluntary, and Nonprofit Organizations and holds biennial conferences.

Voluntary Sector Studies Network

Promotes understanding of the UK voluntary sector through research and provides

(VSSN)

a voice and a meeting place for voluntary sector researchers in the UK. VSSN publishes

(https://www.vssn.org.uk/)

Voluntary Sector Review and holds research conferences.

Various State Associations of Nonprofits Most states in the United States have a statewide membership organization that brings nonprofits in the state together for networking, resource sharing, capacity building, and advocacy purposes. The directory of state associations of nonprofits provided by National Council of Nonprofits (https://www.councilofnonprofits.org/) can be found on this page: https://www.councilofnonprofits.org/state-association

cases, this may prompt instructors to seek out required reading materials that have been published in alternative venues or forums. The vast, almost overwhelming, amount of information available on the internet creates other challenges for journals and periodicals whose publication schedules may lag behind rapidly changing forces and events. The credibility of internet sources will, of course, always be of concern, but nonprofit scholars and professionals have become more sophisticated and more discriminating in their online searches. Moreover, there is a growing trend toward the democratization and sharing of data, including scholars who gladly share works in progress and raw data with their

peers, something that traditional journals and periodicals will not do. Associations The challenges facing associations are discussed elsewhere in this book. While in-person meetings and conferences will always be one venue for professional discourse, the COVID pandemic prompted the development of increasingly sophisticated platforms for virtual conferences that appeal to cost-conscious members and have the potential for expanding attendance. For example, a university might be reluctant to provide funding for a professor or student to attend an in-person conference at Wenjiun Wang and Kevin P. Kearns

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a distant location unless they are presenting their research or chairing a panel discussion. However, it is easier to cover the much lower costs of attending a virtual conference. Membership in professional associations can also bring opportunities for continuing education and even professional certification and other credentials that are valued or even required for career advancement. Also, associations often sponsor online discussions, membership lists, and professional staff who advocate for the profession with government policymakers and others. For these reasons and others, we do not foresee dramatic change in the landscape of professional associations.

Conclusion

The nonprofit sector is widely recognized as an important part of modern society, civil discourse, service provision, and policy influence. With more and more people working in, studying, or merely curious about the nonprofit sector, the need will be constant or even growing for journals, periodicals, and associations as forums to share and learn. All three are experiencing turbulent change in their respective environments but all will remain, in one form or another, for the foreseeable future. Wenjiun Wang and Kevin P. Kearns

Related topics

Membership associations

Wenjiun Wang and Kevin P. Kearns

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Leadership Definition

The literature on leadership is vast and includes contributions not only from scholars but also from celebrated leaders in business, government, and nonprofit organizations who are eager to share lessons learned from their experience. Some people make a clear distinction between leadership and management. Leaders, they say, are the people who are in positions of significant authority in an organization, whether on a local, national, or global scale. Accordingly, leaders have a significant influence in shaping the overall strategy of the organization. Managers, according to this theory, are the people in middle positions in the hierarchy who are charged with implementing the leader’s vision and overseeing workers and processes. John Gardner, a practitioner and scholar, was skeptical of this presumed difference between leaders and managers, noting, “Every time I encounter utterly first-class managers, they turn out to have quite a lot of the leader in them” (Gardner, 2006, pp. 19–20). This entry presumes that leadership can be exercised from all levels of the organization and, like Gardner, that distinctions between leadership and management can be simplistic and misleading. Thus, in this entry leadership is defined as: Accomplishing something through other people by influencing and helping them to voluntarily give their best effort toward a goal.

There are several essential ideas embedded in this definition. First, leaders accomplish things through other people, not by themselves. They do this by influencing and motivating people. Leaders also help people

succeed and even empower them by, for example, ensuring that people have the skills, resources, and authority to do their job at peak effectiveness. Leaders sometimes exert their formal authority by giving direct orders to people, but the most effective leaders succeed in getting their followers to voluntarily give their best effort and to take personal initiative and responsibility rather than waiting to be told what to do or how to do it by the leader. Thus, this definition of leadership eliminates despots or autocrats who threaten, intimidate, or force people to do their bidding. Moreover, this definition also does not apply to leaders who constantly resort to cajoling or providing incentives for people to give their best effort. Lastly, leaders invest in people to help them realize their own potential and, in the process, they help to ensure a steady succession of leaders in the future.

Skills, attributes, and behaviors of leaders

Warren Bennis (1959, 1999, 2003; Bennis & Nanus, 1986) was perhaps the most prolific scholar on leadership in the second half of the twentieth century. According to Bennis leaders must display these skills and attributes: ● Technical competence: Leaders must have professional literacy and competence in their field. ● Conceptual skill: Leaders must have the ability to think abstractly and strategically. ● Track record: Effective leaders have compiled a history of achieving outstanding results. ● People skills: Leaders possess the ability to communicate, motivate, and delegate to efficiently achieve the objectives of the organization. ● Taste: Leaders identify and cultivate emerging talent within the organization,

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including successors who can assume leadership positions in the future. ● Judgment: Leaders make difficult decisions in a short time frame with imperfect data. ● Character: Leaders demonstrate honor, integrity, and a commitment to personal values and principles. John Gardner believes that leaders are distinguished not so much by their traits or by their hierarchical position relative to followers as by their role as boundary spanners. He says that leaders distinguish themselves from others in six respects (Gardner, 2006, p. 22): ● Horizon: Leaders think in the long-term, beyond today’s problems and challenges, beyond the horizon. ● Perspective: With respect to the unit they lead, leaders think of it as part of a larger enterprise, in relationship to external conditions, and even in relation to global events and trends. ● External constituencies: Leaders try to reach and influence constituents beyond their immediate jurisdiction, beyond the boundaries of the organization itself. ● Intangibles: Leaders put heavy emphasis on intangible aspects of influence such as vision, values, and motivation. ● Political skill: Leaders have political skills to cope with the conflicting demands of multiple constituencies. ● Renewal: Leaders think in terms of renewal, change, and helping the organization to adapt to emerging opportunities and challenges in the world outside. Gardner’s model provides an appropriate bridge to Robert Greenleaf’s concept of servant leadership (Greenleaf, 2002). Like Gardner, Greenleaf views leadership as an act of engagement with followers, not as an act of lone brilliance or vision. Greenleaf argued that the best leaders “serve” their followers rather than being served by them. Greenleaf’s principles of servant leadership are particularly relevant to nonprofit organizations and include: ● Building community: Servant leadership is motivated by and evolves from a desire to improve the community. ● Stewardship: Servant leaders view themselves as stewards (caretakers) of preKevin P. Kearns

●

●

●

●

cious resources within the organization, including its mission, its people, and its money. Commitment to the growth of people: Servant leaders are committed to providing opportunities for personal and professional growth. Healing: Servant leaders search for ways to bring “wholeness” to the lives of those they work with, encouraging them to balance work with other endeavors to ensure a healthy and balanced life. Empathy: Servant leaders strive for patience, tolerance, and an understanding that we are by our nature imperfect beings. Listening: The servant leader responds to a problem by listening first and attempting to build strength in others.

In practice: Do nonprofits require a distinctive type of leader?

As noted elsewhere in this book, nonprofit organizations have many characteristics that distinguish them from business or government agencies. The late Lester Salamon (2015), one of the world’s leading authorities on nonprofit organizations, argued that four impulses exert influence over the nonprofit sector. This entry suggests that these four impulses also require nonprofit leaders to have distinctive skills. The voluntarism impulse Nonprofit organizations usually pursue their missions through a diverse and constantly changing network of volunteers. In this respect, nonprofit organizations provide a vehicle for citizens to come together to express their shared values and, perhaps, to advocate for the adoption of those values by others. Leadership in this context poses special challenges in nonprofit organizations requiring the leader to be: ● Value-centered: Nonprofit leaders should mirror the values of the volunteer members and supporters of the organization. ● Servant-oriented: The leader should foster community building, stewardship, healing, and service. ● Fluid and flexible: The leader of volunteer-based organizations must have a high tolerance for informal organic

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structures and the chaos they sometimes produce. ● Board-centered: Leaders of nonprofits must work very closely with volunteer governing boards, often walking a delicate balance between their own leadership authority and the authority of the board. The professionalism impulse While volunteers have been the heart and soul of nonprofits for generations, the sector is increasingly managed by the professional class – a cadre of credentialed employees trained in the fields of management, marketing, fundraising, clinical specialties of all types, accountants and finance experts, policy analysts, logistics specialists, and many other professional specialties. The growing professionalism of the nonprofit sector suggests that leaders of these organizations should display the following skills: ● Technical competence: Leaders of nonprofit organizations must be technically competent in the programs and services provided by the organization that they lead. ● Trust and credibility: Nonprofit leaders must ensure that their organization is perceived as professionally and technically credible. ● Boundary spanning: Leaders of nonprofit organizations must be able to build bridges to other sectors and other professionals who can contribute to the resolution of community issues and problems. ● Evidence-based accountability: Because professionalism pushes nonprofit organizations toward evidence-based (versus ideologically based) programs, the leader must provide the catalyst and resources to help the organization develop metrics of performance and demonstrate the outcomes it produces for the community. ● Collaboration and systems thinking: Leaders of professionally based civic organizations must master the art and science of thinking systemically about their mission, understanding that their organization is part of a wider system of resources that can be brought to bear on the problem.

The civic activism impulse Nonprofits have historically channeled the energy of citizens to bring about change in public policy or to advocate for a reallocation of resources in society. Leadership of such an organization can involve the following skills: ● Political skill: Leaders of nonprofit organizations must have sophisticated knowledge of political institutions and the decision-making processes used by those institutions to make public policy. ● Advocacy: Nonprofit leaders must be skilled at leveraging their political skills to advocate for change. ● Negotiation and conflict resolution: Leaders of nonprofit organizations sometimes work with fragile and volatile coalitions. Negotiation and conflict resolution are an integral part of the leader’s responsibilities. ● Mastering symbolism: Leaders of nonprofit organizations must be skilled at capturing the attention and the imagination of the media and of other important stakeholders to promote the cause of their organization. The commercialism impulse Many nonprofit organizations utilize a variety of earned income streams such as fees for service, government contracts, or even social enterprises. Leaders of commercialized nonprofits must display many of the same skills and attributes as leaders of entrepreneurial firms, such as: ● Entrepreneurial skills: Nonprofit entrepreneurs are good at interpreting consumer needs and rapidly mobilizing resources to meet those needs. ● Risk taking: Entrepreneurial leaders are extremely skillful at understanding the risks inherent in their ventures and taking all possible steps to minimize or eliminate those risks. ● Discipline: Leaders of entrepreneurial nonprofit organizations must have the discipline to focus their energy on the organization’s distinctive competencies and comparative advantages. ● Versatility: Leaders of nonprofit organizations must be versatile to focus both on the charitable mission of the organization Kevin P. Kearns

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as well as opportunities for commercial gain. ● Opportunistic and decisiveness: Ultimately, however, entrepreneurial leaders must not waver in making decisions. They know that opportunities are fleeting. The commercialization impulse poses many challenges to leaders of nonprofit organizations as they try to balance competing missions and stakeholders. Responding to the four impulses: A composite view of leadership in nonprofit organizations The discussion above on Salamon’s four impulses has revealed that leaders of nonprofit organizations face unique challenges compared with leaders in businesses or even leaders in government. To be a successful leader in the nonprofit sector one must be a supremely gifted person who embodies a remarkable range of skills and perspectives – part values-based leader, part professional clinician, part social change agent, and part entrepreneur.

The future: Leadership challenges facing nonprofit organizations

It is relatively easy to be an effective leader when an organization has ample resources to accomplish its mission. Leadership is much more difficult in times of financial stress or crisis. In the foreseeable future, nonprofit organizations will likely face the dual challenge of greater demand for their services, especially from vulnerable populations, combined with diminished resources to meet those needs. It will be the leader’s responsibility to broker a dialogue with essential stakeholders both inside and outside the organization, working together with these stakeholders to develop a strategy for deriving maximum value from the resources the organization has to offer. The boundary spanning skills of the nonprofit leader will be especially valuable in this dynamic environment. Leaders of nonprofit organizations must be on the lookout for opportunities to collaborate with other organizations and to take care not to waste resources by unnecessarily duplicating the

Kevin P. Kearns

services of other nonprofit organizations. This will entail not only supreme discipline in the allocation of scarce resources, but also preparing the organization for long-term sustainability and eventual growth. Recruiting and developing young talent, for example, is a leadership strategy that can help ensure the organization’s future. The need for a viable nonprofit sector has never been greater than it is today. Our world is torn by international conflict and paralyzed by fear and polarization. In these times, nonprofit organizations have the opportunity to play their traditional roles as mediators of conflict, advocates of peace, and catalysts for social capital formation. Effective leadership at all levels of nonprofit organizations will be essential to their success. Kevin P. Kearns

Related topics

Chief executive officer: Performance review Chief executive officer: Relations with the board of directors Governing board: Responsibilities Leadership succession Professionalism

Further reading and references

Bennis, W. (1959). Leadership theory and administrative behavior: The problem of authority. Boston University Press. Bennis, W. (1999). The leadership advantage. Leader to Leader, 1999(12), 18–23. https://​doi​ .org/​10​.1002/​ltl​.40619991205 Bennis, W. (2003). On becoming a leader. Basic Books. Bennis, W., & Nanus, B. (1986). Leaders: The strategies for taking charge. Harper and Row. Gardner, J. W. (2006). The nature of leadership. In Jossey-Bass (Ed.), The Jossey-Bass reader on educational leadership (2nd edn.) (pp. 17–26). Jossey-Bass. Greenleaf, R. K. (2002). Servant leadership: A journey into the nature of legitimate power and greatness (25th anniversary edn.). Paulist Press. Salamon, L. M. (2015). The resilient sector revisited. Brookings Institution.

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Leadership succession Definitions: Key terms and concepts

Executive succession is an inevitable occurrence in the management and leadership of any organization (Gabarro, 1988). Executive succession has been compared to a relay race, referring to when an outgoing executive departs the position and hands off the position to an incoming executive who has been recruited and appointed to assume the role. It can be the result of both voluntary and involuntary turnover and can occur after a planned departure or following an emergency or an unforeseen situation. Voluntary turnover includes planned departures such as retirements or the executive leaving to assume a position elsewhere. In the case of such a succession, the executive and board of directors should plan for a departure with an appropriate timeline to manage an established succession plan or enact a transition plan. Involuntary turnover is the result of terminations, forced resignations, or an emergency such as death. When the executive succession is initiated by an involuntary turnover event, clear communication should be established amongst and between the board of directors and the organization for the sake of transparency and managing turnover-related uncertainty. The board members should also be prepared to appoint an interim or assume oversight responsibilities as well as work to maintain organizational operations and morale (Tebbe, 2019). Emergency succession planning is one of the more common types of succession planning utilized by nonprofit organizations and occurs following an unforeseen event such as an executive’s death or sudden resignation or termination. These plans include steps to address immediate concerns in an emergency or worst-case scenario and should include specific job descriptions and duties, such as which individual assumes day-to-day oversight of the organization. Succession planning is a proactive tool boards of directors can use to map out any change in leadership and ensure executive continuity. Reflecting on what could be done differently during the executive transition process, the majority of boards of directors noted they would plan ahead with a succes-

sion plan to ensure short-term goals are met and longer-term goals established (Tebbe et al., 2017). An effective succession plan provides a timely outline for the organization to prepare for the transition, complete the search process, select the right candidate for the position, onboard and support the new executive, and establish clear objectives and roles for board members throughout the process (Tebbe, 2019). Leadership continuity refers to a strategic attention to the ongoing leadership needs of the organization. The board and executive participate in intentional conversations to identify emergency backup for the executive, the succession of board membership, and the ongoing leadership development of managers and other key positions in the organization. The board of directors and the executives work together to ensure the leadership needs of the organization are attended to in the present capacity needs as well as the longer-term outlook of the organization (Tebbe, 2019).

In practice: Prepare, pivot, and thrive

The executive transition process is time intensive (Adams, 2010). A survey of nonprofits who had recently completed an executive transition found that the board members who responded to the survey said they spent 125.7 hours on average dedicated to overseeing the transition (Tebbe et al., 2017). Prepare phase In this phase, board members plan the succession timeline and identify specific roles for board members and goals for the organization. Individual board members should be tasked with clear roles, such as ones concerning operational and oversight duties. This includes determining and identifying the individual who will be in charge of the organization during the executive gap. Some nonprofits could choose to name an interim director from within or outside the organization, or a board member could assume daily operational and oversight responsibilities. Boards should draft a communication plan to announce the transition and disseminate accordingly. During this phase, boards should review the organization as a whole and its direction and trajectory. Necessary

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or wanted changes should be discussed by board members and a plan going forward established.

may also seek feedback of these parties, but should be cautious in describing decision input from these parties.

Pivot phase During this phase, board members should carry out the recruitment process, including establishing search criteria and selecting candidates. Some nonprofit organizations will work with executive recruiting services or consultants. While this can be a costly process, many boards of directors reported positive results and experiences with consulting services as the added capacity equipped the board to navigate the various unfamiliar aspects of a transition (Stewart et al., 2021). If the nonprofit organization chooses not to contract with an executive recruiting consultant, the board of directors should plan, execute, and oversee the recruitment process themselves. The search criteria should include a detailed job description, required and preferred qualifications including educational background (i.e., graduate or postgraduate degree), years of experience, software/ technological skills, supervisory experience, and so on. Even with an internal candidate, the board should still facilitate a selection process to vet and compare candidates so that the process may be trusted and objective in its selection. Additionally, the board of directors should determine the appropriate recruiting channels on which to publish, noting that some job posting platforms require a fee. Upon review of all interested applicants, the board of directors should decide which candidates to interview. The interview process and procedure should be pre-determined and followed. Another component of the pivot phase is organizational strengthening and planning. If any organizational changes are desired, the board of directors should lead the organization in a new or different direction. Examples of potential areas for strengthening could include fundraising strategies, organizational goals, and operational capacity (Stewart et al., 2021). It is also important to be mindful of all stakeholders during this phase as transitions may elicit uncertainty and anxiety. Boards should host transparent conversations and communications with internal and external stakeholders, such as staff and funders to communicate the procedure and priorities of the search and selection process. The board

Thrive phase This phase entails the procedure for onboarding the new executive. Successful succession planning is vital to the organization’s success (Adams, 2010). The creation and utilization of a succession plan also allows for a smoother transition. In ideal circumstances, there would be a period of overlap in which the outgoing executive is present during the transition to help or train the incoming executive. Related, boards and incoming executives should host transparent conversations to delineate roles and responsibilities, as well as expectations for the new executive’s tenure (refer to the entry in this volume on Chief executive officer: Relations with the board of directors regarding “norming discussions”). It is crucial that the incoming executive be well-equipped for their new role and that members within the organization be prepared. Adams (2010) underscores the importance of a positive experience at the beginning in that positive beginnings with positive relationship building make for positive journeys and futures.

Current issues and challenges Leadership deficit and leadership development deficit Attention has been drawn to the status of nonprofit executive leadership, considering that many in the top position are nearing retirement age and too little has been done to develop the next generation of leaders (Landles-Cobb et al., 2015; Tierney, 2006). These two factors converge as both a challenge and opportunity for the sector for the continuity of leadership. Nonprofit careers and career paths draw attention to some possibilities for leadership development, but the remedy to these deficits should be at the sector level and not just at an individual level given the scale of the nonprofit workforce. Nonprofit capacity to manage transitions internally versus outsourcing When an executive turnover event is triggered, it is the nonprofit’s board of directors’ responsibility to carry out the transition

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process. Nonprofit boards can choose to manage the transition and succession internally or lean on external support, such as a recruiter or leadership continuity consultant. The type of external support and the extent to which a nonprofit organization makes use of said support is dependent on the nonprofit board’s priorities and available budget (Stewart et al., 2021). Outsourcing by utilizing executive succession consulting services can be extremely beneficial to the nonprofit organization yet comes at an added expense during an already uncertain time. Some nonprofit boards may rely on their own expertise and network for the transition but need to be mindful of the nonprofit context and how the management of a transition is resource and time intensive. Internal challenge: Board capacity and bias Many nonprofit boards are volunteer based and may not be fully trained in all the aspects of an executive transition. A board’s capacity directly affects the board’s functionality and its execution of succession roles and responsibilities (Stewart, 2017). They may see the executive transition as solely a “‘vacancy-filling’ problem rather than a hiring decision that is wrapped inside of a large organizational change process” and as a result, may “miss the opportunities afforded by better succession and planning, the benefits of intentional management of the process during the transition, and the rewards of effective follow-through” (Tebbe et al., 2017, p. 341). Boards may not be prepared to assume oversight responsibilities or other roles required to maintain daily operations of the organization. Appropriate training and clear expectations and procedures are advantageous to the board’s functioning in their oversight responsibilities of an executive transition. Bias may also be a factor in why they selected the incoming executive to the organization. Outside influences and personal experiences may also contribute to the selection bias. For example, boards may choose to rely on their own networks for recruitment, which may limit a board’s access to diverse candidates for recruitment. The person “selected for the executive position may be more of a statement of [the board’s] own preferences rather than what the organization’s mission,

values, and strategy require” (Stewart et al., 2021, p. 526). External challenge: Accessing executive succession consulting Executive succession consulting is a growing consulting industry and has significant impacts on the nonprofit sector. Employing an executive succession consultant can help the nonprofit’s board minimize disruptions and stress and maximize organizational performance potential and recruiting power and reach. Stewart et al. (2021) found that boards that used external support were “more likely to define 12–18 month priorities for the executives, develop a list of competencies for the executives, engage staff in planning the transition, and communicate externally with stakeholders” (p. 534). Larger nonprofit organizations are more likely to utilize external consultants or recruiters. Many smaller nonprofits remarked that if money was not a limiting factor, they would lean more heavily on external support such as executive succession consultants (Stewart et al., 2021). Philanthropic foundations have brought resources to bear at the time of executive transitions, an acknowledgment of leadership capacity and organizational capacity to manage such transitions as ultimately equipping nonprofit missions.

The future

The nonprofit sector should work to ensure equitable representation in employment, especially at the executive level. Demographic data on nonprofit executives consistently describes barriers to inclusion and access to promotion among women and Black, Indigenous, and People of Color (BIPOC) professionals. Executive transitions provide a strategic opportunity for boards to assess and address structural barriers that prevent inclusion, as well as purposefully prioritize and promote diverse leadership. Individual nonprofit organizations should include a diversity, equity, and inclusion (DEI) statement, as well as a plan to address DEI in all hiring and operating practices. The Building Movement Project (https://​ buildingmovement​.org/​) compiles research and is a thought leader to bring attention to the leadership gaps in the sector, as well as how bias affects BIPOC nonprofit leadership.

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Nonprofit organizations should be proactive and plan for an executive succession. Boards of directors should ensure executive continuity through a transition and have a plan detailing shared leadership responsibilities and roles during the next transition for the organization. In doing so, nonprofit leadership will be better prepared to work towards desired outcomes and improvements. Nonprofit organizations should cultivate relationships with younger professionals in the field through mentorship and professional development (see the entry on Careers and preparation in this volume). Amanda J. Stewart and Ryne A. Crout Jones

Related topics

Chief executive officer: Performance review Diversity, equity, and inclusion Governance Governing board: Responsibilities Leadership Strategic human resource management

Suarez, D. F. (2010). Street credentials and management backgrounds: Careers of nonprofit executives in an evolving sector. Nonprofit and Voluntary Sector Quarterly, 39(4), 696–716. https://​doi​.org/​10​.1177/​0899764009350370 Tebbe, D. (2019). Chief executive transitions: How to hire and support a nonprofit CEO. BoardSource. Tebbe, D., Stewart, A. J., Hughes, M. B., & Adams, T. (2017). Executive succession: Closing the gap between ideals and practice. Journal of Nonprofit Education and Leadership, 7(4), 338–345. https://​doi​.org/​10​.18666/​jnel​-2017​ -v7​-i4​-8640 Tierney, T. J. (2006). The leadership deficit. Stanford Social Innovation Review, 4(2), 26–35. https://​doi​.org/​10​.48558/​603F​-9785 Wolfred, T. (2009). Managing executive transitions: A guide for nonprofits. Fieldstone Alliance.

LGBTQ+ philanthropy Definition

LGBTQ+ philanthropy refers to voluntary actions and charitable giving by lesbian, Adams, T. (2010). The nonprofit leadership tran- gay, bisexual, transgender, queer, and other sition and development guide: Proven paths for leaders and organizations. ProQuest Ebook individuals (LGBTQ+) with marginalized Central. https://​ebookcentral​.proquest​.com. sexual orientations and/or gender identities. This philanthropy ranges from formal to Accessed 2022. Building Movement Project (n.d.) www​ informal activities both in support of the LGBTQ+ community as well as for the wide .buildingmovement​.org Carman, J. G., Leland, S. M., & Wilson, A. J. range of charitable causes people support. (2010). Crisis in leadership or failure to plan? The LGBTQ+ community also has a unique Nonprofit Management and Leadership, 21(1), history of voluntary action and distinct moti93–111. https://​doi​.org/​10​.1002/​nml​.20014 vations for giving.

Further reading and references

Gabarro, J. (1988). Executive leadership and succession: The process of taking charge. In D. C. Hambrick (Ed.), The executive effect: Concepts and methods for studying top managers (pp. 237–268). JAI Press, Inc. Landles-Cobb, L., Kramer, K., & Milway, K. S. (2015, October 22). The nonprofit leadership development deficit. Sanford Social Innovation Review. https://​doi​.org/​10​.48558/​54CX​-V592 Stewart, A. (2017). Exploring board perspectives on non-profit executive turnover. Voluntary Sector Review, 8(2), 169–185. https://​doi​.org/​ 10​.1332/​2040​80517x1494​2368265346 Stewart, A. J., Adams, T. H., McMillian, D., & Burns, J. (2021). No room for failure: Investigating board leadership in nonprofit executive transitions. Nonprofit Management and Leadership, 31(3), 525–545. https://​ doi​ .org/​10​.1002/​nml​.21436

Elizabeth J. Dale

In practice

Over the past decade, diversity, equity, and inclusion concerns have become a central focus for nonprofit organizations, their staff and leadership, and their constituents. Concurrently, nonprofit and philanthropy researchers are giving attention to the demographic diversity of donors and the differing motivations behind why people give. In short, no longer can we assume a White, male, heterosexual donor as the norm. Research from 2000–2010 focused on identifying differences in the giving patterns between male and female donors with statistically meaningful samples, finding that on average and when holding variables like education and

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income constant, women were more likely to give and gave higher amounts. More recently, that attention has shifted to uncover greater nuance among how people’s identities – including their race and ethnicity, sexual orientation, and gender identity – influence their philanthropy. Historically, LGBTQ+ people have supported a range of LGBTQ+-specific nonprofit organizations through gifts of money, volunteer time, as well as activism. While records of LGBTQ+ people exist throughout history, it was only after World War II that the first national gay and lesbian advocacy groups were established. The Mattachine Society, which was for gay men, began as a secret organization in 1950, and two lesbian women founded Daughters of Bilitis in 1955. Both organizations offered meetings, published resources and reached thousands. More rapid organizational growth took place during several key periods after the civil rights movement: as a result of the 1969 Stonewall Inn riots in New York City, during the AIDS crisis of the 1980s and 1990s, and in the 2000s to 2010s with the movement to legalize same-sex marriage. While today’s LGBTQ+ organizations exist throughout the U.S. and globally and include local, regional, and national nonprofits, they are not the only focus of LGBTQ+ philanthropy. Contemporary research shows that LGBTQ+ donors support the whole range of nonprofits, from educational institutions, to arts organizations, and nonprofits providing social services, often contributing just as much, if not more of their philanthropy to non-LGBTQ+ causes than to LGBTQ+-specific organizations. Only recently have researchers started to understand the complex, distinct, and overlapping ways that sexual orientation and gender identity and expression (referred to as SOGIE) influence people’s philanthropy. Further, as the Millennial and Gen Z generations adopt even more fluid understandings of gender identity and sexual orientation, the impact of these identities on prosocial behaviors is likely to continue to change.

Current issues and challenges

Despite growing social acceptance and legal rights for LGBTQ+ people in the U.S. and internationally, even in the twenty-first century, many individuals within the LGBTQ+ community still report experienc-

ing discrimination in their personal lives, workplaces, and in public. Younger individuals, transgender individuals, people of color, immigrants, and people with disabilities who are LGBTQ+ report the highest levels of discrimination. Both because of discrimination as well as other, intersecting forms of oppression, LGBTQ+ people also may be recipients of nonprofits’ services. Limited research has found that having first-hand experiences of discrimination may engender empathy, leading to more participation in pro-social behaviors. Therefore, understanding the similarities and differences of LGBTQ+ peoples’ giving is not just important on an individual basis for donors, but has the potential to build collective movements that span differences in race, class, and sexual orientation. LGBTQ+ donors remain an understudied donor population, and existing research has over-emphasized LGBTQ+ giving to LGBTQ+ causes. Challenges to researching LGBTQ+ populations include that sexual orientation and gender identities are diverse and fluid and are not universal across cultures. Additionally, the LGBTQ+ acronym includes both sexual orientation and gender identity terms, which are often conflated in research. For example, understanding if someone identifies as transgender or non-binary should be included with a question on gender (alongside the options of male and female) and not one about sexual orientation. Returning to philanthropy, researchers also are more likely to reflect the experiences of current donors instead of a representative population, as LGBTQ+ individuals are often difficult to identify in large groups, so researchers often identify LGBTQ+ donors via nonprofit organizations. Like all donors, the decision for LGBTQ+ people to give arises from a complex interplay of personal experiences, financial ability, knowledge of giving, as well as personal characteristics that shape one’s networks and sense of community. Studies comparing LGBTQ+ donors to the general population have found that LGBTQ+ donors are both more likely to give and give slightly higher amounts, even to non-LGBTQ+ organizations. Studies also show that LGBTQ+ people give a majority of their philanthropy to non-LGBTQ+ causes. Emerging research demonstrates that LGBTQ+ people often participate in informal giving, like helping friends, crowdfunding for Elizabeth J. Dale

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causes such as gender confirmation surgeries, and supporting mutual aid efforts organized at the community level, reflecting the presence of a “chosen family” among other members of the LGBTQ+ community. With respect to formal giving to nonprofits, studies show LGBTQ+ donors are more likely than the general population to support advocacy and civil rights organizations. Furthermore, LGBTQ+ donors support arts and culture and health-related organizations at a higher level than their heterosexual and cisgendered peers. LGBTQ+ donors are also less likely to give to religious organizations, though it’s important to point out that individual donors’ experiences may certainly differ. Research on high-net-worth LGBTQ+ donors indicated a greater likelihood to make political contributions and engage in civil action like contacting elected officials or participating in a rally. LGBTQ+ donors are more likely to support women’s and girls’ organizations and racial justice organizations. LGBTQ+ donors are also much more likely to consider making planned gifts, such as a bequest. With a significant number of childless individuals and couples who are above the age of 50, planned giving is a unique opportunity for LGBTQ+ donors to consider. Motivations for giving Like many donors, LGBTQ+ donors’ motivations for giving include awareness of needs and personal connections and experiences with nonprofits, as well as their belief in the cause and trust in the organization receiving their gift. Research on giving to higher education shows that LGBTQ+ graduates (“alumnx” in inclusive nomenclature) are more likely to give if they perceived a positive campus climate and/or knew out LGBTQ+ faculty and staff. SOGIE identities can also serve as a giving motivation, known as the “social identification” theory of giving. This theory posits that donors will give to those who are like themselves, because they see themselves in the needs of others. This identity-based motivation is also present in the theory of community uplift and support, whereby LGBTQ+ people give to specifically benefit other LGBTQ+ people. Limited research has shown that this support can extend to other marginalized groups, including recipients outside the LGBTQ+ Elizabeth J. Dale

community such as disaster relief or racial justice organizations. Other distinct motivations documented among LGBTQ+ donors include giving for “justice-oriented” reasons, which can be expressed through support of advocacy and policy organizations and political giving, as well as consciously avoiding organizations that actively maintain or have a history of anti-LGBTQ+ stances. Newer research also shows that LGBTQ+ donors may use their giving to document their presence in mainstream or non-LGBTQ+ organizations and value forms of public recognition that make it clear they are part of a same-sex couple and/ or the LGBTQ+ community. Recent research has also found that LGBTQ+ couples may have different giving practices from heterosexual couples due to how they manage household finances. Same-sex couples are more likely to approach household financial management with more independent money management and power-sharing approaches instead of giving the control of finances to one person in the couple. These practices allow individuals within a couple to support both separate and shared charitable interests. Knowing this, fundraisers need to be prepared to ask donors in partnered relationships questions about whether their partner(s) should be involved in gift solicitations and develop their understanding of how each person in the relationship wants to be affiliated with the organization.

The future of LGBTQ+ philanthropy

While research on LGBTQ+ philanthropy is still developing, especially amid broader societal shifts of increased gender fluidity and more expansive sexual orientation identity, researchers have also posed questions about the usefulness of queer theory in studying nonprofits and philanthropy. In an era of increased attention to issues of diversity, equity, and inclusion, as well as approaches that center the communities most affected by the issues nonprofits seek to address, interest in understanding how LGBTQ+ people interact with nonprofit organizations is growing. This includes taking steps to reduce bias relating to SOGIE in providing services and centering the lived experiences of LGBTQ+ individuals to avoid reproducing

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historical inequalities. This effort is more than just researching giving and volunteering behaviors among LGBTQ+ people; it’s about revealing deeply entrenched systems of power that determine who gets to decide how services are provided and what organizations are funded, and working to build new, more liberatory practices and structures. Understanding and embracing LGBTQ+ philanthropy is one step in that direction, but one that also signals the greater potential for building collective solidarity among LGBTQ+ people, immigrants, people of color, and other allies committed to a more just and equitable future. Elizabeth J. Dale

Related topics

Advocacy Civil rights organizations Diversity, equity, and inclusion Identity-based philanthropy Social change and nonprofit organizations

Further reading and references

Dale, E. J. (2018). Financial management and charitable giving in gay and lesbian households. Nonprofit and Voluntary Sector Quarterly, 47(4), 836–855. https://​doi​.org/​10​ .1177/​0899764018768715 Dale, E. J. (2022). LGBTQ philanthropy. In G. Shaker, E. R. Tempel, S. K. Nathan, & B. Stanczykiewicz (Eds.), Achieving excellence in fundraising (5th edn.) (pp. 347–356). John Wiley & Sons. Drezner, N. D. (2017). Philanthropic mirroring: Exploring identity-based fundraising in higher education. The Journal of Higher Education, 89(3), 261–293. https://​doi​.org/​10​.1080/​ 00221546​.2017​.1368818 Drezner, N. D., & Garvey, J. C. (2016). LGBTQ alumni philanthropy: Exploring (un)conscious motivations for giving related to identity and experiences. Nonprofit and Voluntary Sector Quarterly, 45(1_suppl). 52S–71S. https://​doi​ .org/​10​.1177/​0899764015597780 Meyer, S. J., & Elias, N. M. (2022). Rainbow research: Challenges and recommendations for sexual orientation and gender identity and expression (SOGIE) survey design. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations 34, 84–90. https://​doi​.org/​10​.1007/​s11266​-021​ -00436​-5 Meyer, S. J., Dale, E. J., & Willis, K. K. (2021). “Where my gays at?” The status of LGBTQ people and queer theory in nonprofit research.

Nonprofit and Voluntary Sector Quarterly, 51(3), 566–586. https://​doi​.org/​10​.1177/​ 08997640211021497

Lifecycles of nonprofit organizations Definition

Lifecycles of nonprofits are organizational models and/or analytical tools that posit that nonprofits pass through somewhat common phases from inception through termination. They are the nonprofit counterpart to the more generic organizational lifecycle models, themselves derived from biological metaphors of organism growth stages. 

Context

From the mid twentieth century, scholars of organizations have adapted models from the natural sciences to analyze organizational phenomena. Researchers have tried to discern the common stages through which organizations transition in order to help managers (and other constituents) understand, predict, and strategize. Fundamental to the concept of organizational lifecycle is the idea that each stage of the lifecycle is identified by a unique set of characteristics. To the extent that organizations follow similar, predictable trajectories, managers can reduce uncertainty and prepare for successive stages in organizational development.

In practice

As studies of nonprofit organizations branched off from generic organizational studies, nonprofit scholars further adapted lifecycles models and analysis to highlight the particular historical, cultural, and legal exigencies of typical nonprofit growth from “birth” to “death.” However, nonprofits in different local, regional, and national institutional environments experience launch, survival, and potential cessation differently, as well. This is due, in no small part, to nonprofits being formed based on different national (and even state) legal codes. While nonprofit lifecycle models identify distinct phases, in actual practice there are few definRikki Abzug

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itive and/or agreed upon markers of passage from one lifecycle stage to the next. Indeed, some scholars delineate four or five different phases while others delineate seven or more. Further, in the real world, organizations may not necessarily move sequentially through the stages. Still, some foundational and common elements of lifecycles of nonprofit models can be identified.

Essential components of lifecycles of nonprofits models Birth/Launch Most lifecycles of nonprofits models begin with a birth or launch stage. Depending upon the legal jurisdiction, this stage may include a legal incorporation, an application for tax exemption, and/or a drafting of organizational by-laws. Entrepreneurial lifecycle models will begin with a founder’s efforts and ideas, while board-centered lifecycle models will begin with the passion and concern of a small group of community members who become the original governing body. Organizations that follow a formalization process will determine the appropriate jurisdiction(s) for incorporation, while other organizations will choose to remain unincorporated associations. Growth/Adolescence The next stage suggested by most lifecycles of nonprofits models charts the first steps of nonprofit operations in pursuing a nascent mission, developing funding strategies, and overcoming a “liability of newness” (the phenomenon, first identified by sociologist Arthur Stinchcombe, that described how all organizations were most likely to die soon after being founded). In many models, the growth/adolescence stage is also characterized by the board’s hiring of the first paid staff (often in fundraising, financial operations, or at the executive director level). For board-centered models of the nonprofit lifecycle, this stage represents the point at which the board begins to delegate responsibility for the day-to-day operations of the nonprofit to the professional staff. Growth or adolescent phases may include the first fundraising efforts, the beginnings of board development (training, on-boarding, comRikki Abzug

mittee structuring), and the formalization of strategic planning. Maturity/Maintenance The various lifecycles of nonprofits models follow the focal organization into a functioning adulthood. At this point models may take into consideration the departure of the original founder or founding board. Nonprofits reaching maturity may make decisions about outsourcing or building capacity (hiring) for essential organizational functions including fundraising, human resources, marketing, accounting, financial planning, volunteer coordination, and so on. Mature nonprofits often have established reputations and the trust and goodwill of their various communities and constituents. As a consequence of their reputations, they sometimes engage in policy advocacy or lobbying. Mature nonprofits dot the landscape in the United States and beyond. The oldest corporations established on United States soil are mature nonprofits that predate the Revolutionary War and include institutions such as Harvard and Yale Universities (established in 1638 and 1701, respectively), the St. George’s Society of New York (founded in 1739), and Pennsylvania Hospital (founded in 1751 by Benjamin Franklin and Dr. Thomas Bond). Decline Most lifecycles of nonprofits models incorporate a potential decline phase often attributed to “mission drift,” organizational ossification, increasing competition, changing environments and/or funding. Characteristics of this phase might include less-favored status by clients and funders, decreasing donor retention, a disengaged board, high staff turnover, and so on. From decline, the following two paths are proposed: turnaround or death. Turnaround Some nonprofit organizations in decline are able to execute a crisis plan, replace or rejuvenate leadership, and/or pivot/reposition in time to effect organizational renewal or re-commitment. A classic example of a successful nonprofit turnaround is the March of Dimes. Originally founded to combat polio, the March of Dimes funded Jonas Salk’s polio vaccine and effectively put itself out of business. However, rather than disband

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Death While most lifecycles of nonprofits models postulate a disbandment or death last phase, scholarly research on actual organizational demise is rare. Practically speaking, most nonprofit organizations do not go through an elaborate death cycle – many are merged into other entities and most stay “on the books” long after they close their doors. Perhaps the majority find a way back from the precipice and renew (see above definition of turnaround). In rare, but notable, cases an organization actually succeeds in fulfilling its mission and closes its doors entirely and/ or, in the case of some foundations, it spends itself down. Depending upon the jurisdiction in which the nonprofit is located, different rules and regulations may apply in how to handle continuity of service provision and/or dispersion of organizational assets in the case of organizational closure.

States’ laws on nonprofit incorporation and tax exemption. Given the tremendous diversity of organizations within the nonprofit sector, even within only the United States, it is difficult to model “one size fits all” processes to describe, much less predict, nonprofit organizational development. Even in just the United States, 50 different state incorporation statutes dictate 50 different ways to launch (maintain, govern, disband, etc.) a nonprofit. Broadening that to the rest of the world, we would expect that 190+ countries might suggest 190+ descriptive, if not normative, nonprofit lifecycles models based on legal codes alone. Over 50 years of research has suggested caution in generalizing nonprofit organizational development across nonprofit subsectors/industries. “Lifecycle of nonprofits” might, ultimately be more realistically conceived as “lifecycles of nonprofits” to better capture and reflect differences in cyclical expectations for organizations as diverse as, for example, French maisons de culture, U.S. Ivy League universities, and Egyptian Muslim charities. Rikki Abzug

Current issues and debates 

Related topics

Strengths of lifecycles of nonprofits models and analysis The lifecycles of nonprofit models may be useful tools for founding boards of trustees, strategic-minded executive directors, nonprofit management consultants, and various external stakeholders as they assess likely scenarios for nonprofit success. Stakeholders, including funders, the donating public, government contractors, potential employees, and so on, may find locating a nonprofit within a lifecycle of nonprofit models to be instructive for predicting potential outcomes of engagement.

Further reading and references

and disperse its accumulated human, financial, and social capital, the March of Dimes expanded its mission and now works to improve the health of mothers and babies.

Limitations of lifecycles of nonprofits models and analysis Largely developed in the United States, lifecycles of nonprofits models tend to posit birth and death through the lenses of the United

Dissolution of nonprofit organizations Forming a nonprofit organization Growth strategies Nascent organizations Resilience management Retrenchment strategies Brothers, J., & Sherman, A. (2011). Building nonprofit capacity: A guide to managing change through organizational lifecycles. John Wiley & Sons. Dart, R., Bradshaw, P., Murray, V., & Wolpin, J. (1996). Boards of directors in nonprofit organizations do they follow a life-cycle model? Nonprofit Management and Leadership, 6(4), 367–379. https://​doi​.org/​10​.1002/​nml​ .4130060406 Hager, M., Galaskiewicz, J., Bielefeld, W., & Pins, J. (1996). Tales from the grave: Organizations’ accounts of their own demise. American

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372  Elgar encyclopedia of nonprofit management, leadership and governance Behavioral Scientist, 39(8), 975–994. https://​ doi​.org/​10​.1177/​0002764296039008004 Sharken Simon, J., & Donovan, T. (2001). Five life stages of nonprofit organizations. Fieldstone Alliance. Steven, S. K. (2001). Nonprofit lifecycles: Stage-based wisdom for nonprofit capacity. Stagewise Enterprises. Stinchcombe, A. L. (1965). Social structures and organizations. In J. G. March (Ed.), Handbook of organizations (pp. 142–193). Rand McNally.  Wood, M. M. (1992). Is governing board behavior cyclical? Nonprofit Management and Leadership, 3(2), 139–163. https://​doi​.org/​10​ .1002/​nml​.4130030204

Limited life foundations Definition of key terms

Limited life foundation refers to a foundation that has a planned end to its activities. This is in contrast with a foundation that operates in perpetuity with no end date. Other terms that could be used include “sunsetting foundation,” “strategic lifespan foundation,” or “foundation with an end date.” Spend-down foundation is a limited life foundation that intends to spend out its endowment before closing. This is one type of limited life foundation.

In practice Limited life versus perpetuity The most common choice for foundations is to operate in perpetuity without a planned end date. A growing minority of funders choose to define an end date to the foundation’s activities, with a sharp increase since the early 2000s. According to a report by Rockefeller Philanthropy Advisors (2020b, p. 4) “nearly half of the organizations established in the 2010s were time-limited vehicles.” The choice seems to be less common in Europe than in the U.S. According to the European Foundation Center there were only two spend-down foundations amongst their 199 members (2020). When foundations opt for a limited life scenario, this same RPA report states that the vast majority (76 percent) fix their end point at less than 15 years out. The rest take Lynda Mansson

a longer time frame with 8 percent linking the closure to the donor’s death. Some of the motivations to operate with a limited life include: ● A desire to have impact quickly on issues of interest that require urgency and more funding than can be available by using just the earnings from an endowment. ● Low returns on the investment portfolio for the endowment either due to poor market performance or restrictive investment policies, making it more advantageous to spend the capital. Or even a situation with negative interest rates as in Switzerland at the time of writing. ● A wish to see the impact of funds donated during the donor’s lifetime (Giving While Living, n.d.). ● Inability of subsequent generations to move the foundation beyond the original wishes of the founding donor – either due to lack of heirs to carry on the work, or particularly in some countries an extreme focus on the donor’s original intent which does not allow for modification of the mission (Germany and Switzerland are two such countries).

Current issues and challenges

There are many issues particular to a foundation planning to close, no matter how far out the closing date is. Careful planning of strategy and timeline in order to spend out Closing a foundation, especially one of a significant size, requires careful planning. Once the end date is fixed, this can affect multiple aspects of how to operate. Key questions include: ● How will the foundation define success when it closes and what needs to be done to ensure it can get there in time? What would the donors like the legacy of the foundation to be? ● Will the foundation require grantees to secure co-funding as a pre-condition to the foundation’s own funding to avoid high levels of dependence? ● In cases where dependence on foundation funding is high, what can be done to reduce dependency (e.g., support fundraising efforts)?

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● What spending rate will allow the foundation to arrive at a zero balance at the time the donor wants it to close? Can current grantees absorb that amount of funding, or does the foundation need to seek other initiatives and grantees to support? What will be done with any unallocated funds at the end? ● Will the foundation aim to have all the work that it supports end by the closing date, or to make the last grants by the closing date with a degree of staffing needed to manage the tail end of the grants? ● Will the foundation stop funding issues or grantees all at once or reduce its contributions over time? ● What staffing will be needed as the foundation heads towards closure? Who will be on hand to manage the final administrative details? ● What kind of incentive will be offered to retain staff until the end of the foundation? There is no single right answer to each of the questions, but all are important to have clarity on early in the process. Responsible exiting of funding relationships Most funders want to see the work they have funded be continued once their own funding stops, perhaps by grantees who have become self-sufficient or funded by other sources. Exiting responsibly includes considerations about both how to ensure that work can continue and achievements secured and also how to enable grantees thrive without your financial contribution. Some solutions include: ● Providing support to fundraising, including introductions to other donors. ● Providing organizational development support to strengthen grantee for future success, often called capacity building, which is another entry in this encyclopedia. ● Contributing to a trust fund or endowment to support a grantee over time, perhaps in perpetuity. ● Supporting other financial mechanisms that enable a partner to access non-philanthropic funding (e.g., impact investment) or to generate autonomous funds (e.g., sales of local products).

● Highlighting the work of the grantees, communicating about their successes. While ending any funding relationship can be tricky, in the case of a limited life foundation, clear, consistent, and regular communications is essential to help your grantees understand what to expect. This enables them to plan appropriately and avoid unpleasant, short-term surprises, making their difficult jobs even more difficult. Managing staff and board A singular aspect of a limited life foundation is that all staff know in advance that their jobs will be ending. This can pose challenges in maintaining levels of motivation until the end as well as retaining staff as long as they are needed. Morale can be affected by frequent departures of colleagues or by uncertainty due to lack of transparent communications. This situation requires deft, agile, compassionate leadership.

The future

Limited life foundations are an increasingly attractive option especially for donors who would like to see the impact their funds have in their lifetime. In the U.S. and elsewhere, with the increasing number of younger wealthy people (e.g., in the tech sector), they may be motivated by the impact they can have now, rather than parsing their funds over many years to last beyond their own lifetimes. In Family Philanthropy Navigator (Vogel et al., 2020), spending down is identified as one of the top trends in philanthropy. Newly established foundations have a much higher likelihood of being limited life than ever before. Lynda Mansson

Related topics

Dissolution of nonprofit organizations Governing board: Responsibilities Lifecycles of nonprofit organizations Private foundations

Further reading and references

Buteau, E., & Loh, C. (2017, March 1). A date certain: Lessons from limited life foundations CEP. http://​cep​.org/​wp​-content/​uploads/​2017/​

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374  Elgar encyclopedia of nonprofit management, leadership and governance 03/​CEP​-A​-Date​-Certain​.pdf. Accessed 18 September 2023. Catching the spend-down wave. (2014). NPC. www​ .thinknpc​.org/​blog/​catching​-the​-spend​-down​ -wave​-from​-the​-one​-foundation/​. Accessed 18 September 2023. Giving while living. (n.d.). Atlantic Philanthropies. www​.at​lanticphil​anthropies​.org/​giving​-while​ -living. Accessed 18 September 2023. Mansson, L. (2020). The experiences of a foundation with a limited life: Benefits and challenges. The Foundation Review, 12(2). https://​doi​.org/​ 10​.9707/​1944​-5660​.1521 Mansson, L. (2021). Limited life foundations: Lessons in managing staff transitions. National Center for Family Philanthropy. www​.ncfp​.org/​ 2021/​03/​08/​limited​-life​-foundations​-lessons​ -in​-managing​-staff​-transitions/​. Accessed 18 September 2023. MAVA staff (2018–2022). Blog articles on MAVA’s website. https://​mava​-foundation​.org/​ category/​mava​-exit/​. Accessed 18 September 2023. National Center for Family Philanthropy (2020). Trends 2020. www​.ncfp​.org/​wp​-content/​uploads/​

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2019/​11/​Trends​-Report2020​_electronic​.pdf. Accessed 18 September 2023. Rockefeller Philanthropy Advisors. (2020a). Global trends and strategic time horizons in family philanthropy. www​.rockpa​.org/​wp​-content/​uploads/​ 2020/​01/​Global​-Trends​-and​-Strategic​-Time​ -Horizons​-in​-Family​-Philanthropy​_FINAL​.pdf. Accessed 18 September 2023. Rockefeller Philanthropy Advisors. (2020b). Strategic time horizons – a global snapshot of foundation approaches. www​.rockpa​.org/​ wp​-content/​uploads/​2020/​01/​Strategic​-Time​ -Horizons​-a​-Global​-Snapshot​-of​-Foundation​ -Approaches​_FNL​.pdf. Accessed 18 September 2023. S. D. Bechtel, Jr. Foundation. (n.d.). http://​ sdbjrfoundation​.org/​the​-foundation/​spending/​. Accessed 18 September 2023. .at​ The Atlantic Philanthropies. (n.d.). www​ lanticphil​anthropies​.org/​featured​-topics/​limited​ -life​ -philanthropy. Accessed 18 September 2023. The Tubney Charitable Trust. (2012). Giving our all: Reflections of a spend out charity. www​.issuelab​.org/​resources/​17440/​17440​.pdf. Accessed 18 September 2023. Vogel, P., Eichenberger, E., & Kurak, M. (2020). Family philanthropy navigator. IMD

M

Major donors Definition

There is no universal definition of a “major donor” tied to any particular amount of money because any given sum, say $500, could be a huge amount to a small, local charity such as a soup kitchen or a Girl Scout group, but a drop in the ocean to a very large nonprofit with a multi-million-dollar turnover, such as a university or a major medical research organization. “Major donor” is therefore a relative term, referring to individuals able to contribute a donation that is substantially higher than the average size of gift, and that is big enough for the recipient organization to be able to do something significant – and often identifiable – with that sum of money. Major donors are very important to nonprofit organizations which are typically resource deprived. But they take a significant amount of time and effort to identify and solicit, and the work continues after donations are received, because good stewardship of major donors is necessary in order to secure their ongoing support. Major donors are often viewed as a “holy grail” in fundraising: extremely desirable but believed to be very difficult to find and hold on to. Their value lies not only in the dollar amounts they can provide, but also in their flexibility compared to other funding sources. Individual major donors can give as much as they wish, when they wish, for whatever purpose they wish, unlike corporate givers and grant-making foundations which tend to operate within parameters relating to time frames, cause areas, and defined giving policies, with decisions requiring approval by – respectively – managers and trustees. Major donors can also contribute more than money, for example sharing their professional personal contacts with the nonprofits they support, as well as providing

expertise such as strategic and financial advice. However, major donors can also make undue demands on nonprofits’ time and resources, for example expecting constant access to the leadership and invitations to visit funded projects, and they may have unreasonable expectations about the amount of influence they can exert over operational and mission-related decisions.

In practice who are the major donors?

The typical demographic profile of a major donor has changed substantially in recent decades. Compared to the twentieth century when big donors were often older men sitting on family fortunes, today’s major donors are more likely to be younger, female, and self-made. Research identifies at least five defining characteristics of major donors: Passion and conviction – the top motivating factor behind big gifts is donors’ belief in the importance of a cause, often rooted in autobiographical influences such as involvement with an institution (e.g., being an alum of a university, a member of a church, or attending a theater), or personal experience of a problem or issue (such as a loved one experiencing ill health or encountering poverty or disasters first-hand). Focus on achieving transformational results – major donors want their contribution to make a tangible difference, therefore they do not measure success by the size of the gift but by the size of the impact it achieves. Major donor fundraising begins with ideas rather than money, which is the means to the impactful end. Commitment to cause over organization – the focus on transformational results described in the last point leads directly to the third distinguishing feature of major donors: a commitment to causes over particular charitable organizations. This cause-focused

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outlook can generate impatience with established institutions and a preference to set up new initiatives to pursue chosen causes, constituting a challenge for existing nonprofits seeking major support. Agency and power – people capable of making major donations are described as “hyperagents” who are able to shape, rather than simply support, their chosen causes. They can also use their surplus wealth to shape their own reputation and “moral biographies,” transforming money-making into meaning-making. Enrichment – major donors frequently describe the pleasure and satisfaction to be gained from giving significant sums to good causes. Major donors are aware that generosity brings multiple public and private benefits, such as helping others whilst also enhancing their own reputation and legacy, and they often volunteer the view that they “get back far more than they give.”

Current issues and challenges

The two main challenges in relation to major donor fundraising are doing this work well and responding to critiques about the potential harmful social impact of major donors. The essential components of major donor fundraising Major donor fundraising is different in many ways to mass fundraising, the prime point of differentiation being that it is relationship based rather than transactional. Unlike direct marketing which is fundamentally a standardized process managed within the fundraising team, major donors require a personalized approach that is tailored to the individual prospective donor and draws on input from across the organization, including – critically – engagement by the organization’s paid and volunteer leadership: the CEO and the chair of the board. With rare exceptions, major donations only happen after a long-term, authentic, and trusting relationship has developed between the potential donor and the recipient organization. The leadership of the nonprofit must gain the trust of the donor, who has likely been offered multiple ways to become engaged with, and involved in, the organization’s work over a period of many months. Beth Breeze

Key features of working with major donors include: ● Major donors are almost always solicited face-to-face by a personal contact or a peer, supported by a professional fundraiser. ● Major donors often expect some form of acknowledgment and access to the organization’s work and leadership. ● Major donors sometimes have a high level of expertise in the work of the organizations they support, and understandably prefer to interact with someone who can speak proficiently on the topic. ● Major gifts may be paid immediately or pledged over time and may be given from an individual’s private bank account, or through a philanthropic vehicle such as a personal/family foundation or a donor-advised fund (DAF). ● Once a major donation is received the nonprofit must provide excellent stewardship by keeping the donor updated on the outcomes and impact of their gift, providing opportunities for them to meet staff and understand the work they have enabled to take place, and ensure they feel appreciated and good about their involvement so that they decide to give again, and encourage their family, friends, and contacts to offer their support too. Many nonprofit organizations do provide their major donors with the experience that they are seeking, namely: strong relationships with key staff, fellow donors, and (where appropriate) with beneficiaries, as well as confidence that their money is being spent well. But many nonprofits have not developed a “culture of philanthropy” across the organization (meaning all staff and volunteers understand and value the role of private gifts), nor invested in the fundraising function sufficiently to run a successful long-term major donor fundraising program. In the absence of this culture and investment, major gifts are less likely and when they are made, donors’ experience of becoming involved in the organization is neither as fulfilling nor as satisfying as it could and should be, leading to difficulty retaining this support and causing unknown reputational damage amongst dissatisfied donors’ networks.

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Critiques of the potential harmful social impact of major donors Charitable giving by “ordinary” people is generally considered to be a pro-social act, yet gifts from richer people can sometimes generate suspicion rather than admiration. Therefore, in addition to internally managing the successful management of major donor fundraising, nonprofits need to also pay attention to broader concerns and critiques of major donors. These cover issues such as: ● Whether rich people are using their wealth to unduly influence the direction of society in a way that is inimical to democratic principles. ● The acceptability of tax incentives for major donations which deplete the general tax base and subsidize the whims of rich donors. ● The use of philanthropy as a “cover” for bad behavior in business interests and private lives. Whilst concern about the motivation and impact of big givers is long-standing and sometimes understandable, failure to engage with critics and explain the positive value of major donors and the inability of nonprofits to run on goodwill alone may ultimately undermine the reputation of philanthropy and make major donor fundraising even more difficult than it already is.

The future

Responding to the two main challenges outlined above, the future in relation to major donors involves two equally important developments. Firstly, greater professionalization of fundraising and attention to recruiting and developing talented major donor fundraisers. Working with major donors requires proficiency in technical skills such as prospect research, strategic planning, and knowledge of tax and legal issues, yet it also requires high levels of emotional intelligence and people skills to develop authentic relationships with high-level supporters. The demand for such employees far outstrips current supply, so nonprofit organizations need to “grow their own,” identifying staff with the potential to

specialize in this area and investing in them to gain the necessary training and experience. Secondly, nonprofits need to better articulate why they seek major donations, and what processes they have in place to ensure these gifts are secured ethically, such as policies on gift acceptance that take account of diverse views including the beneficiaries’ perspective, and how they mitigate power imbalances between wealthy donors and resource-deprived organizations. Securing “Holy Grail” donations from major donors requires serious attention and consideration of all the ways such donations affect the recipient organization’s mission, as well as the broader nonprofit sector’s legitimacy in the eyes of the public and policymakers. Beth Breeze

Related topics

Charitable giving Donor and donor motivation Donor retention and stewardship Fundraising

Further reading and references

Breeze, B. (2021). In defence of philanthropy. Agenda. Cluff, A. (2009). Dispelling the myths about major donor fundraising. International Journal of Nonprofit and Voluntary Sector Marketing, 14(4), 371–377. https://​doi​.org/​10​.1002/​nvsm​ .372 Hodge, J. M., & Bout, M. (2022). Co-creating major gifts. In G. G. Shaker, S. K. Nathan, E. R. Tempel, & W. Stanczykiewicz (Eds.), Achieving excellence in fundraising (4th edn.) (pp. 381–392). Indiana University Press. Panas, J. (1984). Mega gifts: Who gives them, who gets them? Bonus Books. Prince, R. A., & File, K. M. (1994). The seven faces of philanthropy: A new approach to cultivating major donors. Jossey-Bass. Sargeant, A., & Jayne, G. (2022). Fundraising management: Analysis, planning and practice. Routledge. Schervish, P. G. (2005). Major donors, major motives: The people and purposes behind major gifts. New Directions for Philanthropic Fundraising, 2005(47), 59–87. https://​doi​.org/​ 10​.1002/​pf​.95

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Managerialism Definition

Managerialism refers to a belief that the fate of any organization rests primarily in the hands of its managers – that everything an organization accomplishes depends on the expertise and perspectives of a cadre of professional managers and their presumed ability to optimize various quantitative performance metrics. Managerialism is related, but not identical, to professionalism and commercialism in the nonprofit sector, both of which are discussed elsewhere in this book. In the early 1990s managerialism was called an emerging ideology to which a growing number of people and organizations were subscribing (Enteman, 1993). An ideology is more pervasive than a mere collection of managerial techniques and methods; it is a belief system and a way of framing and attacking almost any challenge or opportunity faced by an organization. Thus, managerialism as an ideology is analogous to the belief that fuels any deeply held conviction such as religious faith or political loyalties. Some observers have suggested that managerialism has become an increasingly powerful ideology in all types of organizations, including nonprofits, with some disturbing consequences. They say that the ideology of managerialism has produced a generation of professional managers, all trained similarly (primarily in schools of business and related management disciplines), who have essentially confiscated organizations from their owners and governing boards by infusing their logical framework into every facet of the enterprise. But how does managerialism reign supreme? An imperfect analogy might be that of an autopilot on an airplane – most of the time it effectively controls the plane in response to pre-programmed algorithms and logics but, in some instances, pilots must override the autopilot when they choose a course of action that is contrary to the autopilot’s program. When they cannot override the autopilot, catastrophe can follow. Critics suggest that managerialism can gradually become so entrenched in an organization’s culture that it is difficult to even recognize its pervasive impacts let alone override its assumptions and actions. Kevin P. Kearns

Some have gone even further, arguing that managerialism is having profound impacts on society itself, well beyond the boundaries of any given organization, inculcating itself into our socio-economic norms and practices and creating a new ruling class of managerial elites whose hands touch literally everything in our world. In other words, our behavior and even our beliefs and values are impacted by the ideology of managerialism and its algorithms whether we realize it or not. All of this is to say that managerialism, like other types of ideologies, defies a simple definition (Dart, 2004; Hvenmark, 2016).

In practice

To trace the roots of managerialism in the public sector one might look back to Max Weber’s ideas in the late nineteenth and early twentieth centuries. Weber was a German sociologist and political philosopher who is credited with developing the concept of professional bureaucracy. Weber envisioned a public service structure characterized by specialization of labor, formal rules and regulations, a clear hierarchy of authority, and objectivity with respect to decisions. He wanted to replace the aristocracy with a meritocracy wherein professional advancement was determined by one’s knowledge and performance, not by political or family political connections. Engineering pioneers like Fredrick Taylor and Henri Fayol, both of whom were contemporaries of Weber, contributed techniques for optimizing performance measured mostly as output and typically in industrial settings. Also in this era, however, there were opponents to the implicit managerialism embedded in the emerging field of management science. Mary Parker Follet, Lillian Gilbreth, and others pointed to the importance of human relations in effective management. Getting things done through people required a mix of skills, not the mindless application of optimization techniques. Follet, for example, examined the importance of lateral interactions, not just the vertical command structure typified by Weber’s idealized bureaucracy. Nonetheless, Follet and her colleagues still embraced the primacy of professionalism and expertise as key to organizational success. Osborne and Gaebler (1992) published a best-selling book, Reinventing Government: How the Entrepreneurial Spirit

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is Transforming the Public Sector, which was embraced by President Bill Clinton as a blueprint for how government could be run like a business. Among other things, the book extolled the virtues of management decision-making based on business-like metrics of efficiency, cost-effectiveness, and even profitability in some types of civic sector activities. Soon similar books began to appear suggesting, with caveats, that nonprofit organizations can also apply business management principles such as strategic planning and market research to sustain themselves and advance their mission. Generally, their authors cautioned that nonprofits cannot and should not be operated exactly like a business (Kearns, 2000).

Current issues and debates

There are many debates about managerialism in the nonprofit sector including the following: Does managerialism really lead to better performance? While proponents of managerialism extoll its virtues, much of the evidence is anecdotal and its successes seem to be mostly in commercialized nonprofits that rely on economic transactions with their environment, not collaborative and inclusive problem solving. Managerialism is most effective when there are clear goals and quantitative metrics of success. The top-down and quantitative methods of managerialism treat people as consumers or customers whose expectations are managed and even manipulated; external stakeholders are generally excluded from the organization’s most important deliberations and decisions. In contrast, most nonprofits deal with messy ill-structured problems wherein goals and success are perceived differently by multiple stakeholders. Is managerialism in step with contemporary issues? The tools of managerialism are not well-suited to addressing pressing issues of social justice, equity, and inclusion (Abramovitz & Zelnick, 2021). For example, the ideology of managerialism might recommend divesting from programs and services that do not contribute to financial or operational objectives when, in

fact, those programs are essential in advancing the mission of the organization. Thus, methods like service portfolio management must include modifications to mitigate the effects of blind managerialism (Mitchell, 2018). Managerialism also is not easily applied in organizations that devote significant time and energy to advocacy. As noted elsewhere in this book, advocacy often involves coalition building with other organizations which, in turn, requires dialogue and compromise on goals and objectives. Generally, managerialism in not useful in circumstances where stakeholders demand and deserve an open and inclusive process as an essential component of decision-making and action. Managerialism is perceived by many to be an elitist theory based on top-down decision-making. Is managerialism a result of external coercive pressures that contribute to mission drift? Many nonprofit organizations rely heavily on government funding, performance contracts, and grants from foundations and other donors that are conditioned on certain operational processes, accountability reports, and performance outcomes. These performance mandates create fertile ground for managerialism to flourish and grow because nonprofits must either institute the required managerial routines, metrics, and processes or else risk the loss of funding. As a result, nonprofits gravitate toward organizational isomorphism, discussed elsewhere in this book, wherein they gradually become indistinguishable in their operations and governance. When managerialism becomes the dominant ideology in an organization it can even lead to mission drift. This can happen when nonprofits pursue performance-based funding that pushes them toward metrics that are only loosely related, if at all, to their core mission. The ideology can also drive managers, workers, and even the governing board to make decisions based on operational efficiencies and organizational survival instead of mission fulfillment. For example, a nonprofit governing board may feel pressured to minimize operational overhead even when investment in the organization’s capacity and infrastructure is necessary to advance its mission. Kevin P. Kearns

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Managerialism can also be inadvertently nurtured by watchdog organizations and nonprofit rating agencies when they emphasize operational and financial performance in their published ratings. In effect, managerialism can push organizations to emphasize relatively short-term objectives rather than long-term impacts on the communities they serve.

The future

The boundaries between the three sectors – government, business, and nonprofit – have blurred. As a result, there has been a kind of osmosis in which some (not all) of the values, norms, and practices of each sector have permeated the other two. This trend has been decades in the making and is not likely to be reversed nor should it necessarily be completely reversed. But there is a growing chorus of voices asserting that the migration of methods and values to the nonprofit sector should be mitigated and examined more critically. Shocks like the COVID-19 pandemic can temporarily or permanently alter the flow of ideas and resources between the three sectors. For example, during the COVID-19 crisis, many nonprofits had to pivot away from their normal services and practices – business as usual – in order to respond to pressing charitable needs. One might say that they returned to their charitable roots, attending to the people’s immediate needs, like food and housing. On the other hand, many nonprofits also became more dependent on government funding during the pandemic with all its mandated managerial processes and accountability mechanisms. An interesting research question is: did managerialism, broadly defined, help some nonprofits increase their resilience to the COVID-19 pandemic, or did it actually make them more vulnerable? The debates on managerialism will continue well into the future, but this much is clear – the quest for efficiencies and cost-effectiveness as a primary goal is both simplistic and a threat to the bedrock values of charity and philanthropy upon which the nonprofit sector was built and still stands. Nonprofits serve many purposes that may achieve some gains through sophisticated management methods, but they cannot and

Kevin P. Kearns

should not be subjugated to the ideology of managerialism. Kevin P. Kearns

Related topics

Careers and preparation Chief executive officer: Performance review Commercialism Leadership Professionalism

Further reading and references

Abramovitz, M., & Zelnick, J. R. (2021). Structural racism, managerialism, and the future of the human services: Rewriting the rules. Social Work, 67(1), 8–16. https://​doi​.org/​10​.1093/​sw/​ swab051 Beaton, E. E. (2021). Institutional leadership: Maintaining mission integrity in the era of managerialism. Nonprofit Management and Leadership, 32(1), 55–77. https://​doi​.org/​10​ .1002/​nml​.21460 Dart, R. (2004). Being “business-like” in a nonprofit organization: A grounded and inductive typology. Nonprofit and Voluntary Sector Quarterly, 33(2), 290–310. https://​doi​.org/​10​ .1177/​0899764004263522 Eagleton-Pierce, M. (2019). The rise of managerialism in international NGOs. Review of International Political Economy, 27(4), 970–994. https://​doi​.org/​10​.1080/​09692290​ .2019​.1657478 Enteman, W. F. (1993). Managerialism: The emergence of a new ideology. University of Wisconsin Press. Hersberger‐Langloh, S. E., Stühlinger, S., & Schnurbein, G. (2021). Institutional isomorphism and nonprofit managerialism: For better or worse? Nonprofit Management and Leadership, 31(3), 461–480. https://​doi​.org/​10​ .1002/​nml​.21441 Hvenmark, J. (2016). Ideology, practice, and process? A review of the concept of managerialism in civil society studies. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 27(6), 2833–2859. https://​doi​.org/​10​.1007/​s11266​-015​-9605​-z Kearns, K. P. (2000). Private sector strategies for social sector success. Jossey-Bass, Inc. Mitchell, G. E. (2018). Modalities of managerialism: The “double bind” of normative and instrumental nonprofit management imperatives. Administration & Society, 50(7), 1037–1068. https://​doi​.org/​10​.1177/​0095399716664832 Osborne, D., & Gaebler, T. (1992). Reinventing government: How the entrepreneurial spirit is transforming the public sector. Addison-Wesley.

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Marketing Definition

Marketing refers to the information gathering, planning, and implementation of activities for the purpose of attracting and retaining support for the nonprofit organization. This may include, for example, attracting consumers, including recipients of social services, when they can choose from several providers. The desired support for the nonprofit organization is usually in the form of membership, ticket sales, donations (or other funding), fees for service, and volunteering. For other types of organizations, like social service agencies, support can refer to consumers, clients, recipients of social services, fees for services, and so forth. Marketing activities are usually directed at different stakeholder/supporter groups or target audiences from whom the nonprofit organization wishes to attract and retain support. To be clear, the term supporters is used broadly in this entry and is not restricted to financial supporters. Supporters may be government agencies, foundations, donors, volunteers, patrons, members, customers, and even non-paying recipients of charitable services. Nonprofit organizations implement their marketing activities usually through communication pathways or in-person engagement directed towards various target audiences. Marketing is related to, but distinct from, branding, which focuses on how organizations create and nurture their identity and distinctiveness as perceived by important stakeholders.

In practice

Marketing is usually a compilation of audience research, marketing planning, and the implementation of marketing plans. Marketing management involves a set of related tasks: ● Goal Setting: What does the organization want to accomplish with its marketing program? Usually, marketing goals pertain to the attainment of desired outcome metrics like donations, donor retention, ticket sales, revenues, and so forth.

● Market Research: Audience/stakeholder research is required to understand the perspectives, wants, and preferences of groups from whom the organization wants to attract and retain support. ● Planning: Marketing plans describe a set of tactics to be implemented to attain the desired marketing goals. Marketing tactics are those activities managers employ to influence marketing goal attainment. ● Promotion: Marketing tactics are often communication related, conveying messages and appeals or interacting with members of stakeholder groups. Communication-related activities may include advertising, direct marketing, face-to-face interactions, events, social media, and more. Audience research involves seeking a better understanding of important stakeholder groups that are important to the organization. Stakeholder groups may include the community at large, donors, volunteers, members, prospective clients, public funding agencies, and so forth. Marketers may be interested in developing demographic profiles and behaviors of current members, donors, clients, or volunteers to understand more about the people who are currently supporting the organization or consuming its services so that others who are similar may be targeted for marketing communications. Marketing usually involves cultivating a relationship with potential supporters. Nonprofit organizations first must develop familiarity of their organizations with target audiences. Then they need to foster favorable attitudes for their organizations with target audiences. When target audiences are familiar with an organization and have enduring favorable attitudes about the organization, then target audiences may be approached to provide various types of support to the organization. The way in which this support is manifested may vary depending on the type of organization and its needs. Membership organization may want members. Performing arts organizations may want patrons or season ticket subscribers. Charities want clients as well as donors. Social enterprises want consumers. Most organizations need volunteers. Marketing-oriented organizations desire to retain their supporters by maintaining a relationship with them. Supporter relationships Walter Wymer

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are maintained by a program of regular communications and relationship management practices. Retaining supporters is important because supporter retention is associated with greater commitment and loyalty. In marketing, it is usually considered more difficult and costly to attract a new supporter than to retain an existing supporter. Nonprofit organizations differ by how much they are marketing oriented. A marketing-oriented organization is one that views marketing as an important factor in its survival and growth and emphasizes marketing as a management mindset at all levels of the organization. A marketing-oriented manager is more likely to bring a marketing perspective to many types of organizational problems and solutions. Typically, nonprofit organizations divide their marketing planning into public relations and supporter recruitment/retention. In addition, some methods of branding also are applicable to nonprofits. Public relations refer to making the organization more familiar to target audiences and enhancing the perception of the organization to its target audiences. Public relations requires managing the organization’s online and offline communications activities. Ideally, an organization develops an annual communication plan which contains communication goals and objectives and a program of activities for the attainment of those goals and objectives. Public relations involves regular communication with target audiences, media relations, government relations, and event management. Fundraising is an important marketing activity for many nonprofit organizations. Fundraising activities may be targeted at different donor groups such as prospective new donors, or targeting current donors, foundations, businesses, or government agencies. Donors may be individuals or organizations. Individual donors may be categorized by the amounts they are able to donate, such as big donors, regular donors, or small donors. Nonprofit organizations will usually direct more interpersonal communications toward major donors and organizational donors, like foundations or businesses. Regular or small donors will usually receive a form of mass communication from the organization, such as direct mail or an e-newsletter. Organizations try to retain their donors and deepen their donors’ commitment to the organization over time. One manifestaWalter Wymer

tion of that commitment is planned giving. Planned giving refers to a commitment to make a future donation to the nonprofit organization. Many types of nonprofit organizations, including agencies that serve poor or marginalized populations, rely on fees for service. In some cases, for example, needy clients might be issued government vouchers that they can use to pay for services by any provider of their choice, thus injecting an element of competition into an otherwise collaborative industry. Marketing may be an unfamiliar activity for some nonprofit agencies, but perhaps essential for their survival.

Current and future directions

Charities have traditionally viewed marketing as primarily a means of facilitating fundraising. This is changing as nonprofit leadership has shifted from an administration mindset to a management mindset in leading their organizations. Nonprofit managers are increasingly taking a more active approach to seeking out support rather than passively waiting on support to arrive from the most motivated individuals. Many nonprofit organizations that historically engaged in marketing viewed marketing as a management function. That is, marketing professionals were responsible for communications, promotions, and fundraising. Marketing was considered important but ancillary to mission-driven functions that directly impacted programs and services. Moreover, in some nonprofit organizations there is a lingering misconception and bias that regards marketing as something that is used only by businesses as a tool to drive sales of goods or services and sometimes in aggressive or manipulative ways. They see marketing as something that is at odds with the values and culture of their organization or as an expensive undertaking that diverts resources from direct services to people in need (a zero-sum relationship). Nonprofits are gradually embracing marketing as a means of attracting resource inputs to the organization to help it fulfill its mission and attracting consumers whose lives may be positively impacted by the organization. Marketing, when managed ethically and efficiently, provides markedly greater returns to organizations than the costs of implementing marketing tactics (a win–win relationship).

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A marketing managerial mindset encourages nonprofit managers at all levels of the organization to be more mindful of external stakeholders. No longer is marketing viewed as the exclusive purview of the communications team or the marketing department. Rather, marketing managerial mindset requires everyone in the organization to be mindful of how potential supporters can be identified and targeted with marketing communications, first to make them more familiar with the organization, then to attract them to the organization as supporters, consumers, volunteers, or in some other capacity. Retaining support from individuals and organizations is accomplished through relationship marketing tactics, which involves regular communication and engagement. A current dialogue among scholars and practitioners involves the degree to which commercial marketing concepts and tactics are applicable to nonprofit organizations. Traditional marketing scholarship tended to view marketing from the perspective of a large consumer products company. Some nonprofit managers consequently were skeptical of viewing their supporters as customers and their nonprofit organizations as offering a product. Even today, the literature on nonprofit marketing is still in its infancy. However, the growth of the nonprofit sector over the past 30 years has been accompanied by increased professionalization and commercialization of the field. Consequently, marketing scholarship is developing concepts, tactics, and metrics for use in nonprofit settings that, ironically, are also valid in commercial settings. Another trend in the evolution of nonprofit marketing is the increasing emphasis of nonprofit brand management ideas. What stakeholder groups think of the organization and its reputation is the organization’s brand. Managing the brand involves making target audiences familiar with the organization and progressively communicating the nonprofit organization’s remarkability in comparison with its peers as a means of building a strong nonprofit brand. Walter Wymer

Related topics

Branding and brand strategies Campaign: Annual campaign

Donor retention and stewardship Earned income Fundraising Managerialism Public relations Stakeholder management

Further reading and references

Sargeant, A., Hilton, T., & Wymer, W. (2006). Bequest motives and barriers to giving: The case of direct mail donors. Nonprofit Management and leadership, 17(1), 49–66. https://​dx​.doi​ .org/​ 10.1002/nml.130 Wymer, W. (2013). Deconstructing the brand nomological network. International Review on Public and Nonprofit Marketing, 10(1), 1–12. http://​dx​.doi​.org/​10​.1007/​s12208​-012​-0091​-3 Wymer, W., & Landreth-Grau, S. (2011). Connected causes: Online marketing strategies for nonprofit organizations. Lyceum Books. Wymer, W., & Rundle-Thiele, S. (2016). Supporter loyalty: Conceptualization, measurement, and outcomes. Nonprofit and Voluntary Sector Quarterly, 45(1), 171–191. https://​ doi​ .org/​10​.1177/​0899764014564579 Wymer, W., & Samu, S. (2003). Dimensions of business and nonprofit collaborative relationships. Journal of Nonprofit & Public Sector Marketing, 11(1), 3–22. http://​dx​.doi​.org/​10​ .1300/​J054v11n01​_02 Wymer, W., Becker, A., & Boenigk, S. (2021). An exploratory investigation of the antecedents of charity trust and its influence on volunteering and donating. International Journal of Nonprofit and Voluntary Sector Marketing, 26(2): e1690. https://​doi​.org/​10​.1002/​NVSM​ .1690 Wymer, W., Gross, H., & Helmig, B. (2016). Nonprofit brand strength: What is it? How is it measured? What are its outcomes? VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 27(3), 1448–1471. https://​doi​.org/​10​.​​1007/​s11266​-015​-9641​-8 Wymer, W., Knowles, P., & Gomes, R. (2006). Nonprofit marketing: Marketing management for charitable and nongovernmental organizations. Sage Publications.

Membership associations Definition

A membership association is a formally organized collection of people and/or institutions who coalesce around a common interest or purpose. Quite often membership associKevin P. Kearns

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ations are legally incorporated as nonprofit organizations, but their legal form varies by location and purpose and not all of them are formally incorporated. Often membership associations do not qualify as charitable organizations because they primarily serve the personal or professional interests of their members, not society as a whole. Nonetheless, membership associations hold a special place as one of the oldest and most venerated types of social organizations, having existed in one form or another since humans began organizing themselves for their common good. Membership associations have always been an important source of social capital and a key contributor to civil society. Professional guilds and farmers’ cooperatives are examples of older types of associations but even these are relatively recent forms. In his influential book Bowling Alone, Robert Putnam presented evidence of increasing disconnectedness among Americans, including a decline in certain types of membership associations, and warned of its damaging impact on civil society and democracy (Putnam, 2000). While the book catalyzed a constructive nationwide discussion, some people challenged Putnam’s methods and conclusions. For example, membership in some types of membership associations studied by Putnam may have been in decline, but others evidently have been on the rise. Some data sources suggest relatively stable membership in associations from the 1980s through the early 2000s, which contradicts Putnam’s thesis of declining membership (Smith & Wu, 2020). The number and influence of membership associations varies by country but seems to be related to wealth, population size, gross domestic product (GDP) per capita, average education, extent of democracy, government expenditures, and some other factors that inherently contribute to the creators of social capital of all types.

In practice

Membership associations serve many different purposes. An example of a social purpose association would be a group of citizens who collectively support research, education, and advocacy on water quality in their community. Another type is a professional membership association, like the American Kevin P. Kearns

Medical Association, which is composed of medical professionals, policymakers, and scholars who are united in their quest to enhance public health through medical education and professional practice. Membership in associations can be institutional, individual, or even both. For example, the Network of Schools of Public Policy, Administration, and Affairs (NASPAA) is an association of academic institutions that provide professional training in public service. Some associations, like hobby clubs, serve to advance the recreational or creative interests of their members. Other examples of membership associations are credit unions, parent–teacher associations, alumni associations, service clubs, trade associations, business leagues, and many others. Membership organizations also vary in their organizational form from very loose to highly centralized. Some associations are essentially little more than loose networks of similar organizations who informally agree to collaborate on various issues but are not organized or bound together around a unifying framework. Others take the form of a federation wherein the local organizations pledge to adhere to uniform standards to establish and maintain a strong brand for the association yet retain some autonomy and flexibility to adapt to local needs. More centralized models, adapted from the business sector, include franchises or subsidiaries where the central office holds substantial control over geographically distributed offices. The common element is that associations serve a distinctive purpose of common interest to their members. Moreover, membership in an association is voluntary and generally requires some type of investment of time or money in return for the benefits of membership. Some associations demand certain professional credentials as a requirement of membership.

Challenges and issues in management and governance

As is the case throughout the nonprofit sector, membership associations display some unique characteristics, operate in idiosyncratic environments, and face a plethora of distinctive challenges for managers and governing boards.

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Members: Role, influence, and outcomes Not surprisingly, some people who join membership organizations do so casually and without much commitment to or investment in the association. Others, however, take their membership role very seriously and make every effort to ensure that their voice is heard and that they reap the maximum benefits of their membership. Going to an extreme, there may be power-seeking members who constantly seek to control the agenda and activities of the association, perhaps to benefit their own interests. Then there is the possibility that members will organize among themselves, forming coalitions or temporary alliances, to enhance their influence. If the association covers a large geographic area member interests may vary greatly by region, thus complicating management and governance strategies. These conflicts may play out within the governing board itself if members believe that they represent particular interests or localities. Thus, the management and governing boards of some membership organizations are on a continuous quest to strike a delicate balance in their member engagement strategies by increasing membership, participation, and loyalty of some members, while fending off or responding to the efforts of others to dominate the direction and strategy of the organization. Much of this depends, of course, on the formal power delegated to members by bylaws such as whether members have the right to regularly vote on key issues, such as elections to the governing board. In some associations, membership power is constrained by the bylaws. While collaboration is a unifying theme in this subsector, there are laws to eliminate collusion among association members on issues such as pricing, access to services, and other commercial practices. What benefits do members receive? What motivates them to join an association? There is some research on these questions, but the vast diversity of membership associations makes it nearly impossible to generalize. Many people join associations for professional advancement through knowledge acquisition, credentialing, or networking. Others are seeking ways to catalyze their civic engagement or to strengthen their influence on public affairs. Surely some people join associations simply because it is expected

of them in their professional or social circles. Some studies have shown that members of associations reap derivative benefits such as physical and mental health, improved sense of well-being, and greater trust. Political and social influence Many types of membership organizations exert significant influence over public policy through their educational activities, endorsements, and lobbying for legislation favorable to their members. This is often the invisible hand of policymaking, but occasionally comes under the glare of public scrutiny. Engagement in the policy process carries with it many legal requirements and possible entanglements that demand a more sophisticated level of public accountability quite unique among nonprofit organizations. The U.S. tax code can be used to multiply policy influence on multiple fronts. For example, the National Rifle Association’s umbrella organization is a 501c4 membership association, but it also has several 501c3 charitable organizations to advance its purposes in education, legal defense, and grantmaking. The unsavory side of membership associations involves secret societies or associations organized to promote societal unrest, conflict, hate, conspiracy theories, or violent rejection of prevailing norms or legitimate institutions. Hate groups, for example, exist nearly everywhere and are facilitated in their malevolent aims through increasingly sophisticated use of social media, involving encryption and other evasive strategies as well as carefully deployed misinformation and conspiracy campaigns. Even well-intentioned and socially motivated associations can inadvertently contribute to the fragmentation of society if membership is exclusionary or if a kind of tribal culture develops over time within the association to work against broader social engagement, inclusiveness, and dialogue. Funding and sustainability Membership dues are the predominant funding source for membership associations augmented by income from related activities like publications, regular conferences, special educational or credentialing programs, and perhaps foundation grants or gifts and bequests from individuals. Therefore, Kevin P. Kearns

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membership associations exert a great deal of effort in growing or at least sustaining their membership rolls, a task made more challenging when interest in the association’s mission is not passed from one generation to the next. A changing economy may also create financial pressures. For example, in a tight economy some businesses may scale back their institutional memberships or no longer pay the membership dues for employees or their travel expenses to a conference. Professional mobility and career fluidity may also present challenges to certain types of professional associations. People with transferable skills often migrate from one profession to another while others dip in and out of the workforce in response to life events and choices. The COVID-19 pandemic forced many associations to dramatically alter their normal operational practices, such as in-person conferences, with uncertain long-term consequences.

The future

Even though membership associations are among the oldest types of social institutions, there is still a paucity of research on their formation, organizational structure, management, and governance. This is due in part to the vast array of membership associations. Thus, much of the available research focuses narrowly on specific types, such as credit unions or athletic clubs, without the benefit of generalization to other types (Hager, 2014; Tschirhart & Gazley, 2014). The management and governance challenges discussed above will continue to play a role and other opportunities and threats will surely arise from technological change, geopolitical developments, and other dynamics. But it is safe to say that, like our ancestors, people will continue to join in some type of organized format to pursue common interests, advance shared goals, and to reap derivative benefits that come from membership in any endeavor requiring concerted human effort. Kevin P. Kearns

Related topics

Civil society Collaboration strategies Commons Co-production Alicia C. Bunger and Thomas K. Gregoire

Federation Social capital Voluntarism

Further reading and references

Atterberry, T. (2018). Encyclopedia of associations: International organizations (3 vols, 57th edn.). Gale Research. Hager, M. A. (2014). Engagement motivations in professional associations. Nonprofit and Voluntary Sector Quarterly,  43(2_ suppl), 39S–60S.  https://​doi​.org/​10​.1177/​ 0899764013502582 Knoke, D. (1990). Organizing for collective action. Aldine de Gruyter. Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community. Simon & Schuster. Smith, D. H., & Wu, X. (2020). Membership and membership associations. In R. List, H. Anheier, & S. Toepler (Eds.), International encyclopedia of civil society. Springer. https://​ doi​.org/​10​.1007/​978​-3​-319​-99675​-2​_562​-1 Smith, D. H., Stebbins, R. A., & Grotz, J. (Eds.) (2016). Palgrave handbook of volunteering, civic participation, and nonprofit associations (2 vols). Palgrave Macmillan. Tschirhart, M. (2020) Association and membership management. In H. Anheier & S. Toepler (Eds.), The Routledge companion to nonprofit management (1st edn., pp. 301–314). Routledge. Tschirhart, M., & Gazley, B. (2014). Advancing scholarship on membership associations: New research and next steps. Nonprofit and Voluntary Sector Quarterly, 43(2_suppl), 3S–17S. https://​ doi​.org/​10​.1177/​0899764013517052

Mental health organizations Definitions of key terms and concepts

Mental health organizations improve mental health symptoms, functioning, and overall well-being by delivering mental health treatment and services to people with mental health concerns. Typically, specialized mental health services include therapy, medication, crisis-intervention, case management, and other supports. Recognizing that mental health and substance use disorders (SUD) often co-occur, some mental health

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organizations also deliver SUD treatment. These organizations include psychiatric hospitals and residential treatment centers that provide around-the-clock care; day treatment or partial hospitalization facilities; and community-based clinics that deliver outpatient care. Mental health organizations could be considered distinct from private practices with one or a few independent clinicians that deliver outpatient care, and from mental health advocacy organizations that seek to improve mental health via public education, policy advocacy, or regional coordination.

In practice: Reliance on non-profit organizations to deliver mental health care

State-run institutions (e.g., psychiatric institutions, asylums) emerged formally in the mid-nineteenth century to treat those with mental illness. The next several decades saw advancements in pharmacological, psychological, and rehabilitative therapies that could be delivered outside of institutions. This, along with concerns about human rights for those in public institutions led to a worldwide deinstitutionalization movement in the 1950s and 1960s. Mental health treatment moved to less-restrictive community-based settings for all but the highest acuity patients. This resulted in a proliferation of community-based mental health organizations. Although some public institutions and centers remain, many mental health service organizations are private non-profits with private for-profits increasing in some countries.

Current management issues and challenges Financial complexity Mental health organizations rely on diverse revenue sources including contracts with public and private insurance companies, grants, charitable donations, and direct client fees. Each source can vary in terms of rates, limitations, and requirements which can be challenging to manage. A common criticism of the deinstitutionalization movement was that funding did not follow the client into the community at a sufficient level, and reimbursement rates often fail to cover the full cost of treatment. Consequently, mental

health organizations tend to operate on slim margins limiting their ability to generate assets for growth and long-term survival. Managing institutional pressures Mental health organizations experience strong legislative, regulatory, peer, and normative pressures. These expectations and beliefs tend to be inconsistent creating fragmented institutional environments. For instance, professional expectations to preserve clients’ self-determination/autonomy must be balanced with social expectations for public safety when involuntary treatment is indicated. Or, for mental health organizations that also provide SUD treatment, leaders must balance different client eligibility, staffing, treatment, and accreditation requirements across the two domains. Mental health organizations often work to comply with conflicting pressures to maintain legitimacy in multiple environments. This results in role and value conflicts which can be challenging to manage. Accessibility Many who seek treatment are unaware of the mental health organizations in their community, or how to connect with them. Stigma surrounding mental illness, language barriers, costs, and poor insurance coverage also limits access. Accessibility issues are compounded by poor availability – limited numbers of mental health providers, few available inpatient beds, and long wait times for services are common and these gaps are pronounced within rural and low-income communities, communities of color, those with diverse gender identities, and individuals in the criminal justice system. Integrating mental health care is one strategy for increasing access. Here medical and mental health care are provided in a collaborative and interdisciplinary way in the same setting. These “whole-health” or “whole-person” models have the potential for easing access to mental health care and reducing stigma. The deployment of community outreach and crisis response teams have the potential to bring services closer to the client and promote early engagement with treatment services during crisis intervention. Some organizations have engaged in collaborations with K-12 school systems recognizing this as an important context for early Alicia C. Bunger and Thomas K. Gregoire

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intervention and engagement with families. Peer led support groups have an important role in both early intervention and long-term recovery. Organizations that establish close collaborative relationships with this community broaden their capacity to service clients across a life cycle of recovery. Collaboration Mental health organizations frequently specialize in serving a particular population or treatment type. However, those with mental health concerns frequently have complex needs that evolve and extend beyond the capacity of a single organization. For instance, as an individual’s symptoms and functioning improve with intensive inpatient treatment, they might need a less intensive form of treatment (outpatient treatment). Therefore, collaboration with other mental health and SUD treatment organizations is essential for delivering comprehensive care. Considering how these organizations also compete with one another for similar financial and staffing resources, developing trust-based relationships can help mental health organizations collaborate effectively with an array of other organizations to provide accessible and comprehensive care for their clients. Quality Although effective psychosocial and pharmacological treatments exist, mental health care quality remains poor. Consequently, the field has begun to emphasize accountability, evidence-based interventions, and outcome evaluation. However, there is no universally accepted definition or measure of quality. Funders may view quality as the reduction in subsequent service use, public officials may value reduced engagement with law enforcement and the correctional system. Consumers likely seek alleviation of symptoms and improved quality of life. Measures of quality, if they exist, are rarely readily available to the consumer, rendering the construct of quality in consumer decision-making as anecdotal at best. To demonstrate quality and organizational impact to different constituencies, leaders must also build organizational infrastructure, professional training, and other supports. Alternative financing is likely needed to support this infrastructure though since public and private support for mental Alicia C. Bunger and Thomas K. Gregoire

health organizations is often limited to the direct funding for services.

The Future – Considerations for nonprofit mental health organizations

Nonprofit mental health organizational leaders will need to manage several emerging trends. First, the demand for mental health care has grown as a result of the protracted addiction and opioid crises, and the COVID-19 pandemic which heightened anxiety, isolation, and other mental health issues. Stronger demands uncovered gaps in the continuum of care and suggest the potential need for organizational growth or entrants, particularly those that provide acute care, or long-term recovery and prevention services. Second, with evolving evidence about treatment effectiveness, mental health organizations must adapt by implementing new and de-implementing outdated approaches. Research continues to advance new pharmacological and psychosocial treatments (e.g., psychedelic-assisted psychotherapy), as well as effective approaches to supporting long-term community-based care (considering the episodic nature of mental illness). Strong and nimble change skills will be important for mental health organizational leaders. Third, worldwide staffing shortages contribute to poor accessibility and availability, heightens worker turnover and competition among mental health organizations, and limits organizational growth. Especially recently, there has been a rise in peer support services worldwide. Peer supporters are individuals with lived experience with mental illness or substance use disorders who provide mutual aid and encouragement. While not intended to supplant primary treatment, peer supporters help address stigma associated with seeking care, and emphasize strategies for long-term recovery. Training requirements, professional certifications, and financing for peer support positions in some locations have supported the addition of these positions in mental health organizations. In fact, these advancements have dovetailed with the growing Recovery Community Organization movement which involves grassroots peer-led organizations established to respond

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to gaps in the support of long-term recovery. These staffing trends and pressures require special attention to wages, supports, supervision, work conditions, and culture/climate in mental health organizations. Proposals to reduce the educational qualifications for practitioners are an occasionally proposed remedy for staffing shortages. Reducing the qualifications of practitioners who treat such a vulnerable population is a troubling solution. Fourth, long-term survival is a concern. Financial complexities, thin margins, and changing payment models could threaten organizations without evaluation or quality infrastructure (smaller organizations). There is also the potential for heightened competition from alternative mental health providers, including venture-capital backed for-profit start-ups providing app-based care. These trends have potential to threaten long-term organizational viability or lead to consolidation (via mergers and acquisitions). Alicia C. Bunger and Thomas K. Gregoire

Related topics

Effectiveness of nonprofit organizations Human service organizations Public policy and nonprofit organizations Resilience management

Journal, 34(3), 636–661. https://​doi​.org/​10​ .5465/​256409 Kilbourne, A. M., Beck, K., Spaeth-Rublee, B., Ramanuj, P., O’Brien, R. W., Tomoyasu, N., & Pincus, H. A. (2018). Measuring and improving the quality of mental health care: A global perspective. World Psychiatry, 17(1), 30–38. https://​doi​.org/​10​.1002/​wps​.20482 Shah, R. N., & Berry, O. O. (2021). The rise of venture capital investing in mental health. JAMA Psychiatry, 78(4), 351. https://​doi​.org/​10​ .1001/​jamapsychiatry​.2020​.2847 Shalaby, R. A., & Agyapong, V. I. (2020). Peer support in mental health: Literature review. JMIR Mental Health, 7(6), e15572. https://​doi​ .org/​10​.2196/​15572

Mergers and acquisitions Definition

A merger is a legal partnership where two or more organizations (corporations) dissolve and form a new legal entity. An acquisition is a type of merger, where one organization (corporation) legally acquires another organization. Typically, in an acquisition one corporation legally dissolves and merges into the other corporation.

Context

There are many motivations for nonprofit organizations to merge, and common reasons Ashford, R. D., Brown, A., Canode, B., Sledd, A., Potter, J. S., & Bergman, B. G. (2021). include financial viability, strengthening Peer-based recovery support services deliv- mission, and/or organizational efficiency. ered at recovery community organizations: Leaders can be proactive or reactive in the Predictors of improvements in individual process. Proactive leaders have a strategy to recovery capital. Addictive Behaviors, 119, 1–9. strengthen their mission, and a merger is one https://​doi​.org/​10​.1016/​j​.addbeh​.2021​.106945 strategy to stay relevant. They explore opporBunger, A. C., Choi, M. S., MacDowell, H., tunities to enhance service quality, reduce & Gregoire, T. (2021). Competition among duplication, and/or increase scale of service. mental health organizations: Environmental Reactive leaders do not have the time to find drivers and strategic responses. Administration and Policy in Mental Health and Mental Health suitable partners and find that few choices Services Research, 48(3), 393–407. https://​doi​ are available. They merge to survive. These mergers tend to result from financial insta.org/​10​.1007/​s10488​-020​-01079​-2 D’Aunno, T., Sutton, R. I., & Price, R. H. (1991). bility, program failure, or lack of effective Isomorphism and external support in conflict- leadership. ing institutional environments: A study of drug Boards are responsible for governing in abuse treatment units. Academy of Management three main areas: leading strategy, assuring fiscal viability, and overseeing the CEO. It is usually the board of directors that initiates and oversees the merger process.

Further reading and references

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In practice Premerger investigation stage The board initiates the first step in considering a merger, sometimes on the advice of the CEO. Often there is an opportunity internally (the CEO resigns) or externally (a mission-aligned organization is failing). Regardless of the impetus, the board formally decides to explore potential partnerships. This first step involves an understanding of organizational strengths and weaknesses. This exploration is about facts, evidence, benefits, and risk. Questions to consider in this stage include: ● Do we have to merge to effectively realize our mission? ● Are we in a strength position (consider program, finances, and reputation)? ● What are the benefits of a merger for our organization, and do we bring value to another entity? ● How will stakeholders (employees, donors, clients) react? After this initial internal review, the next step is to vet potential partners to explore feasibility. There may be a known partner that strengthens the organization’s mission. If not, the organization can publish a request for proposal (RFP) seeking interested parties. Once a partner seems viable and interested, a good faith agreement describing the process is signed, and due diligence begins. Due diligence is the process of scrutinizing assets and liabilities. In this stage, each organization investigates the financial, legal, programmatic, reputational, and other areas that contribute to the overall health of an organization. Topics to review include: ● Governance (documents of incorporation, bylaws, board/committee lists, meeting minutes) ● Legal (litigation, collective bargaining contracts, letters of intent) ● Financial (audits, fundraising records, grants, financial statements, investments) ● Policies (board policies, human resources, benefits) ● Physical assets and related documentation (titles, liens, zoning, leases, liabilities) ● Regulatory (program audits, physical plant, licensures, service contracts) Theresa Ricke-Kiely

● Tax (990s, tax returns, IRS communications) ● Other (strategic plans, climate surveys, diversity and inclusion data, exit interviews, client surveys, client/employee/ board retention data, press coverage, ratings) Additional information that may not be contained in these documents may be investigated. Typically, each organization hires independent professionals (i.e., attorney, accountant) to review documents and submit an opinion of risk. Additionally, board or staff committees may analyze programmatic or reputational areas. Implementation stage When both (or all in the case that there are more than two) organizations agree to move forward with a merger or acquisition, a formal agreement is generated that delineates terms such as timeline, headquarters location, organizational name, leadership structure, financial (assets and liabilities) transfers, organizational dissolution, or incorporation paperwork. In addition, an attorney is advised to assure local, state, and federal laws and regulations are in compliance. The technical components of implementation are typically straightforward. The more complex part of the implementation is working with the board, staff, donors, and clients to co-create the new organization. Once the board votes to merge, the board and executive leadership must show unwavering support for the partnership. Leaders need to communicate a convincing reason to merge and share a compelling vision of the future. A conservative timeline with developmental milestones offers stakeholders an understanding of the process. Staff, clients, and others will need to know how the change affects them. Having transparent, authentic, and timely communication provides equitable information for all parties, which helps develop trust. The human element of change is a challenge, and much of the conflict happens during this stage. Effectively communicating while managing fear is essential during this phase. Dissatisfaction or anxiety that often emerges during implementation can disrupt the timeline and slow the process. If leadership does not address concerns, anxiety and distrust can escalate throughout

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the organization, impacting productivity and retention. Hiring a facilitator with change management experience can guide the implementation. Ideally, this is a consultant who does not have an interest or a conflict in either organization. As a result, the facilitator can provide a smoother transition by assuring ongoing communication, conflict mediation, and resolving concerns when co-creating the new organization. In addition, the facilitator often works with committees (consisting of board and staff from both organizations) that focus on revising or reimagining specific areas of the organization. The natural progression of the merger will require a reorganization of staff. Many people do not handle ambiguity well and will want to know their place in the new organization. Early retirement, generous severance packages, and attrition allow for staff opportunities and promotions. Many staff become concerned with job security and will explore their risks and benefits with a merger. They will have questions that will revolve around their value, including compensation, job security, and the chain of command. People may feel grief through losing organizational identity, a change in job responsibilities, a new supervisor, and feeling loss of friends or colleagues. Having a stable, transparent plan alleviates the fear of a merger and helps with overall employee morale. Often changes can be handled more effectively with incentives. Offering people a chance to contribute can be incentive enough but offering small rewards for early adopters can be very valuable in supporting culture change. For example, employees who buy in early may be formally and informally recognized for their support. Some may even be invited to be part of the leadership transition. Assuring clarity in expectation and sharing updated information can assist with mitigating alternate narratives, which are not helpful in the health of the new corporation. As staff are learning about their new organization, the board must also be prepared to be restructured. The same concerns and conflicts that concern staff also can be expected in the board. There are power dynamics, systems, and supervisory oversight that can mitigate issues that arise with staff. However, with board volunteers, the expectations may not

be apparent, leadership may not be informed, or there may be competition for governing seats. Additionally, if there was no consensus to merge, unresolved issues could still wreak havoc. At some point, the governing board will hire or appoint a new CEO. This person will need to work with the staff and the board and have a strategy for successfully blending the cultures. The leader needs to show respect to both organizations, and this is especially true if this is a leader who led one of the former organizations. When two executives are vying for the top position, there needs to be a plan for the person who does not get the job. If that person does not support the administration, a buyout may be the better option. As the technical paperwork and management systems are operationalized, milestones are achieved, celebrations and gratitude help cement the change. By this time, months or even years have gone by, and internal and external stakeholders need closure. Although this seems like the end, and legally this may be so, the new organization still needs to be managed. Post-merger stabilization The leader of the newly minted organization has many duties post-merger and needs to support both board and staff to realize the mission. Technically the merger is over; however, the organization is still vulnerable. Staff and board may still hold uncertainties and the new organization is still responsible for serving the community. This is not the time to stop communicating and addressing the concerns of staff and the community. Incentives to continue assimilation are still needed. Developing a team and trust may take years and should be a priority to the board and executive leadership. Employee satisfaction and organizational commitment need to be closely monitored. Any missteps during implementation may not provide confidence in the new organization, and the merger could still fail. In cooperation with the CEO, the board is still responsible for having a solid strategy supporting the organizational mission and vision and ensuring fiscal health. The CEO is also responsible for managing and motivating the new team, delivering quality services, and assuring fiscal viability. Creating a healthy Theresa Ricke-Kiely

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culture in the new organization can take many months and even years.

Current issues and challenges

A merger takes energy, time, and many resources, and these reserves deplete quickly once the process begins. Therefore, leadership needs to be prepared to address emotional, financial, and political issues throughout the entire process. Funders as catalysts: Funders and regulators understand the dearth of resources – both human and financial – available to nonprofits. Many communities have multiple nonprofits serving the same mission resulting in diminished resources. As such, funders often encourage entities to merge. Collaboration before merging: Finding alignment with another organization to merge is not easy. If an organization is proactively seeking a merger, it may take time to find the right partner. Moving quickly through the courting stage because of mission alignment may still end in disaster. It may be beneficial to begin with a formal, time-limited partnership where back-office resources (e.g., human resources, communications, finance) are shared before jumping into a full-fledged merger. These partnerships are attractive to save money, find mission alignment and are often the first step in merger exploration. Stakeholder analysis: Other nonprofit stakeholders may provide support if managed successfully from the beginning and are often overlooked. For example, volunteers and donors can support the change or create obstacles, and engaging them early in the process may be beneficial. Leadership is crucial: Leading through change is not easy. The leader must have both abstract and conceptual leadership skills and ensure that the details are managed and managed well. Pursuing diversity: Nonprofits are often criticized for their lack of diversity in board and executive leadership. The new entity can be more inclusive in the redesign of the organizational chart, especially in their board, CEO, and supervisory appointments. Diversity, equity, and inclusion matter, and a merger is an opportunity to address this real concern. Institutionalizing the change: Integrating teams throughout a merger is a challenge. Theresa Ricke-Kiely

It can take years for employees to feel that they are part of a cohesive team. Cultures die slowly, and an exclusive top-down approach does not effectively build a new culture. Leadership must be patient and be willing to listen deeply and respond to concerns. Trust is slow to gain momentum, and fear moves quickly. Stabilizing a new organization can take years. Business models may not apply: At times, nonprofits feel they have to mimic business strategies. In business, mergers gain market share, expanding to new territories, and increase profit margins for shareholders. In the third sector, it must be centered on the quality of mission realization for the people served.

Future trends and considerations

There are economic realities for nonprofits. Many organizations will likely encounter recession, scarcity of resources, increased competition, and even global pandemics. Nonprofits must remain nimble, relevant, and mission-centric during the best and worst of conditions. Ideally, mergers occur between two strong organizations that better serve the community by the synergy of their missions and combination of resources. However, many mediocre and underperforming nonprofits are using up scarce human and financial resources. Successful nonprofits proactively consider mergers, acquisitions, and partnerships while they are healthy and robust. Donors and funders often finance exploratory partnerships and mergers, and this is likely to continue. Mergers are not inexpensive, and having a thoughtful and financial partner to strengthen or expand the mission may be helpful. Smaller or weaker nonprofits that do not diversify services and revenue streams will continue to struggle and be forced to be reactive. They may have no choice but to be acquired in order to survive. Theresa Ricke-Kiely

Related topics

Collaboration strategies Growth strategies Industry analysis Lifecycles of nonprofit organizations Retrenchment strategies Strategic analysis: SWOT

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Further reading and references

Compared to conventional finance, microfinance exhibits some methodological Chen, B., & Krauskopf, J. (2012). Integrated or disconnected? Examining formal and informal specificities. First, in terms of credit, microfnetworks in a merged nonprofit organization. inance institutions (MFIs) offer standardized Nonprofit Management and Leadership, 23(3), products with short maturity and a frequent 325–345. https://​doi​.org/​10​.1002/​nml​.21063 reimbursement schedule. The geographical Cooper, K. R., & Maktoufi, R. (2019). Identity and cultural proximity between MFIs and and integration: The roles of relationship and their clients is also one of the main differretention in nonprofit mergers. Nonprofit ences with conventional finance. Regarding Management and Leadership, 30(2), 299–319. monitoring and enforcement activities, MFIs https://​doi​-org​.ezproxy​.stthomas​.edu/​10​.1002/​ typically use progressive lending (a borrower nml​.21382 George, C. G., & Stinebrickner-Kauffman, T. should have reimbursed his/her credit before S.-K. (2021). Nonprofit mergers and acquisi- obtaining credit of a higher amount), joint tions: Not just an escape plan. Stanford Social liability in group lending (the outstanding Innovation Review. https://​ssir​.org/​articles/​ amount has to be reimbursed by all members entry/​nonprofit​_mergers​_and​_acquisitions​_not​ when a group member does not reimburse _just​_an​_escape​_plan his/her loan), and home visits by the credit Haider, D., Cooper, K., & Maktoufi, R. officer. Then, in terms of savings, the priority (2016). Mergers as a strategy for success. 2016 report from the Metropolitan Chicago is given to accessibility and security. Historically, MFIs were part of the nonNonprofit Merger Research Project. https://​ profit sector as most of the organizations that chicagonpmergerstudy​.org/​ La Piana, D. (2000). The nonprofit mergers work- started them in the mid-1970s were combook: The leader’s guide to considering, nego- mitted to poverty alleviation and thus first tiating, and executing a merger. Amherst H. and foremost motivated by the social impact Wilder Foundation. of their actions. Many of these MFIs were McLaughlin, T. A. (2010). Nonprofit mergers and registered as NGOs. They aimed at providing alliances (2nd edn.). Wiley. financial means to people who were too often Proulx, K. E., Hager, M. A., & Klein, K. C. (2014). Models of collaboration between exploited by informal moneylenders and/ nonprofit organizations. International Journal or rejected by formal financial institutions. of Productivity and Performance Management. Famous early examples of this trend are 63(6), 746-765.  https://​doi​.org/​10​.1108/​IJPPM​ Grameen Bank founded by the 2006 Nobel Peace Prize Laureate Muhammad Yunus, -06​-2013​-0121 ASA (Association for Social Advancement) and BRAC (Building Resources Across Communities) in Bangladesh, Bancosol in Bolivia, and K-Rep in Kenya.

Microfinance

Definition and historical background

Issues and challenges

Microfinance is the provision of financial services to people who do not have access to the classical banking system. It covers a wide range of services including mainly credit and savings and to a lesser extent, money transfers and insurance or other financial services. It is mostly provided by specifically designed organizations or programs including a wide variety of actors such as nongovernmental organizations (NGOs), savings and credit cooperatives, non-bank financial institutions, banks, or specific fintech (financial technology).

Originally, the objective was to finance microentrepreneurs’ efforts to develop income-generating activities. However, in many cases, the demands were much more diverse and the industry rapidly moved from its original focus of providing microcredit to microentrepreneurs to much more variety in terms of services as well as in terms of needs attended; this gave birth to the word “microfinance” and later to the even broader concept of “financial inclusion.” Indeed, when it appeared that the demand for relevant financial services could be extremely important, financial exclusion being highly present in developing countries (and to a lesser extent in richer economies), MFIs were pushed to adapt their structures

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and procedures in order to grow faster and to become financially viable. Some organizations did meet these objectives and showed that it was possible to provide some microfinance services to poor (not the poorest) people while adopting a commercially sustainable approach. However, most MFIs required strong support of donors which provided the necessary subsidies to reach a poorer target but also with greater capacity and professionalism needed to be competitive in global markets. At that stage, the hope that microfinance could meet the promise of being truly double bottom line – pursuing a social mission while being financially sustainable – seemed reachable. However, it is also the time when the main dilemma of microfinance appeared. On the one hand, the original success was replicated all around the world leading to the establishment of a true industry with its own environment: microfinance institutions/organizations of course but also specific rating agencies, new microfinance investment vehicles (MIVs), and the emergence of specific professional networks. On the other hand, numerous scholars started to highlight the possible trade-off between social and financial objectives of MFIs and some criticisms emerged or were amplified, questioning the true potential and impact of microfinance and the way it was implemented by some actors of this new industry. For example, some MFIs were criticized for charging excessive microcredit interest rates, held responsible for pushing some clients into over-indebtedness and denounced for their abusive enforcement techniques for ensuring repayment. That is where the dilemmas that are fundamental in nonprofit and/or social enterprises became ever more obvious. To what extent is it possible to give similar attention to social and financial objectives? In microfinance, organizations have often experienced what is called “mission-drift,” giving more attention to their financial results than to their social ones, which often reflects in a change of the target clientele towards less poor customers. This trend was exacerbated with the commercialization of the industry. In some cases, MFIs founded under the NGO status even transformed themselves into regulated banks and shifted to more commercial sources of financing. Naturally this led to criticisms as the direct social impact of microfinance

proved to be less than what had been advertised in the first place. However, this is of course not the end of the story as financial inclusion remains a major challenge worldwide and MFIs have beyond any doubt contributed and still contribute to improve this inclusion. Many challenges remain but a lot has been learned over the last 40 years.

Current and future directions

Right now, the microfinance industry is at a crossroad. It has matured and keeps developing. It has mastered some procedures and practices and has evolved to include a huge variety of organizations. But at the same time, it has shown that it experiences many more limitations than what was originally believed. The question for the industry is to clearly identify the patterns it intends to follow for the future. Presently, the industry knows how to finance properly working capital and small assets in a very standardized way. Some prominent management and governance issues have also been identified for all types of MFIs with a clear understanding of the major challenges, such as board composition, staff incentives, and recruitment policy. From a financial management perspective, on the assets side, the key issue is clearly to maintain a sound loan portfolio at a reasonable price, taking into consideration the (usually relatively high) operational costs as well as the necessity to provision properly for non-performing loans. On the liabilities side, the key issue is to maintain enough capital to protect the organizations against any potential deterioration of the portfolio and to be sure that liquidity will always be there, particularly for poor savers who may need their savings at any time. At the same time, the industry of microfinance has yet to identify how to provide services in a way and at a cost that could better contribute to improve the situation of their beneficiaries. This means that what the industry must achieve is to better meet the needs of people by being more flexible but also less costly. This will probably come with much more reasonable profit targets than what is often observed. Mobile banking, which has been developing for the last ten years, could be part of the solution as it allows more flexibility while reducing some of the transaction

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costs that the organizations and the clients must bear. Another challenge that is ahead for the industry is the necessity to include a third bottom line of environmental performance in its vision. A few organizations have already done so through the provision of credits for investments in renewable energy, of insurances for covering climate related risks, but also of non-financial services related to environmental issues such as trainings and technical assistances for encouraging the adoption of environmentally sustainable practices. Others have also started to include the environmental dimension in their mission statement and in their daily processes. Nevertheless, even if the issue is increasingly discussed in the microfinance sector, it is still at a very preliminary stage. Since the very poor tend to be very vulnerable on environmental issues, the challenge is to increase the environmental performance of MFIs while remaining very inclusive socially. As being truly double bottom line has already proven to be difficult, the challenge to become “triple bottom line” should certainly not be underestimated. Cécile Godfroid, Marek Hudon and Marc Labie

Related topics

Financing nonprofit organizations Mission statement Nongovernmental organizations Social change and nonprofit organizations Social economy

Further reading and references

Allet, M., & Hudon, M. (2015). Green microfinance: Characteristics of microfinance institutions involved in environmental management. Journal of Business Ethics, 126(3), 395–414. https://​doi​.org/​10​.1007/​s10551​-013​-1942​-5 Armendariz, B., & Labie M. (Eds.) (2011). The handbook of microfinance. World Scientific and Imperial College Press. Armendariz, B., & Morduch, J. (2010). The economics of microfinance. MIT Press. Hudon, M., Labie, M., & Szafarz, A. (Eds.) (2019). A research agenda for financial inclusion and microfinance. Edward Elgar Publishing. Ledgerwood, J. (2013). The new microfinance handbook: A financial market system perspective. World Bank. Morduch, J. (1999). The microfinance promise. Journal of Economic Literature, 37(4),

1569–1614. www​.aeaweb​.org/​articles​?id​=​10​ .1257/​jel​.37​.4​.1569. Accessed 15 September 2023.

Millennial generation’s civic engagement Definition

Millennials, also known as Generation Y, generally refer to individuals born between 1981 and 1996. They are the largest segment of the adult population of the U.S., outnumbering Baby Boomers. As the largest generational cohort, millennials exercise significant influence on the national and global economy. They are also critical stakeholders of nonprofits as clients, donors, and volunteers. The millennial generation’s potential contribution to the nonprofit sector makes understanding millennials’ motivations for and patterns of civic participation a top priority for nonprofit managers and researchers alike.

Context

Generational theory posits that generational location bounds individuals to unique experiences in their formative years and predisposes them to specific societal views. For instance, the Baby Boomer generation, born between 1946 and 1964, is generally characterized by the values of interdependence, consensus decision-making, and collaboration. This so-called “long civic generation” has experienced a series of critical events, including the Civil Rights Movement and the Vietnam War, and has been actively engaged in civic organizations from an early age (Jennings & Stolker, 2004). The next generational cohort, the X generation, consists of individuals born between 1965 and 1980. Unlike the Boomer generation, the X generation has not undergone the formative and transformative historical conditioning. Instead, Gen Xers’ formative years are characterized by higher economic and social uncertainties, contributing to their lack of faith in political and economic promises (Lissitsa & Laor, 2021). Succeeding the X generation, the millennial generation has experienced significant global political changes and policies conYoung-joo Lee

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cerning responses to terrorism, the Great Regression, and climate change. Compared with their predecessors, millennials are also much more racially and ethnically diverse. Another factor that distinguishes the millennial generation from the Boomers and Gen Xers is that millennials have been surrounded by and immersed in informational technology since birth, and internet-based communication and social media are essential parts of their lives (Lissitsa & Laor, 2021). Informational technology has enabled millennials to have a sense of global connection, affecting various behaviors and shaping their lifestyle, including civic engagement.

In practice

Civic engagement involves a broad spectrum of activities that link individuals to others in the community and contribute to society. Many community and civic engagement activities involve working with nonprofit organizations, and these organizations rely on various civic engagement activities for operation, in such forms of volunteering and monetary donation. The distinctive experiences of different generational cohorts have resulted in unique patterns of civic engagement behaviors across generations. Understanding these unique patterns will enable nonprofit organizations to better engage their stakeholders. In particular, the knowledge of millennials’ civic engagement motivations and behaviors will allow nonprofit organizations to utilize what this largest living generation can offer. One demoralizing fact about millennials’ civic engagement is that this generation generally appears less generous and exhibits fewer engagement behaviors than older generations. Research reports that millennials have less concern for others and a lower level of trust in other people, and consequently, they are less likely to be involved in civic engagement than the Boomers and Gen Xers (Smith et al., 2011; Twenge, 2014). According to the report by Corporation for National and Community Service (2018), 26.1 percent of millennials volunteered in 2017, while 36.4 percent of Gen Xers and 30.7 percent of Boomers did. Among all types of civic engagement behaviors, a notable decrease in participation in religious associational activities has coincided with the emergence of the millennial generation. Surveys show that millennials Young-joo Lee

are less likely to attend religious services and identify themselves with a particular religious affiliation (Gay et al., 2015). Traditionally, religious organizations have received the largest share of private philanthropic donations and volunteering in the U.S. (Giving USA, 2018). However, the lower level of religiosity and decreasing involvement in religious organizations among the millennial generation suggests that these organizations may no longer be able to receive the same level of support as the millennial generation has emerged as the largest living cohort. This also implies that religious organizations need new and innovative approaches of engaging the millennial generation and eliciting their support. On the positive side, even though millennials are less likely to be involved in civic engagement in general, they are more active in certain activities than older generations. National surveys show that millennials are often more likely to donate to charities than the Boomer and X generations (Fidelity Charitable, 2021). Millennials are also active in social movements addressing the issues of climate change, equity, and antidiscrimination (Tyson et al., 2021). In the U.S., millennials have been on the frontline of such civic movements as the March for Our Lives, Occupy, and Black Lives Matter. As the most racially and ethnically diverse generation, millennials will continue to contribute to diversity, equity, and inclusion (DEI) causes. This suggests that nonprofit organizations addressing such social issues can take advantage of what this generation can offer. In addition to the differences in activities preferred by millennials, research finds a significant difference in how different generations get and stay engaged in civic engagement activities. National surveys report millennials are more actively involved in personalized civic engagement activities occurring in the online context than older generations (Cho et al., 2020; Rebori, 2019). Today, civic engagement not only consists of traditional face-to-face activities, but it also encompasses a wide range of online activities, including distributing and signing virtual petitions, online fundraising, virtual mentoring, and online protesting. Social media, the prevailing tool of choice for millennials, is the new civic square that supports this generation’s engagement in social issues. Compared with older generations, more millennials give

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online than offline, using a charity’s website, a third-party website, or social media platforms (Lee 2020). Millennials’ widespread online civic engagement activities suggest that nonprofit organizations should develop online involvement tools that can attract and accommodate this digital generation.

Current and future directions

Understanding the motivational and behavioral characteristics of different generations will help nonprofits engage diverse populations and elicit their support. Millennials have emerged as crucial contributors to the sector, and organizations must engage them as stakeholders and leverage their support by studying what activities, venues and causes would attract millennial donors and volunteers. In addition, given that millennials are more racially and ethnically diverse than the Boomers and Gen Xers, developing DEI strategies should be a top organizational priority. DEI is not only important as organizational values, but embracing DEI also has a direct link to organizational outcomes and performance, and ultimately, to the sector’s contribution to public interests (Lee, 2021). In addition, nonprofit organizations must be prepared to utilize new technologies which have changed the way people are involved in civic engagement. Millennials are more technically savvy and use more online platforms for their civic engagement than their predecessors. Hence, understanding the unique characteristics of various online platforms will allow nonprofits to engage this generation better. There are many online platforms, and it is critical for nonprofit managers to identify the best platforms for different purposes, develop online communication strategies, and monitor the platform performance for improvement. The increasing popularity of online forms of civic engagement among millennials and younger generations has raised questions and concerns. The most important question perhaps is how nonprofits can encourage people who are involved online to also engage in behaviors supporting the organization, including donations and volunteering. A major goal in online stakeholder management, in this sense, is to ensure that online involvement does not stay as slacktivism – feel-good online activities that are driven

by impression management and social desirability and make little meaningful social or political impact. In other words, nonprofit organizations must find ways to motivate their online followers to donate to and volunteer with them. The new challenges imposed by the evolution of information and communication technology suggest that nonprofits should evolve as their environment changes. It is projected that the millennial population will continue to increase for the next decade (Fry, 2020). After that, Generation Z, consisting of individuals born after 1996, will become the major national and global economic players. Like all other generations, Gen Zers’ unique experiences in their formative years will result in distinct patterns of behaviors, which in turn, will affect the nonprofit sector in a unique way. Nonprofit organizations must be ready to adapt to the demographic changes in order to stay sustainable and achieve their mission more effectively. Young-joo Lee

Related topics

Civil society ePhilanthropy Social change and nonprofit organizations Technology and social media Voluntarism

Further reading and references

Cho, A., Byrne, J., & Pelter, Z. (2020). Digital civic engagement by young people. UNICEF Offices of Global Insight and Policy. www​ .unicef​.org/​media/​72436/​file/​Digital​-civic​ -engagement​-by​-young​-people​-2020​_4​.pdf. Accessed 15 September 2023. Corporation for National and Community Service. (2018). Volunteering in America: Demographics. https://​americorps​.gov/​sites/​ default/​files/​document/​Volunteering​_in​ _America​_Demographics​_508​.pdf. Accessed 15 September 2023. Fidelity Charitable. (2021). Entrepreneurs’ philanthropy across generational divides. www​ .fidelitycharitable​.org/​articles/​entrepreneurs​ -philanthropy​-across​-generational​-divides​ .html. Accessed 15 September 2023. Fry, R. (2020). Millennials take over baby boomers as America’s largest generation. Pew Research Center. www​.pewresearch​.org/​fact​-tank/​2020/​ 04/​28/​millennials​-overtake​-baby​-boomers​-as​

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Mission and economics

-americas​-largest​-generation/​. Accessed 15 September 2023. Gay, D. A., Lynxwiler, J. P., & Smith, P. (2015). Religiosity, spirituality, and attitudes toward Definitions and focus same-sex marriage: A cross-sectional cohort comparison. Sage Open, 5(3), https://​doi​.org/​10​ Every day, nonprofit managers decide how to allocate their scarce resources to promote .1177/​2158244015602520 Giving USA. (2018). Americans gave $410.02 organizational objectives (mission). This is billion to charity in 2017, crossing the $400 the defining focus of economics. When there billion mark for the first time. https://​givingusa​ are not enough resources to complete the .org/​giving​-usa​-2018​-americans​-gave​-410​-02​ mission, the problem is formally one of con-billion​-to​-charity​-in​-2017​-crossing​-the​-400​ -billion​-mark​-for​-the​-first​-time/​. Accessed 15 strained optimization, where the goal is to maximize some benefit or minimize some September 2023. Jennings, M. K., & Stoker, L. (2004). Social trust cost subject to resource limits. For any speand civic engagement across time and genera- cific objective and constraints, this approach tions. Acta Politica, 39(4), 342–379. https://​doi​ provides decision rules for questions regard.org/​10​.1057/​palgrave​.ap​.5500077 ing, for example, pricing, volunteer use, Lee, Y. J. (2020). Facebooking alone? Millennials’ budgeting for fundraising and administration, use of social network sites and volunteering. choosing programs, and investing. Due to the Nonprofit and Voluntary Sector Quarterly, diversity of nonprofit missions, these rules 49(1), 203–217. https://​doi​.org/​10​.1177/​ differ across different types of nonprofits. 0899764019868844 Lee, Y. J. (2021). Nonprofit arts organizations’ pursuit of public interests: The role of board Applying the tools of constrained diversity. Nonprofit Policy Forum, 12(4), 563–587. https://​doi​.org/​10​.1515/​npf​-2020​ optimization to nonprofits To use these tools, the analyst must specify -0036 Lissitsa, S., & Laor, T. (2021). Baby boomers, the following with precision: generation X and generation Y: Identifying Mission: The mathematical requirement generational differences in effects of personal- for constrained optimization goes far beyond ity traits in on-demand radio use. Technology a mission statement. Mission statements often in Society, 64, 1–10. https://​doi​.org/​10​.1016/​j​ include multiple objectives (e.g., to provide .techsoc​.2021​.101526 Rebori, M. K. (2019). Millennials: Shifting values affordable housing to the greatest number and influences for civic engagement. Journal of of needy people) without specifying exact Human Sciences and Extension, 7(3), 231–242. definitions (“affordable,” “needy”) or exact willingness to trade one objective for another. https://​doi​.org/​10​.54718/​rxod4990 Smith, C., Christoffersen, K., Davidson, H., & Is it better to subsidize each housing unit to Herzog, P. S. (2011). Lost in transition: The a smaller extent to serve more people? Is it dark side of emerging adulthood. Oxford better to serve many slightly needy people University Press. (requiring a smaller subsidy per recipient) or Twenge, J. M. (2014). Generation me – Revised and updated: Why today's young Americans are a few very needy people (requiring a larger more confident, assertive, entitled – and more subsidy per recipient)? The research literature contains many formiserable than ever before. Simon & Schuster. Tyson, A., Kennedy, B., & Funk, C. (2021). Gen malized objective functions for various nonZ, millennials stand out for climate change profit missions. These include maximizing activism, social media engagement with issue. output (e.g., an opera may wish to maximize .pewresearch​ youth productions to foster a widespread Pew Research Center. www​ .org/​science/​2021/​05/​26/​gen​-z​-millennials​ appreciation of the genre); quality at the -stand​-out​-for​-climate​-change​-activism​-social​ expense of quantity (university hospitals may -media​-engagement​-with​-issue/​. Accessed 15 want the prestige and training opportuniSeptember 2023.

ties presented by state-of-the-art equipment); behavioral change (promoting social distancing or sober driving); maximizing a combination of multiple outputs (e.g., universities provide graduate education, undergraduate education, research, big-money sports, and living facilities but some of these are valued

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more than others); maximizing favored employee compensation (for good reasons, as in sheltered workshops for the handicapped and for questionable reasons such as overpaying top executives); provision of goods underprovided by markets and governments (such as care for the needy); and supporting justice in the distribution of income and wealth. Link between choice variables and mission fulfillment: Variables under the control of the organization (such as the number of worker hours devoted to client services or the purchase of inputs) are called choice variables. Choice variables determine mission fulfillment, and the exact links between the two need to be specified by the analyst. Often, this is done in two stages. First, the choice variables determine outputs such as the number of job-training sessions or, for advocacy organizations, the number of contacts with legislators. Outputs are directly determined by the choice variables, as specified in production functions. But most organizational missions concern outcomes resulting from outputs such as job placement or legislative change, and outcomes are only partly determined by outputs. For example, job placement depends on client training, client effort, and the state of the economy, only one of which is under the control of the organization. These second links are formalized as household production functions in the production-of-welfare approach. Constraints: Constraints specify how the value of combinations of choice variables is limited. For example, total organizational spending cannot exceed total revenues (at least in the long run), the budget constraint. Other constraints are necessary to harmonize the interests of employees and contractors with the organizational mission (individual rationality and incentive compatibility constraints). Two basic economic concepts are embedded in decision rules almost regardless of objectives: opportunity costs and thinking at the margin. The opportunity cost of any action is the value of what must be given up to take that action. Monetary costs are only part of opportunity costs. For example, the monetary cost of employing a volunteer is minimal – there is no salary, just minor expenditures to keep volunteers committed and engaged. Nonetheless, volunteers are

scarce, so the true cost of using a volunteer for, say, service provision is that the same volunteer cannot be used for fundraising or other organizational needs. The opportunity cost of using a volunteer for service provision is what the firm would otherwise be willing to pay to obtain the next best use of that volunteer’s time, presumably the compensation of an equivalent paid fundraiser. Every economic decision can be classified as a “whether” decision (Whether we should start a program or build a new facility) or a “how much” decision (How much should we budget for fundraising? What is the correct price to charge?) or a combination of the two. Thinking at the margin is the essential way to handle any “how much” decision, either formally or intuitively. Imagine a topographic map where the x- and y-axes are choice variables and the height measures mission attainment. Maximization requires one to locate the peak, but any hiker can find that peak by simply climbing uphill. Starting anywhere on the map (or with last year’s value of the choice variables), the hiker looks for a direction that is uphill, takes a step in that direction, and repeats. This is the intuitive foundation of marginal analysis. A step from a starting point (a one-unit increase in one of the choice variables) is called at the margin in economics, and each step includes factors that move the hiker uphill (marginal benefits) and factors that move him downhill (marginal costs). If a step in some direction has greater marginal benefits than marginal costs, the step will take you uphill and you will move downhill if instead marginal costs exceed marginal benefits. When the hiker cannot find an uphill direction, he is at the top, which translates to this decision rule: pick quantities of your choice variables such that marginal benefits equal marginal costs. For example, suppose that a charity raised $1 million by spending $100,000 on fundraising. The average return to fundraising would be $10 for each dollar spent. But this doesn’t tell you whether you are spending the right amount on fundraising – taken literally, why not spend $1,000,000,000 and get $10,000,000,000 in donations? What matters is the marginal benefit of an additional dollar spent on fundraising, the increase in donations if the charity spent $100,001 instead of $100,000, all other determinants of donations held equal. An increase in campaign expendiRichard S. Steinberg

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tures generates additional net revenue that can be devoted to the mission any time the marginal benefit (added donations) exceeds the marginal cost (added spending), but there is no uphill when marginal benefit equals marginal cost and that determines the optimal campaign budget.

Example

Estelle James (1983) considered a multiproduct nonprofit like a university and divided the revenue-generating products into three categories. Favored outputs contribute directly to the organizational mission, neutral outputs raise money that can be used for the organizational mission but otherwise does not affect the mission, and disfavored outputs impair the mission. Net revenues generated by neutral and disfavored outputs are used to cross-subsidize favored outputs. She answers the “how much” question showing that favored output levels exceed, neutral output levels equal, and disfavored outputs fall short of their profit-maximizing levels. Selling one more unit of any output generates marginal revenue but adds marginal cost, and since profits are revenues minus costs, you obtain maximal profits when marginal cost equals marginal revenue. Hence for favored outputs, marginal revenue will be less than marginal cost, the two are equal for neutral outputs, and marginal revenues will exceed marginal costs for disfavored outputs at the optimum. She answers the “whether” question for disfavored outputs, finding that disfavored outputs should only be pursued when the positive effect (revenues generated to increase favored output provision) exceeds the negative effect (harmful side-effect on the mission).

Limitations

Because neither the mission statement nor the articles of incorporation include sufficiently precise and operational statements of the objective function, board members, managers, and analysts may be unable to agree on the basic equations needed to make constrained optimization feasible. The operational mission may be internally contested and may drift over time. Nonetheless, an understanding of constrained optimization provides better intuitions that lead to improved decision-making. Richard S. Steinberg

As behavioral social science makes increasingly clear, even the best mathematicians make systematic mathematical mistakes, and the cognitive limits faced by the rest of us are more daunting. Managers do not need to solve the math themselves and can use decision rules developed by specialists, but effortful thinking is needed to apply these rules correctly. Managers must remember to include all the opportunity costs, ignore factors that are not under their control (such as sunk costs, costs already and irreversibly incurred), apply marginal rather than average thinking to “how much” questions, and consider long-run consequences of today’s decisions and not just the immediate crisis. Richard S. Steinberg

Related topics

Business planning Managerialism Mission statement Performance management Social return on investment

Further reading and references

James, E. (1983). How nonprofits grow: A model. Journal of Policy Analysis and Management, 2(3), 350–365. https://​doi​.org/​10​.2307/​3324446 Steinberg, R. (2006). Economic theories of nonprofit organizations. In W. W. Powell & R. Steinberg (Eds.), The nonprofit sector: A research handbook (2nd edn.) (pp. 117–139). Yale University Press. Steinberg, R. (2007). Membership income. In D. R. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 121–155). Rowman and Littlefield. Steinberg, R., & Morris, D. (2010). Ratio discrimination in charity fundraising: The inappropriate use of cost ratios has harmful side-effects. Voluntary Sector Review, 1(1), 77–95. https://​ doi​.org/​10​.1332/​204080510x497028 Steinberg, R., & Weisbrod, B. A. (1998). Pricing and rationing by nonprofit organizations with distributional objectives. In B. A. Weisbrod (Ed.), To Profit or Not to Profit: The Commercial Transformation of the Nonprofit Sector, (pp. 65–82). Cambridge: Cambridge University Press. https://​doi​.org/​10​.1017/​ cbo9780511625947​.006 Tuckman, H. P., & Chang, C. F. (2006). Commercial activity, technological change, and nonprofit mission. In W. W. Powell & R. Steinberg (Eds.), The nonprofit sector:

M 401 A research handbook (2nd edn.) (pp. 629–644). Yale University Press. Young, D. R., Steinberg, R., Emanuele, R., & Simmons, W. O. (Eds.) (2019). Economics for nonprofit managers and social entrepreneurs. Edward Elgar Publishing.

Mission statement Definition

A mission statement is a written document that communicates an organization’s purpose, how it goes about achieving that purpose, its operating philosophy, and its aspirations for itself and those it serves. A mission statement has many audiences including employees, volunteers, funders, donors, and others. The mission statement often appears on the organization’s website, in its annual report, as promotional material for fundraising campaigns, and it may be prominently placed in the organization’s facility to be seen by visitors and employees. The mission statement also can serve as a public statement of the organization’s values, beliefs, priorities, and how the organization sees itself in relation to its stakeholders. As such, the mission statement is the organization’s most visible public statement of its value proposition, and it may even provide the foundation for the organization’s branding and public relations strategy.

In practice

Any discussion of mission statements in the nonprofit sector must make a clear distinction between the organization’s legal mandate and its mission. The organization’s legal mandate, which is articulated in its articles of incorporation or some other official document, is a statement of purpose that legally binds the organization to pursue certain objectives as a condition of its charitable status. The mission statement, on the other hand, translates the legal mandate into terms that can be widely understood by various stakeholders with the intent that they will respond and make a commitment to the organization or simply form a favora-

ble impression of its work. For example, a mission statement can be helpful in: ● Attracting, motivating, and retaining professional staff and volunteers; ● Conveying to funders, contractors, and individual donors not only the purpose of the organization but also its values and distinctiveness in meeting certain needs in its marketplace; ● Conveying the organization’s history and its track record of accomplishment; ● Signaling the general direction and strategy of the organization, including its aspirations and the communities it serves; ● Providing top leadership with a tool to help them make difficult decisions regarding the allocation of scarce resources; ● A tool to help governing boards monitor progress and avoid mission drift; and, ● Publicly committing the organization to certain benchmarks of performance. Nonprofits are successful to the extent that they are trusted by the public to wisely use charitable resources toward the accomplishment of a noble goal. The organization’s mission statement, assuming it is taken seriously as a guide to action, is an important public document for earning and retaining the public’s trust.

Content of a strong mission statement: Debates and controversies

There are many points of view on what should (and should not) be included in a mission statement. Some experts insist that a mission statement should be short, crisp, and easily memorized by employees and volunteers – perhaps as short as one sentence. This entry takes a more traditional approach that also is based on some empirical research regarding the question – what should a mission statement say in order to have an observable impact on the organization’s actions? A summary of that body of literature suggests that a strong mission statement should convey five messages: ● Core purpose of the organization (the “ends” statement): This should be the opening portion of the mission statement that clearly expresses the organization’s reason for existence. What “ends” does Kevin P. Kearns

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it seek to achieve either alone or in collaboration with other organizations? The statement of purpose should be tangible and achievable. For example, an organization in the field of affordable housing might say, “Our core purpose is to ensure that every person in our community has access to safe and affordable housing.” ● The programs of the organization (the “means” statement): The mission statement should say something about how the organization goes about achieving its core purpose. For example, “We accomplish our mission by working with partner organizations to increase the supply of safe affordable housing, monitor compliance with fair housing laws, hold violators accountable, and provide direct assistance to people seeking affordable housing.” The organization should describe what it does but without giving a long and detailed list of current programs or activities. This section should convey how the organization achieves its mission in terms that are specific enough to be understood by a wide audience but also giving the organization flexibility to adjust its portfolio of services in line with the core purpose. ● Needs filled / distinctiveness / niche: The mission statement can provide an opportunity for the organization to herald characteristics that differentiate it from other organizations that provide comparable services. Perhaps the organization targets its services to a particular population with very specific needs or fills a gap in services not provided by other organizations. Or perhaps the organization uses a distinctive method or approach to providing services. This portion of the mission statement might contain a statement like, “We provide a single location where people can turn for advice and expert counsel on affordable housing opportunities and choices. Our dual role as both an advocate for affordable housing and a direct provider of housing services makes us uniquely qualified to have a significant regional impact on public policy as well as services related to affordable housing.” ● Operating philosophy and values: Some mission statements briefly explain the organization’s guiding principles and how it goes about setting priorities. For example, the organization might say that Kevin P. Kearns

it employs only “evidence-based” programming or that it engages primarily in programs and services in which it has a “comparative advantage” or can “add clearly demonstrated value” to the community. This could also be a section where the organization articulates its commitment to certain core values such as equity, diversity, and inclusion. The operating philosophy and values can serve as a guide to decision-making if the organization is faced with a choice of how to deploy scarce resources. ● Vision: A vision statement can be a separate document or part of the mission statement. Either way it conveys an ideal state, no matter how ambitious, that the organization strives for and its own envisioned contribution to achieving that outcome. For example, the vision of the organization may be an end to racism, the elimination of hunger, or even the achievement of world peace. Further, looking inward, it may envision being the most widely recognized leader or catalyst for those ambitious goals. Some organizations craft a separate vision while others embed the vision in the mission statement.

Current debates and future directions

Some experts would assert that a mission statement that addresses all five of the concepts described above would be far too long and cumbersome; surely it could not be crafted as a single sentence or phrase easily memorized by employees or other stakeholders. The rebuttal is that a mission statement is not a marketing tag line or slogan; rather, it should be a public statement of purpose, goals, and accountability. Ideally, it should assist and guide the organization when it must choose between competing programs and strategies. Crafting such a statement requires careful thought and input from a variety of constituencies. Another debate concerns the actual impact of mission statements on employee actions and organizational performance. A review of published research suggests that employee engagement in mission development has an impact on their behavior and, consequently, on organizational performance. The performance impact may be greater in organizations that are strongly mission-oriented

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– those whose norms and values are strongly held throughout the organization (Alegre et al., 2018). Many questions remain about the value and impact of mission statements. We are not likely to come to a consensus on this question without additional empirical research and evidence. It is unlikely, however, that we will ever have definitive evidence of a causal relationship between an organization’s mission statement and its success in achieving its intended purpose. Case studies and other qualitative methods may provide more nuanced findings to inform both theory and practice. Kevin P. Kearns

Related topics

Accountability Articles of incorporation Forming a nonprofit organization Governing board: Responsibilities Mission and economics Strategic analysis: SWOT Strategic planning

Further reading and references

Alegre, I., Berbegal-Mirabent, J., Guerrero, A., & Mas-Machuca, M. (2018). The real mission of the mission statement: A systematic review of the literature. Journal of Management & Organization,  24(4), 456–473. https://​doi​.org/​ 10​.1017/​jmo​.2017​.82 Kearns, K. (1997). Mission statements in public and nonprofit organizations. In J. M. Shafritz (Ed.), The international encyclopedia of public policy and administration. Henry Holt and Company.

Motivation: Paid staff Definitions

Motivations within organizations refer to the sources of employees’ willingness to work, that is, to supply effort in the furtherance of the organization’s objective. Such effort may be supplied via longer working hours or a greater intensity of work per hour. Intrinsic motivation is an employee’s internal imperative to perform that derives from considerations other than explicit rewards like

monetary compensation or other compensation tools that employers use to encourage the work that benefits the organization. One source of intrinsic motivation is the organizational mission, which is the purpose for which the nonprofit exists. For U.S. 501(c) (3)s, this is a charitable purpose to improve societal welfare.

In practice Motivating tools in general Motivating employees is an important objective in most organizations. Employers have multiple tools at their disposal for achieving this, many of which involve the compensation system. If compensation is broadly construed to encompass everything that an employee likes about the job (including non-monetary as well as monetary aspects) then virtually every tool in the manager’s motivational toolkit involves compensation. This perspective is taken in the final chapter of DeVaro (2020), which covers nonprofit compensation strategies. Different demographic groups of workers may have different tastes for monetary versus non-monetary components of compensation, and for one type of non-monetary compensation versus another. For example, younger generations of workers may particularly value non-monetary forms of pay such as diversity in the workplace, opportunities for advancement, and access to the latest technology. The primary compensation-based tools for motivating employees are various types of performance-based pay. These include bonuses, commissions, piece rates, tips, stock options, profit sharing, and so on. The starting point for performance pay is defining a performance measure. The second step is defining the explicit relationship between this performance measure and workers’ pay. The third step is communicating this system (both the performance measure and that relationship that connects it to pay) to employees in a manner that they understand and find credible. To have motivating potential, employees need to clearly understand the pay-for-performance relationship and also trust that the employer will make good on the contract. Another tool for motivating employees is the prospect of a future reward. With such Jed DeVaro

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a deferred compensation plan, employees must do two things to ultimately collect on the future reward. First, they must perform at a sufficiently high level during the evaluation period preceding the reward. Second, they must stick around long enough to receive the reward. Thus, deferred compensation plans achieve for the employer the dual goals of motivating workers and retaining them. One of the most powerful deferred compensation tools for motivating employees is the prospect of career advancement within the organization, via future promotion opportunities. Promotion prospects can have strong motivating effects on employees. Even a single promotion opportunity, if it comes with a large enough reward in terms of pay and prestige, can itself motivate a large group of workers over a considerable time period. As a motivational tool, however, promotions can be rather difficult to fine tune. The reason is that they serve a second important function within organizations apart from motivating workers. That is, they are an important means by which the employer matches workers to jobs. Sometimes these two objectives of promotions, that is, motivating employees and assigning them to jobs, are in conflict, so that improving one of the two objectives hurts the other. For example, if a team of computer programmers are competing for a single management position and the top-performing programmer is awarded the promotion, that promotion system motivates all of the programmers to work hard, but it might yield a manager with poor leadership skills (albeit great programming skills). If the employer instead focuses on making the best job assignment, an employee with merely adequate programming performance but exceptional leadership potential might win the promotion. That alternative would yield a good manager but would not motivate high levels of programming performance. Motivating tools in the nonprofit sector The preceding motivational tools for organizations in general also apply in the nonprofit sector, where some additional considerations become relevant. One such consideration is employees’ intrinsic motivation deriving from the organizational mission. Nonprofits typically attract a workforce of individuals Jed DeVaro

who have an affinity for the organizational mission, which is usually aimed toward improving societal welfare. The missions in for-profit firms typically have less potential to instill intrinsic motivation; employees are not fooled by the lofty rhetoric on the company’s website and understand that for the most part the employer’s mission is to enhance the bottom line. Thus, to the extent that the nonprofit can lean on mission-driven intrinsic motivation, there is less need to rely on various forms of performance-based pay. And that is good news for nonprofits, because performance-based pay is sometimes harder to implement in nonprofits than for-profits. One reason is the nondistribution constraint, which prevents profit from being distributed to those who run the nonprofit. This eliminates certain forms of performance-based pay, like profit sharing. A second reason is that the first step of developing a performance-based pay plan (i.e., defining a performance measure) is sometimes more challenging in nonprofits. The reason is that the organizational objective in nonprofits is sometimes rather complicated to define, which means that an individual worker’s contribution to that objective may also be hard to define and measure. The bottom line is not that performance-based pay is absent from nonprofits but rather that it is less prevalent there than in for-profits. Another implication of the nondistribution constraint (apart from making some forms of performance pay more difficult to implement) is that it encourages the nonprofit employer to overinvest in certain activities, some of which may be a source of motivation for employees. “Overinvestment” means investing to a greater extent than the employer would in the absence of the nondistribution constraint. One such investment activity is employee training. If the nondistribution constraint prevents the nonprofit employer from distributing profit to those who run the organization, then it might as well use that profit to invest in the organization’s future productivity, by providing employees additional training. Empirical evidence reveals that nonprofit employers do just that, with a higher incidence of training revealed in that sector. Training can motivate workers in various ways. For example, intrinsic motivation intensifies if the training further inculcates employees

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with a deeper affinity for the nonprofit’s social mission. Many nonprofits are small organizations, meaning that meaningful promotion opportunities are rare and employees must move laterally to another organization to advance professionally. But even setting aside organizational size, promotions are less common in nonprofits than in for-profits. Just as mission-driven motivation obviates the need to rely heavily on performance-based pay, it obviates the need to rely heavily on promotions as a source of motivation. This frees the nonprofit employer’s hands to use promotions mainly as a means to match workers to jobs ideally. In other words, the tradeoff illustrated in the preceding example involving computer programmers is generally less burdensome in nonprofits because the employer can rely heavily on the social mission to motivate employees. When promotions are used primarily to achieve ideal assignment of employees to jobs, there is no particular need for them to be frequent, whereas they must occur with some degree of frequency to have strong motivating potential. The preceding point highlights the crucial role that managerial turnover plays in job hierarchies in which promotions serve an important role in motivating employees. Managerial vacancies must first open for employees to be able to be promoted into them, but they can only become vacant via managerial turnover. In nonprofits, where employers need not rely as heavily on promotions for motivating employees, such turnover is less important than in for-profits.

Current issues and future challenges

The preceding discussion is essentially timeless in the sense that the issues have been relevant in the nonprofit sector for some time, remain so today, and are likely to continue to be relevant in the future. One consideration that might change the landscape in the foreseeable future is some measure of convergence, or blurring the line, between the nonprofit and for-profit sectors. Two mutually reinforcing factors may push things in that direction. One is the increasing public attention from both consumers and employees to social justice movements,

which pressures for-profit companies to become active participants in the public discussion and to rethink their mission, vision, and values. In effect, these social forces pressure for-profits to sound a bit more, and behave a bit more, like nonprofits. Similarly, for quite some time for-profits have used corporate social responsibility and corporate sustainability initiatives as recruiting tools. The second factor is technology, and particularly social media, which serves as an accelerant to this process of convergence, by amplifying the spread of information that gives rise to the social movements and organizations’ public responses to them. A challenge such convergence may pose for nonprofits is in recruiting a motivated workforce. To the extent that for-profits start looking and sounding more socially minded, employees who would traditionally have gravitated to the nonprofit sector might find the for-profit sector (which tends to offer higher monetary compensation) an attractive alternative. In short, if for-profits increasingly enter the nonprofits’ wheelhouses, recruiting mission-motivated employees might become more difficult and competitive. This would require nonprofits to increasingly turn to the more conventional motivating tools like performance pay, deferred compensation and promotions, and so on. On the other hand, the same forces that give rise to the social movements and that cause employees to focus more on engendering positive social changes might make employees gravitate increasingly towards positions in nonprofits. Thus, cross-pollination of employees in both directions may be expected. Such cross-pollination can even occur within a single organization, as discussed in the compensation textbook DeVaro (2020) in the case of Salesforce, a company with a for-profit (“dot com”) branch and a nonprofit (“dot org”) branch. Jed DeVaro

Related topics

Careers and preparation Motivation: Volunteers Professionalism Recruitment and retention Strategic human resource management Wage equity within and across sectors Jed DeVaro

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Further reading and references

Besley, T., & Ghatak, M. (2005). Competition and incentives with motivated agents. American Economic Review, 95(3), 616–636. https://​doi​ .org/​10​.1257/​0002828054201413 De Cooman, R., De Gieter, S., Pepermans, R., & Jegers, M. (2009). A cross-sector comparison of motivation-related concepts in for-profit and not-for-profit service organizations. Nonprofit and Voluntary Sector Quarterly, 40(2), 296–317. https://​doi​.org/​10​.1177/​0899764009342897 DeVaro, J. (2020). Strategic compensation and talent management: Lessons for managers. Cambridge University Press. DeVaro, J., & Brookshire, D. (2007). Promotions and incentives in nonprofit and for-profit organizations. ILR Review, 60(3), 311–339. https://​ doi​.org/​10​.1177/​001979390706000301 DeVaro, J., Maxwell, N., & Morita, H. (2017). Training and intrinsic motivation in nonprofit and for-profit organizations. Journal of Economic Behavior & Organization, 139, 196–213. https://​doi​.org/​10​.1016/​j​.jebo​.2017​ .04​.005 Francois, P., & Vlassopoulos, M. (2008). Pro-social motivation and the delivery of social services. CESifo Economic Studies, 54(1), 22–54. https://​doi​.org/​10​.1093/​cesifo/​ifn002 Lee, Y. J., & Wilkins, V. M. (2011). More similarities or more differences? Comparing public and nonprofit managers’ job motivations. Public Administration Review, 71(1), 45–56. https://​ doi​.org/​10​.1111/​j​.1540​-6210​.2010​.02305​.x WorldatWork & Vivient Consulting. (2018). Incentive pay practices: Nonprofit/government organizations. WorldatWork. https://​ worldatwork​.org/​media/​CDN/​dist/​CDN2/​ documents/​pdf/​resources/​research/​Incentive​ _Pay​_Practices​_Survey​-2016​.pdf. Accessed 15 September 2023.

Table 24

Motivation: Volunteers Definition

Volunteerism is typically defined as the freely chosen provision of time devoted to benefiting another person, group, or organization. Some definitions add further conditions to separate formal volunteering from variants such as informal helping, caregiving, and required or remunerated community service. Research on motivation to volunteer has sometimes compared those who engage in the activity because they are required to do so to those who have freely selected an activity, but most often research on motivation has examined the latter group, in an attempt to understand who seeks out formal volunteer roles and why. A central approach to understanding volunteers’ motivations, known as the functional approach, asks about the needs, goals, and purposes that people seek to satisfy with their volunteer work – that is, the functions that volunteering serves for them. Knowing why people volunteer has implications for strategies to recruit them and retain them.

In practice

To understand the motives of volunteers, we and our colleagues created the Volunteer Functions Inventory (VFI), a 30-item measure that assesses six prominent motivations for volunteering. These motivations are summarized in Table 24. This inventory can help organizations to understand not only their current volunteers but also their potential volunteers. In line with related approaches to the study of attitudes and persuasion, the functional approach to volunteering incorporates a “matching” principle that predicts that volunteers will be

Why people volunteer

Motivation

Description

Values Function

To act on and express prosocial or humanitarian values

Understanding Function

To gain a sense of understanding of themselves, other people, issues, or the world

Enhancement Function

To feel positively about themselves

Protective Function

To protect themselves from negative self-perceptions

Social Function

To fit in with expectations of significant others and to fulfill social obligations

Career Function

To obtain career advantages or experience

Note: Although these motivations have been consistently found across volunteer activities and organizations, researchers have sometimes added additional motives specific to particular types of volunteering.

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more attracted to activities that offer benefits matched to their most important motives and will be more satisfied with, and continue to serve in, activities that allow them to fulfill these important motives. Understanding what volunteers seek to gain from their activities can assist with the development of recruitment messages and strategies that are matched to a potential volunteer’s own characteristic motivations, as well as to highlight the specific benefits of volunteering that are of greatest interest to an organization’s target audience. Crucially, organizations need to ensure that volunteers’ motivations can be satisfied by their activities, which may involve placing volunteers into positions that best fit their motivations and expectations. Moreover, fulfillment of motives typically predicts volunteer retention. Consequently, a second set of items, based on the VFI but asking whether motivations are being fulfilled, is often used to safeguard retention. Volunteers who are achieving the benefits that they seek are more likely to be satisfied and intend to continue volunteering; those who are not fulfilling their goals may need to be transferred to other activities that can better satisfy their motives. Given that motivations may change over time or even become satiated (e.g., those with an understanding motive learning all that they can from a particular activity), organizations are advised to regularly monitor the motivations of their volunteers and adapt activities to any changes.

Current and future directions

Although our approach suggests that volunteers will be satisfied and retained if the motives important to them are fulfilled, recent research has begun to discriminate between self-oriented motives and other-oriented motives. This distinction harkens back to an earlier debate about whether helping behavior is primarily egoistic (motivated by self-benefits) or purely altruistic (motivated solely by the goal of benefiting others). Whereas the functional approach argues that volunteers may pursue the same activity for different reasons, it also suggests that volunteers may have multiple motivations, both self- and other-focused. Some research on volunteers with multiple motivations has suggested that too many distinct motivations may increase stress or reduce

motive fulfillment, but other work suggests that, if volunteers fulfill multiple important motivations, then their satisfaction may be higher than volunteers with fewer fulfilled motives. In addition, recent work has suggested that other-oriented volunteers (higher in values, understanding, or social motives) may be more likely to sustain their service than self-oriented volunteers (higher in career, protective, or enhancement motives), although other research has also demonstrated the greater power of self-oriented motives in promoting longevity of service, suggesting the need for future research to identify moderators (e.g., types of volunteering, types of situations, types of people) of when self- and other-oriented motives will be most powerful. Although it is possible that purely other-oriented volunteers may be more susceptible to burnout, other-oriented motivation has been linked to higher levels of well-being, and self-oriented motivation to lower levels of well-being; however, it is difficult to know which is cause and which is effect. Research linking volunteering to better health and well-being has typically used cross-sectional and correlational approaches, and therefore has not conclusively demonstrated causality. Most likely, the effects are bi-directional, with volunteers who already possess greater well-being more likely to volunteer and those who begin with well-being decrements improving their well-being through volunteering. Another perspective on motivation to volunteer originates in self-determination theory, which posits that activities produce well-being when they satisfy needs for autonomy, competence, and relatedness. Activities, including volunteer activities, may be pursued for intrinsic or extrinsic reasons. Intrinsic goals highlight autonomy and include enjoyment, fun, and excitement but might also be supplemented with motivation that stems from identifying with the values of an organization. In contrast, extrinsic goals include volunteering to avoid feeling guilty or because one is seeking rewards or satisfying requirements. Research using this approach has found that intrinsic motivation leads to more sustained volunteering than extrinsic motivation. Moreover, research that has compared “required volunteers” to those who freely choose to volunteer has found that motivation to volunteer in the future can

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be undermined by such extrinsic pressures. Although some researchers have sought to identify how the motivations of the functional approach may be categorized according to self-determination theory constructs, a similar alignment with the other-oriented and self-oriented motive distinction has not appeared. Future research will be needed to clarify the relations between these conceptualizations and their ability to predict important outcomes for volunteers and organizations. Currently, the world is seeing many changes in the nature and forms of volunteer service. In particular, episodic and event-focused volunteering are on the rise and stable patterns of weekly contributions of time to a single organization may be declining. These are challenging times for organizations that rely on volunteers to achieve their missions. As researchers, our recommendation is to pay close attention to the needs, goals, and motivations of volunteers and to work to ensure that they are fulfilled by the activities available. Doing so may require organizations to make salient the social and psychological benefits that volunteers attain through their service, thereby ensuring that organizations reap the rewards of recruiting and retaining a steady influx of motivated, satisfied, and productive volunteers. Arthur A. Stukas, Mark Snyder and E. Gil Clary

Related topics

Civil society Strategic human resource management Voluntarism Volunteer management

Further reading and references

Carpenter, C. J. (2012). A meta-analysis of the functional matching effect based on functional attitude theory. Southern Communication Journal, 77(5), 438–451. https://​doi​.org/​10​.1080/​1041794X​.2012​ .699989 Clary, E. G., Snyder, M., Ridge, R. D., Copeland, J., Stukas, A. A., Haugen, J., & Miene, P. (1998). Understanding and assessing the motivations of volunteers: A functional approach. Journal of Personality and Social Psychology, 74(6), 1516–1530. https://​doi​.org/​10​.1037/​0022​-3514​ .74​.6​.1516 Cnaan, R. A., Meijs, L., Brudney, J. L., Hersberger-Langloh, S., Okada, A., & Abu-Rumman, S. (2021). You thought that

Seth J. Meyer

this would be easy? Seeking an understanding of episodic volunteering. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 33(3), 415–427. https://​doi​.org/​10​ .1007/​s11266​-021​-00329​-7 Güntert, S. T., Strubel, I. T., Kals, E., & Wehner, T. (2016). The quality of volunteers’ motives: Integrating the functional approach and self-determination theory. The Journal of Social Psychology, 156(3), 310–327. https://​doi​.org/​10​ .1080/​00224545​.2015​.1135864 Omoto, A. M., & Snyder, M. (1995). Sustained helping without obligation: Motivation, longevity of service, and perceived attitude change among AIDS volunteers. Journal of Personality and Social Psychology, 68(4), 671–686. https://​ doi​ .org/​10​.1037/​0022​-3514​.68​.4​.671 Stukas, A. A., Snyder, M., & Clary, E. G. (1999). The effects of “mandatory volunteerism” on intentions to volunteer. Psychological Science, 10(1), 59–64. https://​doi​.org/​10​.1111/​1467​-9280​.00107 Stukas, A. A., Snyder, M., & Clary, E. G. (2015). Volunteerism and community involvement: Antecedents, experiences, and consequences for the person and the situation. In D. A. Schroeder & W. Graziano (Eds.), The Oxford handbook of prosocial behavior (pp. 459–493). Oxford University Press. Stukas, A. A., Snyder, M., & Clary, E. G. (2016). Understanding and encouraging volunteerism and community involvement. The Journal of Social Psychology, 156(3), 243–255. https://​doi​.org/​10​ .1080/​00224545​.2016​.1153328 Stukas, A. A., Hoye, R., Nicholson, M., Brown, K., & Aisbett, L. (2016). Motivations to volunteer and their associations with volunteers’ well-being. Nonprofit and Voluntary Sector Quarterly, 45(1), 112–132. https://​doi​.org/​10​ .1177/​0899764014561122

Multisite nonprofit organizations Definitions

Many nonprofit organizations are multisite nonprofit organizations (MNOs), with one or two central office(s) and then multiple affiliate offices around the catchment area. These multisite nonprofits have different names for these offices, such as subsidiaries, affiliates, chapters, or franchises (called affiliates in this entry). Though the majority of research around multisite nonprofits have focused on international organizations, these organizations can be national, state/provincial, or

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even at the local level. Though the affiliate offices may be geographically close to their central office, by having a separate location, they may have a unique organizational identity which impacts the intraorganizational relationships (Meyer, 2021a). In the United States alone, there are over 12,000 registered nonprofits with multiple sites, based on 990 reporting (The Urban Institute, 2013), though research on this topic has been rather limited (Cornforth, 2012). More research into how these organizations may be similar and different from single site organizations can help nonprofit leaders make better decisions for MNOs and the field of nonprofit studies better understand the nonprofit ecosystem.

the affiliates often have dual organizational identification: both with the central office and their local office (Meyer, 2021a). There are often conflicts between the central and affiliate offices. While these conflicts often are minor occurrences, they can lead to affiliates either leaving the organization or starting their own organization. Conflict within MNOs can also lead to change within the organization (Meyer, 2021b). There are many avenues of tension between the central and affiliate offices, including who gets the resources from funders and donors, who gets to deliver services, organizational branding, affiliate fees, and the organization’s governance system (Grossman & Rangan, 2001; Meyer, 2021b).

In practice

The future

Affiliate offices are offices which are outside of the central office (Grossman & Rangan, 2001). The relationship they have with their local office can differ based on the organization; some affiliates will file their own Form 990 while others will be under the central office’s. Some organizations are more centralized structures while other affiliates have more flexibility (Brown et al., 2012; Tran, 2020; Witesman, 2020). Brown et al. (2012) identified five types of structures: unitary, federation, confederation, network, and support. These structures represent different levels of control from the central office and independence for the affiliate offices. Organizations may choose different types of structures due to aspects of the nonprofit, including membership size and resource disparity (Beagles, 2021) and leadership (Tran, 2020). For affiliates, there is a balance between independence and the benefits of being attached to a larger organization (Siddiki & Lupton, 2016). Importantly, organizations can have a mixture of structures within their agency; some of the affiliates may be under the central office’s Form 990 while others may have their own, and some affiliates may have more independence than others (Meyer, 2018). The reason behind these mixed structures has not been explored much in the nonprofit literature.

Issues for nonprofit managers and leaders

The organizational behavior of MNOs has some differences than single site organizations. Staff and volunteers associated with

There are many management and leadership issues facing MNOs and their affiliates that have yet to be thoroughly researched. Below is a partial list, which is by no means extensive: Local and State/Provincial Nonprofits: Regarding multisite nonprofits we know more about the operations of national organizations (Grossman & Rangan, 2001; Meyer, 2021a, 2021b) or international organizations (Beagles, 2021; Brown et al., 2012; Tran, 2020). We know far less about the management, leadership, and governance challenges facing local and state/provincial multisite nonprofits. Although these offices are physically closer together, the challenges they face are unknown. It is still unclear if they act similar to single site nonprofits, national nonprofits, or somewhere in the middle. This type of research can help managers in multisite nonprofits deal with the unique issues of working with staff who, though not very far away culturally, are still in physically distant locations. Organizational Behavior of Multisite Nonprofits: Being physically apart from the central office may impact intraorganizational relationships, yet this question has not been adequately explored by researchers. Building a stronger understanding of these relationships can help leaders within multisite nonprofits learn to support the staff and volunteers in their affiliate offices. Due to the diversity of MNOs, this can include supporting those in different countries or just a few towns away. This leads to important questions on cultural differences between central Seth J. Meyer

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and affiliate offices, how individuals relate to each other, and how these relationships impact services across place. Structure within Multisite Nonprofits: There are multiple types of MNO organizations (Brown et al., 2012), and each structure leads to a different level of independence for affiliate offices, with some organizations having multiple types of structures for affiliate organizations (Meyer, 2018). Future research can explore how affiliates and central offices make decisions on the different relationships within MNOs. Independence: What are the latitudes of independence each affiliate has? Each type of organizational structure allows for affiliates to have varying levels of independence from their central office. This leads to the question of how affiliates and central offices negotiate levels of independence. Specifically, which office creates and provides services, which office is allowed to reach out to major funders (and who gets this money), and how much of an independent identity the affiliate is allowed to have (Meyer, 2021a). These questions help managers and organizations decide the relationships which are right for them. Seth J. Meyer

Related topics Federation Governance United Way

Further reading and references

Allen, S. A., & Ofahengaue Vakalahi, H. F. (2013). My team members are everywhere! A critical analysis of the emerging literature on dispersed teams. Administration in Social Work, 37(5), 486–493. https://​doi​.org/​10​.1080/​03643107​ .2013​.828002 Barmen, E., & Chaves, M. (2001). Lessons for multisite nonprofits from the United Church of Christ. Nonprofit Management and Leadership, 11(3), 339–352. https://​doi​.org/​10​.1002/​nml​ .11307 Beagles, J. E. (2021). Humanitarian INGO governance arrangements and forms of coordination. Nonprofit Management and Leadership, 32(2), 241–262. https://​doi​.org/​10​.1002/​nml​.21482 Brown, L. D., Ebrahim, A., & Batliwala, S. (2012). Governing international advocacy NGOs. World Development, 40(6), 1098–1108. https://​doi​.org/​ 10​.1016/​j​.worlddev​.2011​.11​.006 Cornforth, C. (2012). Nonprofit governance research. Nonprofit and Voluntary Sector

Seth J. Meyer

Quarterly, 41(6), 1116–1135. https://​doi​.org/​10​ .1177/​0899764011427959 Grossman, A., & Rangan, V. K. (2001). Managing multisite nonprofits. Nonprofit Management & Leadership, 11(3), 321–337. https://​doi​.org/​10​ .1002/​nml​.11306 Harris, M. J. (2011). Strategic planning in an international nongovernmental development organization. Administration & Society, 43(2), 216–247. https://​doi​.org/​10​.1177/​0095399711400052 Meyer, S. J. (2018). Intraorganizational relationships and conflicts within multisite nonprofit organizations [Unpublished doctoral dissertation]. Rutgers University. https://​rucore​.libraries​ .rutgers​.edu/​rutgers​-lib/​57358/​PDF/​1/​play/​. Accessed 15 September 2023. Meyer, S. J. (2021a). Dual organizational identification within multisite nonprofit organizations. Administrative Theory & Praxis, 43(3), 281–301. https://​doi​.org/​10​.1080/​10841806​.2020​.1757313 Meyer, S. J. (2021b). Understanding conflict in multisite nonprofit organizations. Journal of Public and Nonprofit Affairs, 7(1), 108–128. https://​doi​.org/​10​.20899/​jpna​.7​.1​.108​-128 Milton, S. A. A., Sinclair, M. M., & Vakalahi, H. O. (2016). Organizational identification: Perspectives of dispersed social workers. Advances in Social Work, 17(2), 285–303. https://​doi​.org/​10​.18060/​21014 O’Flanagan, M., & Taliento, L. K. (2004). Nonprofits: Ensuring that bigger is better. McKinsey Quarterly, (2), 112–122. Siddiki, S., & Lupton, S. (2016). Assessing nonprofit rule interpretation and compliance. Nonprofit and Voluntary Sector Quarterly, 45(4_suppl), 156S-174S. https://​doi​.org/​10​ .1177/​0899764016643608 Taylor, M., & Lansley, J. (2000). Relating the central and the local. Nonprofit Management & Leadership, 10(4), 421–433. https://​doi​.org/​10​ .1002/​nml​.10405 The Urban Institute. (2013). NCCS core file public charities. https://​nccs​-data​.urban​.org/​ Tran, L. (2020). International NGO centralization and leader-perceived effectiveness. Nonprofit and Voluntary Sector Quarterly, 49(1), 134–159. https://​doi​.org/​10​.1177/​0899764019861741 Witesman, E. M. (2020). Centralization and decentralization: Compatible governance concepts and practices. In B. G. Peters & I. Thynne (Eds.), Oxford research encyclopedia of public administration. Oxford University Press. https://​doi​.org/​ 10​.1093/​acrefore/​9780190228637​.013​.1390 Young, D. R., & Faulk, L. (2010). Franchises and federations: The economics of multi-site nonprofit organizations. In B. A. Seaman & D. R. Young (Eds.), Handbook of research on nonprofit economics and management (pp. 220–237). Edward Elgar Publishing.

N

Nascent organizations Definition

A nascent nonprofit is an emerging nonprofit venture, capturing and illuminating the phase in the lifecycle of a new nonprofit that takes place before there is a fully functioning and operative new nonprofit organization.

In practice

The notion of a nascent nonprofit is intimately linked to the study of nonprofit entrepreneurship, that is, the process by which new nonprofit ventures are founded. Many scholars investigating nonprofits, and several theories about nonprofit organizations, assume, a priori, that nonprofits exist. Nonprofit entrepreneurship research does not take the existence of nonprofits organizations for granted, but instead focuses on why and how new nonprofits come into being. The founding of a new nonprofit organization is not a discrete event, or something that happens instantaneously, but a process that transpires over time. The nascent phase involves those events and activities before a nonprofit organization becomes an organization, that is, the study of nascent nonprofits includes examining and understanding those factors that lead to and influence the founding and development of the nonprofit organization. Because the nascent phase occurs before the nonprofit organization exists, there are a number of essential reasons why studying and understanding nascent nonprofits are important. First, what transpires during the nascent phase becomes imprinted onto new nonprofits and persist over time. Hence, to fully comprehend why some nonprofits, for example, are able to grow, innovate, establish strong boards, attract support, or have significant impact, it is essential to

understand how they got started, including how initial financial and human resources were acquired and allocated, and how critical early strategic decisions were made and implemented. Second, nascent nonprofits do not always become a nonprofit organization. The outcome of the nascent process could be a new nonprofit organization, or a failed attempt at founding a new nonprofit organization, or something else. Thus, in order to understand why some nonprofit entrepreneurs succeed in founding new nonprofit organizations when others do not, scholars must study nascent nonprofits and their evolution. For example, how do nascent nonprofits overcome the various liabilities associated with newness, and what drives exits from the nonprofit entrepreneurship process? Third, the study of nascent nonprofits provides an opportunity to better comprehend and illume the smallest (and youngest) entities in civil society. Nonprofit scholars have long called for more research to better understand these small units, what Smith (1997) calls, the “dark matter” of the nonprofit sector.

Current and future directions

Although all nonprofit organizations were once new, our collective understanding of nascent nonprofits, theoretically as well as empirically, remains limited. Still, three basic observations are worth noticing. First, nascent nonprofits appear to have properties that are organized in a different way from already existing nonprofits. That is, nascent nonprofits are simply not smaller or undeveloped versions of existing nonprofits, but distinctive entities that must be examined in their own right. Second, nascent nonprofits are “messy.” Features, such as the length of the nascent process, sequencing of nascent events and undertakings, and the frequency and intensity of such events and undertakings, display a remarkable high degree of variance. Hence, it is difficult to depict or

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talk about what an average nascent nonprofit looks like. Finally, nascent nonprofits are precarious, frequently dissipating while emerging (Andersson & Ford, 2017). While the interest in researching and understanding nascent nonprofits appears to be on the rise, it is still a field of inquiry with substantially more questions than answers. A major reason for this lack of knowledge is linked to the complex issue of identifying nascent nonprofits. How do you study nonprofit organizations that do not yet, in a formal sense, “exist?” One approach is to rely on retrospective accounts depicting nascent undertakings from nonprofit organizational founders, however, this approach suffers from a series of problems including memory distortion, hindsight bias, and success bias. Thus, a critical feature for future research is to develop new and better ways to identify and sample nascent nonprofits. The earlier scholars can access the nascent nonprofit process, the better the chances to mitigate the problems mentioned before, and the greater the chances to get the temporal order of nascent undertakings correct, which is necessary to build cumulative scholarship about nascent nonprofits. Fredrik O. Andersson

Related topics

Financing nonprofit organizations Forming a nonprofit organization Growth strategies Lifecycles of nonprofit organizations

Further reading and references

Andersson, F. O. (2016). Nascent nonprofit entrepreneurship. Nonprofit and Voluntary Sector Quarterly, 45(4), 806–824. https://​doi​.org/​10​ .1177/​0899764015603203 Andersson, F. O. (2017). A new focus on nonprofit entrepreneurship research. Nonprofit Management and Leadership, 28(2), 249–258. https://​doi​.org/​10​.1002/​nml​.21271 Andersson, F. O., & Ford, M. (2017). Entry barriers and nonprofit founding rates: An examination of the Milwaukee voucher school population. Nonprofit Policy Forum, 8(1), 71–90. https://​doi​.org/​10​.1515/​npf​-2016​-0021 Dollhopf, E. J., & Scheitle, C. P. (2016). Explaining variations in the nonprofit founding process. Nonprofit Management and Leadership, 27(2), 261–272. https://​doi​.org/​10​.1002/​nml​.21248 Haugh, H. (2007). Community-led social venture creation. Entrepreneurship Theory and

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Practice, 31(2), 161–182. https://​doi​.org/​10​ .1111/​j​.1540​-6520​.2007​.00168​.x Katz, J., & Gartner, W. B. (1988). Properties of emerging organizations. Academy of Management Review, 13(3), 429–441. https://​ doi​.org/​10​.4337/​9781783476947​.00010 Smith, D. H. (1997). The rest of the nonprofit sector: Grassroots associations as the dark matter ignored in prevailing “flat earth” maps of the sector. Nonprofit and Voluntary Sector Quarterly, 26(2), 114–131. https://​doi​.org/​10​ .1177/​0899764097262002

Nongovernmental organizations Definition

At its simplest, a nongovernmental organization (NGO) is an entity operating outside the realm of government. In practice, defining what they do instead of what they are not (nongovernmental) is not as easy as it first appears. What an NGO does depends on the context in which one defines it. For instance, the use of the term NGO, rather than nonprofit or not-for-profit, is more common in Europe to label organizations engaged in advocacy or service delivery for the public good. In Canada and the U.S., NGOs are often understood as nonprofit organizations, registered or not for tax purposes, engaged in foreign activities or based in another country. To define what NGOs are, we must consider their origins, the various definitions in circulation, their activities, and their design. Lastly, a brief understanding of their challenges and critiques helps us understand what they are. Accounts about the origins of NGOs differ greatly. For some, the origins are rooted in the rise of international social movements and peripheral organizations during the nineteenth century and were often referred to as civil society organizations. These organizations included Anti-Slavery International, founded in 1839, the world’s oldest human rights organization, and the youth organization Young Men’s Christian Association, known as the YMCA, founded in 1844, which rapidly became a worldwide movement in only a decade.

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Examples of NGO sub-types and labels

BINGO

Big International NGO

CBO

Community-Based Organization

CSO

Civil Society Organization

DONGO

Donor Organized NGO

ENGO

Environmental NGO

FBO

Faith-Based Organization

GO

Grassroot Organization

INGO

International NGO

NGDO

Nongovernmental Development Organization

VO

Voluntary Organization

QUANGO

Quasi-nongovernmental Organization

TANGO

Technical Assistance/Advocacy NGO

TNGO

Transnational NGO

Source: Adapted from Vakil (1997) p. 2060.

Perhaps one of the most prominent NGOs in the world, the first one granted observatory status in the United Nations (U.N.), is the Swiss-based International Committee of the Red Cross (ICRC), founded in 1863. The ICRC brought together non-official foreign representatives and several other international NGOs to define core principles linked to their humanitarian work worldwide. The ICRC paved the way for the signing of the Geneva Convention a year later. In 1945, the U.N. recognized the role of nongovernmental entities in world affairs and enshrined it in its charter, article 71: “The Economic and Social Council may make suitable arrangements for consultation with nongovernmental organizations which are concerned with matters within its competence.” Willetts (2010) proposes five key dimensions to distinguish NGOs from other private entities. These organizations must be: 1. independent, that is, nongovernmental entities 2. not a political party 3. non-profit-making as a core organizing principle 4. not involved in criminal activities 5. non-violent in their activities The World Bank (1995) specifies that NGOs are “private organizations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services or undertake community development” (p. 7). In other words, we can define NGOs as independent and vol-

untary associations of individuals organized at the local, national, or international levels working toward a common purpose other than achieving government office, making money, or illegal activities (Judge, 1994; Martens, 2002). While NGOs are generally understood as having either progressive social welfare or advocacy activities, they are all value based. Some NGOs can be devoted to conservative agendas, such as Heart Beat International, an anti-abortion faith-based NGO. Furthermore, scholars and practitioners have developed many labels to describe various sub-types of NGOs to make matters more complicated. Some have even described this explosion of labels as an “alphabet soup” (Vakil, 1997). Table 25, adapted from Vakil’s (1997) work lamenting the general classification confusion, gives us an overview of some of the most used labels. In sum, NGOs embrace a cause, or a service, are not always formally registered for tax exemption purposes, and are engaged in various activities domestically or/ and abroad.

In practice

What do NGOs do? As discussed previously, NGOs embrace a variety of purposes and values and conduct activities that fall within the five broad criteria mentioned above. While they can have an advocacy or social welfare function, they typically operate within a few areas of activities. Although this is not an exhaustive list, NGO activiPaloma Raggo

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ties tend to cluster on humanitarian relief, human rights, environmental conservation or advocacy, development, conflict resolution, education, and social justice. Many will recognize Greenpeace, the Red Cross, Médecins Sans Frontières (Doctors Without Borders), Amnesty International, or Care International as examples of large international NGOs (INGOs) that have various chapters and affiliates worldwide. While NGOs come in different shapes and sizes, prominent INGOs like these will often partner with smaller, locally based organizations to ensure that their activities meet the needs of local populations. To do their work, NGOs must organize themselves to work and be accountable to a wide range of stakeholders, from donors, their peers, the beneficiaries of their services, their domestic and international staff, as well as the general public, particularly if they are registered for tax purposes and related benefits. It is important to note that there is no worldwide registry of NGOs as each country decides if such private organizations must officially register. In some politically fraught contexts registering as an NGO can be risky, especially if their activities are perceived as subversive to the current regime. How are these organizations structured to carry out their activities domestically and internationally? Brown et al. (2012) propose five types of international advocacy NGO (IANGO) architecture, four of which can apply broadly to most NGOs: (1) unitary, (2) federation, (3) confederation, and (4) networked configurations. Their various architectures suggest differences in whether NGOs form one unitary organization where decisions are made according to a clear, pre-determined hierarchy. It is important to note that these unitary organizations can have various configurations. Some will be more vertical, with decisions made at the top, or horizontal, decisions made in consultation and collaboratively. For NGOs that have more complex architectures, often because they operate nationally or internationally, Brown et al. suggest that they are organized in a federation, where the center has more authority on the identity or practices of the sub-components or chapters of the IANGO, confederation, where there is less centralized decision-making, or in networked configurations where resources are sometimes shared. Paloma Raggo

Goals align, but organizations within them keep distinct organizational identities.

Issues and debates

While NGOs have often been at the forefront of important campaigns against human rights abuses for social justice and sustainable development, they have not been exempted from all criticisms. Following their incredible growth in the 1990s after the end of the Cold War, NGOs have faced increasing pressure to demonstrate their accountability for their activities and how the funds they raise are spent and questions about the assumption that because they mean well, they do well. Many have asked, “who guards the guardians?” (Auditing conservationists, 2003). In the last 20 years, we have seen an explosion in the accountability industry with the advent of rating organizations that can inform potential donors about the performance of NGOs according to pre-determined metrics. GuideStar, Candid, and CanadaHelp are all examples of entities, often tax-exempt nonprofits, that offer to assist domestic donors and the general public in evaluating domestic and international NGOs. While requesting accountability from unelected NGOs is important and worthy, the overemphasis on financial metrics can pressure NGOs to adjust their missions and activities toward measurable outcomes that will satisfy donors and not necessarily the needs of the community they serve. Ultimately, whose interests and demands are NGOs serving? Those of the donors whose resources ensure the organization’s survival or their beneficiaries which are central to the mission and organizing principles of the organizations? There is no simple answer. NGOs have experienced an unprecedented professionalization of their activities domestically and abroad and greater financial scrutiny, particularly in response to scandals tied to financial mismanagement, sexual abuses of vulnerable groups, and the increasing competition for scarce resources. This has required better training of NGO leaders, a greater focus on diversity issues within organizations, and addressing power imbalances between their various stakeholders, including staff, donors, recipients, and peer organizations. While accountability is a fundamental governance concern for NGOs around the world, it is far from being the only one; relationships

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with their donors, their host government, the general public, the host communities and beneficiaries, or their domestic or international staff raise questions about their capacity to navigate these complex relationships. Internally, NGOs’ executives and their staff must often implement the vision of the board of directors. This becomes more challenging to achieve for smaller organizations without the capacity to do so. Externally, executives must navigate donor politics and their influence. The line is fine between aligning donors’ interest with the goals of the organizations while avoiding the cooptation of the organization by donors with specific and often narrow goals. Lastly, ensuring the efficient use of an organization’s precious and often scarce resources requires executives and managers alike to think through organizational processes, streamline decision-making, foster innovation, and evaluate their progress towards achieving their goals. The lack of uniform definition or accreditation complicates the evaluation of their activities notwithstanding the challenge of securing funding dedicated specifically in evaluating the work already done. Because NGOs tend to tackle intractable problems like global poverty, climate change, sex trafficking among other super wicked problems, their ability to measure progress and change over time is difficult at best, impossible at worst.

The future

As issues continue to emerge and ignore geographical boundaries, NGOs can play an essential role in bridging the response of governments to modern challenges with the needs of the most vulnerable populations. The COVID-19 pandemic, the war in Ukraine, the recurrence of natural disasters around the world highlights how NGO work will be even more critical in the years to come as we grapple with the consequences of these simultaneous crises. NGOs are being asked to be increasingly agile in their adaptation to sudden changes in their operating environments, yet the funding situation is increasingly precarious and competitive. In conjunction with the rise of authoritarian regimes often perceiving civil society and NGOs advocating for social justice as “enemies” and agents of foreign intervention,

the growth of the NGO sector around the world is uncertain. Paloma Raggo

Related topics

Authoritarian regimes and the nonprofit community Comparative perspectives on nonprofit organizations Global conflict and philanthropy Government failure theory International aid Refugee services Wealth inequality

Further reading and references

Auditing conservationists: Who guards the guardians? (2003, September 13). The Economist. www​.economist​.com/​science/​displaystory​ .cfm​?story​_id​=​E1​_NDSSQJP​&​source​=​login​ _payBarrier Brown, L. D., Ebrahim, A., & Batliwala, S. (2012). Governing international advocacy NGOs. World Development, 40(6), 1098–1108. https://​ doi​.org/​10​.1016/​j​.worlddev​.2011​.11​.006 Bryant, R. L. (2009). Born to be wild? Nongovernmental organisations, politics and the environment. Geography Compass, 3(4), 1540–1558. Charnovitz, S. (1997). Two centuries of participation: NGOs and international governance. Michigan Journal of International Law, 18(1), 183–286. Ebrahim, A. (2003). Accountability in practice: Mechanisms for NGOs. World Development, 31(5), 813–829. https://​doi​.org/​10​.1016/​S0305​ -750X(03)00014​-7 Judge, A. (1994). NGOs and civil society. Global Policy. https://​archive​.globalpolicy​.org/​ngos/​ intro/​defining/​2000/​civso​.htm Lewis, D. (2001). The management of non-governmental development organizations an introduction. Routledge. Martens, K. (2002). Mission impossible? Defining nongovernmental organizations. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 13(3), 271–285. www​ .springerlink​.com/​index/​U862M12K50192135​ .pdf Najam, A. (1996). NGO accountability: A conceptual framework. Development Policy Review, 14(4), 339–354. https://​doi​.org/​10​.1111/​j​.1467​ -7679​.1996​.tb00112​.x Slim, H. (2002). By what authority? The legitimacy and accountability of non-governmental organisations. The Global Development Research

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416  Elgar encyclopedia of nonprofit management, leadership and governance Center. www​.gdrc​.org/​ngo/​accountability/​by​ -what​-authority​.html Stanley, A. C., Willms, D., Schuster-Wallace, C., & Watt, S. (2017). From rhetoric to reality: An NGO’s challenge for reaching the furthest behind. Development in Practice, 27(7), 913–926. https://​doi​.org/​10​.1080/​09614524​ .2017​.1350258 Vakil, A. C. (1997). Confronting the classification problem: Toward a taxonomy of NGOs. World Development, 25(12), 2057–2070. https://​ doi​ .org/​10​.1016/​S0305​-750X(97)00098​-3 Wapner, P. (1995). Politics beyond the state: Environmental activism and world civic politics. World Politics, 47(3), 311–340. https://​doi​ .org/​10​.2307/​2950691 Werker, E., & Ahmed, F. Z. (2008). What do nongovernmental organizations do? Journal of Economic Perspectives, 22(2), 73–92. https://​ doi​.org/​10​.1257/​jep​.22​.2​.73 Willetts, P. (2010). Non-governmental organizations in world politics: The construction of global governance. Routledge. Wong, W. H. (2012). Internal affairs: How the structure of NGOs transforms human rights. Cornell University Press. World Bank. (1995). A practical guide to operational collaboration between the world banks and non-governmental organizations. Operations policy department. World Bank. https://​documents1​.worldbank​.org/​curated/​en/​ 814581468739240860/​text/​multi​-page​.txt

Nonprofit sector In 2002, Peter Frumkin published On Being Nonprofit, a book on the critical issues and questions facing the nonprofit sector in the U.S. at the turn of the century. What has changed over the past two decades? What is the status of the nonprofit sector today?

Key terms and concepts

Nonprofit: The nonprofit sector is a vast and diverse conglomeration of organizations pursuing an enormous array of social objectives. The word “nonprofit” is problematic because it implies that the core defining feature of these organizations is the way they pursue and handle their finances. That is, nonprofits are defined in opposition to business firms that are “for-profit.” The core function of the sector which is to make a social impact does not get recognized with this label. Peter Frumkin and Mark A. Hager

Sector: The word “sector” is equally problematic in that it implies neat lines of demarcation and internal order within the sector’s boundaries. The reality is that there are countless small community groups working for social impact that are not recognized as “nonprofit organizations.” These small, ill-funded groups do not have governance systems, reporting practices, professional staff, or even legal status. Yet they must be understood as part of the sector. They create impact yet stand outside the boundaries of the “sector.” At the same time the sector is currently home to organizations that are either entrenched in our political life, that only serve their members and not the public, or that do not have broad public benefits as their objectives. Still, the core of what we consider the nonprofit sector is the mission driven, public-serving, board-governed, and community-stakeholder responsive organizations. Alternative language: The tensions inherent in speaking about a nonprofit sector has pushed many to search for different names for these entities that create public value and are driven by social missions. When it comes to language outside the U.S., especially in developing countries, a common adjustment is to speak of nongovernmental organizations, in part because the state is the main power holder abroad. In the U.S., the sector is defined against business because it, not government, is the central source of power. In Europe, many speak of the voluntary sector or charitable sector. These terms point to the sources of resources that are seen as essential to the functioning of the sector, namely volunteer labor and charitable contributions. There was a time in the U.S. when attempts were made to rechristen the sector as the independent or third sector, but these terms turned out to be passing fads. Regardless of what it is called, the nonprofit sector has emerged in recent years as a potent force for change around the world.

Core functions

Civic and political engagement: As outlined in On Being Nonprofit, the nonprofit sector has four reasonably distinct functions. First, the nonprofit sector is a tool for engaging and energizing our civic and political life. Nonprofit organizations advocate and organize to help voice and represent a variety of causes and concerns. From the neighborhood

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level to the city level to the state level to the national level and even to the international level, the nonprofit sector is the place where civic and political convictions are brought forward to be heard and addressed. A key function of many nonprofit organizations is thus that they serve as rallying centers for citizens to engage each other and the political establishment. Service delivery: A second function, and probably the biggest and most identifiable part of the nonprofit sector, is the delivery of programs to communities that exhibit a demand for them. Nonprofits in virtually every community serve as reliable vehicles for getting to a broad range of populations. Whether it is a health clinic in a part of the city that is underserved or a puppet theater that teaches tolerance to children or a college that serves both wealthy and disadvantaged students seeking an education, the nonprofit sector does perform a critical role in delivering services. Values expression: Third, nonprofits play an essential role in providing a means for people to express to the world their beliefs and commitments. Value or faith expression is an important dimension of virtually all nonprofit organizations, which differentiates them generally from business and government. However, some nonprofits exist purely as a means for member self-expression and personal development. Religious congregations, community theaters, and cultural heritage groups are together the glue that unites our communities around shared beliefs and interests. Social entrepreneurship: Fourth, nonprofit organizations are a tool for entrepreneurship. With bureaucratic red tape binding government action and with the pressure of the bottom line constraining what is possible in business, there is a need for a place where people can make things happen without many obstacles. The nonprofit sector allows individuals to imagine an idea then erect that vision in reality. Many young people are attracted to the nonprofit sector because their entrepreneurial inclinations can be acted upon quickly and often inexpensively, especially when volunteers or small fees are key resources driving action. The sector allows self-authorizing entrepreneurs to move ahead with their visions of social impact.

Current issues and challenges

Twenty years on, these four central functions of the nonprofit sector still persist. They remain as central and vital dimensions of nonprofit organizations today. That said, if we were revising On Being Nonprofit today, what observations would we make about what has changed in the intervening years? Civic and political engagement: As the world continues to evolve away from the deep interpersonal engagement that characterized North America after World War II, nonprofits fight a pitched battle in bringing citizens together to exchange ideas and make policy decisions together. Over the past 20 years, the big change is the mechanisms through which people meet and exchange those ideas. While people still see their neighbors on front porches and attend public government meetings, they are at least as likely to see their neighbors on Facebook and exchange political barbs with others on Twitter/X. The COVID-19 pandemic has further pushed us toward isolation in our living rooms and connection through social media. Social media is tailor-made for nonprofit organizations, who crave inexpensive ways to pitch their brand to a wide audience. Perhaps the biggest change in the nonprofit sector over the past 20 years is its embrace of social media as a primary means of connecting people and organizing around causes of all kinds. Service delivery: Homeless shelters, community health clinics, job training programs, youth after-school programs, and all the other service-centered organizations are still the most identifiable part of the nonprofit sector, and that is not likely to change any time soon. The developments in service delivery are less about change over the past 20 years and more a double-down on changes over the past 40 years. Traced roughly to the 1980s, government started delivering fewer services directly and instead contracted them out to private organizations, often nonprofit organizations. Before long, most government services were delivered by nonprofits and most social and health service nonprofits had substantial contracts from government. This co-dependency has further evolved in the new millennium, and few current nonprofit sector workers even remember a day when nonprofit service delivery was not inextricably tied to government interests and resources. Peter Frumkin and Mark A. Hager

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Value and faith: Culture wars and the politics of social change have always been fought in the nonprofit sector, but the past 20 years have been particularly intense. With civil rights front and center again in recent years, the nonprofit sector has grown both left- and right-wing movements to represent the voices and interests of major swaths of the electorate. Today, contentious issues related to prayer in schools, abortion, and immigration are front and center in the sector, as advocacy organizations of all varieties express contrasting value and faith-based perspectives on the major social issues of the day. Social entrepreneurship: At the turn of the millennium, social entrepreneurship was just finding its feet. To be sure, entrepreneurs had been at work in social settings all over the globe for many years, but they were not connected to each other and had little access to resources. Over the past 20 years, support for social entrepreneurship has blossomed. More funders and prizes emphasize it, and more scholars and journalists give attention to it. An expanding internet has played two important roles. First, information about an innovative model in one part of the world can more readily diffuse to another innovator in another part of the world. Second, once-isolated entrepreneurs are now better connected to resources, associations, and each other. Social entrepreneurship has gone from a buzzword to a fundamental force for innovation and change in communities across the globe.

The future

As always, nonprofits are places that bring people together. Some facilitate the sharing of common beliefs and interests and the promotion of bonding social capital. Other nonprofits actively seek to connect people who would not otherwise interact and, in the process, build bridging social capital. The sector at its best connects people, builds trust, and promotes greater mutual understanding. Political division is a watchword of the day, but the nonprofit sector has the capacity to transcend political division. No matter which function one believes to be most important or most worthy of the tax benefits that the nonprofit sector often enjoys, there is a universal argument for nonprofit activity in all its forms and functions: the nonprofit sector carries the flag of pluralism high and Peter Frumkin and Mark A. Hager

proud. While it can be inefficient to have multiple organizations pursuing common goals or frustrating to have organizations offset each other by advocating for opposing policy positions, there is substantial value in the pluralism that is affirmed in the midst of the untidy process. The nonprofit sector defends the power and value of pluralism, the diffusion of power from one place to a thousand different places. Pluralism embodies a vision of the public interest in which we are more likely to arrive at solutions to public problems by having a huge number of ideas related to how to create value, rather than trust government or the market to come up with this single most “optimal” solution. The nonprofit sector has, for lack of a better term, matured over the past 20 years. It has increasingly adopted a commercial logic for how it will generate resources and operate. In earlier days, nonprofits of all types resisted the taint of commerciality, worried that it would compromise the purity of the distinction from for-profit businesses. That sentiment is rarer these days, replaced with the motto that survival requires a business mindset. Donations are still a part of nonprofit finance but the growth in revenues, particularly in recent years, has been largely a function of finding ways to include a real market test, in which clients and service users and members pay part or all of the cost of the service they consume. This has both clear benefits and real limitations. On the one hand, the marketization of nonprofit services has increased the product-market fit and ensured that real demand is driving service delivery. On the other hand, relying on fees and charges paid by clients and users limits the range of people who can avail themselves of services. It can reduce the capacity of organizations to reach those most in need and least able to pay. In this way, marketization both ensures that the output of the nonprofit sector meets authentic needs felt by end users while also reducing the capacity of the sector to serve needy clients without regard to their ability to pay. A second way the nonprofit sector has matured is in its pronounced move toward greater levels of professionalization. Work in the nonprofit sector is no longer a casual endeavor, assigned to volunteers and part-time help. The workforce has been transformed globally into a far more rigorously trained and experienced group of pro-

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fessionals who spend entire careers moving from one nonprofit to another. The move to formalize and professionalize nonprofit work has helped reduce the charge of amateurism. More universities now offer undergraduate and graduate courses and degrees in nonprofit management, a hallmark of professionalization that will almost certainly accelerate into the future. A further development in the sector has been the rise in interest and commitment to impact measurement. While some complex nonprofit initiatives remain difficult to measure because they have multiple or long-term objectives that are interwoven with forces well outside the control of the program or initiative being measured, the use of metrics has proceeded apace to render nonprofit work more concrete and accountable. Funders have come to demand performance measurement as a condition for their support of nonprofit organizations. These external mandates have helped nonprofits to become clear about their objectives and the meaning of success in their projects. Fraught with tensions about how it should balance mission and margin, struggling to accommodate a huge variety of causes and motives, and seeking to garner greater public understanding and support, the nonprofit sector remains a critical contributor to society. Some may worry that the nonprofit sector is really neither nonprofit nor a sector – given the growing reliance on fees and charges paid by clients and the incommensurability of missions and purposes across organizations. Even if it is neither truly nonprofit nor really a sector, the nonprofit sector in its current evolved form is likely to remain a central and important part of our collective problem-solving capacity. Peter Frumkin and Mark A. Hager

Related topics

Civil society Democracy and philanthropy Faith and philanthropy Philanthropy: Definition and history Politics and philanthropy Social entrepreneurship

Further reading and references

Bherer, L., Gauthier, M., & Simard, L. (Eds.) (2017). The professionalization of public participation. Taylor and Francis. Edwards, M. (2009). Civil society (2nd edn.). Polity Press. Frumkin, P. (2002). On being nonprofit: A conceptual and policy primer. Harvard University Press. Grønbjerg, K., & Smith, S. R. (2021). The changing dynamic of government-nonprofit relationships advancing the field(s). Cambridge University Press. Hall, P. D. (1992). Inventing the nonprofit sector: And other essays on philanthropy, voluntarism, and nonprofit organizations. Johns Hopkins University Press. McKeever, B. S., Dietz, N. E., & Fyffe, S. D. (2016). The nonprofit almanac: The essential facts and figures for managers, researchers, and volunteers. Rowman & Littlefield. Powell, W. W., & Bromley, P. (Eds.) (2020). The nonprofit sector: A research handbook (3rd edn.). Stanford University Press. Schlozman, K. L., Brady, H. E., & Verba, S. (2020). Unequal and unrepresented: Political inequality and the people’s voice in the new gilded age. Princeton University Press. Young, D. R., Searing, E. A. M., & Brewer, C. V. (Eds.) (2016). The social enterprise zoo: A guide for perplexed scholars, entrepreneurs, philanthropists, leaders, investors, and policymakers. Edward Elgar Publishing.

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Operating foundations

investment income and other private foundation tax rules. However, there are important tax advantages to private operating foundation status, which include the following:

Definition

The Internal Revenue Code divides what are commonly referred to as “charities” into two categories: public charities and private foundations (EO operational requirements, 2022). Within the category of private foundations, a further distinction is made. Private foundations are either non-operating (grantmaking) foundations or operating foundations. While private operating foundations may also make some grants to other charitable organizations, they must engage primarily in direct charitable activities by running their own programs (i.e., using their own facilities, staff, and resources to further directly their charitable operations). Common examples include museums, libraries, research facilities, and historic homes. Thus, in sum, a private operating foundation is a type of private foundation that uses the majority of its income to run its own charitable programs or services, rather than just making grants.

In practice Tax advantages of private operating foundations Essentially, a private operating foundation is a private foundation that uses almost all of its funds to conduct actively its own exempt activities.16 Importantly, private operating foundations remain subject to the tax on net

1. Not being subject to the excise tax for failing to distribute income. 2. A 50 percent of adjusted gross income limit, rather than a 30 percent one for charitable contribution deductions.17 3. The ability to take in qualifying distributions from private foundations, as long as the private foundation does not control it. Qualifying as a private operating foundation – Income test and one of three tests In order to qualify as a private operating foundation, a foundation must meet the income test, or in other words spend at least 85 percent of its adjusted net income or its minimum investment return, whichever is less, directly for the active conduct of its exempt activities. Adjusted net income is adjusted income minus adjusted deductions. Minimum investment return for any private foundation refers to 5 percent of the excess of the total fair market value of all its assets, except those used or held for use for exempt purposes, over the amount of indebtedness incurred to purchase these assets. Additionally, the foundation must meet one of three tests: the assets test, the endowment test, or the support test. (The examples below are derived from Treas. Reg. § 53.4942(b)-2; however, it has not been updated to reflect changes made by P.L. 104-188 at this time.)

Private operating foundations are defined in I.R.C. § 4942. The Tax Cuts and Jobs Act of 2017 raised the limit to 60 percent for cash contributions to private operating foundations through tax years beginning before January 1, 2026. Moreover, the limit was increased to 100 percent of adjusted gross income (AGI) for cash contributions in 2020 and 2021 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. 16 17

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Assets test The assets test is met if 65 percent or more of its qualifying assets: 1. are devoted to actively carrying out its exempt activity, a functionally related business, or a combination; 2. consists of stock of a corporation it “controls” that is directly devoted to such activities, such as a subsidiary;18 or 3. any combination of (1) and (2). Assets directly devoted to the foundation’s exempt activity (charitable, educational, etc.) are qualifying assets. In contrast, assets (such as stock in unrelated corporations, bonds, rental property, etc.) that are held primarily to produce income, for investment, or a similar purpose are not considered qualifying assets. As a basic example, a museum would meet the assets test because its assets are devoted to its exempt purpose, for example, education of the public. As a more complex example, assume a foundation “W” that maintains and operates a historic area for the general public. Through a wholly owned subsidiary, W has acquired and constructed lodging and other facilities for visitors in the area. These facilities make up essentially all of the subsidiary’s assets. In this scenario, the stock of the subsidiary, which is in a corporation related to W’s exempt activity, is considered part of W’s assets which are taken into account in considering whether the assets test has been met. However, W’s stock in any unrelated corporations, that is, those not tied to W’s exempt activity, are not considered qualifying assets. Endowment test The endowment test is met if it typically makes qualifying distributions (of at least two-thirds of its minimum investment return) directly for the active conduct of its exempt activity. For example, assume a foundation “X” whose “assets” have a FMV of $400,000 in the year 1971. X makes qualifying distributions directly to conduct actively its exempt purpose totaling $17,000 in 1971. Assume

further the minimum investment return is 6 percent. Two-thirds of X’s minimum investment return is $16,000 (6 percent × $400,000 = $24,000; ⅔ × $24,000 = $16,000). Here, X has satisfied the endowment test. Support test The support test is met if the following are true: 1. at least 85 percent of its support (other than gross investment income) normally comes from the general public19 and five or more unrelated exempt organizations; 2. not more than 25 percent of its support (other than gross investment income) normally comes from any one exempt organization; and 3. not more than 50 percent of its support normally comes from its gross investment income. For example, assume a foundation “X” which normally receives 20 percent of its support (gross investment income aside) from each of five exempt organizations. X may meet the support test even if it does not receive any support from the general public. Four-year testing period A determination of whether the income test and one of the three tests explained above have been met is made over a four-year testing period. Statement in application for tax-exemption (Form 1023) In filing an application for tax-exemption, an organization may submit information that it qualifies for private operating foundation status on Part VII, of Form 1023. A foundation that has been in existence for a year or more must submit information that shows it satisfied the classification requirements, including the income test and one of the three tests. A foundation that has existed for less than one year must describe adequately how it plans to meet these requirements. Importantly, neither the organization nor its donors can rely upon any notice until the

18 See Treas. Reg. § 53.4942(b)-2(a)(1)(ii) (establishing the standard for assessing control over corporation stock, based on criteria in I.R.C. § 368(c) and in Treas. Reg. § 53.4942(b)-1(c)). 19 There is a 1 percent limit that applies to support from the general public.

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Internal Revenue Service (IRS) provides official notification that the foundation is a private operating foundation.

Operating reserves

Debates and future directions

Operating reserves are assets that are held for temporary emergencies or unexpected growth opportunities. They should not be conceived of consisting of all liquid holdings of a nonprofit organization. Rather, liquid resources are made up of operating reserves plus working capital – that is, assets held for operational and transactional purposes – such as routine payroll. Further, operating reserves must be free from donor restrictions that limit how the nonprofit may use the resources. Operating reserves represent one form, but not an exclusive form, of organizational slack that a nonprofit might hold. Some organizations maintain operating reserves in separate bank accounts from their working capital. Others comingle these funds and track operating reserves internally. In a similar vein, some nonprofits have strict policies developed by their boards about the appropriate use and accumulation of operating reserves, while other nonprofits manage their operating reserves on a relatively ad hoc basis. Therefore, operating reserves in the nonprofit sector are represented by varying degrees of formality. Fundamentally, however, these operating reserves serve the same purpose whether a nonprofit has a formal or informal system in place.

There are advantages and disadvantages to private operating foundations from a societal viewpoint. On the one hand, private art museums, for example, are used as a mechanism for wealthy donors to amass their own private art collection that often proves inaccessible to the general public. On the other hand, the pandemic has caused some observers to view such private operating foundation art museums as the museums of the future. Private operating foundations should consider making the fruits of their exempt activities accessible online as well if they are truly to benefit the public. Khrista McCarden

Related topics

Charity law Internal Revenue Service Private foundations Tax policy: Federal

Further reading and references

Crimm, N. J. (2003). Through a post-September 11 looking glass: Assessing the roles of federal tax laws and tax policies applicable to global philanthropy by private foundations and their donors. Virginia Tax Review, 23(1), 1–147. https://​papers​.ssrn​.com/​sol3/​papers​.cfm​ ?abstract​_id​=​1103272 EO operational requirements: Private foundations and public charities internal revenue service. (2022, January 21). IRS. www​.irs​.gov/​charities​ -non​-profits/​eo​-operational​-requirements​ -private​-foundations​-and​-public​-charities Hopkins, B. R. (2019). The law of tax-exempt organizations (12th edn.). Wiley. Hopkins, B. R., & Blazek, J. (2014). Private foundations: Tax law and compliance (4th edn.). Wiley. McCarden, K. (2020). Private operating foundation reform and J. Paul Getty. Pittsburgh Tax Review, 17(2), 387–412. https://​doi​.org/​10​ .5195/​taxreview​.2020​.114

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Definition

In practice

The importance of operating reserves is hardly controversial in the nonprofit sector, although they do have their detractors. On the one hand, operating reserves are expected to assist nonprofits from having to abruptly alter programs due to unexpected funding shortfalls. Such changes are likely to negatively affect programmatic clients as well as employees of the nonprofit. Operating reserves, then, permit nonprofits to manage programs through business cycles without having to reduce services or employees when temporary and unforeseen revenue declines occur. Further, nonprofits may find themselves facing an unexpected opportunity to expand services and increase their impact in their areas of service. Perhaps property that would be ideal for expansion suddenly and unexpectedly becomes available for purchase; or a license to operate a particular

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health center becomes available in a particular neighborhood. Operating reserves permit nonprofits to quickly seize such rare opportunities rather than trying to line up other external financing; while such external financing might be advantageous for other reasons, delays may mean the nonprofit misses the opportunity completely. Operating reserves in this case offer nonprofits the opportunity to be operationally nimble and entrepreneurial. As such, operating reserves are accepted as a smart business practice of nonprofits. On the other hand, operating reserves represent resources that a nonprofit retains rather than spends on current programs. As such, operating reserves reduce current outputs of nonprofits. To the extent that some nonprofits focus on critical and immediate needs of particular clients, operating reserves might be criticized as favoring liquid savings at the expense of current human need. As such, many nonprofits that do hold operating reserves opt to hold small levels of these resources to avoid the appearance of hoarding wealth rather than addressing current services. Another cost of holding operating reserves might be increased operational inefficiencies. Core et al. (2006) note that excessive cash may lead to agency problems; however, their analyses do not focus specifically on operating reserves and focuses instead broadly on cash balances. Subsequent analyses, such as Calabrese (2018), find no evidence of agency problems with respect to operating reserves specifically. Nevertheless, the concern exists. One common rule of thumb in the nonprofit sector is that organizations ought to maintain three to six months’ worth of cash expenses, or about 25 to 50 percent of annual cash spending, in reserve to ensure program continuity. Blackwood and Pollak (2009) found that 57 percent of the Washington, D.C., sample they analyzed did not have operating reserves that met this minimum recommendation, and 30 percent had no reserves at all. In a more recent national sample (2015–2017), Calabrese and Ely (2020) find that about 18 percent of nonprofits have no operating reserves at all, and 42 percent have up to six months’ worth of reserves. Given the known benefits of operating reserves, it is curious that such a large number of nonprofits choose to hold such low amounts. One potential explanation is

that nonprofits are expected to operate under certain financial norms to give donors and other important stakeholders confidence in their trustworthiness (Mitchell & Calabrese, 2019). One of these norms is fiscal leanness – in which current spending is privileged over savings. A result of this norm is that many nonprofits operate with limited liquidity and meager reserves which lead to poor financial outcomes when unexpected revenue shortfalls develop. In the 2009 recession, significant numbers of nonprofits reported cutting services, freezing salaries, eliminating staff, reducing fringe benefits of employees, and reducing operating hours. During the recent pandemic, Kim and Mason (2020) find nonprofit organizations with more operating reserves avoided these similar poor financial outcomes compared to nonprofits with less operating reserves. Therefore, despite the potential benefits of operating reserves, traditional “proverbs” of nonprofit financial management may limit the ability of nonprofit organizations to respond to immediate and critical financial threats. Similarly, over a long time period and focusing on a broad national sample of nonprofits, Calabrese (2018) finds that the unexpected revenue shortfalls nonprofits face during economic downturns are greater than accumulated reserves; in other words, nonprofits on average have insufficient operating reserves to offset lost revenue.

Current and future directions

The academic literature has rightly focused on how operating reserves can and should mitigate revenue shortfalls. What the literature has not yet analyzed significantly is the role of operating reserves in nonprofit growth and expansion. Do nonprofits with sufficient operating reserves grow and expand programs more and faster than nonprofits lacking such resources? Or does theory about one of the benefits of operating reserves not have empirical support in the nonprofit sector? Such research could likely be accomplished using existing nonprofit databases that use Form 990 data. In the world of practice, the most pressing concern is to begin changing the proverbs of nonprofit financial management which emphasize lean operations that sacrifice reserves in order to appear more trustworthy to external parties. Because of this, nonprofit Thad D. Calabrese

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managers fail to build adequate reserves and the nonprofit sector as a whole remains at risk to unexpected macroeconomic events that might shrink revenues and, as a result, services provided. Operating reserves are a necessary management tool that all nonprofit managers ought to have in their toolkits. Because managers believe they cannot show operating reserves to stakeholders, many use other tools that are far from ideal, more costly, and not truly operating reserves. Sloan et al. (2016) interviewed managers and found that these individuals identify lines of credit, investment accounts, capital assets, among other financial accounts as “reserves.” However, lines of credit are liabilities rather than assets that must be repaid (and with interest) if used, unlike operating reserves; investment accounts are assets, but their values fluctuate and might drop when a nonprofit needs them the most; and capital assets take time to sell and are not immediately available as operating reserves are. No doubt these perceptions derive from the pressure nonprofit organizations face to spend assets that could be operating reserves rather than saving them. But the cost of this behavior on nonprofit organizations and on their clients is significant. Thad D. Calabrese

Nonprofit Management and Leadership, 28(3), 295–311. https://​doi​.org/​10​.1002/​nml​.21282 Calabrese, T. D., & Ely, T. L. (2020). Nonprofit profits: Slack, surplus, and reserves. In I. Garcia-Rodriguez & M. E. Romero-Merino (Eds.), Financing nonprofit organizations (pp. 114–128). Routledge. Core, J. E., Guay, W. R., & Verdi, R. S. (2006). Agency problems of excess endowment holdings in not-for-profit firms. Journal of Accounting and Economics, 41(3), 307–333. https://​doi​.org/​10​.1016/​j​.jacceco​.2006​.02​.001 Grizzle, C., Sloan, M. F., & Kim, M. (2015). Financial factors that influence the size of nonprofit operating reserves. Journal of Public Budgeting, Accounting & Financial Management, 27(1), 67–97. https://​doi​.org/​10​ .1108/​jpbafm​-27​-01​-2015​-b003 Kim, M., & Mason, D. P. (2020). Are you ready: Financial management, operating reserves, and the immediate impact of Covid-19 on nonprofits. Nonprofit and Voluntary Sector Quarterly, 49(6), 1191–1209. https://​doi​.org/​10​.1177/​ 0899764020964584 Mitchell, G. E., & Calabrese, T. D. (2019). Proverbs of nonprofit financial management. The American Review of Public Administration, 49(6), 649–661. https://​doi​.org/​10​.1177/​ 0275074018770458 Nonprofit Finance Fund. (2018). Nonprofit finance fund state of the nonprofit sector survey. https://​ nff​.org/​learn/​survey. Accessed 15 September 2023. Nonprofit Operating Reserves Initiative Workgroup (NORI). (2008). Maintaining nonprofit operating reserves: An organizaRelated topics tional imperative for nonprofit financial staBudget process bility. Nonprofit Operating Reserve Initiative Financial documents and control Workgroup. Financial performance indicators Nonprofit Operating Reserves Initiative Workgroup (NORI). (2010). Operating reserve Financing nonprofit organizations policy toolkit for nonprofit organizations. Resilience management National Center for Charitable Statistics. Restricted / unrestricted funds Sloan, M. F., Charles, C., & Kim, M. (2016). Nonprofit leader perceptions of operatFurther reading and references ing reserves and their substitutes. Nonprofit Management and Leadership, 26(4), 417–433. Blackwood, A. S., & Pollak, T. H. (2009). https://​doi​.org/​10​.1002/​nml​.21207 Washington-area nonprofit operating reserves. The Urban Institute. http://​ webarchive​ .urban​ Sloan, M. F., Grizzle, C., & Kim, M. (2015). What happens on a rainy day? How nonprofit .org/​uploadedpdf/​411913​_dc​_nonprofit​ human service leaders create, maintain, and _reserves​.pdf. Accessed 15 September 2023. utilize operating reserves. Journal of Nonprofit Calabrese, T. D. (2013). Running on empty: The Education and Leadership, 5(3), 190–202. operating reserves of U.S. nonprofit organizations. Nonprofit Management and Leadership, Zietlow, J. (2010). Nonprofit financial objective and financial responses to a tough economy. 23(3), 281–302. https://​doi​.org/​10​.1002/​nml​ Journal of Corporate Treasury Management, .21064 3(3), 238–248. Calabrese, T. D. (2018). Do operating reserves stabilize spending by nonprofit organizations?

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Payout requirement

Legal requirements

Definitions

Under U.S. tax law, a nonoperating private foundation is required to make a minimum level of expenditures on charitable activities each year. This minimum expenditure level is known as the payout requirement or minimum distribution requirement. A private foundation is a §501(c)(3) charitable organization with a narrow base of financial support, typically members of the same family. A nonoperating private foundation typically makes grants to public charities, as opposed to an operating private foundation that operates charitable programs directly.

Background

The investments held by private foundations represent an unusual form of philanthropic stewardship. The public charity sector has a claim on the assets because the tax laws governing nonprofit organizations impose a non-distribution constraint, which prevents foundation assets from being diverted to non-charitable beneficiaries. However, no particular charity has any claim on these assets. Unlike public charities, private foundations break the direct link between the charitable deduction to the donor and the eventual disbursement of funds to a public charity. Congress became concerned that some foundations would excessively accumulate funds instead of making distributions to charities. The minimum distribution requirement was added to the U.S. Internal Revenue Code as part of the 1969 Tax Reform Act. Prior to that, some foundations were used to shield an individual’s property from taxation, while making few charitable expenditures.

The minimum amount that the foundation is required to distribute is equal to 5 percent of the fair market value of its investment assets, calculated on an average monthly basis over a 12-month span. Assets used to carry out the foundation’s charitable purpose, such as an office building, are excluded from this calculation. This minimum amount must be distributed by the end of the following year; a foundation that uses a calendar year that determines its distributable amount in 2021 has until the end of 2022 to make the distribution. Qualifying distributions include both grants made to public charities and administrative expenses related to the foundation’s exempt purpose. Investment expenses are not qualifying distributions. Qualifying distributions in excess of the minimum can be carried forward up to five years to satisfy future distribution requirements. Failure to distribute the required legal minimum is subject to a penalty of 30 percent of the undistributed amount (IRC §4942(a), n.d.). Failure to correct the under-distribution before the end of the year is subject to an additional 100 percent tax on the remaining undistributed amount. Violations of the minimum distribution requirement are infrequent and typically involve small foundations. However, the William G. McGowan Charitable Fund, a private foundation with over $140 million in assets, was required to make qualifying distributions of about $7.3 million in the year ending June 30, 2001, but only distributed about $6.9 million. The $400,000 shortfall triggered a $60,000 penalty under §4942; the penalty rate was 15 percent at that time as opposed to the current 30 percent rate.

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In practice

Deep and Frumkin (2006) assert that foundations tend to adhere closely to the minimum distribution requirement, treating it as a ceiling on charitable distributions as opposed to a floor. They studied a panel of large foundations between 1972 and 1996. Although a few foundations made distributions in excess of the 5 percent minimum, there is a significant clustering around the 5 percent level. When examined over time, the clustering around 5 percent becomes more pronounced in the 1985–1996 period. Sansing and Yetman (2006) examined a sample of 3,800 foundations between 1994 and 2000. They document substantial heterogeneity across foundations regarding their payout practices, with a mean distribution rate of 8.7 percent. They also find that foundations that do adhere closely to the minimum distribution requirement tend to be larger and are not currently receiving donations. The results of these studies are not inconsistent with each other, as Deep and Frumkin (2006) studied the largest most economically significant foundations; the largest 300 private foundations made about half of all grants in 2001. What Sansing and Yetman (2006) showed is that the behavior of the largest foundations documented by Deep and Frumkin (2006) does not generalize to the entire sector of nonoperating private foundations.

Current issues

The primary debate regarding the minimum distribution requirement is over whether the 5 percent floor should be increased. This issue has been the subject of contentious debate since its adoption in 1969. It is related to a larger debate over whether charitable organizations, including public charities, should have endowments. Harvard University had over $50 billion in financial assets in 2020, for example. The level of the floor was initially set at the greater of 6 percent of investment assets or the actual investment income (excluding capital gains) of the foundation. This was lowered to the greater of 5 percent of investment assets or the actual investment income (excluding capital gains) as part of the Tax Reform Act of 1976. The Economic Recovery Tax Act of Richard C. Sansing

1981 changed the rule to the current floor of 5 percent of investment assets. If the expected rate of return on investment assets is equal to the discount rate one uses to value future donations to charitable beneficiaries, the present value of future distributions is simply equal to the current value of the investment assets. For example, suppose a foundation can either make a grant of $100 or invest the funds to earn a 4 percent return, making future annual grants of $4 in perpetuity. The perpetuity has a present value of $4/.04 = $100. This suggests that social welfare is maximized if private foundations fund projects that generate positive future net social value, using the expected return on investment assets to discount future social returns. As Deep and Frumkin (2006) point out, the minimum distribution requirement should be thought of as a political compromise as opposed to the solution to a social welfare optimization problem. Consider the self-interest of both foundation decision-makers (trustees and managers) as well as the self-interest of trustees and managers of §501(c)(3) public charities. Both foundation status and the compensation of foundation managers is positively associated with the foundation’s assets, which gives the foundation’s decision-makers a personal incentive to keep the payout rate low. In contrast, those who manage public charities face strong pressures to raise funds, which gives them an incentive to lobby for a higher minimum distribution requirement. Levine and Sansing (2014) point out that a higher minimum distribution requirement will deter the formation of private foundations to the extent philanthropists benefit from the status associated with a large foundation. This suggests that the debate over the minimum distribution requirement should not simply focus on the rate at which current foundation assets are distributed to public charities, but the effect of the minimum distribution requirement on the inflow of funds to the non-profit sector.

Future

The last time the minimum distribution requirement was changed, 63 percent of the people alive today had not been born.

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cation of units of analysis, data collection tools, and processes essential for measuring performance. Performance management refers to how people in organizations use information collected in the measurement Related topics process to improve performance (Poister et Internal Revenue Service al., 2015). The focus of this entry is perPrivate foundations formance management; however, because Tax policy: Federal performance management depends on performance measurement – the two processes are inter-connected – the entry also includes Further reading and references some discussion of the performance measureDeep, A., & Frumkin, P. (2006). The foun- ment process. dation payout puzzle. In W. Damon & S. Further, among nonprofit sector researchVerducci (Eds.), Taking philanthropy seriously ers and practitioners, the terms performance (pp. 189–204). Indiana University Press. IRC Section 4942, Taxes on Failure to Distribute management and program evaluation are Income – Carryover of Excess Distributions or sometimes used interchangeably, although Undistributed Income (n.d). IRS. www​.irs​.gov/​ they are distinct concepts. Performance government​-entities/​irc​-section​-4942​-taxes​ management is broader; it encompasses the -on​-failure​-to​-distribute​-income​-carryover​-of​ assessment of a wide range of aspects of -excess​-distributions​-or​-undistributed​-income performance within programs, organizations, Levine, C. B., & Sansing, R. C. (2014). The private and systems. Program evaluation focuses foundation minimum distribution requirement and public policy. Journal of the American more narrowly on program-level assessment, Taxation Association, 36(1), 165–180. https://​ examining the performance of a particular intervention relative to its objectives, and doi​.org/​10​.2308/​atax​-50619 Sansing, R., & Yetman, R. (2006). Governing tends to involve more complex assessment private foundations using the tax law. Journal strategies than performance management, of Accounting and Economics, 41(3), 363–384. such as experimental research designs and https://​doi​.org/​10​.1016/​j​.jacceco​.2005​.03​.003 randomized control trials (Poister et al., Steuerle, G. (1977). Pay-out requirements for 2015). Realistically, the chances of a change in the foreseeable future are low. Richard C. Sansing

foundations. U.S. Department of the Treasury. Troyer, T. (2000). The 1969 private foundation law: Historical perspective on its origins and underpinnings. The Exempt Organization Tax Review, 27(1), 52–65l.

Performance management Definition

Performance management refers to the processes nonprofit organizations undertake to learn about and improve service delivery and related activities at the individual, program, organization, or system level. It involves analyzing data about individual services or management operations to develop and implement ways to enhance goal achievement. Performance management is often distinguished from performance measurement though the two are closely related. Performance measurement describes the assessment process, including the identifi-

In practice

In recent decades, performance management has become an essential task for nonprofit managers; and as noted in the definition above, it can take place at the individual, program, organizational, or system level. Individual-level performance management focuses on the improvement of services involving a single client or beneficiary. Program-level performance management does the same thing, relative to all participants and activities that comprise a program. Organization-level performance management uses information about the performance of an organization as a whole, including its operational activities (governance, finance, fundraising, and planning, among others), to improve its functioning. Finally, performance management focuses on performance improvement among the set of actors (nonprofit organizations, government agencies, activists, beneficiaries, elected officials, and private funders, to name a few) that comprise a system across a community. David A. Campbell and Kristina T. Marty

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While performance management occurs at a cross-section of levels, the aspects of performance that concern nonprofit staff and their stakeholders are largely consistent across those levels. Common dimensions of performance include effectiveness and mission accomplishment, responsiveness, equity, and efficiency. Effectiveness refers to the extent to which a service, program, organization, or system achieves what its creators want it to achieve. In many nonprofit organizations, effectiveness may be defined in terms of mission achievement. Responsiveness addresses how well the staff in nonprofit organizations attend to the concerns of beneficiaries and other stakeholders. Equity concerns how accessible, inclusive, or welcoming individual services are for all who seek or would benefit from them. Finally, efficiency is a finance and productivity measure, addressing the relationship between inputs and outputs in the production of a particular service or management activity. To measure and manage performance, nonprofit staff develop metrics derived from these dimensions and analyze them using simple comparisons – comparisons to performance over time, to units within an organization, to other programs, or to service or industry standards. These analyses provide the basis for decisions about how to improve services or operations. Nonprofit managers may conduct performance management both retrospectively and prospectively, using data collected from past service delivery experiences to identify prior accomplishments, current challenges, and opportunities for improvement. Information used in performance management is typically compiled using formal data collection methods, such as satisfaction surveys, focus groups, and outcome surveys (including preand post-tests), but may also be gathered informally such as through conversations between nonprofit staff and beneficiaries during the service delivery process. Institutional funders are a key stakeholder group for most nonprofit organizations, and many prioritize performance management for the work they support. Institutional funders include both private organizations (e.g., foundations and United Way) and public agencies (local, state, and federal government). Beginning in the 1990s, these funders

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began requiring nonprofit grantees or contractors to provide performance information as a condition of financial support. This development grew out of a renewed interest in accountability in both the public and nonprofit sectors. During that time, the New Public Management movement emerged in public administration emphasizing the importance of documenting and managing for results in government. In the nonprofit sector, highly publicized scandals at the United Way of America and other organizations led to a renewed desire to ensure that donors’ money was used as intended to contribute to the outcomes organizations promised. Today performance management is ubiquitous in the nonprofit sector and is an expectation of most institutional funders. Several factors contribute to the growing role performance management plays in the nonprofit sector. First, consistent with funders’ expectations for performance information, nonprofit organizations need to demonstrate their accountability to funders, and verify that they have completed funder-supported work. The funders to which nonprofit organizations view themselves as accountable are not limited to public and private institutions but also include individual donors. Second, related to the interest in demonstrating accountability, many nonprofit organizations seek to provide funders and other stakeholders with evidence of their effectiveness. While they and their stakeholders may define effectiveness in different ways, in the context of performance management, effectiveness typically focuses on program outcomes and mission accomplishment. Other motivations for performance management include: improving service delivery, ensuring beneficiaries’ needs are met, empowering beneficiaries, assisting with organization-level or program-specific planning, educating communities about challenges, and learning about needs and preferences within a community. Because of the dominant role funders have played in nonprofit performance management, some of these latter motives have received less attention from scholars. They are nonetheless important and, when considered with the other motives listed above, offer an expansive vision of how performance information may be used to enhance nonprofit work.

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Current challenges

Despite the benefits performance management offers, many challenges remain before it can fulfill its promise. This section highlights several of those challenges. Dissatisfaction with performance data Both nonprofit service providers and funders express frustration that the performance information they collect often provides a limited picture of the service delivery system (Campbell & Lambright, 2016, 2017). In the best-case scenario, the data offers a narrow view and misses key aspects of program impact and/or service beneficiaries’ experiences. In other instances, the information they compile may mislead, such as when a measure does not assess what staff assumes it does or when not enough context is shared along with the data. Funders also complain that the data they receive is not always timely, making it difficult to use in decision-making. Data collection can be particularly challenging in fields like health and human services in which outcomes are difficult to define and measure. This limitation sometimes results in providers and funders focusing on the elements of service delivery that are easiest to measure but are not necessarily the most meaningful. Exacerbating this challenge is the frequent time lag in health and human services between when a particular intervention is implemented and when its impact can be assessed, like early childhood education’s influence on later success in primary and secondary school. Nonprofit provider and funder capacity limitations Nonprofit service providers sometimes struggle to gather the performance information funders request and may lack the capacity to utilize the data once it is collected. These tasks can require considerable technical expertise in evaluation which many nonprofit staff lack. Consequently, staff often rely on less rigorous assessment techniques, including using measures they have developed themselves rather than ones that have been tested and validated. In addition, staff sometimes have difficulty distinguishing between different types of performance information and fail to give funders the data they have requested, such as reporting program outputs

rather than outcomes. Performance management activities are time- and labor-intensive too. However, many nonprofit service providers, especially small ones, have limited staff and financial resources. Like other administrative functions, the tasks associated with performance management are seldom perceived as urgent or essential for day-to-day operations. As a result, nonprofit staff often focus on tasks which require their immediate attention rather than on the development of the organizational infrastructure needed for effective performance management systems. Moreover, funders frequently do not give providers the resources they need to develop and monitor performance management systems. Further complicating matters, different funders require different types of performance information and/or different reporting formats, stretching providers’ limited resources and capacity. Like service providers, many nonprofit funders lack staff skilled in evaluation, hampering their ability to analyze the performance information they receive from the organizations they support as well as to effectively integrate it into their decision-making and planning processes. The disconnect between nonprofit provider and funder performance management priorities While most nonprofit providers and funders believe that there is at least some value in performance management, the two groups often prioritize different goals when engaging in it. What matters in terms of performance is often different for each stakeholder group. For instance, nonprofit funders tend to emphasize practices that verify that funded work has been completed and demonstrate program effectiveness and outcomes. By contrast, providers focus more on using performance management systems to improve their services and ensuring beneficiaries’ needs are met. As a result of these different priorities, the performance data nonprofit providers and funders are most interested in collecting and analyzing can differ too, creating tensions in performance management processes. For example, funders wishing to document the outcomes of the work they have supported may find quantitative measures evaluating program impact to be most helpful, while service providers seeking to improve services may be more focused on gaining a holistic David A. Campbell and Kristina T. Marty

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understanding of beneficiaries’ experiences and assessing their satisfaction with the service delivery process. As a manifestation of this challenge, nonprofit providers frequently report that they do not find the data funders require them to collect to be useful. What counts as performance: Charity rating and information organizations Another way in which this disconnect in measuring performance presents itself is in charity rating and research. One of the distinguishing features of the early twenty-first century nonprofit sector is the emergence of charity rating and watchdog organizations. These entities define what counts as nonprofit performance, either at the program or organizational level, and share that information with the public, to inform their giving choices. The most well-known of these charity rating and information organizations include Charity Navigator, GiveWell, the Better Business Bureau/Wise Giving Alliance, and Candid (formerly GuideStar), among several others, both within the United States and globally. Each organization, either in its development of rating criteria or information to share, identifies its priorities with respect to assessing performance. The differences across organizations provide nonprofits and the giving public with conflicting messages about what counts as performance. For nonprofits, these competing ideas complicate their ability to design performance management systems that either reflect each organization’s ideas about performance, or that are responsive across charity rating organizations. In fact, the gulf between how charity organizations define performance is wide. GiveWell, for example, recommends very few organizations, applying rigorous measures of efficiency and effectiveness, based in principles derived from the effective altruism movement. Charity Navigator, by contrast, recommends many more, and emphasizes different performance metrics, related to cost structure, growth, and transparency. Lack of beneficiary engagement in performance management An additional challenge with the current practice of performance management in the nonprofit sector concerns the limited role for beneficiaries. The absence of a regular or taken-for-granted place for beneficiaries in David A. Campbell and Kristina T. Marty

nonprofit performance management reflects the origins of performance management in the funding relationship between nonprofit organizations and the private institutions and government agencies that provide their resources. Even though service delivery by nonprofit organizations exists for beneficiaries, beneficiaries have not played a central role in the development and implementation of these systems. Instead, they are more often treated as if they are acted upon by nonprofit service providers, and only asked for information about their experiences and/ or self-assessed progress but not for their substantive input. Beneficiaries often have little, if any, opportunity to offer feedback about how performance is defined, what data is collected to assess it, and how this data is analyzed. Their absence from these conversations is notable because beneficiaries have different perspectives than institutional funders and service provider staff do, due to their personal involvement in service delivery systems, and may be aware of significant issues that others overlook. The discussion below provides some ideas regarding how performance management may change in the future to address this and other concerns.

The future

While the future of performance management is difficult to predict, the challenges described in the previous section provide clues regarding how the field of performance management is evolving and needs to change. Three are worth noting: new strategies to engage beneficiaries; increasing access to software that enhances nonprofit capacity to analyze and present performance information; and the potential to design performance management practices that are responsive to the multiplicity of stakeholder perspectives. Opportunities for beneficiary participation In recent years, concerns regarding equity have become more central to the delivery of services in the nonprofit sector. This development has led many organizations to reflect more deeply on the extent to which they engage beneficiaries, particularly as it relates to performance management. A group of private foundations have pooled their resources to create The Fund for Shared Insight to elevate discussion and the devel-

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opment of practices that give beneficiaries a voice in performance management. Its Listen4Good Initiative has developed a performance management program that emphasizes beneficiary engagement with feedback loops designed to enable the staff in nonprofit organizations to learn from the beneficiaries they serve. More than 500 organizations have already utilized Listen4Good (Fund for Shared Insight, 2022). While this initiative shows how nonprofit organizations can engage beneficiaries, future development of this concept in performance management might provide beneficiaries with more opportunities to participate in the design, implementation, analysis and improvement steps in the performance management process. Increasing access to data analysis and visualization tools In recent years, accessible data analysis and visualization tools have proliferated and made it easier for nonprofit staff to analyze and present performance information both internally and externally. Platforms such as Tableau and Voyant make it possible to import and analyze the kinds of data regularly collected by many nonprofit organizations. As important, they make it possible to share those analysis results in uncomplicated forms that both internal and external stakeholders can interpret and use as the basis for discussions about how to improve performance. Data visualizations documenting performance are becoming an increasingly common feature on many nonprofit organization websites. These tools, and others like them, provide one path forward for overcoming the performance management capacity limitations with which many nonprofits have struggled. Designing practices that embrace a multiplicity of perspectives on performance One of the key themes of recent performance management research and practice is the value of defining nonprofit performance using a multiplicity of stakeholder perspectives, from beneficiaries, to funders, to nonprofit organization staff, and others. Indeed, the different ways in which charity rating services define what counts as performance further obscures the concept and reinforces

the idea that there is no one way to define it. These competing ideas may lead to a broader acceptance of the notion that performance is a social construct. The recognition of this idea matters because it has the potential to democratize debates about nonprofit performance, and allow for organizations and their stakeholders to define collectively what performance is and how to manage it. Such an understanding would make it possible for nonprofit organizations and their stakeholders to address collectively many of the challenges defined above that are associated with effective performance management, and enhance their capacity to use it to improve their work. David A. Campbell and Kristina T. Marty

Related topics

Accountability Beneficiaries Effectiveness of nonprofit organizations Managerialism Program evaluation Stakeholder management

Further reading and references

Benjamin, L. M., & Campbell, D. A. (2020). Evaluation and performance measurement. In H. Anheier & S. Toepler (Eds.), The Routledge companion to nonprofit management (pp. 197–212). Routledge. Campbell, D. A., & Lambright, K. T. (2016). Program performance and multiple constituency theory. Nonprofit and Voluntary Sector Quarterly, 45(1), 150–171. https://​doi​.org/​10​ .1177/​0899764014564578 Campbell, D. A., & Lambright, K. T. (2017). Struggling to get it right: Performance measurement challenges and strategies for addressing them among funders of human services. Nonprofit Management and Leadership, 27(3), 335–351. https://​doi​.org/​10​.1002/​nml​.21249 Campbell, D. A., & Lambright, K. T. (2022). Participants not observers: Involving beneficiaries as co-assessors in performance analysis. Journal of Health and Human Services Administration, 44(4), 260–273. https://​doi​.org/​ 10​.37808/​jhhsa/​44​.4​.1 Carnochan, S., Samples, M., Myers, M., & Austin, M. J. (2014). Performance measurement challenges in nonprofit human service organizations. Nonprofit and Voluntary Sector

David A. Campbell and Kristina T. Marty

432  Elgar encyclopedia of nonprofit management, leadership and governance Quarterly, 43(6), 1014–1032. https://​doi​.org/​10​ .1177/​0899764013508009 Fund for Shared Insight. (2022). Listening to the people and communities at the heart of our work. https://​fundforsharedinsight​.org/​ Gugerty, M., & Karlan, D. (2018). The Goldilocks challenge: Right-fit evidence for the social sector. Oxford University Press. Poister, T. H., Aristigueta, M. P., & Hall, J. L. (2015). Managing and measuring performance in public and nonprofit organizations (2nd edn.). Jossey-Bass.

Philanthropy: Definition and history Definition

The word “philanthropy” is derived from Greek roots meaning “love” (or care or regard for) and “humanity.” But few people today would reply “love of humanity” when asked how they would define or identify philanthropy. Odds are that most people would associate philanthropy with the giving of money, especially by the wealthy or wealthy institutions. Others might be more expansive and describe philanthropy as giving by anyone, or even giving other things besides just money, such as time and talent. Some might even say philanthropy is a sector of society, alongside other sectors like business or government. A few might restrict philanthropy to helping the less fortunate. The point is that there is no widely shared, agreed upon definition of philanthropy, even among those who work in nonprofit-related fields. And the many and varied understandings of philanthropy range from the very specific to the very general. Scholars also differ in how they define philanthropy. And even though there is a long history of attempts to work through the theoretical and conceptual morass, no consensus has emerged. Starting in ancient times and up through the nineteenth century, the term philanthropy was mostly used in the expansive “love of humanity” kind of way, if it was used at all. But in the late 1800s philanthropy began to be associated more with the social reform movements that were sweeping across the U.S. and Europe, and with large-scale giving by wealthy benefactors which was drawing Michael Moody

more attention as wealth concentrated in the so-called “Gilded Age.” Academic “Schools of Philanthropy” were created in New York, Chicago, and elsewhere to train the next generation of social reformers and charity workers. These eventually morphed into university schools of social work that we have today. At the same time, wealthy industrialists like John D. Rockefeller and Andrew Carnegie were establishing institutions designed to not just give indiscriminate “charity” but to practice “scientific philanthropy,” identifying the best methods for giving for the greatest impact – and writing treatises justifying their philosophy of philanthropy. The latter, narrow meaning of philanthropy – as intentional giving by the wealthy for the betterment of society – is probably the primary connotation of the word among the general public today, especially as other terms came to be used for the social change or poverty amelioration efforts of reformers, and as giving by the non-wealthy (e.g., through mass campaigns and the Community Chest organizations that became United Ways) was labeled from the start more as charity or everyday generosity. However, scholars have long discussed and analyzed philanthropy in broader terms – though again, still with quite a number of different definitions. Many nonprofit scholars agree with the late Lester Salamon’s well-known but relatively narrow definition of philanthropy as “voluntary gifts of time or valuables … provided by private individuals or organizations” (Salamon, 2012). In this view, philanthropy is a source of revenue and support for nonprofit organizations but is not restricted to just giving by the wealthy or just the giving of money. Yes, major gifts from large foundations or wealthy benefactors are philanthropy, but so is individual giving in even small amounts, and individual volunteering. Corporate giving of money or in-kind products and services is also philanthropy in this view. Other scholars offer a slightly expanded definition that adds talent alongside time and treasure to the list of things given in philanthropy. In those widely used definitions, though, philanthropy is still defined as private giving for public purposes, philanthropy refers to the act of making contributions. Another well-known definition from Payton and Moody takes a meaningful step up in conceptualization and defines philanthropy as

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any “voluntary action for the public good.” In this definition, “voluntary” is meant to indicate how this philanthropic action for public purposes is not compulsory – like the paying of taxes for public uses, for instance – but is done by private actors (individuals or groups) acting of their own volition, in pursuit of what they think is “in the public good.” And “voluntary action” here is broader than just giving. It can include voluntary giving and voluntary service, yes, but also voluntary association. Philanthropy in this view can include actions like organizing movements for social change, creating and running nonprofits, fundraising, conducting advocacy, helping in informal ways, and many other actions. This leads to the understanding of philanthropy as not merely giving, but as a distinct social arena of actions and practices and institutions. Philanthropy can be seen as a “sector” alongside others like business and government. It encompasses, then, what we often call the nonprofit sector, and like those other sector labels it is a useful umbrella term for capturing a range of human activities and institutions – a range of voluntary actions for the public good. All of this definitional wrangling can be difficult to follow and frustrating at times. While definitional clarity would be nice and is sometimes necessary for specific purposes such as research or policymaking, it is probably best if we learn to live with the co-existence of these various definitions. They each touch on certain valuable aspects of human experience, and having a range of meanings allows us to be inclusive in our thinking and to avoid bracketing off some of those valuable actions or institutions as “not philanthropy proper” – for example, nonprofits that are solely funded by government contracts but are not government entities, small acts of giving that occur outside of formal institutions, and so on. More significantly, we have no choice but to try to define philanthropy because it is just so important in human societies. In some form or another, it has been around since the dawn of human civilization. In every culture we know of, there has been some form of activity in which humans voluntarily gave their own time or resources, and/or banded together with other humans, to try to bring about their particular vision of what is “good.” And every human, alive or dead,

has a philanthropic story – a story of our own giving and acting for the public good, as well as how we’ve benefitted from those goods provided by other philanthropists, like cleaner air, experiencing great art, or being saved from the rubble after a disaster. Probably the best perspective to take on all this is to accept that philanthropy has been, and will likely always be, what scholars refer to as an “essentially contested concept.” That is, it “inevitably involves endless disputes” over its meaning and use as a concept, but through this endless dispute we reveal vital qualities about the phenomena that the concept refers to, and we spark more intensive attention to the myriad expressions of that phenomenon. The contestation is a good thing. We may always struggle to define philanthropy, but we have to keep trying.

Issues, perspectives, and debates

Accepting multiple answers to the question “what is philanthropy?” keeps our minds open to the fact that the practice of philanthropy, and concepts of it, vary considerably both across time and space. Different cultures, and different historical periods, think about, talk about, and engage in philanthropy differently, and these differences matter. People experience what they understand as “philanthropy” in their own context, and we should try to understand that context instead of saying it doesn’t fit in our definitional box. In fact, the cultural variation in philanthropy is one of the most vital areas for future investigation and engagement as we become a more globally connected world, and as we try to better understand and embrace diverse traditions of philanthropy in the U.S. – traditions that have historically been ignored or downplayed. This includes the rich heritage of giving practices and philanthropic values found among all racial and ethnic groups, distinctive gender-specific traditions, and so on. Similarly, as the boundaries between business, government, and nonprofits are blurring in unprecedented ways these days, there is value in retaining a broader perspective on philanthropy. Doing so allows us, for instance, to see how a philanthropic mindset can be expressed in places outside of the traditional nonprofit sector. It can help us make sense of businesses who claim to have a triple bottom line, for example – to be pursuing the public good alongside their own Michael Moody

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profits. Maybe this is an example of an organization in the business sector adopting “love of humanity” thinking? Or if not, if the philanthropy expression might be just a ruse to generate more profits, then the conceptualization of philanthropy as a worldview helps us analyze such cases. This is certainly a common question that arises these days, as businesses are doing much more that looks like philanthropy. Same with government, which after all, is also by definition committed to the public good. In fact, Alexander Hamilton made such a claim in the very first Federalist Paper, claiming that the “inducements of philanthropy” were essential, alongside patriotism, when crafting a good Constitution. Another of the recurring questions and topics surrounding philanthropic theory and practice is the tension between philanthropy being about private actors working for the public good. This leads to all sorts of fascinating but sometimes troubling questions – and shows up dramatically in some strong critiques of philanthropy popular today. Should private actors even have the power to do work that impacts the public? And if we allow such actions, what are the implications of giving so much power to those private actors to be the ones who define what really is “the public good?” Jeff Bezos defines it one way (e.g., slowing climate change) but Michael Bloomberg another (e.g., curtailing smoking). Does this mean that elite philanthropy with great power is somehow ethically different than everyday giving by non-elites? And what about cases in which these private voluntary efforts to achieve someone’s vision of the good lead to objectively bad outcomes? Is that still philanthropy – and is it something we should still celebrate? With this in mind, Dwight Burlingame once proposed a modification to Payton and Moody’s definition, saying it should be “voluntary action intended for the public good” (Burlingame 1993). Related to this is the recurring question of whether philanthropic action must arise from “altruistic” motives. Is philanthropy synonymous with altruism? Or can philanthropy be motivated by a mix of other-oriented and self-oriented motives? Can one seek the public good while also realizing personal benefits like receiving praise or status or group inclusion, affirming one’s sense of self, getting tax breaks, improving one’s corporate image, and so on? If philanthropy involves Michael Moody

reciprocity of some sort, does that lessen the moral or emotional weight of it? Most scholars today allow for multiple motives for philanthropy, but we also know most people say “purely” altruistic philanthropy is the ideal. Another classic debate that continues to surface in many ways in current practice is the distinction between philanthropy and “charity.” Both terms have been around for a long time and have had – and still have – multiple meanings. And while they are often used interchangeably – for example, when we talk about philanthropy as the giving of “charitable contributions” – the ways in which they have been distinguished shine light on important factors behind both concepts, and essential challenges in the practice of philanthropy. For many, charity refers more to actions or giving meant to help those in need, to relieve suffering and provide comfort, often in the short term. Philanthropy, then, focuses more long term, on finding and supporting solutions that get at the root causes of suffering, and is concerned with more than just helping people in need. Charity is relief while philanthropy is development. Charity is giving alms while philanthropy is a discriminating “theory of change” for systemic improvement. Charity is a handout while philanthropy is a hand-up. Placing great emphasis on this apparent distinction between charity and philanthropy has been a priority for major figures in philanthropy for a long time. It was at the center of Carnegie’s philosophy of giving, for example. He railed against “indiscriminate charity,” writing “it were better for mankind that the millions of the rich were thrown in to the sea than so spent as to encourage the slothful, the drunken, the unworthy.” Rather, he believed the “best fields for philanthropy” (Carnegie 1889) were things like building libraries. Another early proponent of discriminating, scientific giving, John D. Rockefeller, said the “best philanthropy” was not giving money directly to those in great need – something his Baptist faith encouraged him to still do – but rather to help people help themselves by giving them jobs and/or “opportunity for progress and healthful labor” (Rockefeller 1908). This struggle to identify the best strategies for doing good is in many ways still the primary debate in the practice of philanthropy. We can see it in critiques that talk about “toxic charity” for instance or calls for “effective altruism.”

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In practice

The nature of the connection of philanthropy to nonprofit organizations and the nonprofit sector depends on where one comes down on the definitional and other debates reviewed above. If we define philanthropy as giving of money by private donors, then of course it is a major source of revenue for the nonprofit sector. However, even then it is a much more significant source for some nonprofits – for example, religious institutions – than for others that get the lion’s share of their revenue from fees or government support – for example, hospitals. If we think of philanthropy as including the giving of time and talent as well, then our attention turns to how volunteers play an essential role for nonprofits, and how volunteer management is a crucial nonprofit management function. Finally, if we think of philanthropy as a sector of society, or even a general form of action, then nonprofit institutions would be considered underneath this broad conceptual umbrella, not beside it. When we take the perspective of a nonprofit organization, many of the debates about philanthropy noted earlier become less conceptual and take on real consequences. For instance, the power that private philanthropic actors have, and how they wield it in the name of doing what is in the public good, is something that affects the daily experiences of many nonprofits. Nonprofit managers often face tricky choices and must walk difficult lines because of these power dynamics. How much should organizational choices reflect a philanthropic donor’s wishes, especially when that donor is a relatively small percentage of the nonprofit’s overall revenue? How are nonprofits implicated in public debates over the moral status of some donors that fund them? Alternate approaches now emerging in the field, such as “trust-based philanthropy,” are meant to improve the often fraught and sometimes dysfunctional relationship between funders and the nonprofits they fund. These alternate approaches are further complicating just what we mean by “philanthropy.” Michael Moody

Related topics Charitable giving Civil society

Commons Nonprofit sector Public trust in nonprofit organizations Voluntarism

Further reading and references

Burlingame, D. F. (1993). Altruism and Philanthropy: Definitional Issues. Essays on Philanthropy. No. 10, Indianapolis, IN: Indiana University Center on Philanthropy. Carnegie, A. (1889). Wealth. North American Review, 148(391): 653–65. Jung, T., Phillips, S. D., & Harrow, J. (Eds.). (2016). The Routledge companion to philanthropy. Routledge. Moody, M., & Breeze, B. (Eds.). (2016). The philanthropy reader. Routledge. Payton, R. L., & Moody, M. P. (2008). Understanding philanthropy: Its meaning and mission. Indiana University Press. Rockefeller, J. D. (1908). Some Random Reminiscences of Men and Events. The World’s Work. Salamon, L. M. (2012). America’s Nonprofit Sector: A Primer (3rd edn.). New York: Foundation Center. Vallely, P. (2020). Philanthropy: From Aristotle to Zuckerberg. Bloomsbury Continuum. Wiepking, P., & Handy, F. (Eds.). (2015). The Palgrave handbook of global philanthropy. Palgrave Macmillan.

Place-based philanthropy Definition

Place-based philanthropy refers to giving and granting that is focused on specific geographic locales. Although the concept is sometimes used to describe patterns of individual giving – the notion to “give where you live” – it is more commonly applied to grantmaking and associated forms of leadership by philanthropic institutions. The scale of the “place” involved is variable, as is the nature and degree of foundation engagement, making the concept less clearcut and more complex than it might first appear. As a geographic concept, “place” designates a specific location with defined boundaries and a physical form which in the context of philanthropy normally involves a sub-national scale, whether a neighborhood, town, city, metropolitan area or county-level Susan D. Phillips

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region. Place also embodies a diversity of identities and economic and social relationships that invest it with meaning and produce varying degrees of a “sense of belonging” (Cresswell, 2015; Gieryn, 2000; Massey, 1994; Williamson et al., 2021). These relationships and internal boundaries of inclusion and exclusion make each place distinctive and give rise to some of the more serious challenges in implementing place-based approaches.

In practice: Forms of place-based philanthropy

Foundations may focus their philanthropy on place due to: 1) a formal geographic-specific mandate; 2) a preference for working with proximate, local organizations; or 3) a strategy aimed at promoting social change through co-production, whether in the same place as the foundation or in another locale. Philanthropy by place Community foundations are the primary examples of public philanthropic institutions with a geographic mandate, usually a city or a county-level area. Unlike private foundations that have an endowment from a family or corporation, community foundations raise their funds from the community at large and, as public foundations, their boards are comprised of community members. Their funds may be pooled and allocated for community needs and projects by the foundation or held as separate funds over which the donor designates the purpose or directs how they are granted. Community foundations are often described as “hybrid” because, in order to raise funds, they must be attentive to donor service, while as grantmakers they need to be community oriented. First established in the U.S. in 1914 as a more efficient means of managing multiple charitable trusts, the community foundation model has spread globally so that there are now more than 2,400 worldwide (Candid, 2022). With this diffusion the original model has been adapted to local norms and circumstances. In recent years, there has been increasing pressure, and extensive innovation among community foundations, to assume more active leadership roles and ensure their boards, which have tended to draw heavily from the business community and local elites, are more inclusive of Susan D. Phillips

their diverse communities. New forms of place-based leadership include: the community foundation collective NEON (Nexus for Equity + Opportunity Nationwide) in the U.S. that strives to dismantle systemic racism and achieve greater social and economic equity in their communities; Canadian community foundations that are advancing pathways to reconciliation with Indigenous peoples; and those that are applying the sustainable development goals (SDGs) to mobilize other funders and achieve better outcomes at a local scale. Philanthropy in place Private foundations, whose assets have been provided by an individual or family (or corporation) and whose boards are largely controlled by the donors or close associates, may have been established to work in designated locales, but they generally have discretion as to where they operate. Their relationship with place may be passive, simply favoring the familiar – communities, causes and organizations in their “home” locale – and often distributing relatively small amounts to a wide array of organizations in order to have a broad reach. The reasons for a such an approach may differ: the foundation lacks a strategy, so it grants to what it knows and to those recommended through its immediate peer networks; the bulk of applications for support are local because the foundation is known in the community; or the donating family (or business) feels a responsibility to give back to where its wealth was acquired. For a corporate foundation, local giving may reinforce and advance its business strategy. The beneficiary nonprofits and communities do so by the luck of geography: that wealth was made, and the foundation then headquartered in their locale. The criticism of this form of philanthropy is that, in the absence of a strategy, it lacks impact and does not address inequities or complex societal and environmental issues. With growing expectations that foundations will be more active participants in transformational change, such proximity-oriented grantmaking tends to be excluded from the concept of “place-based” which is crystallizing around a set of principles and practices of change-oriented engagement.

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Philanthropy with place The recent enthusiasm for a more purposeful and impactful place-based philanthropy stems from its potential for systems change, whether foundations are focused on their “home” places or more distant, disadvantaged communities. In the U.S., the interest in a place-targeted, community-building approach grew out of the lessons learned from a series of “Comprehensive Community Initiatives” in the 1980s and 1990s that were intended to transform distressed neighborhoods in several metropolitan areas through the involvement of national foundations working with community-based organizations. While some positive change resulted, most initiatives did not produce the extent of transformation expected, mainly due to a lack of “deep” foundation engagement with community organizations (Kubisch et al., 2011; Pill, 2019). The recognition that funders need to do more than target place but must work with the economic and social relations of place has given rise to the concept of a more “embedded,” change-oriented philanthropy (Karlström et al., 2009). The notion of being “embedded” recognizes that every place has a distinctive physical, social, cultural and institutional character and set of relationships, and foundations as agents of change need to understand and work with – not around or in spite of – these social and power dynamics. It relies on the participation of residents and community organizations in meaningful and inclusive ways, and invests in efforts to develop organizational capacities and local leadership. Additional principles that have guided place-based initiatives in many other countries include: ● Mobilizing all the assets of a foundation beyond grantmaking, such as leveraging political and human capital, convening conversations and brokering constructive relationships among different parties; ● Intra- and inter-sectoral collaboration, appreciating that the underlying issues are complex, that regional economies are an important factor in driving change and multiple sources of funding are required; ● Engaging and nesting philanthropic interventions in public policy development; ● Monitoring and evaluation of outcomes and impacts, with openness to innovation and treating evaluation as a means of

horizontal accountability to collaborators and affected stakeholders; and ● Committing to an extended time horizon of engagement and investment. When the foundation is working from “outside” the locale and may thus be unfamiliar with its cultural and social norms, managing the power imbalance inherent in the role of funder and navigating dynamic environments are often particularly challenging. Examples of systems-change place-based philanthropy An important focus of place-based philanthropy by major U.S. foundations in recent years has been on declining “legacy” cities, with some of these cases regarded as new milestones in relationships among foundations, local governments and communities. The pledge of $370 million by nine foundations, working collaboratively, served as the catalyst for striking a “Grand Bargain” with municipal and state governments to avert the bankruptcy of the city of Detroit in 2014. Similarly, in 2016 major U.S. foundations committed $125 million in a collaborative effort to help the city of Flint, Michigan (the original home of General Motors) to recover from the health crisis produced by the contamination of its water supply, a crisis that was years in the making due to population and economic decline that had limited the financial capacity of local government to provide basic services. In both cases, foundations had long-standing (and often unorthodox) involvement with the communities and had supported local business development in ways that served as a nudge to action by local governments. In these ongoing initiatives and in response to crisis, they deployed their assets of expertise, reputation, intellectual capital and networks, in addition to grantmaking, and helped foster innovative solutions to address the inter-related problems of declining urban areas (Ferris, 2017). While notable examples of how philanthropic institutions can serve as catalysts, their involvement was also subject to considerable criticism, including that their directive actions subverted democratic processes, lacked engagement with communities and allowed governments to shirk their responsibilities (Cohen, 2016). The distinctives of these cases also needs to be recognized: Susan D. Phillips

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as early industrial cities that had generated wealth and with it the establishment of large foundations, these institutions were in a sense local actors with a long history of investing in their own communities. Place-based philanthropy is by no means specific to the U.S. Government, austerity resulting in cuts in public services and rising regional disparities have prompted both public policies of “localism” and extensive application of place-based approaches by U.K. foundations over the past decade. Many of these initiatives involved London-based foundations working in disadvantaged cities and communities at a distance. The lessons learned point to several key factors of success in addition to the general principles of place-based philanthropy. First, substantial time and investment of resources is required upfront to get to know the community, to understand its dynamics and needs, and invest in building relationships before scoping program interventions. Second, a local coordinator as an ongoing conduit is essential. Third, foundations need to be attuned and responsive to changing contexts, adapting the role of the foundation as needed (IVAR, 2015). These lessons have been reinforced by private Australian foundations engaged with Indigenous and remote communities; rather than appearing with grants in hand, several have sought to drive change from the grassroots up, enabling community priorities to direct investment and funding multiple initiatives that address a myriad of related issues with a view that these will cumulate in systemic change (see https://​vfff​.org​.au/​case​ -studies/​place​-based/​). A recent development has been driven by the convergence of COVID-19 and the racial justice movement which exposed how the intersections of economic disadvantage, social inequities and structural racism are manifest at a neighborhood level. This has encouraged more specific, data-driven micro-targeting of specific neighborhoods that are particularly vulnerable. While the success of such initiatives has not yet been assessed, the need for more place-specific data and investment in social infrastructure in these communities became readily apparent.

The future

Interest in transformative place-based philanthropy has accelerated across many countries. Susan D. Phillips

Experience-driven guidance on the components of a systems-change approach is extensive and remarkably consistent. Successful engagement in such work is not for the timid, however, as it necessitates risk-taking and innovation, working beyond traditional grantmaking practices using all of a foundation’s assets, substantial and long-term investments, and patience given that underlying systems are complex and often resistant to change. The uniqueness of place means that initiatives in one community are not readily scaled or simply replicated – rather, place needs to be taken seriously. While there is promise and substantial work ahead for foundations in place-based work, scholarship also has to catch up to practice by more fully analyzing the successes and failures of place-based philanthropy. Susan D. Phillips

Related topics

Community foundations Community-based organizations Grassroots international nonprofit organizations Housing organizations

Further reading and references

Candid. (2022). Foundation maps. https://​maps​ .foundationcenter​ .org/​ . Accessed 20 August 2022. Cohen, R. (2016, January 6). A city in remission: Can the “grand bargain” revive Detroit? Nonprofit Quarterly. https://​nonprofitquarterly​ .org/​a​-city​-in​-remission​-can​-the​-grand​-bargain​ -revive​-detroit/​. Accessed 20 August 2022. Cresswell, T. (2015). Place: An introduction (2nd edn.). Wiley. Ferris, J. M. (2017). Philanthropy as catalyst. Drawing on Detroit, Winter, 10–13. https://​ static1​.squarespace​.com/​static/​60289​ 10e3ea3482​091ee2ed2/​t/​605d1​abfa7a1e24​ 7c5f35ad8/​1616714433224/​Drawing+​on+​ Detroit​.pdf. Accessed 20 August 2022. Ferris, J. M., & Hopkins, E. (2015). Place-based initiatives: Lessons from five decades of experimentation and experience. The Foundation Review, 7(4), 97–109. https://​doi​.org/​10​.9707/​ 1944​-5660​.1269 Gieryn, T. F. (2000). A space for place in sociology. Annual Review of Sociology, 26(1), 463–496. https://​doi​.org/​10​.1146/​annurev​.soc​ .26​.1​.463 IVAR – Institute for Voluntary Action Research. (2015). Working in place: A framework for place-based approaches. www​.ivar​.org​

P 439 .uk/​wp​-content/​uploads/​2016/​09/​IVAR008​ -Place​-Based​-Funding​-Report​_AW​-3​-1​.pdf. Accessed 20 August 2022. IVAR – Institute for Voluntary Action Research. (2015). Working in place: Case study – The rank foundation’s place-based programme in Dundee. www​.ivar​.org​.uk/​wp​-content/​uploads/​ 2016/​11/​IVAR​-Place​-Based​-Case​-Study​%E2​ %80​%94Rank​-Foundation​-​.pdf. Accessed 20 August 2022. Karlström, M., Brown, P., Chaskin, R., & Richman, H. (2009). Embedded philanthropy and the pursuit of civic engagement. The Foundation Review, 1(2), 51–64. https://​doi​.org/​10​.4087/​ foundationreview​-d​-09​-00016 Kubisch, A., Auspos, P., Brown, P., Buck, E., & Dewar, T. (2011). Voices from the field III: Lessons and challenges for foundations based on two decades of community change efforts. The Foundation Review, 3(1), 138–149. https://​ doi​.org/​10​.4087/​foundationreview​-d​-11​-00010 Massey, D. (1994). Space, place and gender. Polity Press. McGill, L. (2020). How the sustainable development goals can help community foundations respond to Covid-19 and advance racial equity. Charles Stewart Mott Foundation. www​.mott​ .org/​news/​publications/​how​-the​-sustainable​ -development​-goals​-can​-help​-community​ -foundations​-respond​-to​-covid​-19​-and​-advance​ -racial​-equity/​. Accessed 20 August 2022. Pill, M. C. (2019). Embedding in the city? Locating civil society in the philanthropy of place. Community Development Journal, 54(2), 179–196. https://​doi​.org/​10​.1093/​cdj/​bsx020 Williamson, A., Luke, B., & Furneaux, C. (2021). Perceptions and conceptions of “place” in Australian public foundations. Nonprofit and Voluntary Sector Quarterly, 50(6), 1125–1149. https://​doi​.org/​10​.1177/​0899764021998461

Planned giving Definition

In the broadest sense, planned giving encompasses any donation more complex than an immediate cash gift. Most commonly, it is associated with charitable estate gifts. However, in reality it can involve a wide variety of complex instruments and assets. These instruments include wills, living trusts, beneficiary (transfer-on-death) designations, charitable remainder trusts, charitable lead trusts, retained life estate deeds, donor-advised funds, private family founda-

tions, charitable gift annuities, pooled income funds, and more. These are often paired with complex assets such as stocks, bonds, real estate, life insurance, retirement accounts, closely held businesses, collectibles, crops, livestock, cryptocurrency, and more. The potential combinations and outcomes are almost limitless. For many, this complexity can be intimidating. However, complex planned giving really does just two things: it allows the donor to save taxes and/or to trade a gift for income. These allow the donor to make a gift they couldn’t otherwise afford. Planned giving conversations often begin when the donor says, “I wish I could do more, but ….” That barrier preventing the larger gift is often a financial one. Planned giving may provide a charitable solution that helps the donor to overcome that financial barrier and still make a substantial gift.

In practice

Planned giving can provide many financially compelling solutions that allow donors to make larger charitable contributions than would otherwise be possible. However, the greatest power of planned giving may not be in law and tax solutions. It may instead be in psychology and behavioral economics. The greatest transformation for a donor may be to move beyond making gifts from their disposable income and instead to move to making gifts from their wealth. Once a donor’s wealth becomes donation relevant, the potential for large philanthropic gifts becomes much greater. Wealth, however, is not held in cash or cash equivalents like checking accounts and savings accounts. Over 95 percent of personal wealth is held in noncash assets like stocks, bonds, real estate, life insurance, retirement accounts, and businesses. Thus, asking for a gift from wealth, rather than from disposable income, often means asking for a gift from noncash assets. Planned giving tends to focus on these major gifts of assets. To ask for a gift from assets, it helps to know something about assets. It helps to know about capital gains taxes on those assets (and how gift planning can avoid them). It helps to know about estate taxes on those assets (and how gift planning can avoid them). It helps to know about income taxes on those assets (and how gift planning can avoid them). Knowing those things allows fundraisers to have intelRussell N. James III

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ligent conversations with donors about gifts of assets. This can also change the relationship between the fundraiser and the donor. Rather than simply being a conversation of “asking,” the relationship can change to one of helping, guiding, and advising. This difference in knowledge and relationship allows for the type of asset-based conversations that can then lead to transformational donations. Understanding planned giving starts by understanding some of the planned giving instruments. These include estate gifts, retained life estate deeds, charitable remainder trusts, charitable lead trusts, donor-advised funds, private family foundations, and charitable gift annuities. Estate gifts An estate gift transfers funds to charity after the donor’s life. This allows donors to make a large gift without concerns that they might later need the money during their lifetime. The traditional mental picture of an estate gift is the gift in a will. However, this oldest form of estate gift is waning in its relevance. The share of older adults who have will documents has been declining for many years. For those who have them, often these will documents actually control no assets. For example, most jointly titled assets automatically go to the surviving owners, regardless of any provisions in the will. Similarly, the will does not control any property or accounts with a transfer-on-death designation which transfer to the named beneficiary. These beneficiary (transfer-on-death) designations have increased dramatically in recent decades. These are now available for bank accounts, stock brokerage accounts, retirement accounts, life insurance, and, in most states, even automobiles and real estate. Thus, conversations about charitable estate gifts often must now go beyond the will document. This might begin by noting to a donor that heirs have to pay income taxes on any money inherited from a retirement account (e.g., IRA, 401(k), or similar). However, those taxes can be avoided by naming a charity as a beneficiary for all or part of such accounts. Fundraisers must also keep in mind that estate gifts are normally revocable. Donors do change their estate plans, typically with family changes (widowhood, marriage, divorce, birth of a first child or grandchild) or health changes (diagnosis with cancer, heart Russell N. James III

disease, stroke, declining health, or approaching mortality). If a charity is not at the “top of the mind” during such times of new planning, it may very well be left out. Provisions in an old will do not automatically carry over to a new one, and often are not even reviewed as part of the modern automated estate planning document creation process. Thus, maintaining relationships with legacy donors throughout life is an important part of the fundraising process. Retained life estate deed gifts Gifts in wills, living trusts, or beneficiary designations are revocable. Donors can and do change their plans. However, other planned gifts are irrevocable. Donors cannot change their plans. This irrevocability can allow donors to receive immediate tax benefits, even if the charity will not receive the money for many years. The simplest irrevocable estate gift is a retained life estate deed. A donor can file a deed granting the inheritance rights in a personal residence or farmland to a charity. Because this gift is irrevocable, it creates an immediate income tax deduction. The value of the tax deduction depends upon the owner’s age and current interest rates. For example, a 55-year-old donor transferring the inheritance rights to $1,000,000 of farmland in this way would receive an immediate income tax deduction of $903,710 with a low interest rate of 0.4 percent (as was the case in November 2020) or $122,350 with a high interest rate of 11.6 percent (as was the case in May 1989). Because the donor has transferred only the inheritance rights, she can continue to use or lease out the property for the rest of her life. Some donors choose to use the money saved with tax deductions to purchase life insurance benefiting heirs who will no longer be inheriting the property. Charitable remainder trust Another way to make an irrevocable estate gift is with a charitable remainder trust. The donor transfers money or property into the trust. The donor (or a person chosen by the donor) receives yearly, or more frequent, payments for life or a set number of years. The payments are for a fixed dollar amount or a fixed percentage of everything in the trust. At the end of life, or the set number of years, all trust assets go to a charity.

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The donor receives an immediate income tax deduction based on the value projected to go to charity at the end of the donor’s life or the set number of years. The donor also receives this deduction when transferring an appreciated asset, rather than cash, into the trust, but additionally, the trust can sell that asset without paying capital gains taxes. Thus, the donor receives payments based upon investing the full amount of the asset, undiminished by any initial capital gains taxes. Similar to a retirement account, there are no taxes on any gains or earnings inside the trust; only the payments distributed from the trust to the donor are taxed. Avoiding or postponing taxation of the assets inside the trust can result in greater growth of these assets and consequently greater payments to the donor as well as a larger gift to the charity at the end. The charitable remainder trust allows a donor to make an irrevocable estate gift, receive tax benefits, and address retirement income needs. Charitable lead trust In a charitable lead trust, the charity receives yearly payments until the end of the trust when the donor or the donor’s family receives the remaining trust assets. If the donor is to receive the remaining trust assets, she can take an immediate income tax deduction for the present value of the donations projected to go to charity during the life of the trust. If instead the donor’s family is to receive the remaining trust assets, the trust itself becomes a separate taxpaying entity that can use the charitable tax deductions. If the donor’s family receive the remaining trust assets, the donor must pay gift taxes on the amount projected to go to the family members at the end. However, if the assets in the trust grow faster than the projected growth rate, all of that extra growth goes to the family free from estate and gift taxation. Donor-advised funds and private family foundations A private foundation receives gifts from a donor and then distributes grants to public charities. A donor can create her own private foundation, mandating the charitable focus for any future distributions. The donor can appoint herself and other friends or family members as trustees to control the manage-

ment and distribution of such funds. The foundation can pay for reasonable and necessary expenses incurred by such trustees in performing their duties and can hire insiders to perform certain jobs for the foundation. A donor-advised fund also receives gifts from a donor and later distributes funds to public charities. A donor can recommend distribution to specific charities, and the donor-advised fund typically chooses to follow those recommendations. The donor cannot receive any financial benefits from the donor-advised fund or as the result of gifts made from the donor-advised fund. Donor-advised funds have very little cost and such accounts can be created with an initial gift of $10,000 or less. Private foundations have substantial ongoing administrative costs and are commonly created for gifts of $500,000 or more. Private foundations are required to pay out at least 5 percent of their net assets in grants to public charities and administrative costs associated with such grants. Donor-advised funds do not require minimum payouts. Charitable gift annuity With a charitable gift annuity, a donor makes a single large gift to a charity and in return receives annual (or more frequent) payments for life. This allows the donor to make a large gift and address retirement income concerns. The donor receives an immediate income tax deduction for the difference between the donation and the value of the annuity received in return. Combinations Planned giving instruments can be used separately or together to address the donor’s financial and charitable goals. For example, a charitable remainder trust might ultimately pay out to a donor’s private family foundation which will then make annual distributions to a donor-advised fund. These instruments can be combined with current giving in order to create blended gift options. For example, a donor without the resources to immediately fund an endowment might instead fund a “virtual” endowment. The donor commits to annual gifts for the endowment payout plus an additional amount to gradually fund the endowment, but with an estate gift that Russell N. James III

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guarantees full funding should mortality intervene.

Current and future directions

Planned giving is heavily dependent on enabling legislation. When such legislation provides tax benefits to donors, the appropriate tradeoffs between encouraging philanthropy with these instruments and reducing treasury revenue are often the topic of debate. Indeed, the majority of planned giving instruments available in the United States are not available elsewhere. In some countries, planned giving is limited to naming a charity in an estate plan. However, even this freedom is unavailable or limited in many countries. For example, testators in France must leave a minimum percentage of their estate (e.g., 50 percent or 75 percent) to children. In Saudi Arabia, Islamic laws of succession eliminate testamentary freedom and family members inherit predetermined shares. In Australia, family members can often reduce a charitable bequest regardless of the testator’s desires. In Japan, any request to reduce family shares of inheritance must be reviewed by the family courts in advance. Although not available everywhere, planned giving can increase the means by which donors can benefit charity while also addressing lifetime financial needs. Russell N. James III

Related topics

Charitable giving Donor-advised funds Family philanthropy Financing nonprofit organizations Fundraising Major donors

Further reading and references

James, R. N. III. (2018). Cash is not king for fund‐ raising: Gifts of noncash assets predict current and future contributions growth. Nonprofit Management and Leadership, 29(2), 159–179. https://​doi​.org/​10​.1002/​nml​.21334 James, R. N. III. (2020a). American charitable bequest transfers across the centuries: Empirical findings and implications for policy and practice. Estate Planning & Community Property Law Journal, 12(2), 235–285. https://​epj​.us/​ article/​17950​-american​-charitable​-bequest​ -transfers​-across​-the​-centuries​-empirical​

David Callahan

-findings​-and​-implications​-for​-policy​-and​ -practice. Accessed 15 September 2022. James, R. N. III. (2020b). The emerging potential of longitudinal empirical research in estate planning: Examples from charitable bequests. UC Davis Law Review, 53, 2397–2431. https://​ lawreview​.law​.ucdavis​.edu/​issues/​53/​5/​ symposium/​files/​53​-5​_James​.pdf. Accessed 15 September 2022. James, R. N. III. (2020c). Visual planned giving: An introduction to the law and taxation of charitable gift planning. Createspace. Wishart, R., & James, R. N. III. (2021). The final outcome of charitable bequest gift intentions: Findings and implications for legacy fundraising. Journal of Philanthropy and Marketing, 26(4). https://​doi​.org/​10​.1002/​nvsm​.1703

Politics and philanthropy Definitions and overview

When many people think of philanthropy, what often comes to mind are donations to support charitable work in such areas as education, health, religion, human services, and the arts. What’s less well known is that tax-deductible gifts also underwrite many activities that aim to influence elections and government policy. This is not a new phenomenon; philanthropists have sought to shape the affairs of state for over a century. The difference today is that many more individual donors and foundations are engaged in giving to affect voting outcomes and public policy decisions. Politicized philanthropy involves the use of tax-deductible charitable funds to influence public policy, elections, and the overall narratives shaping political debate. Such giving has grown in tandem with two major trends in U.S. society: increased concentration of wealth at the top of the income distribution and growing polarization. Not only do wealthy donors and endowed institutions have greater resources than ever before, many are also more focused on what they see as a high-stakes struggle for power in America – a struggle that is unfolding across multiple fronts, with many intervention points for charitable giving to drive impact. At the same time, philanthropic practitioners have developed new and more sophisticated ways to influence elections and public policy.

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Charitable giving is still viewed by many Americans as an act of generosity to improve society by educating the young, caring for the sick, and enriching our culture. Yet make no mistake: philanthropy is also a powerful way to shape how society is structured. And that power is only growing.

In practice: How philanthropy influences politics

The laws governing charitable giving in the United States provide wide latitude to donors that seek to influence elections and public policy. While 501(c)(3) organizations cannot take explicitly partisan positions or advocate on behalf of candidates, they can engage in a range of activities to shape the composition of the voting electorate, the administration of elections, and the views of voters during election cycles. Nonprofits have more latitude when it comes to seeking to influence public policy. They are allowed to engage in limited lobbying on behalf of specific legislation and, more importantly, can undertake a wide range of activities that seek to shape the views of elected and appointed officials. In addition, charitable giving plays a central role in underwriting social movements and interest groups that can exert significant pressure on public officials. There are no exact figures on the amount of philanthropic giving that supports these various activities. Such giving is often embedded in broad categories that researchers use to track and tabulate charitable donations. What we can say is that such giving remains a very small percentage of overall giving in the United States. Reports from Giving USA and Candid, two leading sources of charitable giving data, show that the majority of philanthropic gifts go to nonprofit organizations that are engaged in traditional kinds of charitable activities in areas like education, health, religion, and the arts. Still, given the overall scope of philanthropic giving in the United States – which totaled $471 billion in 2020 – the allocation of even a small fraction of these funds to influence elections and public policy can have a major impact. To illustrate that, let’s look more closely at how foundations and individual donors are using charitable gifts to shape both who runs government and what government does.

Voting and elections Philanthropy has played a role in voting and elections for decades. Such giving has reached a new high amid the growing polarization of recent years, as existing funders in this space expanded their giving and new donors have gotten involved. In one recent dramatic example, Facebook co-founder Mark Zuckerberg and his wife Priscilla Chan contributed hundreds of millions of dollars to support local election administration during the 2020 presidential election – contributions that some critics charged helped to increase Democratic voter turnout. While federal law prohibits the use of tax-deductible contributions for partisan activity, donors have found a number of ways to influence electoral outcomes through gifts to 501(c)(3) nonprofit groups doing work in a number of areas. Voter Registration and Mobilization. Private foundations and individual donors began investing in efforts to expand participation in elections in the 1960s, when philanthropy played an important role in supporting the civil rights movement. This work increased in the 1970s and 1980s as grantmakers like the Ford Foundation made targeted investments in groups seeking to register and turnout historically disenfranchised populations, including Blacks, Hispanics, Asian Americans, and Native Americans. Such philanthropic giving has expanded over time and accelerated notably after the 2016 election, as many liberal funders scrambled to counter Donald Trump’s presidency. Voter Education. In addition to registering voters and encouraging them to turn out at election time, 501(c)(3)s can legally engage in efforts to educate voters on key issues. While such education must be nonpartisan and not advocate on behalf of specific candidates or parties, it can stress viewpoints that dovetail with partisan messaging. For example, conservative Christian nonprofits have long engaged in efforts to educate voters on issues like abortion and school choice with messages that track closely with Republican candidates that they more directly support through 501(c)(4) work and campaign donations. Many other groups have engaged in similar work around labor rights, environment, guns, and LGBTQ rights. Election Administration. Who is able to easily vote, and whether they actually do David Callahan

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vote, can be strongly affected by the rules governing elections. Philanthropy has supported a range of activities aimed at shaping these rules. Funders on the left have worked for decades to make voting easier, especially for historically disenfranchised groups, as well as young people. They have supported research and advocacy on behalf of measures like same-day voter registration, universal voter registration, early voting, and making election day a holiday. Funders on the right, meanwhile, have supported policies that many say make voting harder, most notably voter ID requirements that can pose a barrier to participation among populations that may not have IDs, such as young people and urban residents who don’t have cars or driver’s licenses. Public policy People care about elections because they want to see certain public policy outcomes. But voting isn’t the only way to shape such outcomes; a range of activities can influence the decisions of public officials and the actions of government. Philanthropic efforts to shape public policy date back over a century, with some of the first foundations in the U.S. – such as the Russell Sage Foundation – giving priority to this area. Such work can take different forms. Research and Policy Development. One way that philanthropists can influence what government does is by developing and testing new solutions to societal problems. Such work first emerged on a significant scale in the 1960s, when the Ford Foundation and other grantmakers funded prototypes of anti-poverty interventions that were then scaled up by the Federal government. Since then, foundations have played a major role in pioneering new approaches to challenges in areas like education, health, income security, and renewable energy. For example, the growth of charter schools has been heavily financed by private funders who hope this work will result in a system-wide change to K-12 education. Advocacy and Lobbying. Philanthropic dollars bankroll a wide range of advocacy activities and a limited amount of direct lobbying. Advocacy can take many forms. For example, funder-backed activists can work to build social movements that seek to change the terms of public debates – David Callahan

for example, over racial justice or climate change – and exert influence over public officials. Foundations and individual donors also give heavily to groups that are based in Washington, D.C., or state capitals and seek to play an insider role in shaping public policy. Policy Implementation and Administration. Public policy debates don’t end when new ideas are embraced and enshrined into law. How well government implements and then administers a law can have a huge impact on its actual impact. Many foundations and donors understand this reality and target their investments accordingly. For example, a long list of national and local foundations gave heavily to ensure that the 2010 Affordable Care Act reached as many people as possible when it was first implemented. Litigation and the Judiciary. A final area of philanthropic influence over public policy involves courts and the law. Federal and state courts play a significant role in interpreting public policy and setting the parameters of legislative and executive branch influence. Recognizing that, foundations and individual donors have directed significant resources to organizations that aim to shape the courts and also legal jurisprudence. Conservative funders have been especially active in this realm, for example by supporting the Federalist Society.

The future

The growing politicization of philanthropy reflects three important trends: wealth concentration, polarization, and the advancement of philanthropic practice. Funders have greater resources than ever in an era when many people are deeply invested in shaping political outcomes. At the same time, there are more levers available for philanthropists to legally pull to influence such outcomes. It’s hard to predict how these trends may evolve over time. What we do know is that numerous wealthy individuals have pledged to ramp up their philanthropy in coming years and that many of these donors see politicized giving as a high-leverage way to drive impact on the issues they care about. There’s also mounting evidence that the deep polarization of U.S. society is becoming more entrenched. Meanwhile, there are few signs of a strong reform movement to curtail the role of philanthropy in elections and public policy.

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The bottom line is that, if present trends continue, we’re likely to see the ongoing politicization of philanthropy. David Callahan

Related topics

Charitable giving Democracy and philanthropy Public policy and nonprofit organizations

Further reading and references

Callahan, D. (2017). The givers: Wealth, power, and philanthropy in a new gilded age. Knopf. Giridharadas, A. (2018). Winners take all: The elite charade of changing the world. Knopf. Kohl-Arenas, E. (2015). The self-help myth: How philanthropy fails to alleviate poverty. University of California Press. Reckhow, S. (2012). Follow the money: How foundation dollars change public school politics. Oxford University Press. Reich, R. (2018). Just giving: Why philanthropy is failing democracy and how it can do better. Princeton University Press.

Principal–­­Agent Theory Definition

Principal-Agent Theory (P-AT), or agency theory as it is often termed, emerged in the 1970s from the disciplines of economics and institutional theory. It aims to explain the problems and solutions of relationships and self-interest in organizations. Put simply, the “agent” (a person or entity) represents and takes decisions on behalf of, and which impact, the “principal” (another person or entity). The principal-agent problem, also known as the agency problem or agency dilemma, occurs most commonly where the two parties have conflicting interests (as it is assumed agents will act in their own self-interest) and there is information asymmetry (insofar as the agent has more information, hampering the principal’s ability to ensure the agent is always acting in the principal’s best interests). This represents a “moral hazard,” due to the agent being incentivized to expose the organization (and the principal) to greater risk because they (the agent) do not bear the full costs of that risk.

Principals attempt to reduce such opportunistic behavior by removing incentives that encourage self-interest, by introducing rules (policy) that discourage moral hazard, and/ or by aligning the agent’s interests with their own through a variety of (incentivization) mechanisms. Such mechanisms include pay and reward packages, performance measurement, threat of termination of employment, and so on. An agent’s deviation from a principal’s interests, alongside the monitoring and disciplining of agents, is referred to as “agency costs.”

In practice

In contemporary applications, the theory extends well beyond economics and institutional theory to many disciplines and contexts of information asymmetry, uncertainty and risk, including law, supply chain management, project management, energy consumption, public administration, game theory, political science, and so on. In relation to nonprofits, P-AT has perhaps most commonly been adopted as a lens to examine governance at multiple levels. In organizational analysis, P-AT has been applied to explore the differences in governance perceptions of nonprofit board chairs and CEOs regarding board performance, leadership, diversity, and meetings, to understand board behavior, to make sense of accountability relationships, to examine how the agency problem intersects with wage differentials and self-selection among nonprofit managers, and to understand how information asymmetries mitigate boards’ ability to oversee and take action against CEOs involved in charity scandals. In more contentious applications, P-AT has been adopted as the basis for arguing nonprofits are more inefficient, ineffective and unethical in meeting their missions, relative to corporate firms. This, it is argued, is because they are “agents without principals” (i.e., without an owner), have passive boards that fail to monitor and mitigate illegal and unethical practices, indifferent benefactors, reluctant beneficiaries, a weak regulatory environment and a humanistic image that acts as a protective shield. At the level of public governance, P-AT has been applied to develop understandings of government–nonprofit–for-profit contracting relationships, partnerships and relations, to Tracey M. Coule

446  Elgar encyclopedia of nonprofit management, leadership and governance Table 26

Constituting nonprofit principal-agent relationships in nonprofit research

Principal

Agent

Internal Principal-Agent Relationships Board chair

CEO

Board

CEO/managers

CEO

Employees

Managers

Volunteers

External Principal-Agent Relationships Government funders

Board

Donors/funders/patrons

Nonprofit organization

Government contracting agencies

Nonprofit organization

Clients/beneficiaries/members/communities

Nonprofit organization

Regulators

Nonprofit organization

Non-human actant

Nonprofit organization

Nonprofit organization

Suppliers

explain compliance-oriented self-regulation models where nonprofits must conform to a set of behaviors imposed by external actors/ entities, and to how the representational capacities of nonprofit governance is mediated by levels of government funding. In the next section, I present a critique of what I consider to be three inter-related challenges of applying P-AT to nonprofits and outline some potential future directions.

Current and future directions

The first core challenge in the application of P-AT within the nonprofit structure rests on the complexity of identifying who and what constitutes the principal and the agent. In corporate firms, owners/shareholders/investors are taken to be “the principal,” while the most senior executives/board of directors are “the agent.” Within the milieu of formalized nonprofit organizing, trustees or board members are legally responsible for the entity they govern, including setting its strategic direction and ensuring compliance with the organization’s own governing documents and external regulatory and funding requirements. The workforce, whether voluntary or paid, is accountable to the board. At the same time, this board will often be composed of associational members, service users/clients/ beneficiaries, and/or public sector officials (whose employer may or may not be a funder of the nonprofit). In this scenario governance extends far beyond “the board,” involving a broad range of external stakeholders (e.g., partner agencies, members/users/beneficiaries) and blurTracey M. Coule

ring the boundaries between organizational governance and public governance. Thus, principals and agents are not easily identified and could be constituted in multiple ways. Regulatory bodies and funders could be framed as the principals who reward nonprofit agents with a license to operate, recognition and/or payment and monitor them through quarterly or annual reports and disclosure requirements. As nonprofit boards are (legally) required to act in the best interests of the organization and those who the organization’s “social goods” are intended to benefit, the nonprofit (or its board) become the agent again, but this time with end users as principals. Alternatively, as the board is responsible for setting strategic direction and monitoring organizational activity, often via the CEO where there is one, this could place the board as the principal and CEO/staff as the agent. The point I am making is that nonprofits, and the component parts of their structures, are constituted as both principals and agents in their relationships with (internal and external) others (see Table 26). A second and related problem for P-AT in the nonprofit context is the combined absence of ownership and presence of stewardship. The legal and moral basis of a nonprofit organization rests on stewardship of the organization and its assets by a (voluntary) governing body, towards meeting its social mission. The prohibition of self-interest, in respect of those stewarding the nonprofit (the board), is thus enshrined in the social norms and legal systems of many nations. This is perhaps one reason why applications of P-AT in the nonprofit field have tended to focus on

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malfeasance, nonfeasance or misfeasance by CEOs/management, rather than boards, and on how boards can better monitor and sanction managers. Yet, we know from broader scholarship based on alternative theories and popular media coverage that nonprofit boards are not immune to failures or wrongdoing. By taking board members as altruistic internal principals who are bound by law to act selflessly in their role, P-AT may offer a protective shield to boards and those individuals who reside in them. In this way, it de-focalizes issues of social power and authority by rendering questions regarding the ethics of board behavior unaskable. This brings us to a third application challenge; the problem of accountability relations in the context of power asymmetries. Because P-AT reduces social relations within and between organizations to a set of instrumental, contractual arrangements, there is a danger that accountability becomes skewed in favor of those entities or persons with greatest authority. Critical nonprofit scholars have argued that this can lead to “upward,” “instrumental,” “transactional,” “narrow” and “compliance based” forms of accountability. For example, powerful external principals (e.g., funders and regulators) and internal principals (e.g., the board and/or CEO/managers) can take precedence due to their monitoring role and ability to impose devastating and immediate sanctions on the organization, including loss of charitable status/license to operate, reputation, funding, or on employees, including job loss. While other internal and external stakeholders, such as volunteers or service users/beneficiaries, may be vital to the health and legitimacy of nonprofits, they generally have far less capacity to bring about speedy, high-impact sanctions and thus have less contractual and relational power from a traditional P-AT perspective. Accountability in this form is often conceptualized as “socializing,” “downward,” “expressive,” “felt” and “values-based.” A simple example provides a stark illustration of what the marginalization of this form of accountability can mean. Imagine an environmental nonprofit that did not demonstrate any accountability for its own impact on the environment through its governance practices and processes, simply because the environment is not an entity (principal) that can hold the nonprofit (agent) to account. It is difficult

to conceive that, once detected, such behavior would not lead to a crisis of legitimacy and potential social sanctions, at least over the longer term. In dealing with the first challenge, nonprofit scholars have attempted to overcome principal-agent ambiguity by isolating the particular principal-agent relationship under study as shown in Table 26. While this may prove relatively straightforward for analytical purposes, isolating or “detangling” multiple, dynamic relationships in practice is far more problematic, if not impossible. The second and third challenges I outline have been addressed to some degree by contemporary applications of agency theory, which blend or synthesize aspects of P-AT with other theoretical traditions such as stewardship theory, stakeholder theory, institutional theory, resource dependency theory and so on. I anticipate that the development and deepening of “multiple principals frameworks” and blending of P-AT with other theoretical perspectives will only increase in future applications of agency theory to nonprofit governance, in light of the challenges it presents. Tracey M. Coule

Related topics

Accountability Chief executive officer: Relations with the board of directors Governing board: Responsibilities Social responsibility of nonprofit organizations Transparency Watchdog organizations

Further reading and references

Bhandari, S. B. (2010). Ethical dilemma of nonprofits in the agency theory framework. Journal of Leadership, Accountability and Ethics, 8(2), 33–40. Bies, A. L. (2010). Evolution of nonprofit self-regulation in Europe. Nonprofit and Voluntary Sector Quarterly, 39(6), 1057–1086. https://​doi​.org/​10​.1177/​0899764010371852 Coule, T. M. (2016). Nonprofit governance and accountability. Nonprofit and Voluntary Sector Quarterly, 44(1), 75–97. https://​doi​.org/​10​ .1177/​0899764013503906 Ebrahim, A. (2003). Making sense of accountability: Conceptual perspectives for northern and southern nonprofits. Nonprofit Management

Tracey M. Coule

448  Elgar encyclopedia of nonprofit management, leadership and governance and Leadership, 14(2), 191–212. https://​ doi​ .org/​10​.1002/​nml​.29 Guo, C. (2007). When government becomes the principal philanthropist: The effects of public funding on patterns of nonprofit governance. Public Administration Review, 67(3), 458–473. https://​doi​.org/​10​.1111/​j​.1540​-6210​.2007​ .00729​.x Miller, J. L. (2002). The board as a monitor of organizational activity: The applicability of agency theory to nonprofit boards. Nonprofit Management and Leadership, 12(4), 429–450. https://​doi​.org/​10​.1002/​nml​.12407 Van Puyvelde, S., Caers, R., Du Bois, C., & Jegers, M. (2012). The governance of nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 41(3), 431–451. https://​doi​.org/​10​ .1177/​0899764011409757 Van Slyke, D. M. (2006). Agents or stewards: Using theory to understand the government-nonprofit social service contracting relationship. Journal of Public Administration Research and Theory, 17(2), 157–187. https://​doi​.org/​10​.1093/​jopart/​ mul012 Wellens, L., & Jegers, M. (2014). Effective governance in nonprofit organizations: A literature based multiple stakeholder approach. European Management Journal, 32(2), 223–243. https://​ doi​.org/​10​.1016/​j​.emj​.2013​.01​.007

Private foundations Definition

There are myriad entities operating in the nonprofit universe that are known as “foundations,” but the use of that label is not a reliable indicator of what specific kind of organization the foundation is nor how it operates and is governed. There are corporate and community and family foundations, operating and non-operating foundations, and so on. The landscape quickly becomes confusing. In the United States, the Internal Revenue Service (IRS) code makes a crucial distinction between two categories of tax-exempt entities in section 501(c)(3): “public charities” and “private foundations.” Both types must be focused on charitable purposes, but the rules and regulations governing these two categories are different, so the distinction is crucial. In fact, any nonprofit that qualifies for (c)(3) status is considered initially, by default, to be a private foundation. Those Michael Moody

that can demonstrate they meet the “public support test” – that is, showing that they have several sources of revenue – are then legally classified as public charities instead of private foundations. However, some of those public charities have “foundation” in their name and have grantmaking as one of their primary functions – for example, the Michael J. Fox Parkinson’s Research Foundation, or “community foundations” which are legally public charities. Overall, there are far more public charities than private foundations. And an organization can switch from one status to another, such as when the Pew Charitable Trusts decided to switch from private foundation status to public charity status. Private foundations, as the distinction above suggests, usually have one primary source of funding, such as funding from a single individual or family, a corporation, or a previously established endowment. Many foundations maintain a financial endowment derived from that primary or single source, and fund the foundation’s activities from the investment proceeds – and sometimes the principal – of that endowment. However, not all private foundations have an endowment. Some are fully or partially “pass through” entities, meaning that the money from that single or primary source is contributed to the foundation during the course of its operations in a given year, and these contributions fund the foundation’s work, either solely or alongside some returns from an endowment. Again, we can see how the world of private foundations is not clean and easy to grasp. This is also true when looking at their programs, activities, and common labels. Many but not all private foundations are primarily focused on grantmaking as their core activity. Think of the Bill and Melinda Gates Foundation, the Ford Foundation, or a local family foundation that makes grants to community nonprofits. Legally, and somewhat oddly, these grantmaking-focused foundations are categorized by the IRS as “non-operating private foundations.” This term is used because the other category option is “operating private foundation.” Operating foundations are ones whose primary activity is running their own programs, although many of them also do some grantmaking as well. And like all private foundations, operating foundations derive the funds for running their programs mostly from a single source. Examples include the J. Paul Getty Trust

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(that operates the famous Getty Museum, among other programs) and the Carnegie Endowment for International Peace. Inside the legal category of non-operating private foundations there are various types that, for the most part, are common labels used by philanthropic practitioners but not codified as legal categories. For instance, “family foundation” is a popular term that is most often used to describe a private foundation that is not only funded by a single family (or perhaps a couple or more connected families) but in which that family is involved in governance of the foundation in some active way – for example, having family members serve as trustees and/or staff. However, there is no legal definition of what counts as a family foundation, and the entities often listed under that label can be quite diverse. Some family foundations carry the family’s name but some do not. Some family foundations have the original founding generation still involved, but some are several generations removed from founding and retain only a few family ties – yet still call themselves a family foundation. Some “foundations” controlled by family members are in fact public charities and receive funding from multiple sources – for example, most foundations created by athletes or celebrities fit this profile. Another common but not legally defined category are so-called “independent foundations.” This term is usually applied to non-operating foundations that engage primarily in grantmaking but that are not controlled by a family, corporation, or other entity. Most of the mega-foundations that exist in perpetuity and have a prominent public profile – for example, the W. K. Kellogg Foundation, the John D. and Catherine T. MacArthur Foundation – are considered independent foundations, though others such as the Gates Foundation are actually family foundations. In fact, most independent foundations would have once been considered family foundations, but over time the founding family’s role and influence was reduced or eliminated. Most entities called “corporate foundations” are organized legally as private non-operating foundations. In those cases, the single or primary source of funding is a corporation, which either (or both) provided funds at one time to create an endowment and/

or contributes funds on a regular basis to fund the foundation’s on-going grantmaking. Note that a corporate foundation – for example, GE Foundation or The Coca-Cola Foundation – is a 501(c)3 organization that is legally separate from the corporation that funds it, even if it maintains very close ties to that corporation – that is, in staffing, board membership, geographic areas for programming, and so on. Corporate philanthropy and grantmaking can also occur through a corporate giving that is an arm of the for-profit corporation and not a separate nonprofit foundation. Some companies have both a corporate giving program and a corporate foundation. One final type of private foundation that is becoming increasingly well-known is the so-called “conversion” or “legacy” foundation. This sort of foundation is created when a nonprofit organization, such as a hospital or insurance provider, converts to for-profit status or is acquired by a for-profit company. This very large financial transaction results in a new endowment and a new foundation entity to distribute that endowment through grantmaking or programs designed to further the mission of the now-defunct nonprofit organization. Most of these foundations are in the health care arena, but some are created in other fields such as education. Private foundations are subject to several distinctive rules and regulations, many of which were created in a major tax law passed in 1969 that was meant to curb abuses and force foundations to better serve the public interest. The most well-known is probably the requirement that private non-operating foundations distribute a minimum of 5 percent of their net assets each year. However, this 5 percent distribution requirement can include many expenses beyond just money given as grants; certain administrative and operational costs, and program expenses, can count toward the 5 percent as well. Also note that this 5 percent payout is a floor not a ceiling, and some private foundations distribute considerably more than 5 percent in any given year. In addition, private foundations are subject to special regulations limiting “self-dealing” – for example, spending foundation funds in ways that personally benefit foundation staff, trustees, or family members – and, while exempt from paying other federal or state taxes, most private foundations must still pay Michael Moody

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an excise tax on their net investment income in a given year. Private foundations are also – like public charities – prohibited from all “electioneering” activities. But unlike public charities, private foundations are also prohibited from any, even insubstantial, lobbying activities, and they also cannot make grants to support direct lobbying by others. The only exception is that foundations may engage in lobbying for so-called “self-defense,” such as lobbying on legislative issues that affect the rules for private foundations specifically. Foundations can still participate in other public policy and advocacy activities, though. A couple of final areas of complexity surrounding private foundations – and the source of other common myths about foundations – relate to staffing and to longevity. The vast majority of private foundations have few or no staff, even though a very small number of the largest foundations have hundreds or even thousands of staff. While all foundations are required to be governed by a board, the grantmaking, investment, and other activities for most foundations are undertaken either by outside agents – for example, a law firm or investment manager – or by the board itself. Also, just as the common myth that all foundations are endowed is not accurate, the myth that all foundations exist in perpetuity is also false. While this has been the norm, it was never a defining requirement of private foundations. And increasingly, the trend is toward foundations deciding to have a “limited life,” to distribute all of their assets by some set point in time, and to cease to exist thereafter. Common terms for these limited-life foundations are “spend down” or “sunset” foundations.

In practice

To start, we should remember that private foundations are themselves nonprofit organizations. However, they are a special type of nonprofit, and their relationship with other types is often the focus of much attention – and occasionally the source of much apprehension and tension. First, note that private operating foundations run their own programs as a primary function, and are sometimes hard to distinguish in everyday activities from public charities. They look like other nonprofits, except their funding is from one source rather than several. Michael Moody

Private non-operating foundations, however, are more complicated in this regard. They exist in close interdependence with nonprofit public charities, and that relationship is usually one of “grantor” and “grantee.” Many public charities rely on private foundation grants for some percentage of their funding – though for many charities this percentage is not nearly as high as commonly perceived. It is no surprise that this relationship is often fraught, as one party holds both the purse strings and the decision power for how to open that purse to help the other party. Many times, foundations will say “no” to requests for funding but not explain why, will impose restrictions on the funding (e.g., funding only program expenses and not operational costs), will require a lot of special details in the application or reporting processes, and other things that can frustrate grantseekers. Still, there are many examples of foundations providing essential funding to public charities, especially to create new programs or for special emergencies. From the foundation’s perspective, they often feel the responsibility to be good stewards of the funds that they are privileged to control, which in many cases were not funds created by the foundation staff or trustees making grant decisions. And this sense of responsibility by the grantmaker is the source of many of the features of the relationship that might frustrate the grantseeker or grantee. Foundations often develop specific plans for their grantmaking, restricting it to certain cause areas or geographic regions (often called “program areas”) for instance, and have preferences for giving only certain kinds of funding to certain types of organizations because they feel this will maximize the impact of the money available. In most cases, foundations are bounded by a sometimes-narrow mission that precludes funding public charity work that falls outside the mission. This mission is usually set by the founding family, corporation, or other source of the foundation’s funds and its influence often continues throughout the life of the foundation. All of this limits how flexible foundations can be in their relationships with nonprofit partners. Still, private foundations often find ways to be creative, and even experimental at times, in the role they play and how they engage with other nonprofits – both other foundations and public charities. Joel Fleishman

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(2007) has identified three common roles that foundations play in the nonprofit sector: Driver, Partner, and Catalyst. Foundations act as Drivers when they have a clear idea of the goal to be achieved and the strategy they think is best to get there. In these cases, the foundation takes the lead, mapping out their plan and funding organizations that can help implement that plan. When foundations act as Partners, they are not as controlling and focused on their own vision. They partner with others – for example, other funders, nonprofits, government leaders, and so on – to define problems and devise solutions, and they see their funded partners as collaborators not just grantees. Finally, when the strategy to address a problem or achieve a goal is more uncertain or underdeveloped, foundations might act as Catalysts, spreading their resources among many organizations working in the area of concern and hoping that one or another will show some success or impact.

Issues, perspectives, and debates Recent growth The latest data available from the organization Candid (2021) shows that there are around 127,500 private foundations in the U.S., holding $1.2 trillion in assets and giving $90 billion each year. These numbers have all grown tremendously in the past 30 years, especially as wealth concentration has increased exponentially. Also, giving by foundations is increasing as a percentage of total giving in the U.S., increasing to nearly 21 percent of all charitable giving in 2022, according to Giving USA (2023) estimates. Foundation giving was only 6 percent of all giving in 1981. (Note that the Giving USA numbers include giving by community foundations, which are not private foundations.) Significantly, this growth in foundations and foundation giving has continued despite the meteoric increase in donor-advised funds in recent years, even though creating a donor-advised fund is often seen as an alternative to creating a foundation. Rising critiques Private foundations have been the object of strong critique since their invention in the early twentieth century, as evidenced

by the vociferous opposition to John D. Rockefeller’s proposal to establish a general-purpose charitable foundation in 1910. But the critiques of foundations have ramped up considerably in recent years, especially as foundations continue to grow larger and become bolder in their activities. The critiques often center on the disproportionate and illegitimate power that foundations are said to wield in a democracy. Critics argue that foundations exert private control over things that should be publicly determined – by citizens and/or by government – such as the public policy agenda, critical funding for services to those in need, and so on. They also point to the lack of accountability and transparency of the foundations acting in these ways that can so significantly affect the public. Foundation staff and trustees cannot be voted out of office, nor are they required to explain or document their decision-making or inner workings – at least beyond the minimal reporting requirements on their annual tax filings. Finally, critics document the relatively small percentage of foundation funding being given to organizations run by and/or focused on people of color and traditionally marginalized populations. Foundation proponents respond to these critiques by pointing to the legal obligations of foundations to demonstrate a commitment to the public good (as they define that good), and to some especially useful roles played by foundations as partners with government in advancing solutions to public problems. For instance, foundations can be, as Paul Ylvisaker (1989) famously put it, “society’s passing gear,” funding experimental ideas or promising startup programs that, if successful, can then be taken to scale by government. There are many examples of this throughout history, from public libraries to white lines on the side of highways. Improving partnerships In part to respond to the growing level of critique and scrutiny, and in part because of new movements in the philanthropic professional field, more and more private foundations are rethinking their traditional relationships with grantees and other “partners,” and trying out new ways of working through the inherent power dynamics in grantmaking work. There are now notable campaigns in the foundation space to streamline the Michael Moody

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application and reporting requirements, to offer more operational funding instead of only program grants, and to support capacity building among grantees. There is also a push for more foundation funding for and attention to racial and social justice causes and organizations. And many foundations have started to, or are considering, bringing grantee and/ or community voices more formally into their decision-making process – for example, through bringing community activists or grantee staff onto the foundation board or committees. These movements for change in foundations have been labeled “participatory grantmaking,” “trust-based philanthropy,” and other terms. Other trends There are several other recent trends that are transforming the way private foundations operate, and that will continue to shape the field in years to come. One already mentioned is the option of establishing a foundation as “limited life” rather than “in perpetuity.” This has become much more common in recent years, and more foundations are asking themselves this question than ever before. Also, more and more foundations are considering alternative ways of using their extensive financial capital to advance their missions beyond traditional grantmaking. These include various types of “impact investing” by foundations, such as changing the policies and practices for investing their endowments in ways that better fit with their missions (often called “Mission-Related Investing”), and making no- or low-interest loans to fund community projects or program innovations instead of just grants (often called “Program-Related Investments”). More private foundations can be found divesting their endowments from fossil-fuel stocks, for instance, or joining with for-profit investors to loan money for affordable housing construction. Finally, private foundations are increasingly collaborating with other funders to leverage greater impacts – for example, through the growing number of “funder collaboratives” focused on certain cause areas. In conclusion, we should remember that the world of private foundations is one filled with complexity and variation. As an old saying in the field goes, “if you’ve seen one foundation, you’ve seen one foundation.” And it is also important to note that much Lloyd Hitoshi Mayer

of the material in this entry is described in the American legal and institutional context. When we consider “private foundations” outside of this context, the complexity only gets more profound. Michael Moody

Related topics

Foundations – History and functions Operating foundations Philanthropy: Definition and history

Further reading and references

Berman, M. A., Karibi-Whyte, R., & Tarasov, O. (2019). The philanthropy framework. Rockefeller Philanthropy Advisors. www​ .rockpa​.org/​wp​-content/​uploads/​2019/​02/​The​ -Philanthropy​-Framework​-1​.pdf. Candid. (2021). https://​www​.issuelab​.org/​resources/​ 38265/​38265​.pdf Fleishman, J. L. (2007). The foundation: A great American secret; how private wealth is changing the world. PublicAffairs. Giving USA. (2023). Giving USA 2023: The Annual Report on Philanthropy for the Year 2022. Giving USA Foundation and Indiana University Lilly Family School of Philanthropy. Hammack, D. C., & Anheier, H. K. (Eds.). (2013). A versatile American institution: The changing ideals and realities of philanthropic foundations. Brookings Institution Press. Moody, M., Knapp, A. L., & Corrado, M. (2011). What is a family foundation? The Foundation Review, 3(4), 47–61. https://​doi​.org/​10​.4087/​ foundationreview​-d​-11​-00019 Reich, R. (2016). On the role of foundations in democracies. In R. Reich, C. Cordelli, & L. Bernholz (Eds.), Philanthropy in democratic societies: History, institutions, values (pp. 64–85). University of Chicago Press. Ylvisaker, P. N. (1989). Small can be effective. Occasional Paper. Washington, DC: Council on Foundations.

Private inurement prohibition Definition

The private inurement prohibition is a legal requirement imposed on most nonprofits that bars them from distributing their assets or earnings for the benefit of private individuals

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who exercise substantial influence over the nonprofit or for the benefit of other legal entities that exercise similar influence.

In practice

This entry is based primarily on the private inurement prohibition as codified in the laws of the United States, but many other countries also impose the prohibition on some or all nonprofits. In common law countries the private inurement prohibition developed initially through the courts, and in many civil law countries it initially developed through commonly accepted legal practices. Today, legislators often codify the prohibition in organizational laws for nonprofits, in tax laws providing benefits to nonprofits such as tax exemption, or both. For example, in the United States the prohibition is found in many states’ nonprofit corporation statutes and in some, but not all, of the federal tax laws (Internal Revenue Code) providing for exemption of nonprofits from income tax. In Argentina, the prohibition is found in the tax law (Income Tax Law) and only applies to foundations, but tax and other laws impose various limits on compensation paid by other types of nonprofits. In Germany the prohibition is included in the tax law (Fiscal Code). In India, the prohibition is incorporated in both the Indian Companies Act and tax law. For further examples, see the “Inurement” entries in the Country Notes published by the Council on Foundations (Council on Foundations, 2023). Applicable laws generally permit nonprofits to have earnings, including net earnings. That is, applicable laws generally permit nonprofits to make a profit. The same laws generally require that these earnings be dedicated to furthering the nonprofit’s legal purpose or purposes. The private inurement prohibition supports this requirement by barring the distribution of earnings for the benefit of private individuals. While usually phrased as applying to earnings, in practice the prohibition applies to all the assets of a nonprofit. Similarly, while usually phrased as applying to distributions to private individuals, in practice the prohibition also applies to distributions to other types of legal entities. Given this broad definition, one prominent scholar has called this prohibition the “nondistribution constraint” (Hansmann, 1980, p. 838).

The private inurement prohibition usually applies to charitable nonprofits and often to some other types of nonprofits, but not necessarily to all nonprofits. There also are often exceptions to the prohibition for distributions to members of certain types of mutual benefit nonprofits. The private inurement prohibition applies to distributions to private individuals who exercise substantial influence over a nonprofit and to other legal entities that either are controlled by such private individuals or themselves exercise substantial influence over a nonprofit. Such individuals and other entities are often referred to as insiders. Examples of insiders include governing body members, such as directors and trustees; officers, such as the president, treasurer, secretary, chief executive officer, and chief financial officer; founders; and significant donors. An individual or other legal entity need not have a formal title or role to be considered an insider if other facts and circumstances demonstrate they exercise substantial influence over the nonprofit. The private inurement prohibition identifies the provision of certain types of economic benefits to insiders as inappropriate distributions. One form of private inurement is when a nonprofit provides an economic benefit to an insider that has a value greater than the value of any good or service provided by that insider in return. For example, private inurement exists if a nonprofit pays an insider more than a reasonable amount of compensation for services provided by that individual. Similarly, private inurement exists if a nonprofit pays an insider more than fair market value for property provided by that individual, if a nonprofit provides an insider with an interest-free loan, or if a nonprofit provides an insider with rent-free use of the nonprofit’s property. Private inurement also exists when a nonprofit provides an insider with an economic benefit that does not further the nonprofit’s legal purpose or purposes. For example, private inurement exists if a nonprofit pays for travel by an insider that is not needed to further the nonprofit’s legal purpose. Private inurement also exists if a nonprofit incurs expenses to create valuable property that an insider then benefits from without compensating the nonprofit for that benefit. For example, private inurement exists if Lloyd Hitoshi Mayer

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a nonprofit’s employees write a book, and an insider receives the right to a portion of the proceeds from the sale of the book. The penalties for violation of the private inurement prohibition may be financial penalties, required governance changes, loss of tax benefits, or forced dissolution. For example, in the United States federal tax law imposes financial penalties for private inurement on benefitting insiders and on managers who knowingly approved the private inurement; in extreme cases, private inurement may cause a nonprofit to lose its tax-exempt status. Similarly, state organizational law usually provides state officials with the authority to go to court to seek financial penalties on the benefitting insiders, governance changes at the nonprofit, and, in extreme cases, the nonprofit’s dissolution.

Current and future directions

Many examples of private inurement are easily identified and relatively straightforward, including the payment of excessive compensation and the creation of property for the benefit of insiders as opposed to furthering the nonprofit’s legal purpose or purposes. The extent to which the private inurement prohibition applies to more complex financial arrangements is not always clear, however. These complex financial arrangements include revenue sharing, implicit joint ventures, and investments in social enterprises. Revenue sharing involves the sharing of a revenue stream from a particular activity with an insider. Revenue sharing is private inurement if the terms of the revenue sharing arrangement result in unreasonably high compensation for the insider’s contribution to the activity or is disproportionate to the benefit received by the nonprofit from the activity. Relevant factors include the proportion of the revenue shared with the insider, whether there is a cap on the maximum amount the insider can receive, whether the arrangement incentivizes the insider to further the nonprofit’s legal purpose or purposes, and whether the relevant revenue stream is gross receipts or net earnings. For example, it will generally not be private inurement for an investment manager to receive a bonus based on the net increase in value of the nonprofit’s portfolio under that manager’s control if the bonus represents no more than the reasonable compensation for the investment manager’s Lloyd Hitoshi Mayer

services and the nonprofit receives a proportionate benefit from the increase. Similarly, it will generally not be private inurement for an executive to receive a bonus based on an incentive plan that ties the bonus to achieving performance metrics relating to the nonprofit’s mission if the total compensation the executive can receive, including the bonus, is capped at a reasonable amount. In the United States, such incentive plans are particularly common among health care nonprofits, with payments tied to a variety of non-financial measures, such as patient satisfaction and quality of care, and financial measures, such as cost-reduction goals (Cotter et al., 2015). Implicit joint ventures involve a nonprofit working with one or more insiders to engage in a particular activity, although the joint activity may not be considered a partnership or other legal joint venture. For example, a nonprofit hospital may work with a particular group of physicians to provide health care services in a community. In general, an implicit joint venture results in private inurement if the insider unduly benefits from the joint venture as compared to the benefits to the nonprofit and its legal purpose or purposes. For example, if the above hospital almost exclusively treated patients of the physicians it worked with as opposed to the public more generally, that would constitute private inurement. Another example of an undue benefit is the implicit joint venture activity providing the insider with a disproportionate share of the activity’s profits compared to the insider’s contribution to the joint venture. A further example of an undue benefit is the implicit joint venture promoting the insider’s business or other for-profit economic activities to the detriment of furthering the nonprofit’s legal purpose or purposes. One way to characterize an implicit joint venture arrangement that results in private inurement is as a parasitic relationship (to the detriment of the nonprofit) as opposed to a symbiotic relationship (Jones, 2000, pp. 627–628). A relatively new activity by nonprofits that may implicate the private inurement prohibition is investing in social enterprises. Some social enterprises have investors who accept a lower return than other investors because they support the social mission of the enterprise, resulting in the former investors subsidizing the latter investors. If a former investor is a nonprofit and a latter investor is

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an insider of the nonprofit, this arrangement may result in private inurement, at least under existing United States federal tax law (Leff, 2015, pp. 25–27). The private inurement prohibition is a critical legal component for ensuring that nonprofits dedicate their assets and earnings to furthering their legal purpose or purposes, and not to benefiting their insiders. That said, complex financial arrangements present challenges for nonprofits and insiders seeking to determine in good faith what transactions are permitted under the prohibition. Governments, and particularly governmental tax authorities, should continue to provide additional guidance on the application of the prohibition to these arrangements so as not to unduly hinder appropriate transactions. Lloyd Hitoshi Mayer

excess benefit. Virginia Tax Review, 19(4), 575–681. https://​papers​.ssrn​.com/​sol3/​papers​ .cfm​?abstract​_id​=​209688 Leff, B. M. (2015). Preventing private inurement in tranched social enterprises. Seton Hall Law Review, 45(1), 1–62. https://​papers​.ssrn​.com/​ sol3/​papers​.cfm​?abstract​_id​=​2492322

Professionalism Definition

Professionalism refers to the trend of professionalization of the nonprofit sector including the more extensive educational credentials and experience sought by nonprofit employers when they recruit people to serve in positions of executive leadership, middle management, back-office support, Related topics and direct services. Over many decades, proAccountability fessionals have gradually supplanted volunFraud and corruption teers as leaders in nonprofit organizations, Governing board: Responsibilities thereby infusing professional standards into Principal-Agent Theory the goods and services produced by nonRegulation of nonprofit organizations profits and with significant impacts on their Sarbanes-Oxley Act organizational structure, strategy, protocols, Transparency and culture. Professionalism also refers to the trend of growing specialization among workers in various subsectors including the Further reading and references Church of Scientology of California v. type of training and experience required of Commissioner of Internal Revenue, United professionals in health care administration, States Court of Appeals, Ninth Circuit, 823 arts management, community development, F.2d 1310–1322. (1987). https://​casetext​.com/​ and many other specialized subsectors. case/​church​-of​-scientology​-of​-california​-v​ Finally, professionalism refers to the -commr​-of​-internal​-revenue growing number of specialists who have Cotter, M., Hastings, K., & Totten, M. K. (2015). unique skills that may be embedded within Revisiting executive incentive compensation. any organization and perhaps transported to AHA Trustee Services. https://​ trustees​ .aha​ other organizations as employees migrate .org/​articles/​863​-revisiting​-executive​-incentive​ from one organization to another. This group -compensation Council on Foundations. (2023). Country notes. includes resource development professionals, marketing specialists, people who specialize www​.cof​.org/​country​-notes Dale, H. (2004). The crux of charity: Inurement, in nonprofit law, experts in nonprofit finanprivate benefit, and excess benefit transactions. cial management, and emerging specialties National Center on Philanthropy and the Law. like ePhilanthropy and volunteer managehttps://​ncpl​.law​.nyu​.edu/​wp​-content/​uploads/​ ment that are increasingly in demand.

pdfs/​2004/​Conf2004​_Dale​_DRAFT​.pdf Hansmann, H. B. (1980). The role of nonprofit enterprise. The Yale Law Journal, 89(5), 835–901. https://​doi​.org/​10​.2307/​796089 Internal Revenue Service. (1989). Overview of inurement/private benefit issues in IRC 501(c) (3). www​.irs​.gov/​pub/​irs​-tege/​eotopicc90​.pdf Jones, D. K. (2000). The scintilla of individual profit: In search of private inurement and

In practice

Nonprofit professionalism can be traced to the earliest emergence of charitable activities. Throughout history, there have been people who have devoted their lives to helping others even if they were not compensated Kevin P. Kearns

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for those valued services. This would include people who provided comfort and support to the sick or disabled, those who operated the earliest orphanages and almshouses, and people motivated by their faith tradition to undertake other types of charitable activity in areas like healthcare, education, food assistance, and others. Even when self-taught, these people gradually acquired knowledge and expertise in their respective fields and passed this knowledge on to others. Thus, in a literal sense, they were professionals albeit not trained as such. Professionalism in the nonprofit sector gained momentum near the turn of the twentieth century. It was then that we see the emergence of specialized schools of social work that have since trained generations of professionals with skills in family dynamics, coordination of social services, case management, specific types of intervention, counseling, and many other needed services. The end of the nineteenth century also ushered in a new cadre of people who advised super-wealthy industrialists, such as Andrew Carnegie, on how to effectively donate their money to important social causes. For many years, these people were merely friends or trusted advisors of the wealthy, also self-taught, but the growing number of private foundations in the early-1900s created a need for knowledgeable professionals to manage family endowments and distribute grants in accordance with the wishes of their benefactors. A variety of charitable networks further accelerated professionalism in the nonprofit sector. The Jewish Federation was founded in 1895 and inspired the 1913 founding of the first community chest in Cleveland. This, in turn, evolved into the network of United Way affiliates across the United States. In 1914, the Cleveland Foundation was founded as the nation’s first community foundation. In 1920 Catholic Charities embarked on a process to professionalize its staff. All these institutions demanded professional leadership and enlightened governance to effectively manage their growth and complexity. More recently, various associations of nonprofit professionals were formed such as the Association of Fundraising Professionals, founded in 1960. A list of professional associations is provided elsewhere in this book. Beginning in the early 1980s, we see the emergence of specialized courses of study Kevin P. Kearns

in nonprofit management and governance at universities, generally in schools of social work, public administration, and business administration. The growing impact of these educational programs is discussed elsewhere in this book. Also, around this time leading scholars began to outline the contours of curricula to train nonprofit professionals (O’Neill & Young, 1988) and there emerged a growing number of professional associations, scholarly associations, as well as journals devoted to nonprofit management and leadership. These too are itemized elsewhere in this book. Placing professionalism in historical context, the late Lester Salamon outlined four impulses that shaped the nonprofit sector in the United States for many years – voluntarism, professionalism, commercialism, and civic activism (Salamon, 2012). According to Salamon, the professionalism impulse is characterized by, among other things: ● Specialized professional expertise in the design and delivery of services. ● Evidence-based programming. ● A secular and technocratic organizational culture. ● A hierarchical and professionally segmented organization structure. ● Consistent and professionally inspired organizational protocols. ● Greater reliance on government funding, fees for service, and institutional philanthropy.

Issues and debates

There are some tensions between professionalism and other historical influences on the nonprofit sector. For example, some observers believe that the concept of managerialism, discussed elsewhere in this book, is a derivative of professionalism. Managerialism, however, is distinct from professionalism in that it proposes optimization methods that have morphed into an all-encompassing ethos or ideology about how professional expertise should be deployed, managed, and optimized. Nonetheless, professionalism can pose a threat to the voluntaristic and charitable mission of a single organization or even to the public perception of the entire nonprofit sector. Professionalism can be at odds with other trends in the nonprofit sector such as com-

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mercialism, also discussed elsewhere in this book. For example, in a healthcare setting, a doctor’s professional recommendation for a patient’s treatment might be supplanted by what third party payors, such as insurers, are willing to pay. Thus, in some instances, the commercial interests of the healthcare organization may be at odds with the physician’s professional diagnosis and recommended treatment. Professionalism may also be in tension with the values of civic activism. Consider, for example, a highly professionalized nonprofit organization that receives substantial funding from government sources in the form of performance-based contracts. This organization is in close partnership with government agencies and, in extreme cases, could even be perceived as the government’s surrogate provider of public goods. This type of nonprofit may be reluctant to advocate for social change or lobby the government for fear of appearing adversarial and possibly losing its favored status as a recipient of government funding. Another tension occurs when volunteer governing boards do not fully appreciate the professional credentials of their employees and the standards by which they judge their own performance and advancement within the profession (Kim & Charbonneau, 2020). In an extreme case, the board of trustees may over-estimate the non-financial rewards and motivations of their managers and employees, assuming that they are motivated solely by the rewards of helping others. Lacking mission-specific expertise themselves, the board members may continually under-value the professional credentials of their employees or fail to authorize investments in the organization’s administrative and organizational infrastructure that are essential to maintaining high professional standards of service. Lastly, professionalism can lead to cases wherein the values and aspiration of professionals in a nonprofit organization are more aligned with their respective professional affiliations than to the unifying culture and mission of the organization. This can lead to a situation in which the various professionals do not appreciate each other’s ideas or understand the specialized language they use to express those ideas. In the extreme, professional silos can subtly erode the organization’s

unifying values and shared commitment to the mission. In organizations that host social enterprises, for example, the employees of the profitable subsidiary may pursue different goals, primarily financial, and demand much higher compensation than those who toil toward the organization’s unprofitable charitable mission. This can easily lead to internal tensions and resentments.

The future

The trend toward professionalization of the nonprofit sector has been so long in the making that few people would suggest it will abate. In fact, we are witnessing the emergence of new and distinct professional identities in areas like nonprofit entrepreneurship, social media technology, and others that will have impacts on the nonprofit sector for many years to come. Thus, it is highly unlikely that we will return to the days when well-intentioned, and often independently wealthy, volunteers were charged with the design and management of increasingly complex nonprofit organizations. The nonprofit sector is highly stratified in terms of organizational size, sophistication, and reliance on professional employees. As small nonprofits grow in scale and impact there is a natural, almost organic, tendency to gravitate toward professionalization first at the top of the organization and then filtering downward. Nonetheless, not every nonprofit organization is destined to become professionally staffed. There are still thousands of nonprofits that pursue their missions quite effectively under the guidance of a volunteer board of directors and assisted by other volunteers. It is likely there will never be a single pattern of nonprofit growth or an optimal level of professionalization. Kevin P. Kearns

Related topics

Careers and preparation Chief executive officer: Performance review Commercialism Curricula for nonprofit management in higher education Governing board: Responsibilities Leadership Leadership succession Managerialism Kevin P. Kearns

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Further reading and references

There are several major types of evaluation. For example, one can conduct an Alexander, J. A., & Weiner, B. J. (1998). The adoption of the corporate governance model by evaluation during program implementation nonprofit organizations. Nonprofit Management to explore what may or may not be working and Leadership, 8(3), 223–242. https://​doi​.org/​ to identify possible improvements (formative 10​.1002/​nml​.8302 evaluation). Process evaluation is one type of Hwang, H., & Powell, W. W. (2009). The rational- formative evaluation that examines fidelity, ization of charity: The influences of profession- or how well program activities align with alism in the nonprofit sector. Administrative what was planned, typically for manageScience Quarterly, 54(2), 268–298. https://​doi​ ment or accountability purposes. At or near .org/​10​.2189/​asqu​.2009​.54​.2​.268 Kim, M., & Charbonneau, É. (2020). Caught the point where a program ends, summative between volunteerism and professionalism: evaluations investigate their level of effecSupport by nonprofit leaders for the donative tiveness. One type of summative evalualabor hypothesis. Review of Public Personnel tion is outcomes evaluation, which examines Administration, 40(2), 327–349. https://​doi​.org/​ whether one or more proposed outcomes 10​.1177/​0734371x18816139 were achieved. An outcome refers to how King, D. (2017). Becoming business-like. someone or something is better off in the Nonprofit and Voluntary Sector Quarterly, long term because of nonprofit efforts, for 46(2), 241–260. https://​doi​.org/​10​.1177/​ example, number of jobs created, increase in 0899764016663321 Maier, F., Meyer, M., & Steinbereithner, M. literacy rates. Impact, or social impact, refers (2016). Nonprofit organizations becoming to the difference nonprofits make to measbusiness-like. Nonprofit and Voluntary Sector ured outcomes, distinct from other contribuQuarterly, 45(1), 64–86. https://​doi​.org/​10​ tors. Evaluability assessment is a process to .1177/​0899764014561796 determine whether a given strategy, program, McAllum, K. (2018). Volunteers as boundary or service is ready to be evaluated. If the workers: Negotiating tensions between vol- strategy is too new, if it has changed signifunteerism and professionalism in nonprofit icantly, or if it is constantly being adjusted organizations. Management Communication Quarterly, 32(4), 534–564. https://​doi​.org/​10​ in important ways, it may not be ready for outcomes evaluation. .1177/​0893318918792094 Over the last several years, evaluators have O’Neill, M., & Young, D. R. (Eds.). (1988). Educating managers of nonprofit organiza- developed specific approaches to evaluation in response to emerging concerns and issues. tions. Praeger. Salamon, L. (2012). The resilient sector: The For example, utilization-focused evaluation future of nonprofit America. In L. Salamon is intended to increase the use of evaluation (Ed.), The state of nonprofit America (pp. 3–88). findings by stakeholders and was developed Brookings Institution Press. after studies revealed that decision-makers were not using evaluation results to make decisions (Patton, 2003; Weiss, 1998). Culturally responsive evaluation requires attending to the concerns and interests of communities involved in the program, for example by including program participants in the evaluation but also by recognizing that Definition of key terms and evaluators have to take special care to attend concepts to their own biases and assumptions (Hood, Program evaluation can be defined as “the 2004; Hopson, 2009; Thomas & Campbell, systematic assessment of the operation and/ 2020). Deciding which one, or combinaor the outcomes of a program or policy, com- tion, of the different types of evaluation to pared to a set of explicit or implicit standards, undertake will often depend on the purpose as a means of contributing to the improve- and who gets to decide. Many nonprofit ment of the program or policy” (Weiss, 1998, leaders are unaware of different approaches p. 4). As this definition suggests, there are to evaluation or even how to best conduct an four key questions that need to be answered evaluation given their goals and strategies. in any evaluation: what is being evaluated, As a result, many leaders can get caught in for what purpose, using what criteria and the trap of simply collecting data to meet through what method. funder requirements and do not have a guide

Program evaluation

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for approaching evaluation to support the organization’s learning and ultimately their social impact. We turn to this issue next.

Current issues and challenges20

Over the last 30 years, nonprofit leaders have faced increasing demand for evidence of their social impact. This demand is the result of several factors. First, the growth in government funding for nonprofit service providers, both domestically and internationally, has required nonprofits to regularly collect and report performance data for those funded programs. Second, foundations and other private donors, often influenced by business practices or consultants, began requiring evidence of impact as a condition for funding. Beyond requirements by funders, the demand for evaluation also came in response to growing competition for funding, reports of scandals in well-known nonprofits, and criticisms voiced by communities. The move towards outcome-based funding through impact bonds and outcomes funds creates additional pressure to demonstrate impact through evaluation. Although leaders also recognize the need to evaluate their organizations’ impact, they have struggled with how to approach evaluation proactively given capacity and resource limitations. In the nonprofit field, scholars have documented these trends and offered theoretical explanations for the challenges facing nonprofit leaders. More recently, scholars have built on this accumulated evidence to offer theoretically informed guidance for nonprofit leaders about how to approach evaluation depending on organizational capacity and strategy (Ebrahim, 2019; Gugerty & Karlan, 2018). Here we propose a practice-oriented research agenda with the goal of supporting nonprofit leaders in addressing four core evaluation questions: (1) What to evaluate? (2) For what purpose? (3) Against which criteria? (4) With what evidence and methods? We briefly summarize the key points here. The question of what to evaluate requires defining the unit of analysis, or the evaluand. Although evaluation tools and handbooks designed for practitioners tend to focus on programs and projects, nonprofit organizations are guided by an overall strategy that

20

informs the adoption and integration of specific initiatives. Often that strategy implies a specific relationship to a community that is not reducible to isolated program interventions. Consequently, evaluations framed around a program can miss how specific programs work together, the larger eco-system in which nonprofits work, and the contribution and role nonprofit participants play in realizing outcomes. A focus on programs can also miss the role individual organizations play in larger collective goals, for example ending homelessness in a city or achieving the UN Sustainable Development Goals. For nonprofit leaders addressing this question requires engaging stakeholders to think wholistically about their organizations and environments, rather than simply evaluating specific programs. The second question, what is the purpose of evaluation, requires identifying and negotiating competing uses and demands for evaluation. Early evaluators focused their attention on the needs of policymakers who had to decide whether to cut or expand a given program. Over time, evaluators not only considered the needs of other stakeholders, including those least likely to have a voice in decision-making, such as program participants, but evaluators also recognized the non-instrumental uses of evaluation results. Nonprofits have multiple stakeholders with different needs but, historically, nonprofits prioritized the use of evaluation to meet the accountability demands of funders. This is understandable as funders have more power relative to other stakeholders. But research suggests that nonprofit leaders can negotiate evaluation demands with funders, for example, if they can document the concerns and priorities of other stakeholders, specifically participants (see Ospina et al., 2002). For nonprofit leaders, answering this question requires identifying the evaluation questions and concerns of key stakeholders, not just funders, and using this information to design the evaluation. The third evaluation question concerns the criteria that will be used to assess the merit or worth of the evaluand. Many practitioners have come to see intended program or project outcomes as the only legitimate cri-

This section draws on Benjamin et al. (2022).

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terion for evaluating their organization, in part because those are of interest to funders. But evaluation and nonprofit scholars have both raised cautionary notes about these goal achievement criteria, in part because they do not capture unintended effects, they prioritize ends over means, and they do not tell us whether an organization’s intervention caused the outcome of interest. Moreover, a focus on intended program outcomes does not recognize that outcomes often emerge in collaboration with communities and that pre-determined outcomes can undermine innovation and sideline the sector’s expressive roles. Both evaluation and nonprofit scholars have suggested alternative criteria to capture other important values including equity, empowerment, cultural responsiveness, and participant co-ownership. For nonprofit leaders, identifying criteria means recognizing more than intended program outcomes and considering who should be involved in identifying and prioritizing these criteria. The fourth question concerns what constitutes credible evidence and methods for evaluation. The evaluation literature finds that experimental methods, which focus on causal attribution, are not well suited to measuring social change in complex systems (Rogers, 2008). Instead, evaluation scholars recognize a range of methodologies, each with strengths and weaknesses. Although some nonprofit leaders may feel pressure to use randomized experiments, nonprofit scholars and practitioners raise concerns, including issues relating to their cost, timing, and appropriateness (Chambers et al., 2009; Gugerty & Karlan, 2018; Khagram et al., 2009). Meanwhile, practitioners are unaware of the variety of evaluation approaches. For example, some nonprofits have started employing short constituent feedback surveys to make concrete improvements (Marx et al., 2021; Twersky et al., 2013). Other nonprofits are using qualitative methodologies such as the Most Significant Change, which involves generating and analyzing personal accounts of change (Dart & Davies, 2003). For nonprofit leaders, recognizing the diverse methods that can be used to gather credible evidence is the first step in addressing this question. The above discussion lays the groundwork for research-informed practice organized around the four main evaluation questions

and identifies some of the issues faced by nonprofit leaders as they set out to answer these evaluation questions. In the next section, we offer some starting points for nonprofit leaders to consider as they start to answer these questions

The future

Given the time and capacity constraints they face, nonprofit leaders may not know where to start when they want to approach evaluation questions proactively. Based on the four questions above, we offer a few starting points here that offer ways nonprofit leaders might develop evaluations that better meet their needs. What should we evaluate? In considering what to evaluate, nonprofit leaders are often thinking at the organizational level, but much evaluation literature focuses on the program or project. A number of recent resources can help nonprofit leaders avoid slipping into the easy assumption that they should evaluate isolated programs and projects for funders. For example, Ebrahim (2019) offers nonprofit leaders a framework for understanding the type of strategy their organization uses and what this means for measurement. Another set of resources on collective impact offers nonprofit leaders a way to see how their organization can work in concert with others to affect change at the community level (Kania & Kramer, 2011). What criteria should we use? In considering what criteria to use to evaluate organizations and programs, we suggest that focusing on intended program outcomes is too limited and misses important but subtle ways nonprofit organizations impact equity. For example, Benjamin (2022) identifies relational practices that affect participants’ experience of their social status in nonprofits, a central measure of equity. A constituent feedback approach starts to get at this relational work and the experience participants have in these organizations by asking participants to share their experience, via short surveys, in ways that enable nonprofits to identify problem areas and make concrete improvements.

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What methods should we use to gather credible evidence? Nonprofit practitioners need to understand the respective strengths and weaknesses of different evaluation methods, for different purposes and have a strategy for mapping strategies to their own organizational needs. To this end, Gugerty and Karlan (2018) offer guidance for deciding how much and what kind of data to collect. Another technique that has become widely used is called outcome harvesting. Outcome harvesting seeks to identify and understand changes that occurred and then, working backwards, analyze what may have brought about those changes (Wilson-Grau, 2019). For what purpose? Many practitioners want more tools and resources to ensure evaluative data supports learning and improvement. Several tools mentioned above are well suited for that purpose, including using constituent feedback surveys, most significant change, and outcome harvesting. For practitioners with access to large data sets, newer evaluation methodologies use machine learning techniques to detect patterns occurring in complex systems. Although ethical issues in the analysis of big data remain a concern, such tools hold great potential for understanding change. Making these four evaluation questions explicit and considering the range of possible responses to the questions can give practitioners some leverage in conversations with key stakeholders, particularly funders. Too often, these important questions are never asked, and their answers are assumed. For example, nonprofits could develop the internal capacity of their staff to make informed decisions about central evaluation questions and thus increase the quality of their efforts to better serve the needs of nonprofits themselves. Or, by negotiating more effectively with an external evaluator, nonprofits could better ensure that the final product of an evaluation is useful for the organization and contributes to organizational learning and growth. Lehn M. Benjamin, Dana R. H. Doan, Alnoor Ebrahim and Mary Kay Gugerty

Related topics

Accountability Effectiveness of nonprofit organizations

Impact investing Performance management Social return on investment

Further reading and references

Benjamin, L. M. (2022). How helping can reinforce or attenuate status inequalities: The case of nonprofit organisations. RFS: The Russell Sage Journal of the Social Sciences, 8(7), 210–227. https://​doi​.org/​10​.7758/​RSF​.2022​.8​ .7​.11 Benjamin, L. M., Ebrahim, A., & Gugerty, M. K. (2022). Nonprofit organizations and the evaluation of social impact: A research program to advance theory and practice. Nonprofit and Voluntary Sector Quarterly, 52(1), 313S-352S. https://​doi​.org/​10​.1177/​08997640221123590 Carman, J. G., & Fredericks, K. A. (2018). Applications of social network analysis in evaluation: Challenges, suggestions, and opportunities for the future. Canadian Journal of Program Evaluation, 33(2), Article 2. https://​ doi​.org/​10​.3138/​cjpe​.31156 Chambers, R., Karlan, D., Ravillion, M., & Rogers, P. (2009). Designing impact evaluations: Different perspectives. International Initiative for Impact Evaluation (3ie). www​ .3ieimpact​.org/​evidence​-hub/​publications/​ working​-papers/​designing​-impact​-evaluations​ -different​-perspectives. Accessed August 2022. Dart, J., & Davies, R. (2003). A dialogical, story-based evaluation tool: The most significant change technique. American Journal of Evaluation, 24(2), 137–155. https://​doi​.org/​10​ .1177/​109821400302400202 Ebrahim, A. (2019). Measuring social change: Performance and accountability in a complex world. Stanford University Press. Gugerty, M. K., & Karlan, D. (2018). The goldilocks challenge: Right-fit evidence for the social sector. Oxford University Press. Hood, S. (2004). A journey to understand the role of culture in program evaluation: Snapshots and personal reflections of one African American evaluator. New Directions for Evaluation, 2004(102), 21–37. https://​doi​.org/​10​.1002/​ev​ .113 Hopson, R. K. (2009). Reclaiming knowledge at the margins: Culturally responsive evaluation in the current evaluation moment. In Ryan, K. & Cousins, J. B. (Eds.), The SAGE International Handbook of Educational Evaluation, SAGE Publishing, 429–446. https://​doi​.org/​10​.4135/​ 9781452226606​.n24 Kania, J., & Kramer, M. (2011). Collective impact.  Stanford Social Innovation Review,  9(1), 36–41. https://​doi​.org/​10​.48558/​ 5900​-KN19 Khagram, S., Thomas, C., Lucero, C., & Mathes, S. (2009). Evidence for development effective-

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462  Elgar encyclopedia of nonprofit management, leadership and governance ness. Journal of Development Effectiveness, 1(3), 247–270. https://​doi​.org/​10​.1080/​ 19439340903141415 Macfarlan, A. (2015, May 12). Big data and evaluation—Use and implications. BetterEvaluation. www​.betterevaluation​.org/​ en/​blog/​big​_data​_in​_evaluation. Accessed August 2022. Marx, M., Benitez, L., Cancel, Y., & Milway, K. S. (2021). How listening to constituents can lead to systems change. Stanford Social Innovation Review. https://​ssir​.org/​articles/​ entry/​how​_listening​_to​_constituents​_can​_lead​ _to​_systems​_change​# Accessed August 2022. Ospina, S., Diaz, W., & O’Sullivan, J. F. (2002). Negotiating accountability: Managerial lessons from identity-based nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 31(1), 5–31. https://​doi​.org/​10​.1177/​ 0899764002311001 Patton, M. Q. (2003). Utilization-focused evaluation. In T. Kellaghan & D. L. Stufflebeam (Eds.), International handbook of educational evaluation (pp. 223–242). Springer Netherlands. Rogers, P. J. (2008). Using programme theory to evaluate complicated and complex aspects of interventions. Evaluation, 14(1), 29–48. https://​ doi​.org/​10​.1177/​1356389007084674 Thomas, V. G., & Campbell, P. B. (2020). Evaluation in today’s world: Respecting diversity, improving quality, and promoting usability. SAGE Publications. Twersky, F., Buchanan, P., & Threlfall, V. (2013). Listening to those who matter most, the beneficiaries. Stanford Social Innovation Review, 11(2), 41–45. https://​doi​.org/​10​.48558/​ 8BWV​-8A71 Weiss, C. H. (1998). Evaluation: Methods for studying programs and policies (2nd edn.). Prentice Hall. Wilson-Grau, R. (2019). Outcome harvesting: Principles, steps, and evaluation applications. Information Age Publishing, Inc.

Program-related investments Definition

Program-related investments (PRIs) are investments, such as loans, loan guarantees, and equity investments, made by foundations to primarily support their charitable missions while allowing them to gain moderate financial benefits through the repayment of Heng Qu

principals plus below-market-rate returns on the investment. PRIs can be made to both nonprofit and for-profit organizations. The legal term of “program-related investments” was formally introduced in the Tax Reform Act of 1969. PRIs are defined as those in which: “1. The primary purpose is to accomplish one or more of the foundation’s exempt purposes; 2. Production of income or appreciation of property is not a significant purpose, and 3. Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose” (Treas. Reg. § 53-4944-3(a) (1), 2016). Like grants, PRIs are made to support a charitable activity. The “charitability” requirement has important implications for private foundations (Qu & Osili, 2017). A PRI counts toward a foundation’s annual 5 percent payout during the year when they are distributed. When the PRI principal is repaid, the foundation’s annual payout will be increased by the amount of the repayment in that year, while interest, dividends, and capital gains are treated as regular income. In the event that a repayment cannot be made, the PRI can be treated as if they had been distributed as a grant. Moreover, because PRIs are primarily used to further a foundation’s exempt purposes, they are exempt from the taxes on excess business holdings and jeopardizing investments. Unlike grants, PRIs have comparative advantages (Qu & Osili, 2017). First, by utilizing various financial instruments, PRIs allow foundations to support charitable activities in ways that grants alone cannot offer (Benabentos et al., 2012). For example, by making low-cost loans, foundations can provide capital to large projects that require more funding than a foundation’s typical grant size. Through loan guarantees, foundations can help recipients build credit history and gain access to capital from commercial investors. Foundations can also make PRI equity investments in risky social ventures that produce high social returns but are less financially attractive to traditional investors. Second, PRIs enable foundations to leverage their financial resources while scaling up social impact. When PRIs are repaid, often with moderate financial returns, the funds can then be reinvested in other charitable projects. Moreover, when expecting PRIs to be returned, foundations can make

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bigger investments, thus bringing solutions to a larger scale.

In practice

For the past five decades, the U.S. foundations have provided PRIs to support various charitable activities domestically and globally. PRIs have been typically used to provide affordable housing, create jobs in low-income communities, and provide financial support to needy students. Housing, economic and community development, and education were the three main program areas that received the most PRI funding, accounting for more than two-thirds of the PRIs invested in the U.S. (Foundation Center, 2010; Lilly Family School of Philanthropy, 2013). The Ford Foundation (2022), as the pioneer of PRIs, have used PRIs to make long-term investments in communities neglected by mainstream financial institutions. Between 1968 and 2012, the Ford Foundation committed $600 million in PRIs to support projects ranging from the establishment of a women’s poultry cooperative in India to the expansion of credit unions serving low-income communities in California. PRIs have also been used in other program areas. For instance, the Bill and Melinda Gates Foundation (2022), which has expanded its PRI program to $2.5 billion, uses PRIs to scale up social enterprises in improving global health. The Foundation works with partners to invest in tools, such as vaccines, drugs, and diagnostics, and discover new solutions that are affordable and accessible to those living in developing countries. The David and Lucile Packard Foundation (2021) has made over $815 million in PRIs and mission-related investments (MRIs)21 since 1980 in environmental conservation, productive health, and improving children’s lives. The use of PRIs by U.S. foundations has increased since the early 1990s, with the total dollar amount of PRIs growing from $139 million in 1990 to $701 million in 2009, according to the most recent report on PRIs (Foundation Center, 2010; Lilly Family

School of Philanthropy, 2013). However, only a small number of foundations made PRIs every year. Out of more than 80,000 U.S. foundations, the total number of PRI providers did not exceed 140 annually in the first decade of the 2000s (Lilly Family School of Philanthropy, 2013). In particular, foundations with more financial and human resources are reportedly more likely to adopt PRIs initially and more intensively engage in PRIs, while older foundations (25 years or older) invest less money in PRIs than younger foundations (Qu & Osili, 2017). Moreover, a report based on data from the Mission Investors Exchange, a group comprised of 230 foundations and mission investing organizations, shows that PRIs and MRIs comprised less than 2 percent of private foundation endowments (The Center for High Impact Philanthropy, 2016). The limited use of PRIs by foundations may be due to a number of internal and external factors. Internal barriers of using PRIs include a lack of expertise and process to implement PRIs as the financial and legal due diligence required for PRIs is different from that in both traditional grantmaking and fund management. There is also a lack of sufficient understanding of PRIs among foundation board members and management, particularly how PRIs can help advance a foundation’s programmatic success (Qu & Osili, 2017; The Center for High Impact Philanthropy, 2016). External factors influencing foundations’ PRI activities change in the legal and economic environment, sectoral trends and peer networks, and the interests and needs of PRI recipients (Qu & Osili, 2017).

Current and future directions

Research on PRIs is still very limited. First, while most existing studies were conducted in the early 2010s, updated research is needed to examine if/how PRI usage has changed since 2016, when the Internal Revenue Service’s (IRS’s) new guidance expanded the categories of investments that may qualify as PRIs.

21 Although both PRIs and MRIs are investments made from a foundation’s endowment, they have key differences. PRIs are usually below-market-rate investments, which are a program activity and must be made to primarily support a foundation’s charitable purpose. On the other hand, MRIs are typically market-rate investments and subject to prudent investor standards like conventional investments; MRIs are financial investments made to advance a foundation’s mission.

Heng Qu

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Such research would advance our understanding on how legal and policy changes may affect PRI activities. Second, current scholarly research and practice-oriented reports mostly rely on the IRS Form 990 data and/or case studies. Collecting and analyzing financial and social outcome data would help scholars, foundations, recipient organizations, and policy makers to determine the effectiveness and impact of PRIs. Third, beyond the focus on large PRI makers, studies on how smaller foundations engaging in PRIs may improve our understanding of the effect of a foundation’s capacity and how to overcome the limitations. Finally, with the existing literature largely focusing on PRI funders, future research may examine PRI activities from the perceptive of recipient organizations. Both theory and practice would benefit from understanding what are the characteristics of PRI recipient organizations (including both nonprofits and for-profits), as well as whether/how PRIs affect nonprofit organizations’ mission achievement and management process differently from traditional grants. In short, there is plenty of room for future research to advance the understanding of PRIs, MRIs, and impact investing more broadly. Heng Qu

Exception for program-related investments, Treas. Reg. § 53-4944-3(a)(1) (2016). Ford Foundation. (2022). Mission investments. www​.fordfoundation​.org/​work/​challenging​ -inequality/​mission​-investments/​strategy/​ Foundation Center. (2010). Doing good with foundation assets: An updated look at program-related investments. https://​ foundationcenter​.org/​gainknowledge/​research/​ pdf/​pri​_directory​_excerpt​.pdf Lilly Family School of Philanthropy. (2013). Leveraging the power of foundations: An analysis of program-related investments. https://​ scholarworks​.iupui​.edu/​bitstream/​handle/​1805/​ 5774/​complete​_report​_final​_51713​.pdf Qu, H., & Osili, U. (2017). Beyond grantmaking. Nonprofit and Voluntary Sector Quarterly, 46(2), 305–329. https://​doi​.org/​10​.1177/​ 0899764016654281 The Center for High Impact Philanthropy at the University of Pennsylvania. (2016). Program-related investments. www​.impact​ .upenn​.edu/​wp​-content/​uploads/​2016/​04/​ 160415PRIFINALAH​-print​.pdf The David and Lucile Packard Foundation. (2021). Mission investing program overview. www​ .packard​.org/​wp​-content/​uploads/​2021/​07/​ Packard​-Mission​-Investing​-Program​-Overview​ -2021​.pdf

Related topics

Definition

Financing nonprofit organizations Foundations – History and functions Impact investing Program evaluation Risk management Social enterprise Social return on investment

Project management

At its core, Project Management is the use of a structured, logical method to achieve a defined goal and measurable objectives, under particular constraints. A project leadership team uses specific methods and tools to align and coordinate the work of all team members to ensure the delivery of objectives on time, under budget, and with the highest quality. Further reading and references Whether the project is a five-year, multinaBenabentos, L., Storms, J., Teuscher, C., & Loo, J. (2012). Strategies to maximize your philan- tional public health initiative, or a three-month, thropic capital: A guide to program related community development project for a fledginvestments. Community Wealth. https://​ ling nonprofit, the fundamental elements of effective Project Management are the same. community​-wealth​.org/​sites/​clone​.community​ An individual may effectively manage the -wealth​.org/​files/​downloads/​report​-benabentos​ -et​-al​.pdf most straightforward projects with no formal Bill and Melinda Gates Foundation. (2022). FAQ. training or knowledge of Project Management https://​sif​.gatesfoundation​.org/​faq/​ practices with enough knowledge and information to adequately orchestrate all aspects of a project from beginning to end. However, the more complex a project becomes and the Nicholas J. Chakos

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greater its scope, the risks of failure increase, hence the need for clearly defined and professional Project Management. Failure points in a project are often unexpected and may come about suddenly or gradually. Effective Project Management seeks to identify and mitigate as many of these risks as possible. There are risks to a project other than failing to meet the initial goal and objectives. Costs may be too high, timing may be off, activities may be culturally inappropriate, and the end result may fail to bring about any lasting change. At a deeper level, stakeholders may become less engaged in the process or the results and subsequently lose interest in the project and the entire cause. Attempting to manage a project using informal means such as notes, spreadsheets, and ad hoc meetings are common mistakes that nonprofits make, and all increase the risks of project failure. Many possible approaches to Project Management exist that vary based on the project’s specifics, the needs of the client and stakeholders, the geography, sector, and specialization. Resources exist within many industries and regulatory bodies to define which standards and methods might be most appropriate or required in each situation.

In practice

The concepts behind Project Management are often known by industry terms or have a multitude of names associated with them, depending on the type of work or organizational preference. The function of each concept is more important than assigned titles, which are usually intended to be memorable or catchy and thus easily recalled. Additionally, project management teams can have a multitude of structures and leadership models. Generally speaking, there is one individual, referred to as the Project Manager, within the implementing organization that assumes overall responsibility for the achievement of a project’s goal. While the functional title can differ by organization, the essential role of a Project Manager is to ensure full participation from team members and stakeholders while ensuring a commitment to delivering the project’s intended results. Some initiatives that require large and diverse teams spread across multiple locations adopt a more collaborative system of Project Management. For example, many design and build initiatives use an “Agile” leadership

model that leverages a cross-functional group of five to 11 individuals with an equal share of leadership and responsibility. However even in these collaborative models, there exists an “owner” or “donor” who maintains the final rule of authority. Step 1: Project design and initiation Beginning with a well-crafted Project Design (sometimes called a Project Definition) seems to be a simple step. However, it has many nuances which, if approached correctly, can make the project more likely to succeed. Determining, defining, and developing the following aspects are critical to uniting a project team toward a specific goal: ● A simple but powerful Problem Statement (“What are we trying to accomplish/ solve?”). ● A Project Scope that addresses the Problem Statement (“What are we doing about the problem, and what are we not doing?”). ● Desired objectives and outcomes of the project; should be “SMART” objectives (Specific, Measurable, Achievable, Realistic, Time-Sensitive). ● Defined Metrics; quantitative and/or qualitative measurable indicators to track the project’s progress, achievements, outputs, and outcomes/impact. ● Defined Stakeholders; stakeholders are people or entities who will be affected, positively or negatively, by the project’s implementation and/or outcomes. Stakeholders can be internal (on the team), peripheral (in the organization but not on the team), or external (outside company, local communities, governments, beneficiaries). ● Detailed Project Constraints: ● What is the budget? ● When must the project be complete? ● How much time can team members devote? ● Are there donor or government regulations that must be observed? ● Are there required resources that are of limited availability? ● What internal or external risks or complications might affect the project’s success? ● Identification and Structure of the team; this should include detailed roles and Nicholas J. Chakos

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responsibilities (i.e., job descriptions) for each team member. During the Project Design and Initiation phase, it is important to remember that this is not a planning exercise. The aspects defined in this step are “who, what, when, where, and why.” How the team accomplishes the project is determined in the next phase. Various tools exist for developing the elements of a project’s design. Each may be more or less appropriate, given the circumstances. Examples include SWOT Analysis, Gap Analysis, Structured Interviews, Focus Groups, Surveys, Gantt Charts, and Logical Frameworks. Step 2: Project planning Except for the most straightforward and shortest of initiatives, projects are rarely executed as planned. While creating a robust project plan is a critical step in the process of Project Management, it is imperative to understand that this is an iterative process that requires monitoring and adaptation throughout the project implementation, or execution, phase. Active monitoring of project activities and iterative adaptations of project plans – reflective of the data acquired through monitoring – is the only way to stay true to the core objectives of a project as obstacles arise. Developing an effective Project Plan requires some, or all, of the following: ● Mapping: All project steps should be laid out in detail, including their anticipated timing and what resource(s) will complete the steps. ● Determine which steps can be completed independently of other activities and which steps must be completed in sequence, that is, Item A must be completed before Item B can begin. ● Taking the total length of any group of sequential steps will define the total time needed for that sequence. The longest sequence is called the Critical Path of the project and represents the shortest amount of time in which the project can be completed. Therefore, understanding how to manage the Critical Path is a crucial aspect of Project Management. ● Resourcing: Allocate resources to all tasks and times. Non-sequential tasks that Nicholas J. Chakos

are resource-constrained should be treated as sequential based on the availability of resources to complete, which can impact the critical path and the overall timing of the project. ● Assigning: Determine other assignments such as activity/sequence leaders, subject-matter experts (SMEs) required for particular activities, and any managerial/community/regulatory approval required for activities. ● Budgeting: Allocate portions of the budget to all tasks which require funding. ● Assessing risk: Perform risk assessments that evaluate the likelihood and severity of all identified constraints and determine mitigations or alternate paths. Step 3: Project implementation/execution With an effective Project Plan that includes the elements mentioned above, executing a project is, at least in the beginning, the most straightforward part of Project Management. Initially, each member of the Project Team begins to complete the actions assigned to them using the resources allotted. In some instances, explicit test steps may be required to determine the effectiveness of some of the planned actions. In all projects, however, monitoring is required to make the proper adaptations as the project progresses. Step 4: Project monitoring and adaptation Monitoring and adaptation throughout the lifespan of a project consists of specific data-collection activities, all of which presuppose that aspects of the project are well documented, including actions taken, dates, expenditures, outputs, and preliminary results. ● Creating a dashboard that quickly shows the project’s defined metrics (ideally in real time) is a powerful method of keeping a team aligned with objectives and promoting accountability. ● The main question Project Managers must ask themselves and others is, “Where do we stand?” and compare this to a second question, “Where did we plan to be?” Deviations between these questions can be represented in the difference between “metrics achieved to date” and the “defined metrics” as developed in the Project Design phase. Significant devia-

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tions may require mitigation, adaptation, or the creation of alternate paths. ● Depending on the nature of the project, seeking stakeholder feedback along the way is usually beneficial and may be vital. This can help ensure no unpleasant surprises and may also provide otherwise hidden alternate paths. Healthy projects regularly monitor all implementation activities and processes, revisit and reiterate planning steps, and update required actions. Without careful and consistent monitoring and adaptation, the project will likely “drift” from the original goal or vision and suffer consequences from unmitigated risks and constraints. Several process models have been developed for particular situations that help to refine these steps further. For example, the Plan, Do, Check, Act (PDCA) model, attributed to W. Edwards Deming, emphasizes quick activities to inform final actions, which in turn can refine the overall plan or strategy. Regardless of the tool used, it is important to understand that planning, monitoring, and active adaptation are critical to successful project implementation. Step 5: Project completion When a project has been properly planned and executed in a way that continuously monitors and refines the plan, it should be clear when the project’s objectives are complete. Therefore, project completion ought to be primarily administrative and evaluative work, which should not be forgotten or undervalued. ● Ensure third-party resources are notified; all contracts should be closed or canceled as appropriate. ● All donors and stakeholders should be informed of the outcomes and any required final reports should be submitted accordingly. This step seems obvious, but nonprofits often fail to adequately report achievements, impact, or failures to donors and stakeholders. ● The project team and stakeholders should debrief and determine if a new phase or altogether new project should be initiated.

● Whether or not further projects will continue along the same lines, project leadership should solicit feedback from all team members to capture learnings and best practices for future projects with the same team, donor, sector, or project category.

Conclusion

Project Management utilizes many technical tools and methods and should remain highly flexible and adaptive. Similarly, Project Managers may require substantial technical experience to manage specific projects or high levels of emotional intelligence (i.e., “people skills”) to manage diverse teams of subject-matter experts, advisors, funders, and stakeholders. In all cases, and behind all successful projects, is a group of individuals whose independent work must be well-orchestrated across multiple activities for the project to achieve its goal successfully. An effective Project Manager must first and foremost manage the human element in any project. Understanding individuals’ culture, motivation, incentives, aspirations, and tendencies enables project leaders to guide the project team to its highest potential. Combining personal effectiveness with a mastery of fundamental Project Management practices will almost certainly allow a project to achieve its goal and a Project Manager to build a reputable career across sectors, geographies, or specializations. Nicholas J. Chakos

Related topics

Performance management Program evaluation Strategic planning

Further reading and references

Dilly, C. K., Klochan, K. A., & Bosslet, G. (2021). Project management tools for healthcare education. The Clinical Teacher, 18(2), 109–114. https://​doi​.org/​10​.1111/​tct​.13264 Joslin, R., & Müller, R. (2015). Relationships between a project management methodology and project success in different project governance contexts. International Journal of Project

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468  Elgar encyclopedia of nonprofit management, leadership and governance Management, 33(6), 1377–1392. https://​ doi​ .org/​10​.1016/​j​.ijproman​.2015​.03​.005 Kerzner, H. (2014). Project management best practices: Achieving global excellence (3rd edn.). John Wiley & Sons, Inc. Levine, H. A. (2002). Practical project management: Tips, tactics, and tools. Wiley. Lewis, J. P. (2007). Fundamentals of project management (3rd edn.). American Management Association. Miković, R., Petrović, D., Mihić, M., Obradović, V., & Todorović, M. (2020). The integration of social capital and knowledge management – The key challenge for international development and cooperation projects of nonprofit organizations. International Journal of Project Management, 38(8), 515–533. https://​doi​.org/​ 10​.1016/​j​.ijproman​.2020​.07​.006 Taylor, J. (2006). A survival guide for project managers. American Management Association.

Public charity Definition

The public charity is an organization that serves the interest of the public without private motive or private benefit, relies on broad public support, and has the public as its constituency. The Internal Revenue Code (Section 501(c)(3)(2006)) requires that the public charity be organized and operated exclusively for religious, scientific, literary or educational purposes, testing for public safety, or to foster national or international amateur sport competition or for the prevention of cruelty to children or animals. While the statutory language may seem limiting, the public charity is quite elastic in scope and embraces a broad and ever-widening swath of society’s public institutions. These include schools, churches, hospitals, colleges and universities, community economic development organizations, environmental organizations, social service entities and community foundations. The public charity mirrors society’s evolving needs and activities. In exchange for its “publicness,” the public charity receives preferential tax treatment and serves as an important incentive for philanthropic giving.

In practice

In the United States, the charitable world is divided into public charities and private Penina K. Lieber

foundations, two distinct forms that have coexisted in their current state since 1969, when Congress passed the Tax Reform Act of 1969, legislation that imposed greater restrictions on private foundations than on public charities. The difference in treatment was based in Congressional concern of the potential for undue influence by the private sources of wealth that funded the foundations in contrast to the broad public funding sources of the public charity. Although both public and private charities must exclusively serve the interests of the public and support charitable purposes, they receive considerably different tax treatment. The public charity receives preferential treatment in terms of its deductibility, but the private foundation is subjected to onerous rules requiring qualifying distributions and various excise taxes. Ironically, the Internal Revenue Service (IRS) regards every charity initially as a private foundation until determined that most of its support is generated from mostly public sources. Historically, an Advance Ruling Period was imposed on every newly minted exempt charity for the first five years of its existence. This served as a probationary period for the charity to show that it could be reasonably expected that, at the end of the period, it would qualify as a public charity and meet the threshold tests set out in IRC 170 (b)(1)(A)(vi) or IRS 509(a)(2). If successful, the charity would receive a final ruling upon filing a Form 8734. If it failed the test, it would be classified as a private foundation and be subject to excise taxes for the previous five years. Consequently, donors would no longer be able to rely on the organization’s public charity status. In 2008, the IRS eliminated that process when it revised the Annual Form 990 with Schedule A. Currently, an aspiring public charity need only show that it can reasonably expect to meet the requisite tests within the upcoming five years. It should be noted that the IRS also took steps to further the preferential treatment of qualifying public charities when it implemented a short Form 1023 EZ as an alternative to the traditional 1023, with less affirmative detail required for the exemption. Qualifying as a public charity There are two principal types of public charities. Sections 509(a)(1) and 170(b)(1) (A)(i)-(vi) describe the “donative charity,”

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while section 509(a)(2) refers to the “service provider charity.” Donative charity status is determined by the quantitative amount of public support the organization receives, which is mostly from donations, grants or other gifts. The IRS utilizes two tests to identify and measure the type and amount of public support each organization receives. ● Mechanical Test – Donative Charity: The first and primary test is known as the Mechanical Test. It is completely numerical and defines “public support” as a fraction that is computed on a rolling four-year average. The denominator consists of gifts, grants, donations, membership fees, gross investment income (not including capital gains) and the value of services furnished without charge to the charity by the government. The denominator does not include “unusual grants,” those unexpected grants that were happily received. The numerator narrows the acceptable support from each source. Accordingly, if gifts, grants and contributions add up to 2 percent or less of the total support, they can still qualify for purposes of the Mechanical Test. But if they exceed that 2 percent, those numbers do not count towards public support and apply only to total support. Under this test, the donative charity must show a public support fraction of one third or more of its total support in order to qualify as a public charity. ● Alternative Test – Donative Charity: The second and alternative test is known as the Facts and Circumstances Test. This approach can be used by those charities that are not able to qualify under the Mechanical Test. Under the Facts and Circumstances Test, the public support fraction can constitute more than one-tenth of all support but not less than one third. This test is more flexible than the Mechanical Test since it is not solely defined numerically. It offers an opportunity for explanation and interpretation whereas the Mechanical Test does not. The real question under the alternative test is whether the charity is “organized and operated” to attract public support. Accordingly, it considers the makeup of the charity’s governing body and its total fundraising efforts, as well as the public’s

access to its charitable programs. It questions whether the charity’s dues structure and its recruitment policies are actually designed to attract a broad base of committed people. If it is unable to satisfy either test, the organization will revert to private foundation status. Service Provider Charity: To qualify as a service provider charity, the organization must receive more than one-third of its support from gifts, grants, fees and gross receipts from admission and sales of goods or services, where the fee-generating activity is related to performing its exempt functions. Not more than one-third of its support can come from investment income. The Service Provider Charity also has two numerical tests that must be met: ● More than one-third of the organization’s support during the applicable measuring period must come from contributions from the general public and government grants plus revenue from admissions, sales of merchandise and the performance of services in activities related to the organization’s exempt purposes. These numbers are the “good support” and count in the fraction’s numerator. Contributions from disqualified persons, a group that includes substantial contributors and other influential persons, do not count in the numerator. ● Not more than one-third of the organization’s support for the measuring period may consist of investment income such as interest, dividends, rent and royalties as well as income from any unrelated trade or business.

Issues and challenges

These tests are critical for qualifying as a public charity; however, they are cumbersome and difficult to satisfy. Unfortunately, many functionaries and fundraisers in charitable organizations are not familiar with the tests and their requirements. As a result, they often fail to meet the numerical criteria, with consequences that these tests can present significant challenges to small and struggling charities that are not sophisticated or simply cannot come up with the right numbers. Illustration: Consider a fledgling alternative treatment facility that has undertaken an Penina K. Lieber

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annual 5k race in order to raise money. That race has been the organization’s sole fundraiser for several years and has always been hugely successful, largely because a local foundation has generously given the organization most of the funds raised by that race. Although post-race, the bottom line looks good and the charity celebrates its success, its public charity status may be in jeopardy without an influx of additional sources of funds, from diverse sources. Because the race is the organization’s sole fundraiser, this organization will be unable to satisfy the Mechanical Test. Illustration: Consider a local historical society that is the beneficiary of a large charitable trust. The trust indenture requires that the society remain a public charity in order to continue receiving the trust funds upon which it has depended for many years. Historically, however, the society has been loath to fundraise and has relied only on the trust to provide for all of its needs. Without additional sources of support, the society will not continue to qualify as a public charity and will risk losing its trust funds. The bank trustee claims that since the society clearly cannot satisfy the Mechanical Test, it no longer qualifies, and he withholds the society’s share of the trust funds. The society now faces a serious crisis. It has relied on the testator’s donative intent, which was that the Society receive the funds so long as it maintains a historical farm, which was the testator’s passion. The society argues that by withholding the trust funds, the bank is violating the testator’s clear charitable intent. Given that dilemma, the only course for the society is to pursue the alternate Facts and Circumstances test and revamp how it operates. From historically having a small and insular board of trustees, the society must now revamp its constituency and make a concerted effort to attract a board that is more representative of the community. It also must reconsider its commitment to raising funds. The society has relied solely on the generosity of a few individuals in addition to the trust funds. Now it is forced to develop an aggressive plan to raise funds from multiple sources. Finally, the society must revisit the issue of its accessibility to the public. Although the society’s historical farm is visibly located in the midst of a vibrant community, it has been largely off limits to many people. Given the new demands of Penina K. Lieber

public support, however, the society finds it necessary to revise its programs to attract school children and welcome other members of the public who wish to visit. For the first time, the farm invites school children for field trips and opens the farmhouse for social events. The result is that the society prospers and continues to receive its designated trust funds.

Challenges

The public charity can expect to face numerous challenges in the coming years despite the preferential treatment it currently receives. Much concern is focused on the fallout from a popular charitable instrument known as the donor-advised fund (DAF). Although DAFs have existed for more than 80 years, they have only emerged as significant players in the charitable world since the 1980s. Their attractive features of flexibility and low cost has made them extremely popular among donors of all sizes, including investment firms that have created DAFs of their own. The Internal Revenue Code describes the DAF as any fund or account that is (1) separately identified by reference to the contribution of a donor and (2) is owned and controlled by a sponsoring organization where the donor can reasonably expect to have advisory privileges over the investment or distribution of the fund (IRC section 4966(d)(2)(A)). The structure of the DAF enables donors to take an immediate charitable deduction upon making the donation. The basic problem with the DAF, however, is that the donated assets frequently do not reach their intended charitable beneficiary promptly. Instead, they often remain within the DAF and accumulate considerable wealth. This practice and the vast popularity of the DAF has prompted a bipartisan call for reform. In fact, certain legislative criticism suggests adding a payout requirement similar to that of the private foundation. Although the DAF donor can take an immediate deduction for his gift, there is no time frame in which the donated funds must be spent for charitable purposes. This issue has raised criticism about the practice of creating and maintaining “warehouses of wealth” for the investment firms or community foundations that manage them and for not providing an incentive to distribute the funds rather than retaining the assets. Congressional pressure has been exerted that

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would require that contributions to DAFs be distributed within five years of the contribution, with a penalty of a 20 percent excise tax should those distributions not be made. The Restatement on Charitable Organizations refers to DAFs as “creatures of federal tax law, a body of law that is complicated and uncertain.” It remains for further resolution whether the DAF should be restricted in use or administration. That issue has not yet been resolved nor has the ultimate impact of the DAF become clear. Another challenge is the IRS’s practice of automatic revocation of public charity status which has effectively stripped numerous smaller charities of their status because they neglected to file annual 990s for three consecutive years. Since Form 990 is the only way the IRS has of monitoring the activities of these organizations, the practice of automatic revocation was understandable, but many organizations were not made aware of the revocation. In those cases, funders and putative donors were the first and only to know that contributions to that organization would no longer be deductible. For many, this challenge constituted a serious threat to survival and necessitated challenging efforts to reinstate previous standing. It appears that another challenge looming on the horizon is the lack of credibility of the newly advanced 1023 EZ. While originally welcomed as a faster and simpler path to exempt status, a basic problem emerged with the form, since it requires no verification, no projected budgets and no narrative describing anticipated activities. It simply relies on a good faith statement that the application meets the requirements of the public charity. Concern has been articulated within the sector that ultimately these 1023 EZ’s will result in IRS audits in an attempt to ascertain the merits of the charity’s operations. Finally, an additional regulatory challenge exists post-pandemic in the time frame required to move a new charity through the exemption process. While this “logjam” may be temporary and due to understaffing and underfunding, it is challenging if not impossible for a fledgling charity (donative or service provider) to begin its work while waiting for confirmation of its exempt status.

Conclusion

The public charity is an integral and central component of philanthropy in America. It fuels a considerable amount of both public and private activities and programs. Today, the public charity is a vital partner in the combined efforts of government, business and the independent sectors. It is no longer a separate and distinct piece of the American landscape; today it is intertwined in nearly every major endeavor in American life. Penina K. Lieber

Related topics

Charity law Donor-advised funds Internal Revenue Service Tax policy: Federal

Further reading and references

Bronson, S. D. (2020). I’d hardly pay you Tuesday for a [tax deduction] today. Wake Forest Law Review, 55, 245–286. https://​ lawecommons​ .luc​.edu/​cgi/​viewcontent​.cgi​?article​=​1671​&​ context​=​facpubs Colinvaux, R. (2017). DAF: Charitable spending vehicles for 21st century philanthropy. Washington Law Review, 39. https://​ digitalcommons​.law​.uw​.edu/​wlr/​vol92/​iss1/​3/​ Fishman, J., Schwartz, S., & Mayer, L. H. (2015). Nonprofit organizations, cases and materials (5th edn.). Foundation Press. Fremont-Smith, M. (2006). Is it time to treat private foundations and public charities alike? 52 EO tax rev. 257. TaxNotes. IRS. (2004). Supporting Organization Reference Guide IRC 509 (a)(3) Foundation Status Classification. https://​www​.irs​.gov/​pub/​irs​-tege/​ eotopici04​.pdf IRS. (2006). Pension Protection Act of 2006 Revises EO Tax Rules. https://​ www​ .irs​ .gov/​ charities​-non​-profits/​pension​-protection​-act​-of​ -2006​-revises​-eo​-tax​-rules IRS. (2008). Supporting Organizations Guide Sheet Explanation, Type I and Type II, March 13, 2008. https://​www​.irs​.gov/​pub/​irs​-tege/​ 509a3​_typeiandii​_gsexplanation​.pdf IRS. (2023a). IRC Section 509(a)(3) Supporting Organizations. https://​www​.irs​.gov/​charities​-non​ -profits/​section​-509a3​-supporting​-organizations​ #:​~:​text​=​A​%20supporting​%20organization​ %20is​%20a​,organizations​%2C​%20usually​ %20other​%20public​%20charities. IRS. (2023b). Supporting Organizations – Requirements and Types. https://​www​.irs​.gov/​ charities​-non​-profits/​charitable​-organizations/​

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472  Elgar encyclopedia of nonprofit management, leadership and governance supporting​-organizations​-requirements​-and​ -types Lieber, P. K., & Levy, D. (2005). Complete guide to nonprofit organizations. Civic Research Institute. Madoff, R. (2012). It’s time to reform donor advised funds, 69 EO tax rev. 77. TaxNotes. Watt, A. C. (2018). The wolf in charity’s clothing: Behavioral economics and the case for donor-advised fund reform. Dayton Law Review,  43(3), 471–42. https://​heinonline​.org/​ HOL/​LandingPage​?handle​=​hein​.journals/​ udlr43​&​div​=​22​&​id​=​&​page​=​

Public policy and nonprofit organizations Definition

Public policy – traditionally understood as government statutes, regulations, and programs designed to meet public needs – also encompasses activities undertaken by nonprofit organizations. Accordingly, the relationships between nonprofits and public policy are symbiotic, interconnected like pieces of a puzzle, making it impossible to fully understand one without consideration of the other.

Context

The relationship between the nonprofit sector and public policy is marked by reciprocity and overlap. A first step in understanding this interdependent relationship is understanding the components and actors involved in the policy process. The stages of the policy process include problem identification and agenda-setting as well as policy formulation, adoption, implementation, and evaluation. Nonprofit organizations are involved in myriad ways across all stages. Nonprofit actors frequently serve as policy entrepreneurs who raise awareness of public problems and bring them to the attention of government policymakers. Often nonprofits promote solutions in addition to identifying problems. This advocacy role is probably the most prominent (and sometimes only) facet of the nonprofit–policy relationship readily identified. Viewing nonprofits as simply a type of interest group significantly underrepresents their policy role. Shannon K. Vaughan and Shelly Arsneault

Grantmaking foundations, think-tanks, and other nonprofit organizations routinely offer or are asked to provide data, testimony, or position papers that are used to develop policy during the formulation stage. Nonprofits are subsequently involved during the adoption phase, continuing their advocacy by rallying stakeholders, including other nonprofits engaged in the same policy area. Once a policy is formally adopted, nonprofits are frequently an integral part of the implementation stage, as formal partners through government contracts or as independent actors delivering goods and services demanded as a result of the new policy. The nonprofit sector also plays an important part in the evaluation and feedback stage of the policy process by generating data and research findings about the effectiveness of their service delivery and its impact on the public problems that spurred the initial policy action.

In practice: Essential components of the nonprofit–policy relationship

Nonprofit organizations continually interact with public policy, engaging in public activity and making public policy decisions every day. They deliver public goods and services, exist as distinctly different from government institutions, and operate within unique governmental policy constraints including rules regarding financial accountability, and regulations constraining political activity. The interconnected nature of their relationship is typified through the four facets of the Nonprofit-Policy Framework developed by Vaughan and Arsneault in which nonprofits make public policy, influence public policy, are affected by public policy, and are subject to public policy. Nonprofits make public policy through direct service delivery. When a homeless shelter limits or expands its eligibility criteria or when a foundation grants funds for one type of project but not another, it produces de facto public policy. These types of service delivery decisions expand the definition of public policy beyond the traditional understanding of direct government action. This facet of the relationship reflects how the nonprofit sector can provide a collective action solution outside of direct government involvement.

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Nonprofits influence public policy through efforts such as advocacy and legislative lobbying. In this aspect of their relationship, nonprofits play a pivotal role in raising awareness of public problems and providing information to policymakers to craft solutions to those problems. In addition to advocating on behalf of their clientele, nonprofits seek to influence public policy because of the many ways in which they are affected by and subject to it. Nonprofits are affected by public policy, even when the policy does not directly target them. Examples include recent revisions to the Internal Revenue Code that included an increase to the standard income tax deduction. Because this would significantly reduce the number of filers who itemize deductions, the policy change has the potential to dramatically decrease donations to nonprofit organizations. Policy change can also indirectly increase demand for nonprofit goods or services; when governments tighten eligibility criteria for social welfare benefits such as housing and food assistance, for example, homeless shelters and food banks experience a surge in new clients. Nonprofits are subject to public policy; they must follow laws, rules, and administrative regulations just like individuals and organizations throughout the country. Because of their privileged status as tax-exempt organizations, nonprofits are subject to a unique set of public policies designed to prevent abuse of the tax-exempt privilege as well as promote the health and productivity of the sector. Transparency and accountability are fostered through policy requirements that mandate financial reporting, prohibit electioneering, and constrain lobbying.

Future of nonprofit–policy relationships

Nonprofit organizations have enjoyed a preferred position throughout U.S. history because they are seen as more trustworthy than businesses and more voluntary than government. In recent years, research on nonprofits and public policy has focused on what is termed the blurring of the lines between the public, nonprofit, and for-profit sectors. Governments increasingly contract out their service delivery to nonprofit and

for-profit partners, nonprofits are expected to generate commercial ventures to provide stable revenue streams, and for-profits are experiencing a growing demand from consumers for socially and environmentally responsible business practices. Amid this developing intersectorality is a rising chorus of voices asking what this means for democracy. Nonprofits may be more voluntary than government, but they are far less democratic. Nonprofits interact with public policy unceasingly and pervasively; they provide a wealth of information, financial resources, and volunteer labor to fight public problems and meet public needs. As Lester Salamon (1995) noted, nonprofits have the commendable attributes of flexibility and adaptability, often allowing them to be first on the scene when public needs arise. Nonprofits have many positive attributes, but, unlike governments, they are not democratic institutions. In particular, charitable nonprofits and foundations operate in pursuit of their missions, which are determined by their boards of directors, who are heavily influenced by the organizations’ financial supporters. Neither the general public nor the organization’s clientele has a voice or vote in determining the problems they choose to address, or the policy-related actions they take. Interesting questions about the implications for democratic theory are raised the more closely we examine the relationship between nonprofits and public policy. Shannon K. Vaughan and Shelly Arsneault

Related topics

Advocacy Civil society Democracy and philanthropy Government failure theory Social change and nonprofit organizations

Further reading and references

Ansell, C., Sørensen, E., & Torfing, J. (2017). Improving policy implementation through collaborative policymaking. Policy & Politics, 45(3), 467–486. https://​doi​.org/​10​.1332/​0305​ 57317x1497​2799760260 Basinger, N. W. (2014). Charitable nonprofits in the West and their implications for public policy. California Journal of Politics and

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474  Elgar encyclopedia of nonprofit management, leadership and governance Policy, 6(1), 187–206. https://​doi​.org/​10​.5070/​ p2159g Cordery, C., & Deguchi, M. (2018). Charity registration and reporting: A cross-jurisdictional and theoretical analysis of regulatory impact. Public Management Review, 20(9), 1332–1352. https://​ doi​.org/​10​.1080/​14719037​.2017​.1383717 Fritschler, A. L., Rudder, C. E., & Choi, Y. J. (2016). Public policymaking by private organizations: Challenges to democratic governance. Brookings Institution Press. Salamon, L. M. (1995). Partners in public service: Government-nonprofit relations in the modern welfare state. Johns Hopkins University Press. Vaughan, S. K., & Arsneault, S. (2021). Managing nonprofit organizations in a policy world. Melvin & Leigh, Publishers. Young, D. R. (2010). Nonprofits and public policy in the United States: The evolution of accountability. In B. Gidron & M. Bar (Eds.), Policy initiatives towards the third sector in international perspective (pp. 45–66). Springer.

Public relations Definition

Public relations has evolved considerably over the last two decades as it has transitioned from a communication function to a managerial one. In the discipline’s leading international textbook, public relations are defined as “the management function that identifies, establishes, and maintains mutually beneficial relationships between an organization and the various publics on whom its success or failure depends” (Broom & Sha, 2013, p. 2). The definition starts off with recognition that public relations is part of an organization’s management team. It is not a task function that carries out decisions made by others; instead, public relations help an organization make informed decisions by acting as the organizational conscience.

In practice

Public relations practitioners consider the wide range of organizational stakeholders. For a nonprofit, these stakeholders obviously include the employees, clients, donors, and volunteers but it also includes lobbyists, regulators, media, collaboration participants, activist groups, and community residents. With its focus on relationships with a wide Richard D. Waters

range of stakeholders, public relations practitioners are able to bring different perspectives into decision-making meetings so that the organization is fully informed of concerns of its external audiences and doesn’t make decisions focused solely on internal considerations. Public relations practitioners use multiple communication practices to engage with these stakeholders. For awareness building and educational purposes, one-way communication is often advocated as the best way to reach mass audiences. An organization uses one-way communication when it develops messaging or full communication campaigns that are designed to capture people’s attention to build awareness about their missions or services or to simply inform about the organization’s efforts. One-way communication is helpful to build brand recognition in stakeholders’ minds so that they recognize the name and visual aesthetic of the nonprofit. Two-way communication is where the relationship focus truly emerges. There are two types of two-way communication: asymmetrical and symmetrical. Two-way asymmetrical communication is reflective of market research in that nonprofits can gain insights from the outreach to stakeholders that, in turn, can be used in developing more persuasive messaging as part of on-going communication efforts. Two-way symmetrical communication, on the other hand, is the most genuine form of relationship building that a nonprofit can engage in. Whether carried out with major gift donors at a one-on-one meeting or through a conversation with a volunteer to learn about their interests and goals, interpersonal conversations offer the nonprofit sincere opportunities to connect with different stakeholders, to learn about them, and to determine how they can work together. Applying the mutually beneficial approach to the nonprofit organization–public relationship encourages management to see these stakeholders as active participants in their work and not simply being on the receiving end of communication, programs, or services. Instead, both sides of the relationship work together to support each other. For example, nonprofits cannot look at donors as merely being recipients of solicitations. There must be an active effort by the nonprofit to learn more about the individuals donating to the cause to learn how the organization can help

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them pursue their philanthropic objectives. The same level of relationship building holds true for the range of stakeholders. In regard to media relations, it is a mutually beneficial relationship with journalists as they need information from the public relations practitioners inside organizations to help complete assigned news stories by deadline. The public relations practitioners similarly need journalists to help convey the organizational news to broader audiences. As the two sides of the relationship work together, trust grows, and reporters view the nonprofit practitioner as a reliable source for information who likely will be sought out for quotations in future stories or even news story ideas. Public relations are often described using a metaphor that parallels an individual’s personal finances. Similar to how an individual deposits money into a savings account to save money and earn interest for a future purchase, public relations practitioners invest into stakeholder relationships with communication about organization events, processes, and decisions to help build trust with that organization for a time in the future when they need the public’s trust. Two of the fastest growing practices in public relations are crisis communications and corporate social responsibility. These two specializations represent the mutually beneficial approach to relationship building as they are centered on communication transparency and being held accountable to the organization’s stakeholders. The tenets of crisis communication encourage acknowledging the crisis that has occurred after investigating the situation, admitting involvement in the crisis with genuine apologies when needed, but more specifically providing frequent updates about the crisis, taking corrective actions in regard to the crisis situation, and making sure stakeholders are informed about the new approaches adopted for the situation. When a crisis hits, part of the “trust savings account” is erased because the crisis happened and impacted the nonprofit’s stakeholders. But the communication investment that demonstrated the openness and accountability of the organization helps the nonprofit bounce back from the crisis. Stakeholders are actively involved in the crisis by asking questions and making sure that corrective actions are maintained once media attention begins to wane.

Nonprofits demonstrate their corporate social responsibility and that they’re a good corporate citizen in the community they work by providing their IRS 990 tax filings, copies of audited financials, annual reports that detail program successes, and other information updates on social media platforms to demonstrate they are trustworthy. Their audiences consume this information and adopt attitudes that the organization is a good community citizen.

Current and future directions

Public relations practitioners have embraced the move from communication management to relationship building as it more accurately describes their daily work. Scholarship has also adopted the relationship management as the leading theoretical approach to describing the discipline. Relationship management theory argues that specific relationship outcomes (e.g., trust, satisfaction, commitment, and balanced power) are created internally for stakeholders when the organization invests time and resources to cultivate relationships with their stakeholders (Hon & Grunig, 1999). Individuals who are connected to the organization are not taken for granted; instead, nonprofits use stewardship behaviors to keep these stakeholders close to the organization. Kathleen Kelly (2001) was among the first to describe the link between public relations and stewardship. As a noted scholar with extensive experience as a professional fundraiser, Kelly outlined four specific stewardship behaviors for nonprofit public relations. Stewardship begins with a reciprocity element that outlines how a nonprofit should demonstrate gratitude toward the stakeholders who voluntarily choose to become involved with the nonprofit. The next stage of stewardship involves an organization’s responsibility to keep the promises that it made to its stakeholders. Whether using a donor’s money for a certain program offering or having a volunteer work on a specific task, nonprofits have an obligation to do something that it says it is going to do. Stewardship argues that being responsible, however, is not enough. Nonprofits must also report back to their stakeholders to let them know what actions were done. Nonprofits need to keep their stakeholders updated and informed so that they are able Richard D. Waters

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to make appropriate decisions about whether they wish to stay involved with the nonprofit. The final stewardship component focuses on nurturing relationships. As mentioned previously, it is important for nonprofits to keep their supportive publics close. It is more costly to find new individuals to become involved with the organization and develop relationships with than it is to cultivate existing relationships. Nonprofits must work on continuous engagement and outreach to existing donors, volunteers, clients, and beyond to keep them informed as to the latest organizational news. With these updates, levels of trust and commitment grow so that stakeholders are willing to stick with an organization through the good times and the bad ones. Richard D. Waters

Public Relations Research, 26(3), 280–299. https://​doi​.org/​10​.1080/​1062726x​.2014​.908721 Waters, R. D. (2011). Increasing fundraising efficiency through evaluation: Applying communication theory to the nonprofit organization–donor relationship. Nonprofit and Voluntary Sector Quarterly, 40(3), 458–475. https://​doi​.org/​10​.1177/​0899764009354322 Waters, R. D. (2015). Public relations in the nonprofit sector: Theory and research. Routledge.

Related topics

Public trust in nonprofit organizations (NPOs) is the extent that stakeholders consider nonprofit organizations reliable and truthful to what they do and communicate. Concretely, this means that stakeholders believe that nonprofits’ acts conform to their goals, including that these NPOs do not produce profit for personal and/or private gains (Hansmann, 1987). The public aspect of public trust in NPOs focuses on the aggregated trust perceptions – or shared cognition – from several relevant stakeholder groups, like beneficiaries, donors, funders, volunteers, employees, and collaboration partners, such as government agencies, businesses, and other NPOs. Hence, individual stakeholders can trust NPOs to a different extent, depending on various factors, such as their concrete stakeholder role towards the organization, earlier experiences, personal needs and preferences, and access to information about the NPO (Becker et al., 2020). The aggregated concept of public trust in nonprofits is the extent to which these individual trust perceptions are shared within larger stakeholder groups. However, aggregation at different levels is not limited to the side of the stakeholders alone. Also, on the nonprofit side, different conceptual elements about NPOs can be distinguished to clarify the different theoretical and practical perspectives on public trust in NPOs. These conceptual elements are (1) the general concept of nonprofits; (2) the nonprofit sector and/or networks of nonprofits; (3) NPOs; and (4) particular persons representing an NPO in concrete interactions

Branding and brand strategies Crisis management Fundraising Managerialism Marketing Public trust in nonprofit organizations Social responsibility of nonprofit organizations Stakeholder management Technology and social media

Further reading and references

Bortree, D. S., & Waters, R. D. (2014). Race and inclusion in volunteerism: Using communication theory to improve volunteer retention. Journal of Public Relations Research, 26(3), 215–234. https://​doi​.org/​10​.1080/​1062726x​ .2013​.864245 Broom, G., & Sha, B. L. (2013). Cutlip and center’s effective public relations (11th edn.). Pearson Education. Hon, L. C., & Grunig, J. E. (1999). Measuring relationships in public relations. Institute for Public Relations. Kelly, K. S. (2001). Stewardship: The fifth step in the public relations process. In R. I. Heath & G. M. Vasquez (Eds.), Handbook of public relations (pp. 279–290). Sage. Saxton, G. D., & Waters, R. D. (2014). What do stakeholders like on Facebook? Examining public reactions to nonprofit organizations’ informational, promotional, and community-building messages. Journal of

Jurgen Willems

Public trust in nonprofit organizations Definitions and conceptual framework

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Figure 10

Aggregation levels of NPO trust at stakeholder side (left) and conceptual objects of trust at NPO side (right)

with stakeholders (i.e., individual internal stakeholders). Figure 10 gives a conceptual representation of these different levels on the stakeholder-side (left) and the different conceptual elements forming trust in nonprofits (right).

In practice

Depending on the different levels of aggregation (see Figure 10), trust in NPOs can have very different applications. Concretely, this means that NPO actions can focus on creating and improving trust on the different levels at the stakeholder side. Trust at each of these different levels relates to various relevant NPO concepts. For example, a single stakeholder trusting an organization might be more willing to give a concrete donation or recommendation about an organization. In contrast, trust at more aggregated levels can relate to organizational reputation and the legitimacy for an NPO to represent a stakeholder group in dealing with their needs. Consistently, actions to create and maintain trust can also be taken at different levels at the NPO side. They can be particular, where a single person in an NPO acts and communicates reliably and truthfully. For example, the way fundraisers communicate and deal with donation money contains con-

crete elements that determine stakeholder trust in NPOs. Similarly, concrete communication by an NPO’s manager or its board members can hugely influence the overall trust in NPOs. On the organizational level, an NPO can formalize governance practices that induce organizational transparency and accountability, contributing to higher levels of trust for specific stakeholders and aggregated groups (Dethier et al., 2021). Moreover, nonprofit organizations can also engage in collective action through networks with other NPOs, to signal overall reliability and truthfulness. Self-regulatory codes of conduct or benchmark studies are sector-level examples to build trust beyond the boundaries of single organizations (Appe, 2016). On the highest conceptual level, NPO trust is created by the unique nature of nonprofits. The non-distribution constraint, a defining element of NPOs (Hansmann, 1987), states that nonprofits do not distribute profits from their activities for personal gains to owners. Therefore, nonprofits have no formal owner structure like that of for-profit organizations. This lack of formal structure creates a situation where stakeholders would trust NPOs more than for-profit organizations, in particular for services where it is hard to assess the true quality and/or motivation of the people working for those organizations. Jurgen Willems

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This is relevant for organizational activities performed in mixed markets, meaning that these activities are simultaneously performed by for-profit, nonprofit, and public organizations, like healthcare and education (Ben-Ner & Van Hoomissen, 1991). Hence, the non-distribution constraint that defines NPOs is a trust-creating mechanism in itself.

The future

Public trust in NPOs has received increasing attention in scientific and policy debates on NPO transparency and accountability, mainly because of some NPO scandals that received global attention. Although these scandals are very often caused by the behavior of a very select group of unreliable and untruthful individuals, the trust consequences are often evident for entire NPOs, networks, and the sector as a whole (Willems, 2016). Moreover, the required strategies to recover from the damage – in terms of trust breaches for stakeholders caused by such scandals – also require actions at the various NPO levels (individuals, organizations, networks, and the NPO sector as a whole). Against this background, managing trust has gained importance for practitioners as well as for NPO scholars. Nevertheless, the theoretical and empirical foundations to make solid and generalizable recommendations to keep trust high – or to recover effectively from scandals – have not yet fully matured. Thus, great opportunities still exist for nonprofits to collaborate with social science scholars to develop, test, and continuously improve guidelines for individual behaviors as well as practices at the organizational, network, and sector levels to increase and consolidate NPO trust. This would require (even more) the willingness of NPOs to engage in collaborations with scholars, while for scholars, it would mean striving for more practical impact with their scientific output. Jurgen Willems

Jurgen Willems

Related topics

Accountability Crisis management Fraud and corruption Managerialism Social responsibility of nonprofit organizations Stakeholder management Transparency

Further reading and references

Appe, S. (2016). NGO networks, the diffusion and adaptation of NGO managerialism, and NGO legitimacy in Latin America. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 27, 187–208. https://​ doi​.org/​10​.1007/​s11266​-015​-9594​-y Becker, A., Boenigk, S., & Willems, J. (2020). In nonprofits we trust? A large-scale study on the public’s trust in nonprofit organizations. Journal of Nonprofit & Public Sector Marketing, 32(2), 189–216. https://​doi​.org/​10​ .1080/​10495142​.2019​.1707744 Ben-Ner, A., & Van Hoomissen, T. (1991). Nonprofit organizations in the mixed economy: A demand and supply analysis. Annals of Public and Cooperative Economics, 62(4), 519–549. https://​doi​.org/​10​.1111/​j​.1467​-8292​ .1991​.tb01366​.x Dethier, F., Delcourt, C., & Willems, J. (2021). Transparency of nonprofit organizations: An integrative framework and research agenda. Journal of Philanthropy and Marketing. http://​ doi​.org/​10​.1002/​nvsm​.1725 Hansmann, H. (1987). Economic theories of nonprofit organizations. In W. W. Powell (Ed.), The nonprofit sector: A research handbook (pp. 27–42). Yale University Press. Willems, J. (2016). Organizational crisis resistance: Examining leadership mental models of necessary practices to resist crises and the role of organizational context. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 27(6), 2807–2832. https://​doi​.org/​10​.1007/​s11266​-016​-9753​-9 Willems, J. (2021, September 29). Public trust in nonprofit organizations (NPOs): Aggregation levels of NPO trust at stakeholder side and conceptual objects of trust at NPO side. OSFPreprints. https://​osf​.io/​gqu6m

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Recruitment and retention The recruitment function is a critical component of strategic human resource management (SHRM) in any organization. Due to the characteristics and context of the sector, the importance of recruitment is further heightened in nonprofit organizations. The discussion of recruitment inevitably raises questions about retention and how nonprofit organizations are navigating the challenges and opportunities of both processes. We start off this entry by providing an overview of the key concepts in recruitment. Like other SHRM functions, the impact of the environment and context of nonprofit organizations are major factors in the discussion of recruitment and retention in nonprofits.

Definition: Recruitment, selection, and staffing

Recruitment can be defined as the process of sourcing qualified applicants and attracting them to apply for job opportunities with an organization. The process involves the interaction between the organization and the external labor market. Factors such as type of job opportunities, financial resources, and the talent pool available inside the organization, including volunteers, influence how a nonprofit organization connects to the labor. Selection is the process that organizations use to evaluate and select successful applicants based on their ability to meet the stated requirements of the vacant position. It entails a thorough review and analysis of the knowledge, skills, and abilities as well as the experience of the candidates through screen-

ing, interview, and reference checks. For nonprofit organizations, selections must also consider their mission and values, and the ability of the candidate to fit into the culture of the organization. Staffing is the term used to describe the overall process that includes recruitment, selection, and to some extent, retention. Broadly, there are two main types of staffing: traditional or permanent staffing, and alternative staffing (Nye, 1988). Traditional staffing assumes that there is a permanent employment relationship between the employee and the employer. Alternative staffing involves short-term and non-permanent employment relationships. The examples of alternative staffing include the use of temporary contracts, part-time contracts, and independent contractors. Staffing is critical in nonprofit organizations. The knowledge, skills, and the ability of the candidate to buy into the mission of the nonprofit are the outcomes of staffing. It has significant impacts on the performance and survival of the nonprofit organization (Akingbola, 2006). For example, Huronia Transition Homes (HTH), a nonprofit in Midland, Ontario, Canada, that runs a vertical farming social enterprise emphasizes the need for employees to possess the job competencies and be aligned with the mission and values of the organization. Employees are required to understand and stress the philosophy of HTH as a feminist organization. The core philosophy of the organization states that HTH supports, integrates, and promotes anti-racism and anti-oppression throughout our programs and our communities. Nonprofits must understand that the link between recruitment, their mission, and values underlies the process and effectiveness of how they attract and retain employees.

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Challenges of recruitment and retention in nonprofits22

Recruitment and retention in nonprofits are dependent on the ability of each organization to understand and manage the specific factors that influence the outcomes. Most of these factors are challenges that are unique to the sector. Mission of a nonprofit – as a positive factor, potential employees are attracted and often choose to work for a nonprofit because they identify with the mission of the organization. However, as a negative factor, highly qualified potential candidates who oppose the mission could be dissuaded from applying for a job with the nonprofit. Hence, although it is generally not a condition of employment, the mission of nonprofits plays a significant role in attracting employees. Skill mix – many of the competencies nonprofits require to meet the challenges of their operating environment are unique to the sector. The implication of the unique competencies is that the talent pool for some positions in nonprofits is limited to those with experience in the sector. For example, nonprofit managers must focus not only on basic management functions such as budgeting, planning, decision-making, and supervision, but they must also learn to work with a volunteer board, advocacy groups, and multiple funding organizations. Government – generally, there are two ways the relationship with government impacts recruitment. One, the dependence on government funding could influence who is recruited and how employees are recruited in nonprofits. Two, the contracting system of government funding means that nonprofits are more likely to recruit non-permanent employees on short-term contracts than recruit permanent employees for services funded by the government. Small workplace – most nonprofits are small organizations. It is not uncommon to find informal and inconsistent recruitment practices. In addition to the impact on the ability of the organization to attract and recruit qualified candidates, the limited organizational capability and resources could

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make a nonprofit susceptible to the legal risk of violating employment legislation. Compensation – there is almost a consensus in research that salaries are generally lower for most nonprofit positions compared to similar positions in for-profit and public sector organizations. In fact, research has shown that the difference in salary increases as the position being compared moves to managerial and senior leadership levels of the sectors. This inability to offer competitive salaries is a major challenge for recruitment and retention in nonprofits. Job advancement – the small size of most nonprofits suggests that there is limited opportunity for advancement in each organization. With limited opportunity for career advancement, employees who are seeking to advance to higher levels may have to change jobs to actualize their career goals. Coproduction with volunteers – this is one other factor that could also be a positive or negative for recruitment and retention in nonprofits. On the one hand, the coproduction between volunteers and employees enhances the pool of human resources of a nonprofit which could be used to attract new employees. The interchangeability of roles could enable the organization to focus on recruiting employees whose roles cannot be substituted with volunteers. On the other hand, interchangeability of roles could be detrimental to recruitment if potential employees are aware that managers may opt to recruit volunteers to do their jobs. In all, recruitment and retention strategies in nonprofits must underscore the need to address these challenges to attract and recruit the employees required to achieve the goals of the organization. How a nonprofit deploys its recruitment strategy could affect how it integrates recruitment with other HR functions.

In practice: Recruitment methods

Nonprofit organizations use varied recruitment methods which could range from traditional methods to more innovative methods. Below is an overview of the commonly used recruitment methods in nonprofits.

This section of the paper is adapted from Akingbola (2015).

Kunle Akingbola

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Word of mouth Word of mouth continues to be one of the most cost-effective methods of recruiting in nonprofits. Spreading the word through the formal and informal network of stakeholders of the organization could help to promote the vacant job to candidates who are in the immediate and extended community of the nonprofit. The reality for many small nonprofits is that recruiting by word of mouth is effective enough for them. Employee referral Current employees can formally or informally introduce candidates to the nonprofit. In a formal employee referral program, employees are sometimes recognized or rewarded for referring the successful candidate for a job. There are advantages to using the employee referral method to recruit employees. First, the organization can glean some basic information about the knowledge, skills, and experience of the potential candidate even before they apply. Second, if the employee who is referring the potential candidate has worked with him/her, it is very likely that the nonprofit will have an inside track on the past performance of the potential candidate. Third, at least at the initial stage of the employment, the referred candidate is likely to have an obligation not to disappoint the employee who referred him/her. Fourth, the potential candidate can discover more about the organization through the employee making the referral before applying for a job. However, it is important to note two related disadvantages of employee referral if it is not managed properly. First, it has the potential to facilitate groupthink, that is, people who think and do things alike. Second, it could facilitate discrimination by limiting targeting recruitment of people who are from the same group (Schwind et al., 2007). Online job posting The internet offers an array of sources to reach potential candidates for nonprofits. Online job posting adds value to the recruitment in different ways. First, the global reach of the internet ensures that the jobs posted by a nonprofit can attract qualified candidates from within and outside the local community of the organization. Second, online job posting can be targeted to specific candidate segments to

emphasize the knowledge, skills, and abilities required in the job. This could save time and resources during the recruitment process by screening out candidates who do not have the relevant competencies. Third, online job posting can increase efficiency in recruitment administration, selection, and benchmarking. Basically, it makes it easier to track résumés, download résumés into a database, and search for candidates, all of which enhance the selection process. It also makes it easier to track recruitment metrics such as time to fill and cost of recruitment. This enables the organization to compare the performance of the recruitment function to nonprofit benchmarks in the area. Beyond the actual recruiting goals and process, online job posting gives the nonprofit an added web presence that could benefit the services and advocacy work of the organization. For small and new nonprofits, online job postings could be another way of building the brand of the organization. Many well-established nonprofits already understand that online job postings enable them to burnish the brand of the organization. It is also a way of constantly maintaining awareness of the nonprofit brand without the significant cost of advertising. Social media Social media is an essential sub-component of online recruiting with distinctive features. Rather than the general online job postings, social media can target potential candidates based on their interests, affiliation with groups, causes, and so on. Hence, it can be inexpensive and more effective. Social media such as LinkedIn, Facebook, or X (formerly known as Twitter), can be used as a word-of-mouth recruiting method. Social media is now also used to pre-screen candidates by reviewing their profiles and relevant information. Nonprofits could also search LinkedIn for profiles or use the premium service of the social media site to find candidates. Job fairs There are numerous opportunities for nonprofits to participate in job fairs. Although job fairs are often open to organizations from different sectors, there are a few that are focused on nonprofit and public sector Kunle Akingbola

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organizations. It is also possible for a network of nonprofits in a local area to organize a job fair together. Campus recruitment Recruiting on college and university campuses is an effective means of connecting with new graduates. For nonprofits with internship programs, campus recruitment is the major channel for recruiting candidates. It is a particularly important source for building a future talent pool by establishing a recruitment relationship. For example, a recruitment relationship established with second- and third-year students could be leveraged for job opportunities when they are seniors or in the labor market. Campus recruiting is also a way of sourcing candidates for immediate job vacancies that require minimal experience. Recruiting from volunteers Nonprofits have a unique advantage based on the access to the diverse talent pool that is available from their volunteers. Recruiting from the volunteer pool has some advantages that are like those of current employees such as awareness of the competencies, performance, and understanding of the values of the organization. As a recruitment method, nonprofits can interface volunteer management with employee recruitment. First, nonprofits could and do target job postings to volunteers. Job vacancies are posted internally specifically for volunteers either before the external posting or simultaneously with the external posting. Second, the recruiter or hiring manager can review the volunteer skills inventory to determine whether there is a match between the knowledge and skills required in a vacant job and those of current volunteers. Third, the nonprofit could simply encourage volunteers to apply for available job vacancies. Fourth, recruiting from volunteers is less costly, and orientation into the organization will take less time. Overdependence on volunteers as a recruitment source has disadvantages. First, it could impact volunteer retention in a nonprofit. Volunteers who have joined a nonprofit with the hope that they will eventually transition to an employee role could be frustrated if such an opportunity does not materialize. Second, if volunteers who are competing with external candidates for vacant jobs are somehow accorded undue consideration due Kunle Akingbola

to their role, it could limit the ability of the nonprofit to attract new talent. Volunteers must be considered for vacant jobs based on the knowledge, skills, and the relevant experience they possess in relation to the job. To mitigate the disadvantages of recruiting from volunteers, nonprofits should outline a clear policy and adopt consistent practices on volunteer recruitment. For example, it should be clear whether volunteers should be considered as internal or external candidates. Additional methods Nonprofits also have several other methods for recruiting employees. Many nonprofits recruit employees through their internship programs. Formal or informal internships are an excellent way of introducing potential employees to the organization, its operation, policies, and processes. It is also an opportunity for the interns to check out the nonprofit as a potential organization they would like to work for. A nonprofit with many vacancies can also organize a recruitment open house. Such an event would include a review of résumés and at least pre-screening interviews. If resources are available, more detailed interviews could be organized as part of a recruitment open house.

Nonprofit retention choices

Nonprofit organizations must make a choice when deciding on retention. They must adopt strategies that are consistent with the context of the organization (Akingbola, 2013). ● Recruit employees who are aligned with the mission and values of the nonprofit. ● Develop, implement, and evaluate employee engagement plan. ● Balance internal recruitment with external recruitment for mid-level and senior positions. ● Facilitate employee representation in governance of the nonprofit. ● Provide opportunities for cross-functional teams on mission-related issues and programs. ● Equip employees with nonprofit change management skills. ● Implement performance management including coaching at all levels of the nonprofit.

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● Provide opportunities for employees to gain new knowledge, skills, and abilities that may not be available in the nonprofit. ● Promote employee social capital with other stakeholders. ● Facilitate social exchange by developing and implementing policies and practices that reinforces trust in employees. ● Provide opportunities for a career path in the nonprofit. ● Promote the culture and values of the nonprofit. Nonprofits must consider both their unique environment and context factors such as funding, government, and values to decide on retention strategies. These factors would often necessitate some form of balance that would blend external recruitment with retention.

Summary

Recruitment is a SHRM function that is critical to the survival of a nonprofit organization. The unique challenges highlight the opportunities for nonprofits to develop and implement retention strategies that are based on the context in which the organization is required to balance the need to recruit for the mission and competencies with the need of the current imperative such as what the funders want now. Recruitment and retention could set the stage for the other HR functions such as training and development. Kunle Akingbola

Related topics

Careers and preparation Diversity, equity, and inclusion Leadership succession Strategic human resource management Wage equity within and across sectors

Further reading and references

Akingbola, K. (2006). Strategy and HRM in nonprofit organizations: Evidence from Canada. The International Journal of Human Resource Management, 17(10), 1707–1725. https://​ doi​ .org/​10​.1080/​09585190600964350 Akingbola, K. (2013). A model of strategic nonprofit human resource management. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 24(1),

214–240. https://​doi​.org/​10​.1007/​s11266​-012​ -9286​-9 Akingbola, K. (2015). Managing human resources for nonprofits. Routledge. Nye, D. (1988). Alternative staffing strategies. Bureau of National Affairs. Schwind, H., Das, H., & Wagar, T. (2007). Canadian human resource management (8th edn.). McGraw-Hill Ryerson.

Refugee services Definition

Refugees under international law are defined as persons outside their home country due to persecution based on race, religion, nationality, political opinion, or membership in a particular social group. States are required to set out the legal basis for refugee determination, as well as a functioning admissions and resettlement system. This includes access to basic services and an inclusive service system. States often rely heavily on nonprofit organizations as the main providers of a broad range of refugee services during entry, admissions, and resettlement stages. Nonprofits may also serve refugees fleeing generalized situations of conflict, disaster, or climate events, who may fall outside the legal definition. These distinctions are important for service providers, as refugees’ fundamental needs and access to services are differently impacted by stage of entry and by legal status, which can take years to process. Status uncertainty is a core feature of the refugee experience, as are challenges of integration, inclusion, and empowerment as new host society members more generally.

In practice: Types of refugee services

Nonprofit service providers thus work with refugees at different stages (entry, admissions, resettlement), in different legal situations and levels of uncertainty, providing time-sensitive emergency services as well as long-term resettlement and integration support. At the refugee status determination and admissions stage, legal advocacy is a primary concern, as well as monitoring of holding Lisa S. Alfredson

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facilities for safety, adherence to laws of protection, and provision of basic needs (food, clothing, medicine, etc.). Throughout, service providers must be attuned to the deeply sensitive causes and traumatic consequences of different refugee creating situations, as well as the traumas of the journey and hostile admissions systems. Similarly, nonprofits seek to ensure access to essentials for those who await status determination, often for years, while living in the community. Lack of stable legal status affects all service provision during this stage, potentially requiring substantial support such as pro bono legal counsellors, income assistance as access to employment may be restricted or unstable, and access to health care, housing, child education, and language services. At the resettlement stage, nonprofit services for newly arrived or admitted refugees focus on ensuring sustainable access to essentials such as housing, food, clothing, employment, counseling, medical care, education, and legal counsel, and potentially to specialized services. A key aim of resettlement is not merely to address refugee vulnerabilities, but to empower refugees to be able to flourish in society. Specialized services help refugees increasingly integrate, and provide aid in specific circumstances where ethnic, linguistic, or cultural background may hinder access to services available to the general population. For example, specialized shelters for refugee women and children in situations of domestic violence address unique cultural expectations, constraints, and vulnerabilities such populations face. In some countries of origin, police called into domestic violence situations may penalize victims rather than perpetrators, making victims hesitant to seek outside help. In host countries, refugee women are often admitted as the “dependent” of a spouse or male family member who holds refugee status, and may believe continued legal residence requires sustaining the relationship, even if abusive. This may not be true, nonetheless, fear of deportation may impede refugees from seeking help, and typical women’s shelters may not be equipped to support refugee women’s legal, cultural, or linguistic needs. Specialized services in such cases can become essential lifelines. Other specialized services for example may center on child welfare, education, or Lisa S. Alfredson

health care, as impacted by cultural factors or by social exclusion in the host country.

Challenges

To deal with key challenges in the field, management and governance of nonprofit refugee services relies on leadership that is well networked and resourceful, compassionate and culturally sensitive, legally astute, and even politically strategic. Nonprofit service providers must be prepared for the basic challenge that refugee clients face multiple interlocking challenges throughout the stages of the refugee experience. These include legal and procedural challenges of navigating foreign laws and institutions; economic, social, and cultural challenges of meeting basic needs in a foreign environment; psycho-social challenges of dealing with traumas resulting in forced migration, and the trauma of losing one’s home and country in consequence; and the challenges of integration and social inclusion in a completely new environment. Therefore, even when a specific nonprofit mission targets specific client needs (such as housing or legal advocacy), it must do so in coordinated fashion to help ensure that interlocking needs are met and not jeopardized. Individual case management must be interlinked with awareness, coordination, and networking to ensure comprehensive responses capable of bringing together the range of resources and actors needed. Managers may need to coordinate with government and public service providers, other nonprofit service providers, and refugees’ own community associations and members. In order to better address coordination challenges, some nonprofits focus on assisting other refugee service providers to work together on local and national levels. Larger voluntary associations provide networked services that link individual points of service activities with a much broader array of public and nonprofit service points. Importantly, the latter includes smaller community-based nonprofit organizations created by refugee and ethnic or religious communities themselves. These offer an important bridge between knowledgeable community members, and more recent arrivals from the same ethnic, linguistic, or national background who are in need of advice and support.

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While nonprofits in many fields face resource problems, some nonprofit refugee services are funded by states obliged to provide a refugee services system, though funding levels can be minimal or changing, especially as political administrations change. Because refugee services are so varied and wide-ranging, including specialized services, state funding is not necessarily an option. Indeed, over the years the nonprofit sector in this area has expanded to fill many service gaps beyond basic entry and resettlement needs, and refugee issues have been taken on by many nonprofits working with broader populations or issues. Funding sources may be more diversified as well as based on various criteria aside from number of persons served. Fluxes in refugee movements, due to political instability and unpredictable events abroad as well as potentially fast-changing host country policies toward refugees, can cause sudden and challenging increases in population and resource needs, which available funding cannot rapidly meet. Being diversified and well-networked can help meet these needs. High personnel turnover and ongoing need for linguistically and culturally skilled staff and services is another common challenge. Service providers need training to understand refugee cultures and intersectional experiences of trauma, poverty, and social exclusion, and resulting family dynamics and needs. Management must also support the need for skilled personnel to avoid burn out from emotionally intense work. Another challenge is political polarization, which deepens and complexifies obstacles to effective service provision, and intensifies staffing pressures. Managers must interface with the legal system and political context, which may be volatile and changing. Increasing political polarization deepens the need for managers and staff to be able to help refugees negotiate wider systems with which they must interact, which may be hostile and xenophobic. Service providers must work as part of an effort to transform wider systems into hospitable refugee service environments.

Future directions

Indeed, the future of refugee services is likely to be affected by political countercurrents of globalization trends, and by the rise of untraditional refugee movements, especially

climate-related forced migration. Climate refugees already account for up to one-third of all forced displacements worldwide, they have legal rights to seek asylum, be treated fairly, and have their basic needs met, yet their legal status is disputed, and residence may trigger backlash from host communities or politicians. This is no doubt exacerbated by pro-nationalist anti-globalization trends, and the politicized nature of policies and attitudes toward refugees more generally. Governance and leadership of nonprofit refugee services must tread fine lines between awareness of limitations to services for refugees under the law, the need to criticize and challenge unfair applications of the law and rights to social services, or even inherent limitations of the law itself, and the need to simply get the work done with the least political blowback which could further hinder the provision of refugee aid. This is especially true in xenophobic contexts. In humanitarian fields, some service providers seek to remain outwardly politically neutral, appearing to focus inwardly on direct service provision, thus evading political crossfire that might impede their work (cuts to funding, service access, safety, etc.). But this is not always possible nor is it necessarily desirable or effective in the long term. Nonprofit refugee service providers are, and must remain, first and foremost advocates for refugees, positively influencing the legal and political parameters that create and control refugee flows. Given the wide scope of refugee services, beneficiaries, and contexts, advocating for refugees will mean different things. For instance, some nonprofits regularly provide legal and/or welfare advocacy in securing direct services from other actors. Others less focused on direct service provision may be able to engage in public advocacy (awareness raising, promoting refugee rights, providing avenues for refugees to voice their experiences and illuminate contributions to society, etc.), and/or even political advocacy (briefing or lobbying political actors, coordinating petitions, etc.) on a broader level. Attending to such challenges is important for reducing refugee vulnerability, helping service providers build productive partnerships with refugees and their communities, and enabling refugees to flourish in society. Leaders need to make appropriate decisions with specific clients, engage in different types Lisa S. Alfredson

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of service interface with other actors, and manage relations with outside institutions, while advocating for clients, to best enable refugee service provision. Lisa S. Alfredson

Related topics

Cultural competence Diaspora philanthropy International aid Nongovernmental organizations Politics and philanthropy

Further reading and references

Ager, A., & Strang, A. (2008). Understanding integration: A conceptual framework. Journal of Refugee Studies, 21(2), 166–191. https://​doi​.org/​ 10​.1093/​jrs/​fen016 Betts, A., & Collier, P. (2017). Refuge: Transforming a broken refugee system. Penguin Books. Boenigk, S., Fisk, R., Kabadayi, S., Alkire, L., Cheung, L., Corus, C., Finsterwalder, J., Kreimer, A. A., Luca, N., Omeira, M., Paul, P., Santos, M. F., & Smidt, N. (2021). Rethinking service systems and public policy: A transformative refugee service experience framework. Journal of Public Policy & Marketing, 40(2), 165–183. https://​doi​.org/​10​.1177/​0743915620962815 Finsterwalder, J. (2017). Refugee influx: Repercussions and research agenda for service scholars. Journal of Retailing and Consumer Services, 37, 177–181. https://​doi​.org/​10​.1016/​j​ .jretconser​.2016​.11​.001 Garkisch, M., Heidingsfelder, J., & Beckmann, M. (2017). Third sector organizations and migration: A systematic literature review on the contribution of third sector organizations in view of flight, migration and refugee crises. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 28(5), 1839–1880. https://​doi​.org/​10​.1007/​s11266​-017​-9895​-4 Keegan, B. (2020). “I didn’t want to be a burden”: Improving interactions between refugees and nonprofit service providers. Journal of Public and Nonprofit Affairs, 6(2), 209–232. https://​doi​ .org/​10​.20899/​jpna​.6​.2​.209​-232 Nasr, L., & Fisk, R. P. (2019). The global refugee crisis: How can transformative service researchers help? The Service Industries Journal, 39(9–10), 684–700. https://​doi​.org/​10​.1080/​ 02642069​.2018​.1445224 Wathen, M. V., Decker, P. L. F., & Weishar, C. N. (2021). The impact of U.S. refugee policy change & political rhetoric on nonprofit service providers’ emotional well-being. Journal of Community Practice, 29(2), 153–173. https://​ doi​.org/​10​.1080/​10705422​.2021​.1935377

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Regulation of nonprofit organizations Regulation broadly defined

Every nonprofit exists to serve some community by performing services to fulfill its mission. The communities served vary from a handful of families to the entire nation or even span the globe. The missions are amazingly varied – some familiar and some so idiosyncratic as to strain belief. From this perspective, the familiar quip comes easily to mind: if you’ve seen one nonprofit, you’ve seen one nonprofit. As a matter of law and practice, however, every nonprofit in the United States must operate within a complicated regulatory environment that has common critical features, even as the particulars may vary from locale to locale and from mission to mission. These are some of the external factors that shape or control the behavior of nonprofit managers either explicitly or incidentally: the federal tax code, the nonprofit corporation statutes of nearly every state, the charitable solicitations laws which largely ignore political boundaries, the watchdog agencies tracking and rating program effectiveness and financial practices, the state and local requirements which establish standards for staffing and operations, the rules of the postal service, the practices of internet providers who shape communications and determine expenses for maintaining contact with supporters and beneficiaries, and the attention (or lack thereof) of scholars, journalists, and online commentators. This entry aims to sketch the characteristics and assess the influence of these external actors for nonprofits in the United States.

In practice: Regulation of nonprofits in the United States Tax exemption The Internal Revenue Code (1986) describes the taxes due from all types of taxpayers. In general, corporations are taxed. In section 501, however, the IRC describes 31 types of corporations that are generally exempt from corporate taxes (section 521 adds Farmers’ Co-ops). Not all nonprofits are organized as corporations. Some are organized under

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the law of trusts, which offers an earlier and different but parallel form of governance. Recent practice has favored the corporate form. Similar provisions for tax-exempt status apply to trusts. The familiar indication that an organization is recognized by the Internal Revenue Service (IRS) under sub-section 501(c)(3) refers to the largest group of these organizations – those that are organized and operated for charitable purposes and generally authorized to receive tax-deductible contributions from donors. The IRS distinguishes between “private foundations,” which are typically but not always grant-making organizations, and “public charities” which operate to provide services and qualify for tax exemption. Along with sub-section 501(c) (3), the other sub-sections briefly describe the characteristics that must exist for a corporation to qualify as tax-exempt. IRS regulations and guides supplement the brief descriptions in the statute (Legal Information Institute, n.d. [a]). For most types of organizations, recognition of tax-exempt status depends upon completing a formal application for review by the IRS and a determination that the organization qualifies for exemption. Many tax-exempt organizations are also required to file detailed information returns annually which describe their operations and finances to document that they are eligible to continue to operate without paying corporate income tax. Sub-section 501(c)(3) organizations are expected to file one of the three versions of IRS Form 990 each year. Though many churches and religious organizations do complete the process to obtain 501(c)(3) recognition from the IRS, they are not required to do so. This exception stems from the separation of church and state that is required by the First Amendment to the U.S. Constitution. These organizations also are not required to file Form 990. Foundations are also classified by the IRS as sub-section 501(c)(3) organizations. They qualify for recognition and operate under different IRS regulations and importantly must devote a specified percentage of their total investment income to charitable purposes to avoid foundation-specific taxes. Those restrictions do not apply to community foundations which are ordinary 501(c)(3) corporations and receive the bulk of their operating budgets in the form of contributions from donors. In addition to the

IRS, the Federal Trade Commission (FTC), as the nation’s consumer protection agency, regulates the practices of commercial fundraising firms when they contact the public on behalf of their nonprofit clients. The FTC’s “Telemarketing Sales Rule” focuses on solicitations by telephone and the agency also offers general guidance on selecting and overseeing commercial fundraising activities. Taxes The topic of taxation of nonprofit organizations is too complicated to discuss here in detail. A broad generalization can, in fact, be made. For the most part, donations received by recognized nonprofit organizations are exempt from federal, state, and local taxes. One wrinkle casts a shadow over that generalization, though. Private operating foundations, plus any organizations that are supported by a few very large donations, are required to pay a 1.39 percent excise tax on their net investment income. Private operating foundations are also subject to penalty excise taxes if they or their managers engage in a list of five prohibited transactions. Federal legislation passed in 2017 added a tax of 1.4 percent on the endowment earnings of about 40 colleges and universities which have the largest endowments (Tax Policy Center, 2020). All 501(c)(3) organizations are subject to corporate income taxes on “unrelated business income” – unrelated in the sense that the income is not connected to the charitable activities and mission that are the basis for tax-exempt status. Many important exceptions and exemptions exist, however; thus, any organization with significant non-program income will need to explore the topic of unrelated business income with care. United States Postal Service The Post Office has special rates for large mailings prepared by nonprofits. A nonprofit wishing to take advantage of the potential savings must first make an application to the Postal Service to demonstrate eligibility. The rules about content and the organization of materials to be mailed are not related directly to the IRS requirements for charitable status. Close attention to the requirements is necessary to get the benefit of the reduced rates (United States Postal Service, 2023). Putnam Barber

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State and local regulation

Every state but Delaware has a nonprofit corporation’s law on the books (Delaware describes nonprofits as non-stock corporations). These laws set standards for the governance and general organization of nonprofit corporations operating in the state. In general, incorporating as a nonprofit is a necessary step toward obtaining IRS recognition as a 501(c)(3) or another type of tax-exempt organization – not all nonprofits are, or need to be, charitable organizations. Over the years, the American Bar Association has published a Model Nonprofit Corporation Act, and many states have adopted revisions of their nonprofit corporation statutes to reflect the model act to a greater or lesser extent (American Bar Association, n.d.). An important function of state nonprofit corporation statutes is that they set the minimum or default requirements for governance. It is usually possible to modify these requirements – for example, to use different titles for officers or to define the rights of members if there are any (not all nonprofits enroll members). In most cases, the state’s attorney general is given exclusive authority to investigate and, if necessary, act if serious violations of the statutory requirements occur. Differences remain among the states’ standards, though, so setting up a nonprofit organization will usually require detailed knowledge of the rules of the state where it will incorporate and often further details about the regulations in any state where it will operate significant programs. Many states also require “foreign corporations” – that is, those incorporated in another state – to identify themselves and obtain authorization to operate locally. There are wide variations in the degree to which states require registration and specify requirements for operation of foreign corporations. Most states also have laws governing charitable solicitations (only Montana, Wyoming, and Nebraska have none). These laws frequently require registration with a state agency before any solicitation is made for any sort of gift from a resident of the state and, subsequently, reporting some information about the extent of contacts with and contributions from the state’s residents. Many of the states which require registration have developed online resources which prospective donors and other interested parties may use to invesPutnam Barber

tigate details about the location, organization, and finances of solicitating organizations. Often these states provide data which permit the calculation of, or show directly, some version of the proportion of an organization’s receipts which are expended on fundraising (the “cost of fundraising ratio”) or some other measure of direct program expenses compared to total revenues. It is important to note that the typical charitable solicitations statute defines a charitable appeal very broadly. As a result, any suggestion that donated funds will be used for a charitable purpose will usually subject the soliciting organization to the requirements of the solicitations statute. Three states – Tennessee, Mississippi, and Colorado – have enacted “de minimis” standards that exempt from their registration and reporting requirements organizations with infrequent requests and infrequent responses. There are commercial firms that will, for annual fees, provide the initial registrations and required annual reports to the states where their nonprofit clients depend on donations that result from solicitations. Many states have adopted a more or less “standard” set of requirements in their charitable solicitations statutes. The rest of the states that have solicitations statutes require registration and/or reporting from narrowly defined lists of solicitors or focus on specific means of solicitation while ignoring others. The National Association of State Charities Officials (NASCO) developed a model solicitations statute in 1986 (Foundation Group, n.d.). In 2002, NASCO adopted guidance for regulation of online solicitations (National Association of State Charities Officials, 2018). In the years since 2002 the use of webpages, emails, and mobile-phone donation apps for charitable solicitations has become more common and widespread. State and local taxes State and municipal taxes present a bewildering array of variations and are subject to contentious challenges, as well as energetic campaigns for exemptions or special provisions. The details are often highly technical. As one example, in Washington state some years ago the revenue department identified a concluding report on research done by a nonprofit organization as the “product” of the research and hence the support that

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enabled the preparation of the report was “business” income and subject to tax. A coalition of foundation leaders and policy-oriented nonprofit executives successfully – after several months of difficult conversations with government officials – secured an agreement that no tax would be due if the report was widely available to the public. Whether nonprofit organizations owe real estate taxes on the property they own – or use – is another frequently contested question. Communities with large nonprofit organizations such as hospitals or universities often seek to negotiate payments in lieu of taxes (known as PILOTS). Such efforts are understandably common when such large organizations occupy a significant proportion of the land area within the community’s boundaries. Whether or not PILOTS can be collected will depend on the laws and regulations of the state, the degree to which other revenues may be available locally, and the political standing of the organizations facing requests or demands to contribute to the municipality’s finances (Brody, 2002). Other state and local taxes offer a similarly challenging array of possibilities. Some states (and cities) impose sales taxes on anything a nonprofit sells. Others exempt particular types of transactions, often when related to a fundraising activity. And some exempt all transactions from sales tax. There are a few states with no sales tax at all. There may be utility taxes, payroll taxes, entertainment taxes imposed on concerts or performances, and other unique taxes that are used by one or another jurisdiction. Whether or not local nonprofits will be exempted or targeted is, of course, a matter of local political history. A further complication – one that has gained new importance during the recent increase in remote workplaces – is whether a state requires local registration (as a “foreign corporation”) when a nonprofit organization has employees or offers occasional services within the state’s boundary. Great variation exists in the thresholds for intensity or frequency of activities that may lead to an obligation to register with the state or obtain a business license from a local authority.

Current trends and issues Advocacy and lobbying Many nonprofits are created and supported with an explicit goal of promoting a cause or policy. The Internal Revenue Code addresses the allowable scope of nonprofits’ engagement in both advocacy and lobbying in several sub-sections. Section 501(c)(3) limits the political activities of a charitable organization by stating “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation” while section 501(h) offers a formula based on total revenues for defining how large a “substantial part” could be. Section 501(c)(4) offers an alternative by defining “social welfare” organizations that can focus broadly on influencing public policy so long as their engagement in electoral politics is limited. Contributions to 501(c)(4) organizations are not tax-deductible. In both cases, the IRS has published extensive interpretation and guidance which helps to clarify the character and range of permitted activities. Other governments – statehouses and city halls and special-purpose entities of all sorts – define and limit the scope of advocacy and lobbying actions that organizations, including nonprofits, can take when attempting to influence the governments’ actions or policies. Attending to and complying with these rules can seem overwhelming. Many nonprofits have, nonetheless, decided that the effort to understand the rules is well rewarded by the occasional successes of their efforts and the interest that supporters and members of the community express. Volunteers Volunteers are important to all sorts of nonprofits for the execution of their programs. Further, of course, nearly all nonprofit organizations depend on volunteers who serve as board members and many reinforce their fundraising efforts by enlisting active supporters to extend and validate these efforts. Many states have enacted volunteer protection statutes which shield individuals from liability when they are engaged in activities that fulfill a nonprofit’s mission. These protections are particularly important for volunteer-led recreational and athletic programs. A parallel federal volunteer protection Putnam Barber

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act was passed in 1997 (Legal Information Institute, n.d. [b]). Rating agencies Since the early twentieth century there have been organizations that review and rate nonprofits – particularly those that rely to a significant degree on donations to support their work. The rating agencies exist because of the real possibility that solicitations for charitable support may mislead or confuse potential donors. Understandably, donors sometimes worry that they may be victims of dishonest appeals. The rating agencies use a variety of methods to gather information. Some send questionnaires when they receive inquiries from the public. Some collect information filed with the IRS (on Form 990) and organize it in a more digestible form, perhaps supplementing it with information from other sources including the organizations themselves. Some emphasize key ratios, such as the cost of fundraising in relation to the overall budget. Others look for evidence that the programs of the rated organizations are effective in doing what they claim to do. Curious donors, and the others with an interest, have access to a wide variety of information about the more active nonprofits that seek support from the public. There is considerable controversy among observers of the nonprofit field about the utility of such ratings, especially because the criteria that makes sense in the context of one sort of service may be completely inappropriate when applied to another. Nonprofit associations and scholarship Importantly, many state associations of nonprofits provide training and technical assistance to local nonprofits and, often, representation with state and local governments. Moreover, a national organization based in Washington, D.C., – the National Council of Nonprofits – represents and assists the local statewide associations (National Council of Nonprofits, n.d.). Also, many statewide and local groups represent sub-fields of nonprofits such as human-service providers or categories of nonprofit employees and volunteers. An example of the latter is the Association of Fundraising Professionals (n.d), which has local chapters in many communities. Nonprofit organizations are the focus of the Association for Research on Nonprofits Putnam Barber

and Voluntary Action (ARNOVA) which publishes a journal, Nonprofit and Voluntary Sector Quarterly. Research about nonprofits also appears in Nonprofit Management and Leadership and Nonprofit Policy Forum, among other journals. Nonprofit accounting and legal developments and other specialties are the focus of less widely read publications – both in print and online. Increasingly, many academic journals in political science, public administration, and sociology also publish research articles on nonprofits.

The future

There are approximately 1.8 million nonprofit organizations in the United States (Urban Institute, 2021). They employ a lot of people – perhaps more than 10 percent of the labor force. They are found in every part of the country in urban and rural areas, and they provide an enormous variety of services. Some government oversight exists, but the existing regulations for the most part guide rather than constrain everyday operations. The public generally lacks awareness of the scope and significance of nonprofits’ contributions to community life. Of course, when a major scandal involving a nonprofit occurs, reporters from the business pages will write about the miscalculations or misdeeds. This relative obscurity may be frustrating for leaders of nonprofits and activists among their supporters. But the failure of government leaders to engage directly with weak points in the legal framework for nonprofit operations is a continuing source of concern among observers of the field. Here are some persistent examples: ● One case of inattention concerns the disparity between the tax treatment of business-related use of a private automobile – which is adjusted every year – and the persistence of a rate of 14 cents per mile for volunteers who drive (IRS, 2022). ● Many troubling news reports describe how creators of new nonprofits take advantage of the vastly simplified new IRS Form 1024-EZ. It has also been strongly disparaged by regulators (National Association of State Charities Officials, 2014). ● In every election cycle, some church leaders challenge the IRS by making explicitly partisan – and clearly forbidden

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– recommendations to their congregations from the pulpit. Some observers feel strongly that the automatic tax exemption for churches should simply be removed; others support it with equal force (ProCon.org, 2023). ● At the state and local levels, lawmakers do occasionally grapple with complex issues such as tax exemptions for nonprofits or the definition of qualifying public service – but too often little or no change occurs.

charitable​-solicitations​-registration​-2/​charitable​ -solicitation​-model​-act/​. Accessed 19 Sep 2023. Grobman, G. M. (2011). The nonprofit handbook: Everything you need to know to start and run your nonprofit organization (6th edn.). White Hat Communications. Hopkins, B. R. (2019). The law of tax-exempt organizations (12th edn.). Wiley. Internal Revenue Code, USC Title 26 (1986). http://​ uscode​.house​.gov/​browse/​prelim@​title26​&​ edition​=​prelim. Accessed 19 Sep 2023. Independent Sector, https://​independentsector​.org/​. Accessed 19 Sep 2023. IRS. (2022). IRS increases mileage rate for remainder of 2022. www​.irs​.gov/​newsroom/​irs​ This list of challenging questions about -increases​-mileage​-rate​-for​-remainder​-of​-2022. Accessed 19 Sep 2023. the legal environment within which nonprofits must operate could be extended Legal Information Institute. (n.d. [b]) 42 U.S. Code Chapter 139 – Volunteer protection. www​ many-fold. Advocacy organizations, such as .law​.cornell​.edu/​uscode/​text/​42/​chapter​-139. Independent Sector and the National Council Accessed 19 Sep 2023. of Nonprofits, maintain a steady presence in Legal Information Institute. (n.d. [a]) Section 501, Internal Revenue Code. www​.law​.cornell​.edu/​ the halls of Congress and elsewhere in the uscode/​text/​26/​501. Accessed 19 Sep 2023. hope that such issues will one day receive Mancuso, A. (2021). How to form a nonprofit corthe attention they deserve. The present highly poration (15th edn.). Nolo Network. partisan environment suggests it may be National Association of State Charities Officials. (2014). RE: Proposed Internal Revenue Service a long time before these concerns are given Form 1023-EZ, OMB number 1545-0056. www​ careful consideration. .nasconet​.org/​wp​-content/​uploads/​2018/​03/​May​ -23​-letter​-to​-IRS​-re​-1023EZ​.pdf. Accessed 19 Putnam Barber Sep 2023. National Association of State Charities Officials. (2018). The Charleston principles. www​ Related topics .nasconet​.org/​wp​-content/​uploads/​2018/​04/​ Accountability Charleston​ -Principles​ .pdf. Accessed 19 Sep 2023. Advocacy National Council of Nonprofits. (n.d.) www​ Charity law .councilofnonprofits​ .org/​ . Accessed 19 Sep Donor-advised funds 2023. Internal Revenue Service Powell, W. W., & Bromley, P. (Eds.). (2020). The nonprofit sector: A research handbook (3rd Sarbanes-Oxley Act edn.). Stanford University Press. Tax policy: Federal ProCon.org. (2023). Should churches (including Tax policy: State and local mosques, synagogues, etc.) remain tax-exempt? Voluntarism https://​churchesandtaxes​.procon​.org/​. Accessed 19 Sep 2023. Watchdog organizations Renz, D. O. (Ed.). (2016). The Jossey-Bass handbook of nonprofit leadership and management (4th edn.). Jossey-Bass. Further reading and references American Bar Association. (n.d.) Model nonprofit Tax Policy Center. (2020). What is the tax treatment of college and university endowments? www​ corporation act. www​.americanbar​.org/​groups/​ .taxpolicycenter​.org/​briefing​-book/​what​-tax​ business​_law/​committees/​nonprofit/​mnca/​ -treatment​-college​-and​-university​-endowments. Association for Research on Nonprofits and Accessed 19 Sep 2023. Voluntary Action (ARNOVA). (n.d.). www​ United States Postal Service. (2023). What is non.arnova​.org/​. Accessed 19 Sep 2023. profit mail? https://​faq​.usps​.com/​s/​article/​What​ Association of Fundraising Professionals. (n.d.) -is​-Nonprofit​-Mail. Accessed 19 Sep 2023. https://​afpglobal​.org/​. Accessed 19 Sep 2023. Brody, E. (Ed.). (2002). Property-tax exemption Urban Institute. (2021). Nonprofit trends and impacts 2021: National findings on diverfor charities: Mapping the battlefield. Lanham, sity and representation, donation trends from Maryland, Rowman & Littlefield Publishers. 2015–2020, and effects of 2020. www​.urban​ Foundation Group. (n.d.). A model act concern.org/​research/​publication/​nonprofit​-trends​-and​ ing the solicitation of funds for charitable pur-impacts​-2021. Accessed 19 Sep 2023. poses. https://​www​.501c3​.org/​501c3​-services/​

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Resilience management Definition

Nonprofit Resilience Management (NRM) is an emerging paradigm for managing nonprofit organizations so that they can successfully navigate existential threats brought on by external catastrophic events or serious internal crises, allowing them to thrive and successfully address their social missions over time. Resilience: NRM is based on concepts of “resilience” as developed in the literatures of organization theory, economics, systems theory, and environmental science. In economics, Leibenstein (1966) argued that firms necessarily operated with some level of inefficiency (called X-inefficiency) which could be reduced when they faced competitive threats. In organization theory, Cyert and March (2013) demonstrated that business firms relied on organizational slack to lubricate internal conflict and hedge against uncertainty. Hirschmann (1970) argued that such slack is a source of resilience, allowing firms to recover from sudden withdrawals of support by customers or members. In the systems and environmental literatures, resilience is characterized as the ability of a system, such as a natural ecology, to return to an equilibrium state or to achieve stability in a new equilibrium after a disturbance (Walker & Salt, 2006). Overall, resilience is a dynamic concept suited for application to management in times and circumstances involving environmental shocks, instability and uncertainty, as well as potential internal turmoil. The Crisis Environment: The importance of NRM stems from the increasingly crisis-ridden environment in which nonprofits have operated in the late twentieth and early twenty-first centuries, in the U.S. and elsewhere. The existential hazards facing nonprofit organizations have been diverse and severe in this period and remain so looking forward into the future. Major catastrophic events impacting nonprofit organizations in this period include: ● the leadership and sex scandals at United Way of America, Covenant House and Oxfam; Dennis R. Young

● the pyramid philanthropic investment scam of Bernie Madoff that undermined the financial integrity of multiple nonprofit grantees and foundations; ● the terrorist attacks of September 11, 2001, which tripped up the leadership of American Red Cross, devastated local nonprofits in lower Manhattan and rippled across the economy; ● multiple natural disasters including hurricanes, wild fires and floods, exacerbated by climate change, that directly impacted local nonprofits in their paths and taxed the capacities of emergency relief organizations; ● the 2008–2009 financial crisis which significantly undermined investment income and contributions to numerous nonprofits and increased demands on social service organizations; ● mass shootings in houses of worship which traumatized the leadership of these organizations; and ● the pandemic of 2020–2021 which closed down the onsite operations of many nonprofits, undermining revenues, forcing cost and workforce reductions, and requiring changes in technology including online programming and staff working from home. In these numerous and varied circumstances, many nonprofits were taken off guard, unprepared and scrambled to survive and continue their work. At the same time, many nonprofits have been able to exploit new opportunities created by crisis situations, such as the development of innovative online programs to supplement or improve onsite services during the 2020–2021 pandemic. Researchers such as Schlegelmilch (2020) and Ord (2020) describe multiple categories of catastrophe that society, including nonprofits, face in the remainder of the twenty-first century, such as more intense natural disasters, nuclear and other environmental accidents, pandemics, cyberattacks, and infrastructure failures. While the chance of a particular nonprofit being seriously impacted by any one such catastrophic event may be low, the probability that something untoward is likely to occur in the foreseeable future is significant and increasing for every nonprofit organization, suggesting that nonprofits need to be better prepared than they have been to

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date (Young & Searing, 2022). This is especially important given the special nature of nonprofit organizations as socially focused institutions that are intended to endure and be reliable in their service provision over time. As such, nonprofits such as schools, community hospitals, food banks, symphony orchestras, art museums, emergency relief providers and social service organizations supply a variety of “merit goods,” that is, services that are underprovided in the marketplace because consumers do not fully understand or acknowledge their high value to them (Freidman, 2002; Tirole, 2017). Accordingly, these services must be explicitly evaluated for their reliability and availability, not merely their monetary cost, short-term effectiveness or immediate market valuation.

Weaknesses of the contemporary management approach

The vulnerability of nonprofits to external shocks and internal crises is exacerbated by contemporary practices of nonprofit management, external funding and regulation. These practices have promulgated a culture of austerity, short-term and narrowly defined efficiency, cost/effectiveness and impact management, imposed by funders, regulators, rating agencies, and thought to be appropriate for “charitable institutions” by sector leaders, educators and management consultants. Together with risks posed by the contemporary crisis environment, this approach has resulted in a fragile sector, highly vulnerable to disruptions and unable to fully realize its potential for achieving its social missions. Mitchell and Calabrese (2018) argue that nonprofits live by four financial “proverbs” that are meant to ensure that they are trustworthy vehicles for carrying out their social missions: minimize overhead, diversify revenues, be lean, and avoid debt. The problem is that these proverbs are narrowly construed and tie the hands of nonprofits without any evidence that they increase efficiency or effectiveness. Indeed, they have led to a culture of measurement, accountability and regulation that is applied in a way that has made nonprofits fragile, including a failure of nonprofits to maintain reserve funds (Calabrese, 2013) and a spiraling down of overhead rates charged to funders resulting

in a “nonprofit starvation cycle” (Lecy & Searing, 2015).

In practice: How is NRM different?

In practice, contemporary nonprofit management often falls short in several dimensions important for resilience in a crisis-prone environment. First, nonprofits commonly fail to adequately address risk. Second, nonprofits, and their regulators and funders, tend to focus on the short term rather than the long run. Third, funders, regulators and trustees generally insist on stringent deployment of resources rather than providing margins for flexibility and cushions to absorb shocks. Fourth, nonprofits often fail to support organizational learning and innovation that can turn crisis situations into opportunities for growth and renewal, and to better prepare them for future crisis situations. By contrast, NRM emphasizes accounting for risk and long run performance. It favors developing a culture of learning, adaptation and innovation based on continual collection and processing of information. NRM allows for margins of error and maintaining prudent levels of organizational slack, including reserve resources, redundancy of capacities and flexible structures and strategies. And NRM distinguishes between preparation for crises when adequate slack must be built and contingency plans put into place, and navigating through crises, when slack must be prudently deployed and organizations must be nimble and flexible to maintain stability and adapt to new circumstances. A critical element of NRM is having adequate reserves, redundancy and flexibility, that is, different varieties of “slack.” The classical approach to nonprofit management generally views slack as wasteful. NRM argues that failure to implement prudent levels of organizational slack is dangerous and causes nonprofits to be fragile and vulnerable. NRM’s motto could be “Slack but not Sloth.” Too much slack can be wasteful of valuable economic resources. As in the children’s story of Goldilocks and the Three Bears, the prudent level of slack is not too much and not too little, but just right! The art of NRM is to find the appropriate levels of slack. This involves estimation of the probabilities and consequences of catastrophic Dennis R. Young

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events, (subjective) assessment of an organization’s risk tolerance, and the expected costs of responding to catastrophic events. Multiple dimensions of NRM NRM is a comprehensive paradigm that addresses many different dimensions of nonprofit management practice. These include balance sheets, cost structure, income structure, human resource policies, technology strategy, external network relationships, entrepreneurial culture and data management (Young & Searing, 2022). The following is a brief summary of how these dimensions manifest themselves within NRM: Organizational Resilience. NRM requires that nonprofits prepare for crises so that they can absorb shocks, exploit new opportunities arising from crises, and operate as learning organizations that can adapt and grow as circumstances change. Risk. NRM requires nonprofits to understand the types of risks and hazards they face, characterize them in terms of both likelihood and potential impact, and prepare appropriate risk management strategies, including for unknown or unanticipated catastrophic risks. Balance Sheet Strategy. NRM focuses on the adequacy and liquidity of assets available to address economic shocks, the appropriate use of debt and the value of nonfinancial as well as financial assets in maintaining organizational health. Cost Strategy. NRM emphasizes the balance between variable and fixed costs so as to allow flexibility in adjusting costs to reductions in income stemming from a crisis, and positioning nonprofits to exploit potential economies of scale and scope. Variable costs are those that can be changed in the short term in response to changes in demand and revenue, while fixed costs require a longer time horizon for adjustment. Economies of scale and scope refer to reductions in unit cost that can be achieved by expanding the scale of operations or the variety of services offered, respectively, in the long term (Young et al., 2019). Income Strategy. NRM emphasizes income diversification to reduce risk, as well as cultivation of fixed and semi-fixed sources of income that are slow to contract when the organization reduces its output or activity level. Dennis R. Young

Technology Strategy. NRM emphasizes redundancies in the technologies that nonprofit organizations employ to carry out their missions and deliver their services, as well as experimentation and innovation to improve those technologies over time. Human Resources Strategy. NRM emphasizes strategies of flexibility in deploying the nonprofit workforce, including appropriate mixes of full-time, part-time and volunteer workers, and alternative options for workforce reduction, consolidation or expansion in crisis situations, as well as programs of workforce development to reward and motivate workers to overcome difficult circumstances. Entrepreneurial Strategy. NRM requires an entrepreneurial mindset focused on problem solving and innovation, exploiting new opportunities in crisis situations and engaging underutilized organizational assets. Network Strategy. NRM calls for building robust, redundant and reciprocal networks of external organizational relationships to provide safety nets that can be called upon in difficult times. Measurement Strategy. NRM calls for two kinds of performance measurement systems: a system of indicators or dashboards that can provide warnings of potential and imminent crises and measures of organizational preparation, and a system of stress tests to determine the organization’s capacity to withstand catastrophic events. NRM as a dynamic approach to nonprofit management NRM recognizes that nonprofits operate in a dynamic and increasingly tumultuous environment whose twists and turns are often unexpected and unpredictable. Conventional nonprofit management practices implicitly assume a status quo, with clear goals to be maximized within specified (often austere) resource constraints and a stable environment. The notions of efficiency and effectiveness that characterize this paradigm are sensible in concept but require an extension to accommodate the uncertainty and dynamism of the turbulent twenty-first century world in which nonprofit organizations now operate. While NRM is newly codified and still evolving, it is intended to meet this challenge. Changing entrenched practices is always a slow process. However, NRM is intuitively appealing and its importance was

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dramatically emphasized in the 2020–2021 pandemic to which many nonprofits have adapted in various creative ways that reflect the NRM strategies described here. In addition, rating agencies have begun to revise their guidelines for donors, foundations have stepped up their giving in recognition of nonprofits’ need to become more resilient, and resilience-focused educational programming is becoming available to nonprofit managers and leaders. Moreover, resilience-related analyses are increasingly prominent in nonprofit research journals, at least in the area of financial strategy (e.g., see Green et al., 2021). While broad-scale adoption of NRM will require a culture shift in the nonprofit sector, there are signs in 2021 that this is beginning to happen. Dennis R. Young23

Related topics

Crisis management Financial performance indicators Governance Leadership Operating reserves Risk management Strategic human resource management

Further reading and references

Calabrese, T. D. (2013). Running on empty: The operating reserves of U.S. nonprofit organizations. Nonprofit Management and Leadership, 23(3), 281–302. https://​doi​.org/​10​.1002/​nml​ .21064 Cyert, R. M., & March, J. G. (2013). A behavioral theory of the firm. Martino Publishing. Freidman, L. S. (2002). The microeconomics of public policy analysis. Princeton University Press. Green, E., Ritchie, F., Bradley, P., & Parry, G. (2021). Financial resilience, income dependence and organisational survival in U.K. charities. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 32(5), 992–1008. https://​doi​.org/​10​.1007/​s11266​-020​ -00311​-9 Hirschmann, A. O. (1970). Exit, voice and loyalty. Harvard University Press. Lecy, J. D., & Searing, E. A. M. (2015). Anatomy of the nonprofit starvation cycle. Nonprofit and



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Voluntary Sector Quarterly, 44(3), 539–563. https://​doi​.org/​10​.1177/​0899764014527175 Leibenstein, H. (1966). Allocative efficiency vs. “x-efficiency.” The American Economic Review, 56(3), 392–415. www​.jstor​.org/​stable/​ 1823775. Accessed 19 Sep 2023. Mitchell, G. E., & Calabrese, T. D. (2018). Proverbs of nonprofit financial management. The American Review of Public Administration, 49(6), 649–661. https://​doi​.org/​10​.1177/​ 0275074018770458 Ord, T. (2020). The precipice. Hachette Books. Schlegelmilch, J. (2020). Rethinking readiness. Columbia University Press. Tirole, J. (2017). Economics for the common good. Princeton University Press. Walker, B., & Salt, D. (2006). Resilience thinking. Island Press. Young, D. R., & Searing, E. A. M. (2022). Resilience and the management of Nonprofit Organizations: A new paradigm. Edward Elgar Publishing. Young, D. R., Steinberg, R., Emanuele, R., & Simmons, W. O. (2019). Economics for nonprofit managers and Social Entrepreneurs. Edward Elgar Publishing.

Restricted / unrestricted funds Definition of key terms and concepts

The three major sources of income for nonprofit organizations are government funding, earned income (including fees for services) and private philanthropic support. Private philanthropic support is primarily provided by individual donors and institutional funders such as (endowed, grant-making, corporate and community) foundations. These philanthropic funders vary in the conditions that they attach to their support, ranging from providing highly restricted to unrestricted funding. At the one end of the spectrum, highly restricted funding can take the form of project funding. In restricted project funding, the funder specifies exactly how, when and what the funding should be spent on. These project grants are often focused on the short term,

Thank you to Elizabeth A. M. Searing for her suggestions on a draft version of this entry.

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and typically provide limited or no funding for so-called “overhead” costs, including core operational costs such as rent, utilities and personnel. At the other end of the spectrum, unrestricted funding has no or limited criteria associated with the funding. The receiving organization (“grantee”) has to a large extent freedom in deciding how to spend this philanthropic gift. The following are relevant criteria for assessing the level of restrictiveness of a gift: ● Restrictions on spending periods, items, locations, partners or beneficiaries. ● Level of specificity. ● Format for reporting and evaluation. ● Requirements for contact with funder (frequency, format, level of formality). ● Desired outcomes of projects. ● Use and availability of (web) data that is collected in the projects. ● Publication of data and results. We use the terms “unrestricted funding” and “flexible funding” interchangeably. Unrestricted funding can be part of a broader funding philosophy like “trust-based philanthropy,” which may involve other aspects like long-term relationships, actively shifting power imbalances, and participatory grant-making. Research shows that there are many benefits to more unrestricted forms of funding. For example, unrestricted funding increases nonprofit flexibility to deal with external shocks, contributes to nonprofits’ survival by reducing funders’ power over them, helps nonprofit service delivery, achieves financial stability of nonprofits, breaks the starvation cycle, enhances fundraising, and increases innovation at nonprofits (Hung, 2021; Hung & Berrett, 2021; Shon et al., 2019; Wiepking & De Wit, 2020).24 At the same time, there appears to be evidence for an unintended side-effect of unrestricted funding. Due to the importance of interpersonal relationships and the trust that is facilitated through these relationships, funders tend to prioritize grantees with which they already have existing relationships. As a result, funding with fewer

restrictions is more often targeted at older, established organizations (Rendon, 2020). Younger, grassroots organizations, especially working with socioeconomic disadvantaged communities, receive fewer of this unrestricted money.

Current issues and challenges

While not a new debate, the 2020 COVID-19 health crisis has amplified the discussion about the relevance of and need for more unrestricted funding among both philanthropic funders and grantees. Due to its disruptive nature, COVID-19 caused many nonprofit organizations across the world to cease their operations. Only those organizations that were able to flexibly shift their funding, and adjust their planning and programs were able to address the large needs that arose due to COVID-19 in societies across the world. In several countries, philanthropic funders and umbrella organizations created pledges that committed signees to provide more unrestricted, flexible funding. Practices of restricted and unrestricted funding are further influenced by four broader debates. The first debate centers on the question of whether unrestricted funding helps nonprofit performance.25 Donors and nonprofit managers hold different views on this relationship. On the one hand, many donors believe that restricted funding helps nonprofit performance because it ensures most of their contributions go directly toward programs to further missions of nonprofits. Some evidence on this argument is found among higher education institutions in the United States, where higher levels of restricted assets are associated with more financial efficiency (Mensah & Werner, 2003). On the other hand, nonprofit managers often argue that unrestricted funding helps nonprofit performance because it offers nonprofits managerial flexibility to fare well in rapidly changing environments to continue program services. Recent studies using a sample of arts and culture nonprofits in the United States finds that donor-imposed restrictions hinder nonprofit service delivery, that the negative relationship is more pronounced when donations are permanently

24 The starvation cycle describes donors’ overhead aversion that puts nonprofits increasingly under pressure to spend less on necessary capacity expense, which in turn compromises nonprofit performance. 25 Nonprofit performance is a multidimensional concept. According to Willems et al. (2014), it encompasses financial, stakeholder, market and mission performance.

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restricted, and that restrictions decrease nonprofits’ financial flexibility by limiting their efforts to seek other sources of revenue (Hung, 2021; Hung & Berrett, 2021). The second debate is similar to the first one but focuses on the funding of so-called “overhead costs.” Overhead costs are typically defined as all costs not directly related to programs, and are also referred to as “core costs.” Some donors argue overhead costs feature “excessive salaries, numerous perquisites, and unnecessary staff” (Bowman, 2006, p. 292). They expect nonprofits to spend money on program services rather than administrative and fundraising matters. However, nonprofit managers may contend that overhead costs are necessary infrastructure expenses. Only when core costs are covered, nonprofit organizations can work effectively. A recent study finds a positive relationship between the overhead ratio and nonprofit effectiveness, but too much overhead has a diminishing return on nonprofit effectiveness (Berrett, 2021). These findings are of importance to the topic of unrestricted funding because overhead is often the first word that donors think of when it comes to making contributions to nonprofits. Unrestricted funding allows nonprofits to allocate the money over program and organizational expenses as they deem needed. As an alternative, some philanthropic funders assign significant parts of their (restrictive) donations to be spent on overhead costs, or run capacity building programs to support organizational development besides their work on the ground. The third debate is driven by the desire of funders to control alignment of funder and grantee missions and to measure the outcome and/or impact of their funding. Project funding allows for some control and keeping the spending in line with the funder’s mission, but may cause mission drift on the grantee side when organizations follow the priorities of funders. Philanthropy also has become more data-driven in recent decades, with sometimes high expectations on what monitoring and evaluation can accomplish. This often goes together with detailed project descriptions and reporting. While it can be argued that this contributes to a more impactful use of philanthropic funds, reporting requirements can also create an unnecessary

burden for receiving organizations, and limit nonprofits’ scope. The last debate concerns the question of whether nonprofits should pursue commercial revenue if private funders often impose restrictions on contributions to nonprofits. Since restricted funding is common, no matter imposed by private funders or governments, and funders’ aversion toward overhead costs remains high, a strategy for nonprofits to break the starvation cycle is to seek revenue sources that are less restricted such as commercial revenue (Shon et al., 2019). However, despite the less restricted nature of commercial revenue, commercial activities pose some inherent risks. Nonprofits need to hire people with the expertise to conduct commercial activities, since commercial markets are quite different from fundraising markets. Entering commercial markets does not guarantee making profits. Moreover, sometimes unintended consequences such as mission drift might happen when nonprofits overly pursue commercial revenue. Thus, there exists a significant challenge for nonprofits to find a balance between their pursuit of commercial income and donations to effectively fulfill their missions.

The future

As more evidence becomes available to suggest that restricted funding hinders nonprofit performance, that adequate support for core costs is key for effective nonprofits and that commercialization brings new risks to nonprofits, shifting to more flexible funding seems an important development for the future. Moreover, the COVID-19 health crisis is making this shift even more evident. During the pandemic, nonprofits with a high level of restricted funding had more difficulty making necessary adjustments to hedge against uncertainty. Philanthropic funders are increasingly providing more unrestricted, flexible funding to nonprofits. According to Center for Effective Philanthropy, around two-thirds of foundations they surveyed reported that they will continue to provide unrestricted funding at a new, higher level after the pandemic (Buteau, 2021). Although it is not clear how permanent the change towards increasing unrestricted funding will be, it is obvious that foundations and other philanthropic funders are confronted with fundamental questions about overheads, effi-

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ciency, performance, and power dynamics in the nonprofit sector, which makes them re-think the most appropriate allocation of their resources. It is unlikely and undesirable that the nonprofit sector will ever be fully funded by unrestricted funding. Donors may have different valid reasons to restrict their gifts, for example ensuring that only projects are funded which match their strategic priorities. A healthy nonprofit sector is characterized by diversity, not only in types of organizations, employees, volunteers and output, but also in terms of different types of funding streams. ChiaKo Hung, Arjen de Wit and Pamala Wiepking

Related topics

Charitable giving Donor-advised funds Donor choice Endowment Financing nonprofit organizations Grant Operating reserves Planned giving

Further reading and references

Berrett, J. L. (2021). Linking overhead expenses and nonprofit effectiveness: Evidence from habitat for humanity. Nonprofit Management and Leadership, 32(4), 509–530. https://​ doi​ .org/​10​.1002/​nml​.21492 Bowman, W. (2006). Should donors care about overhead costs? Do they care? Nonprofit and Voluntary Sector Quarterly, 35(2), 288–310. https://​doi​.org/​10​.1177/​0899764006287219 Buteau, E. (2021). Supporting the whole nonprofit and research careers in the sector. CEP. https://​ cep​.org/​event/​september​-28​-2021​-supporting​ -the​-whole​-nonprofit​-and​-research​-careers​-in​ -the​-sector/​ Hung, C. K. (2021). Restricted revenues and nonprofit service delivery: The roles of financial discretion. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 32(1), 136–150. https://​doi​.org/​10​.1007/​s11266​ -020​-00286​-7 Hung, C. K., & Berrett, J. (2021). Service delivery under pressure: The effect of donor-imposed financial restrictions. Public Performance & Management Review, 44(3), 580–601. https://​ doi​.org/​10​.1080/​15309576​.2021​.1916546 Mensah, Y. M., & Werner, R. (2003). Cost efficiency and financial flexibility in institutions of higher education. Journal of Accounting and

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Public Policy, 22(4), 293–323. https://​doi​.org/​ 10​.1016/​s0278​-4254(03)00036​-x Rendon, J. (2020). Nonprofits led by people of color win less grant money with more strings. Chronicle of Philanthropy. www​.philanthropy​ .com/​article/​nonprofits​-led​-by​-people​-of​-color​ -win​-less​-grant​-money​-with​-more​-strings​ -study/​ Shon, J., Hamidullah, M. F., & McDougle, L. M. (2019). Revenue structure and spending behavior in nonprofit organizations. The American Review of Public Administration, 49(6), 662–674. https://​doi​.org/​10​.1177/​ 0275074018804562 Wiepking, P., & De Wit, A. (2020). Unrestricted impact: Field note on a mixed-method project studying the effects of unrestricted funding on grantees’ organisational and project impact. International Review of Philanthropy and Social Investment, 1(1), 97–98. http://​doi​.org/​ 10​.47019/​IRPSI​.2020/​v1n1a11 Willems, J., Boenigk, S., & Jegers, M. (2014). Seven trade-offs in measuring nonprofit performance and effectiveness. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 25(6), 1648–1670. https://​doi​.org/​10​.1007/​s11266​-014​-9446​-1

Retrenchment strategies Definition

Retrenchment, also sometimes referred to as cutback management, downsizing, or down scoping, is a term describing firms’ strategies on cost and asset reductions as a response to financial downturns or a turbulent external environment (Robbins & Pearce, 1992).

Context

Retrenchment strategies are often taken by firms when they encounter or project a difficult or shrinking economic environment, such as economic recession or major decline of sales due to the changing strategies of competitors or technological transformations. In the nonprofit management context, retrenchment strategies are also likely to be driven by government budget cuts as nonprofits may rely heavily on government funding or their beneficiaries rely heavily on government assistance. Compared to their for-profit counterparts, retrenchment presents unique challenges for nonprofit organizations as government budget cuts or economic

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downturns often present a revenue shock and stimulate more service demands simultaneously (Cheng & Yang, 2019). They need to make a strategic decision regarding their survival and mission attainment. Retrenchment strategies for nonprofit organizations can include tactics related to financial management, human resources, outreach, programs and services, and management and leadership (Searing et al., 2021). While they are commonly referred to as cutback management or short-term adaptation strategies for a shrinking resource environment, they can present unique opportunities for nonprofit organizations to envision new service roles and start the strategic reorientation or turnaround process. Retrenchment strategies need to be an integral part of an organization’s strategic management process.

In practice

In the nonprofit management context, based on the main revenue sources of specific nonprofits, retrenchment may look different compared to for-profit firms. When a nonprofit relies on commercial income, retrenchment strategies look similar to for-profit firms. In these cases, their main customers are also their main fund contributors. However, when a nonprofit relies on government contracts or donations, there is an indirect relationship between funders and beneficiaries. When an economic crisis hits or the government cuts its budget, oftentimes, the demand from the beneficiaries increases while the resources from the funders decrease (Cheng & Yang, 2019). Therefore, nonprofits need to strategically adjust to not only ensure their survival but also address those needs that surface from the changing economic or political environments. In other words, retrenchment strategies should go beyond financial management and tie closely to changing strategic priorities of nonprofit organizations. Bielefeld (1992) took the first systematic look at retrenchment strategies employed by nonprofit organizations and how they may help address funding uncertainty (Bielefeld, 1992). He specifically listed multiple tactics nonprofits have commonly used to reduce the internal cost to offset the loss of funding, namely increasing workload of existing staff, more use of volunteers and part-time staff, not filling staff vacancies, reducing administrative support staff, eliminating services

or programs, reducing service levels, salary freezes or reduction, reducing workweek for paid staff, reducing staff training, and reducing staff benefits. While these classic tactics of retrenchment may help nonprofit organizations in the short term, extreme cautions need to be applied as they may create unexpected or longer-term problems for the organizations, such as staff burnout and mission drift. Because nonprofit organizations often have a small overhead ratio, as per the requirements of funders and donors, employing these tactics without a careful assessment may aggravate the nonprofit starvation cycle – “a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses” (Lecy & Searing, 2015, p. 539). Retrenchment strategies that are conceptualized narrowly or prematurely by nonprofit managers are likely to direct their organizations to this worrisome trend. Based on the above discussions, retrenchment strategies for nonprofit organizations must be combined with new revenue strategies and strategic reorientation. In the context of parks and recreation services, scholars have found that park-supporting nonprofits increase their fundraising efforts and diversify revenue portfolios when they face incremental government budget cuts on those services. These strategies help them maintain the level of services in an uncertain funding environment, without necessarily jeopardizing their internal organizational infrastructure. While borrowing and using reserves can also be financial management alternatives for nonprofits in such contexts, they are less often utilized by nonprofit organizations. Organizational disinvestments, or reducing administrative expenses, are activated when these nonprofits face a dramatic government budget cut (Cheng & Yang, 2019). Because of the recent development of new information technologies and the constraints presented by the COVID-19 pandemic, digitization and increasing utilization of social media and online platforms present new opportunities for nonprofit organizations. They prove to be effective strategies nonprofits could use to scale up their existing service provision or reach new clients without a huge upfront investment (Cheng et al., 2021). While in the strict sense, they are not classic retrenchYuan (Daniel) Cheng and Shuyi Deng

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ment strategies, nonprofit managers need to actively align the organizations’ missions with these alternative strategies and creatively transform environmental constraints and threats to opportunities.

A framework of assessing retrenchment strategies

When nonprofit managers develop and implement retrenchment strategies, the following practices should be taken to make sure that retrenchment is necessary, effective, and equitable. ● Consulting and engaging key stakeholders. When nonprofit managers notice that retrenchment might be needed, they should first consult with key stakeholders of the organization, especially those who will be affected by the retrenchment. Unlike for-profit firms with clear ownership, nonprofit organizations are usually accountable for multiple groups of stakeholders (Frumkin, 2002). Therefore, consulting and engaging key stakeholders is especially important for nonprofits when it comes to critical strategic decisions such as retrenchment. Such stakeholders of nonprofits might include but are not limited to funders, board members, executive leaders, staff members, clients /beneficiaries/members of the organization, and local community leaders. ● Necessity analysis. Before making detailed retrenchment plans, nonprofit managers should carefully analyze the difficulties they are facing and the alternatives to retrenchment to make sure that retrenchment is truly necessary. For example, a previously underexplored funding source might be sufficient to make up for the decreased income. Or a reduction in hours worked by existing staff or salaries cut might be viable alternatives to layoff. Oftentimes, innovative alternatives might come up from wide consultancy with stakeholders. ● Clear goals of retrenchment. The retrenchment plans should be very clear on the nature and goals of retrenchment, whether they will be a turnaround from previous bad decisions, a temporary arrangement to help the organizations survive a difficult time, or a long-term strategy to re-structure and re-orient the Yuan (Daniel) Cheng and Shuyi Deng

organizations. Clear goals will guide the design and implementation of retrenchment plans, ensuring that the retrenchment is effective. As discussed above, unspecified goals or illy aligned retrenchment strategies might lead the nonprofit to a worsening situation. ● Strategic retrenchment. When designing retrenchment strategies, nonprofit managers should carefully evaluate the mission, resources, and competencies of the organization and strategically select what programs and how much of those programs to cut. An across-the-board approach to retrenchment might seem straightforward and easy to implement. But it can also lead to the loss of comparative advantages of the organization and further disadvantage the organization during a difficult time. ● Equity analysis. Retrenchment inevitably brings harm (e.g., loss of jobs) to some people. Nonprofit managers should be transparent about the selection criteria regarding who and what will be retrenched. Additional attention should be paid to whether some groups are unfairly affected by the retrenchment, especially the disadvantaged groups along the lines of gender, race, ethnicity, age, religion, disability, and so forth. Because of the critical roles nonprofits play in serving and empowering underprivileged people, nonprofit managers must take equity and the distributional impacts of retrenchment strategies seriously when designing such tactics.

The future: Combining retrenchment strategies with strategic reorientation and restructuring

Periods of retrenchment, if wisely leveraged, are opportunities for strategic reflection, restructuring, and mapping pathways to recovery or transformation. It means re-evaluating the skill sets, competencies, and perspectives required at all levels of the organization (from line staff to management to board members) to fit a culture of adaptability and innovation. It means removing deadwood from boards of directors and ensuring that those who remain have accountability for both their fiduciary responsibilities

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and their obligations regarding institutional support. It means creating a new balance of power between boards and executives and limiting the ability of boards to go rogue or dysfunctional. It means openness to strategic alliances or consolidations that add value to the customers and the community, even if it entails absorption. It means curtailing strategic planning processes that are neither strategic nor planful but operating with active entrepreneurialism. If there is an overarching principle that should frame executive policy and action, particularly in hard times, it is not solely to preserve operational and programmatic continuity and quality but also to reposition, redesign, and reallocate resources in ways that serve the common good and the organization’s strategic purpose. Yuan (Daniel) Cheng and Shuyi Deng

Related topics

Growth strategies Lifecycles of nonprofit organizations Resilience management Service portfolio analysis Strategic analysis: SWOT Strategic human resource management Strategic planning

Further reading and references

Bielefeld, W. (1992). Funding uncertainty and nonprofit strategies in the 1980s. Nonprofit Management and Leadership, 2(4), 381–401. https://​doi​.org/​10​.1002/​nml​.4130020406 Cheng, Y. (D.), & Yang, L. (K.) (2019). Providing public services without relying heavily on government funding: How do nonprofits respond to government budget cuts? The American Review of Public Administration, 49(6), 675–688. https://​doi​.org/​10​.1177/​0275074018806085 Cheng, Y. (D.), Wang, X., & Zhang, X. (2021). System shock: Nonlocal grassroots response to Covid-19 at ground zero, Wuhan. Nonprofit Quarterly. https://​nonprofitquarterly​.org/​ system​-shock​-nonlocal​-grassroots​-response​-to​ -covid​-19​-at​-ground​-zero​-wuhan/​. Accessed 15 Sep 2023. Frumkin, P. (2002). On being nonprofit: A conceptual and policy primer. Harvard University Press. Lecy, J. D., & Searing, E. A. M. (2015). Anatomy of the nonprofit starvation cycle. Nonprofit and

Voluntary Sector Quarterly, 44(3), 539–563. https://​doi​.org/​10​.1177/​0899764014527175 Robbins, D. K., & Pearce, J. A. (1992). Turnaround: Retrenchment and recovery. Strategic Management Journal, 13(4), 287–309. https://​ doi​.org/​10​.1002/​smj​.4250130404 Searing, E. A., Wiley, K. K., & Young, S. L. (2021). Resiliency tactics during financial crisis: The nonprofit resiliency framework. Nonprofit Management and Leadership, 32(2), 179–196. https://​doi​.org/​10​.1002/​nml​.21478

Revenue diversification Definition

The concept of diversification originates from the modern portfolio theory (MPT), which provides a framework for investors to select efficient portfolios under uncertainty (Markowitz, 1959). Under this framework, the complex problem of constructing an investment portfolio from various assets with different risk-return properties is conceptualized as a two-dimensional problem, that is, balancing the expected return and risk of the whole portfolio given an investor’s preferences. The goal of portfolio diversification is to select a mix of different assets so that the negative performance of some assets can be offset by the positive performance of others, thus reducing the overall risk of the whole portfolio. The idea of diversification has also been adapted by nonprofit scholars and practitioners. Nonprofit organizations are recommended to have multiple revenue streams instead of depending on one. The logic of revenue diversification is simple and straightforward: when one revenue stream dries up, an organization has other revenues to fall back on.

In practice

Based on the notion that having multiple revenue streams helps a nonprofit to mitigate financial risks, and ultimaltely to continously fulfill its mission, revenue diversification has long been suggested as a key indicator for nonprofit financial health (Tuckman & Chang, 1991). Plenty of empirical studies have shown that organizations with multiple revenue sources experience less financial vulnerability (Tuckman & Chang, 1991) and Heng Qu

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lower revenue volatility (Carroll & Stater, 2009), thus increasing financial flexibility and stability. A recent meta-analysis of 40 studies reports a small but significantly positive association between revenue diversification and nonprofit financial health (Hung & Hager, 2019). Besides the financial health benefits, revenue diversification has also been recommended as a strategy to reduce resource dependence on any single revenue source and enhance organizational autonomy (Froelich, 1999). Moreover, having multiple revenue streams can help nonprofits to increase connection with and recognition in a community (Bielefeld, 1992). However, some nonprofit practitioners and scholars have also cast caution to nonprofit revenue diversification. There is growing empirical evidence that points to the advantages of revenue concentration instead. Seeking and managing multiple revenue sources while remaining true to the organizational mission requires greater organizational capacity and management sophistication, as well as considering transaction costs in calculating net benefits. Noting that higher rewards come with higher costs, Frumkin and Keating (2011) found that nonprofits with higher revenue concentration, often those relying on earned income funded by government contracts, had lower administrative and fundraising expenses. Grønbjerg (1992) found that human service organizations reliant on funding from government or other institutions, which provided greater predictability and organizational control than donations, were more successful in terms of surpluses and fund balances. Others reported that revenue concentration, rather than diversification, was associated with revenue growth over time (Chikoto & Neely, 2013; Foster et al., 2009).

Current and future directions

Since the early 1990s, scholarly inquiry has largely focused on whether it is more beneficial for nonprofits to have more diversified than concentrated revenue streams. Most empirical studies use the Herfindahl-Hirschman Index (HHI) as a measure of revenue diversification. According to this measure, a nonprofit’s revenue mix becomes more diversified as the number of revenue sources increases and/or the shares of revenue sources in total revenue become more equal (Chang & Tuckman, Heng Qu

1994). Recent scholarship has started reflecting the limitations of this measure, suggesting that HHI leaves out some important complexities of revenue diversification (Qu, 2019). First, the HHI approach implies that the benefits of revenue diversification can be achieved by simply acquiring additional revenue streams, however, the nature of each revenue stream also matters. For example, for nonprofits that rely heavily on donations from the general public, revenue diversification by adding earned income may bring opportunities for greater financial flexibility and organizational control (Froelich, 1999). However, this might not be true for organizations that depend on earned income and seek diversification by adding donations. Second, the HHI approach does not consider the transaction costs associated with acquiring and managing additional revenue sources. Research has shown that there is a tradeoff between efficiency and stability. Nonprofits with greater revenue diversification are found to experience lower operating efficiency (Frumkin & Keating, 2011). Additional complications come from the mission implications of each revenue source and potential interactions among revenue sources, that is, whether one revenue source may crowd out another. Therefore, despite its simplicity of use, the HHI approach is limited in capturing the complexity of nonprofit revenue composition. More recent studies tend to challenge the positive association between HHI and nonprofit financial health outcomes. Some scholars have started reflecting on the usefulness of HHI itself. Chikoto et al. (2016) demonstrated that the relationship between HHI and financial health (i.e., revenue volatility and growth) is sensitive to the number of revenue categories used to calculate the index. Kim (2017) noted that HHI may obscure important distinctions between donative and commercial nonprofits, which face different funding opportunities and constraints. Different from the dichotomous view of revenue diversification versus concentration, some scholars, through more direct applications of MPT, have suggested that nonprofits should focus on choosing an optimal mix of revenue sources in supporting their missions given resource constraints (Grasse et al., 2016; Kingma, 1993; Qu, 2016, 2019). The MPT approach offers two important insights

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about diversification that are not operationalized via HHI (Qu, 2019). First, in contrast to HHI, portfolio theory implies that diversification does not necessarily reduce portfolio risk by simply adding more assets, because “[o]ne hundred securities whose returns rise and fall in near unison afford little more protection than the uncertain return of a single security” (Markowitz, 1959, p. 5). Instead, a well-diversified portfolio is composed of assets whose returns have low or negative correlations with each other so that when one source declines, there is a good chance that another will increase. Therefore, mitigating the risk of a portfolio requires considering not only the variance of returns on each individual asset in the portfolio, but also the pairwise correlations between asset returns. Likewise, a well-diversified nonprofit revenue mix should consist of income sources that are not too highly correlated with each other so that, for example, when individual donations decrease, other income sources do not decline or perform worse. Second, the MPT approach acknowledges there is a tradeoff between expected return and risk, and portfolio selection involves considerations of both. Given their preferences, investors can deliberately choose efficient portfolios that minimize the portfolio risk for a level of expected return or maximize the expected return given a level of risk tolerance. This explains the seemingly mixed findings from prior empirical studies: having more diversified revenue sources is associated with lower revenue volatility (i.e., lower risk) and also lower revenue growth (i.e., lower return). Applying MPT to nonprofit revenue composition, Kingma (1993) developed a model in which the objective of nonprofit managers is to choose the optimal revenue mix that minimizes unpredictable changes in revenue sources (or risk) while generating an expected level of return to provide services. To achieve this goal, nonprofit managers must consider the return on each revenue stream, the variance of the returns on each revenue stream, and the covariances between them. In particular, revenue diversification works by carefully selecting revenue sources, the returns on which do not rise and fall together all the time. Later, Jegers (1997) expanded Kingma’s model by introducing

nonprofit managers’ risk preferences to the choice of optimal revenue combinations. Building on Kingma’s model, subsequent research used Form 990 data to estimate the return-risk covariance properties of nonprofit revenue sources at the subsector level, and use the information to identify theoretically optimal portfolios for arts nonprofits (Grasse et al., 2016) and other subsectors (Qu, 2016). Both studies have shown that revenue diversification as measured by lower levels of HHI does not always correspond with theoretical efficiency. Qu (2019) further examined to what extent HHI is reflective of the diversification concept from portfolio theory at the organizational level, and found no generalizable pattern of association between HHI and portfolio risk across all nonprofits. Rather, the nature of the association varied by an organization’s primary funding mechanism. While higher revenue concentration is positively associated with portfolio risk for organizations relying on donations or those without a consistent primary funding source, it appears to associate with a lower portfolio risk for commercialized nonprofit organizations, like health care institutions, and those relying on government grants. The above-mentioned scholarship signals a shift from focusing on the outcomes of nonprofit revenue diversification (or concentration) to the ways in which nonprofits can optimize revenue mixes to achieve their missions. As future research continues to explore the conceptual contributions of portfolio theory to nonprofit revenue composition, it is important to be mindful of some complications when applying portfolio theory to the nonprofit setting (Qu, 2019). For example, while investors can determine the proportion of assets and begin with an optimal portfolio, nonprofit managers can only hope to end with the expected optimal revenue composition after they receive funds from each revenue source (Jegers, 1997). In this sense, portfolio theory may not be used prescriptively but more diagnostically. Portfolio theory offers important guidance for nonprofit managers to evaluate current revenue composition and plan for any necessary changes in the long term. As noted by Kingma (1993), “[w]hile the managers of nonprofit organizations may be limited in their ability to influence the sources of revenues in the short run, a change … can be developed over time” (p. 118). Heng Qu

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Furthermore, while the return-risk properties associated with an asset are the same for all investors, the properties of a nonprofit revenue source may vary across different nonprofits. For example, managers from different art museums may expect different returns on donations due to some organization-specific factors, such as the nature and size of the donor pool. Therefore, suggestions on an optimal nonprofit revenue composition should consider an organization’s funding environment, such as subsector and primary funding structure. Besides, there are other important factors that constrain the choice of nonprofit organizations. Research finds that the revenue mix of a nonprofit is determined by the nature of the services it provides (Fischer et al., 2011) and influenced by stakeholders’ perspectives (Kearns, 2007). Therefore, nonprofits should choose revenue portfolios that reflect more than just financial management concerns (e.g., feasibility, interactions, solvency, risk, mission) (Young, 2007). At the minimum, future scholarly inquiry should avoid equating having multiple revenue sources to revenue diversification. It perhaps would be a fruitful path to use portfolio theory to reflect on the concept of diversification, in particular, to incorporate more detailed information of revenue sources in considering revenue diversification. It is also important to acknowledge that not all organizations, restricted by different internal and external factors, can diversify their funding to the same degree. Rather than focusing on the outcomes of having a more diversified or concentrated revenue mix, future research should continue to conceptualize what is an optimal revenue mix given the specific context surrounding an organization, as well as what are the organizational and environmental factors shaping an organization’s choice of a revenue mix. Heng Qu

Related topics

Earned income Financial performance indicators Financial ratios Financing nonprofit organizations Income portfolio analysis Resilience management

Heng Qu

Further reading and references

Bielefeld, W. (1992). Non-profit-funding environment relations: Theory and application. Voluntas, 3(1), 48–70. https://​doi​.org/​10​.1007/​ bf01398026 Carroll, D. A., & Stater, K. J. (2009). Revenue diversification in nonprofit organizations: Does it lead to financial stability? Journal of Public Administration Research and Theory, 19(4), 947–966. https://​doi​.org/​10​.1093/​jopart/​ mun025 Chang, C. F., & Tuckman, H. P. (1994). Revenue diversification among non-profits. Voluntas, 5(3), 273–290. https://​doi​.org/​10​.1007/​ bf02354036 Chikoto, G. L., & Neely, D. G. (2013). Building nonprofit financial capacity. Nonprofit and Voluntary Sector Quarterly, 43(3), 570–588. https://​doi​.org/​10​.1177/​0899764012474120 Chikoto, G. L., Ling, Q., & Neely, D. G. (2016). The adoption and use of the Hirschman– Herfindahl Index in nonprofit research: Does revenue diversification measurement matter? VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 27(3), 1425–1447. https://​doi​.org/​10​.1007/​s11266​ -015​-9562​-6 Fischer, R. L., Wilsker, A., & Young, D. R. (2011). Exploring the revenue mix of nonprofit organizations: Does it relate to publicness? Nonprofit and Voluntary Sector Quarterly, 40(4), 662–681. https://​doi​.org/​10​.1177/​ 0899764010363921 Foster, W. L., Kim, P., & Christiansen, B. (2009). Ten nonprofit funding models. Stanford Social Innovation Review, 7(2), 32–39. https://​doi​.org/​ 10​.48558/​E9AC​-JA59 Froelich, K. A. (1999). Diversification of revenue strategies: Evolving resource dependence in nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 28(3), 246–268. https://​doi​.org/​10​.1177/​0899764099283002 Frumkin, P., & Keating, E. K. (2011). Diversification reconsidered: The risks and rewards of revenue concentration. Journal of Social Entrepreneurship, 2(2), 151–164. https://​doi​.org/​10​.1080/​19420676​.2011​.614630 Grasse, N. J., Whaley, K. M., & Ihrke, D. M. (2016). Modern portfolio theory and nonprofit arts organizations. Nonprofit and Voluntary Sector Quarterly, 45(4), 825–843. https://​ doi​ .org/​10​.1177/​0899764015603204 Grønbjerg, K. A. (1992). Nonprofit human service organizations funding strategies and patterns of adaptation. In Y. Hasenfeld (Ed.), Human services as complex organizations (pp. 73–97). Sage. Hung, C. K., & Hager, M. A. (2019). The impact of revenue diversification on nonprofit financial health: A meta-analysis. Nonprofit and

R 505 Voluntary Sector Quarterly, 48(1), 5–27. https://​doi​.org/​10​.1177/​0899764018807080 Jegers, M. (1997). Portfolio theory and nonprofit financial stability: A comment and extension. Nonprofit and Voluntary Sector Quarterly, 26(1), 65–72. https://​doi​.org/​10​.1177/​ 0899764097261006 Kearns, K. (2007). Income portfolios. In D. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 291–314). AltaMira Press. Kim, M. (2017). The relationship of nonprofits’ financial health to program outcomes: Empirical evidence from nonprofit arts organizations. Nonprofit and Voluntary Sector Quarterly, 46(3), 525–548. https://​doi​.org/​10​ .1177/​0899764016662914 Kingma, B. R. (1993). Portfolio theory and nonprofit financial stability. Nonprofit and Voluntary Sector Quarterly, 22(2), 105–119. https://​doi​.org/​10​.1177/​089976409302200202 Markowitz, H. M. (1959). Portfolio selection: Efficient diversification of investments. John Wiley & Sons. Qu, H. (2016). Two essays on nonprofit finance [Unpublished Doctoral dissertation]. Indiana University. Qu, H. (2019). Risk and diversification of nonprofit revenue portfolios: Applying modern portfolio theory to nonprofit revenue management. Nonprofit Management and Leadership, 30(2), 193–212. https://​doi​.org/​10​.1002/​nml​ .21385 Tuckman, H. P., & Chang, C. F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445–460. https://​doi​.org/​10​.1177/​ 089976409102000407 Young, D. R. (2007). Toward a normative theory of nonprofit finance. In D. R. Young (Ed.), Financing nonprofits: Putting theory into practice (pp. 339–372). AltaMira.

Risk management Definitions

Risk is a “measure of the possibility that the future may be surprisingly different from what we expect” (Herman et al., p.7, 2003). It pertains to misfortunes, loss, or damage and opportunities which require risk taking for a reward/return (e.g., investments). Risk has been depicted as a transitory risk event chain or progression from a threat – crisis – disruption – impact. Risk management, or “enterprise risk management” (ERM) as it has been

referred to in for-profits since the 1990s, entails a systematic, integrated, comprehensive, organization-wide approach (versus separatist) to considering all the factors or situations that threaten an organization’s ability to meet its mission. Risk management also involves identifying appropriate response mechanisms, mitigation strategies, or risk management controls that can be implemented to deal with or reduce threats to acceptable levels, based on the organization’s appetite or tolerance for risk. Common risk categories or dimensions include risks associated with: income; property, infrastructure, and equipment; liability/ legal/political issues; people (which includes employee health and safety and volunteer management); reputation and mission, governance and fiduciary duties; serving vulnerable populations; transporting clients; information management and systems; collaborations; climate/weather-related and other natural systems; supply chain; general customer/client services and day-to-day operations. In ERM parlance, these can be grouped into four broad risk types: hazard, financial, operational, and strategic risks. Civilizations have been practicing risk management for thousands of years; it is not new. And so, all organizations exist in complex environments with conditions – expected or not – that are in constant flux. Risk is therefore endemic; it is in every aspect of running an organization, making comprehensive risk management relevant to all nonprofit organizations. All nonprofits are exposed to and encounter different types and levels of risks in their decision-making and day-to-day operations. This aspect makes it challenging to holistically pin down the concept of risk and risk management within the context of nonprofit organizations. Several factors of the nonprofit form (e.g., the absence of a profit maximization bottom line, multi-resource dependences which also imply multi-stakeholders, a heavy reliance on volunteers, the need for robust fundraising programs, and robust accountability requirements) further engender a unique environment for risk compared to for-profit entities. To manage risk, organizations must first identify the types of risks they are vulnerable and exposed to, in the mandate of running their organizations. Grace L. Chikoto-Schultz

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In practice

At the core of any successful risk management practice lies the ability to identify all potential threats to an organization’s well-being, as well as correctly assessing the likelihood of occurrence and consequences (Giorgetto, 2021). Any risk management policy or protocol must therefore address the “risk triplet” – three key sequential questions: (1) what can go wrong?; (2) how likely will the threat occur (improbable, possible, 50–50, probable, or near certain)?; and (3) with what consequences/impact/magnitude (will damage be negligible, minor, moderate, serious, or critical)? These questions seek to minimize uncertainty – a lack of knowledge or information about something. Responses to these questions will naturally vary by organization, given its unique internal and external context. While applying the above risk management framework seems quite straightforward, in practice, identifying all possible threats and all that could go wrong in any organization is quite consuming and exceptionally challenging. Given insufficient financial resources and the lack of risk management expertise within most nonprofits, unlike for-profits, the danger is that those involved in the process of identifying threats might under- or overestimate potential hazards or may fail to acknowledge or may disagree on the gravity of some hazards altogether (e.g., rare but potentially severe earthquakes, or near-term impacts of climate change). Additionally, responding to questions (2) regarding likelihood and (3) regarding consequences requires quality data, a methodology that will provide the required degree of precision, and resource commitments – all of which are not readily available across all nonprofits. Some, therefore, recommend adopting a “facilitated” risk assessment approach that utilizes risk analysts/expertise to address all three questions for the organization, or for each of its departments or programs, to assess contextual risk. Each identified threat/event is then assessed based on its impact on the nonprofit’s ability to function or achieve its core mission. Given the wide range of risk categories, a more detailed risk management process is needed. This entails (a) establishing the context first. This consists of evaluating the nonprofit’s internal and external environGrace L. Chikoto-Schultz

ments, its mission, and its cultural/social, political, technological, and financial frameworks, before embarking on any risk assessment. With the context defined, one proceeds to (b) risk assessment which entails risk identification, risk analysis, and risk evaluation. Risk identification considers what could happen and how risk might manifest? It is about identifying sources of risk (Herman et al., 2003) such as: ● people – clients, workers, and supporters (e.g., the departure or sudden death of key personnel) ● management (e.g., errors that have significant implications on key aspects of the organization, gross misconduct by leadership) ● economic conditions (e.g., a dramatic downturn in the economy) ● political change (e.g., a coup d’état, the election of an oppressive leader) ● technology (e.g., loss of data and critical records, cyber-attacks) ● relationships (e.g., a collaboration or partnership not living up to expectations or that threatens to tarnish the organization’s reputation) ● inherent program issues (e.g., failure to install measures to safeguard the safety of the vulnerable populations such as children, the developmentally disabled, and frail elderly served by the organization, risks of transporting clients) ● natural and human-made hazards (e.g., a tornado or significant earthquake that impacts an organization’s property or causes injury or death to employees, terrorist attacks) ● biological/public health hazards (e.g., swine flu, the COVID-19 or other epidemic). Risk analysis and risk evaluation involves systematically assigning values to potential risks to identify those that need prioritized attention before moving on to (c) risk treatment. In this stage, decisions about how to deal with each risk are made; these can include: ● Risk transference/preparedness, such as buying insurance – however, this strategy does not actually reduce disaster or risk impact, nor does it limit risk/disaster likelihood.

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● Risk mitigation, such as having an up-to-date evacuation plan, securing data and critical records, structural modifications to buildings in case of earthquakes, or installing hand-railings for elderly clients. ● Risk avoidance, such as establishing policy guidelines for vetting potential collaborations or partnerships; adopting a rigorous screening process for daycare/ preschool workers. ● Risk acceptance – when no mitigation options are selected or accepting certain risks as-is because reduction measures are too costly or unnecessary. Once steps one to three are in place, organizations would then move to implementation, monitoring, and review to gauge progress and make adjustments and adaptations in case circumstances have changed. At a minimum, risk management policies and comprehensive risk management plans should be reviewed annually. Sometimes, abnormal situations or critical events beyond the scope of everyday business can suddenly occur, creating uncertainty that threatens the organization’s processes, operations, and functions, or its reputation, image, or identity (e.g., COVID-19 pandemic, or a tornado that damages part of a nonprofit’s building). In such cases, crisis management is applied or activated to minimize the critical event’s potential impact. Seamless activation, however, requires continuity of operations or contingency plans to already be in place. These contain measures designed to enable the organization to cope with sudden emergencies or crises to facilitate a quick return to normal business routines. Such preparedness is meant to control the crisis, reduce negative impacts, minimize loss, and for organizational learning to prevent future incidents.

Current and future directions

The general view among experts is that very few nonprofits have adopted any risk management practices, and that the vast majority lack understanding or are unable to put the risk management principles into practice. What little risk management that has been deployed within some nonprofits has been applied to their financial condition, vulnerability, and health, using financial ratios. This has been in response to three sources

of financial risk observed from studying for-profit organizations; market risk (relates to economic and financial threats), industry or mission-specific risk (threats in specific industries), and firm-level risk (unique to each individual organization). Hence, focus has ranged from discussions around managing the risk-return associated with investment income, the risks associated with debt financing, guidance on nonprofits’ income portfolio decisions, including rationales for revenue diversification, and the need for establishing a contingency fund to mitigate against unexpected financial shortfalls or for responding to emergencies. Attention to financial or economic risk is understandable since without sufficient financial resources, most nonprofits’ missions, programming, and advocacy are hindered. However, other nonfinancial dimensions of risks can also cripple nonprofits and result in grave financial consequences that drive them out of business. Having insurance coverage is only one component of risk management. Nonprofit leaders/boards should educate themselves on all types of risks, how each affects their organizations, and devise strategies to mitigate and manage each one. In other words, nonprofits need to engage in comprehensive and integrated risk assessment and management to protect themselves not only from financial or economic risks, but also the other dimensions of risks noted above. Nonprofits should also consider the positive or opportunity side of risk more intently. This side is concerned with strategically evaluating the risk-rewards/return associated with alternative ways of implementing one’s mission and addressing social problems, such as designing experimental or innovative social programs to tackle complex social problems, establishing carefully thought-out partnerships with other organizations, or spinning off various types of social enterprise. Who should participate in the risk management process? Executive leadership commitment, resulting in risk management policies and protocols, is essential to creating a risk management culture within nonprofit organizations. This ought to be coupled with offering risk management training, assigning responsibility, and committing financial and human resources for managing risk. Nonprofits can set up risk management teams Grace L. Chikoto-Schultz

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or committees comprising of a risk analyst or risk manager, board members, the executive director, internal staff, and volunteers, in addition to seeking insurance, legal, and financial advice from experts in those fields – although this will vary by organization type and size. Even small organizations can follow most of these principles, with the assistance of knowledgeable volunteers or board members. To protect the organization and all its assets, organization-wide risk management knowledge and culture is necessary. Overall, more research and organizational training around nonprofit enterprise risk management is needed in the nonprofit field. Grace L. Chikoto-Schultz

Related topics

Crisis management Financing nonprofit organizations Resilience management

Further reading and references

Association of International Certified Professional Accountants (AICPA). (2018). Practice aid: Enterprise risk management: Guidance for

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practical implementation and assessment. John Wiley & Sons. Domański, J. (2016). Risk categories and risk management processes in nonprofit organizations. Foundations of Management, 8(1), 227–242. https://​doi​.org/​10​.1515/​fman​-2016​-0018 Feiler, J., & Nayowith, G. B. (2017). The nonprofit risk book: Finding and managing risk in nonprofits and NGOs. Walter de Gruyter Inc. Giorgetto, S. A. (2021). Risk and crisis management: An overview. Business and Management Sciences International Quarterly Review, 12(1), 1–12. http://​doi​.org/​10​.13132/​2038​-5498/​12​.1​ .1​-12 Herman, M. L., Head, G. L., Jackson, P. M., & Fogarty, T. E. (2003). Managing risk in nonprofit organizations: A comprehensive guide. John Wiley & Sons, Inc. Hunziker, S. (2021). Enterprise risk management: Modern approaches to balancing risk and reward. Springer Gabler. Nonprofit Risk Management Center. (n.d). https://​ nonprofitrisk​.org. Themudo, N. S. (2013). Nonprofits in crisis: Economic development, risk, and the philanthropic Kuznets curve. Indiana University Press. Young, D. R. (2009). How nonprofit organizations manage risk. In S. Desterfanis & M. Musella (Eds.), Paid and unpaid labour in the social economy: An international perspective (pp. 33–46). Physica-Verlag.

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Sarbanes-Oxley Act Definition

The Sarbanes-Oxley Act of 2002, commonly referred to as Sarbanes-Oxley, Sarbox, or SOX, is a US law enacted on July 30, 2002, in response to several public company scandals in the late 1990s and early 2000s. It was named after its sponsors, Senator Paul Sarbanes (D-MD) and Representative Michael Oxley (R-OH). The Act introduced various corporate governance reforms aimed at promoting corporate transparency, responsibility, and accountability, improving audit quality, and restoring investor confidence.

In practice

Most of SOX’s provisions apply only to publicly traded corporations. However, two provisions of SOX apply to all organizations, including nonprofit organizations. These provisions relate to whistleblower protection and document destruction. Under Section 1107 of the Act, it is a criminal offense to retaliate against persons for providing information to law enforcement related to the commission of a Federal offense with violators to be fined and/or imprisoned up to ten years. Under Section 802 of the Act, it is a crime to purposefully destroy, alter, or falsify records in Federal investigations and bankruptcy, with violators to be fined and/or imprisoned up to 20 years. In response to these provisions, many nonprofits have adopted written whistleblower and document retention and destruction policies. Many nonprofits have also incorporated additional provisions of the Act, either voluntarily or as a result of state legislation. SOX inspired much of the nonprofit legislation proposed and enacted, and many of the nonprofit good governance practices recommended, since the early 2000s, including the

California Nonprofit Integrity Act of 2004, the Panel on the Nonprofit Sector’s (2005) Strengthening the transparency, governance, and accountability of charitable organizations report issued to Congress, and the Panel on the Nonprofit Sector’s (2007, 2015) Principles for good governance and ethical practice: A guide for charities and foundations. Additionally, Form 990, an informational return the Internal Revenue Service (IRS) requires nonprofits to file annually, was revised in 2005 and 2008, adding several questions based upon provisions of the Act. These include the following: ● if the organization has written policies related to conflicts of interest, whistleblowing, and document retention and destruction; ● how many members compose the governing body; ● how many members of the governing body are independent; ● if the organization provides its governing body with a copy of the 990 before it is filed; ● if the organization’s financial statements are audited; ● if the organization has an audit committee; and ● how the organization determines executive compensation. In a 2010 speech to The Council for NonProfit Accountability Summit, former representative and co-sponsor of SOX, Michael Oxley, applauded the efforts of the nonprofit sector to incorporate SOX-like principles into its governance policies.

Current issues and challenges

Opinions are mixed in the nonprofit sector regarding whether the benefits of nonprofits adopting SOX-like provisions outweigh the costs, especially for small and medium-sized

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nonprofits. Potential benefits of implementing SOX-like reforms include projecting an image of credibility and integrity to organization stakeholders, improving operations and financial reporting practices, strengthening controls and board oversight, and attracting more resources due to enhanced reputation. Common criticisms associated with nonprofits adopting SOX-like provisions include high costs of implementation, which will, in turn, result in a decrease in fulfillment of the nonprofit’s mission, difficulty in recruiting individuals willing to serve as board members or officers due to increased responsibilities and time commitments, and lack of effectiveness or applicability in the nonprofit sector. Despite such criticisms, few would argue that having a good governance structure in place is essential for nonprofits of all sizes, and many in the sector looked to SOX for determination of nonprofit governance best practices when pressure to increase accountability and transparency trickled down from the corporate world to the nonprofit sector. Recommended SOX-related best practices for nonprofit governance commonly include performance of an outside audit, formation of an independent audit committee, inclusion of individuals with financial literacy on governing boards, periodic rotation of auditors, review of financial statements by the CEO and CFO, preparation of conflict of interest, whistleblowing, and document retention and destruction policies, adoption of a code of ethics, and establishment and assessment of internal controls. Certain of these best practices, such as performance of a financial statement audit by an independent auditor and establishment and assessment of internal controls, can be quite costly, especially for smaller nonprofits. With many smaller nonprofits already severely resource-strapped, implementing such practices may be viewed by these organizations as cost-prohibitive. Other SOX-related best practices, such as a code of ethics and written policies for whistleblowing and document retention and destruction, require very little investment but provide the nonprofit with a high degree of protection. The passage of SOX, along with several high-profile nonprofit financial scandals discovered around the same time, served as a wake-up call to the nonprofit sector to review and reform its governance practices. Sarah A. Garven

Although nonprofits are not expected or required to fully comply with SOX, nonprofit governing boards and managers, as part of their fiduciary duty, should examine the SOX provisions as well as their organizations’ current governance practices to determine which provisions of SOX it makes the most sense to implement based on their needs and resources. Smaller nonprofits may sometimes have to make the difficult decision between implementing certain best practices for governance and providing a high level of services. Recognizing the hardship that some provisions would entail for smaller nonprofits, state laws and recommended best practices for nonprofit governance often set a revenue threshold for implementing various governance practices. Although smaller nonprofits may not be able to implement best practices to the same extent as larger nonprofits, many of these practices can be adapted or phased in. For example, internal controls can be gradually implemented, and rather than an audit, the organization may have its financial statements compiled or reviewed by a CPA. Regardless of the organization’s size, the support and active involvement of the organization’s governing board and managers will be central to the successful implementation of these best practices.

The future

Despite initial concerns that SOX would be mandatorily applied to the nonprofit sector, two decades later, that has not proven to be the case. Several states proposed or enacted SOX-modeled reforms, but only California successfully implemented comprehensive accountability reform. However, that does not mean nonprofits should be lax concerning good governance practices. A proactive and voluntary approach to nonprofit governance reform is advisable because the possibility still exists that if the nonprofit sector demonstrates it cannot regulate itself, then the government may intervene and require SOX-like legislation. For those nonprofits with good governance practices already in place, the potential impact of any future governance legislation is likely to be less pronounced. However, those nonprofits that have not taken governance reform seriously are currently putting their organizations at significant risk and facing major alterations

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and disruptions in practices if SOX-like legislation is realized. Sarah A. Garven

Related topics

Accountability Audit Chief executive officer: Compensation Fraud and corruption Governing board: Responsibilities Watchdog organizations

Further reading and references

ABA Coordinating Committee on Nonprofit Governance. (2005). Guide to nonprofit corporate governance in the wake of Sarbanes-Oxley. American Bar Association. BoardSource and Independent Sector. (2006). The Sarbanes-Oxley Act and implications for nonprofit organizations. https://​sps​.columbia​ .edu/​sites/​default/​files/​2020​-11/​SarbanesOxley​ .BoardSource​ .pdf. Accessed 15th September 2023. Jackson, P., & Fogarty, T. (2005). Sarbanes-Oxley for nonprofits: A guide to building competitive advantage. John Wiley & Sons, Inc. Panel on the Nonprofit Sector. (2005). Strengthening transparency, governance, and accountability of charitable organizations. www​.lawrenceassociates​.com/​pdfs/​Panel​%20on​ %20the​%20Nonprofit​%20Secto​_Final​_Report​ .pdf. Accessed 15th September 2023. Panel on the Nonprofit Sector. (2007). Principles for good governance and ethical practice: A guide for charities and foundations. www​.ncfp​ .org/​wp​-content/​uploads/​2019/​01/​Principles​ -Guide​-Independent​-Sector​-2007​-principles​-for​ -good​-governance​-and​-ethical​-practice​.pdf Panel on the Nonprofit Sector. (2015). Principles for good governance and ethical practice: A guide for charities and foundations (2nd edn.). Independent Sector. https://​ independentsector​ .org/​wp​-content/​uploads/​2016/​11/​ Principles2018​-Final​-Web​.pdf. Accessed 15th September 2023. US Congress. Sarbanes-Oxley Act of 2002. Public Law 107–204 [H.R.3763]. (2002). Government Printing Office.

Self-help groups Research into nonprofit management, leadership, and governance tends to focus on those entities that are formally organized, with

formal processes and paid staff, and overlook various types of self-help groups and the important contribution they make within the nonprofit sector.

Defining a self-help group

Self-help groups (SHGs) are found in a wide and varied range of areas that span physical illnesses and mental health to social and economic issues. These single-issue, small groups of organizations are diverse in their form, function, and focus, which makes an agreed definition problematic. Instead, core characteristics are largely agreed upon as features indicative of a SHG. These include: Shared situation or condition In a SHG members come together in response to a shared condition or situation and regularly meet either face-to-face or online. Many groups are formed due to members’ frustration and limited support from mainstream services. The knowledge base of a SHG is thus rooted in the experiential and is an integral characteristic that distinguishes these groups from professionally led support groups. Member managed or led Unlike professionally run support groups the running and organization of a SHG is predominately held by its members, making them largely self-regulating and self-governing entities run by its members for its members. Professionals and anyone who does not share the same condition or situation is thus invited into the group on the group’s terms. Voluntary membership Attendance and leadership of a SHG is entirely voluntary and non-paid. Informality typifies the structures of most SHGs, although affiliation to a wider charity or nonprofit organization can influence the informality of SHGs organizational approach. Mutual support A defining feature of a SHG is its emphasis on members resolving or improving their own shared situation or condition through reciprocal peer support. These reciprocal peer relationships mean it is both desirable and possible for group members to combine the role of giver and receiver of mutual support Melanie Boyce

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and is a central feature that differentiates SHGs from professionally run groups.

In practice Development and expansion of SHGs Present-day single issue SHGs are attributed to the founding of Alcoholics Anonymous (AA) in the USA in the early 1930s, but it was some 30 years later that their growth expanded within North America and other developed countries. The social and political changes that occurred in the 1960s and 1970s contributed to the expansion of SHGs as this was a time when old systems were being challenged by those whose voices and experiences had traditionally been ignored. Establishing accurate records of the numbers of face-to-face SHGs operating at any one time remains problematic. The informal nature of these groups means they are often hidden and under the radar, making it hard to identify their scale and breadth. Similar challenges arise in attempts to determine the number of groups online due to the speed with which groups develop or close. Some struggling SHGs may simply cease operations rather than formally disband hoping, perhaps, that they can rekindle interest at a later time. Nonetheless, the development of new digital technologies with interactive forums and message boards has resulted in an unprecedented rise in online SHGs, which is conservatively estimated to number hundreds of thousands worldwide. Unique contribution of SHGs Attending a SHG offers therapeutic and individual benefits, as meeting others who share the same experience and/or condition helps to reduce feelings of isolation and loneliness. This is strengthened further by the friendships that often emerge through participation in a SHG that often transcend outside the group itself. With these new friendships group members gain a sense of belonging along with opportunities for mutual learning with the sharing of both practical resources and personal experiences that contribute and strengthen individual ways of coping and the group’s experiential knowledge base. The active participation in a SHG, therefore, has the potential to effect positive change through an improvement in overall individual wellMelanie Boyce

being and in more stigmatized groups free members from internalized negative feelings of guilt and shame. Along with the individual benefits gained through participation in a SHG, the resistance and community action that often takes place in these nonprofit groups mean they offer the opportunity for wider, collective gains. The experiential collective knowledge developed within a SHG means prevailing dominant discourses are often challenged through, for example, the questioning of disorder classifications and treatment options. Again, the example of AA is instructive. Many AA members subscribe to the notion that alcoholism is a disease. While some medical professionals agree, others do not. Additionally, when members of SHGs are involved in advisory board membership or consultations on SHG-related topics, they can represent and convey the accumulated experiential knowledge of their SHG to inform and guide these processes, thus benefitting others outside the SHG, including professionals and related organizations. SHGs thus occupy a unique position within the nonprofit sector and play an important role in invigorating and enriching discourse on a given topic. For example, a member of a SHG for people with diabetes might be a member of a medical advisory board and thereby help doctors, researchers, and other professionals more clearly understand the experience and varied challenges of actually being a diabetic.

Challenges facing the development of SHGs

There are several challenges that threaten the development of SHGs, most notably around groups maintaining their independence and autonomy in the twenty-first century. By their very nature SHGs are largely informal, anti-bureaucratic, democratic, discursive spaces. Traditionally their independence owes to either being awarded small pots of funding through local community grants or being self-funded with members making small contributions for renting rooms to host face-to-face meetings. Increasingly suitable meeting venues are becoming harder to find as many community venues are charging higher prices to boost their own funding streams that have been affected by the global economic downturn. Moreover, during the

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height of the COVID crisis many of these spaces were closed to the public. Related to this, grassroot SHGs are increasingly struggling to secure small community funding grants to support them in their development, as they find themselves competing with more formally organized groups where the risk factors are considered less. The scarcity of these small community funding pots for SHGs means the potential impact is experienced at an individual level, as members are no longer able to meet others face-to-face and thus gain the unique benefits of reciprocal peer support and, at a wider level, opportunities for community action and enriching dominant discourses are reduced. This lack of funding does not necessarily affect SHGs meeting online, but the relative capacity and effectiveness of online SHGs in effecting positive individual improvement and wider, collective gains is still being studied. During the global COVID-19 pandemic we have seen SHGs that traditionally met face-to-face hosting their meetings online. The impact of this shift is still too early to determine but it raises concern as to how the collective experiential knowledge that develops overtime within face-to-face SHGs and which questions dominant discourses through reciprocal peer relationships, will be maintained and nurtured online.

Closing thoughts

Ensuring that SHGs can equally and fairly access and be awarded small pots of funding is not necessarily the straightforward solution to ensuring their sustainability. Generally, the awarding of funding comes with an expectation from the funder that SHGs shift their informal practices to more formal structures of management, governance, and accountability for outcomes. While such funding may support a SHG’s development there is the danger it can result in the SHG being coopted and lose its distinctiveness and independence. This phenomenon is sometimes called organizational isomorphism and explains why some SHGs actually refuse outside funding, relying instead on the donations of their members. Instead, greater awareness of the unique contribution SHGs make and the ways their development can be fostered appears

even more crucial in these times of great uncertainty and challenge. Melanie Boyce

Related topics

Civil society Forming a nonprofit organization Nascent organizations Voluntarism

Further reading and references

Borkman, T. (1999). Understanding self-help/ mutual aid: Experiential learning in the commons. Rutgers University Press. Borkman, T. (2020). Self-help/mutual aid groups and peer support: A literature review. Brill. Boyce, M., Seebohm, P., Chaudhary, S., Munn-Giddings, C., & Avis, M. (2014). Use of social media by self-help and mutual aid groups.  Groupwork,  24(2), 26–44. https://​doi​ .org/​10​.1921/​gpwk​.v24i2​.784 Munn-Giddings, C., & Boyce, M. (2020). How social governance, health care and civil society shape self-help/mutual aid and peer support in Europe. In T. Borkman (Ed.), Self-help/ mutual aid groups and peer support: A literature review (pp. 141–162). Brill. Seebohm, P., Chaudhary, S., Boyce, M., Elkan, R., Avis, M., & Munn-Giddings, C. (2013). The contribution of self-help/mutual aid groups to mental well-being. Health & Social Care in the Community, 21(4), 391–401. https://​doi​.org/​10​ .1111/​hsc​.12021

Self-regulation Definition

As nonprofit organizations increasingly deliver vital public services and give voice to the needs and interests of communities, so have they been called on to perform well and to be accountable. As private organizations operating with public purposes, the institutional environment of nonprofits is largely moderated by government regulation, but also by market forces and mission- and sectoral-driven norms and ethics. And as organizations separate from government and often privileged in terms of their tax status and ability to receive donative revenue, yet also playing policy advocacy roles, nonprofits often seek to maintain their independence, Angela L. Bies

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garner resources, and establish legitimacy through the self-regulation of their own operations. Nonprofit self-regulation is thus “a set of institutions or arrangements for affecting organizational behavior” enacted by nonprofit organizations themselves or other actors in the nonprofit sector more broadly (Bies, 2010, pp. 1062–1063).

Context: Self-regulation and accountability

In recent decades, accountability concerns have driven much of the demand for nonprofit self-regulation. These concerns emanate from “the tremendous growth in the size, scope, and assets of the nonprofit sector; the increasing proportion of public services provided by nonprofit organizations; and the growth in nonprofit participation in policy making at the national and transnational levels” (Gugerty et al., 2010, p. 1028). Ebrahim notes that accountability concerns are attenuated by “highly visible instances of failures by nonprofit organizations to live up to public expectations – evidenced by mismanagement of resources, malfeasance, or other forms of unethical or corrupt behavior” (2009, p. 886). Bothwell’s 2003 work lays out a wide-range of high-profile nonprofit scandals at the end of the last century in the US – the conviction of Bill Aramony, head of the United Way of America, for improper use of funds, a pyramid scam by the founder/CEO of the Foundation for New Era Philanthropy, and the forced resignation of the trustees of the Hawaiian Bishop Estate for improper financial behavior including self-inurement, to name a few – and traces these transgressions to a bevy of self-regulation activity. In their comprehensive review of 30 years of literature on nonprofit scandals, Chapman et al. (2023) further emphasize this trajectory noting a diversity of contemporary scandals in cross-national perspective – including the sexual exploitation of women by senior field staff at Oxfam and a wide-reaching fundraising controversy by an internet celebrity falsely representing the Red Cross in China – and note that while trust in the nonprofit sector is fairly stable and scandals are typically confined to single organizations and often highly localized, they represent “a threat to the nonprofit sector, which relies on public trust and funding to operate” (p. 278S). Kearns (1994) argues that accountability concerns have been Angela L. Bies

long-standing in the nonprofit sector, with “public scrutiny” and debate around the role of the nonprofit sector extant since its origins. Sidel (2005) identifies two primary responses to both episodic and enduring accountability interests. The first is stricter government regulation of the nonprofit sector, often centering on public disclosure and transparency requirements, enhanced regulation around financial management and use of charitable assets, limits on self-dealing, fundraising practices, and auditing requirements. The second is through a range of self-regulatory approaches, some internally driven and others externally derived. Inherent in both approaches is the complexity of “defining the accountability holders (to whom are nonprofits accountable?) as well as agreeing on the domain of issues covered (accountability for what outcomes?)” (Gugerty et al., 2010, p. 1029).

Self-regulation dynamics and dimensions

Standards for nonprofit self-regulation tend to take one of these dispositions: an integrity approach, with a focus on ethical underpinnings for behavior within the organization and toward its constituents; a probity approach, focused on transparency, operating within legal and regulatory parameters, and with efficient or proper use of funds; or with a performance, outcomes or evaluative approach, focused on determining the effectiveness and broader meaning of the work of nonprofits. The content of self-regulation standards is often functional in nature, centering on operational dimensions such as: public disclosure/ transparency; financial management and use of funds; ethical fundraising practices; board governance; mission and program alignment; whistle-blower policies; and outcomes or performance measures. The “accountable for what” question is conditioned by contextual factors, such as political constraints, organizational and nonprofit sector capacity, resource dynamics, subfield preferences, and the values of donors, clients and citizens. For example, in settings where the nonprofit or nongovernmental sector is emergent, self-regulation motivations center on establishing legitimacy, trust and participation in philanthropy, and belief in the nonprofit sector’s competence and professionalism, for example during periods

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of rapid change such as during democratization and decentralization (Bies, 2010) and where nonprofits must step in to supplement weak government provision of public goods (AbouAssi, 2015). Nonprofit self-regulation is also conceived alternately as a substitute for insufficient government regulation of nonprofits or to stave off heavy-handed regulation in repressive political regimes. Gugerty (2010) illustrates this in her comparative study of 22 African nations spanning two decades, identifying: first generation self-regulation as “a response to perceived threats of increased government regulation” and resulting in “systems of self-regulation that are national in scope and intend to produce a public good: national regulation”; and second-generation self-regulation in more liberal political environments “complementing or supplementing government regulation” (p. 1087). Like Gugerty et al. (2010), Sidel (2010) notes that nonprofit self-regulation expanded rapidly in Asia, as “an expression of collective action to defend against encroaching and increasing state pressures” (p. 1040), but also asserts that nonprofit self-regulation serves as a “market mechanism” (p. 1040) to identify and weed out underperforming or bad actors and limit reputational damage to the rest of the sector. Sidel (2005) also argued that self-regulation in the US is largely driven by market mechanisms, providing an entrepreneurial opportunity for nonprofits to use self-regulation as a competitive advantage for themselves for donors and relationships with government. In her work on US self-regulation, Sloan (2009) notes these market aspects as well, and emphasizes the normative aspects of self-regulation, where self-regulation is meant to moderate the behavior of nonprofit managers toward “best practices” and signal professionalism and trustworthiness to donors and the general public.

In practice: Self-regulation models

In practice, nonprofit self-regulation is enacted by the responsible actions of individuals, managers, board members, donors. Board governance and strategic, ethical management are part of the current of self-regulation. Likewise, accountability concerns shape the content and tenor of self-regulation approaches. Nonprofit self-regulation, however, is conceived as a form of regulation

that uses standards and codes of conduct to moderate nonprofit behavior. A key feature of nonprofit self-regulation is that these standards and codes of conduct are set by nonprofit actors operating collectively at the industry level, rather than by government or individual organizations themselves. Further self-regulation models can be characterized on a continuum of being more or less compulsory versus voluntary, and more or less public versus private. Self-regulation models can seek to moderate the behavior of individuals within the nonprofit sector and thereby shore up organizations and the sector; self-regulation models more typically target nonprofit organizational behavior and outcomes. Self-regulation models can also be viewed by their relative strength variously, often demonstrated by the model’s ability to achieve compliance through inducements or punishments or through improved outcomes and learning. Self-regulation can be generic, seeking to apply to nonprofits broadly across mission areas, or sub-industry specific. Examples of more compulsory and more public self-regulation models include: ● Watchdog organizations: These are independent organizations, typically nonprofits themselves and often funded by private donors, with a mission to develop standards of conduct, review nonprofits against those standards, and make the results of the review available to donors, the media and the public. The moniker “watchdog” suggests the relative strength in the bark and bite force of the agency, and a consumer orientation. An example of this would be the Charities Review Council of Minnesota, an agency founded after World War II to build philanthropy. Its Accountability Standards center on public disclosure, use of funds, fundraising ethics, good governance, mission achievement, and the like. ● Third-party rating organizations: Similar to nonprofits as independent organizations, these organizations often focus on a narrower set of accountability criteria and larger number of organizations, using information provision to the public as a signal of higher or lower levels of accountability. An example of this would be Charity Navigator. Angela L. Bies

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● Transparency oriented organizations: A contrasting example that is somewhat more voluntary and yet quite public is Candid in the US, which uses publicly available nonprofit financial information available on a vast range of nonprofit organizations, and supplements this information with the voluntary provision of information by nonprofits themselves. Candid offers a rating on the relative transparency of the nonprofits, and a systematic way of comparing nonprofit financial outcomes without a rating or evaluation. Examples of less compulsory and more private self-regulation models include: ● Accreditation agencies: Accreditation agencies provide in-depth reviews and then accredit (or de-accredit) nonprofit organizations. Typically, accreditation agencies operate at the sub-field level. Their review criteria are collectively developed, with strong buy-in from reviewed organizations. Prominent examples exist in the fields of higher education and hospitals. The Council on Standards for International Education Travel is an example of a more private form of self-regulation, as it only serves the narrow band of agencies working in that substantive area. Contrasting examples of more or less voluntary and more private exist in the realm of nonprofit associations. ● Association Codes of Conduct: Association Codes of Conduct are produced through collective action and agreement by member agencies, often through a deliberative process. Maryland Nonprofits, the statewide association of nonprofits in Maryland, represents a more formalized system in which they have not only their Standards of Excellence but also offer formal certification and extensive education. Other statewide associations have developed Codes of Conduct, but they are either wholly voluntary or require only informal agreement to abide by them. ● Professional Codes of Conduct or Certification of Nonprofit Professionals: This form of self-regulation involves the Angela L. Bies

development of standards for professional conduct geared toward individual professionals working in the nonprofit sector. Two useful contrasting examples can be found within the international nonprofit, the Association of Fundraising Professionals. AFP offers a professional credential for fundraisers, akin to certification of social workers, accountants, or financial planners, involving training, required field hours, testing, and continuing education. It is a voluntary credential, but highly formalized, with value in the marketplace. AFP also is home to the Donor Bill of Rights, which is an aspirational statement for fundraisers for ethical behavior in fundraising and commitment to donors, which can be seen on the web pages of many nonprofits and fundraisers.

Current and future directions

The above examples represent a tiny slice of the dynamic and growing array of self-regulation models at play in the US and elsewhere. While this growth is onward, there has not been a concomitant growth of empirical research on self-regulation models, though this area of inquiry is growing and should be encouraged, as should transparent self-study by the self-regulators themselves. An area where greater understanding is needed relates to the outcomes of self-regulation models: Do they lead to greater accountability, reputational benefit for individual nonprofits or the field? Do they lead to learning? Do they lead to enhanced effectiveness? Likewise, similar to concerns raised about evaluation requirements by funders of nonprofits, what are the costs to nonprofits to participate in multiple accountability requirements? Do nonprofits participate fulsomely or only symbolically? Are there maladaptive or resource dependent responses? There are two perennial problems facing nonprofit self-regulation: funding and maintaining standards that are relevant for the contemporary challenges facing nonprofits. Many nonprofit self-regulation organizations remain chronically under-funded, making their reach too limited. This is exacerbated by overall problems in funding the infrastructure necessary for a strong nonprofit sector. There is some isomorphism across the standards, driven in part by the need for such standards to “work” across a broad range of

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nonprofit organizations. Most importantly, as nonprofits increasingly must be prepared for crises (of health, economy, environment, personnel), there is some concern that self-regulation standards have not kept pace with the preparation needs of nonprofits. In this sense, the self-regulators hold some power and have great responsibility: they have the ability to convene the complex of nonprofit stakeholders and talk about important issues around nonprofit risk management, financial reserves, increasing management strength and governance capacity, and diversity, equity, inclusion and belonging. Angela L. Bies

Related topics

Accountability Accreditation Governance Regulation of nonprofit organizations Social responsibility of nonprofit organizations Transparency Watchdog organizations

Further reading and references

AbouAssi, K. (2015). Testing resource dependency as a motivator for NGO self-regulation. Nonprofit and Voluntary Sector Quarterly, 44(6), 1255–1273. https://​doi​.org/​10​.1177/​ 0899764014556774 Bies, A. L. (2010). Evolution of nonprofit self-regulation in Europe. Nonprofit and Voluntary Sector Quarterly, 39(6), 1057–1086. https://​doi​.org/​10​.1177/​0899764010371852 Bothwell, R. O. (2003). Trends in self-regulation and transparency of nonprofits in the US. The International Journal of Not-for-Profit Law,  2(3), 604–622. www​.icnl​.org/​resources/​ research/​ijnl/​trends​-in​-self​-regulation​-and​ -transparency​-of​-nonprofit​-organizations​-in​ -the​-u​-s Chapman, C. M., Hornsey, M. J., Gillespie, N., & Lockey, S. (2023). Nonprofit scandals: A systematic review and conceptual framework. Nonprofit and Voluntary Sector Quarterly, 52(1_suppl), 278S–312S. Charities Review Council. (2022). Accountability Standards. Smart Givers. https://​ smartgivers​ .org/​wp​-content/​uploads/​2019/​01/​Acc​ ountabilit​yStandards​_2018​-1​.pdf Corbett, C., Vienne, D., Assi, K. A., Namisi, H., & Smith, D. H. (2016). Self-regulation in associations. In D. H. Smith, R. A. Stebbins, & J. Grotz (Eds.), The Palgrave handbook of

volunteering, civic participation, and nonprofit associations (pp. 1025–1044). Palgrave. Ebrahim, A. (2009). Placing the normative logics of accountability in “thick” perspective. American Behavioral Scientist, 52(6), 885–904. https://​doi​.org/​10​.1177/​0002764208327664 Gugerty, M. K. (2010). The emergence of nonprofit self-regulation in Africa. Nonprofit and Voluntary Sector Quarterly, 39(6), 1087–1112. https://​doi​.org/​10​.1177/​0899764010372972 Gugerty, M. K., Sidel, M., & Bies, A. L. (2010). Introduction to minisymposium: Nonprofit self-regulation in comparative perspective-themes and debates. Nonprofit and Voluntary Sector Quarterly, 39(6), 1027–1038. https://​doi​.org/​10​.1177/​0899764010372971 Kearns, K. P. (1994). The strategic management of accountability in nonprofit organizations: An analytical framework. Public Administration Review, 54(2), 185. https://​doi​.org/​10​.2307/​ 976528 Maryland Nonprofits. (2022). Standards of excellence. www​.marylandnonprofits​.org/​what​-we​ -offer/​standards​-for​-excellence/​ Sidel, M. (2005). The guardians guarding themselves: A comparative perspective on nonprofit self-regulation. Chicago-Kent Law scholarship​ Review,  80(2), 803–835. https://​ .kentlaw​.iit​.edu/​cklawreview/​vol80/​iss2/​9 Sidel, M. (2010). The promise and limits of collective action for nonprofit self-regulation: Evidence from Asia. Nonprofit and Voluntary Sector Quarterly, 39(6), 1039–1056. https://​doi​ .org/​10​.1177/​0899764010371514 Sloan, M. F. (2009). The effects of nonprofit accountability ratings on donor behavior. Nonprofit and Voluntary Sector Quarterly, 38(2), 220–236. https://​doi​.org/​10​.1177/​ 0899764008316470

Service portfolio analysis Definition

Nonprofit organizations that offer a variety of services can be said to have a service portfolio. Collectively the services in the portfolio constitute the programmatic identity of the organization – a tangible expression of its mission, the boundaries of its activities, the constituencies it serves, and the implicit or explicit outcomes it has promised to each of those constituencies. Accordingly, the service portfolio also embodies the organization’s public claims regarding its competencies and its programmatic and administrative capacity. Kevin P. Kearns

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The overall objective of service portfolio analysis is to ensure that the organization’s services are logically aligned, contribute to the mission, are sustainable, and add significant value to the community. Service portfolio analysis can also be useful in strategic planning and as an aid in making important decisions about programmatic priorities and resource allocation. In sum, service portfolio analysis can have both long- and short-term implications for nonprofit organizations. Service portfolios are analogous to financial portfolios. For example, a person may have a financial portfolio that consists of checking / bank accounts to cover daily living expenses, a college savings fund that will be held until it is needed, a retirement fund that itself might be a portfolio composed of different investment instruments and so on. In this example the goal is to have a mix of financial resources that work individually and in concert with each other to meet one’s financial needs. The analogy is not perfect, but the aim of service portfolio analysis is to ensure that the nonprofit organization’s services work individually and in concert to advance its mission and serve the community.

In practice

Service portfolio analysis is a tool to help a nonprofit organization answer the following questions: Are all the services in the portfolio contributing equally to the mission and are they sustainable? Over time nonprofit organizations tend to launch and cultivate a variety of services in response to emerging community needs or strategic opportunities to capture funding or other types of support to grow the organization. As needs continuously evolve and change the organization may find that some of its services, once central to the mission, are no longer essential or, even worse, divert valuable resources away from the mission. For example, a Jewish community center examined its portfolio of programs and services and decided that a small orchestra, formed decades ago, was no longer central to the mission of the organization. The orchestra was launched at a time when Jews, tragically, were not welcome in the city’s major perKevin P. Kearns

forming arts center. Fortunately, that blatant discriminatory practice is a thing of the past and the leaders of the organization decided that the beloved orchestra was no longer central to the mission. In fact, with its significant costs and administrative burdens, the orchestra was diverting resources away from other mission-critical programming. The organization’s leadership negotiated a transfer of the orchestra to a performing arts organization where it is much more aligned with that organization’s mission. Are there synergies among the services in the portfolio – do the services complement each other? Another term for synergy is strategic fit. Two or more programs in an organization’s portfolio display strategic fit when, for example, they serve the same population of people with complimentary services. The term wrap-around services is sometimes used to describe how a nonprofit organization addresses systemic needs. For example, homelessness might be related to mental illness, unemployment, substance abuse, domestic violence, and many other issues that an organization could address via wrap-around services, each of which is designed to achieve a strategic fit among all services in its portfolio. Strategic fit can also be achieved when two or more services rely on similar supply and distribution channels, similar technologies, or comparable labor skills. The aim is to avoid offering a program or service that is obviously out of sync with others in the organization’s portfolio. For example, some nonprofits have explored revenue-generating entrepreneurial ventures that have a business model and/or operational skills and requirements that are different from other programs in their portfolio. In these instances, the organization might consider a spin-off model wherein the entrepreneurial venture operates independently. Which, if any, of the services in the portfolio generates excess revenue or other resources that can be deployed to support the mission? Many years ago, Gruber and Mohr (1982) developed a matrix for nonprofit service portfolio analysis based on two dimensions: mission centrality and financial return. According to their model, the ideal service is

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one that not only is central to the mission of the organization but also generates sufficient financial return (either earned or donated revenue) to support itself and even subsidize other services. At the opposite end of the spectrum is a service that is no longer mission-critical and, moreover, is losing money. Such a program should, if possible, be dropped from the portfolio. Ambiguities occur at the margins where, for example, a service is less central to the mission yet generates surplus revenue. These might be entrepreneurial services or social enterprise subsidiaries that can subsidize mission-central services that are not financially profitable. A nonprofit must be careful not to allow financial consideration alone to be the driving force in their portfolio analysis. Is every service in the portfolio superior to, or at least competitive with, those provided by other organizations? Elsewhere in this book is a discussion of SWOT analysis and the concept of comparative advantage, which is the ideal circumstance in which an organization has strong programs or other capabilities that align nicely with extant or emerging opportunities in the external environment. Service portfolio analysis can be useful in identifying programs or services that enjoy a true comparative advantage, especially in comparison with other nonprofit organizations. Large business firms use portfolio methods as part of their on-going competitive intelligence and they might follow the advice of legendary business leader Jack Welch who said, “If you don’t have a comparative advantage, don’t compete.” That advice may work for businesses, but in the real-world nonprofits cannot necessarily be “the best” at everything they do, nor can they simply divest programs on which vulnerable populations rely.

Debates and future directions

Nonprofit leaders who fail to periodically conduct a service portfolio analysis are at risk of mission drift (sometimes called mission creep), a phenomenon where the organization incrementally and gradually adds one program or service after another, in response

to emerging needs, only to discover later that a substantial portion of their programming is loosely aligned with the mission. They may drift for reasons that seemed logical at the time the service was launched, such as the availability of a new funding opportunity. Over time, however, these incremental adjustments can accumulate to the point where the organization is almost unrecognizable with respect to its formal mission. The point is that mission drift usually happens gradually, not all at once, so leaders may not take notice of the many incremental decisions that accumulate over time. Service portfolio analysis, conducted on a regular basis, can alert leaders to mission drift. It is easy to criticize mission drift from a safe distance, but the COVID crisis has cast it in a new light. Many social service organizations, for example, needed to pivot from their normal programming to meet the new and urgent needs of their constituencies for things like food assistance, childcare, and access to technology to help them work from home. From a theoretical perspective some of these organizations clearly “drifted” from their core mission but in some instances they did so to save lives. Can those organizations be criticized for mission drift? Now, as the crisis subsides or evolves, many of those same organizations are doing service portfolio analysis to determine how, or even if, they can pivot back to their core mission. Another topic for debate is the compelling, even seductive, nature of growth as an organization’s primary strategic objective. Nonprofit organizations are often advised to “grow or die” but growth for growth’s sake can lead to a haphazard portfolio of services and programs. On the other hand, one can argue persuasively that truly effective organizations not only have the right to grow aggressively but perhaps even a moral obligation to migrate their expertise to a diverse portfolio of programs. But would it be better for some nonprofits to be content with their current size and influence? There is no simple answer to these dilemmas, but service portfolio analysis, when done properly and with regularity, can help leaders assess the difference between mission drift and mission growth. Kevin P. Kearns

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Related topics

Branding and brand strategy Business planning Commercialism Competition Earned income Growth strategies Retrenchment strategies Strategic analysis: SWOT

Further reading and references

Boardman, A. E., & Vining, A. R. (2003). Using service-customer matrices in strategic analysis of nonprofits. Nonprofit Management and Leadership, 10(4), 397–420. https://​doi​.org/​10​ .1002/​nml​.10404 Gruber, R. E., & Mohr, M. (1982). Strategic management for multiprogram nonprofit organizations. California Management Review, 24(3), 15–22. https://​doi​.org/​10​.2307/​41164964 MacMillan, I. C. (1982). Seizing competitive initiative. Journal of Business Strategy, 2(4), 43–57. https://​doi​.org/​10​.1108/​eb038944 Young, D. R. (2017). Financing nonprofits and other social enterprises: A benefits approach. Edward Elgar Publishing.

Settlement house Definition

A settlement house is a nonprofit organization that, in its contemporary form, provides a variety of human services primarily in urban neighborhoods. Originally, the settlement house movement sought to address social problems by having volunteers live as neighbors among the poor and marginalized and jointly serve in community advocacy.

Background

The movement to establish settlement houses as a means of addressing poverty and other social ills emerged in the late nineteenth century, peaked in the first quarter of the twentieth century, and waned by the 1960s. The first settlement house, Toynbee Hall in London, England, emerged in 1881 as an experimental solution to poverty. Clergyman Samuel Barnett, and his wife Henrietta, recruited students and graduates from Oxford and Cambridge willing to move into London’s T. Laine Scales

poverty-stricken East End. “Settlers” like the Barnetts rented or purchased a large building where they could house volunteers and also invite poor neighbors into a common space designed for education, recreation, art, or other types of enrichment (Johnson, 2001). While other approaches to poverty emphasized elite volunteers attempting moral reform and religious conversion of individuals, the settlement approach emphasized an egalitarian philosophy. Well-educated (and often well-to-do) volunteers lived daily life among the poor to work as neighbors toward community improvement (Johnson, 2001). The experiment took hold in the United States when social reformers like Jane Addams and Ellen Gates Starr visited Toynbee Hall and brought the model to urban centers like Chicago, New York, and Boston. A growing number of American immigrants changed the urban landscape and fueled the movement which grew to over 400 settlements by 1910. Settlement workers collected data through door-to-door surveying and carried out some of the first sociological studies of immi­grant communities (Williams & Maclean, 2015). Advocacy and policy reform became a focus as young lawyers, doctors, and educators volunteered at settlement houses. Historian Allen Davis notes that settlements became “spearheads for reform” as they lobbied for change in areas of child labor, sanitation, and women’s working conditions. University partnerships were an important part of the model and settlers hosted faculty lectures, extension courses, and English language classes. Social work and sociology students used settlement houses as a learning laboratory (Davis, 1984). While the movement in England was led primarily by white men, both women and men established houses in the US, segregated by sex and by race. For example, Chicago’s Hull House housed white women residents who collaborated and partnered with Chicago Commons for white men residents (Davis, 1984). Lasch-Quinn (1993) documents a robust network of African American settlement houses established in the era of Jim Crow, often in connection with black churches.

In practice

The radical step of taking up residence in a poor neighborhood in order to organize

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for change is still one important pattern of community organizing for nonprofits in the twenty-first century, but not a feature of every community nonprofit. Perhaps the most essential value settlement workers offer non-profit leaders today is the importance of community voice and buy-in. Settlement workers practiced a system of “mutual aid,” viewing their role not as community saviors, but as learners and recipients too. For example, a child who came to a house to bathe once a week might be asked to pay a nickel or, if she had no coins, to sweep the floor. Nonprofit leaders of the twenty-first century may be more accustomed to receiving philanthropy and donations. However, the feeling of community and mutuality that a neighborhood may experience comes from every member making some sort of contribution in line with what he or she can afford. Nonprofit leaders and volunteers must be generous but also willing to receive (and ask for) small gifts of investment by community members using the services. Philanthropy, fundraising and grant writing have a place, but might be limited in ways that promote mutuality and a feeling that the nonprofit agency belongs to the community (Polson & Scales, 2020). Settlement houses also modeled the importance of partnerships and collaborations. The National Federation of Settlements, created in 1911, drew together settlement leaders with common goals to share ideas and encourage one another. Within a city, settlement houses often worked together as partners rather than competitors. In this way they were able to strengthen their positions and advocate for reform. Communities are large ambiguous moving targets for change making partnerships and collaborations essential to nonprofit leadership. When seeking partnerships, settlement houses included congregations and other organizations that, today, would be called “faith based.” An important motivation for many settlement workers was religious expression. In 1905, a poll of 339 settlement workers showed that 88 percent were active church members and nearly all stated that religion had been a major influence on their lives (Davis, 1984). The US religious landscape has become politically charged in the twenty-first century, leading nonprofit leaders to shy away from taking on reli-

gious congregations as partners. Nonprofit leaders who carefully choose congregations and faith-based agencies with ethics and values for social justice aligning with the vision of their organization may find valuable resources such as volunteers, financial support, community buy-in, and other assets of a good partnership. When Jane Addams and Ellen Gates Starr moved into Hull House in 1889, they were joining a neighborhood of European immigrants, including Poles, Italians, Russians, Germans, and Irish. Immigration remains an important social issue affecting nonprofits and leaders must be in tune with what the settlements taught us about hospitality, acceptance, and advocacy. Today, and in the future, immigrants, refugees, and asylees, whether documented or undocumented, will be a key population in need of support from nonprofits. They face a much more unpredictable and politically charged climate in the US than in the early twentieth century. With the threat of deportation, they need safe and confidential places for recreation, learning, and worship. Nonprofit leaders can learn from the hospitality of the settlement house the value of safe spaces to gather among caring neighbors. There is also a need for advocacy on issues of immigration. As settlement workers surveyed neighbors, they were collecting data for some of the first sociological studies of immigrants. They practiced using data to determine the social ills of the community and then advocate for change (Williams & Maclean, 2015). In today’s data-driven culture, collection and use of data will continue to be an important aspect of nonprofit leadership. Settlements were “learning organizations” and inspired a culture of mutuality where everyone, immigrants, volunteers, and leaders, had something to learn and something to teach. Women like Alice Hamilton or Florence Kelley at Hull House helped their neighbors while at the same time practicing medical and legal skills. Settlement houses partnered with universities, from their inception. Oxford faculty members like John Ruskin offered lectures at Toynbee Hall and John Dewey, professor at University of Chicago, was a regular visitor at Hull House and served on the advisory board for many years (Johnson, 2001; Williams & Maclean, 2015). Nonprofit leaders are wise to draw T. Laine Scales

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on the resources of universities and other potential collaborators in the community. By creating a culture in which all involved are learning, a nonprofit leader opens the door to continuous improvement. Internships, class visits, special programming, and community projects all provide opportunities for collaboration between nonprofits and their colleges and universities. The settlement house movement waned during the 1960s, but its values can inspire nonprofit leaders in the twenty-first century, especially in community work. By paying attention to the practices of mutuality, listening to the neighbors, collaboration, data-driven decisions, and advocacy, nonprofit leaders of today can learn from the settlement leaders of the nineteenth and twentieth centuries.

Current and future directions

The number of settlement houses began to dwindle in the 1940s as the government provided more social services following the New Deal. Further decline continued in the 1950s as volunteers left the cities and moved to the suburbs. By the 1960s most settlement houses, in the US and the UK, had closed or been transformed into community centers staffed by paid professionals (Davis, 1984). Today, the United Neighborhood Centers of America maintains a network of surviving settlement houses, although most operate as modern-day community centers with no live-in settlers. A few exceptions exist, including Good Neighbor Settlement House in Waco, Texas. Good Neighbor recreated the historic model with live-in residents, an informal university partnership, and a financial model of mutual aid in which neighbors visiting the house donate what they can (or volunteer if they have no funds). Programming follows traditional areas such as education, recreation, arts, and worship (Polson & Scales, 2020). T. Laine Scales

Related topics

Community-based organizations Co-production Place-based philanthropy Social capital

Erynn E. Beaton and Elizabeth J. Dale

Further reading and references

Davis, A. F. (1984). Spearheads for reform: The social settlements and the progressive movement 1890–1914. Rutgers University Press. Johnson, C. (2001). Strength in community: Historical development of settlements internationally. In R. Gilchrist & T. Jeffs (Eds.), Settlements, social change, and community action: Good neighbours (pp. 69–90). Jessica Kingsley Publishers. Lasch-Quinn, E. (1993). Black neighbors: Race and the limits of reform in the American settlement house movement, 1890–1945. University of North Carolina Press. Pacey, L. M. (Ed.). (1950). Readings in the development of settlement work. Association Press. Polson, E., & Scales, L. (2020). Good neighbor house: Reimagining settlement houses for 21st century communities. Social Work & Christianity, 47(3), 100–122. https://​doi​.org/​10​ .34043/​swc​.v47i3​.144 Williams, J. E., & Maclean, V. M. (2015). Settlement sociology in the progressive years: Faith, science, and reform. Leiden. Woods, R. A., & Kennedy, A. J. (Eds.). (1911). Handbook of settlements. Charity Publication Committee.

Sexual harassment Introduction and definition

Workplace sexual harassment has been widely recognized as a socio-legal phenomenon since the 1970s, largely attributed to the radical feminist movement, although the phenomenon itself can be traced to ancient times. Contemporary movements like #MeToo and #AidToo, the latter pertaining to sexual harassment in the international aid field, are reminders of the pervasive nature of sexual harassment and its associated harms. While sexual harassment is most often considered in employment settings, it is also unlawful in nonprofit service provision and has been increasingly documented as instigated by board members, donors, and others involved with, but not employed by, nonprofit organizations. There is no universal definition of sexual harassment, and legal definitions vary depending on jurisdiction. More than 50 countries prohibit sexual harassment in legislation. Sexual harassment is one of many forms of harassment, one that is focused

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on the target’s gender and/or sexuality, but also involves hierarchical power relations. The United Nations (2008) defines sexual harassment as: any unwelcome sexual advance, request for sexual favour, verbal or physical conduct or gesture of a sexual nature, or any other behaviour of a sexual nature that might reasonably be expected or be perceived to cause offence or humiliation to another, when such conduct interferes with work, is made a condition of employment or creates an intimidating, hostile or offensive work environment.

Importantly, while sexual harassment often involves a pattern of behavior, a single incident can meet the legal definition if the incident is particularly egregious. Harassers and targets may be individuals of any gender, and while most sexual harassment is by men against women, it also occurs between individuals of the same sex.

Incidences and consequences of sexual harassment

Rates of sexual harassment are difficult to estimate due to methodological variation and different understandings of what constitutes sexual harassment. Some American estimates suggest that 40–75 percent of women and 13–31 percent of men have experienced workplace sexual harassment. Among European countries estimates range from between 17 percent and 81 percent of employed women. A 2016 report found that among US Federal Employees, 20.9 percent of women and 8.7 percent of men experienced some type of workplace sexual harassment in the previous two years. Results often depend upon the way surveys ask about experiences of sexual harassment. Nonprofit context To our knowledge, no estimates of the incidence of sexual harassment across the nonprofit sector exist, but some studies have examined particular nonprofit professions, including international humanitarian aid workers and fundraising. A 2016 survey by the Humanitarian Women’s Network found that 69 percent of female aid workers reported male colleagues commenting on their dress or appearance, 60 percent reported male

colleagues looking for women to conform to a gender stereotype, 48 percent reported being touched in an unwanted way, and 55 percent were subject to persistent sexual or romantic advances. A 2020 study of nonprofit fundraisers in the US and Canada found that 75.8 percent of all fundraisers – both male and female – had experienced sexual harassment by a coworker or stakeholder, 42.1 percent in the past two years. The Association of Fundraising Professionals-sponsored study found that 44.4 percent of women, compared to 30.3 percent of men, had experienced harassment in the past two years. Research has documented myriad individual and organizational consequences of sexual harassment. Targets of harassment often experience significant negative effects on their mental health, including anxiety, anger, depression, post-traumatic stress, and job-related effects including absenteeism, lower job satisfaction, lower productivity, and withdrawal. Co-workers, whether they have observed the harassment directly or merely heard about it, can experience bystander stress. At the organizational level, sexual harassment can cause workgroup conflict and lost productivity, as well as indirect costs related to turnover, recruitment, and training, and direct costs of investigating complaints and paying associated legal fees. Researchers have also documented damage to organizations’ reputations. For nonprofits who may rely on donations or foundation and government grants, the ongoing reputational effects could be significant.

Theories and antecedents of sexual harassment

While sexual harassment is often assumed to be motivated by biological attraction, research increasingly recognizes sexual harassment as the product of power dynamics. Two theories, sex-role spillover and the contact hypothesis, explain sexual harassment as stemming from gender relations. Sex-role spillover suggests that cultural norms and expectations of women carry over into the professional environment. The contact hypothesis suggests sexual harassment will be more common in work environments where women come into frequent contact with men. A broader theoretical explanation is that of power and dominance. Under this theory, sexual harassErynn E. Beaton and Elizabeth J. Dale

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ment occurs where there is unequal power either because the harasser has the power to harass or is seeking to gain power. Nonprofit context According to these theories, sexual harassment in the nonprofit sector will be specific to its gender and power dynamics. While the nonprofit sector predominantly employs women, leadership positions are disproportionately held by men. Women in the sector also face pay inequities that go beyond the leadership divide. Additionally, nonprofit employees engage with a variety of internal and external stakeholders as part of their work. Many external stakeholders provide resources, such as contributions, that the nonprofit depends upon. Thus, the nonprofit environment lends itself to sexual harassment based on power rooted in both gender and resource dependency. In addition to these sector-level dynamics, individual, situational, and organizational factors can influence power dynamics and make sexual harassment more or less likely. The harasser’s characteristics matter, including their gender, personality, role, and motives. The target’s characteristics also matter, including their gender, occupation, education, socioeconomic status, age, and ethnicity. Research shows that the organization’s climate, gender composition, prevention practices, and overall incivility all play a role in whether sexual harassment occurs in a workplace. Given the heterogeneity of nonprofit organizations, we can expect there to be wide variation in the incidence of sexual harassment.

Individual and organizational responses to sexual harassment

Research shows that when sexual harassment occurs, targets take on a variety of coping mechanisms including avoidance, seeking social support, confrontation, and/or making a formal report. Reports of sexual harassment are notoriously low. Targets of harassment often do not report because they believe the behavior was not serious enough, due to fear of retaliation, being labeled a troublemaker, or being dismissed. For this reason, it is important for employers to make reporting sexual harassment safe and easy. Erynn E. Beaton and Elizabeth J. Dale

Nonprofit context To prevent instances of sexual harassment, nonprofits should have both an anti-sexual harassment policy and training. Policies are important for reducing instances of sexual harassment and providing avenues for adjudication. An effective policy defines sexual harassment clearly, protects employees from colleagues as well as external stakeholders, and provides clear channels for reporting. Data suggests that only about half of nonprofits have such policies. Policies are a necessary, but incomplete, solution. In addition, employers should provide customized training, and leaders should openly profess zero tolerance for sexual harassment. Diverse executive and board leadership teams that value equity and inclusion are more likely to create an organizational climate in which sexual harassment is proscribed. Policies, training, leadership, culture, and compliant management are crucial mechanisms to prepare organizations for effectively managing sexual harassment cases. Employers should not wait to receive a complaint before investigating possible instances of harassment. Effective investigations are thorough, maintain confidentiality to the extent possible, and result in a negative or affirmative determination. In instances of an affirmative finding, appropriate action should be taken including repercussions, which signals to future targets that reports will be taken seriously. The ability of nonprofits to prevent, and deal with, sexual harassment effectively is compromised by many nonprofits’ lack of capacity. Nonprofit organizations are often small and may not employ a human resource professional, let alone a department, that could implement these practices. There is also no regulatory accountability as government agencies do not ask about cases of sexual harassment. The primary source of governance is the board of directors, the members of which are legally responsible for protecting employees from harm.

Future directions

Nonprofit organizations strive to be virtuous and inclusive spaces. Many nonprofits are currently increasing their efforts related to diversity, equity, inclusion, and social justice, especially as a new generation of workers with high expectations for these features are

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entering the field. To create an inclusive work environment, nonprofits need to take steps to prevent sexual harassment from occurring. This is an important area for organizational progress, but many questions remain. Perhaps the most notable is how to hold third parties, like donors, accountable for their behavior without sacrificing or displacing the organization’s mission. Erynn E. Beaton and Elizabeth J. Dale

Related topics

Diversity, equity, and inclusion Social responsibility of nonprofit organizations

Further reading and references

Beaton, E. E., LePere-Schloop, M., & Smith, R. (2021). “Whatever it takes”: Sexual harassment in the context of resource dependence. Journal of Public Administration Research and Theory, 31(4), 617–633. https://​doi​.org/​10​.1093/​jopart/​ muab005 Beaton, E. E., LePere-Schloop, M., & Smith, R. (2022). A review of sexual harassment prevention practices: Toward a nonprofit research agenda. Nonprofit and Voluntary Sector Quarterly, 51(4), 901–915. https://​doi​.org/​10​ .1177/​08997640211008979 Dale, E. J., & Breeze, B. (2021). Making the tea or making it to the top? How gender stereotypes impact women fundraisers’ careers. Voluntary Sector Review, 13(1), 19–36. https://​doi​.org/​10​ .1332/​2040​80521X1635​2574868076 Gillespie, E. M., Mirabella, R. M., & Eikenberry, A. M. (2019). #metoo/#aidtoo and creating an intersectional feminist NPO/NGO sector. Nonprofit Policy Forum, 10(4), 1–9. https://​doi​ .org/​10​.1515/​npf​-2019​-0019 McDonald, P. (2012). Workplace sexual harassment 30 years on: A review of the literature. International Journal of Management Reviews, 14(1), 1–17. https://​doi​.org/​10​.1111/​j​.1468​ -2370​.2011​.00300​.x O’Leary-Kelly, A. M., Bowes-Sperry, L., Bates, C. A., & Lean, E. R. (2009). Sexual harassment at work: A decade (plus) of progress. Journal of Management, 35(3), 503–536. https://​doi​.org/​ 10​.1177/​0149206308330555 United Nations. (2008). Prohibition of discrimination, harassment, including sexual harassment, and abuse of authority. Secretary General's Bulletin. https://​documents​-dds​-ny​.un​.org/​doc/​ UNDOC/​GEN/​N08/​238/​36/​PDF/​N0823836​ .pdf​?OpenElement

Social capital Definition

The core idea of social capital is that “relationships matter” and that being social and working together is important and valuable. It relates to the capacity for people to cooperate and collaborate and to the flow of benefits that come from social connections within and outside an organization. As such, it is a vital resource for all nonprofits. Social capital is aspects of social context (the “social” bit) that have productive benefits (the “capital” bit). The adage: “it’s not just what you know, but who you know” relates to the powerful effects that social capital can have and provides an easy way to understand the concept in the context of how it impacts our everyday lives. Social capital is not a new idea. However, it is a relatively new term that reframes many existing ideas together under the umbrella of social capital. Social capital includes ideas about social networks, trust, goodwill, solidarity, norms, social identity, belonging, shared narratives, and shared goals and purpose that together help to facilitate cooperation, collaboration, innovation, creativity, and problem-solving.

In practice

Social capital is an important concept because it communicates the benefits and value of social factors that are often overlooked or undervalued from conventional analysis and reporting. Social capital is part of a trend in recent decades to communicate non-economic value as “capital” such as natural capital, human capital, intellectual capital, and many others. Most people intuitively understand the importance of social capital, although they may not use the term. The concept of social capital has become incredibly popular because it puts a name to our intuitive understanding of the benefits of sociability and the significant consequences this has for a range of significant issues that are fundamental to the operation and performance of nonprofits. Most nonprofits care deeply about these factors but may not be as purposeful and deliberative as they could be about building Tristan Claridge

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and utilizing social capital to help deliver their mission or purpose. Social capital provides a way to communicate, measure, enhance, and utilize the crucial social aspects of a nonprofit’s operation and performance. The concept of social capital provides a way of understanding and improving practice with important implications for nonprofits’ management, leadership, and governance. A focus on social capital can help identify and implement simple and cost-effective improvements and identify and avoid those things that may damage relationships, trust, solidarity, and other social factors that are included under the social capital umbrella. Embracing the concept of social capital can lead to a deeper understanding and appreciation for others and the importance of social organization for collective action. It helps us reconnect with our innate social nature and the value and significance of giving, caring, and sharing. It reinforces the importance of duty, respect, loyalty, solidarity, service, compromise, restraint, patience, tolerance, understanding, self-discipline, compassion, responsibility, friendship, perseverance, honesty, trust, faith, and numerous others. An appreciation of social capital helps to change our priorities and values. It reconnects us to feelings of belonging and togetherness, leading to care and consideration for others. Social capital can help nonprofits to be more effective, efficient, and impactful.

Interest and popularity

Despite being an old idea, and common sense to most people, the term tends to spark widespread interest. It has rapidly increased in popularity and is becoming common language. Social capital is one of the most popular academic concepts across the social sciences and has been frequently used in politics, business, public health, social work, and various other fields. It is becoming increasingly important for nonprofits to understand and use the concept of social capital. Not only can it improve their organizational performance and delivery of their mission, but social capital is also increasingly important to communicate with donors, partners, employees, and other stakeholders. It has a similar meaning or purpose to concepts such as social cohesion, social Tristan Claridge

capability, social impact, social value, social investment, and social return on investment.

Current and future directions

Unfortunately, social capital is not a unified theory with one accepted meaning. Social capital has been approached from different perspectives and different disciplines, resulting in a huge variety of definitions. There is disagreement about what is and is not social capital, confusion about how to measure social capital and widespread use of different terminology. However, most people agree that social capital is fundamentally about how people interact with each other. It is about the nature of our social connections and the norms and shared understandings that influence our action and interaction. Social capital is multidimensional, and it is common to find references to different “types” or “dimensions” of social capital. The most frequently used are bonding and bridging social capital and the distinction between structural, relational, and cognitive dimensions. The difference between bonding and bridging social capital relates to the nature of the relationships or associations in the social group or community. Bonding social capital is within a group or community, whereas bridging social capital is between social groups, classes, races, religions, or other important sociodemographic or socioeconomic characteristics. In his book Bowling Alone, Robert Putman discussed the idea that bonding social capital is good for “getting by” and bridging is crucial for “getting ahead.” Under the dimensions approach, the structural dimension relates to the properties of the social system, and the relational and cognitive dimensions relate to the nature and quality of social relationships and shared understandings. Another way to think of these dimensions is the level of interconnectedness, the quality and nature of these connections, and the extent of a common shared vision. Many approaches tend to focus on the structural dimension. However, the other dimensions are also important because social capital is not automatically created from association; trust does not spontaneously emerge from repeated interaction; strong social identity does not necessarily arise from partici-

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pation; shared goals and collective action do not inevitably develop from membership; and representation of every person is not guaranteed from social structures.

Benefits and downsides

A good way to understand social capital is to consider the outcomes or benefits that can arise from it. The following list identifies many of the outcomes. 1. Information flows – information, insights, and ideas, including sharing skills and competencies. 2. Reduced transaction costs – reduced need for contracts or agreements, communication to establish terms, the search for information before transacting, and monitoring and enforcement of transaction agreements. 3. Innovation and creativity – collaboration between people with different backgrounds and competencies introduce different ideas and perspectives that produce creative solutions and innovation. 4. Problem-solving and conflict resolution – aspects such as networks, trust, belonging, goodwill, and solidarity can provide mechanisms for problem-solving and conflict resolution. 5. Cooperation and collective action – people working together can enhance their condition and achieve common objectives. 6. Giving, sharing, helping – social support and reciprocity between people such as providing assistance and acts of service, including non-material support such as someone to talk to. 7. Social introductions – introductions to other people transfers reputation and goodwill to others and provides access to valuable social contacts. 8. Prosocial actions – action focused toward community interest rather than self-interest, including reduced fraud, theft, exploitation, less crime and violence, and increased public and environmental amenity, or other community benefits. 9. Resilience – helping, supporting, or working together in times of need to deal with and overcome problems. 10. Personal psychological wellbeing and happiness – feeling supported, valued,

important, respected, connected, belonging, identity, and so on. 11. Nature and frequency of various actions with various consequences – influence of action not listed above, such as actions that improve personal health or that builds a skill or ability. It may seem ironic that a concept with the word “capital” could have downsides, but social capital is not a universally beneficial resource. A stock of social capital can be simultaneously productive and perverse, having both benefits and downsides. These outcomes occur because the same features of social structure and organization we call social capital can also be a liability in the sense that it can produce unwanted results. Potential downsides of social capital include fostering behavior that worsens rather than improves economic performance; that acts as a barrier to social inclusion and social mobility; that divides rather than unites communities or societies; that facilitates rather than reduces undesirable behavior; and constrains individuals’ actions and choices. For nonprofits, when social capital is not managed effectively, it can lead to groupthink, inhibition of innovation, impediments to action, exclusion of outsiders, excess claims on members, restrictions on individual freedoms, and downward leveling norms. When leaders of nonprofits embrace an understanding of social capital, they can maximize the positive outcomes while reducing or eliminating the downsides that frequently affect organizations such as nonprofits. Even small changes can have significant implications for program delivery and overall performance, and the language of social capital provides a way to evaluate and communicate these points to donors and other stakeholders. Tristan Claridge

Related topics

Civil society Commons Self-help groups Stakeholder management

Further reading and references

Baker, W., & Dutton, J. E. (2006). Enabling positive social capital in organizations. In J. E. Dutton & B. E. Ragins (Eds.), Exploring

Tristan Claridge

528  Elgar encyclopedia of nonprofit management, leadership and governance positive relationships at work: Building a theoretical and research foundation (pp. 325–345). Lawrence Erlbaum Associates. Huntoon, L. (2001). Government use of nonprofit organizations to build social capital. The Journal of Socio-Economics, 30(2), 157–160. https://​doi​.org/​10​.1016/​s1053​-5357(00)00097​ -4 King, N. K. (2004). Social capital and nonprofit leaders. Nonprofit Management and Leadership, 14(4), 471–486. https://​doi​.org/​10​ .1002/​nml​.48 Passey, A., & Lyons, M. (2006). Nonprofits and social capital: Measurement through organizational surveys. Nonprofit Management and Leadership, 16(4), 481–495. https://​doi​.org/​10​ .1002/​nml​.122 Putnam, R. D. (2000). Bowling alone: The collapse and revival of American community. Simon & Schuster. Schneider, J. A. (2009). Organizational social capital and nonprofits. Nonprofit and Voluntary doi​ Sector Quarterly, 38(4), 643–662. https://​ .org/​10​.1177/​0899764009333956 Weisinger, J. Y., & Salipante, P. F. (2005). A grounded theory for building ethnically bridging social capital in voluntary organizations. Nonprofit and Voluntary Sector Quarterly, 34(1), 29–55. https://​doi​.org/​10​ .1177/​0899764004270069

Social change and nonprofit organizations Definition

The concept of social justice involves the equitable distribution of resources (wealth, rights, opportunities, and social and political privileges) to all members of society. The goal of social change is to transform cultural values and norms, human interactions and societal institutions in a manner which fosters social justice.

In practice

Nonprofit organizations are legal entities organized for the purpose of providing members of the public with direct or indirect social benefits. For the purpose of this encyclopedia entry, I will focus on the organizations registered under section 501(c)(3) of the Internal Revenue Code. 501(c)(3) nonprofits are subject to a non-distribution constraint, Theresa Anasti

meaning that any funds that the organization receives in excess of expenses must be distributed back into the organization, and not to private shareholders. These funds often come from federal, state, or local governments, foundations, or individuals, each form of funding subject to different regulatory constraints. Because of this assumption that nonprofit organizations are in the business of “doing good,” it is often assumed by members of the general public that nonprofits inherently contribute to social change by the nature of their existence. However, with the rise of nonprofit professionalism and managerialism, and the increasing dependence on government and foundations for nonprofit funding, the professional social service work of addressing immediate needs may be decoupled from any political social change efforts challenging roots of injustice. While there are some nonprofit organizations that specifically focus on social justice issues through responding to and ameliorating social disparities among marginalized populations (some refer to these as social justice nonprofit organizations, or SJNOs – examples of SJNOs range from early iterations of the Urban League, the Black Lives Matter Global Network, and the Audre Lorde Project), studies have shown that these types of organizations may also be influenced by the managerialism and bureaucratization necessary for government and foundation-funded organizations (Willner, 2019).

Current issues and challenges in the nonprofit field

There are 1.6 million 501(c)(3) nonprofit organizations in the United States, comprising a diverse group of organizations, including private universities, art museums, hospitals, social service organizations, and religious charities. Organizations with a focus on social justice have also joined this fold (Incite!, 2008) in order to take advantage of increased funding opportunities from government grants, foundations, and to allow individuals to exempt donations to the organization from their taxes. However, applying for and receiving tax-exempt status may require the organization to change their organizational structure (moving from a non-hierarchical to a hierarchical structure, for instance), and dampen their political goals so as not to offend providers of financial resources. This

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constraint has been shown to affect organizations with a social justice mission, as well as social service organizations who aim to be more involved in policy advocacy for social change. Effects of managerialism Although nonprofit organizations have been characterized in the public imaginary as “doing good,” efforts have been made to bring forth awareness of the effects of neoliberalism and the subsequent trends toward managerialism (specifically the limits brought about by the Internal Revenue Service (IRS) 501(c)(3) tax status) on the ability for nonprofit organizations to affect social change. Referred to by some scholars and activists as the “Nonprofit Industrial Complex” (NPIC), there has been frequent criticism around the tendency for nonprofit organizations to focus on service provision and fundraising, at the expense of community organizing and social justice. The NPIC is defined as “a set of symbiotic relationships that link political and financial technologies of state and owning class control with surveillance over public political ideology, including and especially emergent progressive and leftist movements” (Incite!, 2008, p. 8). Embedded in this is the understanding that nonprofit organizations have been highly influenced by principles of managerialism. As such, the political efforts of nonprofit organizations are continually at risk of being co-opted by state interests due to their reliance on external funding or the drive toward greater commercialism evidenced by increased reliance on earned income from service fees or social enterprises. There are substantial discussions on how for-profit principles have enveloped the work of nonprofit organizations (Eikenberry & Kluver, 2004; Hwang & Powell, 2009; Willner, 2019), specifically focused on the principles embedded in “New Public Management,” which provides that the ideas of the marketplace lead to the most effective and efficient nonprofit organizations. Myriad types of nonprofits have incorporated the principles of New Public Management, including nonprofit organizations that are focused on social justice (Willner, 2019). For social justice nonprofits, the difficulty occurs when they need to focus away from their social justice mission, and towards obtaining the necessary material resources

for survival. With the unequal relationship between nonprofit organizations and their external stakeholders (specifically government and foundations), nonprofits may turn to managerialism to maintain legitimacy with their funders. Indeed, the principles of managerialism can be observed in processes of political advocacy. As Mosley (2012) describes, nonprofits that are heavily reliant on government funding, such as homeless service nonprofits, may be heavily involved in political advocacy, but it is often done with an eye towards securing resources for the organization, rather than social change efforts (such as eradicating homelessness). Limits (actual and perceived) on political activity for nonprofits Studies have shown that nonprofit organizations are often confused (and rightly so) by the vague regulations that the IRS has around political activity for nonprofits (Berry & Arons, 2003; Grasse et al., 2021). While there are no limits on how much political advocacy (not including lobbying) an organization can do, the perception that organizations have to limit advocacy is very much present (Berry & Arons, 2003). As for lobbying (communicating with policy makers on pending or existent legislation), it is a common misconception that 501(c)(3) status prohibits nonprofit lobbying. This perception is unfortunate, as lobbying is a way for organizations to directly be involved in grassroots efforts, including political education and mobilization (Grasse et al., 2021; LeRoux & Feeney, 2015). While the IRS does not prohibit lobbying entirely, it does provide indefinite limits on how much lobbying an organization can do, and some organizations are stymied by the ever-present threat of an IRS audit due to perceived excessive political activity. Organizations are also prohibited from spending federal government funds on lobbying activities. The official rule according to the Internal Revenue Code is that “no substantial part of the activities” is for “carrying on propaganda, or otherwise attempting to influence legislation” (IRS, n.d.). As such, so long as the political activities of a 501(c)(3) nonprofit are not substantial, then nonprofits are permitted to engage in lobbying or political activity. The problem lies in that there is no standard definition provided as to what “substantial” means. For nonprofits wishing Theresa Anasti

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to engage in political lobbying, and desiring more specific guidelines, there is the option to be measured by the objective expenditure test; also known as selecting the H-election. Nonprofits can select the H-election by filling out a one-page form with the IRS. While taking the H-election does clarify the rules by which a nonprofit can lobby, very few nonprofits actually take the election (1.3 percent as of 2009 (Manny, 2011)), or even know that the H-election is an option. In other words, organizations that are recognized as “doing good” are, as a result of their IRS tax status, constrained in their political activity by the state, both formally and informally. Consequently, activists have been putting pressure on organizations focused on social change and social justice to move away from the 501(c)(3) nonprofit model. Pressure from social justice activists and future of social change in the field As a result of the conformity of many nonprofits to incorporate managerial and bureaucratic practices in their work, activists have criticized 501(c)(3) nonprofit organizations for failing to deliver on their social justice promises, eschewing progressive political goals with satisficing the needs of external stakeholders. As an example of this pressure on nonprofit organizations, the first INCITE! Color of Violence conference was held in 2000. This conference, the result of radical women and gender non-conforming individuals of color, brought together social justice activists, community organizers, service providers, teachers, and scholars to discuss the constraints put upon their work by the Nonprofit Industrial Complex (INCITE!, 2008). What came out of this conference was an emergence of scholarly and practical works that sought to challenge the nonprofit status quo in regards to how social justice organizations could accomplish their social change work. Many of the criticisms of the nonprofit model stem from the inability to manifest social change when one is so dependent upon external stakeholders for movement funding. As noted by Munshi and Willse (INCITE!, 2008, p. xvi), nonprofits, in their efforts to improve the lives of various marginalized populations, may end up “reproducing categories of deserving and undeserving” as restrictive funding and a focus on social service often Theresa Anasti

hinder nonprofits’ ability to work towards social change and social justice. Indeed, some human service nonprofit sectors have been the subject of increasing criticism from activists. The women’s anti-violence movement (which includes the battered women’s movement, the anti-trafficking movement, and the anti-rape movement), for instance, transitioned from a social justice and consciousness raising movement during the 1960s, while by the 1970s the movement yielded to pressures to professionalize, moving towards an externally funded and service delivery model (Bumiller, 2008; Kim, 2020). This coincided with a move towards a focus on the expansion of the criminal justice system to address issues of gender violence, a move that many activists, particularly many women and gender non-conforming individuals of color, describe as having contributed to the rise in the contemporary US carceral state (Bumiller, 2008; Kim, 2020). Nonprofits working in the anti-violence movement have been notably criticized for co-optation by state entities and collaborating with law enforcement at the expense of attaining social justice for the population that they serve, maintaining the carceral status quo. In Ruth Wilson Gilmore’s In the shadow of the shadow state (INCITE!, 2008), she discusses the role of the “shadow state,” Jennifer Wolch’s (1990) term that describes how direct service agencies are doing work that used to be done by public agencies amidst the privatization of social services. For grassroots organizations working towards social change, Gilmore describes them as in “the shadow of the shadow state,” meaning that “they are not direct service providers but often work with the clients of such organizations as well as with the providers themselves” (p. 47). These organizations may not get public funds, but may be recipients of public and foundation grants that fund them to do social change work. They are likely advocating against the state, whether through public protests, letter-writing campaigns, or even meeting with legislators directly. The question remains: is it possible for social justice organizations incorporated under the 501(c)(3) model to work towards social justice and social change? The answer may lie in how organizations rely on (or do not rely on) external funding for their sustainability. For social change organizations, their goal is not necessarily organ-

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izational longevity, but rather to achieve social change and liberation for stigmatized populations (INCITE!, 2008). While some organizations have eschewed the 501(c)(3) model, and sought to do away with competing for foundation and government funding by relying on exclusively grassroots funding techniques, this can come with significant risks to individual members of the organization in regards to liabilities and short- or long-term sustainability. It is important to note that organizations have been able to successfully advocate for social change under the 501(c)(3) model – a key resource may be education for nonprofits to know the level of policy advocacy, protest and political lobbying they are able to do under the 501(c)(3) model (they are unable to support a political candidate for office, however). Additionally, nonprofit organizations under the 501(c)(3) are under no obligation to compete for government, or even foundation funding if they decide that an individual, grassroots funding approach may work for them. While there are examples of foundations that do work in funding social justice that fund grassroots nonprofits (a few include the Third Wave Fund, Still We Rise Fund, the Marguerite Casey Foundation, among many others that fund activist and grassroots movement organizations), it could be true that organizations want to continue to focus on obtaining funding using grassroots fundraising techniques. This is still possible with the 501(c) (3) structure, and while eschewing institutional funding may be challenging, it allows social justice organizations to continue to do work without the restrictions placed on them by large scale funders. So long as such organizations meet the public support test (where at least one-third of organizational donations are given by donors who give less than 2 percent of the nonprofits overall receipts), 501(c)(3) nonprofit’s can accept funds from a variety of non-governmental and non-foundation sources in order to do social justice work. Theresa Anasti

Related topics

Advocacy Civil rights organizations Managerialism Politics and philanthropy

Professionalism Public policy and nonprofit organizations Triple bottom line

Further reading and references

Berry, J. M., & Arons, D. (2003). A voice for nonprofits. Brookings Institution Press. Bumiller, K. (2008). In an abusive state: How neoliberalism appropriated the feminist movement against sexual violence. Duke University Press. Eikenberry, A. M., & Kluver, J. D. (2004). The marketization of the nonprofit sector: Civil society at risk? Public Administration Review, 64(2), 132–140. https://​doi​.org/​10​.1111/​j​.1540​ -6210​.2004​.00355​.x Grasse, N., Ward, K. D., & Miller‐Stevens, K. (2021). To lobby or not to lobby? Examining the determinants of nonprofit organizations taking the IRS 501(h) election. Policy Studies Journal, 49(1), 242–267. https://​doi​.org/​10​ .1111/​psj​.12349 Hwang, H., & Powell, W. (2009). The rationalization of charity: The influences of professionalism in the nonprofit sector. Administrative Science Quarterly, 54(2), 268–298. https://​doi​ .org/​10​.2189/​asqu​.2009​.54​.2​.268 INCITE!: Women of Color Against Violence. (2008). The revolution will not be funded. Duke University Press. IRS. (n.d.). Exemption requirements – 501(c) (3) organizations. www​.irs​.gov/​charities​-non​ -profits/​charitable​-organizations/​exemption​ -requirements​-501c3​-organizations. Accessed 19th January 2022. Kim, M. E. (2020). From carceral feminism to transformative justice: Women-of-color feminism and alternatives to incarceration. Journal of Ethnic & Cultural Diversity in Social Work, 27(3), 219–233. https://​doi​.org/​10​.1080/​ 15313204​.2018​.1474827 LeRoux, K., & Feeney, M. K. (2015). Nonprofit organizations and civil society in the United States. Routledge. Manny, J. S. (2011). Nonprofit legislative speech: Aligning policy, law, and reality. Case Western Reserve Law Review, 62(3), 757–788. https://​ scholarlycommons​.law​.case​.edu/​caselrev/​ vol62/​iss3/​13/​. Accessed 19th January 2022. Mosley, J. E. (2012). Keeping the lights on: How government funding concerns drive the advocacy agendas of nonprofit homeless service providers. Journal of Public Administration Research and Theory, 22(4), 841–866. https://​ doi​.org/​10​.1093/​jopart/​mus003 Willner, L. (2019). Organizational legitimacy and managerialism within social justice nonprofit organizations: An interest divergence analysis. Administrative Theory & Praxis, 41(3),

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532  Elgar encyclopedia of nonprofit management, leadership and governance 225–244. https://​doi​.org/​10​.1080/​10841806​ .2019​.1621654 Wolch, J. (1990). The shadow state: Government and the voluntary sector in transition. The Foundation Center.

Social economy Definition

In its broadest sense, the “social economy” can be thought of as “any economic phenomenon that has a social dimension, and any social phenomenon that has an economic dimension” (Defourny & Develtere, 1999, p. 3). As an analytical tool, more precise constructions delimit what is included and what is not included in the social economy. One common approach to doing this is to categorize according to legal and institutional delimiters. Another is to set out normative features exhibited by social economy organizations. In terms of legal and institutional forms, the social economy includes such organizations as nonprofits, cooperatives, mutual associations, and social enterprises (Defourny & Develtere, 1999; Quarter, 1992).

A normative approach would include organizations with characteristics such as: ● Carrying on an economic activity. ● Existence of social rules prohibiting or limiting distribution of any potential surpluses among members. ● Formal voluntary association of persons and/or of collective bodies. ● Democratic governance process (Bouchard et al., 2006). For example, organizations that operate according to the seven Rochdale co-operative principles have these features and would be considered as part of the social economy: 1. Open and Voluntary Membership. 2. Democratic Member Control. 3. Members’ Economic Participation. 4. Autonomy and Independence. 5. Education, Training, and Information. 6. Cooperation Among Cooperatives. 7. Concern for Community (International Co-operative Alliance, 2016). Another approach defines the social economy as an integral part of a mixed economy, bridging the public and private sectors to form a strong social infrastructure (Figure 11).

Source: Mook et al., 2015, p. 14.

Figure 11

Laurie Mook

The social economy: An interactive approach

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It consists of a wide range of organizations that are guided primarily by social objectives, such as nonprofit organizations, cooperatives, and social enterprises. These objectives take many forms, but share several features: 1. There should be a public benefit; put differently, the primary focus of the organization’s assets, income, and human resources (paid and unpaid) is to meet social objectives. 2. Social economy organizations are self-governing and relatively independent from either government or the private sector in determining their policies. 3. There is a constraint in distributing surplus income for individual gain, excepting a rebate to members for patronage or use of services (Mook et al., 2015). The social economy depicted in Figure 11 is characterized by four components. In the overlap with the public sector, we find public sector nonprofits such as healthcare nonprofits and nonmarket housing organizations. In the overlap with the private sector, there are co-operatives, nonprofit social enterprises, and benefit corporations. The community development enterprises combine public and private resources to create community assets for social benefit. The final component consists of civil society organizations such as nonprofit mutual associations focusing on social needs or community foundations (Mook et al., 2015).

In practice: Social economy growth

Gidron and Domaradzka (2021) use the lens of crisis to identify three distinct periods of social economy growth. The first period begins around the nineteenth century, when the first cooperatives were formed responding to difficult conditions created by mainstream capitalist economy: One may say that the nature of the social economy during the roughly hundred years between the middle of the nineteenth century and the middle of the twentieth century evolved around the collective efforts by individuals to deal with adverse economic conditions by organization and pulling together resources, which enabled them to compete with the power of capital (p. 6).

In this period, we see the formation of mutual support organizations, agricultural and consumption cooperatives, and mutual financial institutions. These organizations helped support workers and the unemployed access the necessities of life. The next period is characterized by the emergence of the welfare state after World War II. Here we find governments starting to rely on social economy organizations for social service delivery. As a result, there was an increase in social cooperatives and organizations that served populations such as the elderly and the disabled. This was amplified in the 1970s as mass production systems changed and the state dialed back providing resources for social service delivery. There was a new emphasis on collective well-being and local economy development, as well as a focus on environmental sustainability. The economic crisis of 2008 was another key event that altered the scope and composition of the social economy. This crisis brought to light even more the growing gap between the rich and the poor, and the adverse effects of a “globalized economic order of consumerism” on social conditions and on the environment (Gidron & Domaradzka, 2021, p. 10), and “stress[ing] the relationship between the economy and society, linking poverty, inequality, and environmental issues with the unsatisfactory public and philanthropic interventions” (Gidron & Domaradzka, 2021, p. 28). Social enterprises and social entrepreneurship grew all over the world as a way to combine social and financial objectives. Impact investing also became more popular, where investors looked for both a financial and social return on their investments. Over all of these periods, individuals have come together to form alternative socio-economic communities, such as the Quilombos, cooperatives run by Afro-Brazilians, the Rotating Savings and Credit Associations (ROSCAs) found in many countries, and the African American cooperative movement (Gordon-Nembhard, 2014; Hossein, 2017). Understanding the concept of a social economy is important at the macro, meso, and micro levels. At the macro level, we can think of the social economy as an arena of social innovation and an agent of social change. There are attempts to calculate the size of the social economy in different regions through Laurie Mook

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the national accounts. However, datasets are limited and its size and scope are hard to determine. At the meso level, we can study the social organization in terms of an ecosystem made up of different organizational actors. We can also study cross-sectoral partnerships to understand how different societies operate. At the micro level, the social economy is a great place to study philanthropic and social entrepreneurial behavior.

Current and future directions

The emergence, scope, and composition of the social economy varies according to its context. It is always evolving as it innovates due to changing contexts and events. It is also known as the social and solidarity economy, or the social and impact economy. Some governments have instituted social economy ministries, for example the Ministry of Labour and Social Economy in Spain, the Ministry of Labour, Employment and the Social and Solidarity Economy in Luxembourg, the Ministry of Tourism, Handicrafts and the Social and Solidarity Economy in Morocco. The role of these ministries is to promote the social economy in their country and make visible their contribution to socially responsible economic development. The ministries also influence and facilitate public policy to support social economy initiatives, as well as collect data and report on performance. Governments and corporations have also adopted social purchasing policies to support the social economy. For example, many provincial governments in Canada include social enterprises in their procurement program (Laforest & Luk, 2023). Laurie Mook

Related topics

depot​.erudit​.org/​id/​004185dd. Accessed 16th September 2023. Defourny, J., & Develtere, P. (1999). The social economy: The worldwide making of a third sector. In J. Defourny, P. Develtere, & B. Fonteneau (Eds.), L’économie sociale au Nord et au Sud (The social economy of the North and South) (pp. 3–35). De Boeck. Gidron, B., & Domaradzka, A. (Eds.). (2021). The new social and impact economy: International perspectives. Springer Nature Switzerland. Gordon-Nembhard, J. (2014). Collective courage: A history of African American cooperative economic thought and practice. Penn State Press. Hossein, C. S. (Ed.). (2017). The black social economy in the Americas: Exploring diverse community-based markets. Springer. International Co-operative Alliance. (2016). Guidance notes to the co-operative principles. www​.ica​.coop/​sites/​default/​files/​2021​-11/​ICA​ %20Guidance​%20Notes​%20EN​.pdf. Accessed 16th September 2023. Laforest, R., & Luk, A. (2023). Procurement and purchasing policies for social value by governments in Canada. In C. Sumner, A. Chan, A. Luk, & J. Quarter (Eds.), Selling social: Experiences of social enterprises with social procurement and social purchasing (pp. 31–48). University of Toronto Press. Mook, L., Whitman, J. R., Quarter, J. & Armstrong, A. (2015). Understanding the social economy of the United States. University of Toronto Press. Moulaert, F., & Ailenei, O. (2005). Social economy, third sector and solidarity relations: A conceptual synthesis from history to present. Urban Studies, 42(11), 2037–2053. https://​doi​ .org/​10​.1080/​00420980500279794 Quarter, J. (1992). Canada’s social economy: Co-operatives, non-profits, and other community enterprises. James Lorimer & Company.

Social enterprise Definition

Social enterprises have been seen as a particular form of hybrid organization (see the entry “hybrid organizations” for details). An ideal type of social enterprise combines the organizational forms of both business and charity. Organizational theorists Battilana and Lee (2014) propose that social enterprises represent an “ideal” type of hybridization because the charity and business forms Further reading and references Bouchard, M. J., Ferraton, C., & Michaud, V. of organizations have always been considered (2006). Database on social economy organiza- distinctive, incompatible, and they seem to lie tions: The qualification criteria. Érudit. https://​ on the extreme opposite ends of the spectrum Civil society Mission and economics Nonprofit sector Social enterprise Social return on investment Triple bottom line

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from pursuing social mission to pursuing profit as an organizational goal. Social enterprise as a relatively recent concept tries to incorporate both the social and commercial dimensions in order to resolve some difficult socio-economic problems. For example, one of the most prominent examples of social enterprise is a “work integration social enterprise (WISE)” which emerged first in Europe. WISEs were established to respond to the long-term unemployment issue facing the most vulnerable community members. Microfinancing organizations such as Grameen Bank in Bangladesh were created to respond to the financial needs of the poorest population. Both WISEs and microfinancing organizations achieve self-sustainability by conducting commercial activities such as working or engaging small businesses, while ameliorating unemployment and poverty issues. The popularity of the “social enterprise” label perhaps was achieved by these newly established experimental organizations that creatively use commercial means to achieve social purposes. However, historically, there have always been organizations that practiced social and commercial goals simultaneously. For example, within the private sector, organizations have been practicing corporate social responsibility whereby they attempt to achieve social good or at least minimize negative consequences throughout their supply chain and business model. Cooperatives jointly owned by a group of people can be found in both the for-profit and the nonprofit sectors. In the nonprofit sector, organizations can legally conduct certain business activities as long as they follow guidelines in the tax laws. For-profit companies can create nonprofit subsidiary or wholly separate organizations to further its charitable goals. Nonprofit organizations can also create for-profit business to generate more revenue to fund its charitable missions. In order to study social enterprises and manage the complexity manifested by all organizations demonstrating both social and commercial goals, it is important for researchers to be clear what kind of social enterprises they choose to study or how they are going to define the desired organizations for research. Battilana and Lee (2014) suggest that social enterprise as a concept can be more distinctive if an organization’s core

is considered as reflecting both goals, but not the organization’s periphery. This way, for instance, we can distinguish social enterprises from corporate social responsibility, or from nonprofit organizations that own an auxiliary shop.

In practice

Social enterprises can be found in both the private sector and the nonprofit sector. Social entrepreneurs are encouraged to think about their objectives and choose a legal form that suits their purpose. For example, a residential painting company that hires former inmates can register either as a nonprofit or a private company. Yet, there is another category of social enterprises in the nonprofit sector, which is the nonprofit organizations that engage in business activities or business-like activities at various degrees, such as a museum or a theater that owns large-scaled shops as auxiliaries, or a nonprofit organization that provides subsidized services while offering business services at the market rate to different clienteles, carrying out contract work, and forming partnerships with businesses. This category of enterprising nonprofits often has the goal of earning revenues to become more self-sustainable and autonomous from external funders such as the government or charitable donors. However, there have been intense debates on the legitimacy of nonprofits conducting business/business-like activities. Eikenberry and Kluver (2004) write that the marketization of nonprofit organizations can potentially harm nonprofits’ contribution to the civil society by weakening nonprofits’ value guardian role, service and advocacy function, as well as generating less social capital. Other practical harms of marketization might include a decline in donations and volunteers, and experiencing mission drift, identity crisis, and “losing their souls.” Mission drift is a main concern of all social enterprises and not just for entrepreneurial nonprofits. The conventional wisdom that “charities do not mix with money” holds strongly in the public’s conscience, moralities, ethics, and culture. The clash between the logic of enterprising charities with the conventional belief that charities should not be for profit can be seen most acutely from the high-profile case of the shutdown of social entrepreneur Dan Pallotta’s for-profit Wenjue Knutsen

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charitable company. By using business marketing strategies, such as expensive marketing campaigns, Pallotta was able to conduct large-scaled fundraising events and often successfully raised tens of millions of dollars for social causes in a relatively short time. Regardless of the large amount of funds raised, Pallotta faced pressure from the public questioning the unusually high “administrative expenses.” The withdrawal of the main beneficiary of his company led to the eventual shutdown of Pallotta’s company. The counterpart case in the nonprofit sector is the US Kid’s Wish Network that raised $128 million over ten years but $110 million went to the fundraisers themselves. The latter case seems to be plainly wrong; however, Pallotta’s case, with a label of being a social enterprise, seems to be much murkier and more confusing for the public. Should a high percentage of “overhead” be justified because of the large amount of funds raised? Should the executives who worked really hard to raise funds for social causes be entitled to a larger amount of earnings that are primarily paid by raised funds? The thorny issue underlying these debates is this: how can a social enterprise prevent the business side benefiting from charitable activities, both in monetary and non-monetary forms? In sum, social enterprises exist in the nonprofit sector through different forms, such as from nonprofits conducting business activities, or legally established social enterprises with a nonprofit status. At a theoretical level, there are many questions about the legitimacy of combining charitable and business activities under one roof. Practically, it can be challenging for social entrepreneurs to manage the pressure and conflicts created by the competing demands on the organization.

Current and future directions

Despite the debates regarding the legitimacy of social enterprises, the trend is that social enterprises are on the rise. However, the number of social enterprises may be difficult to measure as many social enterprises take the form of non-profit organizations. Reflecting this rising trend is the legislation on social enterprises. Social entrepreneurs in all sectors have pushed legislation that permits conducting business activities more flexibly in new legal forms than conducting business within the current charitable or non-profit form of Wenjue Knutsen

organizations. However, legislation is slow as the current legal structures do provide various alternatives for nonprofits and charities to engage in business activities. For example, Canada does not have a specified legal form for social enterprises at the federal level. However, in the UK, a new legal social enterprise form – Community Interest Company (CIC) was introduced in 2005. CIC can act just like a business but with a social purpose. CICs need to comply with a few requirements that are different from a traditional business, such as a dividend cap and the “asset lock” that prevents CICs to liquidate its assets at market value to non-community interests. In the US, Low-Profit-Limited Liability Company (L3C) was introduced as a variation of the Limited-Liability Company (LLC). L3C requires the company prioritizing its social mission over profits, but the form still provides flexibility to conduct business mostly like an LLC. Both CIC and L3C forms of organizations do offer much more flexibility and autonomy for engaging business activities in comparison to conventional charities that are permitted to engage only in “related” business. Besides the challenges of the legal format, scholars have always debated on the “peculiar” idea to combine charity with business, and how can such opposite forces exist within one organization. In the earlier literature, researchers believe that organizations always have a dominant logic. If there is competing logic, such as business logic and charity logic, they will compete until one logic becomes dominant. After three decades of research, the consensus now is that co-existence of competing logics is possible. Organizational theorists identified various strategies to maintain the sustainability of competing logics, such as through hiring strategies, providing socialization and helping employees identify themselves in ways that incorporate both logics, or prioritizing one logic first and then achieving co-existence. Current research also is interested in answering the question of how to manage social enterprises in order to prevent mission drift. Scholars such as Ebrahim, Battilana, and Mair argue the legal form alone is insufficient to prevent mission drift and additional governance strategies are needed, such as requiring the board monitoring both the financial and social performance as well as the people engaging in both activities. However, they

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recognize that one of the challenges is how to measure the social performance of social enterprises. The future study of social enterprise will continue to shed light on the study of hybrid organizations, because social enterprise is an ideal form of hybrid organizations. The implications generated from social enterprises can be applied to other kinds of hybrid organizations. In addition, the practice of social enterprises has direct implications for social policy as many social enterprises are primarily founded and driven by the underlying social causes such as relieving poverty, rehabilitation of mental illness, and providing employment for the vulnerable. Policymakers in many Western democratic countries have demonstrated strong interest in supporting social enterprises as partners to the government to provide assistance to solving social and economic problems taking advantage of privately sourced income in a sustainable form. Wenjue Knutsen

Related topics

Commercialism Competition Hybrid organizations Innovation in nonprofit organizations Social change and nonprofit organizations Social economy Social entrepreneurship Triple bottom line Unfair competition

Further reading and references

Battilana, J., & Dorado, S. (2010). Building sustainable hybrid organizations: The case of commercial microfinance organizations. Academy of Management Journal, 53(6), 1419–1440. https://​doi​.org/​10​.5465/​amj​.2010​.57318391 Battilana, J., & Lee, M. (2014). Advancing research on hybrid organizing – insights from the study of social enterprises. Academy of Management Annals, 8(1), 397–441. https://​doi​ .org/​10​.5465/​19416520​.2014​.893615 Dart, R. (2004). The legitimacy of social enterprise. Nonprofit Management and Leadership, 14(4), 411–424. https://​doi​.org/​10​.1002/​nml​.43 Ebrahim, A., Battilana, J., & Mair, J. (2014). The governance of social enterprises: Mission drift and accountability challenges in hybrid organizations. Research in Organizational Behavior,

34, 81–100. https://​doi​.org/​10​.1016/​j​.riob​.2014​ .09​.001 Eikenberry, A. M., & Kluver, J. D. (2004). The marketization of the nonprofit sector: Civil society at risk? Public Administration Review, 64(2), 132–140. https://​doi​.org/​10​.1111/​j​.1540​ -6210​.2004​.00355​.x Jones, J. A. (2013). Buchanan: Pallotta’s TEDTalk: “Rooted in fallacy and distortion.” Nonprofit Quarterly. Nonprofit Quarterly. https://​ nonprofitquarterly​.org/​buchanan​-pallotta​-s​ -tedtalk​-rooted​-in​-fallacy​-and​-distortion/​

Social entrepreneurship Definition

Social entrepreneurship refers to efforts by individuals or groups to develop and implement innovative solutions to pressing social problems or to capitalize on opportunities to make significant strides on social and environmental issues. Social entrepreneurship can be practiced by nonprofit organizations, for-profit firms, hybrid organizations, or even unaffiliated individuals. Quite often social entrepreneurship results in the creation of some sort of social enterprise, which is an emerging institutional form that blurs the boundaries of the nonprofit and private sector. Though there is no standard definition for social enterprise, a commonality across all social enterprises is that they are organizations that are designed to both generate revenue and to alleviate social issues.

Context

In the business world, the term “bottom-line” signifies the total on the bottom of a financial report that shows a business’ net profit or loss. The bottom-line determines whether business owners or shareholders will make a profit. A dual bottom-line structure, however, consists of a social and an economic mission. The social mission consists of creating “public goods” by providing services, products, or developing organizations that address problems affecting people and society. It involves identifying and alleviating root causes of social problems, making the organization publicly beneficial. The economic mission involves creating “private gain” by generating revenue that aims to Rasheda L. Weaver

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sustain the social enterprise. Through this dual bottom-line structure, social enterprises aim to generate revenue that, at least in part, finances their social programs or interests. Re-Nuble is a successful social enterprise in New York City that exemplifies this dual bottom-line structure. Re-Nuble’s social mission involves reducing food waste by collecting food and plant waste produced by schools, food processing plants, churches, supermarkets, and wholesale food distributers, and turning it into organic fertilizer that is used for gardening, farming, landscaping, or converting into methane gas for energy. Re-Nuble generates revenue from creating and selling organic fertilizer, as well as through charging fees for food disposal. Many of the oldest and largest social enterprises are incorporated as nonprofit organizations, but the last decade has seen a growth in social enterprises incorporated under various legal forms. Over the last 15 years, new types of legal forms have also been developed to support the social and economic goals of social enterprises such as the Benefit Corporation, the Low-Profit Limited Liability Company (L3C), the Benefit Limited Liability Company (Benefit LLC), and the Social Purpose Corporation. These new legal forms, often referred to as hybrid laws, enable social enterprises to operate as for-profit businesses that prioritize their social mission over profit. They differ by the number of profits distributed to shareholders, their transparency and public reporting requirements, and the level which they prioritize their social goals. The field of social entrepreneurship is growing at a faster pace than commercial enterprises around the world. While the United States has a high rate of social enterprises, regions like the United Kingdom, Canada, and Australia have a stronger support system for social enterprises. These other regions have dedicated funding, institutional support, and tracking systems for the establishment and growth of social enterprises. In the United States, however, there is no national tracking system for recording the number of social enterprises in the United States or even their development over time. In 2013, the Social Enterprise Alliance, Rhode Island Congressman David Cicilline, and The Social Enterprise Greenhouse developed the Social Enterprise Ecosystem and Economic Development Commission Act (SEEED Rasheda L. Weaver

Commission Act). The SEEED Commission Act sought to create a federal commission for identifying social enterprises throughout the United States. The bill failed to pass in both 2013 and 2016. Nevertheless, there is still a need to identify the number of social enterprises in the United States to understand their reach and impact on the nation.

In practice: Social enterprise applications

The following cases are examples of three nonprofit social enterprises. The Women’s Bean Project. The Women’s Bean Project is a successful social enterprise in the United States that sells gourmet soups, beans, as well as handmade jewelry. It hires low-income women to work in a six- to nine-month transitional employment program that aims to develop their life skills and to increase their economic self-sufficiency. During the beginning stages of the COVID-19 pandemic, when the world was in lockdown and organizations needed to close to stop the spread of the coronavirus, The Women’s Bean Project revamped its business model to adapt to the challenge. Instead of simply selling dried beans, they started selling canned soups so that people could have readily available meals. Their simple, yet productive innovation helped sustain their social enterprises at a time when many had to close their doors. Homeboy Industries. Homeboy Industries states “We don’t hire homies to bake bread. We bake bread to hire homies.” It is a nonprofit social enterprise located in Los Angeles, California. Los Angeles has one of the highest concentrations of gang activity in the world. However, Rev. Gregory Boyle (“Father Greg”) aims to alleviate the issue by developing a rehabilitation program for current and former gang members. It offers social services such as tattoo removal, workforce development training and job placement, solar panel installation training and certification, educational services, mental health services, legal services, and domestic violence services. Homeboy Industries generates revenue through a mixture of individual donations, government grants, fundraising events, donations from foundations and corporations, and several online and “brick and mortar” businesses.

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The social and economic mission of social enterprise cases Social Mission

Economic Value Creation

Hiring women to work in their factory, providing The Women’s Bean

them job experience and training, and helping

Project

them transition to more advanced career Running a southern restaurant that serves locally

Operating a restaurant that generates profits, sells

grown food and donates 100% of its profits to

merchandise and baked goods, and receiving

organizations fighting homelessness in Charlotte.

donations from individual supporters.

Working with former and current gang members Homeboy Industries

canned soups at stores, as well as working with corporations to receive grants.

opportunities. The King’s Kitchen

Running a factory that sells beans, jewelry, and

to rehabilitate their lives through a set of holistic services that meet their mental, financial, professional, and legal needs.

Establishing several social businesses like a café, catering company, bakery, electronics recycling services, and solar panel installation service.

Note: The social mission and economic business model may evolve as the organization evolves over time.

The King’s Kitchen. The King’s Kitchen is a gourmet nonprofit restaurant in Charlotte, North Carolina, that sells southern food. All of the profits from revenue generated are donated to various organizations that fight homelessness in Charlotte. These organizations help the homeless population with services such as job training, etiquette workshops, financial management, life-skills training, and more. The King’s Kitchen also hires people who were formerly incarcerated, providing them a chance to advance their economic well-being. The King’s Kitchen generates revenue from its restaurant, the baked goods and merchandise (e.g., mugs) it sells, and individual donations from its supporters. The restaurant also shuts down for several hours each day for bible study, which is open to the public.

Current and future directions

Social entrepreneurship is the future. The variety, complexity, and devastating nature of societal issues have become so pressing that the field is experiencing growth. Many social entrepreneurs are people that have experienced the problems they strive to combat or have witnessed others face these issues. While many people endure the issues they experience in life, social entrepreneurs are change agents in that they use innovative and entrepreneurial techniques to fulfill their social mission. Their goal, in doing so, is to create more sustainable social organizations than that of the past. Today’s nonprofit organizations realize that relying on the public sector and foundations

for external funding would be shortchanging themselves, as these sources of funding are decreasing despite the many organizations competing for them. While increased commercial activity among nonprofit organizations is predicted for the future, one of the major debates in the field relates to profit distribution and what constitutes a social enterprise. Both in practice and in research, there are heated debates about whether and how much profits should be distributed back into the organizations. The rise of for-profit social enterprises shows that many do not redistribute their profits into their businesses or donate them to charity. However, without a universal definition of social enterprise that is government mandated, both for-profit businesses and nonprofit organizations are allowed to refer to themselves as social enterprises and to engage in social activities accordingly. One of the ways that some power players in the field encourage social enterprises to redistribute their profits back into their companies is through social procurement. Social procurement is essentially buying social impact by organizing government entities and private businesses to intentionally purchase from certified social enterprises. These social enterprises are certified by broker institutions that connect social enterprises to government and private buyers. Social enterprises gain certification if they meet specific criteria outlined by the organization that often include: 1) redistributing some portion of their profits into their organization as opposed to distributing it to shareholders; 2) engaging in training programs that align their organizations with Rasheda L. Weaver

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the core characteristics of social enterprise; and 3) encouraging that a major portion of their revenue is generated from sales. For example, Social Traders is an organization in Australia that facilitates social procurement contracts between social enterprises and government and private buyers. They have an established certification program and work with the Australian government to broker procurement opportunities for social enterprises. Such programs are usually internally regulated. Over the last 50 years, a variety of similar concepts have emerged such as corporate social responsibility, conscious capitalism, and bottom of the pyramid. While these terms are used for commercial businesses, they describe this merging of social and economic goals. However, it is essential to state that social enterprises exist to combat social problems through entrepreneurial activity. These new terms relate to organizations that explore social activities, some regularly and some occasionally. Nevertheless, only time will tell what the future holds for social entrepreneurship as a field, but the future looks promising. Rasheda L. Weaver

Related topics

Economics, 40(3), 693–714. https://​doi​.org/​10​ .1007/​s11187​-011​-9398​-4 Mair, J., & Marti, I. (2006). Social entrepreneurship research: A source of explanation, prediction, and delight. Journal of World Business, 41(1), 36–44. https://​doi​.org/​10​.1016/​j​.jwb​ .2005​.09​.002 Nicholls, A. (2010). The legitimacy of social entrepreneurship: Reflexive isomorphism in a pre–paradigmatic field. Entrepreneurship Theory and Practice, 34(4), 611–633. https://​ doi​.org/​10​.1111/​j​.1540​-6520​.2010​.00397​.x Short, J. C., Moss, T., & Lumpkin, G. T. (2009). Research in social entrepreneurship: Past contributions and future opportunities. Strategic Entrepreneurship Journal, 3(2), 161–194. https://​doi​.org/​10​.1002/​sej​.69 Stephan, U., Uhlaner, L. M., & Stride, C. (2014). Institutions and social entrepreneurship: The role of institutional voids, institutional support, and institutional configurations. Journal of International Business Studies, 46(3), 308–331. https://​doi​.org/​10​.1057/​jibs​.2014​.38 Weaver, R. L. (2019). Social enterprise and the capability approach: Exploring how social enterprises are humanizing business. Journal of Nonprofit & Public Sector Marketing, 32(5), 427–452. https://​doi​.org/​10​.1080/​10495142​ .2019​.1589630

Commercialism Hybrid organizations Social enterprise Triple bottom line

Social responsibility of nonprofit organizations

Further reading and references

Social responsibilities are the moral obligations that nonprofits have toward wider society, for example, to treat stakeholders fairly and respectfully, limit impacts on the natural environment, and follow the law and ethical custom. In recent years, the understanding of nonprofit social responsibilities has expanded to include values-driven behavior. This encompasses the voluntary adoption of stances (e.g., on transgender rights), practices (implicit-bias training), and technologies (solar panels) in the service of social causes that are not necessarily central to a nonprofit’s core mission.

Austin, J., Stevenson, H., & Wei-Skillern, J. (2006). Social and commercial entrepreneurship: Same, different, or both? Entrepreneurship Theory and Practice, 30(1), 1–22. https://​doi​.org/​10​ .1111/​j​.1540​-6520​.2006​.00107​.x Dees, J. G. (2001). The meaning of “social entrepreneurship”. Duke Fuqua. https://​ centers​ .fuqua​.duke​.edu/​case/​wp​-content/​uploads/​ sites/​7/​2015/​03/​Article​_Dees​_M​eaningofSo​ cialEntrep​reneurship​_2001​.pdf Defourny, J., & Nyssens, M. (2010). Conceptions of social enterprise and social entrepreneurship in Europe and the United States: Convergences and divergences. Journal of Social Entrepreneurship, 1(1), 32–53. https://​ doi​.org/​10​.1080/​19420670903442053 Lepoutre, J., Justo, R., Terjesen, S., & Bosma, N. (2011). Designing a global standardized methodology for measuring social entrepreneurship activity: The Global Entrepreneurship Monitor social entrepreneurship study. Small Business

Shawn Pope

Definition

Context

Nonprofit social responsibilities became a major topic in the 1990s, when a number of scandals shook public confidence. For

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example, in 1995 the CEO of United Way, the world’s largest privately funded nonprofit, was convicted of diverting about $1.2 million of the nonprofit’s funds for personal use. Likewise, in 1997 the founder of Foundation for New Era Philanthropy was convicted of embezzling about $135 million from donors on the false pretense that the donations would be returned once a matching donor had been found. The 1990s were a natural time for the subject of nonprofit social responsibilities to emerge as, during that time, the nonprofit sector was experiencing a rapid expansion. For example, from 1990 to 2000, the number of United States’ foundations grew by 75 percent, from about 32,000 to 56,000 (Statista, n.d.). At the same time, the sector began to attract interest from billionaires, a trend that has continued today. As of 2021, about 200 billionaires have taken the “giving pledge,” promising to donate at least half of their wealth while they are living or upon death. At the same time, corporations were becoming significant players in the nonprofit sector. For instance, the largest foundation in the world today is that of Novo Nordisk, created in 1989 and currently commanding about $70 billion in assets. Fears that massive nonprofits were behaving badly and being managed for elite private interests led to a first wave of social responsibility initiatives in the 1990s and 2000s. Organizations emerged then to accredit nonprofits as meeting standards of accountability (e.g., the Better Business Bureau created its charity seal in 2003), provide donors with data, ratings, resources, and search tools to ensure that their funds are well spent (Charity Navigator, est. 2001), and monitor nonprofits for wrongdoing (CharityWatch, est. 1992). These initiatives are still proliferating today as the field of nonprofit responsibility has become a large, decentralized, and polycentric movement, bustling with standards, codes, alliances, pledges, and conferences.

In practice

Nonprofit social responsibilities can be divided into specific dimensions, which nonprofit boards and executives can systematically consult to ensure that they are meeting their social obligations.

Mission Nonprofits exist to supply social goods that are underprovided by markets and the government. Nonprofits have a responsibility to live up to this calling by addressing themselves to important causes, rather than to ones that are trivial or divisive. Once they commit to a worthwhile mission, nonprofits should pursue it tenaciously, guarding themselves against co-optation and corruption. Lawfulness Nonprofits have a responsibility to follow the law – the body of statutes and regulations that, in democratic societies, ideally reflects the will of the people and, altogether, ensures that social welfare is maximized. Crimes such as fraud and embezzlement not only harm their victims but also erode public trust in the nonprofit sector. Nonprofits have a higher obligation also to support the integrity of the legislative process and, for example, should not lobby for laws that benefit themselves at the expense of wider society. Ethics Many prescriptions for good behavior are not written into law, but exist as ethical principles and customs that are widely held in a particular nation or culture. For nonprofits, ethics may concern such things as the treatment of whistleblowers, whether donor information should be kept confidential, and what employees can say on social media in their capacity as private citizens. As a best practice, nonprofits should formalize their ethical obligations into a Code of Conduct that becomes part of employee training. Governance The board, CEO, and senior executives are responsible for governing nonprofits. As they have the most power, the standards of responsibility are highest for them. Governance refers to rules, processes, and procedures that define the roles of these constituents, how they are chosen, as well as how they are overseen and compensated. Governance issues that have become topical in recent years are (excessive) CEO pay and (the lack of) gender and equity diversity among board members.

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Accountability This means that the nonprofit can explain and justify its actions and that its members will be held responsible for legal or ethical breaches. To promote accountability, nonprofits should act professionally, adopt rationalized structures, and document, measure, and monitor their impacts. They should also be transparent, producing timely, accurate, and comprehensive reports to give their constituents a clear sense of what is happening at the organization. Donors, for example, should have all the necessary information to ensure that their donations are used only for intended purposes in an efficient manner. Stakeholding Nonprofit operations are likely to impact many stakeholders, including employees, community members, and served communities. Because nonprofits can affect these groups, nonprofits have a moral obligation to take their needs, values, and interests into account. Stakeholders should be treated fairly and respectfully, not as obstacles to be manipulated in the pursuit of the nonprofit’s mission. Nonprofits should also consider their impacts upon stakeholders that have no capacity to represent themselves, such as the natural environment, unborn generations, and impoverished members of surrounding communities. Citizenship Nonprofits have an obligation to strengthen the nonprofit sector. Individual nonprofits can do this by being “model citizens” that comport themselves in a way that brings honor upon the collective enterprise. They may share information with their peers on what was most successful in their own organizations. They may collaborate with other nonprofits to create institutions that will benefit everyone, for example, by building a standardized application for grant proposals. As a final example, nonprofits can serve on city-level councils to represent the sector on issues of common concern before government leaders.

Future directions

As the issue of nonprofit social responsibility continues to establish itself, it is likely that the sector will continue to develop standShawn Pope

ardized solutions to the complex problems that are involved. Some of the professional prescriptions that have already been created include codes of conduct, statements of core values, and guidelines for the production of sustainability reports, each of which has diffused around the world in recent decades to become commonplace and, in some cases, even taken-for-granted features of the modern nonprofit. The new focus on nonprofit responsibilities may also encourage a gradual replacement of nonprofit leaders who have deep experience in particular fields of service by leaders who are able to manage diverse external constituencies and a medley of new social expectations that go far beyond the traditional social work of nonprofits. It is likely that nonprofits will continue to develop their own unique style of social responsibility as a means of centering their identities around practices and beliefs that have wider cultural value. The benefit of doing so is that it may imbue the nonprofit’s work with greater meaningfulness while supporting nonprofits’ social license to operate. Shawn Pope

Related topics

Accountability Governance Mission statement Public trust in nonprofit organizations Regulation of nonprofit organizations Transparency

Further reading and references

Lim, A. (2021). Nonprofits as socially responsible actors: Neoliberalism, institutional structures, and empowerment in the United Nations global compact. Current Sociology, 70(3), 454–471. https://​doi​.org/​10​.1177/​0011392120986216 Pope, S., Bromley, P., Lim, A., & Meyer, J. W. (2018). The pyramid of nonprofit responsibility: The institutionalization of organizational responsibility across sectors. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 29(6), 1300–1314. https://​doi​.org/​10​.1007/​s11266​-018​-0038​-3 Renz, P. S. (2007). Project governance: Implementing corporate governance and business ethics in nonprofit organizations. Physica-Verlag. Schatteman, A. (2013). Nonprofit accountability: To whom and for what? An introduction to the special issue. International Review of Public

S 543 Administration, 18(3), 1–6. https://​doi​.org/​10​ .1080/​12294659​.2013​.10805260 Statista. (n.d.). Number of foundations in the United States from 1990 to 2015. www​.statista​ .com/​statistics/​250878/​number​-of​-foundations​ -in​-the​-united​-states/​. Accessed 15th September 2023. Waters, R. D., & Ott, H. K. (2014). Corporate social responsibility and the nonprofit sector: Assessing the thoughts and practices across three nonprofit subsectors. Public Relations Journal, 8(3), 1–18.

Social return on investment Definition

The social return on investment (SROI) is a metric for measuring social impact utilizing the language and methods of corporate finance. The SROI metric aims to quantify the social value created by a specific project, policy, or organization for the purpose of assessing performance or allocating investment. A large part of the literature on the SROI metric focuses on the development of methodological approaches to constructing the metric and the challenges to accurately quantifying social value across a range of uses. In addition to the measurement and quantification purposes of the SROI, the SROI metric also functions as a stakeholder communication device. The flexibility of the method for constructing an impact valuation combined with the clarity of its power to communicate a narrative of impact led to widespread interest in its adoption in the late 1990s and early 2000s. As an artifact, the SROI metric contains imprimaturs of the political and economic forces of that era including: the rise of impact investing and venture philanthropy, the importation of business methods to the social sector, and the pressure to demonstrate measurable outcomes to secure stakeholder support. While the early efforts to develop unified approaches to measuring social value at the field level through the SROI have largely been abandoned, the SROI continues to endure in customized approaches developed at the organizational level for internal decision-making purposes and for use in mar-

keting and communication. As an artifact, the SROI metric exists in an increasingly crowded field of similar metrics, such as: B-Corp impact scores, Environmental, Social and Governance (ESG) measures, and certification schemes.

In practice: Methodological approaches to construction of the SROI

The earliest iterations of the SROI metric were developed based on the ROI metric in corporate finance (Emerson, 2003). In keeping with traditional ROI methodologies, the method involved the following steps: 1) identify the list of stakeholders for whom value is created; 2) establish a timeline for value creation (typically five to ten years); 3) describe the value created for each stakeholder; 4) convert the value created to monetary terms; 5) quantify the amount of value created for each stakeholder; 6) subtract the costs of producing the value created; 7) discount the net sum of future valuations to the present value using a discount rate; and 8) display the SROI as a sum of net present value, and as a ratio of the value created, less investment, over the investment amount. The range of methodological approaches utilized by early adopters of this general framework highlights two fundamental characteristics of the SROI: the attention to rigor in SROI calculations and a lack of standardization across the social sector. Even step one – identifying the list of stakeholders to include in the SROI – varied widely across methods. Some approaches identified the public sector as the focal stakeholder based on the idea that public sector functions as a proxy for society (REDF, 2001). As such, public sector savings can be reinvested through the democratic process to advance future societal goals. Following this approach, all social impact is translated to public sector income flows. For example, a social business venture employing formerly unhoused or unemployed individuals converts the move from unemployment to employment as the value of new taxes generated from employment income and public savings from reduction in welfare use. Alternatively, the Robin Hood Foundation, a New York City based foundation funding anti-poverty work, developed a SROI metric that identified the client as Kate Cooney

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the focal stakeholder, measuring impact in terms of the income boost for the client beneficiary resulting from foundation funded programming (Weinstein & Bradburd, 2013). In the Robin Hood Foundation SROI (termed the Benefit Cost or BC ratio) a move from unemployment to employment would be converted to a monetary value that captures the income boost for the individual from their welfare support to employment earnings, including the monetary value of health care insurance and other benefits. Finally, NEF, a foundation based in the UK, developed an influential methodological guide to the SROI that allows for maximum customizability (New Economics Foundation, 2007), and the numerator aggregates across different stakeholders chosen so both government savings and client income boosts could potentially be included. Due to key differences in determining the focal stakeholder(s) for constructing the SROI metric, even a standardized approach to determining the timeline, discount rate and denominator will not result in comparative SROI results (Cooney & Lynch-Cerullo, 2014).

Issues and debates: Methodological choices and challenges

In addition to the lack of standardization at the field level, the methodological challenges to generating SROI metrics at the organizational level include choices about how to calculate: the numerator, denominator, discount rate, and time frame to drive investment decisions across different types of investments. Numerator Different approaches to SROI narrow the calculation of the impact to a focal stakeholder or broaden to a combination of stakeholders. A numeration of impact that combines value accruing across several stakeholders may be larger than the SROI resulting from a methodology using a single stakeholder valuation strategy for the same initiative. Even for SROI approaches focusing on a single stakeholder, differences in methodological choices may produce SROIs with seemingly different scales of impact, for example, public sector savings focused SROIs may produce larger SROIs compared to SROIs that measure the Kate Cooney

income boosting potential for program or policy beneficiaries. A second area of concern is the differences with which organizations calculate the inputs for the SROI. For example, an SROI can be built using the results from a randomized controlled trial (RCT) evaluation of an organization’s programs or policy, a gold standard in evaluation research for isolating the causal impact for program effectiveness or be constructed based proxies from the economics research literature. Given that RCTs are expensive and not typically performed on a regular or widespread basis, the proxy approach is useful as organizational specific RCT-based study results can quickly become dated in rapidly shifting fields of practice. Proxies tie impact metrics to the best, most current research literature but might make it more difficult to identify a high performing program versus a low performing program since all will deploy the same proxies from a metrics bank. Additionally, while the promise of the SROI is the ability to compare apples to oranges by converting different types and scales of impact to financial proxies, and then aggregate for comparison purposes, the nature of the impact may require ongoing assessment to ensure validity of the measures and resonance with stakeholders. For example, due to welfare cliffs, where working combined with public savings can provide a better set of supports for individuals and families than just paid employment at lower levels of wages, SROIs might look higher even when the clients’ standards of living decline, further compromising interpretability. Further, public sector savings might make sense theoretically as a proxy for societal impact, but may not be motivating for donors and other stakeholders primarily interested in beneficiary well-being, not welfare state savings. Denominator The SROI metric computes value created, less investment, over investment to create the SROI. Choices must be made in terms of how to value the dominator of the ratio as well. Decisions include whether to look retrospectively or prospectively and what costs to aggregate. Some approaches look retrospectively, program by program, to establish a comparative SROI exercise (Cooney &

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Lynch-Cerullo, 2012), while other approaches might focus prospectively to calculate both the social return and the financial return to a lump sum business investment that would expand a socially oriented business operation (Emerson, 2003). Finally, there are methods that aim for a true social cost accounting approach, akin to cost-benefit analyses (CBAs), where a list of stakeholders produces both impact valuations and costs and the SROI aggregates the impact in the numerator position and the costs in the denominator (New Economics Foundation, 2007). Interpreting the results of the SROI, based on the choice of methods for calculating the denominator, require careful attention. Programs can yield higher SROIs simply by having less costly programs, but without a threshold of impact, these can lead to investing in low-cost initiatives versus those that are more expensive but achieve longer-term impact. One way around this is to establish thresholds for impact and use weights or other mathematical tools to adjust the results (Gargani, 2017). Comparing a program in startup mode where it is not at full capacity, to a program that is in the later phase of its lifecycle can also introduce distortion in the comparison. Even after careful consideration and adjustments to reduce these biases, the decision rules can shift how a SROI will guide investments. For example, an organization with only one project to invest in might go with the highest net social value, whereas one looking for the most efficient use of funding might look for the projects with the highest SROI projects which utilize the investments most efficiently until the funding is depleted (Ryan & Lyne, 2008). Discount rate and time frame The selection of a discount rate and time frame for impact in SROI calculations raise methodological questions as well. The practice of discounting future income flows to the present value in corporate finance accounts for both the time value of money and risk. Traditional calculations for applying the discount rate to social return calculations, building on protocols for CBAs in public policy settings, use the risk-free rate (such as the treasury-bill rate) for the appropriate time horizon. However, using a standard discount rate across projects reduces the ana-

lytic leverage of the SROI if potential investments are not risk-adjusted. Emerson et al. (2000) conducted some of the earliest work in this area, building on the range of interest rates that exist in social capital markets from sources such as grants, to Program Related Investment (PRI), and Community Development Finance Institution (CDFI) loans to create discount rates that reflect the risk profile associated with the types of capital supporting the enterprise. Other work in this area includes the “expected return” calculation, which multiplies the numerator by the “probability of the outcome” (Brest et al., 2009, p. 52), and more complex quantitative processes for calculating risk analysis using probability odds and incorporating uncertainty ranges into the final analyses (Williams & Parker, 2010).

Artifact and future directions

As an artifact, the SROI emerged at a time when pressure was on nonprofits and social sector organizations to demonstrate measurable outcomes. The underlying logics and values of the SROI corresponded with the field’s emphasis with efficiency, efficacy, and scale of impact. The SROI is one of several metrics that emerged at the time, including the Acumen Fund’s Best Alternative Charitable Option (BACO) (Trelstad, 2008) and the Impact Multiple of Money (IMM) developed by Y Analytics, Bridgespan Social Impact and The Rise Fund (Addy et al., 2019). Often funded by third parties, either public sector or donors, social sector organizations face measurement demands as accountability vehicles that enshroud third party goals into the measurement frameworks. An attractive dimension of the SROI is the ability to construct a narrative of value and impact that is built by the organization from the ground up, prioritizing and emphasizing the aspects of social return that matter the most to key stakeholders. As the field for novel social impact measurement approaches matures, the communication of impact remains central. Impact investors, while focused on impact also remain committed to specific causes and require a narrative that speaks to the issue that motivates their support (Barman et al., 2021). As the boundaries between the social sector and the business sector blur and companies face stakeholder pressure to demonstrate commitment to social and environmenKate Cooney

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tal goals, we see the proliferation of ESG accounting metrics that allow for firm-to-firm comparisons alongside the growth of bespoke certifications and idiosyncratic firm level impact measures. The SROI metric and the methodological complexities confronted by its adopters presaged the current era, an early illustration of the challenges of building standardized measures for impact. As this entry highlights, the use of metric-based narratives of social impact, while powerful for communicating with key stakeholders, require careful interpretation (at best) and, at worst, given the lack of standardization, contain opportunities to elide and obfuscate comprehensive social accounts of social and environmental performance. Kate Cooney

Related topics

Effectiveness of nonprofit organizations Impact investing Mission and economics Performance management Social economy Venture philanthropy

Further reading and references

Addy, C., Chorengel, M., Collins, M., & Etzel, M. (2019). Calculating the value of impact investing: An evidence-based way to estimate social and environmental returns. Harvard Business Review,  97(1), 102–109. https://​hbr​.org/​2019/​ 01/​calculating​-the​-value​-of​-impact​-investing Barman, E. (2016). Caring capitalism. Cambridge University Press. Barman, E., Hall, M., & Millo, Y. (2021). Demonstrating value: How entrepreneurs design new accounting methods to justify innovations. European Accounting Review, 30(4), 675–704. https://​doi​.org/​10​.1080/​09638180​ .2020​.1770113 Brest, P, Harvey, H., & Low, K. (2009). Calculated impact. Stanford Social Innovation Review,  7(1), 50–56. https://​doi​.org/​10​.48558/​ NRXJ​-JT31 Cooney, K. (2017). Legitimation dynamics: How SROI could mobilize resources for new constituencies. Evaluation and Program Planning, 64, 110–115. https://​doi​.org/​10​.1016/​ j​.evalprogplan​.2016​.11​.010 Cooney, K., & Lynch-Cerullo, K. (2012). Social return on investment: A case study of JVS. JVS Boston. www​.jvs​-boston​.org/​wp​-content/​ uploads/​2017/​12/​SROI​-Report​_web​.pdf Cooney, K., & Lynch-Cerullo, K. (2014). Measuring the social returns of nonprofits and

Kate Cooney

social enterprises: The promise and perils of the SROI. Nonprofit Policy Forum, 5(2), 367–393. https://​doi​.org/​10​.1515/​npf​-2014​-0017 Cooney, K., & Williams Shanks, T. R. (2010). New approaches to old problems: Market‐based strategies for poverty alleviation. Social Service Review, 84(1), 29–55. https://​doi​.org/​10​.1086/​ 652680 Ebrahim, A. (2019). Measuring social change: Performance and accountability in a complex world. Stanford University Press. Ebrahim, A., & Rangan, V. K. (2014). What impact? A framework for measuring the scale and scope of social performance. California Management Review, 56(3), 118–141. https://​ doi​.org/​10​.1525/​cmr​.2014​.56​.3​.118 Emerson, J. (2003). The blended value proposition: Integrating social and financial returns. California Management Review, 45(4), 35–51. https://​doi​.org/​10​.2307/​41166187 Emerson, J., Wachowicz, J., & Chun, S. (2000). Social return on investment: Exploring aspects of value creation in the nonprofit sector. REDF. https://​redf​.org/​wp​-content/​uploads/​REDF​-Box​ -Set​-Vol​.​-2​-SROI​-Paper​-2000​.pdf Gargani, J. (2017). The leap from ROI to SROI: Farther than expected? Evaluation and Program Planning, 64, 116–126. Lingane, A., & Olsen, S. (2004). Guidelines for social return on investment. California Management Review, 46(3), 116–135. https://​ doi​.org/​10​.2307/​41166224 New Economics Foundation (NEF). (2007). Measuring real value: A DIY guide to social return on investment. https://​neweconomics​ .org/​2007/​05/​measuring​-real​-value Nickel, P. M., & Eikenberry, A. M. (2009). A critique of the discourse of marketized philanthropy. American Behavioral Scientist, 52(7), 974–989. https://​doi​.org/​10​.1177/​ 0002764208327670 Oster, S. M. (1995). Strategic management for nonprofit organizations: Theory and cases. Oxford University Press. The Roberts Enterprise Development Fund (REDF). (2001). SROI methodology: Analyzing the value of social purpose enterprise within a social return on investment framework. https://​redfworkshop​.org/​wp​-content/​uploads/​ 2017/​06/​SROI​-Methodology​-2001​.pdf Ryan, P. W., & Lyne, I. (2008). Social enterprise and the measurement of social value: Methodological issues with the calculation and application of the social return on investment. Education, Knowledge and Economy, 2(3), 223–237. https://​doi​.org/​10​.1080/​ 17496890802426253 Trelstad, B. (2008). Simple measures for social enterprise. Innovations: Technology,

S 547 Governance, Globalization, 3(3), 105–118. https://​doi​.org/​10​.1162/​itgg​.2008​.3​.3​.105 Weinstein, M. M., & Bradburd, R. (2013). The Robin Hood rules for smart giving. Columbia University Press. Williams, J. F., & Parker, J. C. (2010). Measuring the sustainable return on investment (SROI) of waste-to-energy. 18th Annual North American Waste-to-Energy Conference, 43932, 173–191. https://​doi​.org/​10​.1115/​nawtec18​-3552

Stakeholder management Definition

Stakeholder management refers to a set of concepts and techniques for identifying and engaging with people who have a stake or abiding interest in the mission and activities of a nonprofit organization. A stakeholder is a person (or even an organization) who affects or is affected by the work of a nonprofit organization. Those who affect a nonprofit organization are generally people who have influence over the supply and distribution chain, including those who control the inflow of resources and the outflow of programs and services. They have a stake in how those resources are deployed and in the outcomes of those actions. Those affected by the organization are people (or organizations) whose status or behavior are significantly impacted by the actions of the organization. This impact may be indirect as well as direct, but generally the impact is not trivial. They want to have a voice in how the nonprofit organization behaves to protect their interests. It is important to recognize that stakeholders can be internal or external to the organization and some stakeholders, like employees and volunteers, both affect and are affected by the actions of the organization.

In practice

Stakeholder management involves a concerted effort to answer the following questions:

Who are the stakeholders of the organization? There are many methods for identifying stakeholders. For example, portions of staff and board meetings could be devoted to brainstorming around the broad question, “Who are the people/institutions that affect or are affected by our work?” This question could generate a very long list without much focus or clarity, or it might lead to a very short list of only the most important stakeholders. The brainstorming session will be more productive if participants are given some parameters. For example, they could be asked to identify internal and external stakeholders in the organization’s so-called task environment – the environment of its daily activities in pursuit of the mission. This could be prompted by the question, “Who are the internal/external stakeholders in our supply chain of material, human, and information resources that we use to fulfill our mission?” Another brainstorming prompt might be, “Who are the internal/external stakeholders who affect or are affected by how we transform those resources into specific programs and actions?” Finally, “Who are the internal/ external stakeholders in our distribution chain – the way we target and deliver programs and services to the community?” An important concern here is the time frame for the analysis. Should the organization focus on proximate stakeholders, distant stakeholders, or even future generations of stakeholders? This may depend on the mission of the organization or the purpose of the stakeholder management plan. For example, an environmental advocacy organization may routinely give very high priority to future generations. If the stakeholder management plan is for a specific project or initiative, then the focus will be even more bounded and perhaps linked to the various phases of the project – design, implementation, evaluation. How do stakeholders affect or how are they impacted by the organization’s actions? Next it is important to ask about the specific interests, expectations, and stakes of various stakeholders. How exactly do they positively or negatively affect the organization? How exactly are they positively or negatively affected by the organization? What exactly Kevin P. Kearns

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are their interests and expectations? Can those interests and expectations be managed through thoughtful engagement strategies? Is there alignment or misalignment between what the organization is doing and the interests of key stakeholders? The values of some stakeholders may be at odds with those of the organization. In some instances, stakeholders might not even be conscious of their stake or interest in the organization. Is it necessary or desirable to engage stakeholders? If so, how should they be engaged? Frameworks for addressing this question generally classify stakeholders in a two-by-two matrix with stakeholder power on one axis (high to low) and stakeholder interest/stake (high to low) on the other axis. For example, a local United Way office may make a modest operating grant to a nonprofit to support its daily operations. In this instance the United Way might be classified as highly powerful but also with a relatively low interest/stake in the organization. This is because the United Way controls valued resources, giving it power, but it makes so many grants each year that its interest/stake in one relatively modest operating grant is not intense. How does an organization engage a stakeholder with high power but moderate to low interest/stake? The theory of stakeholder management says that the primary goal in this instance is simply to keep the stakeholder satisfied and maintain their confidence in the organization. Periodic reports to these stakeholders may suffice. Personal contact may be minimal except when the grant is renewed. On the other hand, a wealthy individual donor might set up a very large and potentially impactful donor-advised fund (DAF) at a community foundation. The donor and their chosen representatives are, therefore, not only very powerful stakeholders but highly interested as well because they have a very large stake in the success or failure of the donor-advised fund (DAF) to meet its goals. In this instance, it behooves the community foundation to engage these powerful and highly invested stakeholders much more attentively, perhaps with very frequent reports on how grants from the DAF are advancing the donor’s vision. This would Kevin P. Kearns

likely require a great deal of personal contact with the donor and their representatives. Stakeholders with low power might be managed differently but this does not mean they are ignored or are of lower priority, especially when they have a high stake. For example, people who live on the street might have little formal power in shaping public policy on housing, but they have a huge interest/stake in the advocacy efforts of a nonprofit organization that is attempting to secure funds for transitional housing from the state legislature. This nonprofit might want to exert significant effort to empower this stakeholder group by helping to organize them, training them in advocacy techniques, and embracing them as partners in the advocacy campaign. One can easily criticize these stakeholder management matrices for being simplistic, static, and complicit in perpetuating the status quo among stakeholders in their relative power and interest. These issues are addressed below.

Current issues and debates Purpose and ethics Stakeholder management can serve many purposes, some more laudable than others. In its best form, it is used to ensure that the organization is mindful of how its work affects or is affected by people or other organizations. Thus, stakeholder management can be an important component of an organization’s accountability strategy and can, over time, help to build a culture of empathy within the organization. Ideally, all nonprofit organizations should seek close alignment with stakeholder values and needs but perfect alignment is neither always possible nor even desirable. For example, a nonprofit that advocates for fair housing would surely be at odds with financial institutions that practice discriminatory lending. Here the core values of competing stakeholders may never perfectly align, but it would be useful to all stakeholders to understand as deeply as possible the interests of others if only to adapt their negotiating tactics or even competitive strategies. But stakeholder analysis can also be used for less noble purposes or have unintended negative consequences. For example, focusing only on the most powerful or impactful

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stakeholders will have the effect of perpetuating embedded power structures, leaving out marginalized populations who may indeed have the greatest stake. Relatedly, stakeholder analysis can ignore diversity, equity, and inclusion especially if the people performing the analysis and designing the stakeholder management strategy are primarily members of the dominant majority. This can easily create a stakeholder management strategy that creates a kind of echo chamber where only certain interests are given credence. Lastly, stakeholder management can easily morph into stakeholder manipulation if a powerful and arrogant organization believes it can mold stakeholder expectations to advance their own, potentially selfish, agenda. In this instance, stakeholder management is akin to marketing and sales. Continuous engagement and costs and benefits As with many management concepts discussed in this book, stakeholder management is most effective when it is done routinely and on a continuous basis. Doing stakeholder analysis only periodically, as in a strategic planning process, can offer only a snapshot of stakeholders and their interests when in fact they are in continuous flux. Also, as is the case with other management concepts, the metrics of success of stakeholder management in terms of costs and benefits are not immediately apparent and probably never will be despite advancements in methods and practices. We do, however, have ample empirical evidence that organizational engagement with some stakeholders, like donors and volunteers, pays dividends in terms of retention and loyalty.

Future directions Diversity, equity, and inclusion Nonprofit organizations and their stakeholders are increasingly attentive to issues of diversity, equity, and inclusion. As noted above, however, many of the established stakeholder management frameworks prioritize powerful stakeholders. New frameworks must pay greater attention to stakeholders who have been historically marginalized or treated paternalistically by nonprofits. Moreover, the nonprofit sector itself must

confront its own mixed track record with respect to diversity, equity, and inclusion in the ranks of leadership and governing boards. Social media and online stakeholder engagement Nonprofits are becoming more sophisticated in their use of social media, telecommunications, and web technology, though still lagging the business sector. The COVID crisis likely forced some nonprofits to quickly accelerate their investments in social media but in a crisis management mode and not necessarily with a thoughtful plan. Videoconferencing through a variety of available platforms has become the norm in some organizations to communicate with both internal and external stakeholders. Of course, many important stakeholders may not have access to this technology. Future generations Many organizations that practice stakeholder management presume that the interests of future generations are too uncertain or too distant to take seriously. Now, however, our world teeters on the brink of disaster on many fronts such as the environment, global conflict, new diseases, threats to democracy, and many more that pose existential threats to current and future generations. In the face of rapidly accelerating threats the definition of future generations may need to be redefined to include not just distant generations but people who are already here among us. Kevin P. Kearns

Related topics

Accountability Advocacy Beneficiaries Co-production Cultural competence Public relations Resilience management Strategic analysis: SWOT

Further reading and references

Hoefer, R., & Twis, M. K. (2018). Engagement techniques by human services nonprofits: A research note examining website best practices. Nonprofit Management and Leadership,

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550  Elgar encyclopedia of nonprofit management, leadership and governance 29(2), 261–271. https://​doi​.org/​10​.1002/​nml​ .21329 Mato-Santiso, V., Rey-García, M., & Sanzo-Pérez, M. J. (2021). Managing multi-stakeholder relationships in nonprofit organizations through multiple channels: A systematic review and research agenda for enhancing stakeholder relationship marketing. Public Relations Review, 47(4). https://​doi​.org/​10​.1016/​j​.pubrev​.2021​ .102074 Pedrini, M., & Ferri, L. M. (2019). Stakeholder management: A systematic literature review. Corporate Governance: The International Journal of Business in Society, 19(1), 44–59. https://​doi​.org/​10​.1108/​cg​-08​-2017​-0172

Strategic analysis: SWOT Definition

SWOT analysis is a tool for documenting and analyzing an organization’s Strengths, Weaknesses, Opportunities, and Threats. Strengths and Weaknesses are internal to the organization while Opportunities and Threats are found in the external strategic environment. SWOT analysis is a crucial part of a strategic planning process, but it can be used at any time to assess a nonprofit’s readiness to undertake a new activity, its preparedness (i.e., resilience) for rapidly changing events, or to adjust its strategic direction. When done correctly, SWOT analysis can help a nonprofit organization clarify important strategic issues or choices by assessing how well (or poorly) its capabilities are aligned with the changing circumstances in the external environment. Thus, SWOT analysis can help an organization improve or maintain a strong strategic fit with its environment and the needs and expectations of its stakeholders. Strengths and weaknesses can be manifested in several ways. A program or service, for example, could be either a strength or weakness depending on its track record of performance or its contribution to the organization’s mission. Even strong programs might be near the end of their natural lifecycle and, therefore, no longer counted among the strengths of the organization. Similarly, the organization’s operations and procedures may be either strengths or weaknesses depending on whether they contribute Kevin P. Kearns

to (or detract from) its efficiency, accuracy, or any other measure of operational performance. A capital asset, such as a facility that is superbly situated to serve clients, would be considered a strength; it would be a weakness, however, if the building is poorly located or for any other reason that does not advance the mission. Strengths and weaknesses might also relate to intangibles like the organization’s brand recognition, consumer loyalty, employee commitment and talent, organizational culture, governance effectiveness, or political support. What about a poor rating from a watchdog organization like Charity Navigator? One might be tempted to call that a threat because its origins are in the external environment. But a poor rating or poor reputation should be considered weaknesses, because it is to some extent controllable and, therefore, can be reversed with concerted effort. Finally, strengths and weaknesses may be latent, such as surplus resources that are available for deployment as needed. Simply stated, an assessment of strengths and weaknesses should include all programs and services as well as the resources, tangible and intangible, that contribute to or detract from the mission of the organization. Opportunities and threats exist in the external environment and, as such, they are not controlled by the organization. Whereas strengths and weaknesses can be changed by the organization, opportunities and threats merely exist in or emerge from the environment and, therefore, cannot be controlled. While their existence cannot be altered, a nonprofit organization can respond (or not) depending on its strengths and weaknesses. Opportunities and threats can manifest in many ways. Changes in the competitive environment, for example, could have either positive or negative implications for an organization. Similarly, stakeholder needs or interests could shift with either positive or negative impacts. Trends in economics, technology, or demographics may be favorable or unfavorable for the organization. In fact, it is possible for an external trend to pose both a threat and an opportunity, depending on circumstances. The list of environmental forces that could potentially present opportunities or threats is almost endless, which is why other tools presented in this book like Business Planning, Industry Analysis, Program Evaluation, Resilience Management

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and Service Portfolio Analysis and are helpful as categorizing frameworks.

In practice

An effective SWOT analysis begins by making four lists of internal and external factors – strengths, weaknesses, opportunities, and threats – but it must go much deeper than mere list-making. The truly insightful revelations from a SWOT analysis emerge only when the process reveals important interactions, alignments, or misalignments between strengths and weaknesses on the one hand and opportunities and threats on the other. In other words, it is the pairing of internal and external forces that reveals at least four different types of strategic choices (Kearns, 1992): Comparative advantage An organization enjoys a comparative advantage when one or more of its demonstrated strengths align with one or more specific opportunities in the external environment. For example, a particularly strong program might align nicely with a new funding stream from the government or a donor. In this instance, the organization’s track record of performance gives it a comparative advantage when applying for the new funding stream. From a mission-fulfillment perspective, such an alignment helps the organization understand how to enhance its value proposition to the communities it serves and stakeholders who provide resources. In a competitive sense, the alignment of specific strengths with certain opportunities allows the organization to capitalize on those opportunities more quickly or more effectively than other organizations. Thus, the key strategic question or issue facing decision makers is how to leverage the organization’s current or potential comparative advantages to advance its mission and better serve its stakeholders. Mobilization Sometimes particular strengths align with certain environmental threats and, therefore, can be mobilized to help the organization dodge or at least minimize the negative impacts of those threats. For example, a nonprofit organization might face the threat of a government cutback that would jeopardize one of its programs or services. The loss of

the funding might even threaten the organization’s survival. Let’s assume that one of the strengths of the organization is its long-term relationship with certain government policy makers. This strength might be mobilized to lobby policy makers to either avert the threat of the government cutback or to minimize its impact. The strategic question facing the organization is how and when to mobilize these strengths to advance its mission. Invest/divest/collaborate There are instances when certain weaknesses in an organization align in such a way as to impede or prevent its efforts to pursue specific opportunities in the external environment. In other words, an opportunity exists, yet the organization is very poorly prepared to pursue it. This usually presents a difficult choice to leaders of the nonprofit organization. They must decide whether an investment of money and effort will transform the weakness into a strength or whether they should simply divest or “walk away” from the opportunity. Ethics may even come into play with this question: If another agency is really well prepared to pursue the opportunity, should the organization invest finite charitable resources simply to compete with them? Is this the best way to advance the public’s interest? What if it even means going out of business and helping other organizations, who are better prepared, address community needs? An alternative would be to find a collaborator with whom to pursue an opportunity. Damage control Lastly SWOT analysis, if done well, can illuminate, and even predict, conditions in which the organization is dangerously vulnerable to certain immediate or emergent threats because of their unfortunate alignment with the organization’s weaknesses. For example, during the COVID pandemic the vulnerabilities of many nonprofit organizations were apparent. Perhaps they did not have reserve resources to sustain them when previously reliable funding sources were suddenly cut. Perhaps they lacked the ability to pivot their services to meet new community needs during the pandemic. Or perhaps they were simply ill-prepared to adjust their working conditions to remote or hybrid models. These Kevin P. Kearns

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organizations typically engaged in some rather furious damage control actions to adapt to the rapidly changing landscape; some could not control the damage and closed their doors forever. The Resilience Management entry is particularly relevant to this question. The SWOT acronym, while catchy and easy to remember, is rather unfortunate because it implies that the organization should first identify its strengths and weaknesses and then examine opportunities and threats in the external environment. The sequence should be in the reverse. Opportunities and threats should be identified first (or at least simultaneously) before strengths and weaknesses. This is because the organization cannot control opportunities and threats; they exist in or emerge from the environment.

Debates and future directions

Some have argued that the value of SWOT analysis is limited because it reflects only a snapshot of a particular point in time while, in the real world, all four components – strengths, weaknesses, opportunities, and threats – are constantly changing (Camillus, 2016; La Piana, 2018). To address this valid critique, a nonprofit organization should not wait for its periodic strategic planning process to engage in SWOT analysis but, rather, it should institute routines wherein SWOT analysis is done on a continuous basis. There is no crystal ball to predict the future, but a nonprofit organization can employ methods to continuously monitor the rapidly changing environment while simultaneously taking stock of its capabilities to respond effectively. For example, an abbreviated SWOT analysis could be built into every meeting of the senior staff. Moreover, members of the governing board, often excluded from SWOT analysis because of its technical aspects, could be engaged by periodically conducting even a rudimentary SWOT analysis at board meetings. Kevin P. Kearns

Related topics

Branding and brand strategies Capacity building Collaboration strategies

Kunle Akingbola

Growth strategies Retrenchment strategies Service portfolio analysis Stakeholder management Strategic planning

Further reading and references

Camillus, J. C. (2016). Wicked strategies: How companies conquer complexity and confound competitors. University of Toronto Press. Helms, M. M., & Nixon, J. (2010). Exploring SWOT analysis – where are we now? Journal of Strategy and Management, 3(3), 215–251. https://​doi​.org/​10​.1108/​17554251011064837 Kearns, K. P. (1992). From comparative advantage to damage control: Clarifying strategic issues using SWOT analysis. Nonprofit Management and Leadership, 3(1), 3–22. https://​doi​.org/​10​ .1002/​nml​.4130030103 La Piana, D. (2018). The nonprofit strategy revolution: Real time strategic planning in a rapid response world (2nd edn.). Turner Publishing.

Strategic human resource management The concept and practice of strategic human resource management (SHRM) is central to nonprofit organizations. SHRM touches upon some of the fundamental elements of nonprofits including their mission, values, and the question of sustainability. Nonprofits are uniquely complex and dynamic organizations that are defined by continuously emergent community needs and social change. Therefore, they must be responsive, adaptive, and innovative to address the challenges, issues, and opportunities in society that underlie their mission and values. Perhaps the most critical success factor in the systems, processes, and interactions that nonprofits require to manage the complexity and foster their ability to facilitate the mission, values, and adapt to change is the people that make up their human resources. First, it is important to understand what SHRM is about. This will help to introduce the discussion of the characteristics and context of nonprofits and the links to SHRM.

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Definition: Human resource management26

The research and practice on management of human resources have evolved over the past half century. Although human resource management (HRM) has progressed from the days of purely administrative personnel functions, HR professionals continue to advocate for the need for HRM to transform and operate differently to better meet the needs of organizations. In contemporary literature, HRM is the systematic management of people with an overall objective of supporting the goals of the organization (Akingbola & Toupin, 2021). It is a continuous process. Thus, “HRM has been defined as the process of managing human talent to achieve an organization’s objectives” (Belcourt et al., 2017, p. 2). HRM encompasses a broad range of specific practices, policies, and the overarching philosophies pertaining to the management of human resources in organizations. HRM practices include functions such as recruitment, training, compensation, and performance management. The policies guide and direct the practices, while the philosophies underline the values and principles that inform both the practices and the policies. The practices, policies, and philosophies ideally combine to form a system that attracts, develops, motivates, and retains employees and ensures the effective functioning of the organization and its members. The HRM system enables an organization to effectively deploy its workforce that includes employees and volunteers in nonprofits. The link to organizational goals reinforces the importance of HRM in the strategy of the organization and underlies the concept of SHRM. HRM in nonprofits has been categorized into four interrelated dimensions: i) informal HRM; ii) non-strategic HRM; iii) strategic HRM; and iv) social alignment HRM (Akingbola, 2013b). Informal HRM is characterized by a lack of any formal HRM structure, clear policies, processes, and systems to facilitate the mission. HRM is absent or at best, it is provided at the most basic administrative function level. Non-strategic HRM is deployed to help the legitimization effort of the organization. The legitimization process

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shapes the HR practices that are developed and implemented in the organization. The goal of NHRM is to ensure that the human capital of the organization is used to gain access to the resources it needs to survive by meeting the expectations of powerful stakeholders. Strategic HRM emphasizes practices that are aligned with the strategy, the mission, and values of the nonprofit. HRM is also deployed to help the nonprofit to adapt to change in the environment. HR practices in recruitment, retention, and training are critical components of the adaptive strategy and change readiness of the nonprofit. At the social alignment level of HRM, the relationship between the mission, values, and why employees are attracted, motivated, and committed to the goals of a nonprofit are the core of HRM. In addition to the premise of the two traditional forms of exchange, economic and social, nonprofits are nested in a third exchange that derives from the mission, values, and the environment. Nonprofits have an additional level of exchange that is embedded in their unique characteristics, the social alignment. It is the outcome of the built-in exchange that employees, volunteers, and other stakeholders expect based on the mission of the organization. SHRM is possible at the social alignment and strategic levels of HRM in nonprofits.

How is SHRM different?

In simple terms, SHRM is about the critical importance of human resources to the strategy, the goals of the organization, and the capability of the organization to adapt to change (Wright & Boswell, 2002; Wright & Snell, 1998). Traditional HRM is focused on transactional and administrative functions and processes. Although important, the transactional focus only facilitates the people functions without a clear link to the strategic goals of the organization. For example, benefits administration is important to meet the health needs of employees. However, it does not address how the benefits offered by the organization are related to employee demographic and social trends and the link to the people strategy of the organization. Moreover, traditional HRM was explained in terms of somewhat singular, separate, and

Sections of the paper are adapted from Akingbola and Toupin (2021).

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isolated functions that are not aligned with other HRM functions. SHRM extends the conceptualization of HRM. SHRM has been defined as “the pattern of planned HR deployments and activities intended to enable an organization to achieve its goals” (Wright & McMahan, 1992, p. 298). HR practices are explained as a bundle or system that works together to enhance the skills and motivation of the employees (Lepak et al., 2006). SHRM builds and sustains the human capital pool of the organization by motivating employees through the deployment of multiple HR practices that facilitate the effectiveness of the HR system. SHRM fundamentally links the formulation and implementation of internally consistent HR practices and the human resource pool to strategy. The focus of SHRM suggests an emphasis on the alignment of HRM to the current and changing goals of the organization. SHRM connects HR practices to strategy and the performance of the organization. For an organization to be effective, SHRM means the organization must continuously scan, analyze, and adapt to the environment through the lens of strategy as well as develop and implement integrated HR practices.

In practice: SHRM in nonprofit organizations

Although it is long overdue, HRM is slowly emerging as a major management issue in nonprofits. Nonprofits understand the importance of strategic management in shaping organizational performance. Nonprofit managers are aware and understand the need to provide quality service to clients, the community, and meet the expectations of their stakeholders. They are intimately aware that many of their clients and users of the services of their organizations are marginalized and vulnerable members of the community. Managers know that a good relationship with funders is important to the mission of their organization. And they understand the links between the diverse and relevant components of the organization and how a strategic approach is important to engage employees, volunteers, the community, and to manage cost simultaneously. To support the mission, meet the performance expectations of the community, and address the challenges, it is imperative for the nonprofit organization Kunle Akingbola

to fully integrate the HRM function with all of its strategic decisions. Arguably more than the for-profit and public sectors, the most critical factor in the development and implementation of strategy that will integrate the components of a nonprofit and help to facilitate the mission of the organization is the management of human resources. This is the foundation of SHRM in nonprofit organizations. The human and social capital characteristics of nonprofits include the skills, knowledge, behavior, and social networks of employees and volunteers. The link between SHRM and nonprofit HRM (NHRM) is how nonprofits manage these human and social capital characteristics and the HRM systems deployed to facilitate the mission and strategic goals of the organization (Akingbola, 2013a). The extent to which a nonprofit can effectively integrate its core characteristics, that is, the mission and values, the unique context – employees, volunteers, and stakeholders – and the external factors such as government policy, community needs, and funding in the development of SHRM practices can impact the effectiveness of the organization. A-Way Express is a Canadian nonprofit with a mission to create work opportunities for consumers/survivors of the mental health system where its employees are accountable and independent. The organization provides an example of how a nonprofit can adopt a SHRM approach. Starting with strategy, the organization emphasizes social and environmental values by providing a business based on same-day “green” courier services, delivering documents and small packages either on foot or using public transit. A-Way’s strategy is aligned with SHRM both vertically and horizontally. The strategy of the organization leverages the competencies of the employees and volunteers to facilitate the mission of the organization. At the horizontal level, SHRM are developed and implemented to provide a supportive workplace that is characterized by an emphasis on health and flexible HR practices. For example, employee participation is a core part of governance and decision-making in the organization. Employees can take time off without fear of losing their position. In short, SHRM is the basis of how A-Way delivers value to stakeholders.

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Characteristics of nonprofit SHRM There are many factors that shape SHRM in nonprofits. However, not all factors are equal. Certain factors constitute the important, distinctive drivers of SHRM in nonprofits. But even more important are factors that define the essential characteristics of NHRM. Mission and values. The mission is what nonprofit organizations are all about (Quarter, 1992). The causes and the people that a nonprofit serves through its mission are the foundation of strategy. Similarly, the values of a nonprofit organization emphasize the overarching principles and beliefs that guide organizational activities and management decisions. The centrality of mission and values means that they are embedded in the SHRM systems of a nonprofit. Mission and values are key characteristics of NHRM. Labor intensive. The social goods and services that nonprofits provide are labor intensive. Nonprofits cannot simply replace their employees and volunteers by investing in technology or automating their processes, even though technology is playing an increasingly important role. As a result, human resource is the core asset of nonprofit organizations. The reality for many nonprofits is that its people are the only organizational resource. Hence, the ability of a nonprofit to perform and generate value for stakeholders depends significantly on the knowledge, skills, and behavior of employees and volunteers. Attraction and motivation. Employees are attracted and often choose to work for nonprofits because they identify with the mission and values of the organization (Brown and Yoshioka, 2003). They tend to perceive their work as an opportunity to serve the public good and contribute to worthy causes. A nonprofit therefore not only offers employment, but also an opportunity for employees to actualize their individual values. The inherent moral attachment plays an important role in the motivation of employees. It has been suggested that millennials want nonprofit organizations to provide meaningful, altruistic, and competitive compensation in order to attract and motivate them (Johnson & Ng, 2015). Nonmonetary compensation and reward. The attraction and motivation factor are also related to the question of compensation in nonprofits. Research suggests nonmonetary intrinsic rewards are particularly

important for nonprofit employees (Jobome, 2006). In general, nonprofits are not able to compete with for-profit and public sector organizations in terms of monetary compensation. Consequently, they tend to offer a total compensation package that includes more generous benefits such as paid leave, vacation, and family leave than for-profit organizations (Pitt-Catsouphes et al., 2004). However, beyond affordability, the emphasis on nonmonetary compensation and reward is consistent with values of nonprofits and the characteristics of the employees of the sector. To develop HR practices, nonprofit managers must understand the importance of nonmonetary compensation and rewards in their SHRM. Competencies. Nonprofits require some competencies that are unique to the sector. In addition to basic management competencies such as budgeting and planning, nonprofit employees and managers must manage volunteers, and collaborate and manage relationships with advocacy groups and funders (O’Neill & Young, 1988). Nonprofit employees and managers must possess a mix of knowledge, skills, and attitudes that include three broad categories: 1) job specific competencies for example, planning and financial; 2) nonprofit environment specific competencies for example, fundraising, program management, advocacy; and 3) nonprofit mission and values orientation (Akingbola, 2013a). Decision making. Nonprofits are built on the premise of collective and participatory practices. Nonprofits therefore tend to embrace employee involvement in decision-making because participation is consistent with their mission and values. Nonprofit employees expect more opportunity to be involved in decision-making through teams and committees than their counterparts in for-profit business organizations (Kalleberg et al., 2006). Failure to practice some form of employee participation could lead to disgruntlement. The content and process of NHRM must include elements of participation to ensure that there is consistent alignment to this characteristic. Together, the characteristics of nonprofits are the distinctive building block for the development of SHRM. The characteristics highlight why the need for SHRM is heightened in nonprofits. Nonprofit practitioners must understand these characteristics to Kunle Akingbola

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develop and implement HR practices that are rooted in the context of the organization. The characteristics are therefore important to enhance the ability of nonprofits to attract, recruit, develop, deploy, motivate, and retain human resources. Nonprofit drivers of SHRM To develop and implement SHRM in nonprofits, there are sector-specific external environment factors that managers must carefully analyze to ensure the effectiveness of HRM. The major sector-specific drivers of HRM are government; funding; competition; accountability; and community needs (Akingbola, 2013a). Government and competition. The government is a major challenge for many nonprofits. As a partner with nonprofits in the provision of social goods, the government is the number one source of revenue for many nonprofit organizations (Scott, 2003). Thus, the HR practices developed in nonprofits must reflect the contingencies of the relationship with the government. Similarly, a heightened state of competition for funding is now the norm in the nonprofit sector (Castaneda et al., 2008). Nonprofits compete with for-profit businesses and other nonprofits for funding in many areas. The question of competition requires nonprofit organizations to align their HR practices to the drivers of change and competition in the environment. Competition also extends to the ability of nonprofit organizations to attract and retain the limited pool of human resources that have the competencies they require and buy-into their mission. Funding. Many nonprofits are in a perpetual state of funding crisis. Funders, both public and private, have transitioned the model of funding to a contract model with specific scope and short-term focus (Smith & Lipsky, 1993). The implication for nonprofits is that the funding crisis is played out in the short-term emphasis of their HR practices (Akingbola, 2004). Accountability. Funding bodies are emphasizing rigorous accountability practices. Although accountability is important to ensure the effectiveness of service, most nonprofit organizations simply do not have the financial and human resources to meet the often-stringent accountability requirements. Kunle Akingbola

Changing needs of the community. Nonprofits are constantly adapting to the emergent needs of the community. From economic disparity to social justice and health issues, nonprofits are known to fill the gap where the government cannot meet the needs and businesses do not see a profitable venture. The emerging needs of the community shape the pace of change and the adaptive strategy of nonprofits including HRM. How nonprofit organizations foster change readiness depends significantly on the HR practices they develop and implement. The sector-specific factors are especially important in nonprofits. Research and practice must understand the implications of the challenges and opportunities of sector-specific factors for SHRM. In scanning the environment and analyzing these factors, nonprofits are better able to position and deploy SHRM to drive the performance and mission of the organization. It is a core ingredient in the development of SHRM for nonprofits.

Current issues and the future: SHRM in nonprofits

The current state of SHRM in nonprofit organizations is mixed, at best. While there has been significant progress in research and understanding of SHRM in nonprofits, the literature has merely scratched the surface of the issues that affect SHRM in the sector. A systematic review of research on SHRM in nonprofits by Baluch and Ridder (2020) suggests that transactional HRM characterized by administrative, ad hoc, and reactive HRM are still the norm in nonprofits. This trend is likely to continue due to the factors that have shaped SHRM in nonprofits such as funding, government, competition, and accountability. These factors in the environment constitute the key challenges of SHRM and they will continue to define the relationship between the contextual factors, organizational characteristics, and dimension of HR practices in nonprofits. The future of SHRM in nonprofits is also mixed but with significant uncertainty. It will likely involve more need to continuously position nonprofits to address unprecedented HRM challenges with a sense of urgency. For example, the pandemic exposed how emergent issues such as remote work, hazard pay, and health and safety concerns can further compound the precarious state of SHRM to

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focus even more on transactional functions for the organization to survive. With the current challenges of nonprofits not showing any sign of abating in the near term, these new issues will add on to the current challenges in the short and long term, to heighten the impacts of the environment on the ability of nonprofits to deploy SHRM. Notwithstanding the challenges, nonprofit leadership must understand the imperative of SHRM to help the organization to achieve its mission and strategic goals. The unique environment of the sector requires nonprofits to implement SHRM to address the lingering challenges and how nonprofits attract, motivate, and retain talent and the role of mission and values in their HR practices and processes. Knowledge of SHRM must become part of the basic professional development of nonprofit leaders. Kunle Akingbola

for Canada’s voluntary and nonprofit sector, 256–275. Muttart Foundation. Baluch, A. M., & Ridder, H.-G. (2020). Mapping the research landscape of strategic human resource management in nonprofit organizations: A systematic review and avenues for future research. Nonprofit and Voluntary Sector Quarterly, 50(3), 598–625. https://​doi​.org/​10​ .1177/​0899764020939653 Belcourt, M., Singh, P., Bohlander, G., & Snell, S. (2017). Managing human resources (8th edn.). Nelson. Boris, E. T., de Leon, E., Roeger, K. L., & Nikolova. M. (2010). Human service nonprofits and government collaboration. Findings from the 2010 national survey of nonprofit government contracting and grants. The Urban Institute. www​.urban​.org/​uploadedpdf/​412228​-nonprofit​ -government​-contracting​.pdf Brown, W. A., & Yoshioka, C. F. (2003). Mission attachment and satisfaction as factors in employee retention. Nonprofit Management and Leadership, 14(1), 5–18. https://​doi​.org/​10​.1002/​ nml​.18 Castaneda, M. A., Garen, J., & Thornton, J. (2008). Competition, contractibility, and the market for Related topics donors to nonprofits. Journal of Law, Economics, Capacity building and Organization, 24(1), 215–246. https://​ doi​ Competitive forces .org/​10​.1093/​jleo/​ewm036 Managerialism Delery, J. E., & Roumpi, D. (2017). Strategic human resource management, human capital and Mission statement competitive advantage: Is the field going in Motivation: Paid staff circles? Human Resource Management Journal, Motivation: Volunteers 27(1), 1–21. https://​doi​.org/​10​.1111/​1748​-8583​ Professionalism .12137 Recruitment and retention Jackson, S. E., & Schuler, R. S. (1995). Wage equity within and across sectors Understanding human resource management in the context of organizations and their environments. Annual Review of Psychology, 46(1), Further reading and references 237–264. https://​doi​.org/​10​.1146/​annurev​.ps​.46​ Akingbola, K. (2004). Staffing, retention, and .020195​.001321 government funding: A case study. Nonprofit Jiang, K., Lepak, D. P., Han, K., Hong, Y., Kim, Management and Leadership, 14(4), 453–465. A., & Winkler, A.-L. (2012). Clarifying the https://​doi​.org/​10​.1002/​nml​.46 construct of human resource systems: Relating Akingbola, K. (2006). Strategy and HRM in nonhuman resource management to employee profit organizations: Evidence from Canada. performance. Human Resource Management The International Journal of Human Resource Review, 22(2), 73–85. https://​doi​.org/​10​.1016/​j​ Management, 17(10), 1707–1725. https://​ doi​ .hrmr​.2011​.11​.005 .org/​10​.1080/​09585190600964350 Jobome, G. O. (2006). Management pay, govAkingbola, K. (2013a). A model of strateernance and performance: The case of large gic nonprofit human resource management. UK nonprofits. Financial Accountability & VOLUNTAS: International Journal of Voluntary Management, 22(4), 331–358. https://​doi​.org/​10​ and Nonprofit Organizations, 24(1), 214–240. .1111/​j​.1468​-0408​.2006​.00429​.x https://​doi​.org/​10​.1007/​s11266​-012​-9286​-9 Johnson, J. M., & Ng, E. S. (2015). Money talks Akingbola, K. (2013b). Context and nonprofit or millennials walk: The effect of compensation human resource management. Administration on nonprofit millennial workers sector-switching & Society, 45(8), 974–1004. https://​doi​.org/​10​ intentions. Review of Public Personnel .1177/​0095399712451887 Administration, 36(3), 283–305. https://​doi​.org/​ Akingbola, K., & Toupin, L. (2021). Human 10​.1177/​0734371x15587980 resource management in the Canadian non- Kalleberg, A. L., Marsden, P. V., Reynolds, J., profit organization. In S. D. Phillips & B. Wyatt & Knoke, D. (2006). Beyond profit? Sectoral (Eds.), Intersections and innovations: Change

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558  Elgar encyclopedia of nonprofit management, leadership and governance differences in high-performance work practices. Work and Occupations, 33(3), 271–302. https://​ doi​.org/​10​.1177/​0730888406290049 Leete, L. (2000). Wage equity and employee motivation in nonprofit and for-profit organizations. Journal of Economic Behavior & Organization, 43(4), 423–446. https://​doi​.org/​10​.1016/​s0167​ -2681(00)00129​-3 Lepak, D. P., Liao, H., Chung, Y., & Harden, E. E. (2006). A conceptual review of human resource management systems in strategic human resource management research. Research in Personnel and Human Resources Management, 25, 217–271. https://​doi​.org/​10​.1016/​s0742​ -7301(06)25006​-0 Light, P. C. (2003). The health of the human services workforce. Brookings. O’Neill, M., & Young, D. R. (1988). Educating managers of nonprofit organizations. In M. O’Neill & D. R. Young (Eds.), Educating managers of nonprofit organizations (pp. 1–21). Praeger. Pitt-Catsouphes, M., Swanberg, J. E., Bond, J. T., & Galinsky, E. (2004). Work-life policies and programs: Comparing the responsiveness of nonprofit and for-profit organizations. Nonprofit Management and Leadership, 14(3), 291–312. https://​doi​.org/​10​.1002/​nml​.35 Quarter, J. (1992). Canada’s social economy: Co-operatives, non-profits and other community enterprises. James Lorimer & Company. Scott, K. (2003). Funding matters: The impact of Canada’s new funding regime on nonprofit and voluntary organizations. Research Gate. www​ .researchgate​.net/​profile/​Katherine​-Scott​-10/​ publication/​254343618​_Funding​_Matters​_The​ _Impact​_of​_Canada’s​_New​_Funding​_Regime​ _on​_Nonprofit​_and​_Voluntary​_Organizations/​ links/​552d6​1060cf21ac​b0921741c/​Funding​ -Matters​-The​-Impact​-of​-Canadas​-New​ -Funding​-Regime​-on​-Nonprofit​-and​-Voluntary​ -Organizations​.pdf Smith, R., & Lipsky, M. (1993). Nonprofits for hire: The welfare state in the age of contracting. Harvard University Press. Wright, P. M., & Boswell, W. R. (2002). Desegregating HRM: A review and synthesis of micro and macro human resource management research. Journal of Management, 28(3), 247–276. https://​doi​.org/​10​.1177/​ 014920630202800302 Wright, P. M., & McMahan, G. C. (1992). Theoretical perspectives for strategic human resource management. Journal of Management, 18(2), 295–320. https://​doi​.org/​10​.1177/​ 014920639201800205 Wright, P. M., & Snell, S. A. (1998). Toward a unifying framework for exploring fit and flexibility in strategic human resource management. Academy of Management Review, 23(4), 756–772. https://​ doi​.org/​10​.5465/​amr​.1998​.1255637

David La Piana

Strategic planning Definition

Strategic planning is the process by which an organization determines the best path forward through which its activities will advance its mission.

Background

The process we now call strategic planning has its roots in the World War II military. After the war, many “Planners” returned to civilian life and entered business, bringing with them the belief that, just as careful planning had helped to defeat Hitler, it could reduce the uncertainties their businesses faced at home. With American post-war global economic dominance carrying well into the 1960s, these habits of mind became ingrained in generations of business leaders. Strategic planning as the process of setting goals, establishing objectives, and then charging ahead was taught in business schools and described in business books. As global competition heated up in the 1970s, however, American business leaders began to see the limitations of the traditional command-and-control approach to strategic planning. A more competitive landscape required greater strategic flexibility. By the 1980s, strategic planning, even with its shortcomings, had become a kind of proxy for responsible management among nonprofits, indicating that the organization was thoughtful and above all “planful.” For decades, nonprofits tweaked this approach, while never seriously questioning the basic premise – that the purpose of strategic planning was to set goals and establish clear timelines for their accomplishment.

In practice

Today, strategic planning is a widely used and generally accepted practice across the nonprofit sector. Yet, individual efforts vary widely. Any individual strategic plan can be narrowly or broadly focused, encompassing topics such as program direction, scope, and scale; governance; staffing; increasing diversity, equity, and inclusion efforts; facilities enhancements; and fund development. The selection of focus, often called “scoping the plan,” or “planning to plan,” and the determination of the effort’s depth, are usually made

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by board and staff leadership in consideration of the organization’s current position and anticipated future direction. Strategic planning is usually undertaken for one or more of the following reasons. The organization may: 1. need to understand how best to proceed in an uncertain landscape. 2. need to address a specific important challenge. 3. be committed as a matter of accountability to update its strategic plan every three to five years. Aside from goalsetting, strategic planning is an excellent vehicle for unifying an organization, defining common themes, and setting widely accepted priorities. Used properly, it can be a powerful team-building exercise. In a small organization, the entire board and staff might be involved. Even in a larger organization, a representative Strategic Planning Committee can be formed and opportunities for input and advice can be provided to staff through interviews, town halls, surveys, and so on. Many organizations follow a fixed schedule for strategic planning, typically going through the exercise every three or five years. This discipline, and the widespread use of strategic planning, reveals that it has become something of a “must have,” as institutional donors often ask to see a strategic plan when considering major support. Moreover, many boards of directors require management to produce and update a strategic plan on a regular basis as an accountability mechanism. A strategic plan thus becomes an imperfect way to monitor progress. In some organizations, strategic planning is driven by the board of directors, with management providing support by staffing meetings, conducting research, and drafting options for the board’s consideration. In others, it is considered a staff responsibility; the board authorizes the effort, expects regular updates, and waits for a near-final plan to be presented for consideration. A third approach involves some combination of board and staff working together. Timelines for strategic planning are similarly diverse. Some groups utilize a Saturday board retreat as their entire process, while others engage in months- or even years-long processes.

An entire industry of strategic planning consultants and a plethora of published resources exist to support nonprofit strategic planning efforts. Consultants are often engaged to shepherd the process, providing facilitation, research, expert advice, and drafting of products. Consultants range from solo operators, often former nonprofit executive directors, to professional firms of every size and description.

Current and future directions

Organizations considering strategic planning, and the consultants who serve them, have a choice of approaches. The three most popular include: Traditional strategic planning Traditional strategic planning is undertaken on a regular basis, usually every three or five years. It begins with a review of the organization’s mission and vision statements. The mission statement briefly describes the organization’s purpose for existing. The vision statement describes its role in achieving the mission. For example: ● Mission: End hunger in our community. ● Vision: Lead the effort to eliminate food deserts, bringing local grocers selling affordable, healthy food to the community. Complicating matters just a bit, many people reverse these terms’ meanings: ● Mission: Lead the effort to eliminate food deserts, bringing local grocers selling affordable, healthy food to the community. ● Vision: End hunger in our community. Either approach can work, so long as everyone involved agrees on meanings. However, once the mission and vision are reaffirmed, an environmental scan is employed to determine community needs, stakeholder views, or competitors’ relative positions. Based on information uncovered by the scan, a SWOT analysis plots the organization’s internal Strengths and Weaknesses against external Opportunities and Threats. The SWOT analysis can yield new insights. For example, an organization may identify a Strength which might help in seizing an David La Piana

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Opportunity, or a Weakness which could prove fatal if a particular Threat comes to pass. An example of the former might be a Strength in being based in and of the Latinx community when an Opportunity for new funding to serve that community is on the horizon. An example of the latter might be Weak financial reserves when facing the Threat of a prolonged recession. This methodology generally relies upon the Critical Issues approach to focus the effort. This is a direct outgrowth of the history of strategic planning as goalsetting. A set of critical issues is identified. For example: Critical Issues: 1. Increase fundraising to meet growing demand for services. 2. Diversify board to better reflect the community. 3. Digitize current in-person services for greater reach. Once the critical issues are agreed upon, traditional strategic planning moves on to identify goals in each area. For example: Critical Issue #1: Increase fundraising to meet growing demand for services Goals ● Increase annual giving by 6 percent each year. ● Add a major gifts officer next year. ● Establish an endowment fund and market it to donors. Some organizations go on to set more specific and targeted objectives for each goal. For example: Goals ● Increase annual giving by 6 percent each year. Objectives ● Double frequency of mailings to current donors. ● Test three different appeals each year. ● Purchase mailing lists, adding 10,000 prospects to each mailing. David La Piana

This approach features a great deal of specificity. People know exactly what they are expected to deliver. It also features a plethora of deliverables. The organization may define a number of critical issues, each of which is served by several goals, each of which specifies several objectives. This results in a very large number of objectives to track over the lifespan of the plan. In a stable environment where there is a good chance that diligent effort will produce the desired results, this approach may work. However, many organizations develop far too many goals and objectives, and keeping track of them over several years is difficult at best. Therefore, traditional strategic plans are sometimes ignored, their fate described as “sitting on a shelf gathering dust.” Alternatives to traditional strategic planning The main criticism of traditional strategic planning is not that it is unnecessary but that the highly structured planning effort can crowd out the strategic thinking that should precede it. Two other approaches – scenario planning and emergent strategy – have the advantage of encouraging a more flexible mindset and greater engagement with the key challenges facing the organization. Scenario planning In unstable or unpredictable environments, scenario planning offers an attractive alternative. Scenarios, as the word implies, are likely future states the organization might encounter. A popular approach, pioneered by the Monitor Institute by Deloitte, deploys a grid in which two significant dynamics in the organization’s foreseeable future are portrayed (see Figure 12). For example, the leaders of a nonprofit organization might decide that their mission and strategy are highly dependent upon economic health and population size in a given community. Any such juxtaposition of two dynamics creates four quadrants. In any scenario, the top right quadrant is the best case. Here, a healthy economy and growing population will lead to a scenario we might label Prosperity. The lower left quadrant is always the worst outcome. Here, a weak economy and shrinking population could lead to a scenario we might call Ghost Town. The upper left quadrant, with a healthy economy but population shrinkage, might lead to an inade-

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Figure 12

Scenario planning grid

quate labor pool, call it Workers in Demand. And finally, the lower right quadrant, with population growth but a weak economy, might result in High Unemployment. By identifying different sets of dynamics and creating multiple juxtapositions, then building out the potential ramifications in full scenarios, an organization can get a feel for the different futures it may face. For example: Ghost Town Scenario: As younger people continue to move away, seeking jobs, our community will experience a ripple effect of bad outcomes. A falling tax base will negatively impact public services, schools, and quality of life. Home values will fall, and the remaining population will be those too old, sick, or poor to leave. In this scenario, the need for the social services our organization offers will skyrocket at precisely the same time that we have fewer resources to meet the need. Workers in Demand Scenario: Opening of a new plant will lead to an economic boom, but with so many of our young people having left for better opportunities, we will need to either encourage them to return or attract new residents. Newcomers are likely to be disproportionately immigrants, whose social service needs and linguistic differences will require our organization to change how we deliver services. When using scenario planning, it is wise to ask, “What steps can we take that would be

the right move regardless of which scenario comes to fruition?” Emergent or real-time strategic planning Over the years, many strategic plans have shortened the time frame of their horizon from five years to three, in appreciation of the speed with which the environment changes. Still, large shifts in a market or community needs are increasingly frequent. As a poignant example, any organization with a recently approved three-year strategic plan in March 2020 found it was immediately out of date given the COVID-19 pandemic. Frustration with traditional planning, all those goals and objectives crowding out considerations of strategy, led to the development of more emergent approaches in which organizations assume the world is changing rapidly. Thus, strategy must be flexible, and plans open to constant revision. How to accommodate this dynamic environment while still setting a clear direction? The author has developed an approach that establishes a clear organizational identity as a stake in the ground around which emerging opportunities and challenges could be addressed (La Piana & Campos, 2008). It works as follows: Clarify the organization’s mission: 1. Describe its business model, which consists of where it works (geography), who it serves (clients or members), what it David La Piana

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Figure 13

Strategy pyramid

does for them (activities it performs), and how it pays for it (financial model). 2. Articulate a real or aspirational competitive advantage – the way in which it is different from and produces better outcomes than peers. Also called differentiation, this is perhaps the most powerful concept in strategy. The more differentiated an organization is in the eyes of potential supporters, employees, clients, and board members, the greater its ability to attract those resources. With these building blocks in place, the organization creates an identity statement: mission, business model, and competitive advantage. Once the identity statement is created, it can be used as a touchstone for addressing strategic opportunities and challenges as they arise, rather than on a fixed three-year strategic planning cycle. We call these Big Questions. For example, in the Ghost Town scenario above, How do we rebrand the town with a niche that will attract the younger workers we need? This approach conforms more closely to how the world works, as crises do not occur on a predictable calendar. The emergent approach to strategy uses the identity statement to help address these Big Questions. Once a Big Question is asked and answered, an operational plan with a time frame for concrete steps can be created. In this approach, strategies, and thus Big Questions,

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can be asked on three levels as shown in Figure 13.

Summary

Strategic planning is a powerful tool for engaging board, staff, and community stakeholders in grappling with some of the most important questions an organization faces. Done successfully, it pulls people together and points them in a positive direction that will yield benefits to the organization and its community. David La Piana

Related topics

Industry analysis Mission statement Service portfolio analysis Stakeholder management Strategy analysis: SWOT

Further reading and references

Allison, M., & Kaye, J. (2015). Strategic planning for nonprofit organizations: A practical guide for dynamic times. John Wiley & Sons, Inc. BoardSource. (2016). Shaping the future of your organization: A strategic planning guide for nonprofit leaders. BoardSource. https://​boardsource​.org/​product/​shaping​ -future​-organization​-strategic​-planning​-guide​ -nonprofit​-leaders/​ Bryson, J. M. (2018). Strategic planning for public and nonprofit organizations: A guide

S 563 to strengthening and sustaining organizational achievement. John Wiley & Sons. Fulton, K. (2005). What if? The art of scenario thinking for nonprofits. Global Business Network. Kearns, K. (2000). Private sector strategies for social sector success. Jossey-Bass. La Piana, D., & Campos, M. M. (2008). The nonprofit strategy revolution: Real-time strategic planning in a rapid-response world. Fieldstone Alliance. Poore, C. A. (2021). Strategic impact: A leader’s three-step framework for the customized vital strategic plan. Fast Company Press. Redman, P. B. (2013). Five essentials of strategic planning. Stanford Social Innovation Review. https://​doi​.org/​10​.48558/​1FPA​-TM47

Supporting organizations Definition

The Section 509(a)(3) Supporting Organization is a type of public charity. It differs from the Section 509(a)(1) Donative Charity and the Section 509(a)(2) Service Provider Charity because it is defined by the nature of its relationship with a publicly supported charity and not by a mathematical formula that reflects its support revenues. To qualify as a Section 509(a)(3) Supporting Organization (SO), it must demonstrate a close and continuous relationship with a publicly supported Section 509(a)(1) or (a) (2) charity, such as a community foundation, although on occasion an exception can be made for supporting a public program in another exempt organization. The SO is not required to demonstrate that it receives a specific amount of public support; it suffices that its related Supported Organization meets that test. The absence of a mandatory baseline of public support has been important in the evolution of the SO as an attractive alternative to the private foundation, particularly since it offers an option for segregating fundraising and administrative activities from operating programs. It can also be used to launch pilot programs and hold property.

In practice

Despite its flexibility, the SO is not free from technicalities. In fact, to qualify as an SO, the entity must satisfy each of three separate tests and the issue of control. Relationship Test The Relationship Test is commonly described in terms of family relationships, with each having different levels of control.27 Type I: Parent–Child The tightest relationship is that of Parent– Child, with the Supported Organization “operated, supervised or controlled by” its SO (the parent). This relationship is described as “organized and at all times thereafter operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more public charities described in either Section 509(a)(1) or Section 509(a) (2).” That exact language must appear in the Supported Organization’s Articles of Incorporation and its subsequent Exemption Application. Under this test, the SO acts as parent and appoints at least a majority of its Supported Organization’s board, thereby ensuring that the SO will continue to have a strong ongoing voice in the fundamental decisions of its supported organization. The Parent–Child relationship is by far the most controlling structure of the Section 509(a)(3) classification. Illustration: The Parent–Child relationship is frequently chosen when the SO wants to retain control over its offspring. In circumstances where the SO will make a sizeable capitalization to the new corporation, the SO may be concerned that new leadership could subvert the SO’s original goals and become a run-away board. Tight control by the SO may ease that worry and provide a greater sense of stability to the new venture. Type II: Brother–Sister The second and less strict relationship is often known as Brother–Sister. In this case, the Supported Organization must be operated, supervised or controlled in connection with, operated in connection with, one or

27 For an excellent and clear explanation of these complicated relationships, see Fishman et al., 2015, pp. 692–697.

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more of these public charities. Frequently, the two organizations share boards and officers in common, schedule overlapping meetings and have more equal communication between them. Despite their overlap, the two organizations operate in connection with each other, more like siblings than as Parent–Child. Type III: Operated in connection with The third relationship is the most flexible relationship but adds a notice requirement as well as two additional tests in order to comply. These tests guarantee that the Supported Organization will always be responsive to the needs and demands of its SO and that it will function as an integral part of it. By adding the additional tests, this Type III relationship becomes more complicated than the others. See Treas. Reg. 1.509(a)-4(i) for an explanation of the meaning of control within the context of the “in connection with” relationship between supporting and supported organizations. This section of the Treas. Reg. supplements the prior language of Treas. Reg 1.509(a)-4(h). Both Regulations address the acceptable amount of control and what constitutes an unacceptable Disqualified Person relationship. Treas. Reg. 1.509-4(i) provides various examples of the impermissible relationship and exempts religious bodies from this test. The “in connection with” relationship can be confusing and dense since it adds additional tests such as Functionally Related (FISO) and Non Functionally Related (Non-FISO) to an already complicated set of standards for this group of supporting organizations. ● Notice Requirement: IRC 509(f)(1)(A) requires that the SO give written notice to a principal officer of its Supported Organization describing both amount and type of support provided in the prior year as well as a copy of its most recently filed 990 and a copy of the SO’s governing documents. ● Responsiveness Test: Treas. Reg 1.509(a)-4(i)(3). This test emphasizes the close and continuing relationship between the two charities. Under it, the SO has a significant voice in its Supported Organization’s investment, timing of grants, selection of recipients, manner of making grants and use of income and Penina K. Lieber

assets. This test seeks to guarantee an ongoing positive working relationship. ● Integral Part Test: IRC 1.509(a)-4(i) (iii); Treas. Reg. 1.509(a)-4(i)(4) (i)(C). The Integral Part Test adds on concepts of “functionally related” and “non-functionally related.” The functionally related test indicates that the SO engages in activities “substantially all of which” directly further the exempt purposes of the organizations to which it is responsive to and “but for” the involvement of the SO would normally be engaged in by the supported organization. A non-functionally related SO act as grantmaking organizations, with required payout and attentiveness factors. Organizational test The Supported Organization’s Articles of Incorporation must limit the organization’s purposes to one of those in Section 509(a) (3), that is, it must be “organized exclusively for the benefit of, to perform the functions of or to carry out the purposes of one or more identified Supporting Organization(s).” The Articles of Incorporation “may not expressly empower the Supported Organization to engage in activities that do not support those purposes.” The Articles “must specify by name or class the Supporting Organization(s) on whose behalf the new Supported Organization will operate.” The Supported Organization’s Articles “may not empower it to support or benefit any other entity other than that specified in the governing document.” See Treas.Reg 1.509(a)-4(c)(1). Operational test The Supported Organization may do all the activities normally within the scope of public charities, provided it operates to “benefit, support, or carry out the purposes” of its SO. This includes making payments to the SO, conducting programs on behalf of its SO, fundraising, and even conducting activities resulting in Unrelated Taxable Income (UBIT). At all times, the beneficiaries of these activities must be those named in the Articles or in proximity to that entity. Illustration: The question of making payments can be thorny. It is not uncommon that the SO, having created and capitalized

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the new Supported Organization, expects to be assisted financially by its offspring, especially if the new organization is successful in fundraising. So, when a roof on the SO’s building leaks or other financial assistance is necessary, a common expectation is that the new corporation will be willing and ready to provide those funds. Unfortunately, the relationship does not work that way. Although these two entities are inseparably tied to each other and must commit to furthering the work of the other, operating rules must be established by which the SO would initiate a process to request financial assistance from its Supported entity. The formalities are important even though the request will most likely be honored. It also would be appropriate in that process for the Supported Organization to evidence its deliberation and to confirm in writing its decision.

Challenges

An SO may not be controlled by Disqualified Persons (DQPs), a category that includes substantial contributors and other related and/ or influential persons. See IRC 507, 4946 Treas. Reg 1.509(a)-4(j)(1). DQPs may not control more than 49 percent of the voting power of the SO’s governing body, nor can they possess veto power. Illustration: Imagine that the Supporting Organization is controlled by its founder, who is intent on retaining control over all aspects of the organization’s life cycle, including the creation and nurture of offspring entities and activities. To guarantee future control, the founder and a small group of handpicked supporters form a special class of Members, a group designed to control the ongoing operations of the Supported Organization, with veto power. While this structure could satisfy the Parent–Child relationship, it will fail the “in connection with” test. Prohibition against DQPs The IRS has already clamped down on the abusive use of SOs by private individuals who regarded them as clever vehicles to shelter private funds and serve their private interests. The passage of the Pension Protection Act of 2006 eradicated that possibility.

Prohibition of DAFs Although donor-advised funds (DAFs) constitute a substantial source of income for public charities, SOs may not accept them. Given the immense popularity of DAFs in current philanthropy, this prohibition can constitute a hardship for SOs that cannot avail themselves of this instrument. Illustration: Consider a public charity originally formed as a fundraising arm of a Diocese. Since it falls within the Parent–Child relationship, its Articles of Incorporation clearly name the Diocese as beneficiary. The governing documents also require that the Bishop appoint all board members of the SO and approve all major decisions. Over the years, the SO has grown increasingly independent although it remains committed to its original mission of supporting the Diocese. Now, it finds it necessary to refuse substantial DAFs, with a resulting loss of philanthropic funds. The charity sees one way out – to petition the IRS for reclassification as a Section 509(a)(1) Donative Charity and not as an SO. Administrative problems Practical and somewhat bothersome concerns frequently surface with 509(a)(3) organizations, including the need for additional meetings, duplicate boards and additional 990s. There can also be perception issues that characterize the relationship. For example, a public charity with a strong bottom line (often from grants) may give the appearance of great wealth that could discourage further giving. The bottom line could also become a target for deep pocket litigation. Although use of Section 509(a)(3) ancillary organizations may dispel those concerns, the other troublesome issue is “how related is related?” This question surfaces continuously for IRS purposes and for potential litigation purposes. When contrasted with the other types of public charity, the SO classification is complicated, cumbersome, and difficult to apply in real time. Penina K. Lieber

Related topics

Charity law Donor-advised funds Internal Revenue Service Private foundations Penina K. Lieber

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Further reading and references

Fishman, J., Schwartz, S., & Mayer, L. H. (2015). Nonprofit organizations, cases and materials (5th edn.). Foundation Press. Flynn, D. M., & Fleming, N. (2008). Private foundation or public charity? Type III supporting organizations after the PPA. TaxNotes. Knoepfle, T. W. (2022). The pension protection act

Penina K. Lieber

of 2006: A misguided attack on donor-advised funds and supporting organizations. Florida Tax Review, 9(4), 221–263. https://​doi​.org/​10​ .5744/​ftr​.2009​.1004 Langely, M. (1998). The SO trend: How to succeed in charity without really giving: A “supporting organization” lets the wealthy donate assets, still keep control. Wall Street Journal, May(29).

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Tax policy: Federal Organizations that are legally recognized as not-for-profit organizations receive preferential tax treatment in the United States at the federal, state, and local levels. This entry focuses on federal tax treatment. State and local tax treatment of nonprofits is discussed in a separate entry.

Federal tax law

Organizations that qualify as not-for-profit entities under 501(c) of the Internal Revenue Code are exempt from paying federal income tax on income deemed to be related to their mission. Within the broad category of exempt organizations, those that qualify for 501(c) (3) status benefit from tax preferences in addition to exemption from federal income taxes. These 501(c)(3) nonprofits comprise of organizations widely seen as making up the U.S. nonprofit sector and include religious, educational, charitable, scientific, or literary organizations; testing for public safety organizations; organizations preventing cruelty to children or animals; organizations fostering national or international amateur sports competition; and private foundations. Tax treatment of public charities The Internal Revenue Service (IRS) tabulates data on the finances of public charities which are organizations that: (1) include churches, hospitals, qualified medical research organizations affiliated with hospitals, schools, colleges, and universities; (2) have an active program of fundraising and receive contributions from many sources, including the general public, governmental agencies, corporations, private foundations, or other public charities; (3) receive income from the conduct of activities in furtherance of the organization’s exempt purposes; or (4)

actively function in a supporting relationship to one or more existing public charities. The practical effect of the tax exemption is to increase the resources that charitable organizations have to support their mission. In the aggregate, the quantitative effect of the tax exemption is modest. The Urban Institute & Brookings Institution Tax Policy Center estimates that in 2018 (the most recent year available) the tax exemption saved public charities $21.4 billion in taxes. For the charitable sector as a whole, this amounted to just under 1 percent of revenue. The Urban–Brookings study does note that certain individual nonprofits garnered significant tax savings from exemption: for example, 30 percent of revenue for a hospital; 28 percent of revenue for a private university; and 25 percent of revenue for a religious supporting organization. However, both Brody and Cordes (2017) and Congressional Budget Office (CBO) (2005) offer the caveat that such estimates may overstate the actual financial benefits from tax exemption. The actual fiscal effects of the exemptions, however, may be somewhat overstated. Brody and Cordes note that even if nonprofit revenue other than donations were made taxable, it would be a reasonable policy decision to exclude donations. The CBO report points out that if income were to become taxed, nonprofits might react by reducing their surplus by, for example, lowering fees to clients and/ or increasing spending. Tax treatment of the private foundations In contrast to public charities, private foundations typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources) and most have as their primary activity the making of grants to other charitable organizations and to individuals, rather than the direct operation of charitable programs. Within the broad category of private

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foundations, the IRS further distinguishes between operating and nonoperating foundations. A private operating foundation is any private foundation that spends at least 85 percent of its adjusted net income or its minimum investment return, whichever is less, directly for the active conduct of its exempt activities. A non-operating foundation functions primarily to financially support charity work with few or no public programs. Based on 2018 IRS data, the estimated aggregate benefits of tax exemption for private foundations are greater than the aggregate benefits of tax exemption for public charities – on the order of 7 percent of total revenue. The estimates, which apply a 21 percent corporate tax rate to the surplus, somewhat overstates the benefits of tax exemption because starting in 1985 private foundations were subject to a small tax on net investment income. This tax, which prior to 2019 had ranged between 1 percent and 2 percent for individual foundations, was fixed at 1.39 percent for all foundations in 2019 (Congressional Research Service, 2020). As part of the 2017 Tax Cut and Jobs Act, universities with endowment greater than $500,000 per full-time student and more than 500 students became subject to an excise tax of 1.4 percent on net investment income of nonprofit colleges and universities, where net investment income is defined to include income from interest, dividends, rents, payments with respect to securities loans, and royalties. The new tax is estimated to raise $200 million per year. Finally, non-operating foundations are required to distribute a minimum amount in grants and grantmaking expenses each year. The minimum amount has traditionally been taken to be 5 percent of the foundation’s net assets. Failure to meet the minimum payout requirement (which may be spread out over several years) subjects the foundation to a penalty excise tax of 30 percent in the amount by which distributions fall short of the minimum required amount. Tax exemption and the unrelated business tax (UBIT) The federal tax exemption for nonprofits is limited to income earned by the nonprofit in activities that are related to its mission. Some nonprofits (e.g., hospitals and higher education) have the opportunity to Joseph Cordes

earn income that is unrelated to its mission. Such unrelated business income is subject to an unrelated business income tax (UBIT) which is structured the same as the corporate income tax. The UBIT serves two purposes; (1) it is meant to protect for-profit businesses from unfair competition from tax exempt nonprofit organizations; and (2) it is seen as providing an incentive for nonprofits to focus on their mission instead of engaging in potentially lucrative commercial ventures. In 2015 just under 32,000 501(c)(3) organizations reported $1.12 billion of net unrelated business income, and paid taxes of $348 million. Donor-advised funds The IRS defines a donor-advised fund as a “separately identified fund or account that is maintained and operated by a section 501(c) (3) organization, which is called a sponsoring organization. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account.” Although the first donor-advised fund (DAF) was established in 1931, more widespread use of DAFs has grown rapidly in recent years. DAFs have proved to be a popular vehicle for charitable giving in part because they offer certain advantages to donors compared with creating a private foundation (see below) and give donors considerable flexibility in how to direct their charitable dollars. According to data from the National Philanthropic Trust cited in Congressional Research Service (2020) “in 2018 there were 728,563 individual DAFs, with contributions of $37.1 billion, assets of $121.4 billion, and recommended grants of $23.4 billion. The DAFs were managed by 54 national charities, 603 community foundations, and 332 single-issue charities. In 2019, more than 229,000 donors had accounts at Fidelity Charity, with grants of over $7.3 billion.” Critics of DAFs have voiced the concern that DAFs provide substantial tax benefits to donors while giving donors substantial discretion (with little oversight) as to amounts that are distributed from DAFs and uses of DAF funds. Additionally, stewardship of DAFs by sponsoring organizations consumes substantial time and energy and, in some cases, reduces their discretionary grantmaking capacity.

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Tax exempt financing Although public charities are private organizations, they are permitted to issue tax exempt bonds under the auspices of state and local governments. Because the interest on such bonds is not taxed, they can be issued at lower interest rates than taxable bonds. The proceeds of such bond issues must be used to finance capital projects. Prior to 1997, 501(c)(3) organizations that were not hospitals could not issue more than $150 million in tax exempt debt. The limit did not apply if at least 95 percent of the capital expenditure was for a hospital. After 1997, the $150 million limit for non-hospital capital expenditure was lifted, subject to the proviso that at least 95 percent of the capital expenditure be for capital projects. An analysis of 2011 IRS data by Paul Arnsberger (2015) found that 501(c)(3) organizations reported more than $392 billion in outstanding tax exempt debt. A 2020 analysis by the Joint Committee on Taxation estimated that allowing nonprofits to issue tax exempt bonds cost $13.6 billion in foregone tax revenue for the years 2020–2024, of which $2.5 billion represented foregone corporate income tax revenue with the balance coming from foregone individual tax revenue. Charitable income tax deduction In addition to income tax exemption, nonprofits with 501(c)(3) status are also eligible to receive tax deductible contributions from individual and corporate donors. Prior to 2020 individual taxpayers who itemized their tax deductions and contributed to public charities and to DAFs were allowed to deduct contributions up to 60 percent of income. The limit was temporarily suspended for cash contributions in 2021. In the case of contributions made to private foundations the income limit is 30 percent. In addition, taxpayers who would otherwise be required to make minimum distributions from and pay tax on Individual Retirement Accounts (IRAs) are allowed to distribute up to $100,000 from IRAs without paying tax. Taxpayers filing single returns who did not itemize deductions are allowed to deduct $400 in charitable contributions and joint filers who are nonitemizers are allowed to deduct $800. Corporations are allowed to take a corporate income tax deduction for charitable contributions up to

25 percent of its taxable income. Charitable contributions made from estates are also tax deductible. The effect of allowing tax deductions for charitable contributions is to reduce the after-tax or out-of-pocket cost of giving. For example, if a donor is in the 24 percent income tax bracket and itemizes tax deductions, allowing $1 of contribution to be deducted against income saves the taxpayer $0.24 (24 percent tax rate X $1). Thus, the out-of-pocket cost of giving $1 is reduced from $1.00 to $0.76 = ($1.00 - $0.24). In the case of charitable contributions made from estates, for taxable estates, the charitable deduction reduces the after-estate-tax cost of giving to between $0.63 and $0.60. The 2017 Tax Cut and Jobs Act (TCJA) made a number of changes that significantly reduced the financial benefits of itemizing deductions for many individual taxpayers. The Urban Institute & Brookings Institution Tax Policy Center has estimated that these changes reduced the number of itemizers by 10 percent. Although taxpayers were allowed to deduct modest amounts of charitable contributions, the effect of switching from itemizer to nonitemizer status would be to increase the price of giving from $(1-T) where T is the person’s tax rate, to $1.00. The importance of the charitable deduction to the finances of nonprofits varies with the type of nonprofit. Based on 2011 IRS data, Brody and Cordes (2017) estimate that overall private contributions count for about 33 percent of nonprofit revenue, with the percentage ranging from a low of 11 percent among health-related nonprofits to just under 41 percent for arts and culture organizations, to highs of more than 95 percent in the case of nonprofits that are religion-related or engaged in international affairs. The Urban Institute & Brookings Institution Tax Policy Center estimated that in 2020, charitable deductions claimed on tax returns totaled $324 billion – $200 billion from taxpayers itemizing deductions and $124 billion from nonitemizers. Based on IRS statistics, approximately 37 percent were in the form of noncash donations, over half of which were in the form of donated corporate stock and other investment assets. (In addition to being able to claim a tax deduction for the value of appreciated assets, the contribution of financial assets such as stock is Joseph Cordes

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exempt from capital gains taxes.) The Joint Committee on Taxation of the U.S. Congress report (2020) estimated that the amount of tax revenue foregone by allowing charitable tax deductions totaled $56.1 billion. Of this amount, $52.4 billion was attributable to individual charitable deductions and $3.7 billion to corporate charitable contributions.

Current issues and future direction

The effectiveness and the design of the individual charitable deduction is a topic of lively interest. One issue is whether the charitable deduction is a cost-effective way of subsidizing charities. The intent of allowing the tax deduction is to increase the flow of contributions to public charities. Is the amount of additional giving that is encouraged equal to or greater than the tax revenue given up? The answer to that question depends on what economists call the price elasticity of giving which is the ratio of the change in giving to the change in the price of giving. If the price elasticity of giving equals 1.0 (actually slightly more than 1.0), then a decrease in the price of giving of, say, 30 percent leads to a commensurate increase in giving of 30 percent. If instead the price elasticity of giving equaled 0.5, then a decrease in the price of giving of 30 percent would lead to a less than commensurate increase in giving of 15 percent. Roughly speaking, if the price elasticity of giving is 1.0 or higher, then the $52.4 billion revenue loss from the charitable deduction would be matched by an increase in charitable giving of the same or larger amount. If, however, the price elasticity of giving is less than 1.0, then the revenue loss would exceed the amount of extra giving stimulated by the deduction. As noted by Cordes (2011) for many years the tax deduction for charitable giving was seen to be a reasonably efficient tax subsidy because estimates of the price elasticity of giving generally equaled or exceeded 1.0 (in absolute value). This consensus has been challenged by studies using different, and in some cases, arguably better, data which report lower elasticities of roughly 0.50. The charitable deduction has also been criticized for being an “upside down” subsidy to giving. The value of the deduction depends on the taxpayer’s tax bracket so that the subsidy equals $0.37 for a high-income taxJoseph Cordes

payer in the top tax bracket and only $0.10 for a taxpayer in the lowest tax bracket. Estimates by the Congressional Budget Office (2011) show that the lion’s share of the tax savings from the deduction are received by taxpayers in the highest income quartile. One proposal for dealing with the upside-down subsidy problem is to replace the charitable tax deduction with a charitable tax credit. For example, IRS statistics suggest that instead of itemizing deductions, taxpayers could, for example, be allowed to claim a credit of 25 percent of the value of contributions for the same cost in tax revenue. The practical effect of replacing the charitable deduction with a charitable tax credit would be to increase the subsidy for giving for taxpayers with tax rates lower than the credit and lower it for taxpayers (higher income taxpayers) whose tax rates were above the credit. If individual donors all had the same price elasticity of giving, and the same preferences for which charities to support, the effect of replacing the tax deduction with a charitable tax credit would be to redistribute the tax benefits of the subsidy from higher to lower income taxpayers without affecting the total amount of giving in response to the subsidy or the composition of giving. However, as Brody and Cordes (2017) note, if higher income givers had a higher price elasticity of giving than lower income taxpayers, substituting a tax credit for a tax deduction would lower the amount of contributions. In addition, because there is evidence that the mix of giving differs between higher and lower income donors, such a change would alter the mix of giving. Although charitable giving has been relatively robust even after TCJA, giving data will tell the ultimate effect of the TCJA changes on giving over the long run; and the decline in the number of itemizers prompted by the changes in the 2017 Tax Cut and Jobs Act has renewed proposals for expanding the eligibility of taxpayers who do not itemize deductions to claim charitable deductions. These recommendations for change have been accompanied by proposals to place a floor on all charitable deductions so that either deductions or a tax credit would be allowed only for charitable deductions above some minimum amount such as $300 (Steuerle, 2022). Joseph Cordes

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Related topics

Charity law Internal Revenue Service Private foundations Public charity Regulation of nonprofit organizations Tax policy: State and local Unrelated business income

Further reading and references

Arnsberger, P. (2015). Nonprofit charitable organizations and donor-advised funds, 2012. IRS. www​.irs​.gov/​pub/​irs​-soi/​soi​-a​-npco​-id1603​.pdf Born, N. & Looney, A. (2022). How Much Do Tax-Exempt Organizations Benefit from Tax Exemption? Tax Policy Center Research Report. http://​dx​.doi​.org/​10​.2139/​ssrn​.4182696 Brody, E., & Cordes, J. (2017). Tax treatment of nonprofit organizations: A two edged sword. In E. Boris & C. E. Steuerle (Eds.), Nonprofits and government: collaboration and conflict (pp. 133–162). Urban Institute Press. Congressional Budget Office. (2005). Historical development and present law of the federal tax exemption for charities and other tax exempt organizations. Joint Committee on Taxation. www​.jct​.gov/​CMSPages/​GetFile​.aspx​?guid​=​ 91d1c71d​-866b​-4423​-84a7​-0f1ec352edf8 Congressional Budget Office. (2011). Options for changing the tax treatment of charitable giving. www​.cbo​.gov/​publication/​41452​?index​=​12167 Congressional Research Service. (2020). Tax issues relating to charitable contributions and organizations. Congressional Research Service. https://​crsreports​.congress​.gov/​product/​pdf/​R/​ R45922 Cordes, J. J. (2011). Re-thinking the deduction for charitable contributions: Evaluating the effects of deficit-reduction proposals. National Tax Journal, 64(4), 1001–1024. https://​doi​.org/​10​ .17310/​ntj​.2011​.4​.05 Critchfield Insights. (2021). What is the difference between operating and non-operating private foundations? www​.ccj​.com/​what​-is​ -the​-difference​-between​-operating​-and​-non​ -operating​-private​-foundations/​ Internal Revenue Service. (n.d.-a). Public charities. www​.irs​.gov/​charities​-non​-profits/​charitable​ -organizations/​public​-charities Internal Revenue Service. (n.d.-b). Definition of private operating foundation. www​.irs​.gov/​ charities​-non​-profits/​private​-foundations/​ definition​-of​-private​-operating​-foundation Internal Revenue Service. (n.d.-c). Donor-advised funds. www​.irs​.gov/​charities​-non​-profits/​charitable​ -organizations/​donor​-advised​-funds Internal Revenue Service. (n.d.-d). Charitable contribution deductions. www​.irs​.gov/​charities​

-non​-profits/​charitable​-organizations/​charitable​ -contribution​-deductions Joint Committee on Taxation. (2020). Estimates of federal tax expenditures for fiscal years 2020–2024. www​.jct​.gov/​CMSPages/​GetFile​ .aspx​?guid​=​ec4fb616​-771b​-4708​-8d16​ -f774d5158469 Steuerle, C. E. (2022). Options for improving the lives of charitable beneficiaries through reform of the charitable deduction. Urban Institute & Brookings Institution Tax Policy Center. www​.taxpolicycenter​.org/​publications/​options​ -improving​-lives​-charitable​-beneficiaries​ -through​-reform​-charitable​-deduction/​full Urban Institute & Brookings Institution Tax Policy Center. (n.d.). How large are individual income tax incentives for charitable giving? www​.taxpolicycenter​.org/​briefing​-book/​how​ -large​-are​-individual​-income​-tax​-incentives​ -charitable​-giving

Tax policy: State and local Nonprofit organizations are given their legal status by individual states. The special benefits that public charities enjoy by virtue of qualifying for 501(c)(3) status in the Federal Tax Code provides them with numerous federal tax benefits. Organizations that have federal 501(c)(3) status also enjoy tax benefits at the state level. 501(c)(3) organizations are exempt from state level corporate income taxes, and generally, though not uniformly, are exempt from paying sales taxes. Many, though not all, states also allow charitable contributions to be deducted against state income taxes. An important, but also controversial, tax preference is the widespread practice of exempting 501(c)(3) public charities from property taxes. It is the latter tax benefit received by nonprofits that has received the greatest attention.

State income and sales tax exemption

Estimates of the value of income tax exemption at the federal level imply that the financial benefits of federal income tax exemption are modest for most nonprofits. The benefits of state corporate income taxation are likely to be still more modest because of the structure and rates of state income taxes. Joseph Cordes

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State sales tax exemption In many states, the conferral of 501(c)(3) status is sufficient for a nonprofit to qualify for exemption from state sales taxes on purchases of goods and/or services that are mission related. Some jurisdictions, however, require nonprofits seeking sales tax exemption to complete a formal application process and other states place limits on the exemption. For example, Washington, D.C., limits the exemption to 501(c)(3) organizations whose operations are located within D.C.

State charitable tax deductions

Currently, 21 states do not allow taxpayers to claim tax deductions for charitable contributions. This total includes states that do not have state income taxes (Alaska, Florida, Nevada, South Dakota, Washington, and Wyoming), as well as states that have an income tax. Other states allow deductions against state income taxes only for taxpayers who itemize deductions on their federal tax returns. In states that do allow a charitable deduction, the effect is to further reduce for taxpayers the true cost of their out-of-pocket giving in those states. For example, a California taxpayer who is in the top federal tax bracket and the top California income tax bracket and who itemizes deductions on both federal and state tax returns could incur an out-of-pocket cost of giving as low as $0.497 ($1.00 - $0.37 - $0.133) where $0.37 is the top federal income tax bracket and $0.133 is the top California tax bracket. A few states have experimented with allowing a charitable tax credit as an alternative to a charitable deduction. A notable case is that of Arizona charitable tax credit. The Arizona tax credit allows taxpayers who make cash gifts to qualifying organizations to claim tax credits. To qualify, the nonprofit must either serve the needs of low-income Arizona residents, in which case joint filers can claim a tax credit of up to $800 (the amount for single filers is $400). Or be a qualifying foster care organization, in which case joint filers can claim an additional tax credit of up to $1000 ($500 for single filers). Contributions to other public charities are tax deductible at a state income tax rate that would generally provide lower tax savings than the tax credit.

Joseph Cordes

Nonprofit property tax exemption

Fifty states plus the District of Columbia completely exempt certain types of property from taxation. Some properties are specifically identified as exempt from the property tax base in state constitutions. Property owned by a federal, state, and local government, churches, cemeteries, and most nonprofit property is almost universally exempt. Other types of property such as educational institutions, libraries, hospitals, and various membership organizations also qualify in many though not all states. States (and in some cases local entities) have discretion, however. Federal 501(c)(3) status is an important criterion, but not necessarily a guarantee. The exemption from taxes on property predates other forms of nonprofit tax exemption. As mentioned in the Old Testament: “Pharaoh should have the fifth part; except the land of priests only, which become not Pharaoh’s” (Genesis 47:26). In the United States, the nonprofit property tax exemption dates as far back as the English colonies where nonprofits were affiliated with churches. As Brody and Cordes (2016) have noted, the intent of exempting nonprofit (e.g., religious) property was to respect the separate and sovereign status of the church vis-à-vis the government. This basic rationale has continued to be articulated as the nonprofit sector became secular in nature. A separate, more recent rationale is that nonprofits are worthy of subsidy because nonprofits are seen as useful social institutions of civil society that provide public goods and social services.

Issues and debates Who benefits from the nonprofit property tax exemption? In principle, the nonprofit property tax exemption is available to a wide range of public charities. In practice, the benefits are concentrated among certain types of nonprofits, namely those which own taxable property. Data on the nonprofit property exemption is not universally available. Cordes (2012) uses IRS 990 digitized data to construct an index of property ownership, and then matches these data with local property taxes to impute the tax savings from exemption.

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The results of this analysis are as follows: ● Overall, just over 50 percent of nonprofits are estimated to own taxable property. ● The estimated frequency of property ownership ranges from a low of approximately 30 percent for nonprofits classified as philanthropic organizations and mutual benefit associations to highs of 80 percent or more in the case of housing-shelter related nonprofits, nonprofit hospitals, and nonprofit colleges and universities. ● The estimated tax savings from tax exemption provide a modest financial subsidy to nonprofits that qualify. In the sample of nonprofits analyzed by Cordes (2012), among nonprofits estimated to receive tax exemption, property tax savings as a percentage of organization revenue had a mean value of 5.7 percent; a median value of 1.3 percent; and ranged from a low of 0.1 percent to 12.4 percent. ● Ownership of potentially taxable property was concentrated among larger and more established nonprofits. Fiscal impact of the tax exemption The cost of the nonprofit tax exemption in foregone tax revenue has been a matter of concern to some cities. The degree of concern varies with the relative impact of the exemption on local budgets and the fiscal health of the local governments granting the exemption. The budgetary impact of the tax exemption is greatest in older cities of the Northeast, such as Boston, Philadelphia, and New York, which have significant concentrations of nonprofits, especially large landowners like hospitals and universities, and considerably less in cities on the West Coast and the South. Kenyon and Langley (2016) report that the revenue loss of the tax exemption is on the order of 4 to 8 percent of local revenue. Policy debates The nonprofit property tax exemption has been criticized on several grounds. Because only a fraction of nonprofits own taxable property, the local subsidy is concentrated among large, well-established nonprofits engaged in certain activities. The policy rationale for limiting the subsidy to property-owning nonprofits is a weak one. An alternative would be to replace the property tax exemption with

a subsidy of equal aggregate fiscal value available to all nonprofits. Questions have also been raised about whether local governments receive sufficient value for money from the nonprofits that benefit from the subsidy. Tax exemption received by nonprofit hospitals has been a special target. In some states, like Pennsylvania, where the tax exemption is not constitutionally protected, campaigns have been mounted to remove the tax exemption for nonprofit hospitals. The argument has been that nonprofit hospitals do not provide measurably more charity care than do for-profit hospitals. Dissatisfaction with the property tax exemption has led several jurisdictions to encourage nonprofits to make voluntary payments in lieu of taxes, or PILOTs. The city of Boston has been notable in formulating a systematic framework for receiving payments from 36 nonprofits in the higher education, and hospital sectors, raising more than $27 million in 2012, which amounted to 0.84 percent of revenue. The contribution of PILOTs to local revenue in the cities studied by Kenyon and Lange (2016) ranged from a low of 0.07 percent in Baltimore and Pittsburgh to a high of 5.93 percent in Princeton. Since PILOTs are intended to substitute for property taxes as a source of finance, it is instructive to compare the properties of (a) property taxes; (b) PILOTs generally; and (c) the specific Boston approach to a PILOT program (Cordes, 2016; Foundation Center, 2011; Kenyon & Langley, 2010). There is widespread agreement that a desirable system of taxation should embody the following principles: 1. Horizontal equity: Taxpayers in similar situations pay similar taxes. For example, two homeowners with similar property values pay similar property taxes. 2. Vertical equity: Taxpayers with a greater ability to pay often face higher tax bills. 3. Low administrative costs: The costs of government administration plus compliance costs for the private sector are low relative to the amount of revenue raised. 4. Revenue efficiency: The tax system raises enough revenue to pay for the desired level of public services. Joseph Cordes

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5. Transparency: The tax system should be simple and easy to understand. 6. Predictability: Tax rates should be fairly stable from year to year so taxpayers can plan for future liabilities, and government should be able to rely on a stable revenue stream. In principle, a properly designed and administered set of property taxes can be consistent with these principles. In contrast, PILOTs are likely to fall short. Because of their voluntary nature, PILOTs are apt to result in variation in contributions among nonprofits with similarly valued property. Moreover, there is no guarantee that amounts extracted from PILOTs will be vertically equitable. PILOTs also are neither efficient nor transparent revenue sources. Because PILOTs are often short-term agreements, they also are less certain sources of local finance. The Boston City PILOT framework may have at least partially remedied some of the shortcomings of PILOTs. The adoption of formal criteria seems likely to have made the Boston proposed PILOTs more horizontally and vertically equitable. The more formal and public PILOT structure also had the potential to make the PILOTs more revenue efficient and transparent. Joseph Cordes

land policies (pp. 353–401). Lincoln Institute of Land Policy. Foundation Center. (2011). Boston requests PILOT payments from area’s largest nonprofits. Candid. https://​ph​ilanthropy​newsdigest​.org/​ news/​boston​-requests​-pilot​-payments​-from​ -area​-s​-largest​-nonprofits Fritts, J. (2022). State corporate income tax rates and brackets for 2022. Tax Foundation. https://​ taxfoundation​.org/​state​-corporate​-income​-tax​ -rates​-brackets​-2022/​ Kenyon, D., & Langley, A. (2010) Payments in lieu of taxes. Lincoln Institute of Land Policy. Kenyon, D., & Langley, A. (2016). Nonprofit PILOTs (payments in lieu of taxes). Lincoln Institute of Land Policy. www​.lincolninst​.edu/​ sites/​default/​files/​pubfiles/​nonprofit​-pilots​ -policy​-brief​-v2​_0​.pdf U.S. Charitable Gift Trust. (2022). State and local tax treatment of charitable contributions. www​.u​scharitabl​egifttrust​.org/​tax​-treatment​-of​ -charitable​-contributions​.php

Technology and social media Definitions

Nonprofit technology refers to the application of information and communications technology (ICT) tools to the operation of nonprofit organizations. ICT refers to the set of tools available for Related topics collecting, processing, and communicating Accountability information through the integration of comCharity law puting and communication technologies. Commercialism Social media, also known as Web 2.0, refers Regulation of nonprofit organizations to technology that is interactive, uses the Tax policy: Federal Internet as a platform, allows user-generated content, and allows the pooling of collecFurther reading and references tive intelligence. It includes blogging and Barrett, R. (2019). Sales and use tax exemp- microblogging, social networking sites, tions for nonprofits. Cogency Global. www​ social bookmarking, Wikis, video and image .cogencyglobal​.com/​blog/​sales​-and​-use​-tax​ sharing and a host of other applications. -exemptions​-for​-nonprofits Brody, E., & Cordes, J. (2016). The unrelated business income tax: All bark and no bite? Historical development of ICT and Policy Commons. https://​ policycommons​the nonprofit sector .net/​artifacts/​637108/​the​-unrelated​-business​ Counterintuitive as it might sound, the non-income​-tax/​1618413/​ Cordes, J. (2012). Assessing the nonprofit prop- profit sector is no stranger to technology. erty tax exemption: Should nonprofit entities Private nonprofit universities and research be taxed for using local public goods? In G. K. organizations are often pioneers in develIngram & Y. H. Hong (Eds.), Value capture and oping new technologies; for example, the

world’s

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first

general-purpose

electronic

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computer was created at the University of Pennsylvania, a private nonprofit institution. Nonprofit hospitals and healthcare organizations are among the early adopters of new technologies, and foundations have been known for providing financial support to technological innovations. The vast majority of the nonprofit sector, however, is comprised of small-sized organizations that tend to be slow adopters of technology and have lagged behind commercial and governmental organizations in their use of technology. ICT has evolved over the years (Hafner & Lyon, 1998). Early computers were large units that were rarely networked. These computers, called mainframe or legacy computers, were expensive and required substantial facilities and staff (thus limiting them to larger organizations) and offered the capacity to process data and perform calculations. The development of smaller computers and the emergence of networking changed the nature of computing for nonprofits. Smaller computers developed in stages. The minicomputer (pioneered by DEC’s Vax Computer) gave many smaller nonprofits computing capacity. The development of personal computers (PCs) was an even more substantial development. Early PCs were really not very capable, but they represented possibilities that were unavailable to many organizations. They were affordable and could operate programs that did not require extensive training to use. Current computers are smaller, more capable and more portable. Today’s smartphones, for example, can easily upstage older technology. Computers run software or, in today’s idiom, applications. These are sets of instructions written by a programmer or in some cases, another program. In early computing, they were unique to each machine. Current programs are useful across many machines. Networking has also developed. The emergence of the Internet was a major move forward. There were a number of networks that proceeded the emergence of the Internet including USENET, BITNET and others. The initial Internet, funded by the Defense Advanced Research Projects Agency (DARPA), was a network of networks connected by the TCP-IP protocol. The early Internet (1980s–1990s) was text-based documents, newsgroups and e-mail and limited to a small number of users from government

and education. The World Wide Web made the Internet more useful and policy changes made it more available. Static web pages characterized the early hypertext web. These web pages allowed one-way communication and required programming skills. Web 2.0/ social media applications began to emerge in the mid-1990s. This exciting development was characterized by user-created content, the use of the Internet as a platform and the engendering of the pooling of collective intelligence. Some of the applications that were introduced at this point were blogs, wikis, social networking sites (Facebook), microblogging (Twitter/X), image and video sharing sites. In recent years, technology has moved toward Web 3.0, the Semantic Web, which incorporates data directly. At this point, Web 1.0 and Web 2.0/social media are mature networking technologies. The growth of ever larger and faster networks promises developments in networking that are exciting to consider.

In practice

Nonprofit organizations vary widely. There are huge nonprofits in the healthcare, education and social services sectors that have many employees and revenue in the range of millions of dollars. At the same time, small nonprofits may have a very small staff or none at all. Voluntary associations are an important part of the sector. Naturally, the use of technology varies as well. It is useful to think of these uses in four areas of nonprofit organizational life: (1) strategic and analytical functions; (2) internal operations; (3) external operations; and (4) service delivery. Strategic and analytical functions Nonprofit organization management and governance personnel need to understand their organizations and the organization’s environment. This means collecting and analyzing data. Enterprise management systems (EMS) and customer relationship management systems (CRM) facilitate this process and provide the organization with data that can be analyzed to address critical questions such as demand (or market) for a service or product, satisfaction with existing services, costs of existing services and what future actions are desirable. Analyzing the data and visualizing the results requires additional Chao Guo and John McNutt

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technology tools. At a very basic level, Excel and basic statistical and graphic programs, data presentation programs and so forth can be very useful. At a more advanced level, data science applications, machine learning, and artificial intelligence programs are useful. Large bodies of data are difficult to examine with traditional tools. Machine learning refers to technology that examines data for patterns and relationships while other artificial intelligence programs support analysis and decision making using the data. Data storage is accomplished by a range of possibilities including local storage, cloud-based storage and data warehouses. Protecting and securing this data is important and requires both cybersecurity and ethical analysis to protect individual rights and privacy. In addition to these technology tools for employees, a range of technologies exists to support the role of the board in managing their responsibilities. Internal operations These functions include human resources, financial management, inventory control and training. Technology tools can make recruiting and onboarding more effective and facilitate employee data keeping and analysis. Technology assists in managing benefits and documenting compliance for reporting. Distance education and online learning technology can assist employee training throughout the employee’s career. Financial management is perhaps the easiest area to apply technology. Financial managers have long used technology to assist with analysis and record keeping. The day-to-day tasks of these professionals is facilitated with spreadsheets, dedicated financial applications and analysis programs to address fraud and abuse. Sophisticated technology can make financial analysis and planning more successful. Technology provides many tools to manage inventories and reduce shrinkage. Internal management provides opportunities to use project management technology tools, which support tactical planning and management by ensuring timely and effective implementation of project activities. Communication technology is invaluable for managers who need to organize and support staff.

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External operations These include marketing, fundraising, volunteer recruiting, public relations, and advocacy. This is an area that social media has grown in importance. All of these functions depend on the data and analysis collected by the organization. Marketing and promotion efforts have moved online. Data from social media can be used to understand important stakeholder groups and social media can reach out and involve these publics. Dedicated fundraising technology can automate and improve the process of fundraising. Text to Give systems, crowdfunding efforts and other technology tools have provided nonprofits with ways to support their activities. Volunteer recruitment can be facilitated by dedicated systems or by social media. Finally, the advocacy function has benefitted from the explosion in the use of technology in lobbying and advocacy work (Guo & Saxton, 2020). ICT is a substantial development in political campaigning, social movement activities and interest group operations. The growth of political marketing and the use of data science to back political action has been a bonus to nonprofit political operatives. Recent social movement and political action have established the idea of virtual nonprofit organizations, sole practitioner advocates and leadership organizations. This is a significant move away from traditional thinking about these functions. ICT tools have made these efforts more possible than they have been in the past. Of concern is the evolution of Astroturf Activism and disinformation. Astroturf means that interested entities attempt to manipulate public opinion or the political process by using fake groups aimed at demonstrating public support. ICT makes the creation of these counterfeit grassroots efforts easier and more successful. ICT can also be used to promote disinformation by manipulating public opinion on online forums. Web2.0/social media are used by many nonprofits; it is unclear if these technologies result in the impacts that advocates claim. Managers point to secondary outcomes including page likes, tweets, friends, views and so forth, but making the connection to important tangible outcomes is more complex.

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Service delivery In health education and social services, technology is growing in importance in terms of service delivery, telemedicine, telepsychiatry and the use of technology for assessment and evaluation are growing in importance. The growth of artificial intelligence in assessment and case planning is likely to be important. Educational nonprofits have made good use of virtual learning technologies. In almost every area of service delivery, technology has found applications that increase access and reach. Arts and culture organizations are discovering the benefits of virtual presentations and exhibits. The growth of digital humanities is an important force here as well. Nonprofit research organizations have enjoyed the benefits of virtual collaborations, technology-supported bibliometric research, cloud-based research efforts and a host of related tools that would not be possible without ICT. The open science movement owes much to the role of technology in creating new science. The time when ICT technology-led interventions were novel is over. Most nonprofits will benefit from this emerging force to meet their mission and mandate.

Nonprofit management issues in ICT

It is clear that ICT has seen growing importance in the sector and individual organizations. How is this growing effort supported and financed? As was noted earlier, nonprofit organizations vary in size and scope. Large nonprofits have large internal information technology (IT) departments and dedicated technology budgets. Smaller organizations have more challenges. Some rely on the expertise that staff bring to their jobs. Others used consultants, nonprofit technology providers (NTAPs) or external IT service organizations referred to as application service providers. In 2000 the Nonprofit Technology Enterprise Network was created to provide a national forum for nonprofit technology support. Research has demonstrated that the use of ICT is associated with changes in organizations such as a tendency toward smaller, flatter organizations due to increases in span of control (Cascio & Montealegre, 2016).

Technology can lead to changes in procedures and systems, more complex systems and changes in the data available for decision making. Nonprofit management education must be adapted to increase the preparation that future managers have in the use of ICT. Many of the professional disciplines that produce the nonprofit workforce have fallen behind in adding nonprofit technology materials to their curricula and the disciplines that produce technologists have only recently addressed the need for nonprofit technologists. Work by the Public Interest Technology University Program sponsored by the New America Foundation can be very useful in this regard by demonstrating how schools can integrate high level technology and data science into their curricula and how they can provide careers in using technology for the public good. They propose a new career–public interest technologist as someone who can work with data and technology in government and nonprofit organizations. The digital divide is another issue, particularly for marginalized communities. The digital divide means that some areas and population groups are disadvantaged in access to technology and networks. The digital divide is a moving target (it’s currently a broadband divide), but it has substantial consequences. The growth of high-performance computing, cloud-based computing and storage, artificial intelligence and the Internet of things (a network of connected smart devices) will also complicate technology management in nonprofit organizations. They can be challenges or substantial opportunities.

Current and future directions

It is clear that ICT is a substantial force in the future of the nonprofit sector. It has become not only an asset for nonprofits that want to pursue their missions but a force for the reinvention of the future of the sector. The growth of the information society and the shift away from a manufacturing-based economy could be a threat to the future of many aspects of the current sector. In many ways, the industrial society shaped many of the features of the current sector. Federated fundraising organizations, labor organizations and many of the members of traditional social services and arts and culture sectors have had to adapt. Chao Guo and John McNutt

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Some of the developments that will shape the new nonprofit sector are remote work, the creation of virtual organizations, changes in the labor market, the gig economy and new sources of support. Many of these forces are tied to ICT. We could see a resurgence of voluntary associations as social media and crowdsourcing become more important. Networked-based fundraising could supplant the current funding models. While there are terrifying aspects of this evolution, they are far less daunting than the potential of creating a vibrant nonprofit sector. Nonprofit technology has never been about computers, servers or networks or programs. It is about people using the best tools available to peruse the most important possibilities or save those that society forgot. Chao Guo and John McNutt

Related topics

Advocacy Crowdfunding Digital divide ePhilanthropy Marketing Volunteer management

Further reading and references

Campbell, D. A., Lambright, K. T., & Wells, C. J. (2014). Looking for friends, fans, and followers? Social media use in public and nonprofit human services. Public Administration Review, 74(5), 655–663. https://​doi​.org/​10​.1111/​puar​ .12261 Cascio, W. F., & Montealegre, R. (2016). How technology is changing work and organizations. Annual Review of Organizational Psychology and Organizational Behavior, 3(1), 349–375. https://​doi​.org/​10​.1146/​annurev​-orgpsych​ -041015​-062352 Guo, C., & Saxton, G. D. (2014). Tweeting social change. Nonprofit and Voluntary Sector Quarterly, 43(1), 57–79. https://​doi​.org/​10​ .1177/​0899764012471585 Guo, C., & Saxton, G. D. (2018). Speaking and being heard: How nonprofit advocacy organizations gain attention on social media. Nonprofit and Voluntary Sector Quarterly, 47(1), 5–26. https://​doi​.org/​10​.1177/​0899764017713724 Guo, C., & Saxton, G. D. (2020). The quest for attention: Nonprofit advocacy in a social media age. Stanford University Press.

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Hafner, K., & Lyon, M. (1998). Where wizards stay up late: The origins of the internet. Simon & Schuster. Lovejoy, K., & Saxton, G. D. (2012). Information, community, and action: How nonprofit organizations use social media. Journal of Computer-Mediated Communication, 17(3), 337–353. https://​doi​.org/​10​.1111/​j​.1083​-6101​ .2012​.01576​.x McNutt, J. G. (Ed.). (2018). Technology, activism, and social justice in a digital age. Oxford University Press. McNutt, J., & Boland, K. (2007). Astroturf, technology and the future of community mobilization: Implications for nonprofit theory. Journal of Sociology & Social Welfare, 34(3), 165–178. McNutt, J., Guo, C., Goldkind, L., & An, S. (2018). Technology in nonprofit organizations and voluntary action. Voluntaristics Review,  3(1), 1–63. https://​doi​.org/​10​.1163/​9789004378124 Waters, R. D. (2007). Nonprofit organizations’ use of the internet: A content analysis of communication trends on the internet sites of the philanthropy 400. Nonprofit Management and Leadership, 18(1), 59–76. https://​doi​.org/​10​ .1002/​nml​.171

Transparency Definition

Transparency is being open and forthcoming about your actions and conducting operations in a way that is easy for others to see what is being done or has already taken place inside an organization. Transparency is considered an essential part of good corporate governance.

Context

In the context of the nonprofit sector, transparency means making information about the organization’s policies, programs and performance available to the public. This is accomplished through providing financial and governance information to stakeholders via informational Internal Revenue Service (IRS) Tax Form 990, as well as providing nonfinancial information through other communication channels such as newsletters, email blasts, social media, and third-party information websites. In sum, nonprofit transparency encompasses the overall practice of providing users with multiple facets of

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information, and access to information in an effort to convey openness and accountability.

Essential components of nonprofit transparency

As noted by the Panel on the Nonprofit Sector (2005), nonprofit organizations can only fulfill their charitable missions by maintaining the trust of the public: “trust that is maintained through transparency and governance.” Nonprofit transparency includes providing the public with the following critical information: 1. IRS Form 990 financial information. Organizations are required to complete IRS Form 990 which details financial performance as well as governance practices. In particular, Part IX of Form 990 requires nonprofits to categorize their spending into: program, management, and fundraising expense classifications to aid users in understanding how funds are spent within the organization. A common measure of organizational efficiency is calculated as the ratio of program expenses to total expenses using these financial disclosures. Part VI of Form 990 includes over 20 questions related to specific corporate governance practices of the organization. These disclosures include the size of the board of directors, conflict of interest policies in place, as well as several other aspects of management and governance. Finally, Schedule O of Form 990 provides filers with an open text area to provide descriptions and additional information related to many of the governance items disclosed in Part VI of Form 990. Important disclosures such as the circumstances around assets diversions (fraud) sustained by the organization as well as details of related party arrangements provide critical information to stakeholders. 2. Nonfinancial performance information. Organizations are also encouraged to report program accomplishments and mission successes to their stakeholders. The channel used for disseminating this information is left to the discretion of the organization. Many use traditional newsletters and mailings, others use electronic means such as email blasts, web pages, social media platforms, or GuideStar.org

profiles. While this information is at the discretion of organizations, policymakers and community advocates encourage charity organizations to provide this information to stakeholders at regular intervals.

In practice

To maintain their tax exempt status, nonprofits are required to file IRS informational tax return Form 990 on an annual basis. Beginning in 1997, the Taxpayer Bill of Rights required organizations to comply with written or in-person requests from the public to inspect an organization’s Form 990. Nonprofits could avoid individual requests for inspection if they made their Form 990 publicly available. To aid organizations in this endeavor, through a partnership with the IRS, GuideStar (www​.guidestar​.org/​) began providing online access to Form 990 for registered charitable organizations in 1999. According to nonprofit accounting research, donors’ use of financial information significantly increased following the launch of GuideStar-provided data in 1999. Unlike for-profit and governmental entities, which have relatively high levels of mandatory disclosure requirements, outside of Form 990, there are relatively few required disclosures for nonprofit organizations. On top of that, Form 990 has been acknowledged as having significant limitations when it comes to providing stakeholders with the information they need to adequately assess U.S. charities. As a result, nonprofits are encouraged to provide additional details about how the organization is managed as well as mission successes and accomplishments, which exceed Form 990 requirements. To provide the public with additional disclosures in an effort to convey greater transparency, nonprofit organizations have several options for disseminating information. First, and probably most traditionally, organizations use newsletters and mailers to inform stakeholders of their mission accomplishments as well as changes to the governing body of the organization. While effective, this means of publicizing information is targeted at current and past stakeholders and falls short of providing information to new or potential stakeholders. Second, an organization can provide nonfinancial and management information on their individual Erica E. Harris

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organizational web page. This is a relatively inexpensive way to disseminate information to a broad audience of current, past, and future stakeholders. Third, an organization can utilize the large number of social media platforms to help them reach stakeholders and provide users with information aimed at conveying transparency. Finally, third party intermediary organizations such as Charity Watch, Charity Navigator and GuideStar exist to provide the public with information about U.S. charities and allow organizations to achieve greater transparency. Specifically, GuideStar provides each tax exempt organization with their own profile page, which includes Form 990 PDFs, as well as additional information about the organization. How much additional information is included, beyond Form 990, is at the discretion of the charity organization. As a result, transparency levels vary across profiles, with some organizations including not only 990s and basic organizational information, but financial statements and detailed impact reports (including charting goals, strategies, capabilities, indicators, and progress) as well. Using GuideStar profile page information, research has confirmed that organizations that provide more information and are therefore regarded as more transparent organizations are better governed, have better performance, and more professional staff. Additionally, organizations that are more reliant on contributions and those located in states that require public disclosure of their audited financial statements are also more transparent on their GuideStar profile pages. Nonprofit research has also found that nonprofit stakeholders value transparency. In particular, greater transparency is found to be associated with higher levels of future contributions, even after controlling factors known to drive contributions. Organizations that make use of social media platforms to deliver organizational transparency are also found to garner additional donations from supporters. In sum, nonprofit research has confirmed the benefits of nonprofit transparency both in terms of stakeholder response as well as positive organizational characteristics. That is, consistent with work in the for-profit sector, nonprofit transparency is indeed an essential part of good corporate governance in the nonprofit context. Erica E. Harris

Current and future directions for nonprofit transparency

Prior research found that nonprofit organizations were more likely to respond to a request for audited financial statements and provided additional information on their GuideStar profile pages if they had a larger ratio of contributions to total revenues. Future research could further explore the variation in nonprofit transparency and accountability in organizations that are more donation reliant or alternatively transparency practices of organizations focused on program service revenues. Despite documented benefits, both U.S. and U.K. nonprofit studies have found relatively low rates of organizations providing additional disclosures beyond required financial information. Future research could use survey or other qualitative analytical tools to better understand why additional disclosures providing for better transparency are not undertaken by the majority of nonprofit managers. Perhaps executives view the costs as outweighing the benefits of providing additional information to stakeholders. Using detailed Form 990, Schedule O descriptions required of filers, future research could thoughtfully analyze these unstructured text disclosures to determine if organizations are rewarded for more transparent descriptions of their governance policies and practices. Current research has only just begun to explore the use and value relevance of nonfinancial performance information voluntarily disclosed by nonprofit organizations. Future studies could explore the amount and content of these nonfinancial metrics including donors’, grantors’ and other stakeholders’ use of this type of nonprofit transparency. Technological advances in the dissemination of both financial and nonfinancial information also provide a rich area for future research. In particular, social media platforms allow organizations to provide stakeholders with real time information, reaching both current and potential supporters. Future research could meaningfully study the impacts of this type of transparency and the role of technology in this effort. Finally, future research would be well served to study the types of metrics organizations rely on to evaluate performance. That is, while research has only just begun in the area

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of nonfinancial performance, a comparison of stakeholder use of financial and nonfinancial information as well as the means for disseminating that information would make a lasting contribution to our collective understanding of nonprofit transparency. In sum, using current research as a springboard and in response to calls for greater transparency in the sector (Panel on the Nonprofit Sector, 2005), future research has the potential to add to our understanding of nonprofit transparency in many important ways. Erica E. Harris

Related topics

Accountability Audit Financial documents and control Internal Revenue Service Regulation of nonprofit organizations Watchdog organizations

Further reading and references

Behn, B. K., DeVries, D. D., & Lin, J. (2010). The determinants of transparency in nonprofit organizations: An exploratory study. Advances in Accounting, 26(1), 6–12. https://​doi​.org/​10​ .1016/​j​.adiac​.2009​.12​.001 Hale, K. (2013). Understanding nonprofit transparency: The limits of formal regulation in the American nonprofit sector. International Review of Public Administration, 18(3), 31–49. https://​doi​.org/​10​.1080/​12294659​.2013​ .10805262 Harris, E. E., & Neely, D. G. (2016). Multiple information signals in the market for charitable donations. Contemporary Accounting Research, 33(3), 989–1012. https://​doi​.org/​10​ .1111/​1911​-3846​.12175 Harris, E. E., & Neely, D. (2018). Determinants and consequences of nonprofit transparency. Journal of Accounting, Auditing & Finance, 36(1), 195–220. https://​doi​.org/​10​.1177/​ 0148558x18814134 Hyndman, N., & McConville, D. (2016). Transparency in reporting on charities’ efficiency. Nonprofit and Voluntary Sector Quarterly, 45(4), 844–865. https://​doi​.org/​10​ .1177/​0899764015603205 Panel on the Nonprofit Sector. (2005). Strengthening transparency, governance, accountability of charitable organizations: A final report to Congress and the nonprofit sector. Kiplinger. www​.kiplinger​.com/​

members/​taxlinks/​071505/​Nonprofit​-Sector​ -report​.pdf. Accessed 18th September 2023. Saxton, G. D., Kuo, J.-S., & Ho, Y.-C. (2012). The determinants of voluntary financial disclosure by nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 41(6), 1051–1071. https://​doi​.org/​10​.1177/​0899764011427597 Saxton, G. D., Neely, D. G., & Guo, C. (2014). Web disclosure and the market for charitable contributions. Journal of Accounting and Public Policy, 33(2), 127–144. https://​doi​.org/​ 10​.1016/​j​.jaccpubpol​.2013​.12​.003

Triple bottom line Definition

In 1987, the United Nations’ Brundtland Report introduced the concept of sustainable development and effectively started a new era of environmental concern, as evident by the contemporary United Nations’ Sustainable Development Goals. This shift in the development thought from narrowly defined economic goals to a more inclusive and accountable vision of growth – consisting of environmental, social and economic considerations – has gradually penetrated into all areas of human activity, including businesses. In the parlance of the firm-level sustainability, Elkington (1997) coined the term triple bottom line (TBL) to argue that long-term organizational success was only possible if businesses simultaneously pursued economic profit, social justice and environmental protection. The economic aspect of TBL pertains to the effect of business operations on the economy and its ability to grow sustainably for future generations. The social dimension refers to the impact of business practices on labor, human capital and the surrounding community. Finally, the environmental component is concerned with the efficient and responsible use of natural resources for generations to come (Elkington, 1997).

In practice

Given its emphasis on balancing numerous objectives, TBL has applications across many sectors. In the nonprofit sector, specifically, TBL provides a useful metric for hybridity and social enterprise, including a conceptual and practical measure of social impact.

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Traditional commercial enterprise TBL is an important measure of and a reporting mechanism for sustainable and responsible corporate citizenship. Corporations measure and demonstrate their TBL credentials through measures of corporate social responsibility. These include rating-based measures (e.g., environmental, social and governance (ESG) score), financial measures (e.g., donation expenditures), perceptual measures (e.g., employee/customer questionnaires) and report/disclosure-based measures (e.g., annual reports) (Shukla et al., 2022, pp. 103–106). Hybridity and social enterprise The concept of social enterprise is vague, with a multitude of distinct yet related terms used in the literature, such as civic and municipal enterprises, community enterprises, nonprofit enterprises, sustainable enterprises, community wealth organizations, social enterprises, blended value organizations, social economy enterprises, social ventures and social entrepreneurship (Cukier et al., 2011; Sabeti, 2009). Generally speaking, social enterprises are hybrid organizations that blend elements of nonprofit organizations, in that they primarily pursue and deliver social value, and business organizations, in that they rely on markets to raise their funds. Because they are not necessarily tax exempt and are not exclusively driven by profits, social enterprises are neither purely nonprofit nor purely business-like (Miller-Stevens et al., 2018, pp. 939–941). While activities of social enterprises have traditionally focused on addressing socio-economic problems through the provision of social welfare services (e.g., education, childcare, housing the homeless, healthcare, etc.), the greening of the sector has come forth as a way of addressing sustainability challenges (Clark & Johansson, 2016, p. 163–166). As a result of these sustainability pressures, even those types of social enterprises traditionally untroubled by environmental concerns have increasingly become ecologically literate. For example, the microfinance industry, which primarily operates in emerging markets and developing countries, has shifted towards considering their environmental bottom line, in addition to their social and economic objectives (Beisland et al., 2022, p. 632).

The TBL framework is particularly helpful in the quest for a more broadly accepted definition of social enterprise. Emphasizing contributions to social well-being, just economy and, increasingly, environmental health, social enterprises are not only a premier example of TBL as an accounting tool but also as a conceptual model for how to use business as a force for good. Measure of social impact and sustainability reporting The instrumental value of TBL in the nonprofit sector is that it has paved the way for a more holistic approach to accountability. In light of increased demand for greater performance transparency, primarily coming from philanthropic funders and grantmakers interested in the effective allocation of funds, nonprofit organizations have invested much effort into attempting to measure the impact of their services. The need for impact metrics has become even more pronounced due to rising environmental concerns and an upward trend towards sustainability accounting. Consequently, a multitude of new evaluation methods and reporting tools has emerged. They include social return on investment (SROI), social accounting and audit (SAA), blended value analysis, balanced scorecard, and soft outcome learning (Arvidson & Lyon, 2014, pp. 876–877). What is common to all of these frameworks is their simultaneous inclusion of organizations’ social, environmental and economic impacts for a more comprehensive picture of the overall value of services and programs. This all-inclusive method of value creation is reminiscent of Elkington’s TBL. While neither the literature nor the practice has converged on a single, generalizable method, the sheer number of sustainability-driven accounting tools is a testament to a burgeoning interest in the topic, further evidenced by the development of the Global Reporting Initiative, whose primary purpose is to standardize a measure of social impact.

Current and future directions Responsible marketing As entities created to address TBL, effectively identifying a new market of previously unmet needs, social enterprises can be seen as

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harbingers of responsible marketing. By providing services and programs to the underprivileged, while simultaneously working toward a healthier and more environmentally friendly tomorrow, social enterprises meet the key principle of responsible marketing: to create a positive short-term impact that is aligned with a long-term societal interest (Bandyopadhyay & Ray, 2019, pp. 164–166). Despite this potential, marketing is still often perceived negatively among nonprofits due to its questionable use in the business sector. Some argue that leaving this anti-marketing mindset behind and embracing the power of responsible marketing in a strategic manner will enable social enterprises to achieve a sustainable socio-environmental change more easily (Bandyopadhyay & Ray, 2019, pp. 176–178). Future research is needed to explore this argument. Value co-creation As the concept of TBL has matured over the years, so has its application. The literature now talks about going “beyond” the TBL, where businesses and nonprofits enter into cross-sector partnership to co-create value. Austin and Seitanidi (2012) developed their Collaborative Value Creation (CVC) framework to argue that the creation of value happens on a continuum, depending on the stage of collaborative ventures. The first stage, philanthropic collaboration, is primarily a unidirectional transfer of resources from corporations to nonprofits. The second stage, transactional partnership, entails a more reciprocal exchange in which both parties earn valuable rewards (e.g., cause-related marketing). In the third stage, integrative cooperation, missions, business strategies and personnel achieve a higher level of organizational integration, through which co-creation of value becomes possible. Finally, transformational collaboration is the highest level of co-creation, in which nonprofit-business dyads produce transformative change at the systematic/societal level (e.g., decreased pollution) (Austin & Seitanidi, 2012). The research in value co-creation is significant because it advances the concept of TBL beyond organizations’ creation of positive social, economic/profit and environmental impact towards a more granular understanding of how different types of collaborations

can most effectively co-create value for society, organizations and individuals.

Quadruple bottom line

The quadruple bottom line (QBL) framework is an extension of TBL in that it adds governance to the notion of common good based on people, profit and planet. Broadly speaking, governance pertains to rules, regulations and disclosures governing organizational policies and strategies (Mukherjee & Banerjee, 2021, pp. 85–88). This is of particular importance for social enterprises, whose hybrid structures present complex governance challenges (Defourny & Nyssens, 2017, pp. 2489–2493). By adding the component of governance to the existing TBL framework, social enterprises may better measure and manage their own sustainability and, consequently, enhance social, environmental, economic and governing returns for the communities they serve. Dragana Djukic-Min, Allison R. Russell and Elizabeth A. M. Searing

Related topics

Accountability Commercialism Effectiveness of nonprofit organizations Hybrid organizations Innovation in nonprofit organizations Performance management Social enterprise Social responsibility of nonprofit organizations Social return on investment Transparency

Further reading and references

Arvidson, M., & Lyon, F. (2014). Social impact measurement and non-profit organisations: Compliance, resistance, and promotion. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 25(4), 869–886. https://​doi​.org/​10​.1007/​s11266​-013​ -9373​-6 Austin, J. E., & Seitanidi, M. M. (2012). Collaborative value creation: A review of partnering between nonprofits and businesses: Part I: Value creation spectrum and collaboration stages. Nonprofit and Voluntary Sector Quarterly,  41(5), 726–758. https://​doi​.org/​10​ .1177/​0899764012450777 Austin, J. E., & Seitanidi, M. M. (2012). Collaborative value creation: A review of

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584  Elgar encyclopedia of nonprofit management, leadership and governance partnering between nonprofits and businesses. Part 2: Partnership processes and outcomes.  Nonprofit and Voluntary Sector Quarterly,  41(6), 929–968. https://​doi​.org/​10​ .1177/​0899764012454685 Bandyopadhyay, C., & Ray, S. (2019). Responsible marketing: Can social enterprises show the way? Journal of Nonprofit & Public Sector Marketing, 31(2), 164–183. https://​doi​.org/​10​ .1080/​10495142​.2018​.1526738 Beisland, L. A., Zamore, S., & Mersland, R. (2023). Does it pay to be green? A study of the global microfinance industry. Nonprofit and Voluntary Sector Quarterly, 52(3), 631–653. Clark, E., & Johansson, H. (2016). 10 Social economy and green social enterprises. In Koch, M. & Mont, O. (Eds.) Sustainability and the Political Economy of Welfare, (pp. 158–170). Routledge. Cukier, W., Trenholm, S., Carl, D., & Gekas, G. (2011). Social entrepreneurship: A content analysis.  Journal of Strategic Innovation .na​ and Sustainability,  7(1), 99–119. www​ -businesspress​.com/​jsis/​cukierweb​.pdf Defourny, J., & Nyssens, M. (2017). Fundamentals for an international typology of social enterprise models. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 28(6),

2469–2497. https://​doi​.org/​10​.1007/​s11266​ -017​-9884​-7 Elkington, J. (1997). Cannibals with forks: The triple bottom line of the 21st century business. Capstone. Miller-Stevens, K., Taylor, J. A., Morris, J. C., & Lanivich, S. E. (2018). Assessing value differences between leaders of two social venture types: Benefit corporations and nonprofit organizations. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 29(5), 938–950. https://​doi​.org/​10​.1007/​s11266​-017​ -9947​-9 Mukherjee, S., & Banerjee, S. (2021). Sustainability of social enterprises: Is quadruple bottom line the pathway? In Guha, S. & Majambar, S. (Eds.) In Search of Business Models in Social Entrepreneurship, (pp. 85–115). Springer, Singapore. Sabeti, H. (2009). The emerging fourth sector. Aspen Institute. www​.aspeninstitute​.org/​ publications/​emerging​-fourth​-sector​-executive​ -summary/​ Shukla, A., Goel, G., & Shukla, N. (2022). Corporate social responsibility measures: A brief review. Business Perspectives and Research,  10(1), 101–120. https://​doi​.org/​10​ .1177/​2278533721992206

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Unfair competition Definition

Unfair competition results when an entity uses unfair tactics, such as a misleading advertising campaign, which can cause a customer or client to choose one business or provider over another.

In practice

With increased competition for grant funding and donations, more and more nonprofit organizations are engaged, or considering engaging, in business-like activities to diversify revenue streams. And, as the lines blur between the traditional for-profit and nonprofit spheres, questions arise regarding whether nonprofits engaged in such activity are engaged in unfair competition with their for-profit counterparts. Before addressing unfair competition in the nonprofit sector, it is helpful to address certain rules applicable to such organizations. A nonprofit organization recognized as exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code (“Code”) is required to be organized and operated exclusively for exempt purposes, and none of its net earnings may inure to the benefit of any private individual or shareholder. This fundamental principle manifests itself in a number of important ways, several of which are relevant to this discussion. A nonprofit organization recognized as exempt under Section 501(c)(3) of the Code is generally exempt from taxation on its income. This general rule does have exceptions, however, for example, an exempt organization is required to pay unrelated business income tax (UBIT) on any income from business which is not substantially related to the exempt organization’s exempt purpose.

The UBIT rules are contained in Sections 511–513 of the Code. Unrelated business income derives from an activity which is (1) a trade or business; (2) which is regularly carried on; and (3) which is not substantially related to the organization’s tax-exempt purpose. An activity is substantially related to the organization’s exempt purpose if it “contributes importantly” to the accomplishment of the organization’s purpose. It is important to note that the question of relatedness for purposes of the UBIT is not about whether the income from the activity supports the organization’s exempt purpose, it is about whether the activity itself is related to that exempt purpose. If an exempt organization engages in a “substantial” amount of UBIT producing activity, the organization risks losing its tax-exempt status. Relatedly, a nonprofit organization is required to engage in charitable activities in a manner which is commensurate in scope with the organization’s resources and, as such, the size and extent of any revenue generating activity must be considered in proportion to the size and extent of the organization’s exempt function. If a nonprofit organization conducts a business activity on a greater scale than necessary to achieve an exempt purpose – for example, if a workforce development organization runs a warehouse operation which is significantly larger than necessary for the vocational training the organization seeks to provide – the income from the activity would be subject to UBIT and the organization could potentially risk its tax-exempt status. In addition, and also similarly, the Internal Revenue Service (IRS) employs a nebulous commerciality test, which essentially states that if an organization engages in business-like activities in too commercial a manner – which is determined by considering how closely the organization’s marketing, pricing, and other business strategies align with its strategies of its for-profit

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counterparts – the organization potentially risks its tax-exempt status. While the unrelated business taxable income is intended to level the playing field between for-profits and nonprofit organizations for certain activities, examples abound of organizations engaged in business-like activities which are not subject to UBIT, and it is these activities which most draw the ire and attention of the for-profit community. One classic example involved the C. F. Mueller Spaghetti company, which was owned by New York University and the income from which was thus exempt from tax. The company’s competitors cried foul and took their arguments to Congress, and in the 1950s, this scenario resulted in the passage of the UBIT laws described above. Other examples include: ● Nonprofit fitness centers, such as the YMCA, which compete with for-profit fitness centers which offer many of the same services ● Nonprofits providing management consulting and technical assistance (note that the question of whether the provision of consulting services is subject to UBIT has been a topic of interest with the IRS, and the determination of whether a particular arrangement would result in UBIT is highly fact specific) ● Newspapers (note that nonprofit newspapers and newsrooms are becoming increasingly common in a difficult media environment) ● Day care centers ● Girl Scouts selling cookies (an $800 million business!) ● Open source software

Current and future directions

As one can see, the rules applicable to nonprofit organizations relevant to the question of unfair competition are relatively straightforward. The policy considerations, on the other hand, are quite complex, and the debate has only intensified with the blurring of the lines between nonprofit and for-profit described above. The for-profit’s main argument is simple; that it is unfair for the government to subsidize a nonprofit to conduct activity that a for-profit is just as well equipped to do. Stated another way, many for-profits argue that where there is no market failure with Alexander C. Campbell

respect to a particular activity, there is no reason why a nonprofit organization should be given a head start to conduct that activity. On the other side of the discussion, many nonprofit organizations argue that cries of unfair competition ring hollow. The nonprofit organization may be exempt from federal income tax, but most nonprofits have very little net income, if any, so many see little advantage from exemption. Additionally, nonprofit organizations are subject to many of the same payroll and other taxes applicable to their for-profit counterparts. And, of course, nonprofits are subject to significant additional scrutiny and must answer to multiple constituencies, cannot raise equity capital as a for-profit can, and are subject to a multitude of limitations inherent in their tax-exempt status. Finally, while this article has mostly addressed federal tax issues, it should be noted that most states have several additional forms of tax, such as property taxes and sales taxes. Most of these state tax regimes are slightly different from the federal tax exemption regime, and certain organizations and activities may be exempt from income taxation under Section 501(c)(3) of the Code but are not exempt from property tax under state law. Accordingly, when considering the degree of advantage a nonprofit organization may enjoy, that advantage is often tempered to an extent by these state rules. Alexander C. Campbell

Related topics

Charity law Commercialism Competition Earned income Hybrid organizations Internal Revenue Service Social enterprise

Further reading and references

Bennett, J. T., & DiLorenzo, T. J. (1989). Unfair competition: The profits of nonprofits. Hamilton Press. Liu, Y., & Weinberg, C. B. (2004). Are nonprofits unfair competitors for businesses? An analytical approach. Journal of Public Policy & Marketing, 23(1), 65–79. https://​doi​.org/​10​ .1509/​jppm​.23​.1​.65​.30401 Takagi, G. (2014, March). Fair or foul? A review of federal tax laws governing unfair competition.

U 587 Nonprofit Quarterly. https://​nonprofitquarterly​ .org/​fair​-or​-foul​-a​-review​-of​-federal​-tax​-laws​ -governing​-unfair​-competition/​.

United Way Definition

The modern United Way (UW) had its origins in the Charity Organization Society movement of the late nineteenth century, striving to bring a more scientific approach to the provision of relief services in rapidly growing urban communities. The first united campaign was launched in 1887 in Denver, Colorado, by a small group of religious leaders, coordinating the work of Jewish and Christian charities. Their early effort led to the creation of a secular organization to efficiently raise funds on behalf of local charities, coordinate relief and social services among the participating charities, and refer clients for services (Brilliant, 1990). This coordinated fundraising effort restructured the relationship between donors and recipients. Serving as both fundraiser and fund allocator, this new “community chest” became a bureaucratic intermediary between donors, clients, and agencies (Barman, 2006, p. 21), allowing for the “expert distribution” of funds. By avoiding duplication and competition between multiple fundraising efforts, the Community Chest could use resources more efficiently and reduce the costs of raising donations. The federated model of fundraising – where one organized group raised money on behalf of other organizations – quickly spread to other communities and by 1929 there were 353 organizations, often known as Community Chests across the U.S. Local Community Chests raised funds through annual campaigns on behalf of a small group of “member agencies” that were often well-known organizations in the community. A distinguishing characteristic of the UW system was its ability to “democratize” philanthropy by enabling working and middle-class donors to contribute to community needs. Although the original Community Chest model focused on raising funds through door-to-door solicitations from individuals, since the 1940s the UW fundraising model

has been distinguished by workplace campaigns, where corporations supported a single fundraising campaign among employees, facilitating giving through payroll deductions (Brilliant, 1990). While the origins of the Community Chest movement were local and lay in a combined fundraising and fund distribution plan on behalf of member organizations, the movement was also distinguished by its national franchise structure. As early as 1918 local leaders of fundraising federations formed the American Associations for Community Organizations, that eventually became the predecessor of the UW Worldwide. In 1970 that national association of United Funds brought together more than 1,000 local affiliates that were using more than 100 different names into a single identity – UW of America. As “franchises,” local UW affiliates are autonomous and led by their own local governing board. While they conduct their own local fundraising campaigns, they pay dues to the UW Worldwide system in exchange for using the UW brand. In addition, local affiliates agree to follow a common set of standards that promote good organizational practices. Local affiliates also have access to system wide training and professional education that support the use of professional practices. Because of its historical legacy and its near universal presence across U.S. communities, the UW was commonly recognized as the “mainstay of the nation’s philanthropy” (Wenocur, 1975, p. 224). In many communities, the UW was by far the single largest funder of human service needs. Until 2016, the combined fundraising efforts of the UW system made it the largest single fundraising effort in the U.S. (Lindsay et al., 2016).

In practice

Traditionally, the UW was often commonly associated with local fundraising campaigns, often symbolized by local UW billboards that used a thermometer to visually track campaign goals. In this traditional model, the UW raised funds through workplace campaigns and efficiently provided general operating support to member agencies. However, in the early 2000s, many local UWs transformed from membership-based organizations that served as a fiscal intermediary between donor and member agencies to a local organization committed to achieving community impact Laurie E. Paarlberg and Jin Ai

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through meaningful long-term change in local communities (Paarlberg & Meinhold, 2012). In this new role, rather than making grants based upon member agencies’ needs, UWs partner with local organizations that can best contribute to meeting the community’s needs, often in three UW priority areas: health, education, and income stability. The move to Community Impact in the early 2000s re-emphasized the important roles that local UWs have long played in defining community need and coordinating human services in local communities (Brilliant & Young, 2004). Moving beyond fundraising, UWs play three key roles in their communities. Steward As funding intermediaries, UWs ensure that community resources are used efficiently and effectively. Local UW affiliates agree to comply with reporting standards that provide an accounting of funds raised, overhead costs, and a commitment to transparency in financial management, ethics, and governance. UW standards also encourage local UWs to provide a community-driven assessment of their impact. In addition to accounting for their own use of resources, local UWs have led the way in requiring grantees to evaluate their work, promoting the use of logic models to measure outcomes. Organizations no longer receive funding based upon their membership in the local UW federation but receive grants based upon an evaluation of their capacity to address community needs (Paarlberg & Meinhold, 2012), and the UW has been instrumental in promoting outcomes-based measurement. Problem solver Local UWs have historically played important roles as community problem solvers – identifying the most important needs in the community, strategizing how best to respond to those, and then overseeing efforts to respond to those needs. Such efforts are reflected in many local UWs’ leadership in creating community dashboards and needs assessments. While many early fundraising efforts focused on relief of immediate needs, as community problem solver, local UWs are increasingly focused on addressing systemic issues, such as income, health, and education disparities. For example, a grassroots network of UWs has led the way in focusing attention Laurie E. Paarlberg and Jin Ai

on the economic and health crises facing our communities’ ALICE (asset limited, income constrained, employed) households. Through the ALICE movement, local UWs are providing data and language to inform local and national policy and stimulate innovation (Levine, 2018). Community convener UWs rarely have the resources or knowledge to meet all human service needs in their local communities but instead often work through networks of partners. Moving beyond focusing their efforts on identifying those grantees that can have the largest impact, UWs are increasingly convening partners across sectors to prioritize, plan, and implement joint action in the hope of achieving greater impact through collaborative efforts. As a result, UWs are increasingly engaged in funder collaboratives, public–private partnerships, and ad-hoc social sector collaborations. In some communities, UWs are playing formal roles in collective impact efforts that seek to achieve a shared vision of change through coordinated action and common measurement. In these communities, UWs may play key roles as backbone organizations to local collective impact efforts, formally managing and coordinating these complex efforts (Kania & Kramer, 2011). The franchise nature of the UW system means that the roles that UWs play differ across communities, dependent upon historical traditions, the presence and capacity of other institutional actors, and local community needs. Despite common branding and marketing, each local UW looks and acts differently.

Current and future directions

The UW system faces several existential challenges that have pushed local and global UW leaders to question the business model of the UW and the role of local UWs in the coming decade. Declining campaigns Over the last two decades, local UW campaigns have been flat or declining in many local communities as a result of a variety of factors. UW have faced greater competition from other nonprofits and philanthropic organizations, the rise of online fundrais-

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ing, and greater access to technology that reduces the value of “intermediaries,” economic pressure on middle-class giving, and shifting donor priorities (Bernholz et al., 2005). These changes force local UWs to re-examine funding priorities, “focus” their giving, and seek new fundraising vehicles outside of the workplace campaign. Donors also increasingly seek to direct their giving to specific priority areas or even specific organizations, limiting UWs’ discretionary capacity to steward resources and set an agenda that addresses the strategic priorities of the community. In their efforts to shore up declining campaigns, UWs will face increased tensions in balancing donor expectations and community needs. Increased expectations Public policy, particularly as local government retrenchment accelerates, increasingly relies upon local organizations like the UW to respond to public policy needs, as designer, funder, and deliverer of public services. While UWs have increasingly taken on coordination and leadership roles in local social service networks, these new roles are often resource intensive and require new skills. The UW system will face challenges empowering and equipping local leaders, particularly in small communities, to take on increased responsibilities. Momentum to advance racial justice Global attention to racial and social justice issues have heightened concerns that the UW largely serves the interests of white middle-class donors and has been unresponsive to the emergent needs of communities of color and other progressive social movements. While the UW has advanced equity principles (United Worldwide Equity Framework, 2020), local UWs will face increased pressures to address equity and justice in their internal practices and their relationships with the community (Kasper et al., 2021). As public charities that rely upon annual fundraising, largely from corporations and middle-class donors, efforts to advance equity locally may be particularly challenging in politically polarized communities. Long the mainstay of local philanthropy, the modern UW continues to adapt its prac-

tices and mission to fill critical needs in local communities. Laurie E. Paarlberg and Jin Ai

Related topics

Campaign: Annual campaign Charitable giving Donor choice Federation Fundraising Social capital

Further reading and references

Barman, E. (2006). Contesting communities: The transformation of workplace charity. Stanford University Press. Bernholz, L., Fulton, K., & Kasper, G. (2005). On the brink of new promise: The future of U.S. community foundations. Center on Philanthropy and Civil Society. http://​ philanthropy​ .org/​ documents/​IFPBernholz​.pdf Brilliant, E. L. (1990). The United Way. Columbia University Press. Brilliant, E., & Young, D. R. (2004). The changing identity of federated community service organizations. Administration in Social Work, 28(3–4), 23–46. https://​doi​.org/​10​.1300/​ j147v28n03​_02 Kania, J., & Kramer, M. (2011). Collective impact.  Stanford Social Innovation Review,  9(1), 36–41. https://​doi​.org/​10​.48558/​ 5900​-KN19 Kasper, G., Marcoux, J., & Holk, J. (2021). Big shifts for philanthropy: What’s coming in the next decade. The Chronicle of Philanthropy. www​.philanthropy​.com/​article/​big​-shifts​-for​ -philanthropy​-whats​-coming​-in​-the​-decade​ -ahead Levine, C. (2018). United Way’s new ALICE initiative focuses on working poor. Nonprofit Quarterly. https://​nonprofitquarterly​.org/​meet​ -united​-ways​-alice​-50​-million​-us​-families​ -barely​-scrape/​ Lindsay, D., Olsen-Phillips, P., & Stiffman, E. (2016). Fidelity Charitable pushes United Way out of top place in ranking of the 400 U.S. charities that raise the most. The Chronicle of Philanthropy. www​.philanthropy​.com/​article/​ fidelity​-charitable​-pushes​-united​-way​-out​-of​ -top​-place​-in​-ranking​-of​-the​-400​-u​-s​-charities​ -that​-raise​-the​-most/​ Paarlberg, L. E., & Meinhold, S. S. (2012). Using institutional theory to explore local variations in United Way’s community impact model. Nonprofit and Voluntary Sector Quarterly,

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590  Elgar encyclopedia of nonprofit management, leadership and governance 41(5), 826–849. https://​doi​.org/​10​.1177/​ 0899764011418123 United Worldwide Equity Framework. (2020). United Way. www​.unitedway​.org/​the​-latest/​ publications/​united​-way​-worldwide​-equity​ -framework Wenocur, S. (1975). A political view of the United Way. Social Work, 20(3), 223–229. www​.jstor​ .org/​stable/​23711289

Unrelated business income Definition

As the name suggests, tax-exempt organizations recognized under Section 501(c) (3) of the Internal Revenue Code (“Code”) are generally exempt from federal income taxation. One important exception to this general rule, however, is for income generated from “unrelated business.” This article explains the Unrelated Business Income Tax (UBIT) rules, including the definition of Unrelated Business Taxable Income (UBTI) and various exceptions and modifications to the definition. The UBIT rules came into existence in the 1950s and are codified in Sections 511, 512, and 513 of the Code. (Section 511 imposes the UBIT on income from unrelated business activities; Section 512 defines UBTI; and Section 513 defines “unrelated trade or business” for purposes of the UBIT rules.) The legislative history of these rules indicates a clear intent on the part of the legislature to address unfair competition between the for-profit and nonprofit sectors, as certain exempt organizations were engaged in business activities but were not paying tax on the income from those activities.

In practice

Pursuant to Section 512(a)(1) of the Code, income is generally treated as unrelated, and thus subject to UBIT, if each prong of a three-prong test is met: 1. The income must be generated from a “trade or business”; 2. The income producing activity must be “regularly carried on”; and Alexander C. Campbell

3. The income producing activity must not be “substantially related” to the organization’s tax-exempt purpose. With respect to the first prong, Section 513 of the Code defines trade or business as “any activity which is carried on for the production of income from sale of goods or the performance of services.” This definition is expansive, and generally covers any profit-making activity. With respect to the second prong, an activity is considered to be “regularly carried on” if it is conducted with the “frequency and continuity” and in the same “manner” as a for-profit would conduct the same activity (Treas. Reg. 1.513-1(c)(1)). So, an activity which is conducted on a seasonal basis – such as the sale of Christmas trees for a few months during the holiday season – would be considered regularly carried on, while a one-time sale of goods which would normally be sold year-round by a for-profit would not. Finally, with respect to the third prong, whether an activity is “substantially related” to an organization’s exempt purpose requires a facts and circumstances analysis and, specifically, whether the income producing activity “contributes importantly” to the organization’s accomplishment of its tax-exempt purpose (Treas. Reg. 1.513-1(d) (2)). Notably, this definition requires that the activity itself be related to the exempt purpose of the organization; the fact that the income from an activity is used to support and further the organization’s exempt purposes is not sufficient. In addition, in determining whether a particular activity is substantially related, the Internal Revenue Service (IRS) also considers the scope of the activity in proportion to the organization’s total activity. For example, a catering business which serves a job training function for individuals coming out of the criminal justice system may be substantially related to that legitimate charitable purpose, but if the organization conducts that catering business on a larger scale than necessary for the job training function, the activity may not be treated as substantially related to the organization’s exempt purpose. Section 513 of the Code also contains a number of exceptions to the general rule described above – income which meets the definition of UBTI but is statutorily excepted from being characterized as such. The most

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common exceptions in practice are income from the sale of donated merchandise (such as a thrift store); income from a trade or business where substantially all of the work is conducted by volunteers (such as a bake sale where substantially all the work is performed by volunteers); and income from a trade or business performed for the “convenience” of the organization’s members, students, patients, officers, or employees (such as a school or hospital cafeteria). There are other less common statutory exceptions as well. In addition to these statutory exceptions, Section 512(b) of the Code also contains a series of modifications to the UBIT rules, such that income which would otherwise be subject to UBIT is in fact not subject. Most of these modifications relate to passive sources of income, including rents from real property, interest, royalties, dividends, and the sale of capital assets. Another important exception is contained in Section 513(i) of the Code, which provides that a “qualified sponsorship payment,” which is defined as a “payment made by a person … engaged in a trade or business where there is no arrangement or expectation that the person will receive any substantial return benefit for the payment” is excluded from UBTI. In other words, a qualified sponsorship payment occurs where the payor has no expectation of return benefit in exchange for the payment – although a simple acknowledgment, without endorsement, is acceptable. In practice, distinguishing a qualified sponsorship payment which is not subject to UBIT from advertising revenue, which may be subject to UBIT, is very important. Finally, as is often the case with IRS rules, there are exceptions to the exceptions and modifications described above. For example, Section 512(b)(13) provides that many types of passive income (other than dividends) received from a “controlled corporation” (such as a wholly owned for-profit subsidiary of a nonprofit) are subject to UBIT. Another example is the “debt-financed income” rule, which provides that revenue from an income-producing property may be subject

to UBIT in proportion to the organization’s indebtedness with respect to the property. Section 501(c)(3) provides that an exempt organization must be organized and operated “primarily” for exempt purposes. The IRS has not defined exactly what “primarily” means in this context, but an organization engaged in unrelated business activity must be careful not to engage in a “more than insubstantial” amount of those activities, lest the organization threaten its tax-exempt status. If an organization starts approaching this threshold, it may wish to consider moving the unrelated business activity into a separate entity to protect the organization’s tax-exempt status. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T. UBIT is calculated and paid at normal corporate tax rates – which is, as of October 2022, 21 percent. Since the passage of the Tax Cuts and Jobs Act in 2017, an exempt organization with more than one unrelated trade or business must compute its UBTI separately with respect to each unrelated trade or business; these are often referred to as the “UBIT silo” rules. Alexander C. Campbell

Related topics

Charity law Commercialism Earned income Internal Revenue Service Tax policy: Federal Unfair competition

Further reading and references

IRS (2021) Publication 598: Tax on unrelated business income of exempt organizations. www​ .irs​.gov/​publications/​p598 Tenenbaum, J. S. (2021). Unrelated business income tax (UBIT): A comprehensive overview for nonprofits. Business Law Today. https://​businesslawtoday​.org/​2021/​10/​unrelated​ -business​-income​-tax​-ubit​-a​-comprehensive​ -overview​-for​-nonprofits/​

Alexander C. Campbell

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Venture philanthropy

venture philanthropy and impact investing, as the first president; and ● The Robin Hood Foundation founded by a hedge fund manager, Paul Tudor Jones.

Definition of key terms and concepts

Venture philanthropy generally refers to a hybrid approach applying the commercial venture capital investment model to philanthropic grantmaking for the public and social benefits, rather than maximizing profit for private wealth. John D. Rockefeller III is often cited as an individual who first used the term venture philanthropy during the 1969 Congressional hearings on tax reform, though “venture” in his word was not associated with the commercial investment. The contemporary notion of venture philanthropy emerged in the United States during the mid-1980s– early 1990s when young high-tech entrepreneurs and venture capitalists began explicitly borrowing ideas and practices of venture capital investing – which were hailed to be successful for growing startup ventures during the dotcom bubble – for their philanthropic endeavors, claiming that this approach would help funded organizations build their organizational capacities.

In practice

The earliest venture philanthropy organizations include: ● The Peninsula Community Foundation (later merged into the Silicon Valley Community Foundation), which publicly mused the potential from using the venture philanthropy model in its annual report in 1984; ● The Roberts Enterprise Development Fund (REDF) created by George Roberts, a co-founder of the global investment firm KKR and led by Jed Emerson, a foremost “blended-value” thought leader for

A variety of new organizations emerged to implement venture philanthropy, thereby making the field of venture philanthropy highly diverse. Examples include 501(c) (3) nonprofits such as the Acumen Fund, New Profit, NewSchools, and Venture Philanthropy Partners. Another example are giving circles, such as Social Venture Partners and SV2 Silicon Valley Social Venture Fund. Several private foundations practice the venture philanthropy philosophy such as the Draper Richards Kaplan Foundation and the Skoll Foundation. Finally, there are nonprofit-LLC hybrids such as the Omidyar Network. The growing popularity of venture philanthropy prompted even influential and long-standing foundations such as Carnegie, Hewlett, and Kellogg to consider experimenting with venture philanthropy ideas. Letts, Ryan, and Grossman’s Harvard Business Review article (1997) is an early publication that advocated the potential benefits for grantmaking foundations from using venture capital investing. This ostensibly perfect marriage between philanthropy and commercialism attracted prominent management figures such as Michael Porter at the Harvard Business School. Wide coverage in popular media outlets such as Forbes, Time, and Fortune helped popularize venture philanthropy in the business community. Early proponents often criticized traditional grantmaking as inefficient methods and proposed venture philanthropy as a remedy for the perceived weaknesses of traditional philanthropy. This introduction stirred sharp criticism among philanthropic veterans. Still, Frumkin (2003) acknowledges that venture philanthropy is one of the most prominent, yet the most controversial, ideas in the history of US philanthropy.

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Core practices of venture philanthropy versus traditional philanthropy

Principle

Traditional philanthropy

Venture philanthropy

Characteristics of funding tools

● Shorter funding term

● Longer funding term

● Smaller amount

● Larger amount

● A philanthropic funding tool (grants)

● Market-based funding tools (e.g., equity, loans)

● Specific program support ● Limited provision of technical assistance

● General operation support ● Greater provision of technical assistance

Performance measurement

● Rigorous measurement

● Less rigorous measurement

● Measurement system developed primarily ● New metric system developed by funders via adaptation of for-profit systems

by a funded social venture

● Rigorous due diligence

● Less rigorous due diligence

● A clear exit strategy

● No clear exit strategy Relationship with funded organizations ● Low involvement in a funded social venture ● Not serve on the board

Proposing a succinct and agreed-upon definition to venture philanthropy is difficult because activities conceived of as venture philanthropy vary considerably among different organizations, times, and regions (e.g., the United States versus Europe). In its early incarnations, venture philanthropy proponents in the Morino Institute report (2000) explicitly used the terms inherited from business entrepreneurship and investment, such as “social venture funds” and “venture capital practices to maximize investor value and impact” to emphasize venture philanthropy’s mimicry of commercial venture capitalism. Other organizations, however, later chose to label their work under less controversial banners, such as “high engagement philanthropy,” to get beyond the controversy and highlight their venture approach could serve as a complement to established grantmaking models. Publications targeting the business audience regard venture philanthropy as part of for-profit and nonprofit “social venture capital investment funds” or “impact investing.” Others discuss venture philanthropy as “strategic giving” by foundations. Nonprofit scholars and practitioners such as Frumkin (2003) and Center for Venture Philanthropy in Silicon Valley (Gray & Speirn, 2004) shed light on long-term funding and a close funder–fundee relationship that includes the provision of strategic assistance as well as financial resources, rigorous performance measurement with blended social and financial criteria, and an exit strategy created for making possible shared respon-

● High involvement in a funded social venture ● Serve on the board

sibility for sustained change. On the other hand, Miller and Wesley (2010) and other business entrepreneurship scholars highlight VC influenced investment practices, such as equity investment in the early stages of social ventures. Some venture philanthropy nonprofits, such as the Acumen Fund, actively use market-based instruments (e.g., loans, equity), whereas funding provided by many venture philanthropy pioneers are technically philanthropic grants, though in a relatively larger amount and longer term of funding. Table 28 presents core practices discussed in the prior literature, comparing venture philanthropy to traditional philanthropy.

Current issues and challenges

In the early days of venture philanthropy, the biggest challenge was to capture and measure “social impact,” resulting in the creation of various performance measurement methods, most notably Social Return on Investment (SROI) created by REDF. Mimicking standardized performance measurement and accounting methods of commercial ventures (i.e., ROI), SROI “monetizes” the social as well as financial results of funded nonprofit organizations. Program assessment was not new in the philanthropic field as philanthropic funders, such as United Way, had developed and implemented tools to evaluate the funded programs. Still, the degree of specificity of measurable goals, the rigor of measuring organizational health rather than programs, and the application of venture capitalists’ Tamaki Onishi and Arisa Miyakozawa

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measurement methods to measure outcomes of funding may be recognized as unique attributes of venture philanthropy practices. Among the challenges facing venture philanthropy is precisely defining the concept in a way that is widely applicable. Despite much buzz about its potential, venture philanthropy has been a highly controversial idea. Nonprofit scholars and practitioners claim that the practices labeled as venture philanthropy were nothing new, and instead, business jargon was merely applied to traditional grantmaking practices such as substituting “investment” for grants and “investees” for grantees. There have been intense debates over the advantages and disadvantages of using a venture philanthropy model. As venture philanthropy is often situated in the movement adapting business practices for use in the nonprofit sector, strong opposition arose from philanthropic leaders. Commercialization is particularly at odds with the values and practices of certain types of nonprofit organizations such as those promoting social justice or delivering services to marginalized populations. Many are concerned about a blurring line between business investment and philanthropy and the potential harm of bottom-line business values and practices into philanthropy. Despite early enthusiasms, the venture philanthropy “hype” in the United States resulted in ebbing as the dot-com bubble burst, and some early proponents today even avoid using the term venture philanthropy. A leading proponent, the Center for Venture Philanthropy in Silicon Valley, was later closed. In contrast, venture philanthropy has been forming a vibrant ecosystem outside the United States, most notably across Europe under the leadership of the European Venture Philanthropy Association (EVPA), which was launched in 2004 and claims itself as a community of over 300 organizations. With the support by EVPA, Asian Venture Philanthropy Network (AVPN), a Singapore-based professional network association, was established in 2011 to promote a high impact social investment community across Asian countries. Furthermore, Social Ventures Australia was established in 2015. Besides challenges in practices, research about venture philanthropy has lagged behind in nonprofit scholarship, and venture philanthropy has rarely been discussed as a worthy topic for serious scholarly efforts. A serious Tamaki Onishi and Arisa Miyakozawa

absence of systematic data hinders us from grasping the state and scope of the venture philanthropy field. Available studies surveying venture philanthropy organizations occurred over two decades ago. Still, there are some studies that ground venture philanthropy in certain theoretical perspectives, most notably institutional theory and institutional logics (Mair & Hehenberger, 2013; Moody, 2008; Onishi, 2019).

Future directions

Although the term “venture philanthropy” is not attracting as much attention today as it was during the late 1990s–early 2000s, there are some notable signs of future advancement of the concept. The past decade has witnessed a significant growth of a venture philanthropy community outside the United States. Contrary to the United States, where venture philanthropy was deemed to be in opposition to traditional philanthropy, European venture philanthropy was more inclusive from the beginning, thereby private equity and venture capital had a strong role in building the field. Followed by the creation of AVPN, the African Venture Philanthropy Alliance (AVPA) and Latimpacto in Latin America were formed as the new counterparts of EVPA, together forming a global partner network promoting venture philanthropy and impact investing. As these venture philanthropy communities have often been advancing with a strong tie for commercial investors and entrepreneurs, Asia shows significant potential. Populations of high-net-worth individuals (HNWIs) are rapidly increasing in many Asian countries, including Hong Kong, Vietnam, Sri Lanka, Indonesia, Singapore, and India, and the number of HNWIs in Asia has overtaken that in North America and Europe. A small but growing number of foundations in Asia such as the Yeh Family Philanthropy are exploring the potential of venture philanthropy through the provision of grants and incubation support to social enterprises. Attentions from political as well as corporate leaders offer a promise of venture philanthropy. For instance, in his Policy Speech on January 17, 2022, Japan’s Prime Minister, Kishida, suggested the potential of venture philanthropy in fostering social enterprises and impact investing in Japan. Another avenue to the future growth of venture philanthropy may be pursued as part

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of “impact investing.” It should be noted that although some authors use the terms “venture philanthropy” and “impact investing” interchangeably, leading proponents for impact investing, such as Global Impact Investing Network (GIIN), distinguish impact investing from philanthropy as the former seeks a financial return on capital that can range from below market rate to risk adjusted market rate. Still, some venture philanthropy pioneers (e.g., Acumen Fund) have become an integral part of leading the impact investors’ community. Unlike the early venture philanthropy community, which lacked powerful professional associations, the impact investing community has been advancing today under the leadership of large-scale networks, such as GIIN. Tamaki Onishi and Arisa Miyakozawa

Related topics

Charitable giving Grant Impact investing Program evaluation Program-related investment Social entrepreneurship Social return on investment

Further reading and references

Frumkin, P. (2003). Inside venture philanthropy. Society, 40(4), 7–15. https://​doi​.org/​10​.1007/​ s12115​-003​-1013​-0 Gray, C. W., & Speirn, S. (2004). Defining virtue: Five key elements of venture philanthropy and five years of documented results. Center for Venture Philanthropy & Peninsula Community Foundation. John, R. (2006). Venture philanthropy: The evolution of high engagement philanthropy in Europe. Skoll Centre for Social Entrepreneurship Oxford Said Business School. Letts, C. W., Ryan, W., & Grossman, A. (1997). Virtuous capital: What foundations can learn from venture capitalists. Harvard business review, 75(2), 36–50. https://​hbr​.org/​1997/​03/​ virtuous​-capital​-what​-foundations​-can​-learn​ -from​-venture​-capitalists Mair, J., & Hehenberger, L. (2013). Front-stage and backstage convening: The transition from opposition to mutualistic coexistence in organizational philanthropy. Academy of Management Journal, 57(4), 1174–1200. https://​doi​.org/​10​ .5465/​amj​.2012​.0305 Miller, T. L., & Wesley, C. L. (2010). Assessing mission and resources for social change:

An organizational identity perspective on social venture capitalists’ decision criteria. Entrepreneurship Theory and Practice, 34(4), 705–733. https://​doi​.org/​10​.1111/​j​.1540​-6520​ .2010​.00388​.x Moody, M. (2008). “Building a culture”: The construction and evolution of venture philanthropy as a new organizational field. Nonprofit and Voluntary Sector Quarterly, 37(2), 324–352. https://​doi​.org/​10​.1177/​0899764007310419 Morino Institute. (2000). From access to outcomes. www​.morino​.org/​divides/​report​.htm Onishi, T. (2019). Venture philanthropy and practice variations: The interplay of institutional logics and organizational identities. Nonprofit and Voluntary Sector Quarterly, 48(2), 241–265. https://​doi​.org/​10​.1177/​ 0899764018819875

Voluntarism Definition

Voluntarism is generally understood as voluntary or willing participation in a course of action on the part of individuals. From a societal standpoint, voluntarism also reflects social and cultural beliefs about the desired or expected role of voluntary action in the provision of social welfare. The term volunteering refers to the act of giving one’s time and talent to contribute to the work of an organization, be it in the nonprofit, for-profit, or public sector, or to provide support for neighbors or community members outside of formal organizations. Volunteerism encompasses the aggregate contributions of volunteers to social welfare, both formally and informally, and may be understood as a measure of a society’s commitment to voluntarism as a principle. Our discussion will focus on volunteering and volunteerism in the context of formal organizations. Modern use of the term “volunteer” first appeared concerning the military in the 1750s, when civilians were mobilized for military service. While few volunteer armies exist today, volunteering has become a ubiquitous phenomenon in each sector of the economy, but primarily in the nonprofit sector. Scholars (Cnaan et al., 1996) doing a systematic search of the academic and practitioner literature on volunteering have found that there is a general agreement that volAllison R. Russell and Femida Handy

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unteering encompasses four dimensions: (1) activities are undertaken freely and without coercion (free will); (2) activities are undertaken without remuneration; (3) activities are undertaken in a formal organization; and (4) the intended beneficiaries of the activities are not directly related to the volunteer. However, they noted that volunteering activities varied on a continuum for each of these dimensions ranging from the “broadest to the purest” (p. 366). These dimensions were later formalized by Handy et al. (2000) in the net-cost theory as an explanation to help understand the phenomenon of volunteering. They suggest that as volunteering is a social construct, the public’s subjective perceptions of who is a volunteer depends on the relative costs and benefits to the volunteer to the particular task the volunteer undertakes. Certain activities are perceived as volunteering when the relative costs to the volunteer exceed the relative benefits, and others are less likely to be so if the relative benefits exceed the costs. By this logic, they use a continuum of the four dimensions mentioned above and vary the relative costs and benefits to the volunteer and test their hypothesis that: the greater the net costs (costs minus benefits) to the volunteer of the volunteer activity, the purer the volunteering activity and hence the more the person will be considered to be a volunteer. Using 50 scenarios in which they systematically varied the four dimensions, thereby changing the net cost to the volunteer, Handy et al. (2000) found that the net-cost theory was robust in explaining how the general public perceived volunteering. This was tested in two US states, Canada, India, the Netherlands, and Italy. In each country, there were minor variations, but the general hypotheses of the net-cost theory were substantiated. ​​What motivates certain individuals to give up their time to benefit others has also been a question that has puzzled scholars in many disciplines. Individuals who volunteer are an assorted group, and the activities are diverse and take place in different contexts; thus, their motives will naturally vary. Many studies have been undertaken to understand why people volunteer. A common finding is that altruism (e.g., helping others) is the primary motive, and that the volunteer values the output generated from their activity. Other egoistic motives also exist alongside, such as a social motive (e.g., meet new people) or an Allison R. Russell and Femida Handy

instrumental motive (e.g., learn new skills), as well as reciprocity (e.g., give back to organizations from whom they or their loved ones have received services). Volunteers provide a critical human resource and hence benefit the organizations they volunteer for as well as the organization’s clientele, while receiving some benefits themselves. While the study of motivations provides an insight into why individuals may volunteer, there are many unintended benefits of volunteering that have been documented by social psychologists, gerontologists, and health professionals. Indeed, this literature finds that in studies that follow individuals over a period of time, individuals who volunteer, especially among older volunteers, have a reduced mortality risk and better physical and mental health than non-volunteers, even after controlling for individuals’ existing health conditions and socio-demographic characteristics (Konrath, 2014; Russell et al., 2019). The net-cost theory has been cited widely as a means to define who is a volunteer. Additional approaches for defining volunteer and volunteering are discussed by Hustinx et al. (2010). One approach is rooted in social constructionism, which suggests that the definition of volunteering is determined by the particular social, cultural, and linguistic contexts in which it occurs, and that as such, a unified definition universally applicable across disparate contexts is not possible. Nonetheless, the four dimensions of volunteering, listed above, underpin the most common definitions of a volunteer within the organizational context. While the above definitions adhere to prevailing social norms, there also exists a legal definition of volunteering. An amendment to the 1985 Fair Labor Standards Act (FLSA) qualifies a volunteer as “an individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered, is considered to be a volunteer …” (Title 29, 2022). The FLSA has also suggested that if an individual’s labor produces profit for the organization and the individual receives any compensation, monetary or otherwise, then the labor provided by the individual may not be classified as volunteering regardless of the tasks undertaken. What is of importance in a legally informed definition of volun-

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teering is what type of roles are undertaken by an individual within an organization and the expectations of any type of compensation. Workers are considered paid employees rather than volunteers by FLSA if the strict legal definition applies to them. Examining court decisions on whether unpaid workers can be classified as volunteers, Overgaard and Kerlin (2022) find that organizations with a profit motive, such as social enterprises, may not claim that their workers are volunteers unless they can demonstrate that the volunteers receive no form of compensation, monetary or otherwise.

In practice

Before there were formal nonprofit organizations in the United States, there were numerous voluntary associations formed at the local level. These voluntary associations brought together groups of individuals with common interests and purpose. Alexis de Tocqueville wrote about American associations in Democracy in America, noting not only the plethora of causes that formed the basis of these associations but also his own admiration of “the extreme skill with which the inhabitants of the United States succeed in proposing a common object to the exertions of a great many men, and in getting them voluntarily to pursue it” (de Tocqueville, 1840). While the contemporary nonprofit sector has come quite a long way since de Tocqueville’s writings, this spirit of voluntarism in coming together in pursuit of a shared mission still forms the foundation of the sector, most notably in the form of volunteering. As explained above, volunteering occurs when individuals choose to give their time and talents without remuneration on behalf of their neighbors, community members, charitable organizations, and causes that they care about. In the context of nonprofit organizations, volunteering is considered formal in nature because it occurs in and through the organizational context. Managing volunteers, therefore, becomes a key human resource function for nonprofits with volunteer programs and includes tasks such as recruitment, training, and retention of volunteers, as well as acknowledgment and celebration of volunteer efforts. These tasks are either spread out among multiple people within the organization or relegated to the role of the volunteer engagement leader (also known as a volun-

teer administrator or manager). Sometimes, the person or group in charge of performing these tasks are themselves volunteers. Thus, the volunteer management function may be highly professionalized within a nonprofit or may be itself a volunteer role. Similarly, individuals who volunteer at a nonprofit engage in processes with varying degrees of formality, depending on the organization and its priorities and resources. Prospective volunteers may experience initial recruitment and onboarding before they ever engage in volunteer work with an organization. Many nonprofits require volunteers to complete training and even a background check as part of this process. In nonprofits where there are designated volunteer engagement leaders, they may also complete an initial interview to best match their skills and interests to a position or role within the organization. Within the nonprofit context, volunteers engage in a variety of ways. These types of volunteering include long-term, regularly scheduled activities that occur at regular intervals over an extended period of time; short-term, one-off volunteer events or activities known as “episodic” volunteering; and even small, discrete assignments or tasks known as micro-volunteering. All of these volunteers may play a unique role within a nonprofit, and their efforts may complement or substitute for the work of paid staff, or both. The relationship between paid staff and volunteers within an organization is known as “interchangeability,” and it is critical for nonprofits to develop an understanding of this relationship to clarify the roles of both paid staff and volunteers. Failure to do so from a management standpoint can lead to internal conflict, dissatisfaction among paid staff, difficulty sustaining volunteer engagement, and increased risks and costs in the long run. As such, understanding who volunteers for the organization and how they fit into the organization’s broader goals and mission is imperative from a strategic standpoint. Voluntarism also plays an important role in the governance of nonprofit organizations. Nonprofit board members are themselves volunteers, who give their time, talents, and resources to ensure that the organization operates responsibly in service of its mission. This feature is unique to nonprofits and sets them apart from other types of private organiAllison R. Russell and Femida Handy

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zations, in which board members are paid for their services. Thus, while many nonprofits have paid staff, including a paid executive director, voluntarism is permanently built into their organizational structure through the existence of the volunteer board.

Current and future directions

Given that approximately a quarter of the adult population in the United States engages in volunteering each year (Bureau of Labor Statistics, 2016), and with some estimates putting this number closer to 30 percent (AmeriCorps, 2018), volunteering is a common form of civic and social participation. The rates of participation in volunteering for an organization vary according to individual characteristics, such as age and socioeconomic status. For example, older adults (age 65 and older) tend to volunteer at a lower rate but for more hours than younger age cohorts. Individuals with children in the home may volunteer more due to being exposed to more opportunities to get involved through their children’s school and other activities. Studies have also shown that having a high degree of religiosity contributes to one’s likelihood of becoming a volunteer. Despite some concern that the aggregate volunteer rate may be in decline, overall, volunteering remains a valuable and valued activity with many benefits for individuals, organizations, and communities. Although volunteering seems here to stay, the ways in which individuals choose to get involved have changed over time. Both the scholarly literature on volunteering and the popular understanding of who is a volunteer have contributed to the notion that long-term, regularly scheduled volunteering is the gold standard of voluntary action in the United States. Yet, increasingly, individuals are opting for other forms of engagement. Since the early 2000s, academics and practitioners alike have considered how episodic volunteering can support the mission and efforts of nonprofits through, for example, large-scale events, fundraisers, and other short-term activities. For many, episodic volunteering offers a more feasible and flexible opportunity to give back than long-term volunteering. Rather than viewing episodic volunteering as a second-best option, nonprofits should view both types of volunteering as unique opporAllison R. Russell and Femida Handy

tunities to serve their mission and contribute to an overall volunteer engagement strategy. Another emerging type of volunteering is corporate or employee volunteering. Although volunteering has occurred in organizations across sectors for many decades, the advent of corporate social responsibility and the shifting public perceptions of the roles and obligations of businesses in society have accelerated a trend of volunteerism in the for-profit sector. This trend has implications for nonprofits, who are often the intended beneficiaries of corporate social responsibility programs. However, the positive benefit of such programs should not be taken for granted but rather negotiated by nonprofits as equal partners and, often, experts in engaging and leveraging volunteer efforts. Among other trends, voluntourism is one of the major growth areas among young and old. Individuals seek to combine their interests in traveling with a desire to lend their expertise and labor through local volunteer activities. Indeed, voluntourism is a billion-dollar industry with thousands of agencies around the world brokering opportunities to tourists to “make a difference.” Given the power dynamics involved with voluntourism, with for-profit travel agencies in the Global North selling the concept of “helping the poor” to tourists, there is a risk of harm to local communities; thus, this phenomenon is not without controversy (McGloin & Georgeou, 2016). Additionally, crisis moments often give rise to a wave of voluntary action, which may also involve travel. Past crises, including 9/11, Hurricane Katrina, and other events, have shown that people often respond to these disasters by giving back through volunteering. Previous research on crisis volunteering often focused on the logistical challenges of harnessing this human resource efficiently to enhance rather than compromise the work of the organization during times when quick action is required. This challenge remains paramount; however, the COVID-19 pandemic that began in 2020 also pointed to several additional challenges and considerations for crisis volunteering, with implications for volunteering and volunteer management in general. For example, natural disasters often call for volunteers to travel to provide assistance and support to communities impacted. But the COVID-19 pandemic called for individ-

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uals to socially distance from one another and to remain isolated in their homes. These policies initially disrupted many volunteer efforts around the country, disproportionately impacting elders and other vulnerable groups who could not engage in in-person volunteering due to health risks. Moreover, individuals who would otherwise wish to get involved during such a time were not able to do so because of stay-at-home orders, further constraining organizational resources. The result of these challenges was the rise of virtual volunteering, which allows people to volunteer remotely from their own home using online technologies, such as the Internet, videoconferencing, and social media. With the increase in virtual volunteering also came the rise of microvolunteering, in which individuals could engage in small, discrete tasks at the convenience of their own schedule. Both virtual and microvolunteering are modalities that can harness a variety of skills and potentially reach new volunteer audiences, although the perspectives on this latter point are mixed, with some arguing that virtual volunteering opens up volunteering to more diverse audiences and others noting that it increases existing disparities. Nevertheless, both virtual and microvolunteering represent new possibilities for volunteerism going forward. As these trends have emerged, so too has the need for new tools to support virtual and remote volunteering efforts. In addition to applications and systems designed to support the day-to-day work of volunteer engagement leaders, there is also an increasing prevalence of tools designed to optimize the volunteer experience by facilitating the connection between would-be volunteers and organizations in need of support. From large national platforms to smaller, more localized efforts, these tools have grown in number and importance since the 2020 COVID-19 pandemic out of necessity. Importantly, these efforts may help to bridge the disconnect between organizations’ demand for volunteers and individuals’ supply of their volunteering efforts. Such a bridge is especially important in times of crisis and in the face of resource constraints, the latter of which is often a condition of nonprofits, especially at the grassroots level. In this sense, the growth of these tools may stand to benefit smaller organizations in par-

ticular, who may more easily access vital volunteer resources through a relatively low up-front investment of time and resources by posting on free online platforms. While the long-term impacts of the COVID-19 pandemic on volunteering remain unknown, the digital transformation of volunteerism represents an important trend to watch in both the United States and around the world. Allison R. Russell and Femida Handy

Related topics

Civil society Motivation: Volunteers Social capital Volunteer management

Further reading and references

AmeriCorps. (2018, November 13). Volunteering in the US hits record high; worth $167 billion. https://​americorps​.gov/​newsroom/​press​ -releases/​2018/​volunteering​-us​-hits​-record​ -high​-worth​-167​-billion Bureau of Labor Statistics. (2016). Volunteering in the United States. www​.bls​.gov/​news​.release/​ volun​.htm Cnaan, R. A., Handy, F., & Wadsworth, M. (1996). Defining who is a volunteer: Conceptual and empirical considerations. Nonprofit and Voluntary Sector Quarterly, 25(3), 364–383. https://​doi​.org/​10​.1177/​0899764096253006 de Tocqueville, A. (1840). Democracy in America. Marxists. www​.marxists​.org/​reference/​archive/​ de​-tocqueville/​democracy​-america/​index​.htm Handy, F., Cnaan, R. A., Brudney, J. L., Ascoli, U., Meijs, L. C., & Ranade, S. (2000). Public perception of “who is a volunteer”: An examination of the net-cost approach from a cross-cultural perspective. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 11(1), 45–65. https://​doi​.org/​10​.1023/​a:​ 1008903032393 Hustinx, L., Cnaan, R. A., & Handy, F. (2010). Navigating theories of volunteering: A hybrid map for a complex phenomenon. Journal for the Theory of Social Behaviour, 40(4), 410–434. https://​doi​.org/​10​.1111/​j​.1468​-5914​ .2010​.00439​.x Konrath, S. (2014). The power of philanthropy and volunteering. In F. A. Huppert & C. Cooper (Eds.), Wellbeing: A complete reference guide, interventions and policies to enhance wellbeing (Vol. 6, pp. 1–40). John Wiley & Sons. McGloin, C., & Georgeou, N. (2016). “Looks good on your CV”: The sociology of voluntourism recruitment in higher education. Journal of

Allison R. Russell and Femida Handy

600  Elgar encyclopedia of nonprofit management, leadership and governance Sociology, 52(2), 403–417. https://​doi​.org/​10​ .1177/​1440783314562416 Overgaard, C., & A Kerlin, J. (2022). A legally‐ informed definition of volunteering in nonprofits and social enterprises: Unpaid work meets profit motives. Nonprofit management and leadership, 32(3), 429–447. https://​doi​.org/​ 10​.1002/​nml​.21489 Russell, A. R., Nyame-Mensah, A., de Wit, A., & Handy, F. (2019). Volunteering and wellbeing among ageing adults: A longitudinal analysis. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 30(1), 115–128. https://​doi​.org/​10​.1007/​s11266​-018​ -0041​-8 Title 29 C.F.R. § 553.101 – “Volunteer” defined (2022). www​.ecfr​.gov/​current/​title​-29/​subtitle​ -B/​chapter​-V/​subchapter​-A/​part​-553/​subpart​ -B/​section​-553​.101

Volunteer management Definition

Volunteer management is the supervision and coordination of the work of volunteers, defined as people who of their own free will engage in work without pay for a nonprofit organization.

In practice Who volunteers? Nonprofit organizations employ a vast number of volunteers. The Census Bureau estimated that there were 77.3 million volunteers in the United States in 2018, or 30.3 percent of the population, who donated 6.9 billion hours of their time, with an estimated value of $167 billion. Given the resources that volunteers provide for nonprofit organizations, understanding how to manage volunteers well is essential. Extensive literature studies the characteristics of volunteers, which can be divided into the categories of demographic characteristics, motivations, resources, and social capital. As far as demographic characteristics go, women are more likely to volunteer than men in the United States, but there are not racial differences. Participation in volunteering increases with age up to a point and then decreases as health concerns make volunteering difficult. Christopher J. Einolf

Married people and people with children engage in more volunteering. Motivations of volunteers include building career skills, enhancing self-esteem, protecting oneself from negative emotions, social interaction, understanding others, and prosocial values. Looking further at prosocial values, scholars have found that many volunteers express a greater spirituality and religiosity, have a greater sense of moral obligation and empathy, and a stronger ethic of care. Resources for volunteering include education and free time. Free time partially explains the relationship between employment status and volunteering, as retired people volunteer the most, followed by part-time workers, full-time workers, and then the unemployed. Social capital, defined as the networks of connection among individuals and the norms of trust and reciprocity that arise from them, also predicts volunteering. People who have more contact with friends, neighbors, and colleagues are more likely to volunteer, as are people in religious congregations and members of voluntary associations. This pattern is a combination of the selection effect – people who are outgoing and social are more likely to have more friends and to volunteer – and the fact that people with broad social networks are more likely to be asked to volunteer. The feeling of trust that arises with having broad social networks also correlates with volunteering. Managing volunteers Most nonprofits adopt a human resources management model of volunteer management, treating volunteers similarly to paid employees. The majority of the research literature on volunteer management adopts this model and takes a universalistic approach, recommending that nonprofits follow a single set of best practices regardless of size, number of volunteers, tasks, or mission. Although the details vary by author, writers who adopt a human resources management approach to volunteer management generally recommend these practices: 1. Plan a volunteer program carefully by considering the costs and benefits of participation, setting reasonable expectations, establishing a rationale and goals, and involving paid staff in the program’s design.

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2. Write policies for volunteer management. 3. Purchase liability insurance for volunteers. 4. Designate who will manage volunteers. 5. Create written job descriptions. 6. Recruit volunteers. 7. Interview potential volunteers to screen out undesirable candidates and match volunteers with suitable assignments. 8. Hold an initial orientation and training program. 9. Provide follow-up training and professional development opportunities. 10. Keep records of volunteer activities and hours. 11. Supervise and communicate with volunteers. 12. Evaluate volunteers’ individual performance and evaluate the volunteer program as a whole. 13. Thank and recognize volunteers for their contributions. Studies of the effectiveness of volunteer management programs have found that many of these practices have received empirical support. However, no study has tested the effectiveness of planning a volunteer program carefully, and two studies have found no relationship between having written policies and the recruitment and retention of volunteers. Purchasing liability insurance for volunteers may reassure volunteers about legal liability, as one study has found that having liability insurance helps recruitment and that it correlates with retention. On the other hand, no study has ever been conducted to show whether there is a best way to designate who will manage volunteers. The mere fact of having written job descriptions does not correlate with good outcomes but having specific and clear job descriptions may be productive, as volunteers dislike role ambiguity and like having well-defined roles. Volunteers who felt that they had high-quality jobs were more likely to feel satisfied with their volunteer work and to keep volunteering. Features of high-quality volunteer jobs include autonomy, flexibility, challenge, meaning, and the feeling that their work contributed to the good of clients and the mission of the organization. Eight components made up a good volunteer job: (1) the job involves several non-repetitive tasks; (2) the job involves a complete process; (3) tasks are chosen by oneself; (4) jobs have clearly

defined objectives; (5) the ultimate purpose of the job is known; (6) the job is useful for others; (7) the job can be done with great autonomy; and (8) the job requires cooperation with others. Volunteer recruitment is more effective when managers match recruitment messages with potential volunteers’ motivations and recruiting a diverse group of volunteers works better when organizations acknowledge and emphasize the value of diversity. Volunteers recruit each other by word of mouth, making current volunteers an essential resource for recruiting new ones. Involving volunteers in major decisions, delegating decision making and tasks, recognizing volunteers’ contributions, having a recruitment strategy, using electronic communications, and creating a sense of psychological ownership all encourage current volunteers to recruit new ones. Communicating the need for volunteers and promising recognition can make potential recruits more likely to join. Organizations that put more effort into screening and matching new volunteers are more likely to report success in volunteer recruitment and retention. Orientation and training correlate with better retention, more hours volunteered, and a higher quality of work. Many studies have found that volunteers who had positive perceptions of the supervision and communication they received from supervisors volunteered more hours and were more likely to continue volunteering. However, two studies found that the more often managers communicated with and supervised volunteers, the more trouble they had recruiting and retaining them. Volunteers may prefer a light touch that offers them flexibility and autonomy. Similarly, keeping accurate records of volunteer hours and activities may be useful for the organization, but has shown either no relationship or a negative relationship with volunteer outcomes. The recommended practice of conduction evaluations of individual volunteers has only been tested once, and no correlation was found with volunteer recruitment and retention (Stirling et al., 2011). The value of evaluating the entire volunteer program has never been tested. Finally, many studies have found that thanking and recognizing volunteers correChristopher J. Einolf

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lates with positive outcomes in recruitment, satisfaction, and retention. In addition to the practices recommended by the human resources management model, several other practices receive empirical support. These practices include satisfying volunteers’ motivations, encouraging reflection, and facilitating peer support. Satisfying volunteers’ desires to build career skills, enhance self-esteem, protect themselves from negative emotions, experience social interaction, understand others, express prosocial values, and fulfill desires for autonomy, competence, and relatedness all correlate with better volunteer outcomes. Encouraging volunteers to reflect on how their activities help achieve the organization’s mission predicts the intent to continue volunteering. Volunteers who reported having a good relationship with and receiving support from other volunteers donated more time, did better work, and were more likely to continue volunteering. This occurs in part due to the social support and friendly interactions that make volunteers happier. In addition, close relationships with peers can lead to the development of external norms and shared values that make volunteers feel an obligation to continue. Much of the advice on volunteer management takes a universalistic approach, assuming that there is a single best management strategy that works for all volunteer programs. A challenge to this assumption divides nonprofits into four categories, each requiring a different volunteer management strategy. The human resources model works well in organizations following a service delivery model, in which volunteers are recruited to perform specific tasks and are managed by paid staff. It also works well with the support role model, in which volunteers help with and supplement the work of paid employees. The human resources model works less well for the other two types of volunteer programs, the co-worker, and the member/activist models. In the co-worker model, paid staff and volunteers do the same tasks and make decisions together. This type of volunteer use is common in religious congregations, professional associations, and political parties. Instead of being managed in a hierarchical way, as is done in the service delivery and support role models, volunteers are managed by a non-hierarchical team of paid staff, who nurture and enable the volunteers. In Christopher J. Einolf

the member/activist model there are no paid staff, so there is no staff–volunteer hierarchy and volunteers are managed by their peers. This model is common in day-care cooperatives, self-help groups, and neighborhood associations. Co-worker and member/ activist programs need different management techniques than the human resources model, but there has been little research on how to manage in these groups.

The future

Currently, there is much more research done on the characteristics and motivations of volunteers than on effective volunteer management, and most volunteer management texts are written by practitioners, not scholars. The practitioner perspective is important and useful, but scholars could add value to this literature by performing rigorous tests of what are currently considered best practices and innovating new practices that go against conventional wisdom. A recent review of the literature found only 81 studies on the effectiveness of volunteer management practices. This is a good start, but the number and economic contribution of volunteers justifies a much more extensive research program on how to manage volunteers. In the meantime, managers can use eight of the 13 practices of the human resources model with some confidence: purchasing liability insurance, creating good job descriptions, adopting effective recruitment methods, screening and matching, initial orientation, follow-up training, supervision and communication, and thanking and recognizing volunteers. Having written policies and keeping records may lead to good outcomes for the organization, even though studies have not shown them to have any effect in terms of outcomes for the volunteers. Planning, designating who manages volunteers, and evaluating the volunteer program may work well but have never been tested. Satisfying volunteers’ motivations, encouraging reflection, and facilitating peer support are not part of the human resources model but have shown good results. Most importantly, volunteer managers should not apply these practices automatically but should consider how each practice may or may not work in their particular organization. Current research treats all nonprofit volunteer programs as similar, even

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though we know that nonprofits are highly diverse. Until future research explores which practices work best in which organizations, volunteer managers must make their own judgments on whether each recommended practice applies. Christopher J. Einolf

Related topics

Capacity building Motivation: Volunteers Strategic human resource management Voluntarism

Further reading and references

Brudney, J. L. (2016). Designing and managing volunteer programs. In D. O. Renz & R. D. Herman (Ed.), The Jossey-Bass handbook of nonprofit leadership and management (4th edn. pp. 688–733). John Wiley & Sons. Brudney, J. L., & Meijs, L. C. P. M. (2014). Models of volunteer management: Professional volunteer program management in social work.

Human Service Organizations Management, Leadership & Governance, 38(3), 297–309. https://​doi​.org/​10​.1080/​23303131​.2014​.899281 Connors, T. D. (Ed.). (2011). The volunteer management handbook: Strategies for success (2nd edn.). John Wiley & Sons. Einolf, C. (2018). Evidence-based volunteer management: A review of the literature. Voluntary Sector Review, 9(2), 153–176. https://​doi​.org/​ 10​.1332/​2040​80518x1529​9334470348 Musick, M. A., & Wilson, J. (2007). Volunteers: A social profile. Indiana University Press. Stirling, C., Kilpatrick, S., & Orpin, P. (2011). A psychological contract perspective to the link between non-profit organizations’ management practices and volunteer sustainability. Human Resource Development International, 14(3), 321–336. https://​doi​.org/​10​.1080/​13678868​ .2011​.585066 Studer, S., & von Schnurbein, G. (2013). Organizational factors affecting volunteers: A literature review on volunteer coordination. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 24(2), 403–440. https://​doi​.org/​10​.1007/​s11266​-012​ -9268​-y

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Wage equity within and across sectors Definition

Nonprofit wage equity and compensation could cover a wide range of topics but the focus of this entry is the equity of compensation (i.e., wages and benefits) for workers in nonprofits as compared to “similar” workers in for-profits and in the public sector. As of 2020 and the first half of 2021, 7 percent of all wage and salary workers in the U.S. are employed at a nonprofit organization, compared to 77 percent in the private for-profit sector and 16 percent in the public sector. Nonprofit workers are disproportionately female, college educated, and working in professional occupations. Average wages (i.e., earnings per hour worked) for nonprofit workers exceed private sector wage and salary workers. The higher wages for nonprofit workers, however, reflect their relatively high education and skills. Accounting for differences in workers’ education, age, and other attributes, nonprofit wages are modestly lower than seen for similar workers in for-profit firms. On average, nonprofit employees work fewer hours per week than do for-profit and public sector workers. Individuals who move between for-profit and nonprofit jobs do not realize, on average, substantive changes in their wages. In short, wage penalties for nonprofit work are neither universal nor substantial on average.

Descriptive evidence on nonprofit employment, hours worked, and wages in the U.S.

In what follows is a summary of descriptive evidence on employment and wages among U.S. wage and salary workers, focusing on employees whose primary jobs are in non-

profit organizations. Evidence is provided on (1) the employment levels of nonprofit workers over time, as compared to workers in the for-profit and public sectors; (2) worker characteristics for the nonprofit, private for-profit, and public sectors; and (3) the industries and occupations with relatively large shares of nonprofit workers. We provide descriptive evidence and regression-based estimates of wage differentials between similar nonprofit and for-profit workers. The analyses reported in this entry are based on our calculations from the Current Population Survey outgoing rotation group data files (CPS-ORGs), conducted monthly by the U.S. Census Bureau. Our analysis is based on the monthly CPS-ORG surveys for January 1994 (when the Current Population Survey (CPS) first included nonprofit status) through May 2021. Given the size constraint for our entry, we do not include the tables and figures on which our analysis and conclusions are based. Readers can easily access an Excel file that includes these tables and figures; the file will be posted at our personal websites and at a future website (see www​ .nonprofitstats​.net). The Covid-19 pandemic arose in early 2020 and affected employment and work location throughout much of 2020 and 2021 (e.g., working remotely from home). Overall wage and salary employment peaked in the years 2018–2019 for both the for-profit and nonprofit sectors. Public sector employment had peaked earlier, in 2006. Data from the January–May 2021 CPS files provide evidence of increasing employment in 2021, but these employment levels remain below the 2018–2019 peak employment levels. As shown in Table 29, nonprofit employment in 1994 was 5.4 million, accounting for 5 percent of the total wage and salary employment of 108.0 million. The shares of private for-profit and public employment in 1994 were 17 and 78 percent. The shares of nonprofit workers rose gradually over

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Wage and salary employment and shares in the private for-profit, nonprofit, and public sectors, 1994–2021

 

Sector Employment % Shares

Wage & Salary Sector Employment (in 1,000s)

Year

FP

NP

PUB

FP

NP

PUB

Total W&S

1994

78.0

5.0

17.0

84,210.5

5,438.1

18,339.2

107,987.8

1995

77.9

5.5

16.7

85,676.6

6,003.9

18,357.6

110,038.1

1996

78.3

5.4

16.3

87,659.4

6,090.7

18,210.2

111,960.3

1997

78.5

5.6

15.8

89,943.0

6,442.9

18,147.2

114,533.0

1998

78.5

5.7

15.8

91,664.0

6,664.9

18,401.0

116,729.9

1999

78.3

5.8

15.9

93,169.4

6,856.0

18,938.1

118,963.5

2000

78.5

5.8

15.7

94,814.6

6,995.3

18,975.7

120,785.6

2001

78.2

5.9

15.8

94,404.5

7,172.8

19,130.3

120,707.6

2002

77.6

6.2

16.2

93,131.4

7,450.0

19,397.9

119,979.2

2003

77.3

6.6

16.1

94,543.6

8,104.0

19,710.2

122,357.9

2004

77.2

6.7

16.2

95,362.6

8,221.0

19,970.3

123,553.9

2005

77.2

6.6

16.2

97,161.8

8,346.6

20,380.9

125,889.3

2006

77.5

6.6

15.9

99,388.3

8,457.3

20,391.6

128,237.2

2007

77.1

6.7

16.2

100,060.3

8,653.5

21,053.2

129,767.0

2008

76.8

6.7

16.5

99,396.7

8,675.9

21,304.6

129,377.2

2009

76.0

7.1

17.0

94,574.9

8,782.4

21,132.6

124,489.9

2010

75.8

7.2

17.0

94,060.8

8,979.6

21,032.7

124,073.0

2011

76.6

7.0

16.3

95,962.2

8,816.2

20,431.7

125,210.1

2012

77.0

7.1

16.0

98,192.4

9,037.8

20,373.0

127,603.2

2013

77.2

7.0

15.8

99,708.9

9,015.5

20,412.3

129,136.6

2014

77.8

6.9

15.4

102,242.9

9,016.6

20,193.2

131,452.8

2015

77.6

7.0

15.4

103,762.4

9,430.8

20,577.3

133,770.5

2016

77.7

7.1

15.2

105,742.6

9,719.6

20,669.7

136,131.9

2017

77.6

7.2

15.2

107,013.5

9,947.9

20,951.5

137,912.9

2018

77.9

7.0

15.1

109,199.6

9,811.3

21,118.3

140,129.2

2019

78.2

7.0

14.8

110,804.5

9,950.7

21,011.2

141,766.4

2020

77.2

7.2

15.6

102,066.0

9,521.0

20,618.3

132,205.3

2021

77.5

6.9

15.6

104,274.8

9,249.7

21,033.0

134,557.4

Note: Author calculations from the CPS Monthly Outgoing Rotation Group files, January 1994 through May 2021. CPS sample weights are used in all calculations.

time to roughly 7 percent by 2009, after which there has been a minimal change. By 2019, total wage and salary employment had grown to 141.8 million, the respective shares of nonprofit, for-profit, and public employment being 7, 78.2, and 14.8 percent, respectively. Over the 27 years from 1994 to 2021, a decline in public sector employment roughly offset the modest growth in the nonprofit employment share. The private for-profit share over this period was roughly constant at 78 percent. An intriguing question is whether the increase in the nonprofit employment share over this period was partly due to the modest decline in the public share. We next identify industries with the largest numbers of nonprofit employees, annualized over the 1994–2021 period. Hospitals are far

and away the industry with the most nonprofit workers (2.1 million annually), followed by religious organizations (1.0 million); schools and colleges combined (1.5 million); civic, social advocacy organizations and grantmaking and giving services (655,000); and individual and family services (471,000). Over the same period, we identify industries with the highest within-industry proportions of nonprofit workers. Among the larger industries (based on annualized employment), two have 100 percent nonprofit workers – religious organizations, and civic, social, and advocacy organizations. There are substantive differences between nonprofit and private for-profit workers with respect to age, education, work hours, and gender, race, and ethnicity. Nonprofit David A. Macpherson and Barry T. Hirsch

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workers have characteristics more similar to public sector than to private sector workers. As reported by Hirsch et al. (2017, Table A4) using CPS data for 2011–2015, nonprofit workers were 43.8 years old, as compared to 40.3 years for private for-profit workers, and 44.7 years for public sector workers. Mean years of schooling were 15.1, 13.5, and 15.0 for nonprofit, for-profit, and public sector workers, respectively. Given the differences in age, education, and occupation, we expect differences in mean hourly earnings (measured by usual weekly earnings divided by weekly hours worked). Hourly earnings for these three groups in 2011–2015, reported in 2015 dollars, are $23.36 for nonprofit workers, $21.14 for private sector for-profit workers, and $24.98 for public sector workers. These differences in hourly earnings are consistent with the differences in education, age, and hours worked seen across these three sectors. Differences in characteristics between for-profit and nonprofit workers have changed minimally since 2015.

erences regarding employment in nonprofit versus for-profit jobs. It is often argued (and rightly so) that many nonprofit workers prefer to work at a nonprofit rather than a for-profit employer, all else the same. Based on these “donative” preferences (e.g., desire to contribute toward the public good), it is typically argued that such workers will accept lower wages from a nonprofit employer than they would from a for-profit employer. Worker preferences with respect to employers’ for-profit/nonprofit status potentially generate compensating wage differentials (à la Adam Smith). As seen subsequently, we observe slightly lower wages for workers at nonprofits as compared to wages seen for similar workers in the for-profit sector. That said, if there exist large shares of similar for-profit and nonprofit employers (e.g., hospital nurses), there is unlikely to be substantial donative wage penalties (Jones, 2015). In short, donative wage penalties among nonprofit workers need not be universal or substantial.

Wage differentials between nonprofit and for-profit workers: Theory

Wage differentials between nonprofit and for-profit workers: Evidence

Although nonprofit workers have higher mean hourly earnings than for-profit workers, that tells us little about wage comparability given that nonprofit workers have higher mean levels of education and age than for-profit workers. More enlightening are measures of wage differences for nonprofit and for-profit wages for workers with equivalent levels of skills (e.g., schooling, work experience, etc.) and job attributes that provide similar utility (well-being). Such well-being can vary with respect to working conditions that make employment either more or less pleasant; for example, physical risks, income and hours risk, flexibility, pleasantness of coworkers and/or clients/customers (Smith, 1776). In contrast to worker skill attributes, which have high payoffs, wage differentials regarding working conditions tend to be relatively small, partly because workers have substantial heterogeneity in preferences. Compensating wage differentials should be close to zero if the marginal workers have no substantive valuation of the working condition. As discussed below, the same logic applies to worker prefDavid A. Macpherson and Barry T. Hirsch

Are nonprofit workers (on average) paid differently than private for-profit and public sector workers providing equivalent or highly similar levels or types of work? Have differences in relative nonprofit/for-profit wages varied over time? To address these questions, we update the statistical work by Hirsch et al. (2017), now examining individual microdata from the 1994–2021 CPS earnings files. The CPS provides detailed information on individual wage and salary workers. The raw (no controls) gaps show a substantial wage advantage for nonprofit workers that has increased over time, from a low of 3 percent in 1999 to a high of 13 percent in 2014. Wage advantages for nonprofit workers are expected absent controls, given the higher age and education for nonprofit workers, plus the higher presence of nonprofit workers in large urban areas. The conditional nonprofit wage gaps, including broad-based occupation controls (our preferred estimates), range roughly from 6 or 8 percent nonprofit wage penalties in the early years, weakening to about 5 to 6 percent penalties since 2009. In short, modest non-

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profit/for-profit wage penalties for similar workers in similar labor markets are found ranging from 6 to 8 percent in the early years to about 5 to 6 percent penalties since 2009. That said, these nonprofit wage penalties are relatively modest and have narrowed in recent years. Nonprofit/for-profit wage gaps do vary by gender, race/ethnicity, occupation, and industry. Using the combined sample of men and women, Hirsch et al. find an overall 3 percent nonprofit regression-based wage penalty estimated for all workers. When segmenting the wage gaps by gender, Hirsch et al. find an 11 percent nonprofit wage penalty for men, versus a positive 1 percent wage advantage for women. Hirsch et al. find modest nonprofit penalties for non-Hispanic white workers, but for nonwhite and Hispanic workers, there are small nonprofit wage advantages. As expected, wage equity differences occur not only between nonprofit and for-profit workers. There also exist wage differences by gender, race, and ethnicity within for-profit, nonprofit, and public workplaces. In calculations not reported, we examine raw wage gaps by gender, race, and ethnicity separately within the for-profit, nonprofit, and public sectors. As expected, there exist raw wage gaps in all three sectors. Wage gaps tend to be lowest in the public sector. Without a more systematic evaluation of wage gaps (i.e., accounting for worker education, age and experience, location, etc.), we cannot state that wage equity in the nonprofit sector is systematically higher or lower than in the private for-profit sector. Early studies from Preston (1989) and Leete (2001) found nonprofit/for-profit wage differentials by occupation and industry categories, as do Hirsch et al. (2017) using more recent data (2011–2015). Focusing on broad occupation categories, Hirsch et al. find substantive nonprofit wage penalties for managers, professionals, and blue-collar workers. Nonprofit workers in service occupations, however, are found to have slightly higher wages than for-profit workers. Looking at broad industry categories, Hirsch et al. find substantial nonprofit wage advantages among workers in hospitals and in service industries, and tiny (1 percent) nonprofit wage advantages in nursing care and in colleges and universities. They find small nonprofit penalties for employees in elementary and secondary

schools. For the large “other industries” category, Hirsch et al. estimate a 9 percent nonprofit wage penalty. In short, nonprofit/ for-profit wage differentials differ across occupations and industry. An additional analysis by Hirsch et al. (2017) provides nonprofit/for-profit wage gap estimates based on individual worker longitudinal (i.e., panel) analysis. The CPS data provides earnings reports for given households exactly one year apart. This allows researchers to measure wage changes for given individuals who switch from a for-profit to a nonprofit primary job and vice-versa. The advantage of the longitudinal analysis is that it controls for otherwise unmeasured worker-specific “fixed effects” – in particular, individual worker skills and productivity not measured precisely by years of schooling, age, and so on. Hirsch et al. find virtually no average wage changes associated with moves from a for-profit to nonprofit job, or vice-versa, either for men or women. This result is similar to an earlier and smaller CPS panel data analysis by Ruhm and Borkoski (2003). In a recent paper using administrative earnings data in Florida, Johnston and Johnston (2021) find minimal earnings changes for those moving between for-profit and nonprofit jobs.

Conclusion

Based on the evidence summarized above, we conclude that for-profit/nonprofit wage differentials are rather modest once one accounts for worker attributes and skills. That said, the standard cross-sectional for-profit/ nonprofit wage differentials are not zero. Rather, we find modest penalties on the order of 6 percent over the entire period using standard wage level analysis (see Figure 14 “Base Plus Occupation” average results for 1994–2021). One plausible conjecture is that nonprofit workers have accumulated fewer skills over time than for-profit workers of the same age with the same levels of schooling. Accumulated skills for nonprofit workers are likely to have been lower than among for-profit workers due to the lower average hours worked per week among nonprofit workers (approximately two hours less). In short, a zero nonprofit wage gap is plausible. That said, we find no evidence that nonprofit workers systematically receive higher wages than do equivalent for-profit workers. A reaDavid A. Macpherson and Barry T. Hirsch

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Source: Author calculations from the CPS Monthly Outgoing Rotation Group files, January 1994 through May 2021. CPS sample weights are used in all calculations.

Figure 14

Nonprofit/for-profit log wage differentials, 1994–2021

sonable conclusion is that average nonprofit/ for-profit wage differentials for equivalently skilled workers are negative, but rather modest and not universal. The focus above has compared nonprofit and for-profit wages or earnings. Workers’ total compensation includes a substantial share of nonwage benefits, which includes employer contributions to retirement benefits, health insurance, vacation and leave time (e.g., sick days, paid family leave). A study by Bishow and Monaco (2016) use establishment data that allows them to compare benefits for nonprofits and for-profits. They find that the share of nonwage benefits with respect to total compensation are nearly identical for nonprofits and for-profits, 31 and 30 percent, respectively. We have compiled additional information on the coverage of employment-based health insurance and pension coverage from the 2019 and 2020 CPS March Annual Social and Economic Supplements (ASEC). Among nonprofit workers, 59.8 percent held employment-based health insurance, as compared to 51.4 percent among for-profit David A. Macpherson and Barry T. Hirsch

workers. As expected, public sector workers had higher health insurance coverage, 68.9 percent. A similar pattern was seen for pension plans. Pension plans are offered to 39.5 percent of for-profit workers, of which 30.5 percent are covered. Among nonprofit workers, however, pension plans are offered to 50.9 percent of non-profit workers, of which only 41.1 percent choose coverage. Public sector workers have substantially higher levels of health insurance and pension plan coverage than do nonprofit and for-profit workers. Our conclusion is that economy wide differences in earnings for similar nonprofit and for-profit workers are not substantial, on average. Given evidence of similar or somewhat higher levels of nonwage benefits, we can expand that conclusion to total compensation. Average economy-wide differences in wages and benefits for U.S. nonprofit versus for-profit employees engaged in similar levels of work are rather modest in magnitude. David A. Macpherson and Barry T. Hirsch

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Related topics

Administration costs Competitive forces Motivation: Paid staff Recruitment and retention Strategic human resource management

Further reading and references

Bishow, J., & Monaco, K. (2016). Nonprofit pay and benefits: Estimates from the National Compensation Survey. Monthly Labor Review. https://​doi​.org/​10​.21916/​mlr​.2016​.4 Hirsch, B. T., Macpherson, D. A., & Preston, A.E. (2017). Nonprofit wages: Theory and evidence. In B. A. Seaman, & D. R. Young (Eds.), Handbook of research on nonprofit economics and management (2nd edn., p. 146–179). Edward Elgar Publishing. Johnston, A. C., & Johnston, C. (2021). Is compassion a good career move? Journal of Human Resources, 56(4), 1226–1253. https://​doi​.org/​ 10​.3368/​jhr​.56​.4​.0319​-10120r1 Jones, D. B. (2015). The supply and demand of motivated labor: When should we expect to see nonprofit wage gaps? Labour Economics, 32, 1–14. https://​doi​.org/​10​.1016/​j​.labeco​.2014​ .11​.001 Leete, L. (2001). Whither the nonprofit wage differential? Estimates from the 1990 census. Journal of Labor Economics, 19(1), 136–170. https://​doi​.org/​10​.1086/​209982 Preston, A. E. (1989). The nonprofit worker in a for-profit world. Journal of Labor Economics, 7(4), 438–463. https://​doi​.org/​10​.1086/​298216 Ruhm, C. J., & Borkoski, C. (2003). Compensation in the nonprofit sector. Journal of Human Resources 38(4), 992–1021. https://​doi​.org/​10​ .3386/​w7562 Smith, A. (1776). The wealth of nations. Strahan and Cadell.

Consequently, Cnaan et al. (2011) suggest that they foster accountability and help donors and others identify credible nonprofits. The most prominent watchdog organizations in the United States are Better Business Bureau (www​ .bbb​.org/​), Wise Giving Alliance (give.org/), .charitynavigator​ Charity Navigator (www​ .org), and Charity Watch (www​.charitywatch​ .org).

Purposes of watchdog organizations

Watchdog organizations serve multiple purposes by reducing information asymmetry, building donor confidence, and increasing legal oversight (Sloan, 2009). Organizations holding information have an advantage over donors and other stakeholders who have less information, a phenomenon known as information asymmetry. By contributing to the transparency of nonprofit information, watchdog organizations reduce information asymmetry. Enabling donors to monitor the performance of nonprofit organizations through their ability to measure and compare their performance using credible criteria and standards, watchdog organizations improve donor confidence in the nonprofit sector (Cnaan et al., 2011). Finally, watchdog organizations help monitor illegal activity in the nonprofit sector by whistleblowing fraud, money laundering, and the misuse of donor funds. As posited by Cnaan et al. (2011), watchdog websites such as Charity Navigator and Better Business Bureau have scam trackers and provide tips for how interested donors can avoid online scams and protect their personal data while donating.

Current issues and challenges facing watchdog nonprofits

Watchdog organizations Watchdog organizations monitor groups, organizations, and even governments by providing comparative data and assessing their activities to ensure that entities operate ethically and legally per law and sector standards. Within the nonprofit sector, these organizations rate the accountability, transparency, and financial practices of organizations as well as interpret organizational data and make it publicly available in a comparable and convenient format (Szper & Prakash, 2011).

Watchdog rating methodologies The most common metrics used by watchdog organizations include financial efficiency, financial capacity, accountability, and transparency. Using financial data primarily derived from Form 990, watchdogs calculate financial efficiency ratios such as the program, administrative (or overhead), and fundraising expense percentages (www​ .charitynavigator​.org). Watchdogs also assess the willingness of a nonprofit to disclose and

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explain their activities in order to determine the accountability and transparency ratios of the organizations. For example, some watchdogs note the number of times an organization’s board meets annually. However, Szper and Prakash (2011) argue that such ratings demonstrate activity but not organizational impact. The value of such metrics lies in their comparability among organizations. Measures can be easily compared across organizations regardless of differences in subsector or mission. This same comparative ease can also belie major differences in quality and mission attainment, which is a key problem with such ratios. For example, charity watchdogs enable donors to identify and, in turn, support charities that devote resources to service delivery and withdraw financial support from those that do not minimize or control their overhead, or administrative, spending. Yet, relying on overhead spending as a comparative metric can cause donors to erroneously reward lower overhead ratios when lower overhead can lead to the detriment of organizational stability and growth (Szper & Prakash, 2011). Along with reliance on comparative ratios, reliance on self-reported data can be a problematic aspect of watchdog ratings because most watchdogs compile their ratings from data provided by the nonprofits on their websites and Form 990 submissions. According to Sloan (2009), this process contributes to information asymmetry because charities may withhold critical information or any data that could potentially lead to a negative impact on their ratings. In this regard, some watchdogs are and should consider additional ways to compare organizations and further incorporate information from other sources beyond self-report measures. Dynamic donor preferences Donors have a variety of reasons why they give and typically rely more on emotional, personal experiences and information from volunteers and advocates rather than watchdog ratings (Cnaan et al., 2011). Sloan (2009) adds that positive ratings of nonprofits can increase donations for those organizations, but surprisingly, negative ratings do not result in a reduction of donations. Such findings regarding negative ratings could indicate that 1) organizations selectively share

positive ratings and cloak negative ratings from their stakeholders; 2) a donor’s emotional attachment to a cause outweighs the negative rating, when known; or 3) donors may be aware of extenuating circumstances that could potentially create a negative rating like an organization not meeting the specific requirement for number of board meetings per year expected by a rating organization. Most donors (77.7 percent), however, do not refer to any rating by nonprofit watchdogs when deciding to donate to charities (Cnaan et al., 2011). They instead analyze their perceived effectiveness and trustworthiness of nonprofits based on familiarity, recommendations from friends and family, personal experiences, emotional attachment, or the visibility of the charity organization in their community. Political interests New organizational forms such as watchdog organizations can pose a threat to existing cultural norms, interests, and frames. As observed by Rao (1998) nonprofit organizations that enjoy support from powerful political or public figures have an influx of donors despite negative rankings on watchdog sites, and this political relationship renders watchdog ratings irrelevant in some cases.

The future of watchdog organizations in the nonprofit sector Recognizing the limitations of comparative ratios Watchdog rating systems are not as effective as they could or should be (Sloan, 2009). The standards used by watchdog organizations combine general management practices with disclosure activities but do not include the processes used in financial reporting nor whether donor funds are aligned with the organizational mission for optimum performance. Recognizing the limitations of comparative ratios in determining organizational impact, in July 2020, Charity Navigator changed its rating system from their Star Rating System to an Encompass Rating System to include less established and smaller nonprofits (www​ .charitynavigator​.org). In addition to finance and accountability assessment, the new rating system also includes impact and results,

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culture and community and leadership and adaptability criteria; like Charity Navigator, watchdogs need to better tie accountability to processes and performance rather than the accomplishment of specific ratios or tasks. However, even more comprehensive ratings systems focused on impact have their problems (e.g., Doctors without Borders received a poor rating under Charity Navigator’s new system because they cannot provide follow up with walk-in patients from tribal villages) and gathering such detailed information is costly and time consuming for watchdogs who have limited capacity and resources. Information dissemination Donors consider the cost of the time taken to search for information about the legitimacy and credibility of nonprofits as an opportunity cost and prefer to donate without doing much research. Typically, organizations spend more time sharing information with high-capacity donors rather than those with less giving potential (Cnaan et al., 2011). This difference poses an opportunity for watchdogs to consider publicizing critical information and rankings more widely rather than waiting for donors to visit their sites. Certification as competitors A study by Feng et al. (2019) found that nonprofit organizations with strong internal governance, as indicated by their responses to the governance-related questions in the Internal Revenue Service (IRS) Form 990, are more likely to obtain the Success Factors Expert (SFX) certification in comparison to nonprofits that did not indicate strong internal governance. The results of the study also showed that nonprofits that invested more in their executives had a higher chance of receiving SFX certification and gaining stakeholder confidence. Such certifications may render watchdog ratings less relevant to donors in the future. Although watchdog organizations themselves face challenges in their capacity to meet the informational demands of donors and other stakeholders, these organizations serve a valuable purpose for the accountability of public-serving organizations. Margaret F. Sloan and Kennedy M. Musyoka

Related topics

Accountability Accreditation Financial documents and control Public trust in nonprofit organizations Self-regulation Social responsibility of nonprofit organizations Transparency

Further reading and references

Cnaan, R. A., Jones, K., Dickin, A., & Salomon, M. (2011). Nonprofit watchdogs: Do they serve the average donor? Nonprofit Management and Leadership, 21(4), 381–397. https://​doi​.org/​10​ .1002/​nml​.20032 Feng, N. C., Neely, D. G., & Slatten, L. A. (2019). Stakeholder groups and accountability accreditation of non-profit organizations. Journal of Public Budgeting, Accounting & Financial Management, 31(2), 218–236. https://​doi​.org/​ 10​.1108/​jpbafm​-08​-2018​-0088 Rao, H. (1998). Caveat emptor: The construction of nonprofit consumer watchdog organizations. American Journal of Sociology, 103(4), 912–961. https://​doi​.org/​10​.1086/​231293 Sloan, M. F. (2009). The effects of nonprofit accountability ratings on donor behavior. Nonprofit and Voluntary Sector Quarterly, 38(2), 220–236. https://​doi​.org/​10​.1177/​ 0899764008316470 Szper, R., & Prakash, A. (2011). Charity watchdogs and the limits of information-based regulation. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 22(1), 112–141. https://​doi​.org/​10​.1007/​s11266​-010​ -9156​-2

Wealth inequality Definitions

Wealth is an important component of financial well-being that is extremely, unequally distributed in the United States. Wealth – or net worth – is the stock of resources owned by a household at a point in time, and it is measured as total assets (e.g., the home, savings and investments, other properties) less total debts (e.g., mortgages, consumer loans, student loans). Wealth is distinct from income which is a flow of funds into a household from wages, salaries, and other sources. Claire Le Barbenchon and Lisa A. Keister

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Wealth has important advantages that include both financial and other benefits. Wealth provides a financial cushion that can protect a household during a monetary crisis such as the loss of a primary breadwinner’s income, a medical emergency, or some other financial shock. It can smooth consumption and allow parents to provide educational and occupational advantages to their children. In addition to these financial benefits, wealth can provide social and political influence, signal success and accomplishment, and indicate social status. Wealth can be saved over the life course, but it can also be passed across generations (as intergenerational or inter vivos transfers) to extend these benefits indefinitely.

Disparities and implications

Given these important advantages, it is notable that wealth is distributed very unequally in the U.S. Several aspects of wealth inequality have been the focus of recent research. One important metric of inequality is the proportion of total net worth owned by those in various parts of the income and wealth distributions. In 2019, for example, the top one percent of income earners received about 20 percent of total income, but the top one percent of wealth owners owned 37 percent of total net worth. If we define wealth just in terms of financial assets (removing housing and other properties from the definition), the top one percent of wealth owners owned closer to 40 percent of total wealth. Racial wealth inequality has also attracted a considerable amount of attention recently. Differences in wealth ownership by white, black, and Latino households are among the most extreme and persistent forms of inequality in the U.S. In 2019, the median net worth held by white households was $188,000, whereas Hispanic households held a median of $36,000 and the median wealth held by black households was just $24,000. This racial wealth gap is multi-faceted. In 2019, around 30 percent of white families had ever received an inter-generational wealth transfer, whereas this number is only 10 percent for black families, and 7 percent for Hispanic fam-

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ilies. Further, lower rates of homeownership and returns to home ownership are an important source of the racial wealth gap. In middle age, while three-quarters of white families own their home, only half of black and Latino families do (Bhutta et al., 2020). There is also some evidence of inequality in wealth between men and women, although measuring this discrepancy is challenging because married couples usually own assets jointly. One piece of evidence suggests that 95 percent of women who are in the top one percent of wealth owners gained their wealth through marriage and would not be in the top one percent based on their own accomplishments. In addition, of the Forbes 400 list of wealthiest Americans, women made up just 12 percent of the highest earners in 2015, down from 20 percent in 1995. Women experience a number of disadvantages that affect their wealth accumulation. They earn less than their male counterparts, earning on average 82 cents for every dollar earned by men. This is largely because of sex segregation; women are funneled into female-dominated occupations that pay less than male-dominated occupations on average. Women also encounter barriers to accessing the top of the career ladder. For example, they make up only 15 percent of Fortune 500 boards. Lastly, Net Worth Poverty (NWP), a concept related to the wealth inequality, is an important indicator of overall deprivation. NWP is defined as household net worth totaling less than one quarter of the federal poverty line. NWP is of particular concern because households without sufficient resources may not be able to weather negative income shocks, leaving them especially vulnerable. Households living in net worth poverty may get caught in poverty traps, unable to use capital reserves to smooth income, further their education, or purchase a home, therefore affecting their long-term stability. Nearly one-third of U.S. households with a child under the age of 18 are NWP, with higher percentages of Hispanic (50 percent) and black (57 percent) households living in NWP (Gibson‐Davis et al., 2021).

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Key issues Wealth inequality is getting worse over time Wealth inequality has been increasing over the past three decades, with the top one percent of households holding nearly 30 percent of the wealth in 1989 and just over 37 percent in 2019. The bottom 50 percent of households held 4 percent of the wealth in 1989, and saw that number shrink to just 2 percent in 2019 (Bricker et al., 2020). The increasing wealth gap has been attributed to a number of overlapping causes requiring distinct policy responses. The first is the intergenerational transmission of wealth and the related fact that there is greater inequality in wealth than income across households, such that households with an early wealth advantage can increase their wealth over time through savings. The second is the fact that financial returns have exceeded economic growth in the past few decades, meaning individuals with existing capital saw their wealth grow over time. Lastly, and relatedly, the composition of assets differs among households and has greatly increased the wealth of some households while leaving others behind. Especially in the past decade, as the fallout from the 2008 Great Recession underscored the harms of wealth inequality, an important debate has emerged around policy solutions, including how nonprofit programming can put a dent in the widening gap between rich and poor. The first, wealth taxation, would allow for the redistribution of net worth from high-wealth individuals to low-wealth individuals. Although taxing wealth has been successful at redistributing resources in some circumstances, this strategy is plagued with difficulties both because capital can be taken out of the country and assets can be shifted to favor those that evade the tax (Advani & Tarrant, 2021). Nonprofit programming has a range of potentials to reduce the wealth gap (Killewald et al., 2017). For example, government transfers have been shown to be successful in closing the gap when it comes to health spending (Medicaid) and food expenditure (Temporary Assistance for Needy Families). Nonprofits that either support these transfers or provide other

forms of income support can contribute to closing the gap. Evidence that savings mechanisms like matching to support homeownership can help lower wealth families save for and purchase a home, but it is unclear whether this is merely displacing savings for other needs. Nonprofits that support education for the poor can begin to close the educational gap, which in turn will support income growth and savings, and thus begin to close the net worth gap. Racial wealth inequality is growing The difference in wealth between black and white households in the U.S. is growing. Between 1989 and 2019, this gap grew from an average of around $380,000 to over $800,000 (Bricker et al., 2020). The reason for the growing gap is multi-faceted. Firstly, black families have fewer years of homeownership than white families. This difference may reflect disparities in access to credit and family assistance and manifests in black families building less home equity than white families, on average. Further, black families start at lower levels of wealth, meaning each dollar earned is more likely to be used for direct needs or emergencies, whereas white earners can put more into saving for the future. For each dollar earned, white families at the median of wealth gain $5.19, whereas black families at the median gain only $0.69 (Oliver & Shapiro, 2019). Lastly, black households have lower college educational attainment than white families, but, importantly, have more student debt on average (Shapiro et. al, 2013). Debt also contributes to racial wealth inequality: indeed, the form of debt that has contributed the most to the growing gap since the recession are student loans, with black households holding over 20 percent of their debt as student debt, compared to only 8 percent for white households. This debt category has been attributed to predatory lending and is particularly harmful as it cannot be forgiven even in bankruptcy (Seamster & Charron-Chénier, 2017). There has been recent discussion in the literature of appropriate ways to address the racial wealth gap. Nonprofits are well poised to play an important role in finding and implementing solutions. Baby Bonds, a cash investment for new black babies, Claire Le Barbenchon and Lisa A. Keister

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would allow black children to begin their life with a modest amount of wealth that will narrow the gap with white children (Hamilton & Darity, 2010). The bond would be invested and the beneficiary would get access to this cash at 18 years old. The funds, now presumably much larger than the original investment, could help provide the lump sum needed for a down payment on a home, to pay for college, or to start a business. Leveling out the wealth disparity early on in the life course is crucial for preventing the cumulative nature of the racial wealth gap. Nonprofits that support either the distribution or implementation of large lump-sum transfers like Baby Bonds can help ensure that black individuals are supported in their life projects, for example by helping black-run small businesses or providing support in high-school-to-college pathways. Net worth poverty has harmful effects for children Family wealth is closely linked to child well-being, and high levels of net worth poverty among child households (see above) suggests that children – particularly Latino and black children – are at high risk of suffering harmful developmental and behavioral outcomes. Children who are in families experiencing NWP will have, on average, lower educational attainment, lower academic achievement, less social-emotional functioning, and be more likely to experience low net worth as adults (Gibson-Davis & Hill, 2021). Cognitive and behavioral outcomes, key to overall childhood development, are also affected by low familial wealth. It is also becoming clear that different types of parental wealth are associated with child development outcomes. At equivalent levels of parental wealth, for example, white students obtain higher scores in math and reading than Hispanic or black students. This may be due to the composition of wealth: white families own relatively high levels of liquid assets and homes with higher property values, which may indicate residence advantageous school districts (Conwell & Ye, 2021). Policy initiatives that have had an impact on child net worth are important indications of where nonprofits are likely to Claire Le Barbenchon and Lisa A. Keister

improve child outcomes that stem from wealth deprivation. Medicaid, a federal program which provides health insurance coverage to low-income families, has been shown to increase family wealth by supporting increased savings and mortgage payments. However, this is unlikely to move the needle on the racial wealth gap as white, educated mothers were the most affected (Jackson et al., 2021). We see a similar pattern for low-income families receiving the Earned Income Tax Credit – white families, but not black families, who receive this credit increase their wealth by 4 percent on average (Michelmore & Lopoo, 2021). These racial disparities in policy effectiveness on wealth are important points to keep in mind for nonprofits focusing on healthcare provision or other support to poor families. Wealth and health are closely related Strong links have been demonstrated between household wealth and various health outcomes. Wealth deprivation is associated with physiological stress in adults, underscoring the importance of the relationship between financial stress and changes in net worth. Children’s body mass index (BMI) and risk of obesity is positively related to family wealth, net of income (Boen et al., 2021). The absence of assets to cover emergency expenses is partly responsible for these negative health outcomes; but there is also evidence that debt reduces physical health (including blood pressure and self-reported health) partly through its effect on mental health (stress and depression) (Sweet et al., 2013). Nonprofits supporting health initiatives, particularly in poor areas, must thus focus on the mechanisms producing negative health outcomes to take a holistic approach. In these areas, stress and financial insecurity stemming from net worth poverty is likely to be a driver of health and thus should be tackled in tandem with more standard health interventions. Further, while wealth is an important conduit for impacting child health, health behaviors like healthy diet or exercise appear not to be the mechanism through which wealth affects BMI. Nonprofits targeting child health and well-being may find more

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impactful work in tackling the effects of wealth rather than behavioral approaches.

Future outlook

The key issues discussed here are unlikely to change unless action is taken. Many of the successful or predicted-to-be successful policies and initiatives proposed here involve large cash transfers to families who experience net worth poverty or low wealth. Nonprofits seeking to tackle the wealth gap who are unable to provide direct financial support to families will make the largest impact by taking advantage of existing government programs by providing public service contracts or accepting service fees from Medicaid, which has been shown to increase wealth holdings in some cases. Advocacy-focused nonprofits may seek to promote more transfers, including Baby Bonds or student debt forgiveness, which can directly increase wealth, or wealth taxation which can redistribute wealth. Further, nonprofits may want to complement existing programming by focusing on Hispanic and black and other low-wealth families, because of their vulnerability to economic shocks, the growing wealth gap, and their low response to existing government transfers. This is particularly challenging because many of the sources of the racial wealth gap are structural. However, support in the areas of homeownership, education, inheritance, and income can provide multidimensional support to close the racial wealth gap (Shapiro et al., 2013). Claire Le Barbenchon and Lisa A. Keister

Related topics

Civil society Democracy and philanthropy Diversity, equity, and inclusion Social change and nonprofit organizations

Further reading and references

Advani, A., & Tarrant, H. (2021). Behavioural responses to a wealth tax. Fiscal Studies, 42(3–4), 509–537. https://​doi​.org/​10​.1111/​ 1475​-5890​.12283 Bhutta, N., Chang, A. C., & Dettling, L. J. (2020). Disparities in wealth by race and ethnicity in the 2019 survey of consumer finances. Federal Reserve. www​

.federalreserve​.gov/​econres/​notes/​feds​-notes/​ disparities​-in​-wealth​-by​-race​-and​-ethnicity​ -in​-the​-2019​-survey​-of​-consumer​-finances​ -20200928​.html Boen, C., Keister, L. A., & Graetz, N. (2021). Household wealth and child body mass index: Patterns and mechanisms. RSF: The Russell Sage Foundation Journal of the Social Sciences, 7(3), 80–100. https://​doi​.org/​10​ .7758/​rsf​.2021​.7​.3​.04 Bricker, J., Goodman, S., Moore, K. B., Henriques Volz, A., & Ruh, D. (2020). Wealth and income concentration in the SCF: 1989–2019. Federal Reserve. www​ .federalreserve​.gov/​econres/​notes/​feds​-notes/​ wealth​-and​-income​-concentration​-in​-the​-scf​ -20200928​.html Conwell, J. A., & Ye, L. Z. (2021). All wealth is not created equal: Race, parental net worth, and children’s achievement. RSF: The Russell Sage Foundation Journal of the Social Sciences, 7(3), 101–121. Gibson-Davis, C., & Hill, H. D. (2021). Childhood wealth inequality in the United States: Implications for social stratification and well-being. RSF: The Russell Sage Foundation Journal of the Social Sciences, 7(3), 1–26. https://​doi​.org/​10​.7758/​rsf​.2021​ .7​.3​.01 Gibson‐Davis, C., Keister, L. A., & Gennetian, L. A. (2021). Net worth poverty in child households by race and ethnicity, 1989–2019. Journal of Marriage and Family, 83(3), 667–682. https://​doi​.org/​10​.1111/​jomf​.12742 Hamilton, D., & Darity, W. (2010). Can “baby bonds” eliminate the racial wealth gap in putative post-racial America? The Review of Black Political Economy, 37(3–4), 207–216. https://​doi​.org/​10​.1007/​s12114​-010​-9063​-1 Jackson, M., Agbai, C., & Rauscher, E. (2021). The effects of state-level Medicaid coverage on family wealth. RSF: The Russell Sage Foundation Journal of the Social Sciences, 7(3), 216–234. https://​doi​.org/​10​.7758/​rsf​ .2021​.7​.3​.10 Killewald, A., Pfeffer, F. T., & Schachner, J. N. (2017). Wealth inequality and accumulation.  Annual Review of Sociology,  43, 379–404. Michelmore, K., & Lopoo, L. M. (2021). Exposure to the earned income tax credit in early childhood and family wealth. RSF: The Russell Sage Foundation Journal of the Social Sciences, 7(3), 196–215. https://​ doi​ .org/​10​.7758/​rsf​.2021​.7​.3​.09 Oliver, M. L., & Shapiro, T. M. (2019). Disrupting the racial wealth gap. Contexts, 18(1), 16–21. https://​doi​.org/​10​.1177/​1536504219830672 Seamster, L., & Charron-Chénier, R. (2017). Predatory inclusion and education debt: Rethinking the racial wealth gap. Social

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616  Elgar encyclopedia of nonprofit management, leadership and governance Currents, 4(3), 199–207. https://​doi​.org/​10​ .1177/​2329496516686620 Shapiro, T., Meschede, T., & Osoro, S. (2013). The roots of the widening racial wealth gap: Explaining the black-white economic divide. Brandeis. https://​heller​.brandeis​.edu/​iere/​pdfs/​

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racial​-wealth​-equity/​racial​-wealth​-gap/​roots​ -widening​-racial​-wealth​-gap​.pdf Sweet, E., Nandi, A., Adam, E. K., & McDade, T. W. (2013). The high price of debt: Household financial debt and its impact on mental and physical health. Social Science & Medicine, 91, 94–100. https://​doi​.org/​10​ .1016/​j​.socscimed​.2013​.05​.009

Index

accountability definition 1–2 institutional context, nonprofits 2–3 issues, key questions 3–5 practices 172, 174–5, 556 relationships 1–3, 445 accounting practices, rules, and standards 7 definition 7 issues and debates 9–10 nonprofit 8–9 standards, in practice 7–9 accreditation 10–12, 415, 517 accreditor, as regulator 12 background, evolution and uptake 11 balancing act, limitations and potential 12 challenges for research 12 critical components of 11 definition 10 policy context of 11–12 requirements 12 actors 1–5, 91, 103–4, 338, 393, 394, 484–6 administrative/administration costs 13–15, 79, 231, 241, 330, 441 current and future directions 15 definition 13–14 funding request 15 in practice 14–15 advocacy 16 context and issues 17–18 current and future directions 19–20 definition 16–17 efforts 18, 19, 302, 548 in practice 18–19 Affordable Care Act (ACA) 20 current issues and challenges 21–2 definition 20 nonprofit organizations 22 in practice 21 affordable housing 230, 300, 313, 315, 398, 402, 463 African American philanthropy research 41 African Americans 40–43, 97, 98, 271, 461, 520, 533, 534 agency theory 284, 445, 447, 448 American Bar Association 24, 488, 491, 511 annual campaigns 58–60, 180, 282, 587, 589 anti-inclusive practices 172–4, 176 antitrust 23 applications 23–4

issues 23, 24 current and future directions 24 definition 23 nonprofit associations, issues 23–4 articles of incorporation 24 contents of nonprofit 25–6 definition 24 general incorporation statute 24–5 optional provisions, state law 25–6 provisions for tax exemption 26 provisions under state law 25 arts and cultural organizations 26 current and future issues 28 definition 26–7 in practice 27–8 arts management 455 assets 82, 114, 128, 129, 133, 134, 179, 203, 204, 221, 232, 236, 248, 260, 421, 425, 439, 441, 501, 503 Association of Black Foundation Executives (ABFE) 41 associations 354–5 audit 29 current and future directions 30–31 definition 29–30 in practice 30 authoritarian regimes and nonprofit community 32 civil society activists, repression 34 definitions and variations 32–3 domestic nonprofit activities, formation restrictions 33 forms of controls 33–4 future directions 34 heavy monitoring and reporting burdens 34 nonprofit finances, restrictions 34 overseas organizations, work restrictions 33 programmatic and advocacy activities, restrictions 33 restrictions on resource mobilization 33 beneficiaries 36 current issues and challenges 36–7 future research 38 key concepts and terms, defining 36 Black philanthropy 38–43 context 38–9 pre-historic and ancient times 39–40 roots and transformations 39–43

617

618  Elgar encyclopedia of nonprofit management, leadership and governance slaveries and colonial periods 40–41 Black Philanthropy Month (BPM) 42 Black Power Movements 41 board chairs 90, 225, 280–82, 295 board governance 26, 127, 288, 289, 514, 515 board leadership 63, 279, 280, 282, 294–6 board meetings 45, 46, 225, 280, 281, 291, 547, 552, 610 board members 88 board membership 282, 288, 363, 449 board of directors 3, 5, 28, 102, 244, 246, 251, 252, 302, 350, 351, 363, 364, 366 Board Policies Manual (BPM) 45 initiate and continually improve, steps 45 policy-led organization effective and efficient 46 policy-related documents 45–6 trends and issues 45–6 value of 45 board recruitment 225, 295, 296 BoardSource 87, 279, 280, 282, 291–6, 562 brand familiarity 47, 48 branding and brand strategies 47 current and future directions 49 definition 47 in practice 47–8 brand remarkability 47, 48 budget 5, 15, 49–52, 55, 103, 226, 228, 229, 278, 464–6 budget process 49 approval 51 definition 49 execution and implementation 51–2 future directions 52 in practice 50–52 preparation 50 review, audit, and reporting 52 business planning 53, 54, 304, 550 current and future directions 54–5 definition 53 minimizing risk 53 in practice 53–4 questions 54 bylaws 55 contents 56–7 definition 55 directors 56–7 members 56 miscellaneous provisions 57 nature and status 55–6 officers 57 trends and issues, constitutions 57 campaign: annual campaign 58 context 58 definition 58 future trends 60 issues 59

in practice 58–9 campaign: capital campaign 60 case for support 61 current trends and issues 64 definition 60–61 feasibility study 63 fundraising 61 organization 63–4 organizational readiness 62–3 in practice 61–4 time and phases 63 capacity building 64–7, 302, 304, 348, 357, 370, 373, 557 definition 64 in practice 64–6 strengths and limitations 66–7 trends and issues 66–7 careers and preparation 68 current issues and challenges 69–70 definition 68 equality in promotion 69 expectations and motivations 70 nonprofit management education 69 in practice 68–9 sector commitment 69–70 workforce training needs 70 case advocacy 16 case for support 71 current thinking and best practices 71–2 definition 71 future 72–3 guidelines 71–2 in practice 71 cause-related marketing 73–5, 106, 192, 583 context 73 current and future directions 74–5 definition 73 effective cross-sector collaboration 74 in practice 73–4 risk 74–5 social enterprises 75 celebrity philanthropy 76 current issues and challenges 77 definitions 76 future of 77 in practice 76–7 charitable assets 82, 177–9, 514 charitable giving 78 definition 78 future 80 issues and debates 79–80 in practice 78–9 charitable missions 133, 135, 322, 361, 456, 462, 535, 579 charitable nonprofits 453, 473 charitable tax credit 570, 572 charitable trusts 55, 81, 246, 247 charity law 80

Index  619 advantages and disadvantages 83 definitions and background 80–81 exempt status and ongoing reporting 83 federal law 82–3 law and reform, changes 83–4 in practice 81–3 public charity vs. private foundation 83 state law 81–2 chief executive director: compensation 84 definition 84 gender disparities 85 in practice 84–5 racial/ethnic disparities 85–6 chief executive officer: performance review 87 definition 87 in practice 87–9 chief executive officer: relations with board of directors 90 active mutual supports 91 communications 90 definition and context 90 loyalty 92 mutual respect 91 norms 90–91 productive nonprofit CEO–board relations 90–92 role clarity 91 terms of art 91–2 trust 92 two-way humility 92 civic agency 93 context and key supporting concepts 93–4 current and future directions 95 definition 93 nonprofits, role 94–5 in practice 94–5 Civil Rights and African Liberation 41 civil rights organizations 79, 96, 97, 368 definition 96 future 97–8 management, leadership and governance, challenges 96–7 in practice 96 civil society 32–4, 98–101, 104, 108, 159, 356, 357, 384, 419, 531 context and applications 98–100 current and future directions 100–101 definition 98 civil society organizations 32, 34, 99–101, 412, 413, 533 Clayton Antitrust Act 23 co-assessment 131 co-commissioning 131 co-delivery 131 co-design 131 coercive isomorphism 338 collaboration strategies 101–4, 392 benefits 102

conceptual foundation 102 definition 101–2 limitations and strengths 103 nonprofit applications 102–3 principles of 104–5 readiness conditions for 103–4 commercial income 105–8, 170, 329, 497, 499 commercial revenue 105–8, 497 commercialism 105 current issues and debates 107–8 definitions and context 105 future directions 108–9 impact of 107–8 in practice 106–7 understanding rise in 106 commons 109 context 109–10 definition 109 essential components of 111–12 limitations and strengths 112 nonprofit applications 110–111 commons governance 109–12 community-based organizations (CBOs) 67, 94, 95, 112, 116, 117, 156, 314, 413, 437 current and future directions 116–17 definition 116 in practice 116 community engagement 94 community foundations 113 applications 114 community leadership 114 community philanthropy 4.0 115 definition 113–14 donor-advised funds, commercialization 114–15 donor focus 114 endowment building 114 identity versus geography 115 legitimacy and accountability 115 comparative perspectives on nonprofit organizations 118 challenges and opportunities 121–2 definitions 118 nonprofit sectors, societies, and daily life 120–121 regulation, repression, and innovation 119–20 roles, scope, issues, and challenges 119 competition current issues and challenges 122–4 future 124 key terms and concepts, definition 122 competitive forces 125 additional providers 126 definition 125 donations and grants 125 higher demands, grants to donors 127 impact and expenses, ratings 127

620  Elgar encyclopedia of nonprofit management, leadership and governance labor 125 in practice 125–7 preferences, of consumers 126 price and/or quality sensitivity, consumers 126 regulatory and policy impacts 126–7 sophistication of operations 127 stagnant donations 127 competitive pressures 15, 122, 125–7 contracting relationship 300–302, 445, 448 conversion foundations 128 current issues and challenges 129–30 definition 128 future of 130 in practice 128–9 co-production 130 current issues and future 132 definition 130–131 in practice 131–2 corporate foundations 133 alignment 135 benefits of 134–5 definitions, United States 133–4 marketing, metrics, and social impact 135–6 regulatory and administrative burden 135 corporate philanthropy 136–8, 141, 178 background 136–7 corporate foundations 137–8 corporate giving 137 corporate volunteering 137 current and future directions 138 definition 136 corporate social responsibility (CSR) 139 current issues and challenges 141–2 definition 139 economic responsibilities 140 ethical responsibilities 140–141 formulation 139 future 142 legal responsibilities 140 mission responsibility 140 philanthropic responsibilities 141 in practice 139–41 crisis communication response strategies 145 crisis management 143–5, 282, 476, 478, 495, 507, 508 definition 143–4 future directions 145 planning 144 steps 143, 144 types and phases 143–4 crowdfunding 146, 147, 272, 367 current issues and challenges 147 future 147 key terms and concepts, definition 146 in practice 146–7 crowding out 148 definition and context 148

future 150 magnitude 148–9 nonprofit sector and challenges, theory application 148 in practice 149–50 cultural competence 151, 163, 308, 486 adaptive 151 definitions 151 future directions 152 inclusive 151 issues 151 multilevel 151 performance-oriented 151 in practice 151 relational 151 culture organizations 27, 28, 104, 569, 577 curricula for nonprofit management, higher education 153 definitions 153 future of NMPS 157–8 graduate education, NMPS 155–7 undergraduate education, NMPS 153–5 democracy and philanthropy 159 future directions 160–161 propositions 159–60 diaspora members 162–5 diaspora philanthropy 42, 161–5, 486 context 162 definition 161 limitations of 164–5 mechanisms 162–3 in practice 163 related terms, common use 162 strengths of 163–4 digital divide 165 context 165–6 current issues and challenges 166–7 definition 165 future 167 in practice 166 digital service delivery 167 disqualified persons 260, 341, 469, 565 dissolution of nonprofit organizations 168 causes 169–70 current issues and research 169–70 definition 168 future directions 170 measures 169 in practice 168–9 distance strategies 145 diversification 193, 233, 300, 310, 311, 330, 501–5 diversity, equity, and inclusion 171 current issues and challenges 172 definition 171–2 evidence-informed framework 172–5 future opportunities 175–6

Index  621 limitations and strengths 175–6 donor-advised funds 177 definition 177 future development 180 in practice 177–80 donor and donor motivation 180 definition 180 diversity and inclusion 184 donor motives 182–3 donor retention 182 ethics 183–4 future 184–5 issues and debates 183–4 major donors 181 one-time donors 181 organization and staffing strategies 182 professionalism and silos 184 regular donors 181 spontaneous donors 181 donor behavior 184, 517 donor choice 185–8, 498, 589 definition 185–6 future 188 importance 186–7 issues and debates 187–8 in practice 186 donor fatigue 209 donor retention 47–9, 182, 189, 190, 381 donor retention and Stewardship 189 current and future directions 191 definition 189 donated funds, Stewardship 190–191 donor retention rate 190 importance 189–90 double-blind review 353 earned income 192 definition 192 future trends 194–5 policy issues 194 in practice 192–4 strategic and tactical issues 193–4 education-focused organizations 195 criticisms and debate 196–7 current issues and challenges 196 definition 195 learning-focused nonprofits 197 in practice 195–6 effectiveness of nonprofit organizations 198 current directions 198–9 definition and context 198 future directions 201–2 in practice 199–201 emergency succession planning 363 endowment 202 current and future directions 205–6 definition 202–4 in practice 204–5

ePhilanthropy 183, 207–9, 397, 455 criticism of 209 definition 207 in practice 207–9 technology and 208–9 European Venture Philanthropy Association (EVPA) 138 executive performance review definition 87 essential components of 88–9 executive succession 363 external stakeholders 1, 7, 50, 235–7, 244, 245, 446–7, 524, 529, 530, 547, 549 faith and philanthropy 211 context 211 definition 211 diversity, increasing 212 future 213 humanitarian aid and emergencies 211–12 mix of ideas 213 refugee resettlement 212 technology and 213 volunteering 212 faith and volunteering 213 current and future directions 215 definition 213–14 in practice 214–15 faith-based organizations 98, 162, 163, 211, 212, 215–19, 413 congregations 217 definitions 216 examples 218–19 historical context 216–17 Internal Revenue Service (IRS) regulations 217–18 Personal Responsibility and Work Opportunity Reconciliation Act of 1996 218 family foundations 180, 220, 221, 448, 449, 452 family philanthropy 220, 221, 442 definition 220 equity 221–2 family foundations, longevity 221 growth of 221 impact investing 221 next generation, engagement 221 in practice 220 federal tax law 567–70 charitable income tax deduction 569–70 current issues and future direction 570 donor-advised funds 568 private foundations 567–8 public charities 567 tax exempt financing 569 unrelated business income tax (UBIT) 568 federation 222 current issues and challenges 222–5

622  Elgar encyclopedia of nonprofit management, leadership and governance definition 222 future 225–6 governance challenges 224–5 leadership challenges 223 managerial challenges 224 in practice 222 financial documents and control 226 context 226–7 definitions 226 developments and trends 230 external financial documents and control 228 integrity level 227 internal financial documents and control 228–30 in practice 227–30 risk management level 227–8 Stewardship level 227 financial management 10, 11, 153–6, 242, 329, 423, 424, 499, 514, 576 financial performance indicators 231 definition 231 hazards, limitations, and future directions 233–4 in practice 231–3 financial ratios 234 common size ratios 236–7 context 234–5 definition 234 efficiency ratios 237 limitations of 238 liquidity ratios 235–6 in practice 235 profitability ratios 236 solvency ratios 236 financial statements 29–31, 52, 227, 234, 236, 253, 258, 260, 509, 510 financing nonprofit organizations 239 financing nonprofits 235, 400, 505, 520 fiscal sponsor 243 current and future directions 244–5 definition 243 in practice 243–4 formal organizations 81, 85, 94, 95, 117, 118, 163, 595, 596 forming a nonprofit organization 245 charitable trusts 246–7 definition 245 nonprofit corporations 246 nonprofit limited liability companies 247 organizational forms 246–7 tax status 247–8 unincorporated nonprofit associations 246 for-profit organizations 13, 73–5, 83, 123, 124, 406, 477, 555, 558 for-profit workers 604, 606–8 foundation funding 161, 372, 451, 452, 531 foundations, history and functions 248 current issues and challenges 248–50

definition 248 perennial legitimacy challenge 250 Founder’s syndrome 251–3 current and future directions 252–3 definition 251 formative period 251 organizational crisis or long-standing tenure 252 in practice 251–2 risk factors and signals 252 fraud and corruption 253 context 254 definition 253 perpetration and detection, external factors 254–5 strengths, limitations, and critique 255 fraud detection and investigation 256 definition 256 fraud triangle 256–7 governmental bodies and 258 in nonprofit organizations 256–60 recommended preventative measures 260 fund development 157, 261, 263–6, 558 fundraising 261 current and future directions 265–6 definition and scope 261–3 ethics and equity 266 and overhead costs 265 in practice 263–5 regulatory/legal developments 265–6 technology 265 gender and philanthropy 268 current and future directions 272 definition 268–9 in practice 269–72 women 269–72 Generation Y 395 gifts 59, 61–3, 179–81, 183, 189, 190, 220, 240, 264, 270, 375, 377, 439–41, 469 giving circles 40, 41, 111, 112, 161, 271, 273, 274, 306, 592 definition 273 future 274 in practice 273–4 global conflict and philanthropy 275 definition 275 future 276–7 in practice 275–6 going concern opinion (GCO) 30 good governance 15, 45, 46, 227, 317, 346, 509, 511, 515 governance 278 current and future directions 279–80 definition 278 in practice 278–9 governance challenges 224, 347, 386, 409 governing board: chairperson 280

Index  623 definition 280–281 future challenge 282–3 issues 282 in practice 281–2 governing board: composition 283 definition 283–4 factors that influence 285–7 theoretical background 284–5 governing board: dynamics and meeting management 287 context 287–8 current and future directions 289–90 definitions 287 in practice 288–9 governing board members 90, 91, 102, 289 governing board: membership 290 current and future directions 291–2 definition 290 in practice 290–291 governing board: responsibilities 292 current and future directions 294–6 definition 292 in practice 292–4 government contracts 53, 106, 127, 133, 193, 240, 300, 302, 361, 499, 502 government failure theory 296 current and future directions 297–8 definition 296–7 in practice 297 government funding 106, 107, 170, 218, 219, 299, 300, 329, 330, 379, 380, 456, 457, 480, 531 government funding and contract management 299 definition 299 with nonprofit agencies 303 performance management and competition 299–300 in practice 300–303 government grants 74, 148–50, 239, 240, 300, 304, 305, 327, 329, 523, 528 government support 127, 149, 300, 435 grant 303 current issues and challenges 305–6 definitions 303–4 future 306 in practice 304–5 grantmakers 103, 104, 303–6, 357, 436, 443, 444, 450 grassroots INGOs (GINGOs) 307 definition 307 examples 307–8 future 309 leading and managing 308 growth potential 233 growth strategies 53, 309–12, 392, 501 context 309 definition 309

essential components, Ansoff’s Product/ Market Matrix 310 limitations and strengths, Ansoff’s Product/ Market Matrix 311–12 in practice 311 Herfindahl-Hirschman index (HHI) 330 housing organizations 313 attributes and challenges 314–15 definitions 313 future agenda 315–16 historical overview 313–14 in practice 313 human resource management (HRM) 153–5, 356, 483, 553, 554, 557, 558 human service organizations 194, 316–19, 354, 431 current issues and challenges 317–18 definitions 316 future 318–19 in practice 316–17 human services 204, 205, 217, 316–19, 429, 431, 587, 588 hybrid organizations 74, 195, 320–322, 534, 537, 582, 583 current and future directions 321–2 definition 320 in practice 320–321 identity-based philanthropy 324, 325 definition 324 future 325 in practice 325 social identity theory and identity-based motivation model 324–5 immigrants 41, 120, 121, 367, 369, 521, 561 impact investing 326 current and future directions 327–8 definition 326–7 in practice 327 impact investments 322, 326, 327, 373 inclusive interactions 172–6 income portfolio analysis 329 definitions 329 in practice 329–31 income sources 240, 241, 252, 330, 331, 503 income statement 8, 29, 52, 236 individual board members 2, 278, 290–294, 363 individual donors 18, 58, 72, 114, 178, 179, 184, 191, 442–4 individual nonprofit organizations 69, 70, 123, 278, 365 individual nonprofits 87, 187, 329, 516, 542, 567 individual organizations 280, 338, 459, 507, 515, 577 industry analysis 331 context 331 definition 331

624  Elgar encyclopedia of nonprofit management, leadership and governance limitations and strengths of 333 in practice 331–3 informal accountability 2–4, 319 information asymmetry 31, 445, 609, 610 innovation in nonprofit organizations 334 current and future directions 336–7 definition 334 examples 335 factors related 335–6 outcomes 336 types of 334–5 institutional arrangements 109–12, 322 institutional isomorphism 338 current trends 339 definition 338 examples, international organizations 338–9 future considerations 339 types 338 integration strategies 145 intended beneficiaries 36–8, 596, 598 intermediate sanctions 340 colleges and universities, implication 342 context 340–341 definition 340 excise tax, excess benefit transactions 341 level of penalties 341–2 loyalty rules for nonprofits, duty 342 nonprofits’ accountability and 342 in practice 341–2 reasonable compensation 341 section 4958 taxes and revocation of exemption 341 uncharitable hospitals and intermediate sanctions 342 Internal Revenue Service (IRS) 343 context 343 current trends and oversight 345–6 definition 343 in practice 343–5 international aid (IA) 346 current trends and oversight 348–9 definition 346 in practice 346–8 international nonprofit organizations 347, 438 investment income 8, 179, 233, 240, 249, 329, 420, 426, 469, 507 investment policy statement (IPS) 349 definition 349 duties and responsibilities 351 investment manager evaluation 351 investment strategy 350–351 liquidity constraints 350 statement of objectives 350 statement of purpose 349–50 unique constraints or priorities 350 investment strategies 178, 203, 206, 350, 351 involuntary turnover 363

journals, periodicals, and associations 353–4 current issues and future prospects 355–8 definition 353–5 leadership 359 challenges facing nonprofit organizations 362 civic activism impulse 361 commercialism impulse 361–2 composite view of 362 definition 359 professionalism impulse 361 skills, attributes and behaviors 359–60 voluntarism impulse 360–361 leadership continuity 363 leadership deficit 364 leadership development deficit 364 leadership succession 363 current issues and challenges 364–5 definitions 363 future 365–6 pivot phase 364 prepare phase 363–4 thrive phase 364 LGBTQ+ philanthropy 366–9 current issues and challenges 367–8 definition 366 future 368–9 in practice 366–7 lifecycles of nonprofit organizations 369 birth/launch 370 context 369 current issues and debates 371 definition 369 essential components 370–371 growth/adolescence 370 maturity/maintenance 370 in practice 369–70 limited life foundations 372 current issues and challenges 372–3 definition 372 future 373 limited life versus perpetuity 372 liquidity 232 local communities 59, 113–15, 163, 164, 271, 274, 588, 589, 598 local organizations 115, 163, 164, 436, 587–9 major donors 375 current issues and challenges 376–7 definition 375 future 377 in practice 375–6 managerialism 378 current issues and debates 379–80 definition 378 future 380 in practice 378–9

Index  625 marketing 381 current and future directions 382–3 definition 381 in practice 381–2 membership associations 261, 358, 383–6 challenges and issues 384–6 definition 383–4 future 386 management and governance 384–6 in practice 384 mental health organizations 386–9 accessibility 387–8 collaboration 388 definitions 386–7 financial complexity 387 future 388–9 managing institutional pressures 387 mental health care 387 quality 388 mergers and acquisitions 389 context 389 current issues and challenges 392 definition 389 implementation stage 390–391 post-merger stabilization 391–2 in practice 390–392 premerger investigation stage 390 trends and considerations 392 microfinance 393–5 current and future directions 394–5 definition and historical background 393 issues and challenges 393–4 millennial generation’s civic engagement 395 context 395–6 current and future directions 397 definition 395 in practice 396–7 mimetic isomorphism 338 mission and economics 398 definitions and focus 398 example 400 limitations 400 tools of constrained optimization 398–400 mission drift 107, 108, 140, 170, 370, 379, 497, 499, 519, 535, 536 mission statement 200, 395, 398, 400–403, 557, 559 current debates and future directions 402–3 debates and controversies 401–2 definition 401 in practice 401 modern portfolio theory 501, 504, 505 mortification strategies 145 motivation: paid staff 403 current issues and future challenges 405 definitions 403 in practice 403–5 motivation: volunteers 406

current and future directions 407–8 definition 406 in practice 406–7 multisite nonprofit organizations (MNOs) 408 definitions 408–9 future 409–10 issues 409 in practice 409 nascent organizations 411 current and future directions 411–12 definition 411 in practice 411 net investment income 179, 450, 487, 568 new organizations 42, 169, 244, 251, 390–392, 565, 592 nonexistence strategies 145 nongovernmental organization (NGO) 412 definition 412–13 future 415 issues and debates 414–15 in practice 413–14 nonprofit actors 3, 5, 102, 103, 107, 472, 515 nonprofit agencies 299–303, 382, 521 nonprofit associations 23, 24, 516, 517 nonprofit board members 90, 91, 260, 289, 292, 318, 597 nonprofit boards 87, 88, 90, 279–83, 288, 291, 292, 296, 365, 446, 447 nonprofit corporations 24–6, 55, 81, 244, 246, 247, 291, 488, 491 nonprofit dissolution see dissolution of nonprofit organizations nonprofit effectiveness 67, 201, 497, 498 nonprofit employees 69, 167, 194, 254, 490, 524, 555, 605 nonprofit finance 34, 233, 239, 241, 242, 418, 505 contributions 240 current trends and controversies 241 future prospects 241–2 other sources of income 240–241 program service fees 240 types of 239–41 nonprofit governance 45, 110, 279, 280, 289, 300, 446–8, 510, 511 nonprofit hospitals 20–22, 119, 126, 128, 129, 240, 454, 573 nonprofit housing organizations (NHOs) 313 nonprofit leadership 69, 145, 154, 356, 366, 382, 491, 521, 557 Nonprofit Lifer 69 nonprofit management and leadership 393, 410, 412, 424, 456, 458, 495, 498, 501, 528, 549, 552, 557, 558 nonprofit management and philanthropic studies (NMPS) 153–5 nonprofit marketing 355, 383

626  Elgar encyclopedia of nonprofit management, leadership and governance nonprofit missions 59, 79, 122, 295, 365, 398, 400, 555 nonprofit performance 430, 431, 496 nonprofit resilience management (NRM) 492 nonprofit revenue 105, 185, 329, 567, 569 nonprofit sector 416 core functions 416–17 current issues and challenges 417–18 future 418–19 key terms and concepts 416 nonprofit services 79, 127, 418, 484 nonprofit starvation cycle 15, 305, 307, 493, 495, 499, 501 nonprofit workers 69, 70, 604–8 nonprofit workforce 69, 70, 364, 494, 577 normative isomorphism 338 open innovation 335 operating foundations 420 assets test 421 debates and future directions 422 definition 420 endowment test 421 four-year testing period 421 income test 420–421 support test 421 tax advantages 420 tax-exemption (form 1023) 421–2 operating reserves 422 current and future directions 423–4 definition 422 in practice 422–3 organizational effectiveness 15, 67, 198–202 organizational innovation 334 organizational level 108, 161, 166, 173, 249, 322, 430, 460, 477, 543, 544 organizational mission 49, 74, 124, 330, 391, 399, 400, 403, 404, 502, 610 organizational performance 85, 152, 173, 175, 202, 231, 288, 289, 336, 365, 402 organization's mission 2, 8, 13, 140, 181, 182, 190, 194, 518, 525, 559, 561 organization's work 260, 278, 280, 293, 295, 335, 376 payout requirement 425 background 425 current issues 426 definitions 425 future 426–7 legal requirements 425 in practice 426 payout requirements 135, 204–6, 425, 470 performance management 393, 400, 427–31, 482, 553 current challenges 429–30 definition 427 future 430–431

in practice 427–8 periodicals 354 philanthropic funders 72, 495–7, 582, 593 philanthropic organizations 32, 161, 184, 277, 573, 588 philanthropy 38, 43, 136, 159, 160, 211–13, 268–70, 272, 274–5, 277, 432–5, 445 definition 432–3 issues, perspectives, and debates 433–4 in practice 435 philanthropy, black see black philanthropy place-based philanthropy 435 definition 435–6 examples of systems-change 437–8 future 438 by place 436 with place 437 planned giving 439 charitable gift annuity 441 charitable lead trust 441 charitable remainder trust 440–441 combinations 441–2 current and future directions 442 definition 439 donor-advised funds and private family foundations 441 estate gift 440 in practice 439–42 retained life estate deed gifts 440 policy advocacy 16, 17 politics and philanthropy 442 future 444–5 in practice 443–4 public policy 444 positive relationship 161, 201, 202, 497, 528 potential donors 146, 190, 263, 294, 376, 414, 490 Principal-Agent Theory (P-AT) 445 current and future directions 446–7 definition 445 in practice 445–6 private foundations 448 definition 448–50 issues, perspectives, and debates 451–2 in practice 450–451 private inurement prohibition 452 current and future directions 454–5 definition 452–3 in practice 453–4 private organizations 322, 413, 414, 417, 428, 474, 513, 569, 597 product innovations 334 professionalism 455 definition 455 future 457 issues and debates 456–7 in practice 455–6 profitability 232–3

Index  627 program evaluation current issues and challenges 459–60 definition 458–9 future 460–461 program-related investments (PRIs) 462 current and future directions 463–4 definition 462–3 in practice 463 project management 445, 464–8 definition 464–5 project completion 467 project design and initiation 465–6 project implementation/execution 466 project monitoring and adaptation 466–7 project planning 466 public charity 468 definition 468 issues and challenges 469–71 in practice 468–9 qualifying as 468–9 public policy and nonprofit organizations 472 context 472 definition 472 essential components 472–3 future 473 public relations 474 current and future directions 475–6 definition 474 in practice 474–5 public service organizations 50, 51, 130–132, 151–2 public services 100, 130, 132, 151, 160, 299, 326, 336, 491, 513–14 public trust in nonprofit organizations 476 definitions and conceptual framework 476–7 future 478 in practice 477–8 quality of services 12, 297, 301, 332, 389 racial wealth gap 612–15 recruitment and retention 479 additional methods 482 campus recruitment 482 challenges 480 definition 479 employee referral 481 job fairs 481–2 nonprofit retention choices 482–3 online job posting 481 in practice 480–482 social media 481 volunteers 482 word of mouth 481 refugee services 483 challenges 484–5 definition 483 future directions 485–6

types of 483–4 regular donors 79, 181–2, 184, 382 regulation of nonprofit organizations 486 advocacy and lobbying 489 defined 486 future 490–491 nonprofit associations and scholarship 490 rating agencies 490 state and local regulation 488–9 tax exemption 486–7 taxation 487 United States Postal Service 487 volunteers 489 religious organizations 56, 96, 213, 214, 262, 368, 396, 487, 605 resilience management 492 contemporary management approach, weakness 493 definition 492–3 and NRM 493–5 restricted / unrestricted funds 495 current issues and challenges 496–7 definition 495–6 future 497–8 retrenchment strategies 498 context 498–9 definition 498 framework of assessing 500 in practice 499–500 strategic reorientation and restructuring 500–501 revenue diversification 149, 150, 170, 233, 330, 501–4, 507 current and future directions 502–4 definition 501 in practice 501–2 risk management 15, 196, 229, 293, 464, 495, 505, 507 current and future directions 507–8 definitions 505 in practice 506–7 Sarbanes-Oxley Act of 2002 509 current issues and challenges 509–10 definition 509 future 510–511 in practice 509 selection 479 self-help groups 511 defining 511 development, challenges 512–13 development and expansion 512 member managed 511 mutual support 511–12 shared situation or condition 511 unique contribution 512 voluntary membership 511 self-regulation 105, 513–17

628  Elgar encyclopedia of nonprofit management, leadership and governance and accountability 514 current and future directions 516–17 definition 513–14 dynamics and dimensions 514–15 models 515–16 service delivery 65, 412, 417, 418, 427, 429, 430, 472, 473, 575, 577 service innovation 334 service learning 94 service portfolio analysis 517 debates and future directions 519 definition 517–18 in practice 518–19 settlement house 520 background 520 current and future directions 522 definition 520 in practice 520–522 sexual harassment 522 definition 522 future directions 524–5 incidences and consequences 523 individual and organizational responses 524 theories and antecedents 523–4 Sherman Antitrust Act 23 social capital 94, 525 benefits and downsides 527 bridging 94 current and future directions 526–7 definition 525 interest and popularity 526 in practice 525–6 social change and nonprofit organizations 528 current issues and challenges 528–31 definition 528 in practice 528 social economy 532 current and future directions 534 definition 532–3 growth 533–4 social enterprises 74, 75, 321, 326, 327, 454, 533–40, 582–4, 594 current and future directions 536–7 definition 534–5 in practice 535–6 social entrepreneurship 417, 537 context 537–8 current and future directions 539–40 definition 537 social enterprise applications 538–9 social innovation 334 social mission 4, 105–8, 123, 124, 327, 328, 405, 492–3, 535, 538, 539 social performance 327, 328, 536, 537 social responsibility of nonprofit organizations 540 accountability 542 citizenship 542

context 540–541 definition 540 ethics 541 future directions 542 governance 541 lawfulness 541 mission 541 stakeholding 542 social return on investment (SROI) 543 artifact and future directions 545–6 definition 543 issues and debates 544–5 methodological approaches to construction 543–4 methodological choices and challenges 544–5 solvency 231–2 staffing 479 stakeholder management 139, 431, 476, 547–50 continuous engagement and costs and benefits 549 definition 547 diversity, equity, and inclusion 549 future generations 549 in practice 547–8 purpose and ethics 548–9 social media and online stakeholder engagement 549 state laws 9, 23, 25, 81, 83, 168, 234, 257, 260, 343, 510 strategic analysis: SWOT 550 debates and future directions 552 definition 550–551 in practice 551–2 strategic human resource management (SHRM) 552 characteristics of nonprofit 555–6 current issues and future 556–7 in nonprofit organizations 554 strategic planning 558 background 558 definition 558 emergent or real-time strategic planning 561–2 in practice 558–9 scenario planning 560–561 traditional strategic planning 559–60 Substantive Expert 69 succession planning 363 suffering strategies 145 supporting organizations 563 administrative problems 565 challenges 565 definition 563 in practice 563–5 Tax Cuts and Jobs Act (TCJA) 194

Index  629 tax-exempt organizations 128, 247, 340, 341, 344, 346, 422, 473, 487, 488, 491 tax policy: federal 567 tax policy: state and local 571 issues and debates 572–4 nonprofit property tax exemption 572 state charitable tax deductions 572 state income and sales tax exemption 571–2 technology and social media 574 current and future directions 577–8 definitions 574 historical development, ICT 574–5 nonprofit management issues, ICT 577 in practice 575–7 technology innovation 335 traditional HRM 553 transcendence 145 transformative learning 94 transparency 578 context 578–9 current and future directions 580–581 definition 578 essential components 579 in practice 579–80 triple bottom line 581 definition 581 in practice 581–2 quadruple bottom line (QBL) framework 583 responsible marketing 582–3 value co-creation 583 ubuntu 40 unfair competition 585 current and future directions 586 definition 585 in practice 585–6 United Way (UW) 587 declining campaigns 588–9 definition 587 increased expectations 589 in practice 587–8 racial justice 589 unrelated business income 590 definition 590 in practice 590–591 unrestricted funding 79, 242, 321, 495–8

values expression 417 venture philanthropy 592 current issues and challenges 593–4 definition 592 future directions 594–5 in practice 592–3 voluntarism 595 current and future directions 598–9 definition 595–7 in practice 597–8 voluntary organizations 40, 99, 217, 413, 528, 558 voluntary turnover 363 volunteer management 112, 156, 435, 455, 505, 598, 600–602 definition 600 future 602–3 in practice 600–602 volunteer programs 111, 304, 597, 600–602 volunteerism 406 volunteers 36, 63, 125, 381, 399, 406–8, 457, 480, 482, 489, 521, 554, 596–8, 600–602 wage differentials, workers 606–7 wage equity within and across sectors 604 definition 604 descriptive evidence 604–6 wage differentials, workers 606–7 watchdog organizations 184, 380, 430, 447, 515, 517, 550, 609–11 certification as competitors 611 dynamic donor preferences 610 information dissemination 611 limitations of comparative ratios 610–611 political interests 610 purposes of 609 rating methodologies 609–10 wealth inequality 611 definitions 611–12 disparities and implications 612 key issues 613–15 W. K. Kellogg Foundation 324 workers 69, 70, 317, 318, 403, 404, 597, 604, 606–8 working capital 66, 232, 394, 422 work integration social enterprise (WISE) 535 workplace 59, 151, 186, 187, 367, 403, 522–5