Discussion 1 Non Profit

Chapter 1 Summary :

Through most of history, management scholars pursued a generic approach, believing that management in companies, government agencies, and nonprofits shared similar principles. But nonprofit management is a distinct profession because of the unique characteristics, missions, and cultures of nonprofits. Since the 1980s, this uniqueness has been recognized in the development of research centers and academic programs focused on the nonprofit sector and nonprofit management.

There continues to be discussion about whether such programs should be located in business schools, in schools of public policy and administration, in other academic units, or established as independent degree programs. Some business schools offer programs in social entrepreneurship. The definition of that term reflects two schools of thought, called the “social enterprise school” and the “social innovation school.” This distinction is discussed further in later chapters of this book. Some think that business school programs in social entrepreneurship and traditional nonprofit management programs may converge. Others note the different cultures in various academic units and predict that such programs will remain distinct. Some advocate incorporating nonprofit management topics in the core curriculum in all professional degree programs. Others advocate stand-alone degree programs in nonprofit management. The Nonprofit Academic Centers Council (NACC) has established a plan for accrediting nonprofit management programs, using curricular guidelines that it has developed. Some universities have established interdisciplinary centers for the study of nonprofits, which draw on faculty from various academic fields.

People hold two different perspectives on the purposes and role of nonprofits in society, which influence their views on how and where nonprofit leaders should be educated. Some consider nonprofits to be social institutions and emphasize their expressive purposes, that is, opportunities that they provide for people to express their values and passions through involvement. Others consider them to be social enterprises, essentially like business firms with a social purpose. They emphasize their instrumental purposes, that is, the services they provide and needs they meet. Many writers reflect a balanced understanding, but most tend to emphasize one or the other perspective. This book attempts to blend these perspectives and to provide a balanced overview of the field. This author believes that successful nonprofit management requires an eclectic approach, drawing concepts and tools from the work of scholars, practitioners, consultants, and others, as they are found to be useful in specific situations.

Although some people portray nonprofits as less well managed than businesses, that perception often is inaccurate. Small nonprofits should be compared to small businesses, which also often reveal mediocre management, and which often fail, rather than to large corporations. Many companies are innovative and well managed, and so are many nonprofit organizations. Students preparing for careers in nonprofit management should proceed with pride and confidence that their field is as distinguished as management in business or government. A nonprofit career brings challenges but also unique rewards.

Chapter 2 Summary

America's nonprofit sector is large and diverse. Its roots lie in the ancient traditions of charity, philanthropy, and voluntarism; voluntary efforts were prominent in the nation's early days. But the sector's modern form is a product of 20th-century history and especially the period since the 1970s. Although nonprofit organization and nonprofit sector are the terms most commonly used, others have proposed a variety of alternative names for the sector.

The nonprofit sector is growing steadily. It includes about 1.5 million tax-exempt organizations in the United States that are registered with the Internal Revenue Service and others that are not registered. These organizations may be placed in categories according to the tax-exempt classifications used by the IRS or the more elaborated categories of the National Taxonomy of Exempt Entities (NTEE), both of which determine categories based on organizations’ principal activities. Most organizations registered with the IRS fall into two classifications. Charitable nonprofits are both exempt from income tax under Section 501(c)(3) of the IRC and eligible to receive tax-deductible gifts from individuals and other donors, with some limitations. Social welfare organizations (often called advocacy organizations) are tax-exempt under Section 501(c)(4), but gifts to them are not tax deductible because they are not limited in their expenditures on lobbying activities.

Religious congregations are charitable nonprofits under Section 501(c)(3), but they are unique in being protected by the U.S. Constitution and are not required to register with the IRS, although many do so voluntarily. Leaving aside religious congregations, charitable nonprofits are divisible into subsectors, including arts, culture, and humanities; education; environment and animals; health; human service; international and foreign affairs; and other organizations, including those that provide public and societal benefit. These subsectors show significant differences in their sources of revenue and the extent to which their management has been professionalized. Also important are funding intermediaries, which generally do not operate programs but rather receive gifts that are directed to other nonprofit organizations. They include public charities, such as United Way, and private foundations. Private foundations are charitable nonprofits, but they are not public charities and thus are subject to different rules under the tax code. There are public charities that use the term “foundation” in their name, but they are not classified as private foundations because they raise money from multiple sources.

In addition to the NTEE and IRS classifications, nonprofits may be defined as member serving or public serving. Another way to classify organizations is on a spectrum defining the extent to which they are purely philanthropic or purely commercial. Many nonprofits today are said to be hybrids. They are not purely philanthropic or purely commercial but fall somewhere between those two extremes. This is because they demonstrate a mixture of philanthropic and commercial motives, methods, and goals, and their relationships with their stakeholders demonstrate a mix of philanthropic and business characteristics. Many nonprofits have become more commercial at the same time that some businesses are expressing more concern about social goals. Some see the emergence of hybrid organizations as the beginning of a fourth sector alongside government, business, and traditional nonprofits.

Some business organizations are incorporated as benefit corporations; their charters require social responsibility. Others have been certified as B corps, a designation given to for-profit businesses that follow socially responsible practices in conducting their activities and report on their social impact. The social purpose corporation is another new legal form, which requires the board and management to agree on social purposes. The low-profit, limited liability company (L3C) is a legal form of organization that was first defined in law in Vermont and now exists in other states. Its initial purpose was to facilitate program-related investments from foundations.

Challenges to hybrid organizations include the need to raise funds from either or both philanthropy and financial investors. Investors willing to accept lower financial returns in exchange for social benefits are known as impact investors, but their future importance remains undetermined. Blurring of the sectors pleases some and concerns others, who fear that nonprofits will drift away from their social missions. In this environment, nonprofit management requires a unique combination of commitment, knowledge, and skills.