Module 8 Discussion

23

C H A P T E R 3

PAST AND PRESENT ISSUES WITH NONPROFIT ORGANIZATIONS

Ji Seon Lee

SOCIAL JUSTICE IN NONPROFIT ORGANIZATIONS

Can nonprofit organizations balance their social justice mission to an ever changing dynamic environment in which they exist?

Nonprofit service organizations provide vital services to individuals, families, and communities who lack access to resources and opportunities. The primary role of these nonprofits has its roots in pursuing a social justice mission. However, the func- tion of nonprofit organizations ( NPOs) in the United States has shifted from being a complement to government services to filling the gaps of the government’s frail and limited safety nets (W ronka, 2007). The function of N POs may have changed but the core of these N POs is still rooted in helping to achieve s ocial justice in our society.

Today’s no nprofit organizations are constantly challenged to keep with their core mission. The ev er-ch anging dynamic environment in which they operate ignores the needs of these organizations. To remain competitive when resources are scarce, NP Os have adopted a market culture. This led to the commercialization of services and products (Sa lamon, 1993), quality-improvement processes, and bench- marking (Se dgwick, 1995). There was also the entrance of fo r-profit service pro- viders into the no nprofit sector, making it an even more competitive environment (B r own, Ke nny, Tu rner, & Pr ince, 2000). As no nprofit organizations shifted their culture to be more performance driven (Bo xall, 1998), they began to place emphasis on efficiency, moving away from their so cial justice traditions. This led to organiza- tions moving away from their core so cial justice mission.

According to Sc hmid (2013), no nprofit organizations have a “blurred identity” today. Their ch anging environments affect their ideology, goals and objectives, and or ganizational strategies. This shift raises two questions: “Ha ve no nprofit organiza- tions shifted so much that they have lost their ideological connection to their so cial mission?” and “Have the ma rket-driven practices in government and no nprofit organizations made it difficult to sustain a nonprofit with a so cial justice mission?”

This chapter provides a br ief history and identifies the size of the no nprofit sector; explores theories that explain the existence of the no nprofit sector; exam- ines the political and economic aspects of the operating environment of no nprofit

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C o p y r i g h t 2 0 1 7 . S p r i n g e r P u b l i s h i n g C o m p a n y .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

EBSCO Publishing : eBook Academic Collection (EBSCOhost) - printed on 6/16/2020 12:32 PM via GEORGIA ONMYLINE AN: 1336884 ; Congress, Elaine Piller, Luks, Allan, Petit, Francis.; Nonprofit Management : A Social Justice Approach Account: ecor.main.ehost

24 NONPROFIT MANAGEMENT

organizations; and addresses the importance of keeping the so cial justice missions to the or ganizational sustainability of an NP O in today’s environment.

UNDERSTANDING THE NON PROFIT SECTOR

Historical Roots of the Non profit Sector

The non profit sector emerged as major his torical forces, laws and regulations, soc ial institutions, political and economic trends, and events developed within the unique soc ial context of the Uni ted States.

The soc ial context of the development of U.S . society is bas ed on our value of individualism and work ethic. These values have guided our approach to soc ial wel fare in this country and had a profound impact on the development of the non- profit sector (Fig ure 3.1).

During the 17th and 18th centuries, different soc ial institutions developed to address soc ial problems in our society, as our emergent national and state govern- ments were not organized to address these issues. Not only were they not equipped but also our value of individualism led many to believe that the government should not have a formal role in providing soc ial wel fare. Relying on our history of mutual aid when settlers first came to Ame rica, society developed soc ial institutions such as vol untary organizations to meet those needs. There were two types of vol untary organizations—member serving and publ ic serving. Memb er-serving organiza- tions, such as the Scot s Charitable Society (1657), were formed to help fellow Scot s to settle in Amer ica. Publ ic-serving organizations created schools, churches, and other service-providing organizations. Charitable volu ntary organizations grew in early Amer ica with the idea of soci al justice focused mainly on the poor.

The American Revolution brought about a stronger federal and state govern- ment. However, the volu ntary organizations continued to flourish. The newly

F IGURE 3.1 Developmental cont ext of the nonprofit sector.

Understanding the

development of nonprofits

Social context

Historical forces

Social institutions

Laws and regulations

Political trends and

events

Economic trends and

events

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3: PAST AND PRESENT ISSUES WITH NONPROFIT ORGANIZATIONS 25

established nation increased the rights of Whit e men and property rights for orga- nizations (Hamm ack, 2002). At the same time, the rise of egalitarianism increased civi l participation. This gave rise to nonprofit schools, libraries, and clinics to seek private funding (Hamm ack, 2002). Harvard College was established in 1636 as the first charitable entity. Sala mon (1992) also pointed out that volu ntary organizations grew to fill the gaps in government services but did so in fear of a possible rebirth of the monarchy.

Throughout the 19th century, religious organizations played a key role in the development of nonprofits. However, there was no formal recognition of nonprofits by the federal government. A legal status was often denied to organizations with a focus on challenging the existing power structure to seek soci al justice in order for the status quo to be maintained. According to Care y (1987), Cath olic organiza- tions were denied legal status for fear that, once established, the pope would control it. Society gained understanding that it was the cause of many soci al problems, which led to government interventions and the development of nonprofit soci al service agencies through the help of wealthy individuals. During the 1800s, the Industrial Revolution led to the growth of industrialization, resulting in individu- als accumulating great wealth in the Unit ed States. Many industrialists, such as the Rock efellers and Vand erbilts, created philanthropies and donated funds to charita- ble organizations. Persons who accumulated wealth during this time not only gave to charitable causes because of their religious beliefs but many saw it as an opportu- nity to gain status in a society where there was no formal class system. During this time, Cong ress enacted the first tax exemptions for charities in the federal income tax code. In 1894, the Wils on-Gorman Tariff Act gave tax- exempt status to chari- table organizations that operated for charitable purposes. The tax code continued to be modified throughout history to allow other nonprofit structures such as private foundations, professional organizations, and individual charitable organizations to receive a tax exemption (Figu re 3.2).

During the first half of the 20th century, the formal growth of the nonp rofit sec- tor was limited as political and economic forces shifted, leading the government to directly participate in soci al welf are. The Great Depression brought about New Deal programs where citizens were directly employed by our government and govern- ment funding bypa ssed private volu ntary institutions and was given directly to individuals in need (Brow n & McKe own, 1997). Programs such as Soci al Security and Aid to Fami lies With Dependent Children were created during this time. By the 1960 s, the Grea t Society programs also led to development of new government programs such as Medi care and Medi caid.

The nonp rofit sector as we know it today has only been in existence for the past 30 years. The devolution of federal government and the adoption of new publ ic management practices led to the growth of the nonp rofit sector to provide services traditionally provided by the government (Kett l, 2000).

Although the nonp rofit sector was able to grow with steady revenue sources from government contracts, many were also victims of these government contracts during the budget cuts of the 1980 s. As the individualistic- and work ethic-driven values of our society continue to guide our government policy toward those indi- viduals who are in need of support and services, funding for services has been unre- liable. Nonprofits had to seek new sources of funding.

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26 NONPROFIT MANAGEMENT

As traditional sectors of publi c, private, and nonprofit organizations are becom- ing blurred, new organ izational structures are emerging. They are often referred to as the fourth sector (Sabe t i, 2009). According to Kania and Krame r (2011 ), the fourth sector is a multi -sector approach to deal with a common agenda to solve a common problem. These organizations are typically referred to as a “for p rofit organization with a nonprofit soul” (Worth , 2014, p. 38). They are legally recognized as a low- profit limited liability corporation (L3C). It was first adopted into law in 2008 by the state of Vermo nt (Worth , 2014). Many fear that commercialization of nonprofits can lead to nonprofits losing their souls.

Why Do NPOs Exist?

The existence of nonprofits has been theorized by different disciplines. Economists believe that nonprofits are gap fillers left by the market and government failures. Nonprofits provide goods and services that the market or government cannot or will not provide. Many may seek nonprofit services or goods because there is often information asymmetry. Information asymmetry occurs when making a transaction that one party has more or better information than the other. People may choose a

FIG URE 3.2 Historical milestones in the development of nonprofi t organizations.

• Congress includes tax exemptions for charities in first federal income tax code. • Society gained understanding of the cause of many social problems, which led to government interventions and the development of nonprofit social service agencies through the help of wealthy individuals.

• New charitable entities were created (e.g., foundations). • Federal government responds to the needs created by the Great Depression.

1900–1949

• Federal government spending increased during the 1960s–1980s on social welfare through the expansion of Great Society programs. • Post-1980s, social services nonprofits had to find other funding streams as government priorities shifted and cuts in funding began. • Post-1990s, performance-based contracts for nonprofits began emphasizing efficiency. • Development of the fourth sector began.

1950–today

• Harvard College was established as the first "charitable" entity.

1636

• Mutual benefit and voluntary associations were introduced.

Mid 18th century

• Legal precedent was set for private nonprofits.

1800–1849

1850–1899

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3: PAST AND PRESENT ISSUES WITH NONPROFIT ORGANIZATIONS 27

nonprofit organization home care agency to provide services because they believe that nonprofits are driven by an altruistic socia l value rather than a profit motive. Nonprofits such as the Red C ross are believed to be a better responder to crisis as governments are often hampered by rules and regulations that make it difficult to respond quickly (Sala m on, 2001). Nonprofits also provide services to those who find it difficult to navigate and negotiate with government agencies and benefits. Service to the homeless, immigrants, and mentally ill are often provided by non- pr ofit organizations (Young , 2001).

Political scientists believe that nonprofits exist to accommodate diversity and to address the needs of minorities. These are services that are not pro- vided to those groups that may be considered unworthy by society. It allows for socia l experimentation. It also helps to develop socia l capital. Historians believe that nonprofits reflect the rich volun tary traditions of Ameri ca. Supply side theory further highlights the altruism and giving traditions of nonprofits. Theorists believe that nonprofits are an outgrowth of religious organizations and they are motivated by faith rather than a profit. The individuals who cre- ate nonprofits are often motivated by strong idealistic values and a commit- ment to socia l justice (James , 1987). This theory complements the market and government failure theory by showing that nonprofits not only fill the gap left by the market and government but also distinguish them by their socia l mis- sion and values.

More recently, Lohma nn (1992) presented an interdisciplinary theory of the nonpr ofit sector. Lohma nn argues that services provided by the nonpr ofit sector are a common good. The common good is different from the private good, which is produced by the market and benefits only the individual who consumes it, and publi c good, which is provided by the government and is of benefit to all of society. The common good benefits all members of a particular group. This view explains how o rganizations can have opposite goals. What is good for one group may not be equally beneficial to another group. An example of Lohma nn’s group is mem- ber -serving organizations. Member -serving organizations such as Black Labrador Owners Association or the Nation al Associ ation of Social Workers (NASW) high- light the importance of shared values and purpose among those who work in the nonpro fit sector.

CURRENT STATE OF NONPRO FIT ORGANIZATIONS AND THEIR RELATIONSHIP TO SOCIAL JUSTICE

Nonpro fit organizations in the United States represent many different missions. It is estimated that there were 1.44 million nonprofits registered with the Internal Revenue Service (IRS) i n 2012 (Figure  3.3). The number of nonprofits increased by 8.6% from 2002. The nonpro fit sector contributed almost $900 billion to the U.S. e conomy, comprising 5.4% of the country’s gross domestic product. Of the non- prof it organizations registered with the IRS, 50 1(c)(3) public charities accounted for three quarters of the nonprofit sector’s revenues ($1.65 trillion; Pettij oh n, 2013). Most of the revenue for nonprofits comes from private sources (46.4%) and govern- ment sources (23.2%) (Pettijoh n, 2013).

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28 NONPROFIT MANAGEMENT

However, the number o f registered nonprofits is not the full picture. Religious congregations and organizations with less than $5,000 in annual revenues are not required to register with the IRS. The se unregistered nonprofits expand the scope of nonprofits in the United S tates (McKeever & Pettijoh n, 2014).

Nonprofits can be classified into four types (see Table 3. 1). The first category is the 501(c)(4), which includes social w elfare organizations such as civic clubs and fire departments. It also includes organizations that can participate in politics as long as not more than 50% of their funds are spent on politics. This allows orga- nizations to donate to campaigns and influence elections. The American Cancer Society falls under both 501(c)(3) and 501(c)(4). The American Cancer Society started with a 501(c)(3) when their mission was to cure cancer. However, they real- ized that curing cancer for all patients required that patients had access to health care. They established a 501(c)(4) to advocate for change in policy and influence election outcomes through campaign donations. The second category is the private foundations. These private foundations provide funding to conduct research , cre- ate opportunities, support causes, and provide services. Today, they play a pivotal role in setting direction and experiment with programs and policies through their funding. For example, the Robert W ood Johnson Foundation supports research that experiments with different health care delivery models. The Gates Foundation focuses on public h ealth and provides direct funding for vaccinations around the world. The third category is public c harities such as universities and human ser- vice organizations. In 2011, almost 1 million organizations were classified as pub- lic c harities, which represented three-fi fths of all registered nonprofits and grew by 34.4% between 2001 and 2011 (Blackwoo d, Roeger, & Pettijoh n, 2012). The last category represents all other nonprofits such as fraternities, labor unions, veteran organizations, and other professional organizations such as the NASW and the American Medical Association.

Although nonprofits in the United St ates represent a diverse group with more than 30 types of nonprofits defined by the Internal Revenue Code, there is

FIGURE 3.3 Number of regis tered nonprofits. Based o n Urban Inst itute. Retrieved fro m www.urban.org/UploadedPDF/413277-Nonprofit-Sector-in- Brief-2014.pd f

1.3

1.48 1.58

1.44

2002 2006 2011 2012

Number of registered nonprofits (in millions)

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3: PAST AND PRESENT ISSUES WITH NONPROFIT ORGANIZATIONS 29

a common thread that classifies them into a unique group. Lester Salamon ( 2012) identified six characteristics of nonprofit organizations. They are: organized enti- ties, private, nonprofit distributing, self-gove rning, voluntary , and of public be nefit. A nonprofit is typically a legally incorporated entity that is private. Although many nonprofits receive funding from the government that governs their programs and policies, they are still private entities, that is, they can set their own policies and programs, and create their own eligibility criteria to their programs and services. Nonprofit distributing refers to all profits that are reinvested in the organization rather than benefiting an individual owner. Self-gove rning qualities are reflected in the nonprofit distributing characteristics of nonprofits. Individuals or the govern- ment do not own nonprofits. Board members or individuals who have responsibili- ties of fulfilling the organization’s mission govern them. Nonprofits are rooted in the tradition of volunteerism. Although many staff members are paid, many serve the organization as volunteers or have a history of beginning the organization with volunteers. These values are essential to nonprofits. Finally, the characteristics “of public ben efit” are at the core of many nonprofits. Although nonprofits are private organizations, they serve a social pur pose that is believed to provide a public ben- efit. The social pur pose can be seen in the organization’s mission. These social mis- s ions of nonprofits are what distinguish them from for-profits .

POLITICAL AND ECONOMIC ENVIRONMENTS OF NONPROFIT O RGANIZATIONS

Today’s nonprofits face an ever-changin g ope rating environment, especially in human services. According to Schmid (2013 ), there have been four major devel- opments that have affected nonprofit or ganizations—(a) devolution and decen- tralization; (b) privatization and purchase of service contracting; (c) new public manage ment; and (d) heterogeneity and instability.

The Clinton administration stressed devolution—the transfer of power from federal to state and local governments. It gives local and state governments authority to make decisions and to take action (Fording, Soss, & Schram , 2007). This transfer of decision making comes from the need to respond efficiently to the ever-increasin g complex social problem s of different stakeholders in communi- ties (Peckham, Exwo r thy, Powe ll, & Gree ner, 2008) . According to Schmid (2013), devolution and decentralization have created a “power revolution.” The power here does not refer to a formal position of an organization but rather the control of

TABLE 3.1 IRS Class ifi cation of Nonprofi t Organizations

501(c)(4) Social welfare organizations (e.g., civic clubs, advocacy organizations)

501(c)(3) Private foundations

501(c)(3) Public charities (e.g., universities, hospitals, museums, religious congregations, food banks, human service groups)

Other tax-exempt organizations (e.g., labor unions, fraternities, veterans organizations, chambers of commerce)

IRS, Internal Revenue Service.

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30 NONPROFIT MANAGEMENT

essential information for decision making. For nonprofits, devolution has opened new doors for creative programming and allows them to develop a productive relationship with local authorities who have information about the clients the agency serves.

Privatization in the United States refers to contracting out of government services to private providers. Privatization is not new in the social service field. Before the New Deal era, most services were provided by religious or secular pri- vate organizations with government supplements. With the onset of the Great Depressi on, the government’s involvement in providing funding for private nonprofits increased. But it was not until the 1960s and 1970s that the growth of providing funding to private nonprofit organ izations skyrocketed. By 1971, 25% of state spending was on purchasing social services (Smith & Lipsky , 1993). The increase in purchasing social services by government has steadily increased, in part due to the passage of the Personal Respon sibility Work Reconciliation Act. The National Performance Review’s “reinventing government” initiative of the mid- 1990s refle cted the growing interest in using performance-base d measuremen t and bringing entrepreneurial approaches into public-sector se rvice delivery (Osborne & Gaeble r, 1992).

Several basic arguments are often cited to support privatization, includ- ing: (a) reducing the cost of government services; (b) improving the quality of government services; (c) fulfilling the need for skilled staff not available in the public sector; a nd (d) increasing the flexibility of the public sector (D onahue, 1989).

The privatization has created opportunities for nonprofits. Government con- tracts provided nonprofits a steady flow of income, which led to the growth of the nonprofit sector. However, with this growth, nonprofit organi zations also faced fierce competition as for-profit organ izations were also allowed to compete in a space traditionally dominated by the government or nonprofit organi zations. This competition has led to the blurring of the distinction between for-prof it and n on- profit organi zations that provide social services. To compete with for-profits, man y nonprofits began to change their administrative structure and service delivery behavior to be similar to for-profit organ izations, often leading to change in their identity (Schmid, 2013; St ater, 2010).

N ew public managemen t principles that emphasized organizational p erfor- mance were introduced (Pollitt & Bouck a ert, 2000) . They underscored the adminis- trative structures necessary for effective contract implementation and oversight, as well as management goals. In particular, the need to make the bidding and selection process competitive and open, as well as to provide adequate monitoring and over- sight, was an important shift (Cohen & Eimicke , 2002). The new public managemen t requires that nonprofits need to develop measureable outcomes as well as build organization structures that are flexible to meet the needs.

Two new trends emerge with devolution, privatization, and implementation of new management principles. One is heterogeneity among nonprofits. According to Esping-Andersen (1990), different models of privatization led to the development of different services to the rich and poor, creating greater social and econo mic ineq- uity. The role of nonprofits in reducing inequality and promoting social justice has become more unclear (Eikenberry & Klu ver, 2004).

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3: PAST AND PRESENT ISSUES WITH NONPROFIT ORGANIZATIONS 31

M ISSION OF SOCIAL JUSTICE I N NONPROFITS’ NEW ENVIRONMENT

According to the NASW’s definition , “social justice is the view that everyone deserves equal economic, political and social rights and opportunities” (NASW, 2014). As t he history of nonprofits has shown, nonprofits believe that they can and should contribute to building a more inclusive social justice mov ement. Nonprofit organiza tions should look toward building an organization not only with a social justice mis sion but also adopting those principles to mana ge an organization. By using the social justice fra me, organizations can create cultural change within their organizations, communities, and society at large.

Most nonprofit organiza tions pursue this mission either through services or benefits provided to individuals, families, groups, and communities. The changing environme nts of nonprofits today have led many to alter their social justice–ori- ented m ission just to survive.

According to Samimi (2010), nonp rofit organizations must compete for govern- ment or foundation funding to survive. The source of funding f orces them to profes- sionalize and focus on maintaining their funding source rather than their missions guiding their work. When missions are sacrificed for funding, goals embedded in social justice for the organizations become secondary (Samimi, 2010). This is called “mission drift” (Moore, 2000). Missi on drifts occur when an organization moves away from its original mission and potentially compromises its original values and goals and contribution to its constituents. This can potentially lead to tensions between staff and a dministration and loss of revenue (Moore, 2000).

Hence , in today’s competitive funding environment where communities face many more social injustices, h ow can nonprofits s tay true to their social justice tradi tions? There needs to be recognition within the organization that social jus- tice shoul d be a priority (see Figure 3.4). According to Tang (2007), withou t this prioritization, leaders of nonprofit organizati ons will continue to be forced to take on funders who may restrict their core activity, and drift apart from recognizing the primary constituents of the organization—persons who are directly affected by the injustices in their communities and society at large. According to the National Gender and E quity Campaign (2013 ), organizations should evaluate their:

• Ability to align values with policies, procedures, and overall organizational culture

• Long-term commitment to building sustained funding to meet their mission • Programming and activities to determine if they are appropriate to meeting the

organizational mission • Shared values of the people working in the organization so that these values can

be communicated to all stakeholders

Once the organization recognizes social justice as a priorit y, nonprofits can stra- tegically use branding to strengthen their internal and external identity, cohesion, and capacity. There are many nonprofits that we recognize with a unique brand such as the American Red Cross, Habit at for Hu manity, and the World W ildlife Fund (WWF) . Why is branding dif ferent in nonprofits? It drives the long-term social goals of the organ ization. It helps with internal cohesion and addresses multiple audiences

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32 NONPROFIT MANAGEMENT

that the nonprofit must address with one unified message. Kylander and Stone (2012) explained th e impo rtance of branding in building organizational cohesion w ith a unified mission. They introduced the Nonprofit Brand IDEA fram ework. There are four principles to this framew ork—brand Integrity, Democracy, Ethi cs, and Aff inity. Thes e principles refer to an org anization with a social mission with shared values that adopts a participatory process with its key constituents and establishes key alli- ances and partnerships to enhance the organization’s social mission, ultimately lead- ing to core funding of their programs. Kylander and Stone (2012) s tate that, “T he eme rging paradigm sees brand as having a broader and more strategic role in an organization’s core performance, as well as having an internal role in expressing an organization’s purposes, methods, and values” (p. 38). For nonprofits, branding can be the key element to an organization’s success in achieving its social justice m ission.

In tod ay’s competitive market, nonprofits should not abandon their social jus- tice value for sustai nability. Nor should NPOs allow market-driven practi ces that bl ur their organizational identity. Rather , NPOs need to embrace social jus tice as a means to su staining themselves in this new era. New models in nonprofits, such as hybrid organizations, can help keep with their mission and sustain themselves if there are commitments to social justice in their poli cy and practice at both the orga- nization’s structural level and to their key constituents.

REFERENCES

Blackwood , A., Roeger, K. L., & Pettijohn, S. L . (2012). The non profit sector in brief 2012. Retrieved from www.urban.org/UploadedPDF/412674-The-Nonprofit -Sector-in-Brief.pd f

FIGURE 3.4 Alignm ent of mission to o rganizational s tructure. Ad apted from the National G ender and Equity Campaign, BRIDGE Organizat ional Assessment Too l. Retrieved on A ugust 1 0, 2014, from http://www.genderandequity.org/ boat

Social justice alignment of organizations

Organization's ability to align and practice its

values with its policies, procedures, and overall organizational culture

Long-term commitment to building sustained

funding that meet their mission

Programming and activities are chosen to meet the mission of the

organization

Identify the shared values of people working in the

organization, so that these values can be communicated to all

stakeholders

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3: PAST AND PRESENT ISSUES WITH NONPROFIT ORGANIZATIONS 33

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Donahue, J . D. (1989). The privat ization decision: Publi c ends, private means. New Y ork, NY: Basic Books.

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