UNIT 4. ON BEING NONPROFIT: THE BIGGER PICTURE

Three features of nonprofit and voluntary organizations

Attempting to define the fundamental features of the disparate entities that constitute the nonprofit and voluntary sector is a complex and daunting task. Yet there are at least three features that connect these widely divergent entities: (1) they do not coerce participation; (2) they operate without distributing profits to stakeholders; and (3) they exist without simple and clear lines of ownership and accountability. Taken together, these three features might make nonprofit and voluntary organizations appear weak, inefficient, and directionless, but nothing could be further from the truth. In reality, these structural features give these entities a set of unique advantages that position them to perform important societal functions neither government nor the market is able to match.

Perhaps the most fundamental of the three features is the sector's noncoercive nature. Citizens cannot be compelled by nonprofit organizations to give their time or money in support of any collective goal. This means that, in principle at least, nonprofits must draw on a large reservoir of good will. This noncoercive character is also what most starkly differentiates the sector from government, which can levy taxes, imprison violators of the law, and regulate behavior in myriad ways. The power of coercion that the public sector possesses is a powerful tool for moving collectivities toward common ends, but it is also a source of strife and contention. Trust in government is now low, making the effective use of state power more and more difficult as its legitimacy fades. For nonprofit and voluntary organizations, these issues do not arise. Free choice is the coin of the realm: Donors give because they choose to do so. Volunteers work of their own volition. Staff actively seek employment in these organizations, often at lower wages than they might secure elsewhere. Clients make up their own minds that these organizations have something valuable to offer. Though they stand ready to receive, nonprofit and voluntary organizations demand nothing. As a consequence, nonprofits occupy a moral high ground of sorts when compared to public sector organizations that have the ability to compel action and coerce those who resist.

In some ways, the noncoercive character of the nonprofit and voluntary sector situates it closer to the market than to government. Business depends on the free choice of consumers in a competitive market where alternatives are often plentiful and where no firm has the capacity to compel anyone to purchase its goods or services. Similarly, nonprofit organizations cannot coerce participation or consumption of their services. The sector makes choices available, rather than deciding for others. When it comes to the mobilization of funds, the parallel between business and nonprofits is equally clear. Just as no one forces anyone to buy shares or invest in enterprises, no one forces anyone to give or volunteer in the nonprofit world. The flow of resources to a nonprofit depends entirely on the quality and relevance of its mission and its capacity to deliver value. To the extent that a business firm or a nonprofit organization is performing well, investors and donors will be attracted to it. Should things take a turn for the worse, investment funds and philanthropic funds usually seek out other options quickly.

The second feature of nonprofit and voluntary organizations sharply differentiates them from business firms, however. While corporations are able to distribute earnings to shareholders, nonprofit and voluntary organizations cannot make such distributions to outside parties. Rather, they must use all residual funds for the advancement of the organization's mission. By retaining residuals rather than passing them on to investors, nonprofit organizations seek to reassure clients and donors that their mission takes precedence over the financial remuneration of any interested parties. The nondistribution constraint has been seen as a tool that nonprofits can use to capitalize on failures in the market. Since there are certain services, such as child care and health care, that some consumers feel uncomfortable receiving if the provider is profit driven, nonprofits are able to step in and meet this demand by promising that no investors will benefit by cutting corners or by delivering unnecessary services.

While the noncoercive feature of nonprofits brings nonprofits closer to business and separates them from government, the nondistribution constraint pushes nonprofits closer to the public sector and away from the private sector. Government's inability to pay out profits from the sale of goods or services is related to its need to be perceived as impartial and equitable. With nonprofits, the nondistribution constraint also builds legitimacy and public confidence, though this does not mean that special powers are vested in these organizations. In both sectors, the nondistribution constraint strongly reinforces the perception that these entities are acting for the good of the public.

The third feature of nonprofit and voluntary organizations is that they have unclear lines of ownership and accountability. This trait separates these entities from both business and government. Businesses must meet the expectations of shareholders or they risk financial ruin. The ownership question in the business sector is clear and unambiguous: Shareholders own larger or smaller amounts of equity in companies depending on the number of shares held. Similarly, government is tethered to a well-identified group of individuals, namely voters. Executive and legislative bodies—and the public agencies they supervise at the federal, state, and local levels—must heed the will of the electorate if they are to pursue public purposes effectively and retain the support and legitimacy needed to govern. There is also a long tradition in the United States of conceiving government as "belonging" to citizens, though the ways in which this ownership claim can be exercised are severely limited. In the nonprofit sector, clear lines of ownership and accountability are absent.

Nonprofit and voluntary organizations must serve many masters, none of which is ultimately able to exert complete control over these organizations. Donors, clients, board members, workers, and local communities all have stakes, claims, or interests in nonprofit and voluntary organizations. Yet none of these parties can be clearly identified as the key ownership group. The relative strength of these ownership claims depends on how an organization is funded and on its chosen mission. Nonprofit organizations that depend heavily on charitable contributions are often held closely accountable by their donors, some of whom believe that as social investors they have a real stake in the organizations to which they contribute. Nonprofits that are largely driven by service fees or commercial revenues are in a different position. While these more commercial organizations do not have donors asserting claims over them, social entrepreneurs and professional staff may view themselves as the key stakeholders in these more businesslike organizations.

Often, however, the lines of ownership and accountability are rendered more complex by the fact that many nonprofit organizations combine funding from multiple sources—foundations, corporations, and government—with earned income, making it hard to point to any particular party as the key stakeholder to whom these special institutions must answer. One might be tempted to point out that nonprofit and voluntary organizations are almost always governed by boards, and to propose this as a solution to the ownership and accountability issue. Unfortunately, board members are not owners. They are stewards who are held responsible for the actions of their organization. In the end, nonprofit and voluntary organizations are authorized to act in the public interest by the communities in which they operate, though the lines of accountability are weaker than those in the public sector and the lines of ownership far more obscure than in the business sector.

NOTES

societal – общественный, социальный

good will – добрая воля

the coin of the realm – плата; награда

of one’s own volition - добровольно

capitalize on(здесь) - извлекать выгоду из чего-либо

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