I have worked in and around nonprofit organizations for over 40 years. During this time I have learned that Boards of Directors and leadership of nonprofit organizations have many challenges, and keeping even the best nonprofits going is becoming more and more challenging. I have watched some very small nonprofits grow into excellent, stable programs, only to be destroyed from within by Boards who made naive decisions which eventually destroyed their organizations.
One of the most damaging things I have seen is a Board of Directors deciding their organization needs to operate more like a for profit business. This is a tempting thing for nonprofit Board members to do, because many of them come from corporate backgrounds and cultures, and their skill sets were developed and honed in those cultures If they can transform the nonprofit they serve into being more like the businesses they know, they can operate more comfortably, and under the delusion that they can do a good job without doing the very difficult job of learning about the clients they serve and about the stakeholders who fund them. Unfortunately, this isn’t usually good for nonprofits or their customers.
So, what happens when a Board gets obsessed with the idea that a NonProfit should operate like a business? There are generally two patterns of failure. The first type of failure is that nonprofits become so focused on the bottom line that they lose focus on their customers, lose their best staff, destroy their reputation and end up either being broken up, or shutting the doors. So they fail formally, and everyone knows it. This is actually the best outcome for a nonprofit that lost it’s purpose. Communities shouldn’t be asked to support nonprofits who offer little or no value to their customers.
The second type of failure is that they succeed in becoming a business, but fail in being a good nonprofit. A good nonprofit either has a time of financial challenge, or the Board or other leadership responds to gloom and doom prognostications and the decision is made to become more like a business. They then hire a CEO with a business only background, begin to focus on acquisitions, marketing, fund development, reducing costs, and public relations. All the time this is happening, they actual quality of the service delivery atrophies, and the people who care about the clients and worked at the agency because of the impact it made begin to feel disconnected, and either stay and burn out, or leave, taking their talents to the competition.
What remains after a few years is an organization that may be respected by those who donate money, and may even be considered an excellent organization by the community at large, but offers marginal to very poor quality of services. This happens because those who know no better tend to judge nonprofits by the same growth standards they judge businesses, rather than by the impact an organization actually makes.
If the story is good, and the damage control team skilled, a nonprofit can go on for years skimming the money that people donate intending to help people, while offering little value. These nonprofits usually look very corporate, have CEOs with exorbitant salaries, and have very high turnover rates. They also make claims like “we have a 100% high school graduation rate among our teens” without disclosing that teens can’t be in the programs unless they stay in high school and graduate. In short, they do the same type of spin doctoring and misleading as most for profit corporations.
The major problem with the idea of nonprofits becoming like a business is that for profit businesses and nonprofit organizations have different goals, and when you have different goals, you must have different strategies to achieve those goals. Simple. When we want to go to California from Illinois, we don’t head East. When we want to serve people as a primary purpose, we don’t model ourselves after GE.
A for profit business, for better and worse, has the primary goal of making money for those who own the business. The business might operate in very ethical, well-managed ways, but it’s goal is to generate income and distribute that income to those at the top. So income goes upward to the Board or other owners.
A nonprofit has the primary goal of raising money to maintain an organization that invests, in various ways, in those who need its services. In this situation, income should flow downward from the Board. A nonprofit should have a Mission, Vision, and Values which communicate the impact it is trying to make, and the dollars should be invested in bringing the Mission and Vision to fruition.
Therefore, when a nonprofit begins to operate like a for profit business, overhead usually increases to management, development and public relations functions, and investment in service delivery is reduced. The organization begins to talk, walk, and act like a corporation, and one of the two scenarios I described earlier often happens.
Having said all this, nonprofits need to implement good fiscal practices. They need money in savings, and perhaps even their own endowments to weather hard times. They need to hire qualified people who know their area of service to lead the organization, and they need to pay them fairly. They need accountants, but usually not as CEOs. They need Lawyers, but usually not as CEOs. They need marketing and public relations functions. However, these functions need to have different strategies than the same functions in for profits. These departments need to be focuses on creating and maintaining an excellent organization that raises money and distributes that money, through services, supports, and sometime actual dollars to the people the organization serves.
Most importantly, nonprofits need to consistently provide excellent services that benefit their customers and make a positive impact on their communities. They need clear Missions, Visions, Values, Goals, and Strategies for making these impacts. They need excellent well-trained stable staff who are committed to these.They need strong evaluation and research functions, if not on staff, then through collaborations with Universities, having researchers on the Board or other means. They need to offer great service, know they offer great service, and be able to prove they offer great service. When all these things happen nonprofits usually get better and offer value to the community.
Unfortunately, when the organization becomes too distracted by attempting to be like GE, it has been my observation that the actual quality of service usually decreases over time and all of the components of excellent service suffer and then fall by the wayside in pursuit of the wrong goal.