Nonprofits Blocking Social Innovation? I Don’t Think So

In a Stanford Social Science Innovation article that has sparked significant discussion, Paul Klein (@paulatimpakt) of Impakt, questions whether nonprofit organizations are “getting in the way” of social change and asserts that without meaningful reform, they will soon be eclipsed by other organizations—such as his B Corporation, Impakt—in creating social change.  He argues that nonprofits are mired in slow moving, self-serving, inefficient models and that they are insufficiently entrepreneurial and collaborative. For evidence, he sites, well, nothing. 

The piece is really disappointing, but hardly surprising from a man who heralds the end of corporate social responsibility, arguing “traditional corporate philanthropy is considered an inappropriate use of capital, a distraction of time and resources from business activities” (Forbes, July 9, 2014).  His July piece in Forbes counsels businesses on how to exit the “business” of corporate social responsibility.

How sad to me that a business leader would have so little appreciation for our common human and environmental interconnectedness, so little appreciation for the stakes all corporations have in the planet and its populations.

But mostly, in suggesting that nonprofits don’t work, I wanted to laugh out loud and ask “How on earth do we know? How do we know what nonprofits are capable of?”  Have we ever really tried them?  I mean, REALLY tried them?

Nonprofits have never been fully funded.  Recently I came across the lament (sorry that I can’t remember where) that when you ask a funder for $10,000 worth of funding, they give you $4,000.  Then, they still expect $10,000 worth of service.  This is so completely true.  You end up accepting the $4,000 grant (because, well, you do want to do some good!) and hoping that you can stretch it out or somehow come up with the other $6,000.  And, of course, the funder expects you to feel grateful and most of what you feel is anxiety about how you’re going to deliver $10,000 worth of services. In the end, you are either incapable of serving as many as you hoped or you have served people differently than you had hoped, with resources and attention diverted by the imperative of raising additional funds.

And while I don’t mean to cast aspersions upon our funders (corporate, foundation, and individual)—many of whom are wonderful partners and without whom we could not accomplish our good work—I will say that often the terms they thrust upon us are so restrictive that they make innovation, collaboration, risk, and many other things (rent, copy paper, insurance, staff, electric bills,…) impossible, so criticizing nonprofit organizations for not being more inventive with their resources when (1) first of all, nonprofits often have no resources and (2) second of all, when nonprofits do have some resources they are often restricted by the donor for very narrow, specific purposes also seems unfair.  Funders—especially larger funders like corporate funders, foundation funders, and major gift donors—almost always attach stipulations on their funding to nonprofit organizations and these stipulations rarely, if ever, allow for board and staff innovation and experimentation in approach to solving the problem of world hunger or human poverty. 

Oddly, though the SSI piece Paul Klein writes suggests that things like world hunger and access to potable water are imminently solvable (as if one might snap fingers-poof! Problem solved!), the tide of poor and hungry keeps rising.  In an annual survey conducted by the Nonprofit Finance Fund, reported by the Nonprofit Times (April 27, 2015) , three-quarters of all nonprofits reported an increased demand for their services and 52% of all nonprofits reported that they are not capable of meeting the demands for their services. 

Instead of smugly pointing a finger at nonprofit organizations and accusing them of inefficiencies or ineptitude, let’s consider that this may be a classic case of market failure, of nonprofit organizations simply not having adequate resources to meet demand for their services.

While no-doubt well-intentioned, I can’t imagine the nonprofit reforms put forward by Paul Klein to be effective.  Klein suggests tying nonprofit executive performance to social change objectives. While a nice idea in theory, I think the suggestion underappreciates the extent to which actors other than nonprofits play a significant role in the process of social change.  Who or what, for example, drives the increased need that is identified by the Nonprofit Finance Fund?  Not nonprofits, I would wager.  Nonprofits are not causing additional homelessness, child abuse, hunger, poverty, illiteracy, or refugees.  

Klein also suggests that we prioritize innovation by introducing a new “exit strategy” for major funders, calling for smaller levels of support “requirements” as social outcomes improve. With donor retention rates what they are, I couldn’t see any of us implementing an intentional “exit strategy” for funders, but perhaps, here, he was not thinking about reforms that nonprofits make from within, but reforms that others make to nonprofits externally because this is actually a repetition of his counsel to corporations about how to exit the “business” of corporate social responsibility—to reduce funding over time.  

We underfunded nonprofits whose corporate partners are turning their backs on us are pedaling hard and fast to stay in one place, not because that’s all we can do, but because otherwise people starve and we’re undercapitalized (Underdeveloped). It would be glorious for our funders, rather than making our problems worse by cutting off funding and forming competing models of change and labeling us a failure, to put the full force of their efforts behind what we have already created.  

Of course, funders can marshal resources to go in a different direction, to invest in other models.  This will, no doubt, make prophecies of nonprofits being eclipsed and judgments about nonprofit failures become self-fulfilling.

Imagine if we asked for $10,000 and we actually received $20,000 (or at least $10,000).  Imagine if there were no restrictions and we could spend that on copier paper or staff salaries or whatever else was ESSENTIAL for delivering our services.  Imagine if we didn’t have to have a plan in place to fund these services for the next five years before we begin to deliver our services for the first year (a sustainability plan).  (Okay, now I’m feeling like John Lennon). 

If all those conditions were true, then, maybe we’d know what a nonprofit was capable of…or not capable of…and then, maybe then, we could say a nonprofit isn’t an efficient or effective this or that, but right now, while we create miracles, making stone soup everyday, making something out of nothing, judgments about nonprofits’ capacities and limits seem premature.

Our models aren’t broken. Just deprived of oxygen and fuel.  Fund us.  I’ve seen us work miracles without funding.  There’s no telling what we can do with it.


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