Tuesday, March 20, 2012

Should Charities Operate Like Businesses?

A November, 2011 article in the Wall Street Journal sparked all sorts of debate. The article, "Should Philanthropies Operate Like Businesses?", offered two different responses to that question:

So what should you expect of your charities? Businesslike efficiency? Or something more intangible, less-easily defined?

Charles R. Bronfman and Jeffrey R. Solomon, chairman and president, respectively, of the Andrea and Charles Bronfman Philanthropies, favor businesslike thinking. Michael Edwards, a distinguished senior fellow at Demos, a social issues think tank, argues that social values should take precedence.

Last week, I went to a forum sponsored by the DC Chapter of the Association of Fundraising Professionals (AFP-DC), that explored this question. The panelists were: Mike King, President and CEO, Volunteers of America; Catherine Meloy, President and CEO, Goodwill of Greater Washington; and, Pat Nicklin, EVP/COO, Partnership for Public Service. The panel was moderated by Paul Berry, Founder, Paul Berry & Associates (and a former newscaster in the DC area).

Here are my somewhat stream-of-consciousness notes from that forum:

* One of the key differences between businesses and nonprofits is SPEED. Nonprofits are good at innovation, but they are not good at decision making. They are too democratic, and this can impact the speed at which people are hired, new programs are implemented, etc.
* Businesses are students of other businesses - they study their competitors, and then they change.
* What do you do when funders want input into the programs they are funding? While it's easy to say no, that's not appropriate, one panelist noted, "If they're paying for the dance, you gotta dance with them."
* Nonprofits are not always good at firing staff who are not performing well. (see slow decision making bullet point, above). But, if we keep someone on staff who isn't working out, we are wasting donated money.
* Nonprofits have to make time for R&D while developing multiple income streams.
* People used to say they didn't want to give to Goodwill because it's too big. Now, they want to give to Goodwill because of how it's run, i.e. it's a trustworthy organization. Trend of affiliating with the organization (Goodwill) and not the client population or the cause.
* Nonprofits need to do a better job of developing meaningful metrics, e.g. don't just count the number of meals you served in a month or year, but find ways to quantify how you changed lives because of those meals.

What are your thoughts? Should charities run like businesses?

I think there are business principles that charities can, and should, adopt. However, when your "bottom line" is changing lives, not earning profits, I don't think you can entirely run like a business. For example, one panelist said: How can you tell a parent of a severely disabled child that you won't serve that child because it's simply too expensive to offer services to that level of disability; that the cost-benefit analysis doesn't make sense?

What are your thoughts? Should charities run like businesses?

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