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The Crisis of the Nonprofit Business Model

My View ~ Published in Phoenix Business Journal ~ October 6, 2017

Thirty years ago, I was on the ground floor of the emerging field of corporate social responsibility (CSR), serving as senior consultant to what is now Boston College’s Center for Corporate Citizenship. Our aim was to position the business community as active agents of progressive social, economic, and cultural change.

Since then, the scope of corporate social responsibility has evolved from open checkbook philanthropy to decidedly strategic initiatives, emphasizing the convergence between the company’s business interests and the offerings of nonprofit beneficiaries.

These contributions are good, but they may not be good enough. While corporations have stepped up to the community-building plate, their nonprofit beneficiaries have lacked the infrastructure and capacity to move the needle on indicators of social and economic progress by more than incremental gains.

More critically, the nonprofit business model has remained essentially the same ~ anchored in practices of oversight, planning, administration, and financing that limit the nonprofits’ ability to adapt, innovate, and effectively address the changing demands and needs of a 21st Century technology-driven economy.

As a result, notwithstanding the good works of many nonprofits, we read with unsettling regularity articles about nonprofits at risk or on the verge of insolvency or in the midst of some internal dysfunction.

These instances are only the tip of an iceberg of nonprofit vulnerability that jeopardizes the relevance, impact and sustainability of the entire sector.

This vulnerability and the resulting dysfunctions are attributable directly to a fundamental flaw in the architecture of the nonprofit organization: a structure that positions volunteer boards of directors not only to perform tasks that are beyond their competence but also to do so free of accountability or incentives for prudence and due diligence.

In every instance when I’ve been called to turnaround and stabilize a nonprofit in freefall, one primary causal factor has prevailed: a blatant failure of governance. Boards that deny or fail to discern the red flags of financial stress, tolerate chronic deficits, and encumber the organization in indebtedness.

This is a problem that not even doubling the dollars of a budget will resolve. It is a condition that the scores of workshops, degree and certificate programs, and books and articles about board effectiveness have done little to alter. It is unlikely even that a system of state oversight and regulation of nonprofits would mitigate the problem.

What is required, however, is a fundamental redesign of the nonprofit business model that alters the balance of power and authority in nonprofit organizations, that establishes a system of checks and balances that ensures heightened accountability, and that liberates the professional staff to be as entrepreneurial as they can be.

It is to this endeavor that the corporate community can add tremendous value with a corresponding ROI that benefits us all. The time may be right for a third wave of CSR that is not limited to but transcends financial contribution and leverages the intellectual and technological capital of commerce to inform the redesign and repositioning of nonprofits from incremental to catalytic change agents.

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