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September 2009, "Judging the value of social enterprise: a view from Europe"

Dear Colleagues,

One indicator of the growth of the field of nonprofit sector studies is the increasing number of opportunities for doctoral students to attend special international programs to receive advanced instruction and exchange research ideas with faculty and students from other countries.  I have the privilege of teaching in two such programs this year, the first in Bertinoro, Italy this past July sponsored by the University of Bologna, called the European Summer School on Social Economy.  The next will be in Brussels, Belgium in November, held at the European Institute for Advanced Studies in Management, called the EDEN Doctoral Programme in Nonprofit Organisation and Management, organized by colleagues at Trinity College in Dublin and the Stockholm School of Economics.  Students attend these programs from all over the world.  When funds permit, these programs also allow our own doctoral students from Georgia State to participate.

One of the real values in these programs is the exposure of students (and faculty) to alternative points of view.  You can tell even from the titles that our perspectives on the “third sector” are different.  In continental Europe, the focus is on the “social economy” rather than not-for-profit organizations per se.  This perspective is broader than ours in some ways, including constructs such as cooperatives and other arrangements intended to advance social purposes through the engagement of public and private interests.

Interestingly, there seems to be a common fascination with the idea of “social enterprise” in both America and Europe.  Indeed, the theme of the Bertinoro program was “The Future of Social Enterprise: Models and Experiences”.  However, our interpretations of social enterprise can be quite different.  As my colleague Prof. Janelle Kerlin demonstrates in her international comparative research on social enterprise, American scholars generally understand social enterprise to be revenue-generating commercial ventures by nonprofit organizations or public-service oriented activity by for-profit businesses (sometimes characterized as corporate social responsibility).  In Europe, the idea of corporate social responsibility has gained considerable traction but the main focus has been on creating enterprises, in cooperative, nonprofit or hybrid form, to achieve public purposes.  As such, Europeans appear to take a broader view of social enterprise in a way that may inform how we can look at our own social enterprise initiatives as well as the functioning of our nonprofit organizations more generally.

A particular highlight of the Bertinoro program was the presentation by Prof. Stefano Zamagni, a widely respected economics professor from the University of Bologna.   Prof. Zamagni offered a framework for thinking about social enterprise that appears to draw on a broad intellectual consensus in Europe and offers a fairly stark contrast to the way we think about social enterprise, or nonprofits in general, in the United States.  In this country, we consider the main purpose of social enterprise to be “efficiency” in the sense of generating sufficient revenues and using market-place practices and incentives to achieve social goals.  We tend to be goal-oriented in this thinking and not much concerned with other social welfare related issues.

According to Prof. Zamagni and the European perspective, however, the purpose of social enterprise is to help build the very fabric of society and to do so requires more than just a narrow focus on efficiency.  Zamagni offered a triad of equally important criteria for undertaking and judging the success of social enterprise: efficiency, redistribution and reciprocity.  In the U.S., of course, efficiency is king, redistribution is almost a dirty word (especially during a presidential campaign!) and reciprocity is relatively unfamiliar.  It’s worth a few words to expound on each of these concepts and how they relate to one another.

There’s not much disagreement about efficiency.  Simply stated, social enterprises should seek to make the best use of scarce resources.  Thus, one purpose social enterprise can serve is to deliver education, training, rehabilitation or health care services more cost-effectively through market-based mechanisms.

Redistribution is more controversial for Americans.  Although our nonprofit sector is heavily involved in charitable work it is not, on balance, a highly redistributive sector.  To the extent that Americans embrace redistribution as a social goal, it is largely manifested through government programs and systems of taxation.  And most American charitable giving goes to institutions from which donors themselves benefit, such as their own universities, churches and favorite arts institutions. Moreover, given the resources of the nonprofit sector compared to government and business, it seems unlikely that nonprofits can ever have much direct effect on achieving a fairer distribution of income and wealth in our country.

That same argument applies to the countries of Europe.  Nonetheless, Europeans would say that redistribution is important as a social enterprise objective for two reasons.  First, “fairness” is an important social value, and to the extent that social enterprise can contribute to citizens’ feelings that they are being fairly treated, they should unabashedly do so.  Second, however, Zamagni argued that redistribution cannot be separated from efficiency.  In particular, without a reasonable distribution of income and wealth, the market economy starts to fail, with insufficient consumer purchasing power to maintain prosperity and avoid costly social programming. (Clearly our recent concerns about reviving consumer demand to jump start our lagging economy resonate with this argument.) In Europe, where most social enterprises focus on helping society’s marginalized populations, such as the chronically unemployed, it certainly seems appropriate to consider the intertwined redistributional and efficiency impacts of social enterprise initiatives.

The concept of reciprocity is stranger still to our thinking about social enterprise and nonprofits in the U.S.  Reciprocity has to do with the strengthening of the fabric of society through cooperation, or in Zamagni’s words “the transforming into practice the culture of fraternity.”  (Remember “liberty, equality, fraternity” from the French revolution?)  This concept is closely tied to the contemporary notion of social capital made popular by Robert Putnam and others. Zamagni argues that reciprocity as a criterion for social enterprise reflects the importance of building mutual commitment, citizen participation and societal trust, over and above considerations of efficiency and redistribution.  A quote from Zamagni’s paper entitled “Europe and the Idea of Civil Economy” highlights this view:

In a society which has eschewed the idea of fraternity and is limiting itself to improve exchange-based transactions and transfers from government agencies, it is easy to explain why…we have not yet come up with a credible solution to the trade-off dilemma [between efficiency and social justice].  A society where the gift principle no longer applies has in fact no future.  A society based merely on “giving in order to receive” or “giving because duty-bound” is incapable of progress.  Which is why neither the liberal-individualistic view of the world, where everything (or almost everything) is exchange-based, nor the State-centered view of society, where everything (or most everything) is duty based, can steer us clear of the rocks our societies seem to have washed up on.  It is a fact that many problems of today’s world have much more to do with situations of social scarcity than material scarcity.

Zamagni was especially, and perhaps somewhat unfairly, critical of “philanthropy”, arguing that, as conventionally practiced, it lacked the critical element of reciprocity.  One way gift giving, without the element of actually engaging with recipients of gifts, hence depriving them of the chance to give back, was in his view debilitating and counterproductive.

The three-dimensional European perspective on social enterprise as argued by Prof. Zamagni, and developed by scholars such as Prof. Victor Pestoff of Sweden and others, while potentially unnerving to Americans, could serve the purpose of refreshing our own dialogue about nonprofits and social enterprise.  Do our philanthropic practices exclude or diminish reciprocity?  Should we be thinking about redistribution more broadly and fundamentally than just charity for the poor or unfortunate?  Is reciprocity and social capital neglected when we undertake or evaluate nonprofit and social enterprise initiatives?

My own view is that we are more afraid of the words than the practices of redistribution and reciprocity than the actual manifestations of these concepts.  However, by shying away from these ideas we may be distorting what we do, or undervaluing the contributions that the nonprofit sector and social enterprise can make.  Consider just one local example of social enterprise in Atlanta – the Georgia Justice Project (GJP) ably led by my good friend Doug Ammar.  I’m sure that Doug argues the efficiency benefits of his enterprise, that by employing individuals involved in the criminal justice system in a successful landscaping business, he is saving society money and achieving greater public safety in a cost-effective way.  But the GJP is also achieving some small measure of fairness and redistribution by putting money in the pockets of people who might otherwise be destitute and giving them a chance to get back on their feet after paying their debts to society.  Moreover, the GJP is building bonds of friendship and trust across disparate groups in society and providing the opportunity for its clients to reciprocate for the benefits they have received from the supporters of this enterprise.

The nonprofit sector in the U.S. often receives short shrift in public policy debates.  A recent example is a Congressional bill in support of subsidizing health care costs of businesses, government employers and families which failed to mention nonprofits, despite the fact that these organizations are facing enormous and escalating health insurance expenditures.  Possibly one explanation for such neglect is a failure of nonprofits to broaden the debate, and to argue not only for their efficiency benefits but also the ways in which they are essential to increasing fairness and fraternity in our society.

Thanks for your attention.  What’s your view?

Dennis Young

Director, Nonprofit Studies Program

Georgia State University

 

July 2009 ,“Rules for Managing in the Great Recession”

Dear Colleagues,

I hope you all had an enjoyable fourth of July weekend, enlivened no doubt by the peculiar behaviors of our certain state governors in this great country of ours.  Personally, I felt a little unpatriotic flying to Italy on the fourth for a summer school in Bertinoro, near Bologna.  I’ll write about that experience in my next installment.  Even this journey gives me pride as an American, however, since the trip was funded by the Fulbright expert scholars program.

I want to devote this message to a session I conducted at a national conference of the American Institute of Certified Public Accountants last month in Washington, D.C. devoted to the “nonprofit industry”.  I gave the opening plenary address to a room of 1300 accountants, an intimating experience indeed, though I started by offering a flag of friendship as an emissary of my related tribe of economists.  The plenary went quite well and later in the day I conducted another workshop (parallel session) on how nonprofits could manage the financial challenges of the recession (a very popular topic these days, unfortunately).  Only 300 folks attended this session and it was the end of the day, so the pressure was much reduced!

Initially I wasn’t quite sure how to approach this latter session.  It had been a long day and I was looking for a way to engage whatever energy the participants could muster at that juncture.  Fortunately some dumb luck intervened to provide me with an idea.  Some weeks earlier I had forgotten to bring my reading material to the gym where I use the stationary bicycle.  So I went to the rack of well worn magazines – with a collection that competed unfavorably with the typical dentist’s office – but managed to find the January 19th issue of Businessweek magazine.  And what do you know – there was a short and lively piece on managing through the crisis!  Of course the piece was entirely directed to for-profit businesses, and was written in typical business school style of semi-vacuous bullet points.  But I was desperate for reading and as I got into it I began to wonder how the advice would apply or could be adapted to nonprofits struggling with their finances in the current environment.  As it turned out, the framework generated a pretty good discussion and set of ideas.  So, I’d like to summarize some of these ideas here, and challenge you to discuss, challenge, elaborate and extend them.  Most of all, I hope there’s some useful advice here that will help nonprofits weather the current storms.

The Businessweek issue offered the following “rules” to businesses for managing the crisis and coming out stronger in the end:

  • Change your mindset
  • Get your financial house in order
  • Make a move for market share
  • Rethink your reward system
  • Dare to innovate

As I have suggested, these “rules” are so general as to be hard to dispute in the abstract.  The fun comes in trying to put meat on the bones. There is also the question of whether these rules are exhaustive as they apply to nonprofit issues.  Are there other rules for nonprofits that are less apparent for businesses?  Here’s what I came up with in applying the rules to nonprofit organizations:

Change Your Mindset

Clearly some nonprofits are seeing the crisis as an opportunity to improve themselves in a way that might not be possible in a less threatening environment.  For example, this is an opportune time to reassess and shed or streamline ineffective programs.  It is also a time to pursue special opportunities created by the present situation, such as Habitat for Humanity’s initiatives to demolish vacant houses and provide micro-finance for home repairs rather than build new housing in the current market.  And while most sources of nonprofit income are down, this is also a time to cultivate supporters and convince them of the special worthiness of nonprofit services in these difficult times.  What better time to support services for the homeless or hungry or to invest in education for skills in the economy of the future?

Get Your Financial House in Order

Once nonprofit managers get past the initial shocks of having to adjust their budgets to assure short term solvency, this is an excellent time to reassess basic program and financial strategies.  Each program and service should be assessed for its contributions both to mission and to the net financing of the organization.  Programs can be adjusted and pruned accordingly.  Overall, program portfolios can be rebalanced to ensure maximum impact within bounds of financial integrity.  Fund development initiatives should also be reexamined to assure that they are profitable at the margin – and expanded or scaled back as required.  The cost structure of each program can be examined, especially fixed costs such as buildings and general administration, and the revenues available to cover these fixed costs.  Unnecessary or underutilized overhead should be reduced and where desirable, fixed costs may be converted to variable costs so that they can be more easily adjusted to match available (reduced) revenues.  For example, it may be advantageous in various circumstances to rent facilities or to contract out for services, rather than own facilities or retain permanent staff.  Finally, the debt of the organization should be re-examined to determine where dedicated or unrestricted sources of revenue are needed to maintain fiscal integrity.

 

Make a Move for Market Share

This is a controversial idea for nonprofits which are supposed to be collaborative and cooperative, not ruthlessly competitive.  But the truth is that nonprofits do compete in markets for services, labor and contributions.  And it makes sense for individual nonprofits to examine whether the current environment provides opportunities for them to improve their positions in these markets.  Moreover, increasing market share does not preclude collaboration.  Indeed, strategic partnerships may allow nonprofits to operate on a more efficient scale, increasing market shares as a result.  In service markets, nonprofits can take this opportunity to re-examine their pricing policies – for example, asking whether sliding scales or congestion pricing can help with both increasing access for low income clients and perhaps adding revenues as well.  For example, a museum might institute free Wednesdays and premium Sundays to expand service, smooth demand over time, and increase revenues.  Finally, as in the Habitat case, the present environment may present opportunities for shares in new markets – perhaps in connection with current opportunities from federal stimulus funding.

Rethink you Reward System

This is a particularly germane issue for nonprofits on both the plus and minus side.  When organizations retrench it is important to do so in a manner that minimizes pain and alienation, factors that can lead to long term damage after the crisis is past.  For example, many organizations are implementing furloughs and pay reductions rather than lay-offs as less damaging strategies.  These alternatives must be carefully considered, however.  The crisis is also an opportunity to fundamentally restructure and to eliminate inefficient programs and unproductive people.  On the positive side, nonprofits now need to think even more intensely about the non-pecuniary rewards that they can offer to their people.  This is an historic strength of nonprofits on which they can build.  Strategies and programs that recognize outstanding work or provide opportunities to share in decision-making come to mind.  Finally, the current economy is providing nonprofits with expanded opportunities to engage volunteers.  Thus nonprofit managers need to consider how to best use and reward new volunteers, and in many cases substitute their efforts for those of paid workers.  More than ever, volunteers need to be viewed formally as staff resources with all the seriousness of managing them as would be applied to paid workers.

Dare to Innovate

The economic crisis is frightening and intimidating, hardly a time when people naturally think about bold new initiatives.  However, all of the ideas suggested above reflect innovation.  It simply does not suffice to bury one’s head and blindly pull back without looking for creative solutions.   Some bold and creative nonprofits do much more.  For example, in the face of a 40% decline in ticket sales and a $300,000 budget shortfall, the Joffrey Ballet opened a new program of dance classes for the general public.  It led to substantial new revenues as well as increased ticket sales.  Convenant House, a service for at-risk youth, experienced a 20% drop in donations from 2007 to 2008.  In response, it enlisted youth in their programs to call past donors to thank them and explain the impact of their gifts.  This reportedly led to a 50% increase in gifts.  These efforts were born of necessity but they required courage and creativity, not a bunker mentality.

What else should we add to these Businessweek “rules” to guide nonprofits in their management of the current economic recession?  I would suggest the following four:

Consider Engaging New Talent

In addition to increased availability of volunteers, the current recession is putting many new talented people, with excellent business and technical skills into the labor market.  This is not an obvious time for new hiring, but in particular cases, nonprofits may be able to secure talent that they would not otherwise be able to afford in a normal economy. 

Re-examine Governance and Board Membership

The board is the guiding organ for a nonprofit organization and the ultimate locus of responsibility for its integrity and success.  If ever boards needed to be effective in guiding strategy, ensuring fiscal integrity and serving as a boundary spanner to the external environment, that time is now.  Nonprofit leaders need to ensure that boards have the right combinations of talent, motivation and capacity to help steward their organizations and address their missions in these difficult times.  Board members with experience in guiding organizations through difficult economic circumstances will be particularly helpful, whether those experiences have been in the nonprofit, business or public sectors.  People with long term, strategic perspectives will enable nonprofits to look past the current crisis to plot their long term futures.

Re-examine the Time Frame of Your Mission

I save this for last because it is probably the most controversial.  Most nonprofits assume they should be in business forever, and in most cases they are correct because their missions are timeless – educating students, assisting the poor, promoting great art, and so on.  However, resources are not limitless and some missions may be accomplished more effectively in finite periods of time that allow resource expenditures to be more concentrated and targeted.  Rehabilitating a particular community’s recreation facilities, finding a cure for a particular ailment, assuring that a particular generation or cohort of low income students gets into college, are some missions that  might fit the latter description.  Moreover, some nonprofits may find that their missions are essentially outdated and that their resources might be better utilized in another charitable endeavor through a different organization.  The present circumstance is a good time to have this fundamental and introspective conversation.

To paraphrase Rahm Emanuel, “a good crisis is a terrible thing to waste”.  As difficult as times may be, nonprofits should address this opportunity as best they can.  We’ll be doing what we can to help at the Nonprofit Studies Program here at Georgia State.  We’re encouraged by robust enrollments in our graduate programs in nonprofit studies this coming year, no doubt a reflection of the economy but also an indication that help in the form of solid educated leadership is on the way.

Thanks for listening.  We value your own thoughts on these matters.

 

Dennis Young

Director, Nonprofit Studies Program

Georgia State University

  

 

June 2009, “Pallotta Event Spurs Scrutiny of  Nonprofit Organizations’ Fundraising and Cost Ratios”

 

Dear Colleagues,

The interest level in the first of my new message series (OK "blog") in April was pretty good, so I'm encouraged to continue.  This time I'd like to comment on our program at the Woodruff Arts Center on May 29th featuring Dan Pallotta speaking about his book Uncharitable.  I hope that those of you who were able to attend will agree that the event was a great success.  It drew more than 300 people and the subsequent buzz and e-mail traffic have been quite positive.  The event was co-sponsored by our Nonprofit Studies Program at Georgia State, the Woodruff Arts Center, United Way of Metropolitan Atlanta, the law firm of Alston and Bird, The Foundation Center-Atlanta and the Southeastern Council of Foundations.  Its success was testimony to the power of collaboration at both the staff and leadership levels of these organizations.  Speaking for the Nonprofit Studies Program, we very much enjoyed working with these institutional partners and look forward to future programs with them.

 

The program began with Dan's eloquent articulation of his arguments for unleashing nonprofit organizations from the operating constraints we impose on them, so that they are able to address major social ills - poverty, disease and so on - effectively and on a meaningful scale.  In particular, he argued against arbitrary rules and standards governing administrative and fundraising costs ratios and limits on executive compensation, and he proposed that we develop criteria that would gauge the impact and outcomes of nonprofit efforts rather than input parameters shaped by cultural biases against aggressive business practices by nonprofits.   Dan's presentation was followed by a thoughtful panel discussion chaired by Joe Bankoff, President of the Woodruff Arts Center and featuring panelists Carol Naughton, Vice President of New Community Ventures, Milton Little, Jr., President of United Way of Metropolitan Atlanta, Bill Bolling, Executive Director of the Atlanta Community Food Bank and Martin Lehfeldt, author and former President of the Southeastern Council of Foundations.  Panel members agreed that Mr. Pallotta was raising important issues that require serious attention by the sector, and they were relatively sympathetic to the arguments raised by Mr. Pallotta that fundraising and administrative cost ratios were arbitrary and often dysfunctional, especially in the way they have been applied in practice and promulgated by charity ratings agencies.  There was some skepticism, however, about what could be done about these practices, given the appeal of simple ratios to donors and the difficulties of securing meaningful and practical measures of nonprofit performance.  It was one thing to measure the effectiveness of a special event to raise charitable funds but quite another to gauge the impact of an educational program designed to bolster the life chances of low income children, or a research program to cure a disease, or a program to support the quality life through the arts.  Nor was the panel completely comfortable with the notion of paying high competitive salaries to nonprofit employees.  While recognizing the importance of attracting requisite talent to the sector, panel members also described nonprofit work as a calling that drew people not heavily motivated by material compensation, and they noted that salaries served to some degree as a screening device to attract such individuals to nonprofit service.

 

            The purpose of the program was not to reach particular conclusions but to stimulate a dialogue about the important issues that confront the sector.  How indeed can the nonprofit sector do its best work if it can't advertise or operate on a scale that competes with the forces aligned against it?  For example, Pallotta had some interesting statistics comparing the resources and advertising of tobacco companies compared to those of health charities.

I urge everyone to read Dan's book and engage in debate about these issues.  Meanwhile, I just want to comment myself on a couple of points of discussion, drawing on arguments in the nonprofit economics literature that may help clarify some of the issues.  First, I think Dan is essentially correct about arbitrary application of fund raising cost ratios.  This is an issue first raised by economist Richard Steinberg of Indiana University and subsequently discussed in a book I wrote with him called Economics for Nonprofit Managers (Foundation Center, 1995).  Essentially, economists distinguish between "average" and "marginal" quantities such as costs or revenues.  In the case of fund raising, the average cost is the total dollars raised divided by the total amount spent to raise those dollars.  However, at any given level of funds raised, the marginal cost is the amount it would cost to raise one more dollar.  In order to raise the maximum amount of net funds, a nonprofit should continue to increase expenditures for fund raising so long as a dollar spent brings in more than a dollar in revenue.  The point of maximum net funds is reached when another dollar spent is just offset by another dollar raised.  One of the main implications of this argument is that this maximum point is not the same as the point where the average cost of fund raising is a minimum.  Yet, fund raising ratios are simply calculations of average fund raising cost, not marginal fund raising cost.  Requiring this number to be too low forgoes the opportunity to raise more net funds for the charity.  Yet, charities are in competition to claim that they have the lowest fund raising cost ratios in their efforts to attract donors, despite this misleading gauge of fundraising "efficiency".

 

A simple example will illustrate.  Suppose a charity has spent $20 to raise $100.  Further suppose that spending another $10 would bring in $20.  It would make sense to spend the $10, increasing net funds raised from $80 to $90.  Yet the fund raising cost ratio would increase from 20% to 25%.  The problem here is that the average cost ratios are simple to calculate while ratios at the margin are much trickier to estimate from financial statements.   Still, this doesn't seem to be a very good argument for preventing charities from raising as much as they can for their charitable purposes.  There are some things that could be done to improve the use of average cost ratios, such as appropriately benchmarking them against organizations in similar circumstances.  But this would require quite a lot of refinement - controlling for field of service, the age of an organization and other factors that will influence a nonprofit's ability to manifest net funds within a given time frame. And this still wouldn't get around the problem of competing on the basis of average cost ratios.  A better, but also expensive approach would be to produce in-depth information about individual charities, in the manner of prospectuses for publicly traded for-profit corporations, so that donors could make more informed judgments about the reasonableness of expenses.  Some consultants provide such "due diligence" reports for major donors but such information is not widely available for small donors or even most institutional donors.  In the meantime, I agree with Pallotta and our panelists that the best solution would be for the philanthropic community to educate the public about the limitations of simple ratios for rating charities and to invest in the quality of charitable information services so as to increase public understanding and trust while empowering nonprofits to invest more effectively in resource development.

 

  Finally, let me comment on the prospect of moving from a regime of constraining input parameters to judging nonprofits on their outcomes and social impacts.  The literature recognizes that this is easier said than done.  Indeed, one the strongest theoretical rationales for having a nonprofit sector in the first place is that there are certain areas of economic activity or service that are simply difficult to judge.  Hence, society and its vulnerable consumers - children, the elderly, people who are ill or otherwise challenged, donors who are far-removed from the aid recipients they support, and so on - put their trust in nonprofit institutions rather than rely on for-profit businesses.  But why are nonprofit institutions considered more trustworthy?  One answer is that they are prohibited from diverting resources from their missions to the pockets of those who control them.  However, when very high salaries are paid, or very large sums are invested in administrative "overhead", suspicions are raised about trustworthiness, undermining the raison d'etre for nonprofits.  Since reliable measures of performance are often difficult to obtain, because of the very nature of nonprofit missions which often imply intangible or long term results, we resort to "checking inputs" in the belief that "reasonable" input numbers provide assurance that everything is kosher and monies are not being diverted to improper purposes.  It's a dilemma.  To the extent that nonprofits can develop  better measures of performance they may be able to take the heat off the policing of their input parameters, but this is a long term and difficult proposition which, if successful, could very well undermine the rationale for nonprofits in the first place.

 

Well, I'm pleased we have this conversation going and I hope you will stay tuned for future programs that allow us to discuss such difficult issues in a reasoned and dispassionate way, albeit with appropriate levels of passion as the subject matter deserves.

 

Dennis Young

Director, Nonprofit Studies Program

Georgia State University

 

April 2009 ,“Thoughts from Down Under”

Dear Colleagues,

As many of you know, I have been in the habit over the past three years of providing summaries of the discussions in our brown bag planning sessions for the Nonprofit Studies Program (NSP) on approximately a bi-weekly basis.  I’ve been somewhat amiss in reporting on recent meetings, partly because of my travel schedule but also because I have been rethinking the purpose and content of these messages.  While I hope these communications have been of interest to you all along, I’ve decided to make them of more general interest and relevance – reporting not only on specific programming developments of the NSP but also on topics of wider interest in which we have been involved.  The idea will be to peak your interest and hopefully engage you in an exchange of ideas over time - especially as they relate to how the NSP can be of greater service to the nonprofit community and can excel in the world of scholarship within the context of the Andrew Young School of Policy Studies.  I will attempt to provide a message of this sort on roughly a monthly basis.  Please let me know if you find it of interest, have particular responses to my musings, or wish to be removed from the list!

I will devote this inaugural message to two remarkable conferences in which I had the opportunity to participate on my trip to Australia earlier this month, at the invitation of Prof.  Myles-McGregor Lowndes, director of the Australian Centre for Philanthropy and Nonprofit Studies at the Queensland University of Technology (QUT) in Brisbane.  Myles is a pioneer in Australia, having established the first academic center in that country devoted to the understanding of nonprofits and philanthropy and the improvement of public policy, nonprofit management and governance practice for the Australian nonprofit sector.  (For details of the Centre, see www.qut.edu.au).

 

The first conference, sponsored by the Centre and held at the QUT in Brisbane, was devoted to “Modernising Charity Law”.  The impetus for the conference was the fact that various contemporary policy developments, including a major inquiry by its national Productivity Commission, brings Australia to the verge of potentially making major changes in the regulation and support of nonprofits and philanthropy.  For purposes of informing this national debate, the conference invited leaders of several “common law” countries to report on developments in their countries, including recent changes in legal and regulatory policies and structures.  These countries included Canada, the United Kingdom, Ireland, New Zealand, Singapore, the U.S. (on which I had the privilege of reporting) and of course Australia itself.  Present company excluded, the cast of characters was remarkable, including CEOs of major nonprofits, scholars and business leaders, and top government officials, politicians and advisors in Australia, a former head Charity Commissioner of the U.K., the Charity Commissioners of New Zealand and Singapore, Canadian foundation executives, attorneys and the Director General of the Charities Division of the Canada Revenue Agency, as well as leading nonprofit academic and legal scholars from the U.S. and Europe.

The program ranged over a number of important topics including legal concepts, regulatory and financing developments, and policy concerns.  It would be intimidating and unwise for me to try to summarize three days worth of discussion here, but I will make a few observations on matters that particularly caught my attention.  Many of the papers are available at https://wiki.qut.edu.au/display/CPNS/Modernising+Charity+Law+Conference+Papers  if you are interested in details; video of presentations and panels will also be posted at http://www.bus.qut.edu.au/research/cpns/seminarevent/  A book emanating from the conference is planned.

One aspect of the conference that was of interest to me was the manner is which development of the law seems to work in common law countries, including our own.  It was notable that the group of common law countries, all with a heritage from England and the Elizabethan Poor Laws of 1601, had both enough in common and enough variation to make comparisons interesting and meaningful.  At the core of their commonality is the importance of case law in which policies and precedents have evolved over centuries of experience.  The result is a situation that is both rich in understanding of the nuances of charity policy and frustrating in its amenability to policy rationalization.  In particular, it seems that none of the common law countries, in their efforts to “modernize” their charity laws, could not settle on a compact, generic definition of what constitutes charity, for the purpose of granting policy benefits such as tax exemption.  The fear was that no simple definition would accommodate the accumulated wisdom of case law. Instead, each of the countries represented (except the U.S.) has gone only part way in moving from the ad hoc list of charitable purposes of the Elizabethan laws to a set of categories (called “heads”) under which activities can be classified as charitable.  These categories include such areas as relief of poverty, advancement of education, and advancement of religion.  (It was particularly interesting that controversy surrounds the head “advancement of human rights” in Australia, probably because it is unclear where charitable organizations devoted to activity in this field might cross the line into political activism.)  Within these categories, the qualification of a particular organization for charitable status is left to the judgment of the charity commissioner or other designated officials.  Herein poses another problem, as it is recognized that within any given field there are organizations that would not qualify for charitable status.  For example, my colleague Prof. Evelyn Brody of Kent Law School in Chicago gave the apocryphal example of a “school for thieves” as one that presumably would not qualify under “advancement of education” for charitable status.

 Thus, the common law countries require another criterion with which to discriminate among potential charities in a given field of activity.  A consensus was that the appropriate criterion is that of  “public benefit”.  The problem, however, is that a satisfactory definition of public benefit was also elusive!  An afternoon session, led by Prof. Debra Morris of the Cayman Islands and an expert in English charity law, was devoted to this topic, but the issue was pervasive throughout the three days of discussion.  Prof. Morris noted that a public benefit test applies in various degrees in common law countries but the issue is whether a charity qualifying as to its purpose would be presumed to be of public benefit or whether the burden of proof lay with the charity.  From my own perspective the most striking aspect of this debate is the vagueness with which the concept itself has been defined.  Dressed in legal language, essentially, public benefit seems to be something that one recognizes when one sees it – perhaps an unfortunate similarity to the definition of pornography in our country!  (Economists could offer a more precise definition of public benefit, but this would probably not cut muster with the lawyers!)  Thus, much is left to the judgment of officials as to whether a particular organization qualifies for charitable status in these jurisdictions.

Nonetheless, the common law countries offer an interesting variety of models for charity regulation, ranging from the seemingly well-functioning Charity Commission in the U.K.,  the tax regulatory models of the U.S. and Canada which seem to work despite their preponderant focus on tax-related parameters, and transitional regimes in Australia, New Zealand, Ireland and Singapore where regulation is being decoupled from tax administration but not yet fully absorbed under an independent regulatory regime.  As far as applicability to the U.S. situation is concerned, the main advantage of moving in the latter direction might be to focus more attention on the importance of the nonprofit sector in our society rather than treat it as an ancillary matter of tax policy.

The second conference, held a day later at the Hilton Hotel in Sydney, was just as remarkable, though very different in flavor.  This was a “summit” featuring focused discussion among Australian elites on the future of philanthropy in Australia.  The conference was kicked off by a speech by the prime minister himself, the honorable Kevin Rudd and organized by the Business Council of Australia with two academic centers (including QUT) and leading companies including Goldman-Sach-JBWere, Telestra and KPMG as major sponsors.  I felt honored to be included in the Who’s Who list of approximately 60 participants, which included CEOs of major companies, executives of leading Australian nonprofits and foundations,  a Canadian Foundation executive, and a handful of us academic types from the U.S., Europe and Australia.  The purpose of the conference was to develop recommendations for the prime minister on how to stimulate philanthropy in Australia, especially corporate philanthropy, in the context of the current economic downturn.  It was interesting to note that Australia has been doing reasonably well in the current environment (its financial institutions have been conservative in their risk taking) but the country is not immune from the problems of the world economy and is anticipating further slowdowns.  The prime minister seemed especially concerned about growing unemployment and ensuring that the corporate sector step up its efforts to support the nonprofit sector despite the downward drift in corporate profits.

The prime minister asked that the group come up with a handful of important recommendations that his government could embrace (no pressure there!).  After a very long day of good spirited presentations and discussions, Michael Andrew, Australian Chairman of KPMG, was asked to summarize the day’s deliberations (a near impossible task).  Mr. Andrew classified the group’s broad suggestions into ten headings (Australians and their Commonwealth colleagues seem to really like the notion of “heads”!):  developing a best practice framework for nonprofit – business – government partnerships; undertaking a comprehensive review of charity regulation for the purpose of simplification and rationalization; the role of business in supporting charity – including workplace giving and exploiting new opportunities for deploying business talent in the current environment; adopting new oversight mechanisms and standards for nonprofits by drawing on experiences in the UK and Canada; developing new community funding models including government encouragements for social investing; encouraging new sources of capital and intersectoral partnerships for social ventures; inserting philanthropy education into school curricula for purposes of developing a stronger culture of giving; developing values and standards of service through the UN Global Compact; pursuing technological solutions to address social issues, including social networking and data bases of best practices; and drawing on overseas experiences and benchmarking Australia against other countries (e.g., on levels of giving).  Another laundry list to be sure, but a basis on which the leaders of this conference will distill recommendations for the government and perhaps move forward in other ways to engage the business sector more fully in philanthropy and the nonprofit sector in Australia.

Of course not all the discussion was sugar and honey.  Nonprofit sector leaders in the room made it a point to say that nonprofits were complex and heterogeneous and could not be painted with a single brush for making them more efficient and business-like.  And tensions arose around particular ideas such as the notion of “picking winners” which Craig Drummond, Chief Executive of Goldman Sach-JBWere of Australia advocated as an approach to utilizing scarce corporate philanthropic resources more effectively.  I suspect this may cause a bit of a firestorm since Mr. Drummond was granted an extensive interview on the local business channel in Australia during the conference and pushed fairly hard on his proposal!

It was of course a special privilege for me to participate in these convenings and I thank my Australian hosts for that.  At the very least, it got me to think more about what we can do in Georgia as well as the U.S. as a whole to advance our own policy debates surrounding the sector.  Ours is a much larger and more diverse and diffuse country with many such discussions going on in different forums.  I would value your ideas on the role our academic center can play in this process, especially in view of our positioning in a top policy school.

By the way, don’t forget to attend our lecture/discussion program on the morning of May 29th at the Woodruff Arts Center where Dan Pallotta, author of Uncharitable, will discuss his controversial book.  It’s all about untethering nonprofits from the constraints of policy and traditional practice so as to unleash its true potential for impacting our serious social problems. Is this what we should mean by “modernizing charity”?  For further information, see http://aysps.gsu.edu/nsp/3079.html  Please join us.

Dennis Young

Director, Nonprofit Studies Program

Georgia State University