The term “nonprofit sector” has become something of a
buzzword in our modern society, but what does it mean? How is a nonprofit
different than any other business? To begin with the most superficial
definition, nonprofits are a varied group of corporations that straddle the divide
between the government and for-profit sectors. Nonprofits, by definition, perform work in the interest of societal good (like government) but are
privately operated (like for-profit businesses), but they are distinct from each sector
in important ways too.
Let’s consider first how they are distinct from for-profit
businesses. Two important characteristics distinguish these groups: ownership
or governance and the goal of the corporation’s activities. For-profit
corporations are owned by a group of individuals who purchased shares in the
company. Their goal as an organization is to make as much money as possible for
those shareholders or owners. Nonprofits, in contrast, are prohibited by law from
generating profit for individuals that are associated with the organization. Instead
of owners, nonprofits are governed by a board of directors that are often
dedicated to the cause that the nonprofit serves and are not compensated for their
leadership in the organization (Renz 42-3). None of this is to say that nonprofits and
for-profits can’t hold the same values, indeed, businesses are becoming more
vocal advocates of social issues and nonprofit
and for-profit partnerships sometimes provide advantageous vessels for
problem solving in the name of public good.
While nonprofits and for-profits tend to be as different as
night and day in their core missions, nonprofits and public sector entities
have more in common there. Both public and nonprofit actors work towards the
betterment of society. Again, ownership or governance is the key difference
between public and nonprofit sectors. Because government entities are funded by
tax-payer money they are subject to the desires of their owners – voters. The
activities of the bureau or office are dependent upon the prevailing direction
of the political winds and how public opinion favors government involvement in
societal affairs (Berman 6).
Nonprofit funding, on the other hand, comes from a myriad of sources: grants
from private foundations, grants from government, donations from individuals,
donations from companies, membership dues, the sale of goods and services, the
list goes on. The distinction between the public and nonprofit sector here
is that nonprofit donors are not compelled to give money as a nation’s
citizens are compelled to pay taxes. While it may be wise for a nonprofit to
please its donors in order to continue to secure funds from those sources, they
are not legally obliged to do so.
Government and nonprofits often work together to provide
public goods for society to an even greater extent than nonprofits and
for-profits. A classic case for government intervention in economic and
societal affairs is the market failure or situations where it’s impossible to
make money by providing a good so the government steps in to do so. Likewise, nonprofits
address market failures by providing goods or services of public benefit that
others cannot provide for economic or political reasons (Renz 186). Due to this, partnership
between government and nonprofits often arises naturally because they seek to
address the same societal problems.
Nonprofits today take a multitude of forms in terms of funding
sources, services they provide, labor structure, and organizational culture,
but they all seek to fill important gaps in public service that elude government
and for-profit actors. In a world with increasing social consciousness, nonprofits have more opportunities to work collaboratively with all sorts of other groups
and organizations and reinvent what it means to work in the nonprofit sector.
References:
Renz, David O, ed. 2010. The Jossey-Bass Handbook of Nonprofit Leadership and Management. Jossey-Bass. San Francisco, CA.
Berman, Howard J. 2002. Doing "Good" vs. Doing "Well": The Role of Nonprofits in Society. Inquiry 39: 5-11.
