Thursday, January 29, 2015

Who Fills the Social Welfare Vacuum? – Comparing the Three Sectors

“Helping all people live healthy lives” and Improve the health of people around the world by advancing technologies, strengthening systems, and encouraging healthy behaviors”– one mission statement belongs to a nonprofit organization, the other to a Fortune 500 company.  What actor will fill the “social welfare vacuum” created when the government sector does not have the capacity or capability to cover the needs (Berman, 2002)?  The possible ambiguity provided by the mission statement resulted in the questions 1) What and who is the focus? 2) Who pays, to whom are they accountable?, used to define the government, for profit and nonprofit sector.

1. What and who is the focus?

The focus of the government sector is to provide regulation and a social welfare net for the citizens – but to what extent this should be done varies with public opinion (Berman, 2002).

The for profit sector’s primary focus is to make financial profit, and this profit can either be reinvested, or divested to its stockholders as dividends.  Some argue that this should be the for profit sector’s sole focus – while more businesses realize the value of taking responsibility beyond short-term profits. Corporate Social Responsibility is a unifying term for extending the focus to include secondary stakeholders such as the community – which is also a way to secure the long-term interests of the company (Berman, 2002).

The nonprofit sector is driven by the cause and the social return. Nonprofits can make financial profits –but if so, they are reinvested. Nonprofits provide services to target groups that have greater needs than the government (and to some extent business) sector is able to fulfill. It includes a wide range of actors – from educational institutions to social entrepreneurs solving society’s most pressing issues. (Berman, 2002)

The boundaries between the nonprofit and for profit sector became less distinguished when businesses were invited to compete for the same contracts as nonprofits. Consequently, nonprofits became more commercial, but the sector is still unique in its ability to address market failures - when the government is not able to provide a service for the needs of a group and for-profits stay out because of insufficient returns. In return for serving the public good, the public benefit nonprofit receives special standing and legal advantages. (Dobkin Hall, 2010; Jeavons, 2010)

2. Who pays? To whom are they accountable?  

Citizens and corporations finance the government operations and spending with taxes. The government is held accountable through mechanisms of evaluation and participation – exercised through elections.

The focus on the target group, or the customers, is an inherent mechanism for the for profit sector – since the target group are also the ones who pay. The for profit is first and foremost accountable to its shareholders, but many companies are extending this focus to other shareholders – and businesses will meet the complexity of being accountable to multiple actors, an inherent complexity of the nonprofit sector. (Ebrahim, 103; Henderson et. al, 2013)

The nonprofit’s operations are financed by money from the government, donors and foundations. In other words, the services are not paid for by the users, which makes the sector significantly different from the for profit sector, and somewhat different from the government sector. (Jevons, 186) The sector’s focus on upward accountability to donors is driven by their ability to pay (Ebrahim, 103). 

Today, strong relationships with multiple stakeholders have become a key determinant of survival for actors in all sectors. Opportunities are evolving at the intersection of the three sectors and expectations on leaders have never been higher. It is a time to to acknowledge and sustain the competitive advantage of each of the sectors – because it is the interdependence of three strong sectors that make society prosper. Generic mission statements do not – but the second, more comprehensive belonged to the nonprofit.

References

Berman, Howard J. 2002. Doing "Good" vs. Doing "Well": The Role of Nonprofits in Society. Inquiry 39: 5-11.

Dobkin Hall, Peter. Historical Perspectives on Nonprofit Organizations in the United States. In: Renz, David O, ed. 2010. The Jossey-Bass Handbook of Nonprofit Leadership and Management. Jossey-Bass. San Francisco, CA. 

Ebrahim, Alnoor. 2010. The Many Faces of Nonprofit Accountability. In: Renz, David O, ed. 2010. The Jossey-Bass Handbook of Nonprofit Leadership and Management. Jossey-Bass. San Francisco, CA. 

Jeavons, Thomas H. Ethical Nonprofit Management – Core Values and Key Practices. In: Renz, David O, ed. 2010. The Jossey-Bass Handbook of Nonprofit Leadership and Management. Jossey-Bass. San Francisco, CA. 

Henderson, Rebecca M. et al. Conference on "Research in Corporate Accountability Reporting. Retrieved from: http://www.hbs.edu/faculty/conferences/2013-corporate-accountability-reporting/Pages/default.aspx

BD. 2014. Mission statement. Retrieved from: http://www.bd.com

PATH. 2014. Mission statement. Retrieved from: http://www.path.org/about/faq.php#Mission

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