While people may have been off and enjoying their Labor Day Weekend, Marc and I were “working” (although its great when your “work” and fun coincide) by participating in a leadership session for nearly 200 business school students. We were peppered with thoughtful questions and one that came up repeatedly was how you develop a distinction between private sector and social sector (government, nonprofit, non-governmental organizations (NGOs), social enterprises or B Corps, foundations, and I’ll even add Corporate Social Responsibility (CSR) in here). Students not only expressed an interest in learning more about the ecosystem and interrelationships between the private sector and social sector, but also wanted to see if there were common frameworks that could be utilized in case interviews and case studies. While there are frameworks that you can leverage, I thought it would be best to develop a model that helps you examine the relationships between these sectors and evaluate the critical role these stakeholders play. If you are interested in the topic, please let me know as I am developing a graduate level course on this.
Philanthropy critic Anand Gridharadas has claimed that “charity begins after profit.” Seemingly well-intentioned foundations and companies preserve inequity by attacking the offshoots rather than the root of the problem. Gridharadas takes this claim further,
“You may be working on a prison education program, but you are choosing not to prioritize the pursuit of wage and labor laws that would make people’s lives more stable and perhaps keep some of them out of jail. You may be sponsoring a loan forgiveness initiative for law school students, but you are choosing not to prioritize seeking a tax code that would take more from you and cut their debts. Your management consulting firm may be writing reports about unlocking trillions of dollars’ worth of women’s potential, but it is choosing not to advise its clients to stop lobbying against the social programs that have been shown in other societies to help women achieve the equality fantasized about in consultants’ reports.”
Major actors in the social good stage – government, nonprofits, philanthropic foundations, businesses – walk the social good tightrope. These organizations often face the competing tensions between philanthropy, policy, profit, and purpose. Operating at this nexus creates opportunities for creating shared value (CSV), economic value that also creates social value by addressing society’s challenges and problems. However, the gravitational pull of each of these factors – Philanthropy, Policy, Profit, and Purpose – can lead an organization astray and out of alignment with the organization’s ability to optimize social good.
Philanthropy: Is Funding Aligned with Missions?
True philanthropy, by its definition, is altruistic, done without benefit to the individual, and “an act or gift done or made for humanitarian purposes.” Many corporate philanthropic arms are housed in Corporate Social Responsibility (CSR) divisions, are linked to marketing efforts, and may be directly supported by corporate giving or foundations. Oftentimes, there is far more than altruism influencing a corporation to give back to its community. Organizations are pulled towards philanthropy for three primary reasons:
- Policy through compliance, legislative, or advocacy or self-preservation in anticipation of changing preferences of their consumer or employee base, or as a desire to better serve their customers;
- Profit through goodwill, marketing, and engaging customers, as well as through the ability to make investments that enable the organization to better meet its mission; and
- Purpose through alignment with goals and values and creating internal initiatives that aid recruitment and retention of top talent.
Nonprofits and government are not immune to the pull of philanthropy. Indeed, governments serve as major funders for many nonprofits by providing grants to nonprofits in the hopes that they will more effectively meet their mission and better provide a service that government is unable to provide. Many nonprofits, as part of their operating model, seek grants and corporate donations to help them create social good aligned with their mission. As nonprofits pursue funding from foundations, government, corporations, and individuals (particularly high net worth individuals), they need to consider (1) the impact these funders are seeking through their philanthropy, (2) the sustainability of this funding and affect on current and future operations, and, most importantly, (3) the alignment of the funders’ values and mission with their own.
Policy: Are Actions Aligned with Principles?
Policy is “a deliberate set of principles to guide decisions and achieve rational outcomes.” Policy can occur on a legislative level through government-established laws to regulate outcomes, through advocacy in order to establish protections or strike discriminatory or unjust laws, or through internal organizational values or standards to guide decisions and ensure mission-alignment. Businesses, foundations, government, and nonprofits are drawn to policy through:
- Philanthropy by aligning actions and providing or sharing resources with organizations that share values or stances on certain policies so that the partnership can have a collective impact;
- Profit through the creation of shared value (CSV) by providing products or services to consumers that have unmet needs or may be consumers who are not being served at the Bottom of the Pyramid (BoP), by setting standards for improvement in the value chain, and by facilitating ecosystems of support; and
- Purpose through partnerships that create a common agenda, shared systems of measurement, mutually reinforcing actions, and continuous communication towards a common goal.
Profit: Can Businesses Do Well By Doing Good?
Profit, the difference between the amount earned and the amount gained when producing something or providing a service, is the north star for many corporations. Companies want to see a return on their investment (ROI) by seeing an action positively impact their bottom line. Even nonprofits seek “profit” because anything above the coverage of their expenses can be reinvested back into the organization in the form of better service to their clients and constituents, better benefits to their employees to retain talent, or other ways to help the organization to better meet its mission. Profit often has the strongest gravitational pull for corporations and even the most disciplined corporations run the risk of mis-alignment at the expense of a profit incentive. Organizations seek to balance profit incentives through:
- Philanthropy by making a business case for funds that align actions or CSV, committing funds to mutually reinforcing organizations, or, following Gridharadas’ critique, following their profit incentive by funding initiatives that perpetuate challenges that their business is trying to solve, or that create marketing opportunities that extend the brand;
- Policy by creating standards (i.e. set amount of money or percentage devoted to an issue), divisions that create a system of checks and balances, and evaluation metrics to ensure mission alignment and ROI; and
- Purpose by aligning pro bono services, in-kind donations of materials, and donations with the employee network and values of the organization. Corporations often leverage their CSR, human resources, and/or marketing divisions to identify opportunities to “give back” and share their community involvement with employees and stakeholders. Nonprofits leverage their development team and Boards to identify opportunities for funding, services, or materials that could increase their revenue, reduce their costs, and better help them meet their mission. Tension is common when corporations have controversial or questionable practices, but offer money, material, or services that could help a nonprofit better meet its mission (i.e. a company known for its sugary soft drinks offers to fund a road race for a nonprofit that promotes healthy lifestyle choices).
Purpose: Can Mission Be Achieved Without Money?
Organizations exist because they have an objective – to serve a particular customer base, to advocate, educate, or solve a problem. When organizations have multiple objectives, factions can form in favor of particular objectives. Is the objective of the organization to make money or provide exceptional service? Are these objectives mutually exclusive? Where is value maximized? Many organizations may attest to mission over money, but will they continue to ascribe to this when headcount, salaries, and programming is on the line? Organizations need to ensure that their mission and values are public, that they attract, select, retain, and promote people who follow these mission and values, and that purpose is placed on a pedestal. Purpose may face tension with the other social good pillars through:
- Philanthropy by mutually aligning with efforts that address the root cause of the problem that the organization is trying to solve, rather than perpetuating it;
- Policy by aligning resources internally and externally to advocate for legislation, principles, and standards that support the organization’s theory of change; and
- Profit by favoring long-term, sustainable investment and innovation and making calculated bets and actions to help the organization better meet its purpose.
The 4 Pillars: Philanthropy, Policy, Profit, and Purpose
These four pillars provide a magnetic force on organizations and the force may grow stronger or weaker depending on environmental factors. As organizations consider these four pillars, they need to prioritize, balance, and shift resources to combat the gravitational forces applied by businesses, foundations, government, and nonprofits on each of these four pillars.
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About the Author
With over twelve years of experience consulting and working in the government and nonprofit sectors. Evan started his nonprofit career as a member of Teach For America (TFA), where he served as a teacher, volunteer, and in operational support and training roles for the organization. He has supported BDO Public Sector in the launch of their management consulting practice and has provided strategy and operations, human capital, and information technology support to government and nonprofit clients. At BDO Public Sector, Evan led efforts building internal practice recruiting processes including interview questions, cases, and candidate evaluation criteria and developed their Graduate Advisor internship program.