The for- and not-for-profit worlds are shifting. Then why not their operating models?
By Jim Epstein and Alicia Epstein Korten
As an investment manager and a member of the Gamble family that founded Procter & Gamble, I (Jim) am often asked to sit on nonprofit boards. Increasingly, I’ve grown more uncomfortable with the term not-for-profit to describe these organizations, some of which embrace business principles in their operations and outlook.
One such operation is Dance Place based in Washington, D.C., that is partly funded through the dance classes and performances they offer. Another is DC Greenworks, substantially funded through government contracts and fee-based installations of green roofs, rain gardens and rain barrels around the city.
A couple of years ago, I (Alicia) attended Net Impact’s annual conference. I knew going in that the majority of the audience would be young but was not prepared for the roughly 2,000 MBA students that crammed themselves into Cornell’s auditorium on that cold November weekend in upstate New York.
Only ten years earlier, I’d looked at getting an MBA—I remember picking through the slim offerings that blended business and social values in the curriculum. When one of the conference attendees told me that his girlfriend had been complaining that she had been assigned David Korten’s—my father—book When Corporations Rule the World, a tome on the pitfalls of companies that grow too large, yet again as part of her MBA program, I knew the world was indeed, changing.
While these may seem anecdotal, there are many signs that point to the birth of a new sector—one in which distinctions between the for-profit and the not-for-profit worlds are blurring. Once upon a time business was about creating jobs and making a profit while civil society organizations were avenues to gave back to society beyond the simplicity of job creation and products.
In this new world, however, more and more businesses are championing social good values as part of their brand identity. They are talking openly about building healthy communities, providing workers with living wages, and producing sustainable products. Conversely, civil society organizations are building business values into their operations and busy finding ways to generate revenue by selling goods and services.
The Private Sector is Going Social
Within the private sector, for example, there are now 476 companies generating $2.27 billion in revenue that are certified as benefit corporations, a designation given to businesses that meet specific environmental, social and governance criteria. B Lab is a not-for-profit organization that is aggressively leading the charge by creating a certification and auditing program that ensures companies maintain rigorous standards of social, environmental and economic accountability.
In fact, certification is now being followed by a tidal wave of state legislation giving such businesses legal jurisdiction as well as incentives.
Maryland, Vermont, New Jersey, California, Hawaii and Virginia are frontrunners, with each having recently passed legislation giving benefit corporations legal status.
Colorado, New York, North Carolina, Pennsylvania and Michigan will likely follow in 2012. The passing of these bills is significant because they upend a body of law that states that corporations must consider shareholder value first before attending to the interests of other stakeholders, including communities, employees and the planet.
While the Nonprofit Sector is Adopting Business Principles
Changes are afoot among the civil society organizations as well, spurred in part by technology entrepreneurs who are grounding their philanthropy in business values. The Skoll Foundation funded by eBay mogul Jeffrey Skoll, for example, provides grantees flexible funding to develop aggressive engines of growth. Called resource engines, some grantees use the money to strengthen traditional models of fundraising.
Others yet are using the funding to build for-profit affiliates that help fund their work. “We can play on the entire keyboard,” explained Larry Brilliant, formerly Google.org’s CEO and now with the Skoll Global Threats Fund.
Intersection: Philanthropy … and Missions-Based Investing
Philanthropy, consequently, is increasingly turning to the investment world to strengthen its mission. Confluence, a special project started by Rockefeller Philanthropy Advisors, was started in August 2009 to build interest in mission-related investing. Already the group has 150 member foundations worth several billions in assets.
Interest in mission related investing among foundations spiked after the 2008 economic downturn.
While many foundations lost almost 40 percent of their endowment that year, those engaged in mission-related investing decreased in value by only 20 percent, according to Head of Confluence Dana Lanza.
"They had their money in mission-related investments off Wallstreet. Some of the folks that were considered crackpots are being seen as innovators. Now, in 2011, foundations are truly embracing this strategy. People are saying, 'If I'm not doing some mission-related investing, I'm putting my portfolio at risk.'"
There are a myriad of terms that capture elements of this new sector. Social enterprise, mission-driven business and social venture are but a few that aim to capture the blending of business principles with a mission.
While all these terms have value, we believe that it’s possible to better capture the richness of the emerging field, and communicate the power of these changes more effectively .
…. Or a New Operating System: The Common Good Enterprise
In our search for better vocabulary, Jim came across a largely neglected phrase that we would like to lift up from the shadows and bring center stage, i.e.: Common good enterprise.
We define common good enterprise as:
A for-profit or not-for-profit organization whose primary purpose is to promote the well-being of people, the planet and/or other living creatures. The organization generates a percentage of its revenue through the sale of goods and services, and may receive grants and donations.
In part two, we will discuss why the term common good intuitively makes sense and discuss some of the emerging faces of this sector.
Readers: Is it time for a rejuvenated nomenclature?