Book Review Nonprofits and Government Collaboration and Conflict Frumkin

Running a nonprofit is ofttimes fast-paced and crisis-ridden, with little fourth dimension left over for the luxury of reflection. But making the fourth dimension to examine conceptual and policy issues is crucial, says Peter Frumkin, associate professor of public policy at Harvard University's John F. Kennedy School of Regime, because it leads to insights about nonprofits' function in local and global economies. Looking at the bigger movie is well worth the time spent—and can pb to a amend sense of place and residual.

Iii features of nonprofit and voluntary organizations
Attempting to define the fundamental features of the disparate entities that institute the nonprofit and voluntary sector is a complex and daunting task. All the same at that place are at least iii features that connect these widely divergent entities: (1) they do non coerce participation; (2) they operate without distributing profits to stakeholders; and (3) they be without elementary and clear lines of ownership and accountability. Taken together, these iii features might make nonprofit and voluntary organizations announced weak, inefficient, and directionless, but goose egg could be further from the truth. In reality, these structural features give these entities a ready of unique advantages that position them to perform of import societal functions neither government nor the market is able to match.

Perhaps the nearly fundamental of the three features is the sector'due south noncoercive nature. Citizens cannot be compelled by nonprofit organizations to give their fourth dimension or money in support of any commonage goal. This ways that, in principle at least, nonprofits must describe on a large reservoir of good volition. This noncoercive character is also what near starkly differentiates the sector from authorities, which can levy taxes, imprison violators of the police force, and regulate behavior in myriad ways. The power of coercion that the public sector possesses is a powerful tool for moving collectivities toward mutual ends, merely it is also a source of strife and contention. Trust in government is at present low, 3 making the effective use of land power more and more difficult as its legitimacy fades. For nonprofit and voluntary organizations, these issues do not ascend. Costless choice is the coin of the realm: Donors give because they cull to do so. Volunteers piece of work of their own volition. Staff actively seek employment in these organizations, ofttimes at lower wages than they might secure elsewhere. Clients make upwardly their ain minds that these organizations accept something valuable to offer. Though they stand ready to receive, nonprofit and voluntary organizations need nix. As a consequence, nonprofits occupy a moral loftier basis of sorts when compared to public sector organizations that have the power to compel activity and coerce those who resist.

In some means, the noncoercive character of the nonprofit and voluntary sector situates it closer to the market place than to government. Business depends on the free choice of consumers in a competitive market where alternatives are oftentimes plentiful and where no firm has the chapters to compel anyone to purchase its appurtenances or services. Similarly, nonprofit organizations cannot coerce participation or consumption of their services. The sector makes choices bachelor, rather than deciding for others. When information technology comes to the mobilization of funds, the parallel betwixt business and nonprofits is as clear. But as no one forces anyone to buy shares or invest in enterprises, no one forces anyone to give or volunteer in the nonprofit earth. The flow of resources to a nonprofit depends entirely on the quality and relevance of its mission and its capacity to deliver value. To the extent that a business concern business firm or a nonprofit organization is performing well, investors and donors will be attracted to it. Should things take a turn for the worse, investment funds and philanthropic funds usually seek out other options speedily.

The second feature of nonprofit and voluntary organizations sharply differentiates them from business organisation firms, withal. While corporations are able to distribute earnings to shareholders, nonprofit and voluntary organizations cannot make such distributions to outside parties. Rather, they must apply all residuum funds for the advancement of the organization's mission. four By retaining residuals rather than passing them on to investors, nonprofit organizations seek to reassure clients and donors that their mission takes precedence over the financial remuneration of any interested parties. The nondistribution constraint has been seen as a tool that nonprofits can use to capitalize on failures in the market. Since there are certain services, such as child care and health care, that some consumers experience uncomfortable receiving if the provider is turn a profit driven, nonprofits are able to step in and meet this need past promising that no investors will benefit by cutting corners or past delivering unnecessary services.

While the noncoercive characteristic of nonprofits brings nonprofits closer to business and separates them from regime, the nondistribution constraint pushes nonprofits closer to the public sector and abroad from the individual sector. Government'due south inability to pay out profits from the auction of goods or services is related to its need to be perceived as impartial and equitable. five With nonprofits, the nondistribution constraint likewise builds legitimacy and public confidence, though this does not mean that special powers are vested in these organizations. In both sectors, the nondistribution constraint strongly reinforces the perception that these entities are interim for the adept of the public.

The third feature of nonprofit and voluntary organizations is that they have unclear lines of buying and accountability. six This trait separates these entities from both business and government. Businesses must run into the expectations of shareholders or they run a risk financial ruin. The ownership question in the business sector is clear and unambiguous: Shareholders own larger or smaller amounts of disinterestedness in companies depending on the number of shares held. Similarly, government is tethered to a well-identified group of individuals, namely voters. Executive and legislative bodies—and the public agencies they supervise at the federal, land, and local levels—must heed the will of the electorate if they are to pursue public purposes effectively and retain the support and legitimacy needed to govern. In that location is also a long tradition in the United States of conceiving government every bit "belonging" to citizens, though the ways in which this ownership claim can be exercised are severely express. In the nonprofit sector, clear lines of ownership and accountability are absent-minded. seven

Nonprofit and voluntary organizations must serve many masters, none of which is ultimately able to exert complete command over these organizations. Donors, clients, lath members, workers, and local communities all accept stakes, claims, or interests in nonprofit and voluntary organizations. Nevertheless none of these parties can be clearly identified every bit the key buying grouping. The relative strength of these buying claims depends on how an organization is funded and on its chosen mission. 8 Nonprofit organizations that depend heavily on charitable contributions are often held closely accountable by their donors, some of whom believe that as social investors they accept a real stake in the organizations to which they contribute. Nonprofits that are largely driven past service fees or commercial revenues are in a different position. While these more commercial organizations do not have donors asserting claims over them, social entrepreneurs and professional person staff may view themselves as the key stakeholders in these more than businesslike organizations.

Oft, yet, the lines of buying and accountability are rendered more than complex by the fact that many nonprofit organizations combine funding from multiple sources—foundations, corporations, and government—with earned income, making it hard to point to any particular party every bit the cardinal stakeholder to whom these special institutions must answer. 9 One might be tempted to point out that nonprofit and voluntary organizations are almost always governed by boards, and to advise this as a solution to the ownership and accountability issue. Unfortunately, board members are not owners. They are stewards who are held responsible for the deportment of their organization. In the terminate, nonprofit and voluntary organizations are authorized to act in the public interest by the communities in which they operate, though the lines of accountability are weaker than those in the public sector and the lines of buying far more obscure than in the business sector.

…nonprofits occupya moral loftier footingof sorts, when compared to public sector organizations…

— Peter Frumkin

These 3 features of nonprofit organizations are not without controversy and contention. In fact, each has been called into question in recent years. Outset, the noncoercive nature of the sector has been challenged by the growing trend to mandate community service or volunteer work. In the instance of welfare reform, many states have required assist recipients to complete a community service requirement in order to proceed receiving their monthly back up payments. 10 A growing number of loftier schools now brand volunteering with a local organization a condition for graduation. In addition, there have long been parts of the nonprofit landscape where strong norms are enforced on those who have committed to membership. Within professional person associations, licenses to practice medicine, police, and other callings are granted and denied by nonprofit entities. 11 Within many religions, the beliefs of adherents is severely constrained by doctrine. In some neighborhoods, independent community groups have been granted the power to plan and constrain future evolution by residents. The exercise of ability may be subtle in some cases. For example, many private funders exercise considerable influence over the recipients of their grants. This influence can take the class of a gentle proposition or a condition of support that programs exist revamped. 12 Although the constraints imposed in each case follow a decision to participate and join, the ability of some nonprofits over groups of individuals is considerable. In each and all such instances the noncoercive character of these organizations is chosen into question. 13

2d, the nondistribution constraint of nonprofit organizations has likewise been nether attack from a number of different directions. In recent years, increased scrutiny of the loftier salary levels of many nonprofit executives has led some to ask whether the "profits"—or, more accurately, the increased programme revenues—are not in fact being routinely distributed to staff in the form of generous compensation and do good packages. 14 In the area of capitalization, large nonprofit organizations have been aggressive in raising funds through bond offerings, which practise not offer investors the buying pale that stock offerings do, but which take the effect of opening up major capital flows into the nonprofit sector. The accumulation of capital in the grade of large endowments has also chosen into question the boundary betwixt business and nonprofit organizations: Endowment funds, by their nature, are non used to fulfill an organization's immediate needs. Instead, they are invested in stocks, real estate, and other speculative investments designed in the long run to maximize fiscal return. This is a strategic move that some have characterized as contrary to the public purposes of nonprofit organizations. 15 Making the purlieus between nonprofits and business organization firms fifty-fifty more opaque, at least i study has argued that the nondistribution constraint does non significantly increase consumer confidence in the trustworthiness of nonprofits compared to business firms. 16

Tertiary, the ownerless character of nonprofit and voluntary organizations has come under fire equally the legal claims of nonprofit stakeholders have evolved. The courts have held that only members (in the case of a membership organization), trustees or directors, and the attorney general in the state where the nonprofit is located have legal standing to competition the action of a charitable corporation. Over the years, yet, the ability of trustees and directors has grown substantially, non to the signal where they can claim ownership of the assets of a nonprofit, but to the point where boards now take tremendous leeway in the way they operate a charitable organization. 17 While these claims have rarely come up to equal those of ownership, the lines of accountability have been drawn more sharply, specially as questions virtually the transfer of assets have come when nonprofit organizations have attempted to convert to for-profit status. 18

The ultimate result of these debates and trends is that the defining features of nonprofit organizations are evolving and are the subject area of considerable argue. The notion that at that place is some simple and unambiguous exam that can exist developed to decide what sector an organization belongs to is no longer reasonable. While the Internal Revenue Service (IRS) and united states of america have developed statutes and rules that define and regulate these special institutions, a different and far more than complex reality has emerged. The legal code is often of express value in the effort to determine which organizations are really nonprofit and voluntary in their performance.

Limerick of the nonprofit and voluntary sector
In the United states of america today, at that place are more than ane and a one-half million registered nonprofit organizations, besides as several million informally organized community groups. The formally registered organizations fall into ii wide and porous categories: those that serve the public and those that serve members. The public-serving organizations, classified under section 501(c)iii of the IRS code, operate in nigh every imaginable field of human endeavor, and include, among endless others, social service agencies helping children, the elderly, and the poor; independent schools and individual colleges; community clinics and hospitals; think tanks; ecology organizations; cultural groups such every bit museums, theaters, and historical societies; and a range of international assistance organizations. They are the almost visible and recognizable part of this organizational universe. Just substantial resource are concentrated in the member-serving or mutual do good organizations, which include credit unions, business leagues, service clubs, veterans' organizations, and trade associations. They tackle bug ranging from the virtually complex bug of business policy to the most prosaic challenges of small-town life. Too included in the sector (though not filing forms annually with the IRS) is a vast array of churches, synagogues, and mosques that form the foundation of the nation'due south religious life. While we tend to recollect of congregations as membership organizations, they are treated differently by government and are not subject to the same forms of oversight as other member-serving nonprofits.

While the largest and amend-financed nonprofit organizations receive the majority of public attention, of import work is done by the army of less visible associations, clubs, networks, and groups through which communities come up together and deed. nineteen There is considerable dispute every bit to whether the legally chartered nonprofit organizations share enough traits with informal voluntary associations to justify including both groups in one sector. twenty However, leaving these grassroots associations out of the motion picture grants far too much deference to the tax handling of nonprofits and ignores the fact that informal associations and formal nonprofits both eschew the distribution of profits, are noncoercive, and have no owners.

Public awareness of the sector is quickly increasing, though surprisingly footling is known about the underlying purposes and values that breathing nonprofit and voluntary activity or the vehicles through which these values and purposes are channeled. In function, this is because these activities reflect a sometimes-disruptive bunch of strongly held individual values, also as a set of complex public purposes. The sector can thus be conceived as a tent covering public-serving charities, fellow member-serving organizations, and a range of informal organizations, including voluntary and grassroots associations.

This various and at times contradictory grouping of entities comprises organizations and associations that are neither part of the land nor fully engaged in the market. The sector's solutions to community and public problems at times represent a conscious disavowal of commercial markets and a realization that some exchanges are just ameliorate conducted under terms of mutuality and trust than under the strict dictate of caveat emptor. 21 Using charitable contributions, many nonprofit and voluntary organizations can deliver services to clients who are unable to pay. At other times, nonprofit and voluntary action represents an endeavor to move beyond government action to find solutions to public problems that a majority of citizens are unable or unwilling to back up. Nonprofits can and do speak to community needs that prevarication exterior the priorities of the median voter. But the position of this grouping of organizations in relation to the marketplace and the state is far more complex and changeable than these simple claims of differentiation might lead i to believe. In some fields of activeness within the sector, intense commercialism has eroded the moral high ground of these organizations and transformed nonprofits into shadow businesses that compete actively for clients able to pay for the services they offering. In other fields, nonprofits accept lost their autonomy from regime and take come to serve every bit dutiful implementers of public sector programs and priorities. The lack of clarity in the identity of nonprofit and voluntary organizations in relation to concern and authorities becomes e'er more evident as soon as one considers the range of names used to speak near these entities.

Q: Nonprofits have been characterized in many means: "taxation-exempt" organizations, "the independent sector," the "nongovernmental sector," the "voluntary sector," and and so on. Is it important to agree on what to phone call nonprofits?

A: The names we use are not that important. But what is important is that nosotros realize that many of our assumptions about nonprofits, which are wrapped up in the names we accept used over time, may demand to be reexamined.

The sector has undergone important changes in recent decades—from increased commercialization to greater politicization—and these changes are what explain the name game that we have played with nonprofits. The term independent sector, for example, seemed plausible plenty until it was abundantly clear that nonprofit organizations, particularly in the health and social service fields, were annihilation but independent. Heightened levels of government funding in these and other disquisitional parts of the sector fabricated it far less independent than earlier idealizations may have led u.s. to conclude.

We have changed the nomenclature as our understanding of nonprofits has evolved. In the cease, rather than worry about names, we need to continue our optics on the more of import issue of what public benefits the sector is generating and how public policy can accelerate and support nonprofit initiatives in the future.

Q: In your book y'all mention that nonprofit and voluntary organizations are embraced both by conservatives and liberals. Is this a reflection of public confusion nearly nonprofits and their function, or something else?

A: It is more a reflection of the fact that nonprofits, at their all-time, can create common ground between those who want to enhance and improve the safety internet and those who are interested in promoting private initiative and limiting the reach of the state. Nonprofits of all kinds—from large secular service providers to small faith-based agencies—can and exercise cross ideological boundaries in ways that few other American institutions are capable. While it may be a bit confusing to hear both sides of the political spectrum praise the work of nonprofit organizations, I remember information technology is ultimately a articulate sign that the sector is probable to continue to abound in importance and take on e'er greater responsibilities, especially at a time when trust in regime and the corporate globe is very depression.

Q: What is the key concept you'd like readers to have away from On Being Nonprofit?

A: That nonprofit organizations work best when they achieve balance across their iv main roles as service delivery vehicles, promoters of civic and political engagement, vehicles for entrepreneurship, and enactors of values. Residuum is important because nonprofits have gotten into trouble when they accept become too one-sided. Only when nonprofit organizations achieve some kind of balance across the iv disquisitional functions I lay out in the book is it likely that the sector will be able to maximize its potential. The conceptual distinctions I make between these central functions of nonprofits volition, I hope, be helpful in clarifying why we have nonprofits, what they are capable of contributing to social club, and how public policy seeks to support the sector.

Q: What other projects are y'all working on these days?

A: I was lucky enough to spend the past year on research exit from the Kennedy School every bit a senior fellow of the New America Foundation, a Washington, D.C., think tank. Much of my fourth dimension was devoted to writing a new book on philanthropy, entitled Strategic Giving. In the book, I explain how donors can go well-nigh constructing a strategy to guide their giving and I provide a fix of frameworks and tools to support this task. One of the underlying arguments of the arroyo I sketch is that philanthropy is really virtually effective when information technology simultaneously produces significant public benefits and satisfies donors by allowing them to enact their values and commitment. The book is an extended exploration of how the public and individual dimensions of giving tin can be brought together strategically. The book will be published toward the stop of 2003 by the Academy of Chicago Press.

Footnotes:

3. Joseph S. Nye, Jr., Philip D. Zelikow, and David C. King, Why People Don't Trust Regime (Cambridge, Mass.: Harvard University Press, 1997).

4. The idea of nondistribution constraint is clearly outlined in Henry B. Hansmann, "The Role of Nonprofit Enterprise," in Susan Rose-Ackerman, ed., The Economics of Nonprofit Institutions: Studies in Structure and Policy (New York: Oxford Academy Press, 1986), pp. 57-84.

v. The literature on the direction of public sector organizations provides insights into some of the challenges of sustaining and leading a nonprofit organisation. Some of the best studies of public management include Michael Barzelay Breaking through Bureaucracy: A New Vision for Managing in Government (Berkeley: University of California Press, 1992); Sanford Borins, Innovating with Integrity: How Local Heroes Are Transforming American Government (Washington, D.C.: Georgetown University Printing, 1998); Laurence E. Lynn, Jr., Public Management every bit Art, Science and Profession (Chatham, NJ.: Chatham House, 1996); Marker H. Moore, Creating Public Value: Strategic Management in Government (Cambridge, Mass.: Harvard University Press, 1996); David Osborne and Ted Gaebler, Reinventing Authorities: How the Entrepreneurial Spirit Is Transforming the Public Sector (New York: Plumage, 1992).

half-dozen. A good give-and-take of the legal framework guiding accountability in the nonprofit sector tin can be constitute in Laura Chisolm, "Accountability of Nonprofit Organizations and Those Who Command Them: The Legal Framework," Nonprofit Direction and Leadership half-dozen, no. ii (Wintertime 1995): 141-156.

seven. Kevin Eastward. Kearns, "The Strategic Management of Accountability in Nonprofit Organizations: An Analytic Framework," Public Assistants Review 54, no. 2 (1994): 185-192; Kevin Eastward. Kearns, Managing for Accountability: Preserving the Public Trust in Public and Nonprofit Organizations (San Francisco: Jossey-Bass, 1996).

8. Henry Hansmann, The Ownership of Enterprise (Cambridge, Mass.: Harvard University Press, 1996).

9. Kirsten A. Grønbjerg, Understanding Nonprofit Funding: Managing Revenues in Social Services and Community Development Organizations (San Francisco: Jossey-Bass, 1993).

ten. Nearly notably Wisconsin and New York City transformed their public assistance programs and made community service or role-time employment a requirement.

11. Thomas Haskell, ed., The Authority of Experts: Studies in History and Theory (Bloomington: Indiana University Printing, 1984).

12. Ane critique of philanthropy has emphasized that some funders take channeled social protest and deradicalized grassroots social movements past imposing constraints and attempting to shape these efforts. See J. Craig Jenkins, "Channeling Social Protest: Foundation Patronage of Contemporary Social Movements," in Walter W. Powell and Elisabeth S. Clemens, eds., Private Activeness and the Public Good (New Oasis, Conn.: Yale University Press, 1998), pp. 206-216; and Rosa Proietto, "The Ford Foundation and Women'due south Studies in American College Education: Seeds of Alter?" in Ellen Condliffe Lagemann, ed., Philanthropic Foundations: New Scholarship, New Possibilities (Bloomington: Indiana Academy Printing, 1999), pp. 271-286.

xiii. The nonprofit and voluntary sector also includes fringe organizations that espouse farthermost political and racial views and rely on violence and intimidation. Although these organizations are a small-scale function of the organizational universe, they undercut the image of a sector that does nothing simply good. On the dangers of voluntarism, come across Morris Eastward. Fiorina, "Extreme Voices: The Dark Side of Civic Engagement," in Theda Skocpol and Morris P. Fiorina, eds., Civic Engagement in American Democracy (Washington, D.C.: Brookings Establishment Press and Russell Sage Foundation, 1999).

xiv. The issue of how much nonprofit workers earn, and the need for complete public disclosure that compensation decisions create, is taken up in Peter Frumkin, "Transparent Nonprofits," The Public Interest 142 (Wintertime 2001): 83-94. See as well Peter Frumkin and Alice Andre-Clark, "Nonprofit Compensation and the Market place," University of Hawaii Law Review 21, no. 2 (Wintertime 1999): 425-485.

15. See Henry Hansmann, "Why Practice Universities Have Endowments?" Journal of Legal Studies nineteen, no. 1 (Jan 1990): three-42.

xvi. Steven E. Permut, "Consumer Perceptions of Nonprofit Enterprise: Comment on Hansmann," Yale Police Journal 90, no. 7 (June 1981): 1623-1632.

17. The adoption by near states of the American Bar Association'southward Model Nonstock Corporation Statute had a pregnant bear on on accountability and ownership problems in nonprofit organizations. Among other things, the statute shifted the fiduciary standard toward a business judgment standard and away from that traditionally practical to trusts. In so doing, it enabled nonprofit boards to use proxy voting, change past-laws without membership approval, and delegate powers to executive committees. The chief outcome of these changes was to empower boards and to weaken the role of members (in membership organizations). For a detailed business relationship of this shift, run into Michael C. Hone, "Aristotle and Lyndon Baines Johnson: Thirteen Ways of Looking at Blackbirds and Nonprofit Corporations: The American Bar Association'due south Revised Model Nonprofit Corporation Human action," Case Western University Police Review 39, no. 3 (1989): 751-762; and Peter Dobkin Hall, "Law, Politics, and Charities in the Postal service-Liberal Era," in Paul Pribbenow, ed., Serving the Public Trust: Insights into Fundraising Inquiry and Practice (San Francisco: Jossey-Bass, 2000), pp. 5-31.

18. For a good overview of the bug related to the conversion of hospitals from nonprofit to for-profit status, see John H. Goddeeris and Burton Weisbrod, "Conversions from Nonprofit to For-Turn a profit Legal Status: Why Does It Happen and Should Anyone Care?" Journal of Policy Analysis and Direction 17, no. 2 (1998): 215-233; John H. Goddeeris and Burton Weisbrod, "Why Non For-Turn a profit? Conversions and Public Policy," in Elizabeth T. Boris and C. Eugene Steuerle, eds., Nonprofits and Government: Collaboration and Conflict (Washington, D.C.: Urban Institute, 1999), pp. 235-266. See besides Gary Claxton, Judith Feder, David Shactman, and Stuart Altman, "Public Policy Issues in Nonprofit Conversion," Health Affairs 16, no. two (March-April 1997): 9-26; and Jerome Due east. Kassirer, "Mergers and Acquisitions: Who Benefits? Who Loses?" New England Journal of Medicine 334, no. eleven (March 1996): 722-723.

19. Studies of nonprofit organizations have tended to focus on large established nonprofits considering they control the bulk of the finances within the sector. However i recent estimate suggested that there may well be a substantial number of small, informal organizations that operate nether the radar screen of researchers. See, for instance, David Horton Smith, "The Residuum of the Nonprofit Sector: Grassroots Associations as the Dark Matter Ignored in Prevailing `Flat Earth' Maps of the Sector," Nonprofit and Voluntary Sector Quarterly 26, no. 2 (June 1997): 114-131.

20. On the discontinuity between traditional voluntary associations and more than mod voluntary organizations, see Peter Dobkin Hall, "Vital Signs: Associational Populations and Ecologies in New Oasis, Connecticut, 18501990," in Skocpol and Fiorina, eds., Civic Date in American Democracy, pp. 211-248. On the wide evolution of voluntary associations, see Gerald Gamm and Robert Putnam, "The Growth of Voluntary Associations in America, 1840-1940," Journal of Interdisciplinary History 29, no. 4 (Bound 1999): 511-557.

21. The importance of trust is examined in an increasing number of studies, including Roderick M. Kramer and Tom R. Tyler, Trust in Organizations: Frontiers of Theory and Research (Thou Oaks, Calif.: Sage Publications, 1996); Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (New York: Free Press, 1995); and Adam B. Seligman, The Problem of Trust (Princeton, NJ.: Princeton Academy Press, 1997).

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