Why are nonprofits so complicated?

Why are nonprofits so complicated?

The other day I was talking to a friend who also works in the nonprofit sector. We were discussing the complexity that seems to characterise so much of nonprofit life. As many corporate newcomers find when they first arrive in the sector, nonprofits can be incredibly convoluted. Gone is the relative simplicity of the profit motive: enter mission, values, multiple stakeholders and boards; then add complicated funding arrangements, legal and tax requirements, financial struggle (for many) and so on. It’s hard work and I’ve seen many corporate folk flee the scene in despair.

Yes, the cost of ‘doing good’ can be high. But the question remains: why are nonprofits so complicated – how did they get that way? 

As we talked the answer arrived: nonprofits are complicated because they are forever trying to compensate for inadequacies in human behaviour.

What did we mean by this? Well, simply that there is an inherent and permanent tension in nonprofits that makes nonprofit life hard. Perpetually obliged to live up to the ideal of social good, they are nonetheless as troubled by shortcomings in human behaviour as the next organisation (and by that I mean all organisations, whether located in the business, government or nonprofit sector).

For example, nonprofits operate with a special set of legal and taxation rules that set them apart from their for-profit peers. These are to ensure they’re prevented from distributing any profit they might make to their directors; to uphold and signal their legitimacy as an organisation worthy of public trust. There are more special rules if they wish to claim charitable status, and if they wish to obtain donations and fundraise.

Yet unfortunately I’ve seen (and on several occasions) evidence these rules do not on their own ensure a ‘by the book approach’ to nonprofit management, governance or indeed participation of any kind. In my years as a nonprofit consultant, board member and staffer I’ve variously seen fraudulent behaviour; corrupt, self-serving and ultimately undermining behaviours; various ‘wars’ erupt over issues small and large, most of which were motivated by personal-political desires – and more. My friend had witnessed same.

In short, what I’ve seen behind the scenes often offered little to distinguish nonprofits from the worst excesses of corporate or bureaucratic life. Then there are the complications that arise in many nonprofits around funding arrangements – even the smallest are not immune from these. My friend and I pondered how much simpler nonprofit life would be if the nonprofit legal structure disappeared altogether!

This is not to suggest we do away with social or community-oriented work. Rather, what if the way forward was to start talking about integrity across the whole of organisational life, from nonprofit and government entities to corporate and small and micro-businesses?

If we made all organisations about integrity, service, people and humanity first, everything they did as a result would be for the benefit of all. Coca-Cola would be just as much about humanity as selling beverages, which would naturally change their product offerings, few of which we could honestly say amount to anything helpful for anyone other than shareholders.

Conversely, the small nonprofit could be operating as effectively and as simply as the successful sports store down the road, entirely paying its own way, light on management and governance, nimble and responsive to change.

Citizens utilising the services of or working in the humanity-first organisation would do so with equal responsibility and integrity.

We’re not the only ones to think this way – there’s certainly a move towards greater integration of business and nonprofit models with the uptake of concepts like social enterprise, profit-for-purpose business and ‘shared value’ (corporate and nonprofits working together for social and economic benefit) gaining ground – just last night I went to a well-attended seminar on the latter.

It will be interesting to see what the future holds in terms of this kind of hybridisation, and it’s interesting to see it is underway with the advent of the new social business forms mentioned above; and there’s certainly no denying humanity has a long way to go in terms of our relationship with integrity.

But at the end of the day, my friend and I couldn’t see another way forward that would amount to anything less than the true service we deserve from every organisation with which we deal.

Can you?

by Victoria Lister