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Wednesday, September 10, 2008

Who profits from a non-profit?

Long ago and far away, when I was in business school, there was a professor who discussed the difference between for-profit and non-profit organizations. He said that the difference was, in many cases, slim to nil. To justify his position, he went on to describe how a number of organizations were making the transition from for-profit to non-profit as a strategic business move to gain access to more private dollars. In addition, they no longer had to account to shareholders, but the executive leadership could still make out quite well financially. He concluded his presentation by stating that, although non-profits call it a surplus when revenues exceed expenses, it is profit just the same in his book.

While I do not entirely agree with the good professor, he certainly did provoke a lot of discussion and thinking on my part about the engine that drives a non-profit. In theory, a non-profit is to be driven to do things based upon its mission. However, in the real world, that is often not the case. I have seen many people in charity leadership roles, who only care about their own self interest. They will mouth allegiance to their charity's mission, but in reality they could care less. They will spend all their time on self promotion and trying to carve out a bigger and bigger piece of the agency pie to go into their compensation package, while getting their ego stroked as they claim most of the responsibility for any and all organizational achievements.

I have also observed that, absent the profit motive in non-profits, the motive that usually replaces it is growth. This motive can align well with the mission of an organization in that, the more you grow your programs and services, the more you can do to fulfill your mission. In fact, as is evident from our rating system, we consider such growth vital to the ongoing financial health of a charity. However, as noted in the preceding paragraph, growth can be just another tool to be used for the underlying motive of providing more of a pie from which to draw CEO and other executive leadership compensation.

For better or worse, how this all plays out usually flows from the values and perspective of the CEO. That person invariably sets the tone for the organization and the parameters of what is important on a day-to-day basis. If they spend half their time in the office playing with their stock portfolio on the Internet or don't show up until noon or later each day, others will notice and morale will suffer. Staff who are truly committed to the mission will likely become disgusted and move on. Sometimes, the staff will remain and become cynical and eventually lose their passion for what they are doing. In other cases, staff will just quit the field entirely. The end result of all this is that over time the agency will invariably slide down the path of diminshed quality and service.

I have just given you the extreme case. I suspect that many more agencies fall into a gray area. They are in constant tension between the selfish ambitions of the leadership and the mission of the organization. It is often a never ending tug of war. Perhaps that is the best we can usually hope for, given human nature and the fact that most of us are not a Gandhi or Mother Theresa? We have stated in another blog entry and in our FAQ for Donors that we believe that most CEO's are well-meaning, dedicated and deserving of their compensation. In other words, in the tug of war between selfish ambition and mission, a majority of CEO's end up doing the right thing, but there are also a quite sizable number who do not!

This is one of the reasons why I believe Core Values must be more than a sign on the wall in order for a charity to thrive. As I have noted in an earlier blog, the CEO has to live and breathe the Core Values. Those values are supposed to capture the culture of the organization. The CEO must truly have a heart for the mission of the organization that outweighs his or her own self interest (the self interest may still be there, but the values are given greater value!). I am happy to say that I have seen CEOs who are like that. Yet, I am sad to say that I have seen many who are not.

So who profits from a non-profit? As noted above, sometimes the person who profits is the CEO. Those who SHOULD profit are the persons or cause that the charity's mission serves. The CEO is the linchpin around which way that "profit" revolves. In next week's blog entry I will suggest what to do if your CEO is "revolving" badly.

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