A New Framework for the Nonprofit Sector

Former Library Company of Philadelphia Building (Lintel Detail – Statue of Franklin, ca. 1912)

The Problem.

The American nonprofit sector, from its origins in the early 20th century, has built itself in the image of the private sector. Private sector thinking, assumptions, values and practices have intruded the management of what is actually a commons–a set of resources (financial, human, physical, intellectual) that are stewarded and sustained for the benefit of a defined group of people. This misapplication of private management and free-market thinking to a landscape of commons resources is the root of most, if not all, of the nonprofit sector’s challenges today. 

Private sector thinking is not wrong or without value; free-market capitalism has an important role to play. It is the misplacement of private-sector thinking in the commons sphere that is problematic. In fact, we live in an age of detrimental incursion of private interests and mindset in both the commons and public (government) sectors. The growth of lobbying and private-sector regulatory appointments since the 1980s at all levels of government have transferred the resources of the commons into private hands. In a healthy social democracy, government is supposed to be a counterbalance to the more negative forces of self-interest and inequitable asset accumulation endemic to capitalism. It would be better if the private sector kept its hands out of government and the commons. With deliberate coordination and conscientious separation, all three sectors can contribute more effectively to a healthy society.

Private sector assumptions applied to the commons leads to trouble. Free-market thinking tells us that to pursue independent vision, mission, or work, we need an independent corporate form, furnished with all its own bank accounts, board, staff, and other critical infrastructure. Separation and sovereignty of assets are the orders of the day. Private sector thinking, as applied to nonprofits, assumes that boards are there to protect and perpetuate a specific mission, mimicking the strategies of private wealth building. Private sector thinking is transactional and founded in scarcity: one organization’s loss is another’s gain. And competition is the key. Even philanthropic cultures are transactional; they are about finding the best or most impactful solution in the marketplace. And competition for solutions is healthy. It’s how “real” business gets things done. 

Private sector thinking in general yields a culture of asset accumulation, winner-take-all, nothing-less-than-#1, loss/gain, and scarcity for most of us. Applied to the nonprofit sector, this is why conversations about collaboration, repositioning, and partnership are so perennially challenging. It is why at conference after conference we momentarily rally around cries for more communication, more partnership, more sharing, only to go back to our organizations and return to lives of quiet desperation and the competitive sport of institution building. 

Private sector thinking is why we have nearly one million registered nonprofits in the U.S. today, of which 97% operate below $5 million in budget, and more significantly 88% have budgets of less than $500,000. Yet this vast landscape of small-scale, locally acting organizations is responsible for roughly 80% of the expenditures and related activity of the entire sector. It is a sobering challenge to Pareto’s famous 80/20 principle–20% do 80% of the work. Well, in the commons sector, 80% do 80% of the work. 

Yet, this landscape of small organizations is inherently fragmented and perennially fragile, starved for resources, and overwhelmed by demand from their communities: per the Nonprofit Finance Fund, 86% report increasing demand for services, yet 57% cannot meet demand; 62% report that financial stability is their top challenge; and 50% have less than one month of operating reserves. This fragility is largely the result of continued fragmentation and isolation of nonprofit activity brought on by the very private sector assumption that independent formation is how you pursue a mission, how you become strong. In truth, the assumption that independence of vision and purpose requires independence of infrastructure is not axiomatic. There are other paths: sharing essential backbone infrastructure, for example. 

Continued fragmentation is the reason the institutional philanthropy enterprise of “nonprofit capacity building” has been largely a failure, especially when we regard the nearly one million nonprofits extant today. How can funders build the capacity of each and every organization, working one at a time and often paying market-rate for consultants to facilitate the process? There is not enough human and financial capacity in the system for such a task. Even when it is successful, the fragility of most nonprofit resource models, the lumbering pace of funding, and the dynamism and increasing cadence of crisis in today’s world assure that the rock of Sisyphus will surely roll back down the mountain. 

Our capitalist and market-driven culture tells us this is the only (or at least the best) way. It isn’t. In fact this thinking is detrimental to the effective and collective stewardship of common good. Can we afford to let this vast ecosystem of small, locally focused missions remain on the brink in a world of greatly broken government and historically high social and economic inequity? We cannot. This answer was clear before the Covid-19 pandemic. Now the need for reframing and radical rethinking is all the more urgent.

The Solution.

Commoning. The nonprofit sector has always been a commons, namely a set of resources (financial, human, physical, intellectual) that are stewarded and sustained for the benefit of a defined group of people. Commoning is the activity of stewarding and maintaining commons. All nonprofit assets are by law the property of the people of the state in which the nonprofit resides and are to be used for their benefit. The assets are not (truly) owned by any individual nonprofit, nor the government, nor any person or private concern. They belong to the people of the given state. For practical necessity, boards are permitted to govern these assets locally, but serve as proxies to the state’s Attorney General, who speaks for and protects the interest of the people. As neither private nor public, nonprofits actually constitute the commons sector.

Commons thinking says that because there is not one owner, we can and should share lots of things more freely: ideas, staff, technology, funds, relationships, space, even legal and corporate forms, provided we share a set of rules and values for managing together. If we accept that the “assets” of all nonprofits in our state have the same legal status, we do not need so many independently formed entities, with struggling boards, working in isolation. Mutuality and gentle reciprocity and the inherent interconnectedness of purpose and systems replace the separation and sovereignty of the private mindset. Relational and intentional community building is the commons answer to the transactional and tit-for-tat world we occupy. And in embracing these ideas, we move our outlook from scarcity to plenty. 

Since the mid 20th century the nonprofit sector has in fact pursued commoning to achieve just the kind of sharing described above. Though it has been called a different name: fiscal sponsorship. When TSNE MissionWorks started the first comprehensive fiscal sponsorship program in 1959, it was seeking to increase access to government funding for small, community benefit organizations, addressing their lack of capacity to manage that kind of complexity through sharing management in common. CultureWorks Greater Philadelphia, for example,  is a comprehensive fiscal sponsor for the arts and heritage community, founded in 2010. It houses all of the activity of close to 120 distinct creative visions. To the outside world, they appear independent, but they all operate under one nonprofit umbrella, which means one shared back office staff, one audit, one IRS Form 990, and one insurance policy, not 120 of each. CultureWorks’ Program Members, as they are called, also share core values and the benefits of community and collective resources. Fiscal sponsorship offers a model for scalable, collective capacity building, building teams, systems, policies and practices to service hundreds of organizations at a time.

Today, there are roughly 300 fiscal sponsors nationwide like CultureWorks and TSNE. Though they are the shared home for thousands of independent missions and billions of dollars in throughput, they hold the financial activity of no more than 1% of our entire sector. There is tremendous room to grow and complement the various other forms of commons-leaning solutions for our sector, including management services organizations, co-employment collectives, and their many variations.

Commoning tends to act locally and exhibit limits of scale, depending on the resources under stewardship and the needs of the community. Commons are often organized around physical assets (a building, lake, or collection of objects), an area of activity (arts and culture, healthcare, environmental conservation), geography (a town, county, or region), or identity (people of color, low-income populations), or some blend of all of the above. It is no surprise that this pattern of organization charts the evolution of the fiscal sponsorship field.

We might reasonably speculate that most of the people who drive our commons sector are motivated not by private gain but by some manner of duty and mission. We are inherently commoners. We are driven by the fulfillment and satisfaction of potentially leaving this world better than we found it. This is deeply and innately human. Early childhood development studies show that we are all born altruistic; we want to help other humans. However, the first time we make a bargain with a child–finish your plate and you can go play–we start down a path of transactional existence, a program only reinforced by a global, market-driven consumer culture. We hear of constant burn-out, struggle, and fear from those who work in our commons sector. This is simply the result of chafe and dissonance faced every day from the preponderance of private sector thinking and assumptions intruding into commons space.

How did we stray so far from the ideas of commoning, which seem simple and intrinsic to our work? It’s complicated, but we can speculate on a few root causes. In the early days of the sector, once the modern corporate form was introduced in the early 1900s, we shifted our legal model from trusts to corporations, mirroring a sense of best practice from the increasing sophistication and dominance of market-driven capitalism. Corporations were designed to mitigate liability and stand in for a person in the construction of private wealth, as opposed to the fiduciary nature of trusts. Corporations are designed to separate and compartmentalize. Compounding this, the benefactors and titans of industry we invited to be the governors for our sector brought all of their  assumptions about how work and “business” is done in the private sector into the nonprofit boardroom. Later, with the growth of business and NGO management programs and the explosion of the consulting industry in the 1960s and 70s, the nonprofit sector became the beneficiary of the collective and dominant wisdom of the private sector, which readily applied its paradigm without consideration as to whether it was indeed fit to the task of public trust.

We have much work to do to reclaim our sector, to re-establish a clear set of boundaries between commoning and commerce. The shift in mindset is significant. Private sector thinking is so pervasive in American culture, it is almost impossible to think otherwise. It is our ontology, our credo, it is the air we breathe. We in the nonprofit sector are like Copernicus living amidst the darkness of a geocentric world, but seeing the tremendous light and powerful knowledge we could gain, if only we could accept the sun as our center.  To reclaim a world of plenty for our social good sector, a shift of similar magnitude will be required. We must reclaim the commons origins of our work, and with it the light and life that it can bring to so many in need. The stakes have never been higher.

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