Blurred Definitions of Social Good Organizations

Nancy Scola of TechPresident sent me a link to her post, “Why Should Non-Profits Get a Break?” which asks interesting questions about the differences, and different treatments of, socially responsible businesses and nonprofits.

Nancy makes an excellent point when she writes, “the nature of work is changing faster than our old categories for what it is we’re all doing to make a buck (even if we re-invest that buck into our organizations).”

There has been an explosion in the number of new business that have social responsibility at the core of their business. There has also been a trend of many nonprofits organized to do work like corporations – with fee-for-service revenue and ROI at the core of their organizations.  There is a blurring of the lines between nonprofits and socially responsible businesses,  but there are still two very significant and important differences.

The first difference is about accountability. Lucy Bernholz coined the phrase, “embedded giving” whereby for profit businesses can say some portion of their profits are going to charity, but they are under no obligation to say how much was donated, or even to which specific organization. Even if a company pledges that 5% of the profits will go to charity, there is no way for a consumer to know if it actually did go or exactly how that 5% was calculated.

The second difference is that nonprofits are provided tax breaks for providing a public good. There is a clause in the tax code for public charities called the public support test. Basically, that clause says that at least one-third of all of the support for an individual charity needs to come from the public – not from one individual and not from business operations unrelated to its core mission like sales or subscriptions. Many nonprofits would fail this test if the IRS were paying attention – but the intent is that nonprofits have tax breaks because they provide a pubic good that is supported by the public.

There has been an explosion in the number of corporations that specifically have social responsibility at the core of their purpose. For instance, the increasing number of corporations designed as “B Corporations”. In addition, as President Clinton reported this week from the Clinton Global Initiative, corporations that don’t have social responsibility at the forefront of their purpose are finding that philanthropy is good for business.

But it doesn’t mean that these corporations have the same fundamental purpose as nonprofits.

One more important difference between nonprofit and corporations. Some nonprofits, not all of them, have as their mission doing unpopular work. Take Volunteers of America. They provide a host of social services, and have for over one hundred years,  for the hardest to reach, hardest to help people. People with severe physical and mental handicaps. People who will never hold a steady job or own a home. People who need never ending charity from people and organizations with never ending patience. Those organizations don’t have a profit margin the way a corporation does, and they shouldn’t, and they need to be protected to do their work.

The tax code bunches too many disparate organizations into one overall umbrella of nonprofitness. Universities, hospitals, advocacy groups, direct service providers are clumped under the same tax exempt designation. It doesn’t make any sense any  more. And there are some nonprofits that are organized like businesses that shouldn’t be tax exempt at all. But, then, there are organizations that are in the business of performing acts of loving kindness ever day. They provide almost no reward for their employees and volunteers but psychic ones that need to be protected and honored for their work and not lumped in with the rest of the business world.

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