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  • Establishes how private monies that are not channeled through the government by taxation could be used for public good.Colonial American influenced by Common Law; NPOs influenced by Statute of Charitable Uses.Thomas Jefferson had a dim view of all types of corporations, the power they may be given, and what they may do with that power.Several southern and western states agreed with Jefferson and annulled the English Statue of Charitable Uses giving state government control of property owned by NPOs.
  • Work done mostly by religious organizations using fees as primary form of funding, followed by government subsidies of land and tax benefits (Hammack, 2002, pp. 1651-1653).States’ beliefs regarding corporations, religion, race, and gender guided NPO law and governance.For example in some southern states NPOs may be required to support segregation (Hammack, 2002, p. 1654).20th century growth began due to changes in tax law and the increase in non-sectarian nonprofit recearch and medical facilities (Hammack, 2002, p. 1658).Social movements & increasing affluence allowed for tremendous growth.
  • The public goods theory was one of the first theories published to explain the existence of nonprofit organizations. Nonprofit organizations under the public goods theory provide an unfilled demand for public goods established and financed through voluntary contributions of citizens who want to increase the output or quality (Anheier, 2005, p.121). It also provides the frame work for “social cohesion” and provides the public with goods through donor support, which otherwise would have to be provided by the government. (Anheier, 2005, p.123)¹The quality or state of being heterogeneous meaning mixed, consisting of dissimilar or diverse ingredients or constituents (Merriam-Webster, 2008, p.584)
  • Demand HeterogeneityDemand heterogeneity refers to the demand for public and quasi-public goods and the extent to which the demand is present (Anheier, 2005, p. 121). Later studies conducted by Feigenbaum (1980) and Chang and Tuckerman (1996) further show that a heterogeneity in a population is related to the increase in size of the nonprofit sector because the demand for public goods are increased (Anheier, 2005, p. 121).Median VoterThe term median voter also plays a significant role in the Weisbrod model which represents the statistically average person(s) representing the largest segment of the demand for public and quasi-public goods within the electorate (Anheier, 2005, p. 121). This concept is particularly attractive to government officials because it maximizes their chances of re-election by providing a public good at the level required by the median voter which is reaching out to the largest audience (Anheier, 2005, p.121).
  • The entrepreneurship theory was established by Joseph Schumpeter, an Austrian-American economist who believed that entrepreneurs help to develop the economy through innovative and creative foresight. Schumpeter argued that the innovation and technological change of a nation comes from the entrepreneurs, or wild spirits (New World Encyclopedia, 2011). According to Schumpeter, innovation occurs when the entrepreneur is successful in one or all of the following: - Creation of a new good or new quality of good - Creation of a new method of production - The opening of a new market - The capture of a new source of supply for raw materials - A new organization of industry (Schumpeter, n.d.)
  • Although social entrepreneurs operate under the same principals as business entrepreneurs they are vastly different in that the concentration is shifted from monetary gains to social gains. (Anheier, 2005, p.127)Social entrepreneurship can be achieved by-Adopting a mission that creates and sustains social value-Continuously pursuing new opportunities to serve the mission-Engage in the process of innovation, adaption, and learning-Act boldly regardless of resources that are in hand-Exhibit a heightened since of the constituents which are served and for the outcomes created. (Anheier, 2005, p.127)
  • Under the Trust Theory there are some key terms that come into play. The Provider and Client in this case, and as it relates to nonprofits, would be the original Provider, the for-profit organization, and the Client would be the donor (Anheier p. 124). Inherent Information Problems or the Informational Asymmetries speaks to the relationship between the Provider and the Client and how the Provider of goods and services may have privileged information that could put the client at a disadvantage as it relates to buying goods and services or in the donors case making a wise donation (Anheier, p. 124).Non-distribution Constraints addresses the fact that nonprofits have an advantage over for-profits organizations in that they don’t distribute their profits to any third parties, such as owners or stockholders. Hence, nonprofits have the presumed appearance of trustworthiness because they do not benefit from Informational Asymmetries and therefore have less of a reason to profit at the expense of the client or donor (Anheier, p. 124).According to the Trust Theory there is a Contract or Market Failure when Informational Asymmetries are used by the Provider of goods and services to take advantage of the client or donor. Furthermore, it is this misuse of Informational Asymmetries that brought about The Need for more Trustworthiness (Anheier, p. 124).
  • Let’s look at it this way: According to the Trust Theory, for-profit organizations (the provider) are motivated by profits. Because they control the flow of the information that the client needs to make a wise choice in buying, it is believe that they can give information that is not true. They could possible do this to increase their profit margin. Under the Trust Theory this would create a contract or market failure between the provider and the client of goods and services. However, in order to find a more trustworthy flow of information, the nonprofit came into existence (Anheier 124). What makes the nonprofit any better than the for-profit? The nonprofit is not motivated by profits. Therefore, according to the Trust Theory, there is no information dilemma. Hence, there is a trustworthy flow of information. This means that client can be certain that the provider, the nonprofit, of the goods and services is making a fair contract with the client (Anheier 124-5).
  • In other words The Stakeholder Theory starts with Hansmann’s rational that there is a conflict of interest between seller and buyer in the purchase of goods and services. The buyer wants the goods and services at the lowest cost and best quality and the sell wants to make the greatest possible profit by delivering the goods to the buyer at the highest cost possible and the lowest quality (Anheier, p. 129).If the flow of information, in term of product cost and consumer preferences, is balanced between the buyer and seller each party can complete the transaction at a fair price. However, due to information asymmetry buyers are not in the best bargaining position. They (the buyer) often find themselves taken advantage of by sellers who are only out to get the maximum profit (Anheier, p. 129). Again, because of the non-distribution constraint it is the nonprofit organization which resolves this conflict. Because they are not concerned with making a profit, the nonprofit organization will, more than likely, not give the buyer the lowest quality product to achieve maximum profitability (Anheier, p. 129)… and this is the rational of the Stakeholder Theory.
  • Lester M. Salamon developed this theory (Anheier, p. 130).The theory goes on to say, . It goes on to say that the government supports the nonprofit sector both directly and indirectly, in funding, accountability standards, and providing ancillary resources such as experts in particular fields.
  • The government can help nonprofits by providing stable funding streams, developing regulations to ensure that nonprofits serve a large cross section of those in need, laws and standards that ensure accountability, and professional resources. Government can provide resources to combat these deficiencies in nonprofits. Interdependence Theory brings the relationship between nonprofits and government into less competition and more collaboration (Anheier, 2005, p. 131). Specific deficiences of nonprofits include: Philanthropic insufficiency—lack of resources Philanthropic particularism—choosing who a nonprofit serves Philanthropic paternalism—lack of accountability Philanthropic amateurism—nonprofits lack professional staff such as social workers & psychologists (Anheier, 2005, p. 130-131).
  • Examples of nonprofits that have worked with the government to influence policy include; NAACP and MADD (Anheier, 2005, p. 287). In this way working with the government allows a nonprofit to influence legislation and regulations to further their cause. This can be especially helpful for social movements. Another example that Interdendence Theory loans nonprofits is the idea of resource sharing beyond funding. By using government resources, nonprofits can conserve resources by using government professionals. For example, instead of paying for a social worker on staff, use a government funded social worker.
  • A more international theory, Social Origins Theory states that nonprofits are developed on history, financial and social norms of country in which they serve. Social Origin Theory attempts to explain the differences in the nonprofit sector throughout the world, through discussing power, history, and resource allocation. This helps “account for cross-national differences in the nonprofit sector and scale” (Anheier, 2005, p. 135-136).
  • Liberal model—a lower level of government spending with a large nonprofit sector. The benefit of this model is a large nonprofit sector. The US and the UK are examples of this model.This model usually has ideological & political hostility associated with the allocation of government resources (i.e. Planned Parenthood in DC included in federal budget debate, April 2011). Social democratic model—an example of this model is Sweden where the government sponsors and runs most of the social welfare programs. In this model nonprofits are quite constrained. Nonprofits in this model often have a different role in advocacy or self-expression rather than social service delivery. Corporatist model—France & Germany best represent this model. Through the elite governments are basically forced to interact with nonprofits and assist in social welfare. Through history governments have forged alliances with nonprofits, often religious in nature. Statist model—as one can see in Japan, small government interaction with nonprofits is the crux of this model. Yet, the government retains the upper hand but is not supplying social welfare. The level of nonprofits available is small as is government involvement (Anheier, 2005, p. 136-137).
  • As Social Origins theory explains it depends on where a nonprofit is entrenched to determine the government funding and collaboration. As we can see by the graph Latin America depends less on public funding and more on private fees. The United States also gathers money from private fees but public sector funding is a major source of funding (Salamon, 2002, p. 31).
  • NPOs are increasingly in competition with the for-profit sector and under scrutiny of the government and public pushing the need for more professional style and efficient management.These six responsibilities of the board are generally agreed upon by the industry.Research into board & organizational effectiveness produces some commonalities of good management.
  • Mission statements are the driving force behind the organization. When used effectively mission statements can improve efficiency, productivity, and retention. Nonprofit success can be driven my its mission statement. When using a mission statement organizations should pay special attention to how it is developed, using it in policies and procedures, and goal setting. The benefit of having a strong mission statement is that it can assist a nonprofit organization in branding themselves to the community. This can lead to increased revenue, advocacy, and collaborations.
  • Transcript

    • 1. Theory, Management, and the Survival of the Nonprofit Organizations Presented By Jennifer S. Drganc Jonathan V. Metro Jennifer G. Morrow Jacob J. Sylvester 17 APRIL 2011
    • 2. TABLE OF CONTENTS  History  Theories ◦ Public Goods ◦ Entrepreneurship ◦ Trust ◦ Stakeholder ◦ Interdependence ◦ Social Origins
    • 3. TABLE OF CONTENTS CON’T  Nonprofit Success ◦ Professional Management ◦ Mission Statements ◦ Technology ◦ Leadership
    • 4. HISTORY Why is history important?
    • 5. HISTORY  British Statute of Charitable Uses-1601  Colonial American influenced by British Common Law  Post-American Revolution 1. NPOs and the holding of property 2. Jefferson’s anti-corporation stance influences southern states  NPO growth affected by 1. Proliferation of established religions 2. Growth of cities
    • 6. History continued...  19th century charity work mostly through religious organizations 1. Fees primary form of financing 2. Government subsidies second  States control NPOs but have different views  States enforce the cultural norms well into the 20th century  After WWII 1. Increasing affluence 2. “Great Society” 3. Civil rights movement  20th century experiences tremendous growth  As of 2004, NPOs employ 7.2% (paid) of American workers (Salamon & Sokolowski, 2006, p. 3).
    • 7. THEORY Why is Theory important?
    • 8. Public Goods Theory  Established in 1975 by the economist Burton Weisbrod  Provides a rationale for the formation of nonprofit organizations to provide public goods.  Weisbrod model uses two basic concepts : “demand heterogeneity¹” and “median voter”.
    • 9. WEISBROD MODEL Demand Heterogeneity  Refers to the demand for public and quasi-public good(s)  Provides a wide base for nonprofit organizations to exist  Related to the increase in size of the nonprofit sector Median Voter  Represents the statistically average person(s)  Is attractive to government officials
    • 10. Entrepreneurship Theory  Established by Joseph Schumpeter  Innovation and technological change of a nation comes from the entrepreneurs, or wild spirits (New World Encyclopedia, 2011)  Innovation occurs when the entrepreneur is successful in one or all of the following: - Creation of a new good or new quality of good - Creation of a new method of production - The opening of a new market - The capture of a new source of supply for raw materials - A new organization of industry (Schumpeter, n.d.)
    • 11. REQUIREMENTS FOR SUCCESS Ortmann and Schlesinger (2003) assert that there are three challenges that must be met simultaneously in order to ensure success with trust-related theories 1) Non-distribution constraint must affect incentives within the nonprofit firm in way that are compatible with trustworthiness (incentive compatibility challenge) 2) Nonprofit behavior must not be adulterated by individuals taking advantage of the perceived trustworthiness (adulteration challenge) 3) Nonprofit status must be treated as a reliable predictor of organizational behavior by consumers, when the reputation of individual firms in not seen as reliable (reputational ubiquity challenge) (Helmut, 2005, p.125)
    • 12. SOCIAL ENTREPRENEURSHIP  Vastly different than business entrepreneurs in that the concentration is shifted from monetary gains to social gains  Social entrepreneurship can be achieved by ◦ Adopting a mission ◦ Pursue new opportunities ◦ Utilize innovation, adaption, and learning ◦ Act boldly ◦ Exhibit a heightened since of the constituents
    • 13. THE TRUST THEORY So, What is the Trust Theory? The Trust Theory is a theory which deals with informational problems inherent in the goods or services provided and the trust dilemma associated with them (Anheier, p. 124). The information problems associated with getting goods and services from the provider to the client is said to be what brought on the existence of the nonprofit.
    • 14. THE TRUST THEORY THINGS TO REMEMBER:  Provider and Client  Inherent Information Problems  Non-distribution Constraint  Contract or Market Failure  The Need for Trustworthiness
    • 15. THE TRUST THEORY Let’s Look At It This Way!
    • 16. THE STAKEHOLDER THEORY So, What is The Stakeholder Theory? The Stakeholder Theory is a theory which was developed by Avner Ben-Ner and it is built upon he Trust argument developed by H. Hansmann. According to the theory there are many problems which may contribute to the consumer’s inability to know whether their Provider of goods and services is acting in a trustworthy manner “under normal contractual or market mechanisms, thus resulting in contract or market failure.” According to this theory or rational this is the reason why nonprofits are born…”because some demand for trust goods in market situations are not met by private firm” (Anheier, p. 128-9).
    • 17. THE STAKEHOLDER THEORY In Other Words…
    • 18. INTERDEPENDENCE THEORY Interdependence Theory states, unlike other nonprofit economic theories, that nonprofits and the government are dependent on one another (Anheier, 2005, p. 130).
    • 19. Interdependence Theory Highlights Nonprofit sector and government are more frequently partners rather than adversaries (Anheier, 2005, p.129). Nonprofits are good at the things government isn’t good at and vice versa. Nonprofits have significant deficiencies that the government can address.
    • 20. Importance of Interdependence Theory for nonprofits  There is a risk of decreased autonomy on both the nonprofit and government (Saidel, 1991, p, 551).  By building relationships & collaborations with government bureaucracies, nonprofits have an opportunity to influence regulations.  Using government resources, expanded beyond funding, solely, can make the original funding go further.  Collaboration within the framework of interdependence theory could increase credibility and efficiency.
    • 21. SOCIAL ORIGINS THEORY Social Origins Theory states that the size and structure of the nonprofit sector are a reflection of its insertion, in a complex set of relationships, classes, and regime types (Anheier, 2005, p. 133). That is to say, a nonprofit is a reflection of social forces within the structure its created.
    • 22. SOCIAL ORIGINS THEORY THINGS TO REMEMBER Four different models or “regimes” of nonprofits in Social Origins Theory, based on two key dimensions; the extent of government social welfare spending and secondly, the scale of the nonprofit sector. The four models are: Liberal—US & UK Social Democratic—Sweden Corporatist—France & Germany Statist—Japan
    • 23. Nonprofit Funding Cross-nationally As Salamon illustrates in Graph 1, nonprofit funding comes from private fees, private giving and government funding. On average the government provides 39% of the revenue for the nonprofit sector (Salamon, 2002, p. 31). Graph 1. Percent of nonprofit funding, 1995 (Salamon, 2002, p. 31).
    • 24. Questions remain with Social Origins Theory  How will Social Origins Theory explain the divergence of nonprofits in each of the nonprofit “regimes”? Each country has examples of all types of nonprofits.  What similarities and differences exist in cross-national nonprofits (Salamon, Sokolowski, Anheier, 2000, p. 6)?  How will technology & social media increase similarities in nonprofits cross-nationally?  Is Social Origins Theory enough to explain the width, breadth, and dimensions of the various nonprofits?  Is it possible for nonprofits in an “liberal model” to survive with low government funding among a high number of nonprofits?
    • 25. WHERE DO WE GO FROM HERE? Nonprofit Success!
    • 26. NEED FOR PROFESSIONAL MANAGEMENT Six responsibilities of the board [Ostrower (2007)]  Generating & managing funds  Ensuring work of the organization meets basic legal & ethical standards  Keeping activities focused on the mission  Long-range planning & policy creation  Overseeing recruitment/performance of the CEO  Representing organization to the community Boards of Directors & Organizational Effectiveness—Vital ingredients  Skilled board members with available time to devote to their duties [Brown 2007]  Thorough knowledge & understanding of duties and responsibilities [Cornforth 2001]  Training/orientation [Brown 2007]  Sharing a common vision towards organizational goal achievement [Cornforth 2001]  Periodic reviews of teamwork [Cornforth 2001]  Constructive conflict resolution [Cornforth 2001]  Diversity that reflects the stakeholders involved [Ostrower, 2007]
    • 27. MISSION STATEMENT [Bart, 1997] Written to inspire entire organization, includi ng stakeholders Provide clear & focused direction Assists in guiding resource allocation & defining the programs and goals for the organization
    • 28.  Embrace creativity & change—Competition with profit organizations 1. Plan for sustainability 2. Use creative marketing and brand recognition techniques  Dealing with the economic downturn 1. By November 2010, 63 percent of NPOs reported decreases or stagnation in contributions [Nonprofit Research Collaborative, 2010, p. 2] 2. Define core programs & constantly evaluate [NPW, 2003, pp. 20-21] 3. Alternative methods of financing [ibid] 4. Recruiting staff & board members experienced in financing and marketing [ibid] 5. Form strategic alliances/mergers [ibid]  Create & maintain transparency in & outside the organization 1. Keep Sarbanes-Oxley requirements in mind 2. Create a trusting atmosphere for staff 3. Avoid conflict of interest 4. Create, review, maintain & disseminate conflict of interest & whistleblower policies TIPS FOR FUTURE SUCCESS
    • 29. TECHNOLOGY, TECHNOL OGY & MORE TECHNOLOGY! 1. Social networking 2. No need to reinvent the wheel; use professional organization’s informational & helpful Web sites 3. Better software, hardware & Web sites for the organization [Consider open source resources] 4. Make it professional through innovative funding sources 5. Don’t forget to train! Graph 2. Social Media Outlets by Ethority.
    • 30.  Leadership development & succession planning—Prepare! 1. 2010 North Carolina study found that 69 percent of CEOs plan to retire in next 5 years & only 23 percent have a succession plan [Carmen, Leland & Wilson, 2010, pp. 97-98] 2. Executive directors often hold the corporate history & stakeholder connections 3. Prepare & groom younger employers for these positions now through leadership development activities  Attract and retain younger staff by: 1. Letting them know that you value their opinions 2. Finding ways to increase salaries & benefits to attract experienced staff 3. Providing a more flexible working environment with flexible hours and/or virtual work 4. Providing more opportunities for work-life balance TIPS FOR SUCCESS CONTINUED Derek Sivers-”How to start a movement” is a good video for new managers and the importance of valuing followers. Please right click on link, and click “open hyperlink”. Derek Sivers: How to start a movement | Video on
    • 31. References Anheier, H. K. (2005). Nonprofit organizations: Theory, managemement, policy. New York: Routledge. Bart, C. K. (1997). Sex, lies, and mission statements. (cover story). Business Horizons, 40(6), 9. doi:10.1016/S0007-6813(97)90062-8 Brown, W. A. (2007). Board development practices and competent board members: Implications for performance. Nonprofit Management & Leadership 17(3), 301- 319. doi: 10.1002/nml Cornforth, Chris (2001). What makes boards effective? An examination of the relationships between board inputs, structures, processes and effectiveness in non- profit organizations. Corporate Governance: An International Review, 9(3), 217.229. doi: 10.1111/1467-8683.00249 Carmen, J. G., Leland, S. M., Wilson, A. J. (2010). Crisis in leadership or a failure to plan? Insights from Charlotte, North Carolina. Nonprofit Management & Leadership, 21(1), 93-112. doi:10.1002/nml.20014
    • 32. References ethority Social Media Prisma [Web blog graphic]. Retrieved from Hall, P. D. (1992). Inventing the nonprofit sector and other essays on philantrophy, volunteerism and other nonprofit organizations. Baltimore, MD: Johns Hopkins University Press. Hammack, D. C. (2002). Nonprofit organizations in American history. The American Behavioral Scientist, 45, (11). p. 1638-1674. Retrieved from Jones, F., F. & Morris, M. (1999). Entrepreneurship in established organizations: The case of the public sector. Entrepreneurship: Theory & Practice 24(1), 73-93. Merriam-Webster (2008). Merriam-Webster’s Collegiate Dictionary: Eleventh Edition. Springfield, MA: Merriam-Webster Inc. The Nonprofit Research Collaborative (2010). November 2010 Fundraising Survey. Retrieved from Ostrower, F. (2007). Nonprofit governance in the United States: Findings on performance and accountability from the first national representative study. Urban Institute Retrieved March 1, 2011, from
    • 33. References Saidel, J. R. (1991). Resource interdependence: The relationship between state agencies and nonprofit organizations. Public Administration Review, 51(6), 543. doi:10.2307/976605 Salamon, L. M. (2002). Social engagement. Foreign Policy, (130), 30. doi:10.2307/3183485 Salamon, L. M., & Sokolowski, S. W. (2006). Empolyment in American’s charities: A profile. (NED bulletin 26). Johns Hopkins Nonprofit Employment Data Project. Retreived from Salamon, L. M., Sokolowski, S. W., Anheier, H. K. (2000). Social origins of civil society: An overview. Working Papers of the Johns Hopkins Comparative Nonprofit Sector Project, no. 38. Retrieved from: 2000.pdf Schumpeter, J. (n.d) Schumpeter Entrepreneurs and Innovation. Retrieved from Sivers, D. (2010, February). How to start a movement. [Video blog]. Retrieved from