Which Sector Are We In, Anyway?

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Despite the chronic under-funding of our work and its relative invisibility in U.S. society, we are, in a very important sense, fortunate as nonprofit leaders. We don’t have to grapple with what philosopher Peter Koestenbaum describes as a major paradox for business leaders: how to preserve human values while coping with a “brutal business reality.” Sure, we have to pay careful attention to the bottom line and make tough, sometimes painful decisions, but our missions are what drive us. We do not have to choose between valuing profit and valuing people.

Third sector organizations exist to make communities better places for people to live, not to maximize the income of shareholders. Shouldn’t nonprofits, therefore, operate according to principles that are consistent with this focus on people rather than profit? Ironically, in pursuit of efficiency, many in the sector still look to the business world for management models. The problem is that this orientation can result in a contradiction between mission and internal practices, creating staff dissatisfaction, turnover, and, ultimately, alienation of the organization from those it exists to serve. If in our efforts to tighten up management and communications systems in our agencies, we forget, even for a moment, why we exist in the first place, we risk losing credibility with staff and constituents.

Commenting on this trend in the current issue of Nonprofit Leadership and Management, Elaine Backman and Stephen Rathgeb Smith assert that the adoption of business models by nonprofits “should be considered a major trend with potentially portentous consequences for civil society and citizenship… To the extent that the boundary between nonprofits and market institutions erodes, the roles of nonprofits in local communities, as well as their guiding norms and values, are likely to change significantly.”

We know that people-centered systems and practices can and do work well in community-based organizations if the requisite leadership commitment and resources are present. They are a natural fit because systems based on partnerships among board and staff members and other stakeholders are true to the values our sector represents. However, for a number of reasons, nonprofits have been slow to adopt more modern, participatory models. Limited time for leadership training and reflection, lack of funding to help leaders learn about and implement new ideas, little margin for error financially, natural resistance to change, and the fear of losing control are all barriers to self-generated change.

Conversely, the more democratic approach often rings hollow, if not hypocritical, when applied in the for-profit environment, which, paradoxically, is where it has gained a foothold. After all, the ultimate purpose of any strategy in the for-profit world is to make money for those who own the company. Management systems that involve more people in decision-making are simply a newer, temporarily more effective means to that end.

Don’t get me wrong; the use of participatory management principles in the business world is not a bad thing. It can result in better, more customer-oriented products and services, happier workers, and smoother labor-management relations, at least in the short term. But I believe it’s the third sector where the partnership model really resonates.

Because nonprofits exist to serve non-financial purposes but must be, at the same time, both entrepreneurial and fiscally prudent, the strategic and policy issues we deal with (even in very small organizations) are far more complicated than for most private businesses. This complex environment means that interdependence—among board, staff, constituents, funders, and colleagues—is critical to sustainability over the long term. Interdependence is the foundation on which partnership rests, making it the perfect model for mission-focused third sector organizations.

The lesson here is: we need to choose very carefully when emulating practices from the business world. Instead, we should look to our own core values and utilize management models that are consistent with them.

Jonathan Spack is executive director of Third Sector New England.