Ten Nonprofits that Function Like For-profits

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May 17, 2011; Source: The Street | Exactly how “nonprofit” some nonprofits are is an increasing issue in multiple arenas. NPQ has written about the Massachusetts AG’s questioning the “nonprofitness” of purportedly nonprofit health insurers, purportedly nonprofit college football bowl games, purportedly nonprofit hospitals (here, here, and here), and even purportedly nonprofit recipients of House Appropriations Committee chair Hal Rogers appropriations decisions. That doesn’t even include NPQ’s attention to “hybrids” such as L3Cs and B corporations, which earned NPQ the sobriquet of being loyal to “charities”, how awful!

The Street’s Joe Mont shows an awareness of all of these issues and compiled a list of ten nonprofits that seemingly have a lot of for-profit DNA in their charitable chromosomes. His list includes:

  • The College Board that issues tests such as the SATs that students need to attend college and test prep materials students need to study for the Board’s exams. Its 2009 Form 990 revealed $623 million in total revenue and a $53.3 million surplus after operating expenses;
  • The Mozilla Foundation, which promotes the Firefox web browser competing with Microsoft and Apple;
  • The National Geographic Society;
  • The $1.1 billion American Cancer Society that like many of the other large national disease charities has “expertly cultivated corporate partnerships to keep the money flowing, collecting donations from their conceptual partners in the pharmaceutical industry;”
  • The PGA Tour;
  • The YMCA, which critics charge has shifted from its core programs “to focus excessively on promoting its gyms to more affluent clientele;”
  • And, as NPQ has written, colleges and universities (because of the billion dollar endowments of some, their “asset holdings far beyond books and professors,” their big business sports teams, and the $50,000 annual tuitions some charge), hospitals that pay their executives as much as for-profits do, and health insurers, like Blue Cross/Blue Shield of Massachusetts that paid its CEO $8.6 million last year (though his predecessor had a compensation package of $16 million in 1996).

The surprise inclusion on the list is the Public Broadcasting System/National Public Radio. Why is it on the list? Maybe its $472.5 million in 2008 revenues? Or maybe it was their PR and lobbyist campaign to fend off proposed Capitol Hill budget cuts, it isn’t clear.

Mont seems fixated on size and executive compensation that may be converting legitimate charities into nonprofit/for-profit organizations. Our feeling is that we have seen nonprofits of significantly small revenue and compensation size that behave with a for-profit ethos as well.—Rick Cohen

  • R Vassallo

    Interesting post Rick. Need to give this one some thought. No doubt the lines are blurring in many areas of the sector but I believe we should define a meaningful distinction going forward. That said, I think Mont is barking up the wrong tree. His train of thought travels the same rails as those who assess non-profit effectiveness based on efficiency of admin costs. Lots of efficient non-profits out there that haven’t moved the dial on the challenge that led to their founding.

  • J N Jones

    One line of this article in particular caught my attention: “hospitals that pay their executives as much as for-profits do”
    Sure, it’s a given that non-profit orgs generally pay less than other sectors, but is that really a good thing that we want to perpetuate?

    I’ve always felt this has limited npos from competing for top talent. Or is this based on the assumption that the warm and fuzzys accomplishing a particular benevolent mission should be sufficient compensation in place of market value remuneration?

  • Dave Magnani

    Rick – you raise a critical and complex philosphical and definitional question without answering it. Thank you. NPQ is a good forum for that, but might there be an in-person assembly that might augment the blog? Maybe IS and/or NCN or both could host such a forum, with NPQ.

  • Keith Bender

    Non-Profit does not automatically include a charitable component. 🙂

    Non-Profit infers some connection to the opposite of For Profit and maybe thats the only distinction implied?

    While we complain about Huge Corporations that pay no tax, are we transferring this grudge to “Non Profits” too?

    Perpetuate myth and half truths and we get Non-Profits afraid to value their contribution to our society in a sustainable way.

    Charitable non profits is apples to Oranges of just a Non-Profit. So confusion causes Ignorance?

  • Bob

    Thank you for continuing this dialogue, I had asked for more and you have provided it. This topic is extremely important to the future of how non profits operate and how they are defined by the IRS tax code. As Dave Magnani suggests, a more in depth analysis would be much appreciated.

  • rick cohen

    Of course, it might also be that the salaries paid by those for-profit hospitals aren’t warranted or excessive. Remember the Senate Finance Committee roundtable on nonprofit hospitals, with the one item that shocked me, that many nonprofit hospital boards have no idea what they pay their CEO and top staff, much less whether they are earning other full-time salaries at other nonprofit or for-profit organizations.

  • rick cohen

    Thanks, Dave. The kind of dialogue that has ensued here with the comments from R Vasallo, JN Jones, and Keith Bender is exactly the back and forth we hoped this would stimulate. Maybe a forum is called for…

  • rick cohen

    Not quite sure I follow all of your points, but you’re right that nonprofit doesn’t automatically mean charitable (which is why in other newswires we have been talking about 501(c)(4)s that the press often calls nonprofits and the public reads as charities, but they aren’t). No, this webpage isn’t transferring the problem of huge corporations paying no taxes to nonprofits. Just look at what we’ve written repeatedly about corporations such as GE on one side (with multiple billions of profit but negative numbers in taxes paid) versus nonprofits being hit with PILOTs, fees, and charges. Thanks for your comment.

  • rick cohen

    We all know about the multiple categories of 501(c) corporations allowed by the IRS. I know of people who have called for additional categories in order to distinguish among different kinds of tax exempt entities that are different in their “nonprofitness.” I would be curious to hear how NPQ readers feel about that idea (for example, a separate 501(c) category for private foundations, for example).

  • Dave Magnani

    Rick – you raise a critical question here
    that deserves a great deal of attention To wit, how does a nonprofit measure success? More directly, what is the relationship of its budget to it mission – long and short term. Big surpluses, at least for a time, can either mean exploitation and abuse or success and hope, just as short term deficits can mean success or weakness.

  • Karen Bassler

    As a consultant to non-profits, I often advise clients to approach their work as if they were a for-profit organization – to develop business plans, include planned growth in their fundraising plans, create a clear and measurable vision of progress, etc. There is much to be learned from for-profit businesses’ approach to achieving their goals. The danger zone is when non-profits start viewing their income as a measure of their success, rather than the impact of their programs.

  • Steve Downey

    I’m disturbed by the implied criticism in this article that non-profits should not be as successful or financial sound and resourceful as for-profit entities; that non-profits shouldn’t go after and pay for top-notch talent and that they must take a vow of poverty as proof of their worth.

    As Keith correctly pointed out, we should not confuse non-profits with charities. Going a step further – why do we continue to treat charities as somehow not deserving of the best talent, financing, and inventiveness that society can possibly give?

  • Michael Trent

    I never knew that the PGA Tour was a non-profit. Why? Golfing is so lucrative. I think college football, especially the bowls should be excluded from their non-profit status, in the areas of basketball and football because of the revenues, especially with the rampant corruption in the recruitment and payoff of players.

  • Bob Johnson

    The npo I work for has observed gross income go from $250k to $10m in about 15 years.
    We measure our npo’s ‘success’ on administrative overhead margin (less than 8%) and programmatic outcomes.
    We also watch nonprofit hospitals, who may have 15% or greater admin overhead and multi-million dollar CEO salaries, with a level of amazement that they continue to be designated nonprofits.
    Good article; keep up the great dialogue!

  • Chp Henry Curtis III


  • Rene Bouchard

    The YMCA provides essential community programs. I am currently receiving financial assistance from a YMCA to send my son to summer camp so that my husband and I can both work. Such assistance would not be available were the YMCA not allowed to fundraise. Without affordable summer camp and after school programs run by the YMCA, my husband and I would not be able to work. We need both our incomes to maintain our modest home and lifestyle. Additionally, the YMCA provides financial assistance to adults who cannot afford membership. The YMCA also works hard with the America on the Move Foundation and others to promote healthy lifestyle choices. With the growing epidemic of obesity among children and adults, the YMCA clearly provides an essential community service. There is nothing wrong with a 501(c)3 having earned income. What makes a not-for-profit a not-for-profit is not that they do not earn revenue, it’s that they reinvest profits in community programs rather than benefiting shareholders. The YMCA in general and particularly the YMCA of Greater New York and the Long Island YMCA do a wonderful job of that.

  • Bill Sanders

    Why is it an amplied bad thing for Non-Profits to function like for profits? When I look at the list provided I can understand the ‘gasp’ but what if they carried out the same mission related program but thier revenues had been only a fraction of the amount stated (say < 1MM annually). I can imagine how some of these NFP started small, executed thier mission effectively and effecienttly in a business like manner and now are significant in revenues and net assets. Now that they are significant in scale the talent required is more significant (e.g. compensation). All in all a good thought provoking discussion.

  • Beth B

    The Street article is so biased and represents such a typical lack of understanding about non-profits in general, that I don

  • rick cohen

    Thank you all for your comments here. What a great discussion The Street article prompted. It is interesting how we all (including yours truly) read in our own concerns and issues into the list (regarding salaries, business-like operations, etc.) and our liked and less well liked organizations (the YMCA, which I patronize regularly, Susan G. Komen, etc.). I hope the Quarterly returns to this issue and explores “nonprofitness” more deeply.

  • davitt

    If services provided by non-profits were profitable, investors would jump in to provide those services and then we wouldn’t need to raise money. Now, THERE’s a dream. One of the basic facts about this issue is that non-profits provide services that profit-making entities cannot or willnot provide.

  • Abdi Jibril

    It is important to note how YMCA spends its money, and that it is not just gyms, but it is about the other programs that many people (like this author) do not know about:

    >> the social service programs.
    >> helping poor kids to have them save facility
    >> the after-school programs
    >> stepping in and making difference of the lives of those poor neighborhoods.

  • My Point

    I think a distinction has to be made between organizations that provide services or make products that lend themselves to profit making and those that do not.

    In my opinion, it is a shame that knowledgeable people such as the writer of this article promote this kind of approach for the whole industry without making this distinction.

    I work for an organization that takes care of children who are affected by HIV/AIDS, abandoned, abused and neglected. We do not run a hospital or try to offer free software that challenges the dominant software providers because they feel the dominant players

  • Andrew T

    The YMCA does have some solid community programs yet treats it’s employees with little respect. Work life balance is not practiced — the core front-line workers paid very little for all their efforts. Of course the higher ups are making out very well with high compensation for incompetent executives driving their company cars.

  • rick cohen

    To everyone writing about the YMCA, I have to point out that while I have encountered a share of managerial issues in the Ys that I have patronized, I’d bank my bottom dollar on the nonprofitness of the National Capital YMCA in DC. My daughter volunteers to teach swimming to kids there. I’m always amazed at the service they provide to blind and disabled people working out in the gym with me. During the summers, the Y runs a phenomenal summer camp serving inner city kids in the DC area.