Blurred Boundaries between For-Profit and Nonprofit: What’s Wrong with This Picture?

Editor’s Note: Phil Buchanan’s post originally ran yesterday on the Center for Effective Philanthropy’s blog. We think it raises some very good points about the blurred lines between the for-profit and nonprofit sectors. What do you think? Comment below!

 

Over recent years, we’ve heard again and again that the “boundaries” between the business and nonprofit sectors are blurring. Typically, as in this Harvard Business School piece from more than a decade ago, this is framed as both undeniable and as a positive. The professor interviewed for that piece proclaimed: “We’ll see the stark differences between NPOs and businesses diminish, revealing a new world of integrated, rather than independent, sectors.”

I have written many blog posts in recent years questioning both whether this is really happening and whether perhaps some caution is warranted in embracing this “trend”—for example here and here. My voice apparently hasn’t stemmed the rhetorical tide and, increasingly, we have seen corporations pointed to as the entities that will solve our toughest social problems.

This despite precious little evidence that this is the case nor any acknowledgement that our most pressing social problems are, almost by definition, the ones that markets haven’t solved over the decades —either because they defy market solutions or result from market failures. For example, in late March, Fast Company published an excerpt from a book that points to General Electric as a paragon of the creation of “shared value” for society:

When senior GE executives directly engaged with the health problems of the world’s poor through GE’s new approach to philanthropy, they saw the tremendous range of opportunities for their business. The company couldn’t sell the same products it sold in developed markets, but it could design new products that would meet the needs of the developing world. Innovations based on GE’s core technologies, like an inexpensive ultrasound scanner that transmits its pictures over the Internet without a computer, are already changing the lives of women in rural villages across the developing world.

Yet at almost precisely the same moment, also in late March, the New York Times published a story pointing out that GE paid no U.S. taxes. The Times reported that GE’s American tax bill was:

None. In fact, G.E. claimed a tax benefit of $3.2 billion. That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Should we perhaps ask companies to simply pay some taxes before we count on them to save the world?

Despite the concurrent timing of these two pieces, I heard almost no one question this disconnect. It is surely true that GE, like many companies, has found ways to make a profit while also providing services that help the poor. I, for one, would not call this “philanthropy”—I’d call it business. Yet, though its efforts don’t represent anything particularly new, GE is positioned as a leader in some kind of breakthrough in thinking. 

Nowhere in the Fast Company piece lauding GE, of course, is the company’s tax avoidance achievement mentioned.

Then, in yesterday’s Times, comes this, based on a study by the Institute for Policy Studies: “At least 25 top United States companies paid more to their chief executives in 2010 than they did to the federal government, according to a study released on Wednesday.”

Joining GE on this list were companies like Verizon, Boeing, and EBay.

This at a time of stubbornly high unemployment, a massive federal deficit, huge infrastructure needs, and slashed government budgets.

This seems nothing short of outrageous. And I don’t think this is a partisan issue: it seems only logical and right that companies should pay their fair share. Yet today, frequently, that isn’t happening.

Perhaps, rather than looking to major corporations as our saviors, we should ask them to do what they do best—create products and jobs that make our lives better and economy stronger – while fulfilling their responsibilities by paying their taxes. We should ask them to spend a little less time devising elaborate—if legal—strategies for avoiding taxes. And perhaps we should also ask them to spend a little less time pretending that their role in dealing with our social problems is bigger than it is, can be, or should be. 

It is only government, of course, that can impel companies to pay taxes. But those of us in an independent sector that is actually independent—with boundaries clear—can speak with a forceful and strong voice about what is right. Stephen Heintz, President of Rockefeller Brothers Fund and Chair of the Board of both the Center for Effective Philanthropy and Independent Sector, makes this point frequently, to great applause at conferences—noting that sometimes the role of nonprofits is to push business to rein itself in. I hear too few other voices joining Stephen, however, in forcefully advocating for the sector’s distinctive identity.

I hope that will change. Perhaps we can express a bit more skepticism the next time someone tells us, breathlessly, that the “boundaries are blurring” or are increasingly “unimportant.”

My wife, Lara, is a psychotherapist by training and she often reminds me that, in human relationships, “boundaries are good.” This seems to me to be equally true when considering how to strike the right kind of dynamic with your neighbor who stops by frequently without calling first and when considering how our sectors work together.

A strong business sector is vitally important to this country. But so is a strong government.

And so, also, is a strong, and actually independent, independent sector. Now would be a good time to hear the voices from within that sector.

About the Author

Phil Buchanan is president of the Center for Effective Philanthropy.