It has become fashionable in the past decade or so to declare oneself “sector agnostic.”
The idea is that you can achieve positive societal impact working within a nonprofit or a for-profit — and that it is the impact, not the organizational type, that matters. And, to be sure, companies can contribute to enormous social good or social ill — or, perhaps most common, a mix of the two.
But declaring sector agnosticism in the context of pursuing social impact is not helpful or wise because it obscures the fact that the sectors play distinct and different roles, as I have argued repeatedly on this blog and especially in this six-part series. And, usually, it is in fact easier, smarter, and more effective to focus single-mindedly on societal impact as a nonprofit.
The Trade-Offs Are Real
Why is that? For the very simple reason that, notwithstanding happy-talk to the contrary, profit and positive impact on people and communities are often in some level of tension. A nonprofit can reinvest its surplus in mission, whereas a for-profit feels pressure to deliver that surplus (or profit) back to its owners. Especially now, with civil society feeling under siege, it’s crucial that we speak up for the distinct attributes of the nonprofit sector — or what I sometimes call the “people’s sector.”
As mission-focused organizations working on a wide range of challenges and issues and serving all types of people (often regardless of ability to pay anything at all), our country’s nonprofits are a source of great strength. Yet the “sector agnostics” seem not to want to acknowledge this.
Worse, some go well beyond agnosticism, arguing that for-profits are actually better positioned than nonprofits to address global social problems, as Michael Porter of Harvard Business School has insisted in this TED Talk.
Porter suggests, despite mountains of data to the contrary, that we are making “only incremental progress” on social problems. Describing a concept he calls “shared value” — or as he puts it, omnisciently, “capitalism as it was ultimately meant to be” — Porter says only business has the capital to bring solutions to “scale.” He goes further, insisting that “there is no trade-off” between “social performance and economic performance.”
But that is simply not true. (Also, for fun, let’s pretend it were true. Are we then to believe that no one has realized it other than Porter? And if others had realized it, wouldn’t they have acted accordingly such that all problems would have been solved? The illogic of it all makes my head hurt.)
Quite simply, there is a trade-off. Corporate leaders experience the tension between profit and positive societal impact all the time! That very tension brings us the kind of scandals that have ensnared companies from Volkswagen to Wells Fargo. If the tension is so acute that laws get broken, we should be pretty sure that the tension often also compels companies to put profits above societal impact in a way that doesn’t break the law, but does involve a prioritization that differs from what a nonprofit might do.
While nonprofits, too, experience tension between mission and economic realities, they do not have shareholders or owners to satisfy. That matters! We need organizations that can always put mission first, with no obligation to deliver profits to investors.
For-Profit Education
Perhaps nowhere is this better illustrated than in the area of higher education, where many for-profit institutions have sprouted up in recent decades and lured students with promises of employability, only to leave their “graduates” unemployed and saddled with debt. When I worked as a corporate strategy consultant in the early 2000s, I saw some of these companies up close.
I became convinced that some things, like higher education (or prisons!), are just inherently bad fits for profit-making. The tension between doing right for society and making money are too direct, the two goals too opposing, for it to make sense (at least for anyone beyond those profiting).
I feel the same way about public elementary and secondary schools. Even as for-profit charter schools have gained a champion in Washington with the appointment of Betsy DeVos as Secretary of Education, I am left scratching my head because I have never encountered a single person who actually has kids in public schools (as I do) who thinks for-profit schools are a good idea.
Yes, there are many public school parents who advocate passionately for choice and for nonprofit charter schools, especially those whose children are badly served by their neighborhood schools. But I am talking here about for-profit schools.
Alignment Sometimes Happens
OK, so before you fire up the scathing comments and tweets (I have noticed this topic gets people going), let me clarify that I believe there are areas where the alignment between profit and positive social impact is high. I can think of a number of companies in the energy and environment industries, for example, where commercial success and positive social impact probably go hand and hand. And I can think of other companies in the same industries where the two are in direct tension and others where, well, it’s complicated.
A friend of mine notes that Tesla has done much good by introducing electric cars with a great driving range, but that if it more highly prioritized environmental impact, it might have moved much more quickly to bring more cars to market that normal people can afford to buy, rather than serving a wealthy niche. I am not, for the record, suggesting that Tesla become a nonprofit(!); I am just illustrating that when there are trade-offs even within an area in which societal impact is positive, companies tend to prioritize profits.
Anyway, my larger point is simply to concede that, yes, sometimes — even if not nearly as often as the “sector agnostics” would have you believe — profit and positive impact on tough social problems are in harmonious alignment. And it makes sense, for example, for funders open to impact investing to seek to invest in companies where that alignment is there. I am excited, for example, about efforts like those of Surdna Foundation, which Phillip Henderson, its president, described in a post earlier this month.
In these cases where profit and social impact really are aligned, at least in the short term, it’s a wonderful thing. Sometimes, companies may seek lower profits than they otherwise would in order to do good, and if they’re transparent about that and investors understand and support it, that’s also terrific.
More power to them.
I also believe that companies of all kinds can and should pay their employees fairly and treat them well, and that, ultimately, a good corporate culture often contributes to better long-term performance. And, of course, I think we, as individual consumers, should do our best to educate ourselves (and it isn’t easy in light of all the hype and self-promotion) about which companies we want to support with our dollars and which we don’t.
But that’s something very different from believing companies and nonprofits are equally good at dealing with vexing social problems of the kind most foundations seek to address.
They’re simply not.
If Markets Could Solve All Problems, They Would Have
The fact is that in many, dare I say most, of the issue areas in which nonprofits are working to make a difference, there isn’t a way to do it that jibes very well with making a profit. And indeed, that is why the nonprofits were formed in the first place — because markets weren’t taking care of the issue!
When we’re sheltering the homeless or providing job training to at-risk youth, we need philanthropy to support our efforts. There is no for-profit model. (I feel silly even writing this, it feels so obvious, but somehow it seems like it needs to be said.)
So I am suggesting we retain a clear-eyed sobriety about this fact and not drink the Kool Aid about markets. They can’t do everything.
And so we should get over the idea of being “sector agnostic” when we’re trying to make a positive difference against the most vexing social problems. (In the same vein, we shouldn’t be “sector agnostic” when it comes to where you need to go if you want to become a zillionaire by age 30.) It’s not that one sector is better than the other. It’s that they are different and serve different purposes!
Just as it does not necessarily follow that success in business makes someone a great President of the United States, neither does it necessarily follow that businesses — which have to satisfy shareholders — will be well-positioned to deliver positive social change (admitting, again, that they sometimes do).
While hybrid forms such as “B Corps” have received much attention in recent years, their numbers are insignificant in the grand scheme of things (last I checked, they literally rounded to zero relative to the number of nonprofits). The hype has outpaced the reality, as far as I can tell. Yes, there are a few impressive-sounding success stories, but we should be careful not to extrapolate or generalize too much from them.
Why does the nonprofit form continue to be the primary vehicle for addressing social problems? Probably because most people recognize the tension I am describing.
They realize that, to address the very challenges that persist because they have defied market solutions, we need nonprofits.
Phil Buchanan is president of CEP. Follow him on Twitter at @philxbuchanan.
