The Need for Clear Boundaries

This is the second in a series of six blog posts.

It has become an article of faith that the “boundaries are blurring” between nonprofits and companies, and that this is inarguably positive. But what we need, today, is a clarifying – not a blurring – of what differentiates the sectors.

The proponents of boundary-blurring are often business school faculty, and they’ve been at it a while. Harvard Business School (HBS) Professor James Austin predicted, hopefully, more than a decade ago that, “We’ll see the stark differences between NPOs and business diminish, revealing a new world of integrated, rather than independent, sectors.” (Note: I feel compelled to say that I took a course with Professor Austin while a second-year student at HBS and he was among the best professors I had during my time there, but I disagree with him on this issue.)

In a more recent report on trends in the nonprofit sector, LaPiana Consulting argues that “sector boundaries are blurring,” and that the emergence of the L3C, or low-profit liability company, is a harbinger of this trend. A 2010 Chronicle of Philanthropy article on “trends” in the nonprofit sector quotes experts who argue that the blurring of boundaries may make nonprofits “a vanishing breed.”

Writing in the November 2011 Harvard Business Review, Heerad Sabeti discusses a “blurring of traditional boundaries” and prophesies that a new kind of entity, “for-benefit” enterprises are the wave of the future. “With the formalization of the for-benefit structure, we will see the emergence of a fourth sector of the economy, interacting with but separate from governments, nonprofits, and for-profit businesses. The rise of that sector is likely to reshape the future of capitalism.”

Color me skeptical.

While it may be the case that some “hybrid” organizations will do tremendous social good, and while it is a historical fact that many companies have had very positive social impact, the rush to embrace boundary-blurring denies the reality that many crucial objectives cannot be accomplished while generating a financial return.

True, funders such as Omidyar Network and Acumen are seeking social impact in part by investing in for-profit companies with a social mission, and innovative nonprofits like Social Finance are seeking to find ways to marry financial returns and social outcomes. To the extent that there is evidence that organizations such as these are successful in achieving their impact goals, these efforts are to be applauded – as is the larger “impact investing” movement. But none of its thoughtful champions – neither those listed above nor Jed Emerson and Antony Bugg-Levine (authors of an important book on the topic published last year) – believe that their approach is the proverbial “silver bullet,” nor that it should supplant the nonprofit sector.

Emerson and Bugg-Levine also make clear that much of what they document has deep historical roots. They write:

The idea that our investment decisions can have an impact on the wider world beyond financial return … goes back at least to the Quakers in seventeenth-century England who sought to align their investment and purchase decisions with their values. It is linked as well with the Shaker congregations in the 1800s that launched businesses in alignment with social values and to fund religious communities. It traces its arc through the environmental movement of the 1970s, the anti-apartheid divestment campaigns of the 1980s, and the modern fair trade consumer and socially responsible investing movements.

To be fair to them, Emerson and Bugg-Levine argue that a new momentum exists, and their book documents what they clearly hope will be a movement. And perhaps it will.

But the laudable push for companies to do more to create positive impact on tough social problems while also pursuing profit should not obscure the need for a strong, independent sector of organizations that are required to think about only mission, not profit. Same caveat, too, with learning across sectors. There is much to learn, in both directions – nonprofits from companies, companies from nonprofits. But that does not mean we should seek to erase the boundaries or deny the differences in context that require our attention if we are to be effective.

Yet, too often, proponents of “boundary-blurring,” often faculty at leading business schools, diminish the role of nonprofits – even disparaging the word itself.

More on that in my next blog post.


Phil Buchanan is President of CEP. You can follow him on Twitter at @philCEP.

Author’s note and acknowledgment: The views expressed here are mine. Healthy debate on these issues occurs within the walls of CEP and in our board room. I am grateful to the many people, including CEP board members and staff, as well as colleagues and friends outside CEP, who gave me feedback on earlier drafts of these posts, much of which I incorporated.

Please read on to see the rest of this series:

Part One – Our Starry-Eyed Idealization of Markets
Part Three – Wearing It Proudly: Clarity on Being Nonprofit
Part Four – “Business Thinking”
Part Five – Companies to the Rescue
Part Six  – The Risks Posed by a Sector’s Silence: Toward a Forceful and Positive Articulation of the Nonprofit Sector

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