Tag Archives: social entrepreneurism

Beyond 3D: The Emerging Fourth Sector

photo credit, JamesWatkins via Flickr

Again this summer, I attended the United Community Services Human Services Summit here locally, a gathering of a couple hundred human services professionals, this time to talk about major trends in our communities that will impact the demand for and delivery of human services in the coming years.

I participated in a discussion about rising poverty in the suburbs, which was certainly interesting (and, of course, gave me an opportunity to do my usual “solving poverty is a question of political courage, not technical ability” speech, so that’s always welcomed!), but I found it notable that one of the trends offered as a choice to participants failed to garner enough interest to be one of the areas of discussion for the breakout groups: the rise of alternative organizational models in human services.

Now I am by no means one of the experts on social enterprises and other manifestations of these different approaches to organizational structure and governance in human services. But I have noticed the impact of this trend on my students, and, therefore, on my own thinking about organizational approaches to solving social problems, in a couple of significant ways:

  • While most of my students still go to work for “traditional” nonprofit organizations, I have had a few recent graduates find work in the for-profit sector, either in the realm of privatization or, more recently (and more importantly, for this discussion) in pretty straightforward for-profit companies that are developing new social benefit enterprises, and want social workers on board to help guide those.
  • Regardless of where they work, social work graduates, particularly those in administration, are called on to have more traditionally ‘corporate’ skills, related to financial management and articulation of impact, than in the past. Sometimes, social work education fails to adequately prepare students for these demands.
  • I’ve had several conversations lately with, in particular, some of my more recent social work graduates who are chafing at the confines of the divisions among types of organization and who find categorizing organizations based on their purpose, rather than their tax structure, a much more useful distinction.

    It was in light of these developments, and the apparent lack of much interest in them by these local leaders in social services, that I read with interest the report by the Fourth Sector Network, The Aspen Institute, and the W.K. Kellogg Foundation–The Emerging Fourth Sector.

    Here, they’re defining this fourth sector, and the organizations that comprise it, as a new class of organizations focused on sustainability–“lasting economic prosperity, social equity, and environment wellbeing”, incredibly diverse in their structures and areas of emphasis, but united by their pursuit of social goals/purposes through the method of engagement in business activities. They might be nonprofit social service organizations developing businesses in order to fund their mission work, or for-profit companies committed to democratic governance, fair compensation, transparency, and social/environmental responsibility, or some sort of hybrid in between.

    As this report defines it (and this is what really caught my eye, given some of the discussion on this blog about what we should call the organizations where we do this great work), this fourth sector is the “for-benefit” sector, which holds a lot of appeal for me, since, after all, what organizations do (and achieve) should matter a lot more than what their tax status is.

    So, what does this mean for social workers? There are two key pieces, I think:

  • This fourth sector currently lacks the infrastructure and regulatory environment needed to support this type of organization, and this kind of support will be essential if for-benefit organizations are to achieve their full potential. This means that we have to think about advocacy beyond on our issue areas (mental health, child welfare, poverty) to affect the tax, corporate, and nonprofit policies that provide the foundation (or fail to) for the kinds of strategies that we want to pursue in order to impact social problems in all of those fields.
  • Social workers (and others) will need to be able to cross sectors–with a common language and transferable skills–in order to flourish in the fourth sector. Given how hard we find it, sometimes, to work even with others, within our own profession and working in the same types of organizations, this won’t be an easy lift. We need to get comfortable working with for-profit organizations (which, obviously, doesn’t mean the same thing as blindly accepting their practices and objectives!). We need to think about cooperatives and social enterprises and civic initiatives, and how those structures might be good adjuncts, perhaps, to our more traditionally-structured 501(c)3 organization. This will require, of course, changes in social work education, and also an openness to change that, quite possibly, will be facilitated by the infusion of new nonprofit leadership (and the entrance of those Millennials) expected in the decade to come.

    At its heart, I think discussions like these, and like those I’ve been having with students and practitioners and (through social networks) “social enterprise thinkers” over the past several months, boil down to the truth that what we call ourselves, at the end of the day, doesn’t really matter.

    All that matters, or should, is what we can call our work.

    If that’s “good”, then the rest is just details.

  • Wither the nonprofit?

    Of all of the books that I read during this summer ‘break’, Uncharitable was the most troubling and the most likely to continually reverberate through my professional life. I know that people are busy and so I seldom say this, but, if you run a nonprofit or raise money for a nonprofit or evaluate a nonprofit, you really should read this book.

    That does NOT mean that I agree with everything that Dan Pallotta asserts in the book. I started out, in fact, pretty aghast at some of his assertions. And he remains WAY more enamored of free-market capitalism, and way more convinced of its potential for good, than I will ever be (he claims that the persistence of social problems is evidence of nonprofits’ failure, where I would look more to the systemic causes, some of which are perpetuated by the same corporate structure he seeks to emulate). But he’s honest about that, and seemingly honest about just about everything, and I respect that. And, truly, he has some very, very important (and unorthodox) things to say about the way that we do business in the nonprofit sector.

    And I guess that’s the first point: it is a business. And we have to acknowledge that and figure out what that means for the work that social workers do, within these nonprofit organizations, that many of us consider much more like a calling than a career.

    Here are his main points (you can see where the controversy comes up immediately):

  • Nonprofit organizations need to be able to operate more like for-profit ones in order to achieve excellent results: pay competitive executive salaries; solicit investors (not just donors); invest in long-term approaches, even if they don’t yield immediate results; take risks, even if sometimes they fail
  • We need to stop measuring nonprofits’ success based on a narrow measure of their efficiency: what percentage of their budget goes to fundraising–and start figuring out how we measure whether they are really having an impact on the problems they set out to solve, and then evaluating them based on those results

    I started off with him 100% on the second and somewhat skeptical on the first. Now, I can’t stop thinking about several of the points that he made, and I’ve been doing some more research (see below) on what this might look like in practice. Some of the best stuff in here:

  • Why is it OK to pay people a lot of money to hurt poor people but not to help them? Why is profiting personally in the nonprofit sector shameful, when profiting from selling video games or car engines or garden plants isn’t? If it’s okay to eschew the nonprofit sector all together (we don’t think any of our friends in the corporate world are inherently evil, right? right?), then why is it not okay to stay in the nonprofit world but make a higher salary? Why is the money that goes to salaries in nonprofits construed as money that comes out of the pockets of those served by the organization, rather than looking to the gross inequities in society and saying that they’re to blame for nonprofits having small pieces of the pie in the first place?
  • This line of argument made me think about a former boss of mine who was sharply criticized for buying some new furniture for our front reception area. When people challenged this, saying that we should have put the money ‘into programs’, he made a statement that has stuck with me: “Why should poor people have to wait in an area that just reminds them that they’re poor? If we’re going to value customer service, we have to value them from the moment they walk in the door.” I think he and Pallotta would have a lot to talk about.
  • Pallotta makes the case that addressing the problems in the nonprofit sector is absolutely crucial if we are to solve the problems the sector makes its priority. Here, I couldn’t agree more. Too often, we nonprofit types say that we don’t have time for professional development or long-range planning, or whatever, because we have ‘too much to do’, but neglecting these structural issues make it much less likely that we’ll succeed in all of that other work.
  • We need to stop judging the morality of tactics in favor of the moral of outcomes. I get what he’s saying here–(does it really matter how much money we spent on overhead, if we are the best at making the problem go away?), but this is a slippery slope of ‘ends justify the means’ that I don’t feel comfortable with. Yes, I agree that I care more about what an organization does with my money than what it spent to get it, but that doesn’t mean that I don’t also care about what they did in order to get it. There ARE times, in fact, when what you had to do to get to victory negates the sweetness of that win, and I can’t accept a uniform trade-off here.
  • Pallotta, and even more some of the other resources I found, talk about alternative models, both those that would be nonprofit, and those that would not. And that got me wondering what role(s) there would be for social workers in those new structures, and what would have to change within our profession’s Code of Ethics and professional training, among other things, for us to find a fit within social entreprenuerism or social business models.
  • One of his most compelling points, to me, was that ‘nonprofits are the only entities defined not by what we achieve but by what we don’t (profits). I’ve had that stuck in my head like John Jacob Jingleheimer Schmidt. Why aren’t we the ‘social justice sector’ or the ‘creative compassion sector’? Why are we so clear about what we’re against and not nearly so clear about what we’re for? For that matter, why are we so segmented? Why do we get mad when we ‘cross-promote’ causes, when no similar outrage arises in the corporate world, and when so many of our social problems are inextricably linked?
  • He argues that the false separation that divides charities from the rest of the economic order is apartheid, and, while I find that a bit dramatic, I can agree that it seems pretty unnatural the more I think about it. I mean, the for-profit sector helps people too, all the time, sometimes not even at greater cost to the individuals in need. We don’t have a problem with some portion of what we pay for other services going to those who deliver those services. What makes nonprofits so unique, then?
  • Social workers learn early about the dual functions of our profession: social justice and social control. Uncharitable includes discussion of our nation’s Puritan heritage and raises the rather uncomfortable idea that nonprofit organizations’ primary function is to perpetuate our ability to make a charitable gesture, even if the structure and accompanying constraints limit what we can do for those we serve. It made me think about how often I hear social workers and social work students groaning about how little they get paid–is that, in some perverse way, part of how we define ourselves? Does some of our professional self-worth come from an identity of martyrdom? Do we think that we have to be selfless to be great? Yes, that’s what I’ll be thinking about when the kids wake me up at night.
  • One of the more pragmatic parts of Pallotta’s arguments relates to the impending leadership crisis in nonprofits. We need 640,000 new high-level managers in nonprofits by 2016. Where are we going to find them, if we aren’t able to lure some of the most talented people to the nonprofit sector? Why are rich people celebrated for giving just a small percentage of their income to charity, when nonprofit executives, who give so much of their time and talent, are crucified as greedy for asking for wages commensurate with their gifts? Personally, low wages were never a problem of mine–I always felt amply compensated financially, but I just needed less work and more time with my kids. But I know that some of my students, including some very talented social workers, feel real financial stress even when working full-time jobs in nonprofits, and I can’t help but wonder what this will do to them, their practices, and their clients long-term.
  • Pallotta faults nonprofits’ Boards of Directors for being particularly risk-averse, which hinders investment in capacity building, drives risktakers from the field, and (my addition) limits organizations’ advocacy potential. Yes, sometimes we will fail. Sometimes we will make people mad or just not resonate or just see things kind of fall apart. But, really, why is that the end of the world? Looking to advocacy, how can we put together successful campaigns that speak truth to power if our greatest worry is that we don’t make anyone mad, lose funding, or make mistakes? We cannot. As he says, “We must stop trading the dreams we have for our communities for the approval we want from our regulators” (I could substitute donors, Board members, etc…).
  • Pallotta’s sharpest criticism and greatest outrage is saved for this whole question about how to really measure a nonprofit’s impact. He bemoans the system that uses 990s to draw lines between overhead and programs (making a convincing argument that this is a false dichotomy) and then punishes those organizations that exceed socially acceptable limits. I have long seen that organizations that fail to invest in capacity see their long-term functioning deteriorate–professional development, communications/technology, sophisticated evaluation. Many social workers have spent some unpleasant time in one of those organizations that has failed to invest enough in its own capacity.

    It’s true that we don’t really have a great way of defining ‘success’ or even true ‘efficiency’, especially across the entire sector, but I agree totall with Pallotta that those difficulties do not excuse our failure to really ask the right questions. This means acknowledging that it takes more money to raise money for nonprofits that deal with unpopular causes (e.g. homelessness compared to breast cancer) and that small, grassroots nonprofits are sometimes not the cheapest ways to run things (even if they are the most democratic). It means recognizing that spending money on advertising is also about raising awareness of social problems and building ‘consumer demand’ for their solutions, which, ultimately, is the only way that we revolutionize our society. It means being honest about the fact that there’s a lot that we don’t know about what makes a nonprofit organization successful in its fight against its particular social demons, and it means investing the collective intelligence in trying to articulate those questions and seek at least some answers.

    After reading the book, I found this article on L3Cs (low-profit, limited liability corporations), a new corporate structure allowed in Illinois and (with a few variations) a few other states. In many ways, this seems to shore up some of Uncharitable’s theses; one of the main purposes of the L3C is to allow organizations to receive investment capital for their work, which then serves as seed money, basically, for fundraising and marketing and other work before being repaid, with interest, to the investors who sought to both make good returns financially and morally. And here’s some commentary about what options already exist, within the current 501(c)3 structure, to do some of the same things. Check them out, and I’d love to know what you think.

    And, perhaps directly influenced by these ideas, Charity Navigator (one of the major NPO ‘watchdog’ groups) is going to start rating nonprofits based on their success in achieving outcomes, not just the percentage of donations that go to the ’cause’. And the Rockefeller Foundation is supporting the development of a Global Impact Investing group to collect and disseminate outcomes information on both nonprofits and social businesses. The latter initiative is aimed at investors looking to make a profit; the former at those making charitable contributions. VERY exciting!

    OK, so I know that this is SUPER long, but that’s how much this book impacted me. I’m thinking a lot about what this all means for social work, for the future of nonprofit organizations (I’m looking for alternative labels, now, for our ‘sector’), and for how we harness the power of human enthusiasm and moral outrage to confront our common enemies. What do you think? How does this challenge how you have learned to think about yourself, your organization, your work? What scares you, angers you, or excites you about these ideas? And why do you think you have that response?