Managing Nonprofit Organizations in a Policy World

Nonprofit Organizations
in a Policy World

Nonprofit Organizations
in a Policy World
S e c o n d E d i t i o n
Shannon K. Vaughan
Shelly Arsneault
To Burton and Reagan
To Dave and Maya,
public servants who work to achieve social equity for all.
Managing Nonprofit Organizations in a Policy World, 2nd Edition
© 2021 by Shannon K. Vaughan and Shelly Arsneault
All Rights Reserved.
Published by Melvin & Leigh, Publishers
6 Curie Court
Irvine, CA 92617
[email protected]
Cover design by Jesse Sanchez
Production by Stacey Victor
ISBN: 978-1-73393449-7
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Preface xvii
Part I Fundamentals and Environment of the Voluntary Sector 1
1. What Is the Nonprofit Sector? 3
2. Philanthropy and Foundations 25
3. Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 51
4. Theories of the Nonprofit Sector and Policy Change 77
5. Regulating Not-for-Profit Organizations 99
Part II Strategies of Not-for-Profit Organizations 127
6. The Role of Mission and Strategic Planning 129
7. Lobbying and Advocacy: Politics, Policy, and Possibilities 152
8. Ethics and Accountability 182
9. Marketing and Branding the Nonprofit Organization 202
10. Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 227
Part III Management Issues 259
11. Administration and Management 261
12. Nonprofit Governance and Leadership 291
13. Managing Human Resources: Volunteers and Staff 319
14. Evaluating Success 349
15. Looking Forward: Emerging Trends for Managing Nonprofits 376
Index 395

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Preface xvii
Part I Fundamentals and Environment of the Voluntary Sector 1
1. What Is the Nonprofit Sector? 3
What Is a Nonprofit 4
Nonprofits and Public Problems 4
Types of Nonprofits 6
Public Charities 6
Other 501(c) Nonprofits 8
Classification of Nonprofits 9
Scope and Function of the Nonprofit Sector 11
Growth of the Nonprofit Sector 12
Economic Impact of Nonprofits 13
Public Problems and the Policy Process 14
Stages of the Policy Process 16
Collaboration 17
Our Approach 17
Questions for Review 20
Assignment 20
Suggested Readings 21
Web Resources 21
Endnotes 21
2. Philanthropy and Foundations 25
American Philanthropy 26
Origins of Philanthropy in the United States 26
What Is a Philanthropic Foundation? 27
Types of Foundations and Other Philanthropic Giving 28
Philanthropy and Policy Solutions 32
Philanthropy in the 21st Century 34
Challenges for Foundations and Philanthropy 40
Conclusion 42
Questions for Review 42
Assignment 43
Suggested Readings 43
Web Resources 43
Endnotes 44
3. Collaboration and Conflict between the Public,
Nonprofit, and For-Profit Sectors 51
The U.S. Federal System and Its Relationship with Nonprofit Organizations 52
Nonprofit Federalism 54
The Three Sectors 55
Characteristics of the Three Sectors 56
Intersectorality and Welfare Policy 57
Faith-Based Organizations 59
Not-for-Profit Organizations as Government Contractors 60
Cross-Sector Competition and Conflict 61
Cross-Sector Collaboration 63
Conclusion 69
Questions for Review 70
Assignment 71
Suggested Readings 71
Web Resources 71
Endnotes 72
4. Theories of the Nonprofit Sector and Policy Change 77
Theories of the Nonprofit Sector 77
Demand-side Theories: Nonprofits Form to Respond to Unmet Needs 78
Supply-side Approach: Personal Interests and Resources Drive the Development of Nonprofits 80
Demand, Supply, and Theories of Resource Dependency 80
Compliance Costs of Resource Dependence 82
Nonprofit Impact on Democratic Theory 82
Nonprofits and Public Policy Change 84
Functional and Legislative Theories of Federalism 84
Punctuated Equilibrium Theory: Explaining Non-incremental Policy Change 85
Multiple Streams Theory: Coupling Problems, Policies, and Politics for Change 88
Stages of the Process as Venues for Policy Change 92
Policy Change in the States 93
Policy Diffusion between the States 93
Internal Determinants of State Policy Adoptions 94
Conclusion 94
Questions for Review 94
Assignment 95
viii Detailed Table of Contents
Suggested Readings 95
Web Resources 95
Endnotes 96
5. Regulating Not-for-Profit Organizations 99
Regulatory Policy Increasingly Affects Nonprofits 100
Nonprofits Subject to Federal Government Regulation 101
Rules and Regulations of the Internal Revenue Service 101
Lobbying: IRS and Supreme Court Action Regarding Nonprofits’ Political Activity 105
Congressional Oversight and Legislation Directly Affect Nonprofit Action 106
State Regulation: Offices of the Secretary of State and Attorney General 110
Board Members and the Duty of Care 111
Donor-imposed Restrictions on Gifts 111
Regulation of Charitable Solicitations by the States 114
Indirect Regulation: Courts and Contracts 114
Government Grants and Contract Compliance 115
Direct Regulation through the Courts 115
Self-Regulation in the Voluntary Sector 116
Watchdog Groups as Sector Regulators 116
Using Accreditation to Enforce Standards and Best Practices 118
Conclusion 119
Questions for Review 119
Assignment 120
Suggested Readings 120
Web Resources 120
Endnotes 121
Part II Strategies of Not-for-Profit Organizations 127
6. The Role of Mission and Strategic Planning 129
The Mission: Critical for Nonprofit Success 129
Organizational Values and the Role of Stakeholders 130
The Role of Leadership in Planning and Meeting Needs 131
Managing the Mission 133
The Nonprofit Mission and Change 134
The Importance of the Mission Statement 138
Organizational Vision 140
Strategic Planning 142
Organizational Goals 142
Organizational Accounting and Identification of Problems 143
Systematic Planning and Implementation 145
Measuring and Evaluating Outcomes 145
Learning from Evaluation 146
Detailed Table of Contents ix
Conclusion 147
Questions for Review 148
Assignment 148
Suggested Readings 148
Web Resources 148
Endnotes 149
7. Lobbying and Advocacy: Politics, Policy, and Possibilities 152
Articulating the Nonprofit Voice within Governmental Constraints 153
Who’s Afraid of Advocacy? 153
Nonprofit Advocacy Can Shape the Policy Environment 155
The Importance of Advocacy in Pursuit of Mission 156
Lobbying within the Limits 164
Myths about Nonprofits and Lobbying 165
Lobbying Allowable under the Law 166
Limits on Lobbying: The “Substantial Part Test” and 501(h) 167
Other Options: 501(c)(4) Affiliation and Professional Lobbying 169
Public Policy Advocacy and Foundations 171
Shaping Policy, Strengthening Community 172
Conclusion 173
Questions for Review 174
Assignment 174
Suggested Readings 174
Web Resources 175
Endnotes 174
8. Ethics and Accountability 182
Importance of Ethics in Nonprofit and Policy Interactions 183
Developing Organizational Commitment to Ethics and Accountability 184
Transparency Combats Corruption, Inhibits Compromise, and Affects Policy 184
The Importance of Accountability 187
Fostering a Strong Ethical Culture 189
System of Accountability: Influences on Nonprofit Behavior 190
External Constraints on Nonprofits 190
Internal Measures Exercised by Nonprofits 194
Conclusion 197
Questions for Review 197
Assignment 198
Suggested Readings 198
Web Resources 198
Endnotes 199
x Detailed Table of Contents
9. Marketing and Branding the Nonprofit Organization 202
Marketing Basics 203
General Marketing Principles and Techniques 203
Marketing in a Nonprofit Environment 204
The Importance of a Marketing Plan 204
Identifying the Nonprofit’s Target Audience 205
Differentiating the Nonprofit through Positioning 212
Developing the Nonprofit’s Brand Identity 214
Corporate Social Responsibility as a Source of Nonprofit Support 216
Nonprofit Fundraising Events and Corporate Sponsorship 217
Benefits and Risks of Product Endorsements and Licensing Agreements 218
Cause-Related Marketing 219
Conclusion 220
Questions for Review 221
Assignment 221
Suggested Readings 222
Web Resources 222
Endnotes 223
10.Resource Development: Capacity, Campaigns,
Commercial Ventures, and Grants 227
The Sector’s Fiscal Health and Capacity 228
Nonprofit Sustainability 229
Resource Dependence and Revenue Diversification 229
Sources of Revenue and Their Relation to Mission 230
The Role of Grants in the Nonprofit Sector 231
Types of Grants 231
Project or Program Grants 231
Operating Grants 232
Seed Money 232
Challenge or Matching Grants 233
Government Grants and Fee-for-Service Contracts 233
Distribution of Government Grants 234
Block Grants 234
Formula Grants 234
Project Grants 234
Line-item Appropriations 235
Public Goods and Services via Government Contracts 235
Delivery of Services 235
Government Monitoring 236
Contract Termination or Renewal 236
Government Influence and the Risk to Nonprofits 236
Detailed Table of Contents xi
Earned Income as a Stable Source of Revenue 237
Commercial Ventures: Bake Sales to Thrift Shops 237
Social Enterprises: Social Aims with Market Principles 238
The Role of Corporate Giving and Sponsorship 238
Why Corporations Give 239
The Influence of Corporate Philanthropy 239
Individual Contributions and Fundraising 240
Using Electronic Media to Solicit Contributions 241
The Gift of Giving 242
Special Events Fundraising 242
Endowments Promote Long-Term Viability 243
Legal Restrictions on Endowments 243
The Policy Implications of Charitable Giving 245
Public Policy Consequences of Grants and Contracts 248
Government Funding of Policy Priorities 248
Conclusion 249
Questions for Review 250
Assignment 250
Suggested Readings 251
Web Resources 251
Endnotes 252
Part III Management Issues 259
11. Administration and Management 261
Managing Nonprofit Organizations 261
Organizational Structures and Behavior 262
Systems Theory and the Impact of Internal and External Pressures 262
Differing Management Needs across Sectors 266
Good Management in the Nonprofit Sector 267
Communication and Relationships 267
A Hands-on Approach 268
Performance Standards 269
Nonprofit Effectiveness and Efficiency 270
A Nonprofit Business Plan 271
Managing for Social Impact 272
Organizational Reforms and the Quest for Improvement 273
Capacity Building and Successful Nonprofits 273
Organizational Reform Efforts and Management Challenges Unique to Nonprofits 276
Financial Management and Budgeting 276
Financial Issues Unique to Nonprofit Organizations 277
Revenue Diversification 277
Investment Strategies 278
Nonprofit Budgeting: Roles and Responsibilities 279
Nonprofit Budgeting: Types of Budgets and Financial Statements 283
xii Detailed Table of Contents
Conclusion 284
Questions for Review 285
Assignment 285
Suggested Readings 285
Web Resources 285
Endnotes 286
12. Nonprofit Governance and Leadership 291
The Shared Responsibility of Nonprofit Governance and Leadership 292
Governance and Achieving the Mission of Nonprofit Organizations 292
Theories of Organizational Leadership 293
Boards and Executives as Leaders 294
Making Strategic Choices for Mission Achievement 295
The Relationship between Boards and Executives 295
Executive Transitions 296
The Difference that Leadership Makes 300
Boards of Directors 301
Theories of Nonprofit Board Behavior 302
The Legal Environment of Nonprofit Boards 303
What We Know about Nonprofit Boards 305
Roles and Responsibilities of Board Members 306
Board Life Cycle and Engagement 308
Board Structure and Development 308
Best Practices for Boards 310
Conclusion 312
Questions for Review 313
Assignment 313
Suggested Readings 314
Web Resources 314
Endnotes 314
13. Managing Human Resources: Volunteers and Staff 319
Management of Nonprofit Human Resources 320
Strategic Human Resource Management 320
Recruitment and Assessment 321
Motivating Nonprofit Employees 323
Performance 326
The Growth of Professionalism in Nonprofit Organizations 326
Volunteers and the Coproduction of Work 327
Volunteer Management 328
Who Volunteers? 329
Volunteer Recruitment 330
Volunteer Retention 331
Detailed Table of Contents xiii
Personnel Conflict and Dispute Resolution 334
Employment Law and Nonprofit Organizations 335
Other Relevant Employment Policies 337
Conclusion 340
Questions for Review 341
Assignment 341
Suggested Readings 341
Web Resources 341
Endnotes 342
14. Evaluating Success 349
Nonprofit Evaluation 349
Why Do We Evaluate? 350
Measuring Outcomes to Ensure Accountability 351
Using Evaluation for Mission Advancement 351
Evaluation and the Nonprofit-Policy Framework 352
What Do We Evaluate? Organizational Performance 352
Financial Ratios 352
Social Accounting 353
Process Evaluation 353
Nonprofit Dashboards 354
The Role of Third-Party Watchdogs 355
What Do We Evaluate? Program Performance 355
Who Is Involved in the Evaluation Process? 357
Professional Evaluation Services 357
Self-Evaluation 357
Program Theories and Logic Models 358
How Do We Evaluate? 359
Determining Measures and Selecting Indicators 359
Collecting Data 363
Characteristics for Evaluation Indicators 364
Analyzing the Data 365
Reporting, Presenting, and Using the Findings 366
Practical Concerns 368
Evaluation Fears and Limitations 368
Political Concerns 369
The Consequences of Neglecting Evaluation 369
Conclusion 370
Questions for Review 371
Assignment 371
Suggested Readings 371
Web Resources 371
Endnotes 372
xiv Detailed Table of Contents
15. Looking Forward: Emerging Trends for Managing Nonprofits 376
The Past and Future for Nonprofits in a Policy World 377
Important Trends Affecting the Sector 378
The Role of Technology 379
The Political Climate 380
Democratic Tensions 383
Implications of Current Trends for the Nonprofit Sector 387
Conclusion 388
Questions for Review 388
Assignment 388
Suggested Readings 388
Web Resources 389
Endnotes 389
Index 395
About the Authors 4 1 1
Detailed Table of Contents xv

The idea for Managing Nonprofit Organizations in a Policy World was born from our agreement that we
cannot understand nonprofit organizations without understanding public policy, and that we cannot
fully understand policy change without considering nonprofits. Through our work teaching nonprofit
management and public policy to MPA students, serving on nonprofit boards and as an executive director, writing grant proposals and teaching workshops on how to write them as well as reading countless books, articles, and web posts, we developed an even stronger appreciation for the connections
between nonprofits and public policy. We view this relationship—in which nonprofits make policy,
are affected by policy, influence policy, and are subject to policy—as interconnected as the pieces of a
puzzle. These four facets, which we call the Nonprofit-Policy Framework, structure our approach to
Managing Nonprofit Organizations in a Policy World; we assert throughout this book that all aspects of
nonprofit management encompass one or more of these ways in which nonprofits interact with public
policy. Our continued scholarship along with trends in the public administration, political science,
policy, and nonprofit literature, as well as conversations with colleagues, and teaching on the subject
make us even more firmly committed to this perspective than when we published the first edition.
This book was written primarily with students in Master of Public Administration (MPA) or Master
of Public Policy (MPP) programs in mind because these are the students and programs we know best.
However, because we strongly believe that the interconnected relationship between nonprofits and
public policy is crucial to understanding the nonprofit sector and its management, this text is valuable
for all graduate students and upper-division undergraduate students studying the nonprofit sector in
fields such as business administration, social work, political science, and public health. It is designed
as a foundational text for courses specifically on the nonprofit sector, but is also appropriate as a supplemental text for public policy courses.
Organization of This Book
In this thoroughly revised and updated second edition, we enhance our focus on the Nonprofit-Policy
Framework to emphasize how this text goes beyond standard nonprofit management concepts to explore the integral role that nonprofits play in the public policy process. Scholars of public policy and
the nonprofit sector increasingly recognize that policy shapes and is shaped by nonprofit organizations.
The second edition of Managing Nonprofits in a Policy World includes more extensive focus on situating
these interactions within the Nonprofit-Policy Framework to facilitate student understanding of these
complex relationships.
The book is organized into three parts. Part I, “Fundamentals and Environment of the Voluntary Sector,”
is an overview of the nonprofit sector as a whole as well as the policy environment in which nonprofits
operate. Chapters in this section have been revised with updated statistics and incorporate changes in the
size and scope of the sector. In Part I, we identify and define the different types of not-for-profit organizations, including discussion of the growing cadre of hybrid organizations—for-profits that also embody
a social purpose. We introduce a recurring element to the second edition in which we encourage students
to engage in the conversation about the implications for democracy posed by nonprofits and philanthropy.
A new chapter on philanthropy and foundations is particularly relevant in this regard.
Because the lines between public, nonprofit, and for-profit sectors are increasingly blurred and
because the American system of government offers many points of interaction for nonprofits in the
policy process, Part I also includes discussion of federalism and the intersectoral nature of public service
provision. The theoretical basis for the existence of the nonprofit sector is established and the multiple
aspects of the relationship between not-for-profit organizations and public policy are examined. Finally,
because not-for-profit organizations operate within the ever-changing constraints of federal, state, and
local regulation, the impact of regulatory policies on the management and operation of organizations
in the nonprofit sector has been revised and updated.
Part II, “Strategies of Not-for-Profit Organizations,” addresses the major skills and strategies necessary
for nonprofits to advance themselves and their causes, focusing primarily on the role of nonprofits as
actors within the policy process—that is, how their operations influence public policy and the alleviation
of public problems. The chapters throughout Part II address the major strategic planning topics for
nonprofits, including developing and adhering to mission, vision, and organizational goals; lobbying
and policy advocacy; and issues of organizational ethics and accountability. In addition, the relevance of
marketing for nonprofits and the growing trend to brand one’s organization and “product” are discussed.
Revisions in the second edition include more explicit focus on how these skills and strategies are
represented in the Nonprofit-Policy Framework. It is important for those working in and funding
nonprofit organizations to understand and be able to articulate the organization’s mission because a
strong sense of mission is critical for nonprofits. Tools such as strategic planning enhance commitment
to a well-defined mission, enabling nonprofits to better operate under existing public policies as well
as influence future ones. Lobbying and advocacy are viewed as distinctly different activities in the
nonprofit sector; thus, we explain the importance of these differences and explore the explicit means
of encouraging government officials to change public policy. We also address the issues of ethics and
accountability, with particular emphasis on the self-policing strategies used by nonprofits as well as state
and federal policy actions to strengthen accountability. Finally, because not-for-profit organizations
with solid brand recognition are more likely to be chosen as implementation partners, we discuss the
overall importance of marketing in the voluntary sector. The growing importance of social media is
addressed in greater detail in this revised and updated edition.
Part III, “Management Issues,” emphasizes the nuts and bolts issues of operating a not-for-profit
organization. Nonprofits exist to pursue the public good, often with public funds; therefore, it is in the
public interest for these organizations to be managed effectively. Situating good management practices
within the Nonprofit-Policy Framework helps students to understand the vital role that the nonprofit
sector plays in contemporary society. Throughout the chapters in this section, public policy is highlighted
with regard to how local, state, and federal legislation affect the day-to-day activities and management
of nonprofits—that is, ways in which nonprofits are acted upon by public policies.
It is also important for nonprofit organizations to address capacity and long-term viability; thus,
general issues of administration such as budgeting, human resources, funding, and evaluation are the
foci of this section. Aspects of nonprofit management, such as budgeting and human resource management, affect public policy indirectly through their impact on the general operations of nonprofits
as they pursue their missions. Other issues, such as resource development and evaluation, have more
direct public policy implications. We discuss issues of resource development, particularly grants, highxviii Preface
lighting the policy and mission implications of pursuing diverse sources of revenue. Issues of good
governance by the board and executive director, as well as effective human resources management, are
crucial to successful pursuit of mission as well as implementation of public policy. Because nonprofits
are increasingly asked by government and private funders to conduct program evaluations in order to
maintain or acquire additional funding and contracts, we discuss both internal and external uses of
evaluation for nonprofit organizations.
Our concluding chapter once again takes a look forward at emerging trends in the nonprofit sector.
Many of the emerging trends discussed in the first edition have now been incorporated throughout the
second edition as established elements of the sector. In our new look forward, we focus on the growing
impact of new technologies, the corrosive impact of the current political climate, and a discussion of
the nonprofit sector’s positive and negative implications for democracy.
We were preparing to go to press with the second edition when the effects of the COVID-19 pandemic were beginning to be felt in the United States. Our ability to incorporate the rapidly unfolding
chain of events into our discussions were therefore constrained by several factors, not the least of which
was the challenge of forecasting the impacts on the sector due to unprecedented demands for services,
cuts to personnel, and policy activity. However, we have noted throughout the text several instances in
which nonprofits are already linked to public policies designed to address the pandemic.
Features of This Book
We incorporate several pedagogical elements throughout each chapter. As in the first edition, we begin each chapter with a vignette—either a true or hypothetical story to set the stage for the chapter’s
topic; we have retained our favorites but added new ones as well. Chapters conclude with questions
for review and an assignment that requires additional research to complete. Suggested readings and
a list of web resources are also included, so faculty and students can cover selected topics in greater
detail at their discretion. While these lists are far from exhaustive, they retain those we see as classics
and have been revised and updated to include new readings and resources that fit well with our goal
of connecting nonprofit management and public policy.
“Exhibit” boxes are featured in each chapter to complement the main narrative and emphasize how
each topic relates to issues of public policy and good organizational management. “Case Studies” explore in-depth an aspect of the Nonprofit-Policy Framework, such as our new case study on the efforts
by the National Rifle Association and gun safety organizations to influence policy. A new vignette to
the second edition features actions taken by the Donald J. Trump Foundation and subsequent ways in
which it was affected by regulatory policy. The second edition includes updated versions of cases from
the first edition as well as several new ones. Each case study highlights the interconnected relationship
nonprofits have with policy and includes questions that encourage critical thinking and discussion.
Several case studies have an international focus and are designated as “Going Global” case studies.
These and other international examples have been revised and updated, to look at how nonprofits
operate on an international scale, from Médecins Sans Frontières putting volunteers and staff on the
front lines in pursuit of the organization’s mission to assessing the accountability of nonprofit efforts
overseas. We incorporated “For Example” exhibits to illustrate specific chapter themes through situations drawn from a variety of nonprofits, such as how the Blue Ridge Conservancy’s operations serve
to mitigate competition between economic and environmental interests and how the Girl Scouts use
program evaluation to assess and improve their operations. In addition, we use “For More Information”
exhibits throughout to guide students and faculty to additional resources on specific topics, including
advocacy and lobbying tips, and provisions of the Sarbanes-Oxley Act relevant to nonprofit organizations as well as provide additional information on specific nonprofit examples.
Preface xix
We thank all of the faculty, students, and practitioners who have adopted and read the first edition;
your support and comments provided the encouragement to pursue a second edition. Special thanks
are offered to those who provided us with valuable feedback on the first edition, especially Chris
Horne at the University of Tennessee at Chattanooga and Dana Hang, MPA student at California
State University, Fullerton.
This project is indebted to the nonprofit practitioners who helped us along the way by granting
us interviews, offering advice, and providing contacts for more information. They include: Dr. Kevin
Meehan, former Executive Director of Orange County Youth and Family Services; Lynelle Bilsey from
Shelter Network (now LifeMoves); Cari Hart of Hart Community Homes/Monkey Business Café;
Nancy Chandler and Benjamin Murray, formerly with National Children’s Alliance; Dolly Farrell
and Robert Dziewulski, formerly with Watauga County Habitat for Humanity; Louis Wheatley and
Gregory Rodriguez (formerly) of Zócalo Public Square; and Sandy Ostdiek, who introduced us to Old
Bill’s Fun Run.
We extend our thanks to CQ Press/SAGE for releasing the rights to the second edition of Managing
Nonprofits in a Policy World. Special thanks go to our production editor Stacey Victor and copy editor
Barbara Long for their hard work and attention to detail. Our heartfelt appreciation is given to Jessica
Sowa of the University of Baltimore for her ongoing support of our work and especially for introducing us to Harry Briggs and our new publisher Melvin & Leigh. Words seem inadequate to express
our gratitude to Harry Briggs for his enthusiastic support, encouragement, and guidance throughout
the development of the second edition. We are thrilled to join the Melvin & Leigh family of authors.
Our overwhelming gratitude goes to our family, friends, and colleagues, who provided the support
and encouragement that sustained us on this journey. Shannon wants to especially thank her husband
Burton for his unwavering love, confidence, and wise counsel, and for using his excellent Excel skills
to help us update data. She also expresses her love and appreciation to their daughter Reagan for all
the joy she adds to life and for understanding when Mom needed to write. Her deepest thanks go
to Shelly Arsneault, dear friend and the best writing partner anyone could hope to have. We are well
into our second decade of conducting research and writing together, and I am profoundly grateful for
the many ways our collaborations have enriched my life, personally and professionally. Shelly wants
to extend special thanks to friends Sarah Hill and Jarret Lovell, who have been rock solid amid the
crazy of academia; to husband Dave, her North Star; and to Maya, whose passion, perseverance, and
dedication to community is truly awe-inspiring. Finally, to Shannon Vaughan, I am indebted to your
unwavering optimism and confidence in our work that has kept me moving forward and stepping
out of my comfort zone on more occasions than I can remember over our two decades of friendship.
xx Preface
Fundamentals and Environment of the
Voluntary Sector

Our sacred promise to improve lives has been—and must continue to be—our ultimate purpose for
existing. . . . Americans have high expectations for us: We are the primary outlet for their humanitarian
impulses, their conduits of goodwill and generosity. . . . We are also a voice through which the people make
clear their expectations of their political leaders. . . . We are the way individuals give back, so that we as a
society can move forward.
Diana Aviv, President and CEO, Independent Sector1
Imagine that it is 1980 and a second-grade teacher learns that one of her 7-year-old students has
been abused by a trusted family member. Once the teacher completes her mandatory call to police,
the child is taken from her home by uniformed officers and subjected to a thorough examination in
a sterile room at the hospital. Following a series of tests and questions, she is then taken to the police
station and asked even more confusing questions before being handed over to a child protective services employee, who sits on a cold bench with her as she waits to be retrieved by her grandparents.
As frightening and bewildering as all of this must be for her, the ordeal is far from over for this young
victim. In the months that follow, she is taken to the police station several more times, is assessed by
various counselors, and questioned by prosecutors and other court staff; in essence, she continues to
be traumatized.
Throughout her ordeal, this young victim has interacted with professionals in government (the
police officers, child protective services employee, and state prosecutors), the private for-profit sector
(the physician), and the nonprofit sector (since the hospital in which she was examined is likely a notfor-profit entity). Various public policies affect the process she has endured, from the legal requirement
that teachers notify law enforcement of possible abuse to the specific statutes that classify the type of
abuse and the penalties associated with conviction. Aside from these legal requirements, however, in
1980, there were no public policies or programs designed to reduce the trauma of navigating the legal
and healthcare systems imposed on victimized children. As is often the case, this problem took years to
recognize and years more to address; as is also often the case, those involved pursued a nonprofit option
to solve this systemic problem. The nonprofit National Children’s Alliance and hundreds of children’s
advocacy centers have been developed nationwide to provide that systemic solution through provision
of child-centered services; most of these centers are nonprofits and are discussed in later sections.
What Is a Nonprofit?
It is probably not surprising to learn that most children’s advocacy centers are nonprofit organizations,
those that provide goods or services, but are neither for-profit businesses nor government agencies.
While the classic image of a nonprofit is a charitable organization that relies on volunteers for labor
and donations to fund its operations, the reality is far more complicated than this common understanding.
First, the term nonprofit, is a misnomer. Nonprofit organizations can and generally do have revenues that exceed expenditures—that is, they make a profit. The distinction between a nonprofit and
a for-profit business is that nonprofits must retain excess revenues for the benefit of the organization;
excess revenues in private business are distributed to owners/shareholders. Not-for-profit is, therefore, a
more precise descriptor, although the two are used interchangeably. Further, while nonprofit is the dominant term throughout the general literature, other terms used to describe these organizations include
charitable, voluntary, philanthropic or third sector. All refer to the same type of tax-exempt organizations,
and exemption from taxes is the primary characteristic that affects the legal designation of nonprofits,
the rules pertaining to them, and the regulations to which they are subject.
Second, the array of organizations in the not-for-profit sector is vast, including charities, advocacy
groups, and member-serving organizations. This group includes small, local soup kitchens and pet rescues
as well as large, internationally renowned institutions such as Harvard University and the Mayo Clinic.
The sector also includes organizations that you might not know are nonprofits, including the Chamber
of Commerce, the AFL-CIO (American Federation of Labor-Congress of Industrial Organizations),
Planned Parenthood, and the National Rifle Association (NRA). Many not-for-profit organizations are
run solely through volunteers, while others are sophisticated operations with thousands of employees
and well-compensated Chief Executive Officers.
Third, as is discussed in greater detail in Chapter 5, organizations seeking nonprofit status are subject
to many state and federal policies. The first step in becoming a nonprofit is registration and incorporation
with the state; this grants the organization certain benefits with regard to exemption from state and
local taxes. Exemption from federal income tax requires a second step, filing with the Internal Revenue
Service (IRS) and compliance with additional requirements. This includes a determination letter from
the IRS, which is the primary document needed for legal recognition as a 501(c) tax-exempt organization. As is discussed later, the IRS identifies 29 different categories of 501(c) nonprofit organizations.
Exemptions from local, state, and federal income taxes are significant incentives for the development
of not-for-profit organizations, but first and foremost, nonprofits exist to address a public problem or
need that, for whatever reason, is not adequately served through government or the private market.
Theories about the reasons that nonprofits are often more attractive options than governments and
markets are the focus of Chapter 4.
Nonprofits and Public Problems
As is discussed throughout this book, nonprofit organizations in the United States address public
problems and are imbued with public policy.2
It is impossible to understand the formation, operation,
and management of nonprofits without a commensurate understanding of the public policy context
they inhabit. Not-for-profit organizations both act and are acted upon with regard to public policy;
4 Fundamentals and Environment of the Voluntary Sector
in order to pursue their missions, they often advocate for government support and must comply with
government mandates. The nonprofit sector has a symbiotic relationship with public policy—each is
influenced to varying degrees by the other. Nonprofits are inextricably linked to public policy, and
understanding the relationship between the two is a significant factor in successful nonprofit management; this is the central theme of our book.
For example, let us return to the issue of child abuse. Although there is now nearly universal recognition of child abuse as a public problem in the United States, that was not always the case. In fact, the first
case of child abuse was prosecuted in 1874 under an animal cruelty statute because at the time there was
no law aimed specifically at the protection of children. As a result of this case, the first child protective
services agency, the nonprofit New York Society for the Prevention of Cruelty to Children (NYSPCC),
was formed in 1875 by Henry Bergh and Elbridge Gerry.3
By 1908, similar societies were in existence in
44 states as well as Great Britain and most other European countries, plus India, South Africa, Australia,
and South America.4
By the mid-1940s, city, county, and state government agencies had taken over most
of the primary tasks of the nonprofit Societies for the Prevention of Cruelty to Children (SPCC), which
from that time forward, have served in partnership with government in the protection of children.5
This is one of many examples in which nonprofit action helped define as well as address a public
problem. SPCC agencies were on the leading edge of delivery of services to abused children—receiving
complaints, conducting investigations, and taking cases to trial—prior to adoption of legislation stipulating specific protections for children; most subsequent child abuse legislation can be traced back to their
advocacy efforts.6
These organizations were, in effect, making public policy by taking responsibility for a
public problem in the 1870s. More than a century later, Bud Cramer, then district attorney for Madison
County, Alabama, and his colleagues organized a new nonprofit response to child abuse—namely, the
alleviation of the trauma of prosecution inflicted on child victims of sexual abuse, such as the little girl
described in the opening vignette. Through Cramer’s leadership and the efforts of many volunteers, the
National Children’s Advocacy Center (NCAC) was established in Huntsville, Alabama, in 1985.
NCAC has become a model for centers throughout the United States and other countries,7
led to the creation of National Children’s Alliance (NCA), which provides information “and technical
assistance to promote the development and operation of children’s advocacy centers (CACs) across
the United States.”8
Children’s advocacy centers provide an alternative and collaborative approach to
standard criminal justice procedures in the handling of child abuse cases. A children’s advocacy center
is a centralized, child-friendly facility in which law enforcement, social services, legal, medical, victims’
advocate, and counseling professionals come together as a team to interview, examine, and provide
support services to child victims. Importantly, as noted earlier, most children’s advocacy centers are
nonprofit organizations.
While many think of nonprofits and their involvement in public policy as relatively new phenomena,
not-for-profit organizations have taken on public roles and purposes for generations. Indeed, by 1835,
Alexis de Tocqueville had observed that Americans were constantly forming civil associations: “If it is
proposed to inculcate some truth or to foster some feeling by the encouragement of a great example,
they form a society.”9
By the time of Tocqueville’s writing, public work was already being facilitated
through the efforts of nonprofit organizations, including churches, museums, colleges, and universities.
As Hammack explained, there was little government opposition to nonprofit organizations in the early
decades of the 19th century. Most courts and legislatures by this time “had accepted the view that
nongovernment, nonprofit organizations provided essential services, reinforced religious education in
ways important to civil peace, reduced the need for tax-supported government action, permitted variety
and flexibility in the provision of services.”10
Examples of the varied influence of the nonprofit sector in the realm of public policy, therefore,
abound in American history. The American Red Cross delivered direct services to victims of forest
What Is the Nonprofit Sector? 5
fires as early as 1881, and in 1958, the policy advocacy efforts of the Child Welfare League of
America facilitated federal legislation requiring states to hire full-time child welfare caseworkers.
An example of nonprofit influence on public policy through the court system comes from the
National Police Foundation’s research on the use of deadly force. Its findings were extensively cited
in the 1985 U.S. Supreme Court decision Tennessee v. Garner, which modernized police policy
by reserving the use of deadly force by officers to cases in which a life is threatened. Each of these
examples illustrates the ways in which public policy has been encouraged, informed, tested or
delivered by nonprofit entities.
Since all nonprofits operate within the public policy arena, it is critical for those working in notfor-profit organizations as well as in government entities to understand the very important role that nonprofits play.11 Similarly, it is important to recognize that public policy influences nonprofit organizations
and their management. From their tax status to the federal policies that affect their personnel practices
to the mandates required by government contracts, not-for-profit organizations are both guided and
limited by public policies as they pursue their missions; they affect and are affected by public policy.
It is the aim of this book to set the work of nonprofit organizations firmly within the milieu of public
policy and to highlight the fact that effective nonprofit management requires a keen understanding
of the complex relationship between the nonprofit sector and the policy world. In order to meet the
broader needs of society, it is essential that not-for-profit organizations and the public agencies that
work with them are able to successfully navigate this complex relationship.
Types of Nonprofits
Public Charities
At this point, it is important to distinguish among the different types of nonprofits since it is their classification according to the Internal Revenue Code (IRC) that gives most nonprofits their legal status.
Public charities are those organizations recognized under section 501(c)(3) of the IRC whose purposes
generally fall into the categories of religious, charitable, scientific, literary, or educational endeavors.
This category includes the types of organizations most often thought of as nonprofits such as homeless
shelters, food pantries, the Red Cross, and the Salvation Army. The religious purposes identified in the
IRC mean that churches, which encompass all places of worship, are automatically classified as 501(c)
(3) public charities without the need to apply for exempt status.12 Importantly, in addition to their
tax-exempt status, donors always receive a tax-deduction when they give to 501(c)(3) nonprofits; this
benefit is very rarely afforded to other 501(c) tax-exempt organizations. Further, public charities are
subject to greater restriction on political activity than are other nonprofits.
At more than 70 percent of all tax-exempt organizations in 2018, public charities represent by far
the largest category of not-for-profit organizations (see Figure 1.1). As such, most practitioners and
researchers in the nonprofit sector focus their efforts on organizations classified as public charities. This
is not surprising as charitable purposes are the foundation for the nonprofit sector dating back as early
as 1601 when Queen Elizabeth I accepted the Statute of Charitable Uses:
. . . some for relief of aged, impotent, and poor people, some for maintenance of sick and maimed soldiers
and mariners, schools of learning, free schools, and scholars in universities, some for repair of bridges, ports,
havens, causeways, churches, seabanks, and highways, some for education and preferment of orphans, some
for or towards relief stock or maintenance for houses of correction, some for marriages of poor maids, some
for support, aid and help of young tradesmen, handicraftsmen, and persons decayed, and others for relief
6 Fundamentals and Environment of the Voluntary Sector
or redemption of prisoners or captives, and for aid or ease of any poor inhabitant concerning payment of
Fifteens [a tax], setting out of soldiers and other taxes. . . .13
The statute was adopted in order to delineate the relationship between church and state since churches
were the primary vehicle through which charitable endeavors were accomplished. Following English
law, early American churches remained the dominant providers of charity in the colonies, and later,
within independent states. Accordingly, the Statute of Charitable Uses was instrumental in establishing the boundaries of tax-exempt activity by enumerating what would generally be considered public
purposes and benefits provided by charities, and it continues to affect the legal perspective of what is
and is not acceptable activity by charitable organizations today.14 See Exhibit1.1 for further discussion
of British and other international influences on the origins of the U.S. nonprofit sector.
Exhibit 1.1
Going Global
International Influences on Early U.S. Nonprofits
While efforts of U.S. nonprofits overseas are highlighted throughout the text, it is useful initially to consider the influence of international policies on voluntary organizations in colonial and
post-Revolutionary America.
The Statute of Charitable Uses—while quaint in its language—was British policy adopted in
the 17th century that continues to have a lasting influence on how nonprofit organizations are
organized and viewed by government in the United States. The enumeration of what were considered “legitimate objects of charity” had a profound and lasting impact on what U.S. legislative and
judicial authorities would consider to be tax-exempt activities.
The power of the Catholic Church in areas of the New World controlled by Spain and France,
coupled with the dominance of the Anglican Church throughout the British Empire, led to the formal policy, and commonly held public opinion throughout the British colonies that there should
be one religion and that the church should be supported by taxes. This resulted in the church
essentially operating as an arm of the government, providing education and human services in addition to religious services to citizens. With religious diversity already established in many parts of
colonial America, by the early 18th century, even those who continued to believe that there should
be a single religion established by government were unable to agree as to which should be the one
official church. Subsequently, religious and political leaders such as Cotton Mather and Benjamin
Franklin became effective advocates for voluntary societies. Mather’s Essays to Do Good—which is
believed to be the inspiration for Franklin’s collection of Silence Dogood letters—is believed to
be the first American tutorial on the benefits of establishing voluntary societies. Because Mather
wanted the Puritan church to be the official religion, which was not possible given the British
policy regarding the sole authority of the Anglican Church, he sought the only avenue he saw
open for Puritan social influence by promoting collective action outside of government or religion.
After gaining independence from Great Britain (and the Church of England), citizens of the
new United States had galvanized their preference for limited government; the First Amendment
to the Constitution reflects the correspondingly prevalent sentiment in opposition to an established religion. The voluntary associations promoted and established in the early to mid-1700s
What Is the Nonprofit Sector? 7
were, thus, an attractive conduit through which to provide collective goods and services; this penchant for voluntary action has deep historical roots grown from international seeds.
International seeds continued to take root, for example, in the case of the ASPCA (American
Society for the Prevention of Cruelty to Animals). Established in 1824, England’s Royal Society
for the Prevention of Cruelty to Animals (RSPCA) spawned the establishment of New York’s
SPCA when Henry Bergh (also responsible for NYSPCC, discussed previously) met with the Earl
of Harrowby—then president of the RSPCA—on a visit to London in the mid-1860s. Bergh’s
mortification at witnessing bullfighting on a visit to Spain, the inhumane treatment of animals he
saw while a diplomat to Russia, and the notes he gleaned from the success of England’s RSPCA all
culminated in 1866 when the New York legislature passed a charter incorporating the nonprofit
ASPCA on April 10; nine days later, it adopted the nation’s first anti-cruelty law.
For more information on the history of the U.S. nonprofit sector, see Making the Nonprofit
Sector in the United States, edited and annotated by David Hammack. Additional information on
the history of RSPCA and ASPCA can be found at and
The terms charitable organization and public charity are applied to organizations that provide a large
and diverse array of public goods and services. The terms are loosely applied and routinely thought to
encompass all organizations exempt from tax under section 501(c)(3) of the Internal Revenue Code
(IRC). However, the Internal Revenue Service (IRS), distinctly classifies organizations that are exempt
from taxes under Section 501(c)(3) as either public charities or private foundations.15 The growth in
the number of foundations is also reflected in Figure 1.1; they are discussed in detail in Chapter 2.
As 501(c)(3) tax-exempt organizations, private foundations and public charities share the characteristic that
donations to them are tax-deductible. However, as is discussed further in Chapter 5, they differ significantly
in the way they are regulated as private foundations are subject to greater restrictions. Accordingly, the IRS
considers each 501(c)(3) organization to be a private foundation unless it demonstrates that it meets the
criteria necessary to be classified as a public charity. The categories excluded from the definition of private
foundation—and, therefore, qualifying as public charities—include “institutions such as hospitals or universities and those that generally have broad public support or actively function in a supporting relationship
to such organizations.”16 Types of organizations that qualify as public charities are linked to the Statute of
Charitable Uses, as it specifies activities that constitute a contribution worthy of tax deductibility.
Section 170 of the IRC (which creates the tax deduction) defines charitable contributions using
the same language as in section 501(c)(3) to identify eligible organizations. Sections 509(a)(1) and (2)
include the “public support tests” used to determine whether a 501(c)(3) organization can be classified
as a public charity. Private foundations, in contrast to public charities, typically have a single source
of funding, usually a major gift from a family or corporation. Public charities generally demonstrate
the broad public support required (usually 33.3 percent or more of total funding) through multiple or
public sources, such as contributions from multiple donors or government grants.17
Other 501(c) Nonprofits
Adding to its complexity, the voluntary sector includes more than public charities and private foundations as it encompasses a broad spectrum of activities. Most of the other categories of 501(c) nonprofits are member-serving organizations. The second largest category of tax-exempt organizations are
those incorporated under IRC section 501(c)(4)—civic leagues, social welfare organizations, and local
associations of employees such as AARP, the NAACP, and Rotary Clubs. Unlike 501(c)(3) organiza8 Fundamentals and Environment of the Voluntary Sector
tions, those organized under section 501(c)(4) are allowed greater latitude with regard to lobbying
and political activity. However, only certain volunteer fire departments and veterans’ organizations described in section 501(c)(4) are eligible to receive tax-deductible contributions, whereas contributions
to 501(c)(3) charities18 are tax-deductible.19
The other main categories of 501(c) nonprofits include: 501(c)(5) labor, agricultural, and horticultural
organizations such as the United Auto Workers, 4-H Clubs, and California Cattlewomen, Inc.; 501(c)
(6) business leagues, chambers of commerce, and real estate boards; and 501(c)(7) social and recreational
clubs such as fraternities, sororities, and tennis clubs. All of these 501(c) organizations are tax-exempt;
however, none are eligible to receive tax-deductible donations. A list of the major categories of tax-exempt
organizations as well as those organized under section 501(c)(3) is included in Table 1.1.
Table 1.1 Other 501(c) Nonprofit Organizations, 1999, 2008, and 201820
IRC Section
1999 2008 2018
of Orgs
% of All
Number of
% of All
Number of
% of All
Civic leagues, social welfare orgs, etc.
501(c)(4) 124,774 10.4% 110,842 7.3% 77,920 5.2%
Fraternal beneficiary
501(c)(8) 103,725 8.6% 58,345 3.9% 40,941 2.7%
Business leagues, chambers of commerce, etc.
501(c)(6) 70,718 5.9% 71,798 4.7% 60,432 4.0%
Labor, agricultural, horticultural orgs
501(c)(5) 60,530 5.0% 54,474 3.6% 44,913 3.0%
Social and recreational
501(c)(7) 56,429 4.7% 55,699 3.7% 46,637 3.1%
Posts or organizations of
war veterans
501(c)(19) 34,608 2.9% 32,057 2.1% 27,851 1.9%
All other 501(c) nonprofits 41,909 3.5% 57,263 3.8% 43,819 2.9%
Total Other 501(c)
492,693 41.0% 440,478 29.1% 342,513 22.9%
Total 501(c)3 Public
631,902 52.5% 959,564 63.4% 1,051,601 70.4%
Total 501(c)3 Private
77,978 6.5% 113,219 7.5% 98,627 6.6%
Sources: 1999 data from the National Center for Charitable Statistics (NCCS), retrieved on May 15, 2011, from http://; 2008 and 2018 data calculated using the IRS Business Master
Files, retrieved on July 6, 2019, from the National Center for Charitable Statistics Data Archive at https://nccs-data.urban.
Classification of Nonprofits
While the IRC includes almost 30 different sections of 501(c) tax-exemption, until the 1980s, nonprofit
organizations were not uniformly classified by type. Because the not-for-profit sector is so diverse, a classification system was deemed necessary to yield meaningful information by grouping organizations by
What Is the Nonprofit Sector? 9
purpose, type, or major function, regardless of their 501(c) designation. As such, the National Taxonomy
of Exempt Entities (NTEE) was designed by the National Center for Charitable Statistics (NCCS) in
cooperation with major nonprofit organizations. The value of the NTEE lies in its ability to:
• facilitate the collection, tabulation, presentation, and analysis of data by the types of organizations and their activities;
• promote uniformity and comparability in the presentation of statistical and other data collected by various public and private agencies; and
• provide better quality information as the basis for public policy debate and decision-making
for the nonprofit sector and for society at large.21
National Taxonomy of Exempt Entities—Core Codes (NTEE-CC) includes about 400 categories.
Codes are organized with consistent hierarchical logic that affords ease of use. A discussion of the
major groups and divisions, as well as the impact of NTEE on research and public policy, is included
in Exhibit 1.2.
While the data in Figure 1.1 (see page 12) and Table 1.1 are helpful in illustrating the size of the
voluntary sector according to different types of tax-exempt status, the diversity of functions among
these organizations makes understanding of the scope of the sector less clear. Examination by NTEE
categories affords a more illuminating view of the sector because NTEE classification includes nonprofits
in all sections of 501(c) tax-exemption. The diversity within the sector highlights the many and varied
public policy ramifications of nonprofit efforts.
Exhibit 1.2
For More Information
National Taxonomy of Exempt Entities
NTEE is comprised of 26 major groups (labeled A through Z) and seven common codes. Whereas the 26 major groups are organized under ten broad categories (listed in Table 1.2), the common codes are used within each major group to delineate activities of organizations. Common
codes also allow use of a fourth digit to provide more detail about a kind of organization within a
group. For example, National Children’s Alliance is an affiliate organization coded as I037, where
the I indicates the major group Crime & Legal-Related, which falls under the broad category of
Human Services, and 03, refers to the common code Professional Societies and Associations. The
fourth digit was taken from the decile level of the NTEE-CC, which in this case is I70 Protection
Against Abuse. Use of the 7 as the fourth digit indicates that NCA is not only a professional association within the field of criminal justice, but also that the organization specializes in protection
against abuse.
IRS determination specialists use the information from applications for tax-exempt status to
classify organizations according to the NTEE-CC. This classification makes data collection and
dissemination by the National Center for Charitable Statistics more useful, thus enhancing our
understanding of the nonprofit sector. In addition, the Foundation Center by Candid also uses a
slightly more detailed version of the system to classify grants and those who receive them.
A complete list of the NTEE-CC and further discussion of the history of the NTEE are available at
10 Fundamentals and Environment of the Voluntary Sector
Table 1.2 Change in Registered Nonprofit Charitable Organizations
by NTEE Category, 2008 and 2018
2008 2018
NTEE Category # of Orgs % # of Orgs % Change
Arts, Culture, and Humanities 117,926 7.8 112,993 7.6 (4,933) -4.2%
Education 201,880 13.3 201,364 13.5 (516) -0.3%
Environment22 53,532 3.5 60,637 4.1 7,105 13.3%
Health23 95,293 6.3 91,588 6.1 (3,705) -3.9%
Human Services24 383,192 25.3 359,762 24.1 (23,430) -6.1%
International, Foreign Affairs, and National Security 18,812 1.2 20,305 1.4 1,493 7.9%
Public and Societal Benefit25 337,797 22.3 306,239 20.5 (31,588) -9.3%
Religion Related, Spiritual
Development 214,144 14.1 274,242 18.4 60,098 28.1%
Mutual/Membership Benefit
Organizations 76,412 5.0 61,642 4.1 (14,770) -19.3%
Unknown26 15,916 1.1 3,964 0.3 (11,952) -75.1%
Total 1,514,904 100.0 1,492,736 100.0 (22,168) -1.5%
Source: Calculated using the December 2008 and December 2018 IRS Business Master Files, retrieved on July 6, 2019,
from the National Center for Charitable Statistics Data Archive at
Since the National Center for Charitable Statistics (NCCS) uses the NTEE-CC system to classify
public charities by type, Table 1.2 reflects changes in the number of registered not-for-profit organizations by major purpose or activity between 2008 and 2018. As you can see, while the number of public
charities grew during the decade, the proportion of certain types of nonprofits fluctuated. The categories
of public and societal benefit nonprofits and those organized to provide mutual/membership benefit
saw the most substantial declines. Numbers of environmental, international/national security, and religion-related nonprofits grew relative to others; with an increase of nearly 30 percent, religion-related
nonprofits grew by more than 60,000 new organizations during the decade. It is clear to see that the
NTEE enables a better understanding of the work being done by nonprofits, and specifically, how the
voluntary sector is changing.
Scope and Function of the Nonprofit Sector
The nonprofit sector is also known as the voluntary sector, the independent sector, or the third sector
in contrast to the public sector (government) and the for-profit (private business) sector. When nongovernmental organizations that are active in other countries are included in the discussion, reference
is generally made to Nongovernmental Organizations or NGOs. Since this text focuses primarily on
nonprofit activity in the United States, the terms nonprofit, not-for-profit, or voluntary sector are used
interchangeably throughout. References to NGOs should be construed as denoting an international
What Is the Nonprofit Sector? 11
Growth of the Nonprofit Sector
The number of tax-exempt organizations that comprise the nonprofit sector has begun to decline after
many years of steady growth in the United States. According to data from the IRS and the Urban Institute’s National Center for Charitable Statistics (NCCS), the number of nonprofit organizations grew
by 31.5 percent between 1999 and 2009,27 but decreased by approximately 1.5 percent between 2008
and 2018 (see Table 1.1). While data on the number of organizations that cease operations are limited,
the Urban Institute has studied the survival rates of small public charities—specified as those that meet
the filing threshold but have revenues, expenses, and assets of less than $100,000 per year. Of the original group of 63,493 small nonprofits that filed the Form 99028 in 1997, Boris and Roeger29 estimate
that about 16.7 percent were inactive or defunct by 2007, and almost 21 percent saw their revenues
decline to below the requirement for filing. Conversely, 28.5 percent of the small organizations saw
their revenues, expenses, and assets increase to more than $100,000 per year over the decade studied.
As shown in Figure 1.1, public charities continue to increase as a proportion of all registered nonprofits as well as in real numbers. In 2018, more than 70 percent of all organizations recognized as
tax-exempt under section 501(c) of the Internal Revenue Code (IRC) were public charities, up from
just over 63 percent ten years earlier.
Figure 1.1
Number of U.S. Nonprofits Registered
with the IRS, 2008 and 2018
Source: Calculated using the December 2008 and December 2018 IRS Business Master Files, retrieved on July 6, 2019,
from the National Center for Charitable Statistics Data Archive at
12 Fundamentals and Environment of the Voluntary Sector
The tremendous growth in the sector had its beginnings in the post-World War II era and has been
attributed to several factors, including greater affluence among Americans and changing government
policy priorities. Increasing American affluence has allowed people to simultaneously contribute more to
the nonprofit sector and to purchase the services that nonprofits provide, especially education services.30
In addition, extreme wealth allows individuals to form philanthropic foundations; for example, in 2000,
billionaire and Microsoft co-founder Bill Gates and his wife formed the nation’s largest grantmaking
foundation, the Bill & Melinda Gates Foundation.
Government policies have also facilitated the growth of the voluntary sector. During the 1960s,
President Lyndon Johnson’s Great Society created social programs to address health needs, legal aid,
urban renewal, and an expansion of social welfare services. The Johnson administration was the first
to offer a major infusion of federal funding to nonprofit organizations to help government provide
these services.31 More recently, the creation of AmeriCorps in 1993 and its subsequent expansion in
2009 through the Serve America Act have infused the nonprofit sector with a cadre of young and eager
Furthermore, the civil rights movement in the 1950s and 1960s added substantially to the growth
of the nonprofit sector. The efforts of African American and women’s rights groups during those years
paved the way for many of today’s nonprofit associations, including those representing both sides of the
abortion issue, environmental conservation efforts, and LGBTQ (lesbian, gay, bisexual, transgender,
questioning) rights. Finally, increased government use of privatization—hiring contractors from the
nonprofit and private sectors—has also increased the number of not-for-profit organizations operating
in the United States.
Given the long history of not-for-profit involvement in public policy, the overall growth of the
sector (despite recent declines in some subsectors) will undoubtedly offer nonprofits continued influence. Government trends, such as continued federal devolution of policy responsibility to the states,
will afford additional opportunities for nonprofit involvement in addressing public problems. Taken
together, these factors demonstrate the need for academics, policymakers, and the public to pay far
more attention to the role of nonprofits in the policy process.
Economic Impact of Nonprofits
Growth in the number of organizations is only one factor in the scope of the nonprofit sector and
its importance in both academic and practical terms. Data from the Bureau of Economic Analysis (BEA) reflect that in 2015 nonprofit institutions constituted 5.4 percent of the U.S. Gross
Domestic Product (GDP), with an estimated contribution to the U.S. economy in excess of $980
billion.32 This represents an increase from 4.85 percent in 1999, but a decrease from the high of
5.73 percent in 2009.33 Between 2005 and 2015, U.S. GDP grew by approximately 40 percent;34
during this same time, revenues and assets of reporting nonprofits grew by 28.4 and 36.2 percent,
respectively (adjusted for inflation). In 2015, nonprofits received $2.54 trillion in revenue and
held $5.79 trillion in assets.35 These statistics illustrate that not-for-profit organizations produce
a significant and increasing impact on the U.S. economy, and the sector is positioned to be an
even larger force for public policy influence because of greater resources for service provision,
research, and advocacy.
According to the U.S. Bureau of Labor Statistics (BLS), the nonprofit sector accounted for 10.2
percent of jobs in the 2017 economy;36 this marks a dramatic increase from 5.9 percent in 2007.37
Studies indicate that workers in nonprofits are compensated at similar levels to their counterparts
in other sectors—slightly more than for-profit employees, but somewhat less than workers in
What Is the Nonprofit Sector? 13
state and local government.38 In 2016, the average hourly wage for nonprofit workers was $25.30
compared to $20.17 for employees at for-profits.39 Benefits were also higher among nonprofit than
for-profit employees. It is important to note, however, that these data reflect wages for all workers
in each sector; when examining total compensation for management and professionals, private
sector average hourly earnings were higher at $53.76, while nonprofit sector earnings averaged
$49.09 per hour.
In addition to the economic impact of paid employees, volunteers make significant contributions
via the nonprofit sector. In 2018, nearly 63 million Americans volunteered 8 billion hours of their
time. The economic value of their contributions is estimated at $184 billion, further illustrating the
importance of nonprofits on the U.S. economy and labor market.40
Public Problems and the Policy Process
As previously discussed, there is a long history in the United States in which government entities and
not-for-profit organizations have worked together to provide public goods and services to American
citizens. Public goods, also called collective goods, are those that fulfill a need or demand where
the benefit cannot be restricted to those with the ability to pay for them. For example, clean air is a
collective good. All members of a community benefit from clean air, and access to the air cannot be
restricted only to those who do not introduce pollution. Because access to collective goods cannot be
restricted to those who pay for them, strong incentives exist for people to become “free riders”—that
is, people consume collective goods and services without paying their share of the cost. Public goods,
therefore, are typically not provided via the private market—which restricts provision of goods and
services to activities that generate profits—but rather through the public sector. This often leads to
what are known as collective action problems.41
Collective action problems involve those situations in which individual self-interests conflict with
social interests—that is, private benefits result in social costs. The classic example is the tragedy of the
commons, in which it is in each individual’s self-interest to use as much of a common resource as possible; however, if that happens, the resource will be depleted. Therefore, it is in the collective interest
for each person to use less, thereby managing the resource together.42 Nonprofit organizations are often
involved in developing and managing solutions to collective action dilemmas such as those between
economic development and environmental protection.43 One example of a nonprofit mitigating the
competition between economic and environmental interests comes from the Blue Ridge Conservancy,
highlighted in Exhibit 1.3.
Collective action dilemmas and other public problems are often addressed through the creation of
public policy, which is traditionally considered to be government’s response to perceived problems.
Indeed, government action is routinely viewed as a way to validate claims about public needs, those
“that a community recognizes as legitimate and tries to satisfy as a community.”44 Of course, not all
members of a community will agree on society’s problems nor will all agree on appropriate solutions.
Thus, public policy requires that a political deal be struck offering an acceptable balance of benefits
and costs across society.45
14 Fundamentals and Environment of the Voluntary Sector
Exhibit 1.3
For Example
The Blue Ridge Conservancy: Mitigating Competing Interests
Founded in 1997, the nonprofit Blue Ridge Rural Land Trust (BRRLT) served a seven-county
area of Western North Carolina with a mission of “neighbors helping neighbors work to preserve
rural communities and culture in northwestern North Carolina through the protection of the
land resource upon which they depend.” Begun with the support of the local Resource Conservation and Development Council—a nonprofit organization sponsored by the U.S. Department
of Agriculture—the BRRLT had protected over 10,000 acres by 2006, through agreements with
landowners—conservation easements—that permanently limit land use and ensure its conservation. BRRLT helped protect the commons by preserving the landscape—that is, the view everyone
shares when looking out over a rural mountain vista. The land may be individually owned, but the
view is maintained as a common resource.
In 2010, BRRLT merged with another nonprofit, the High Country Conservancy, to form the
Blue Ridge Conservancy (BRC). Today, BRC has protected over 20,000 acres in the northwestern region of North Carolina through continued partnerships with private landowners who have
either signed conservation easements or simply donated their land to BRC. The organization’s
strong tradition of private property rights is reflected in landowner retention of ownership and
specific property use (e.g. for farming), but the development rights are conveyed to the land trust
in perpetuity. While the land can be sold or transferred through inheritance, it must be conserved
and protected from development by subsequent owners.
Such reduction in development potential results in significant tax savings to property owners;
North Carolina led the states in providing state income tax credits for land or easements donated
for conservation purposes. However, since the lands remain private property, they continue to
generate property tax revenue for local government. This is an important example in which nonprofit organizations collaborated to make policy and resolve the collective action problem of land
Additional information is available at
For example, Lowi’s classic policy typology addresses these conflicting perspectives on public problems
and solutions by distinguishing between distributive policies, redistributive policies, and regulatory policies.46 Distributive policies tend to be noncontroversial because they offer targeted benefits but distribute
costs so widely as to go unnoticed by most people. For example, federal university research grants may be
of great benefit to a specific researcher or research team, but are such a small portion of the federal budget
that they rarely gain public attention. Redistributive policies, on the other hand, are more controversial,
as they offer benefits to one group, such as welfare recipients, via direct cost to another group, taxpayers.
In this case, taxpayers may resent paying a tax from which they receive no perceived benefit. Finally, regulatory policies target individual or industry behavior, thus typically offering widespread benefits, such as
cleaner air, with narrow costs to a certain industry or consumer group. These policies can frustrate groups
whose costs have increased to provide the public good of improved air quality.
The proliferation of the nonprofit sector has helped to expand the size, scope, and function of
organizations prepared to meet public needs, mitigate policy conflict, and influence citizens’ lives
beyond what government can or is able to do. In his discussion of public policy, B. Guy Peters recWhat Is the Nonprofit Sector? 15
ognized the important role that nongovernmental actors–government’s agents via contract—play
in the policy process. Therefore, his definition of public policy is particularly useful when studying
nonprofit organizations. Peters wrote that “public policy is the sum of government activities, whether
pursued directly or through agents, as those activities have an influence on the lives of citizens.”47
Accordingly, we build on Peters to define public policy as the actions taken by governments, not limited to statutes and regulations, but including programs and direct service delivery by government
agents, nonprofit organizations, and a growing cadre of for-profit entities that seek to address public
needs.48 This definition both informs and guides the discussion of nonprofits and public policy
throughout this book.
Stages of the Policy Process
Public policies and programs are typically the result of a long and complex process—sometimes decades in the making. As previously noted, the policy process typically begins with identifying a problem and deciding whether it is inherently a public problem necessitating a public solution. Although
the classic model of the policy process is a simplification, it continues to offer a useful framework for
studying public policy in the United States. This model includes several stages, generally proceeding
in the following manner: problem recognition, agenda-setting, policy formulation, adoption of the
policy, policy implementation, and finally, evaluation.
First is the problem recognition phase, during which a failure in the social, economic, or political
system is identified. A citizen or group of citizens, a politician, a bureaucrat, an interest group, or a
nonprofit organization can identify the problem; much like the New York Society for the Prevention
of Cruelty to Children identified the problem of child abuse in 1875. Often a coalition of these actors
recognizes a problem and comes together to seek a government solution. Vital to attracting government
attention and action is the problem’s policy image—the perception and framing of the issue. Policy
image is formed, and can be manipulated, through a combination of the emotional appeal, symbolism,
and factual evidence surrounding the problem.49
In the agenda-setting stage, the issue attracts a wider audience, including policymakers and politicians. Oftentimes a policy entrepreneur brings the problem to government’s attention, as in the case
of Bud Cramer, who as a district attorney led the effort to establish the first children’s advocacy center
(CAC). Later, as a U.S. Congressman, Cramer placed this new facet of the problem of child abuse on
the federal agenda, advocating legislation and funding for the CAC model.
With enough attention from those inside government, and with their agreement that the problem
warrants public action, the issue can move to the policy formulation phase. During this third phase, a
possible solution to the problem is sought; a variety of alternative solutions can and will be considered
by policymakers.50 Often in the policy formulation phase, lawmakers solicit information and ideas from
stakeholder groups, including nonprofits, as they pursue a policy solution.51 Policy advocacy by groups
such as National Children’s Alliance, for instance, is often critical to policy formulation. Lawmakers
agree on a final policy during the phase known as policy adoption.
Fundamental to the process following policy adoption is the implementation stage, during which the
mandate of the policy is carried out by those in government or their agents in the nonprofit or for-profit
sector. An example of policy implementation is the actual delivery of services for abused and neglected
children offered by children’s advocacy centers. Next, is the evaluation phase, in which the outcomes
of programs and policies are measured and stakeholder feedback is processed by the agencies carrying
out the policy. National Children’s Alliance monitors the performance of the children’s advocacy centers
they accredit to ensure standards of operation; while not the only evaluation of center outcomes, this is
another example of the role nonprofits play throughout the policy process. The evaluation and feedback
16 Fundamentals and Environment of the Voluntary Sector
stage often leads to policy reform, as the limitations, unintended consequences, or failings of the policy
as implemented become clear. Policy reform is a regular part of the policy process; as Charles Lindblom
explained, “Policy is not made once and for all; it is made and re-made endlessly.”52
Particularly useful for a discussion of nonprofits in the policy process is research on the scope and
impact of collaboration by various actors. Scholars have varyingly referred to these collaborations
as policy networks, subsystems, subgovernments, issue networks, policy communities, or advocacy
coalitions. What all have in common is the understanding that policy problems, solutions, advocacy,
and analysis are influenced by a variety of actors, often working in concert to advance specific goals.53
The basic concept of the issue network was introduced by Hugh Heclo in 1978 to explain how
long-dominant iron triangles lost control over certain policy issues. An iron triangle is a closed policymaking group, traditionally consisting of three relevant parts: a government agency, congressional
committees, and interest groups, who share interest in an issue and seek to control access to the policymaking process in order to facilitate a mutually beneficial policy outcome. Heclo’s concept of the issue
network better illustrated the diversity of actors and complexity of the policymaking process in most
policy areas, and later scholars expanded on this idea, further capturing the nature of the relationships
among actors involved in the policy process. For example, the Advocacy Coalition Framework (ACF)
describes in greater detail the system of actors “from a variety of public and private organizations who
are actively concerned with a policy problem or issue.”54 ACF incorporates the idea of policy-oriented
learning55 facilitated by coalition members such as policymakers and other public officials, university
faculty, think tanks, and nonprofit organizations, including foundations and those delivering public
services. Many of these actors work together on a specific policy area over long periods of time. For
example, not-for-profit organizations like the Society for the Prevention of Cruelty to Children and
National Children’s Alliance have been active members of coalitions that have influenced the policies
surrounding child abuse in the United States for decades. The various collaborative models offer a useful
way to examine the ongoing role that nonprofits play at each phase in the policy process.
At this point, it should be clear that the nonprofit sector is integral to the policy process, is often limited by policy mandates, and is frequently responsible for public policy implementation. Accordingly, it
is inadvisable to work in or study the nonprofit sector without a basic understanding of its relationship
to public policy and the policymaking process. Likewise, we argue that given the frequency with which
not-for-profit organizations deliver services that were once delivered by government, policymakers and
public sector employees must also understand the workings of the nonprofit sector.56
Our Approach
The book is comprised of three parts: Fundamentals and Environment of the Voluntary Sector, Strategies of Not-for-Profit Organizations, and Management Issues. Each section focuses on the important
relationship between public policy and the nonprofit sector. In some instances, nonprofits are policy
actors, and in others, nonprofits are affected by public policy decisions; in all cases, nonprofits are
inextricably linked to the world of public policy.
Throughout the text we argue that nonprofits and public policy interact in four primary ways:
1. nonprofits make policy, for example, by opening their doors and deciding on the services
provided to the public as they implement solutions to public problems;
What Is the Nonprofit Sector? 17
2. nonprofits influence policy through efforts such as advocacy and legislative lobbying;
3. nonprofits are affected by public policy, such as laws that encourage use of nonprofit service
providers, and encourage charitable donations; and
4. nonprofits are subject to public policy, such as state and federal regulations regarding the
handling and reporting of donor funds.
These four facets of our Nonprofit-Policy Framework (NPF) illustrate the interlocking relationship between nonprofits and public policy; thus, they are depicted in Figure 1.2 as pieces of a
We view the relationship between nonprofits and public policy as symbiotic, a union marked by
reciprocity and overlap. Those in the nonprofit sector can act as policy entrepreneurs, identifying public
problems and bringing them to the government’s agenda.57 Foundations and other nonprofit organizations are often vital in the policy formulation phase. During this process, nonprofits may be asked
to participate in hearings, provide data, or submit position papers to assist policymakers in crafting a
policy that will eventually win adoption.58 Once adopted, the complex process of policy implementation begins, often involving the division of responsibilities between governments at the local, state,
and federal levels, and the use of outside service contractors. Increasingly, nonprofit organizations are
engaged in direct implementation of public programs and policy as they deliver public services. The
sector also has an important role to play in the policy evaluation and feedback process, particularly
when the clientele of nonprofit organizations are affected, or when services have been delivered by a
not-for-profit organization.59
Further, not-for-profit organizations exist independently of government institutions, engage in
public activity, and make public policy decisions every day—for example, deciding the content and
location of recreational programs for senior citizens; choosing how and where to feed the homeless;
and determining which concert, play, or art exhibit is most appropriate for their communities. On the
other hand, they also operate within the constraints of tax policy, employment law, and policies that
prescribe accountability over their finances and governance. In the course of addressing collective action
dilemmas, meeting public needs, and defining public problems, not-for-profit organizations continually
affect and are affected by public policy. Understanding the nature and impact of this interrelatedness
is the focus of this book.
This, of course, has far-reaching implications for the management of organizations in the nonprofit
sector. Society’s best interests are at risk if a not-for-profit organization is given tax-exempt status,
receives federal or foundation grants, is tasked with direct service delivery, and also encouraged to
participate in the policy formulation as well as implementation processes when that organization is
ill-equipped for these responsibilities. While issues of nonprofit management are addressed more specifically in Chapters 11 to 14, it is important to keep in mind that due to the symbiotic nature of the
nonprofit sector and public policy, good management techniques are important beyond their impact
on any single organization.
18 Fundamentals and Environment of the Voluntary Sector
Figure 1.2
Nonprofit-Policy Framework
Part I, Fundamentals and Environment of the Voluntary Sector, is an overview of the nonprofit
sector as a whole. Chapters in this section are designed to define and identify the different types of
not-for-profit organizations and provide the theoretical basis for the existence of the nonprofit sector
as well as its relationship to public policy and government at the federal, state and local levels.
Part II, Strategies of Not-for-Profit Organizations, focuses primarily on the role of nonprofits as
actors within the policy process—that is, how their operations influence public policy and the alleviation
of public problems. The chapters throughout Part II address the major strategic planning topics for
nonprofits, including developing and adhering to mission, vision, and organizational goals; lobbying
and policy advocacy; and issues of organizational ethics and accountability. In addition, the relevance of
marketing for nonprofits and the growing trend to brand one’s organization and product are discussed.
What Is the Nonprofit Sector? 19
Finally, Part III, Management Issues, emphasizes the nuts and bolts issues of operating a notfor-profit organization. Throughout the chapters in this section, public policy is highlighted with
regard to how local, state, and federal legislation affect the day-to-day activities and management
of nonprofits—that is, ways in which nonprofits are acted upon by public policies. It is important
for nonprofit organizations to address capacity and long-term viability; thus, general issues of administration such as budgeting, management, funding, and evaluation are the focus of this section.
Finally, because some personnel issues are unique to the not-for-profit sector, this section delves into
the role of volunteers and creating effective relationships between executive directors and boards of
directors; their decisions and the work that they do have a significant impact on the lives of individual citizens and society at large.
We believe that all not-for-profit organizations are affected by public policy and that many affect
policy as well. Some nonprofits are founded specifically to pursue policy change, while others influence policy inadvertently. Regardless of intent, voluntary sector organizations have an important
role to play in the arena of public policy; therefore, throughout this book nonprofit management
is discussed with an emphasis on the public consequences of not-for-profit action. In the end, our
goal is to equip managers in both the nonprofit and public sectors with the information they need
to navigate the complexities of managing nonprofit organizations in a policy world.
Questions for Review
1. The nonprofit sector has been an important part of U.S. society since its beginnings; why
have we only recently begun to recognize its importance?
2. The nonprofit sector has grown dramatically in recent decades. What does this growth
mean for the provision of public goods and services by the public (government) sector?
3. Identify examples of collective action problems other than those being addressed by the Blue
Ridge Conservancy. Discuss how and why not-for-profit organizations address problems
such as these.
Because the Statute of Charitable Uses has had such a long-lasting impact on the legal framework
and policy orientation of nonprofits, access the article “The Political Use of Private Benevolence:
The Statute of Charitable Uses,” by James J. Fishman, at Read pp. 28–43 and pp. 49–61, and compose an essay that addresses the following
1. Why was the Statute of Charitable Uses (1601) deemed necessary by both the public and
the government? What public problems/needs was the law designed to address?
2. How does the history of the statute inform your understanding of the scope and function of
the nonprofit sector in the United States? Consider which activities were deemed charitable
and which were not, the role of local governments as well as the national government, and
issues of accountability.
20 Fundamentals and Environment of the Voluntary Sector
Suggested Readings
Fishman, James J. (2008). “The Political Use of Private Benevolence: The Statute of Charitable Uses.”
Pace Law Faculty Publications. Paper 487.
Hammack, David C. (Ed.) (1998). Making the Nonprofit Sector in the United States. Bloomington: Indiana University Press.
Hardin, Garrett. (1986). “The Tragedy of the Commons.” Science, 162 (December), pp.
Stone, Deborah. (2011). Policy Paradox: The Art of Political Decision Making (3rd ed.). New
York: W.W. Norton & Company.
Weible, Christopher M., and Sabatier, Paul A. (Eds.). (2017). Theories of the Policy Process (4th
ed.). Boulder, CO: Westview Press.
Web Resources
Association for Research on Nonprofit Organizations and Voluntary Action,
The Foundation Center,
Independent Sector,
Internal Revenue Service,
National Center for Charitable Statistics,
Urban Institute,
1. Diana Aviv, “Making a Difference Together,” remarks
at the Independent Sector Annual Conference, Minneapolis/St. Paul, MN, October 23, 2006.
2. Michal Almong-Bar and Hillel Schmid, “Advocacy
Activities of Nonprofit Human Service Organizations:
A Critical Review,” Nonprofit and Voluntary Sector
Quarterly, 43, 1, 2014, pp. 11–35; Nancy W. Basinger,
“Charitable Nonprofits in the West and Their Implications for Public Policy,” California Journal of Politics &
Policy, 6, 1, 2014, pp. 187–206.
3. “The New York Society for the Prevention of Cruelty
to Children 125th Anniversary, 1875–2000,” New
York Society for the Prevention of Cruelty to Children, (accessed January 19, 2012).
4. E. Fellows Jenkins, “The New York Society for the Prevention of Cruelty to Children,” Annals of the American
Academy of Political and Social Science, 31, 1908, pp.
5. “The New York Society for the Prevention of Cruelty
to Children 125th Anniversary, 1875–2000,” New
York Society for the Prevention of Cruelty to Children, (accessed January 19, 2012).
6. Ibid.
7. Nancy Chandler, ed., Best Practices for Establishing a
Children’s Advocacy Center Program, 3rd ed., Washington, DC: National Children’s Alliance, 2000.
8. Shannon K. Vaughan and Shelly Arsneault, “Notfor-Profit Advocacy: Challenging Policy Images and
Pursuing Policy Change,” Review of Policy Research, 25,
2008, pp. 414–428.
9. Alexis de Tocqueville, Democracy in America, vol. 2,
trans. Phillips Bradley, New York: Vintage Classics,
1990, p. 106.
10. David C. Hammack, “American Debates on the
Legitimacy of Foundations,” in The Legitimacy of Philanthropic Foundations, eds. Kenneth Prewitt, Mattei
Dogan, Steven Heydemann, and Stefan Toepler, New
York: Russell Sage Foundation, 2006, pp. 52–53.
11. Christopher S. Horne and Tommi V. Paris, “Preparing
MPA Students to Succeed in Government-nonprofit
Collaboration: Lessons from the Field,” Journal of
Public Affairs Education, 16, 1, 2010, pp. 13–30.
12. Elizabeth Schmidt, Nonprofit Law: The Life Cycle of a
Charitable Organization, 2nd ed., New York: Wolters
Kluwer, 2017.
13. David C. Hammack, “The Statute of Charitable Uses,
What Is the Nonprofit Sector? 21
1601,” in Making the Nonprofit Sector in the United
States, ed. David C. Hammack, Bloomington: Indiana
University Press, 1998, p. 6.
14. James J. Fishman, “The Political Use of Private Benevolence: The Statute of Charitable Uses,” Pace Law
Faculty Publications, 2008, Paper 487, (accessed July 27,
15. Internal Revenue Service (IRS), “Public Charities,”
March 26, 2019 (accessed July 3, 2019).
16. IRS, “Private Foundations,” June 5, 2019 (accessed July
3, 2019).
17. Gelman, Rosenberg, & Freedman CPAs, “Public Charity: Does Your Organization Pass the Section 509(a)
(1) Test?” 2019,
public-charity-509a1-test/ (accessed July 3, 2019).
18. With the exception of public safety testing organizations, which are granted tax-exempt status under
section 501(c)(3) but to which contributions are not
19. “Social Welfare Organizations,”
charities-non-profits/other-non-profits/social-welfareorganizations (last reviewed or updated May 13, 2019;
accessed November 21, 2019); “Exempt Organizations
General Issues: Charitable Contributions,” https:// (last
reviewed or updated March 26, 2019; accessed November 21, 2019).
20. Internal Revenue Service SOI Tax Stats—Tax-Exempt
Organizations, Table 25, Tax-Exempt Organizations,
Nonexempt Charitable Trusts, and Nonexempt SplitInterest Trusts, Fiscal Year 2018,
statistics/soi-tax-stats-tax-exempt-organizations-and-nonexempt-charitable-trusts-irs-data-book-table-25 (accessed
June 7, 2019).
21. National Center for Charitable Statistics (NCCS),
“National Taxonomy of Exempt Entities—Core Codes:
2007 Desk Reference,” Washington, DC: Center on
Nonprofits and Philanthropy at The Urban Institute,
2007, 1,
NTEE-CC-manual-2007a.pdf (accessed March 17,
22. Includes Environmental Quality, Protection, and Beautification; and Animal-Related Organizations.
23. Includes Health; Mental Health, Crisis Intervention;
Diseases, Disorders, Medical Disciplines; and Medical
24. Includes Crime, Legal Related; Employment, Job
Related; Food, Agriculture, and Nutrition; Housing,
Shelter; Public Safety; Recreation, Sports, Leisure,
Athletics; Youth Development; and Human Services—
Multipurpose and Other.
25. Includes Civil Rights, Social Action, Advocacy; Community Improvement, Capacity Building; Philanthropy, Voluntarism, and Grantmaking Foundations;
Science and Technology Research Institutes, Services;
Social Science Research Institutes, Services; and Public,
Society Benefit—Multipurpose and Other.
26. We speculate that the dramatic decrease in the number
of organizations for which the NTEE category is
Unknown relates primarily to the increase in information on smaller nonprofits because of the e-postcard
filing requirements. All tax-exempt organizations are
now required to file at least a minimum of information
annually, improving the quality and quantity of data.
27. Shannon K. Vaughan and Shelly Arsneault, Managing
Nonprofit Organizations in a Policy World, Thousand
Oaks, CA: SAGE Publications, 2014, p. 15.
28. Form 990 is an information return that tax-exempt
organizations are required to file; more information on
the Form 990 is provided in Chapter 4.
29. Elizabeth T. Boris and Katie L. Roeger, “Grassroots
Civil Society: The Scope and Dimensions of Small
Public Charities,” Charting Civil Society: A Series by the
Center on Nonprofits and Philanthropy, Washington,
DC: The Urban Institute, 2010.
30. Michael O’Neill, Nonprofit Nation: A New Look at the
Third America, San Francisco: Jossey-Bass, 2002.
31. Ibid.; and Kirsten A. Grønbjerg, “The U.S. Nonprofit Human Service Sector: A Creeping Revolution,”
Nonprofit and Voluntary Sector Quarterly, 30, 2001, pp.
32. Brice McKeever, The Nonprofit Sector in Brief, 2018,
Urban Institute National Center for Charitable Statistics, December 13, 2018, (accessed
June 6, 2019).
33. “Bureau of Economic Analysis, Table 1.3.5, Gross
Value Added by Sector, 1999–2011,” http://www.bea
.gov/iTable/iTable.cfm?ReqID=9&step=1 (accessed
July 27, 2012).
34. BEA, Table 1.1.5, Gross Domestic Product, https://
2#reqid=19&step=2&isuri=1&1921=survey (last
modified June 27, 2019, accessed July 6, 2019).
22 Fundamentals and Environment of the Voluntary Sector
35. McKeever, The Nonprofit Sector in Brief.
36. Bureau of Labor Statistics, Research Data on the Nonprofit Sector,
nonprofits.htm (accessed June 7, 2019).
37. Research Area: Nonprofit Sector at
38. Amy Butler, “Wages in the Nonprofit Sector: Management, Professional, and Administrative Support
Occupations,” U.S. Bureau of Labor Statistics, https:// (last modified April 15,
2009; accessed November 21, 2019; John L. Bishow
and Kristen Monaco, “Nonprofit Pay and Benefits:
Estimates from the National Compensation Survey,”
Monthly Labor Review, U.S. Bureau of Labor Statistics,
January 2016,
(accessed June 7, 2019).
39. John L. Bishow and Kristen Monaco, “Nonprofit pay
and benefits.”
40. Independent Sector, Independent Sector Releases New
Value of Volunteer Time of $25.43 Per Hour, https:// (accessed June 4, 2019).
41. Mancur Olson, The Logic of Collective Action, Cambridge, MA: Harvard University Press, 1965; Burton
A. Weisbrod, The Voluntary Sector, Lexington: D.C.
Heath & Company, 1977; Lester M. Salamon, Partners
in Public Service, Baltimore: Johns Hopkins University Press, 1995; Dennis R. Young, “Complementary,
Supplementary, or Adversarial? A Theoretical and
Historical Examination of Nonprofit-Government
Relations in the United States,” in Nonprofits and Government, ed. Elizabeth T. Boris and C. Eugene Steuerle,
Washington, DC: Urban Institute Press, 1999.
42. Garrett Hardin, “The Tragedy of the Commons,”
Science, 162, 1968, pp. 1243–1248.
43. Deborah Stone, Policy Paradox: The Art of Political
Decision Making, New York: W.W. Norton, 2002.
44. Ibid, 28.
45. James Q. Wilson, The Politics of Regulation, New York:
Basic Books, 1980.
46. Theodore J. Lowi, “American Business, Public Policy,
Case Studies and Political Theory,” World Politics, 16,
1964, pp. 677–715.
47. B. Guy Peters. American Public Policy: Promise and Performance, 5th ed., New York: Chatham House, 1999,
p. 4.
48. Lowi, American Business; Dye, Oligarchic Tendencies;
Helmut K. Anheier, Nonprofit Organizations, Theory,
Management, Policy, New York: Routledge, 2005;
Steven Rathgeb Smith and Michael Lipsky, Nonprofits
for Hire: The Welfare State in the Age of Contracting,
Cambridge, MA: Harvard University Press, 1994.
49. Frank R. Baumgartner and Bryan D. Jones, Agendas
and Instability in American Politics, Chicago: University
of Chicago Press, 1993; Stone, Policy Paradox.
50. John W. Kingdon, Agendas, Alternatives, and Public
Policies, Boston: Little, Brown, 1984.
51. Rachel Fyall, and Jamie Levine Daniel, Pantries and
Policy Implementation: Using Nonprofit Priorities to
Understand Variation in Emergency Food Assistance,
Nonprofit and Voluntary Sector Quarterly, 47, 4S, 2018,
pp. 11S–33S.
52. Charles Lindblom, “The Science of ‘Muddling
Through,’” Public Administration Review, 19, 1959, p.
53. Hugh Heclo, “Issue Networks and the Executive
Establishment,” in The Political System, ed. Anthony
King, Washington, DC: American Enterprise Institute
for Public Policy Research, 1978, pp. 87–124; Hank
Jenkins-Smith and Paul Sabatier, “Evaluating the
Advocacy Coalition Framework,” Journal of Public
Policy, 14, 1994, pp. 175–203; Young-Jung Kim and
Chul-Young Roh, “Beyond the Advocacy Coalition
Framework in the Policy Process,” International Journal
of Public Administration, 31, 2008, pp. 668–689; Michael Mintrom and Sandra Vergari, “Policy Networks
and Innovation Diffusion: The Case of State Education
Reforms,” Journal of Politics, 60, 1998, pp. 126–148;
Arons, Public Policy.
54. Jenkins-Smith and Sabatier, “Evaluating,” p. 179.
55. Policy-oriented learning refers to “relatively enduring
alternations of thought or behavioral intentions that result from experience and/or new information and that
are concerned with the attainment or revision of policy
objectives.” Paul Sabatier and Hank Jenkins-Smith,
“The Advocacy Coalition Framework,” Theories of the
Policy Process, ed. Paul Sabatier, Boulder, CO: Westview
Press, 1999, p. 123.
56. Brenda Bushouse, “Leveraging Nonprofit and Voluntary Action Research to Inform Public Policy, Policy
Studies Journal, 45, 1, 2017, pp. 50–72; Christopher
S. Horneand and Tommi V. Paris, Preparing MPA
57. Jiahaun Lu, “Organizational Antecedents of Nonprofit
Engagement in Policy Advocacy: A Meta-analytical
Review,” Nonprofit and Voluntary Sector Quarterly, 47,
What Is the Nonprofit Sector? 23
4S, 2018, pp. 177S–203S; Steven Rathgeb Smith, “The
Increased Complexity of Public Services: Curricular
Implications of Schools of Public Affairs, Journal of
Public Affairs Education, 14, 2, 2008, pp. 15–128.
58. Rachel Fyall and Jamie Levine Daniel. “Pantries and
Policy Implementation.
59. Katia Balassaiano and Susan M. Chandler, “The
Emerging Role of Nonprofit Associations in Advocacy
and Public Policy: Trends, Issues, and Prospects, Nonprofit and Voluntary Sector Quarterly, 39, 5, 2010, pp.
24 Fundamentals and Environment of the Voluntary Sector
Inside any important philanthropy meeting, you witness heads of state meeting with investment managers
and corporate leaders. All are searching for answers with their right hand to problems that others in the
room have created with their left.
Peter Buffett1
If you are a young billionaire today, you probably feel a lot of pressure to get involved in philanthropy, and you might feel overwhelmed by the many ways in which you could give. You could start a
traditional foundation, invest in a donor-advised fund through your local community foundation or
through a private charitable investment firm, join a giving circle, or invest in a social venture fund.
Alternatively, you could go on the highest rated daytime television show in the country and announce
a $100 million gift to a troubled public school district, as Facebook CEO Mark Zuckerberg did in
2010. At 26 years old, Zuckerberg was the youngest billionaire in the world at a time when tech
entrepreneurs in Silicon Valley had increased their philanthropic giving by 150 percent.2
The gift
announcement came on The Oprah Winfrey Show and Zuckerberg told Winfrey that it hinged on his
faith in the vision of Newark Public School reforms presented by New Jersey Governor Chris Christie
and Newark Mayor Cory Booker.3
Zuckerberg’s $100 million was the first half of a matching grant for the Foundation for Newark’s
Future, whose $200 million represented 4 percent of the Newark Public Schools budget each year of
the five-year project.4
A neophyte to the world of philanthropy and education, Zuckerberg’s first major
gift was criticized on a number of fronts. Some argued that it was a publicity stunt, announced on the
same day as the film opening of The Social Network, an unflattering look at Zuckerberg’s foray into the
tech industry. Others complained that the project was top-down and poorly implemented since most
Newark parents, teachers, and school administrators first learned of the money and slate of school
reforms along with the rest of America watching The Oprah Winfrey Show. Although a 2017 report
found improvements in English language skills among Newark students over the five-year project,5
people remember Zuckerberg’s Newark donation as a huge failure. Being a billionaire philanthropist
might not be as easy as it looks.
American Philanthropy
Philanthropy has been defined as “the voluntary dispensing of private wealth for public purposes.”6
the opening vignette, Mark Zuckerberg became a philanthropist through a $100 million donation,
and while most of us will never be able to match that level of generosity, we are likely to donate some
of our private wealth at some point. As the president of the Charles Stewart Mott Foundation has argued, philanthropy is a core American value.7
This chapter discusses various forms of organized giving,
but focuses on philanthropic foundations, institutions created explicitly to dispense private assets for
the public good. U.S. foundations have funded programs and pursued public policy on a vast range of
issues, from healthcare to education to poverty eradication for over a century.
Although the rudiments of what we would consider philanthropic activity in the United States predate
the American Revolution, the newly formed republic was fragile, and the founders were hesitant to
afford legal protections to either charitable trusts or private corporations. Their fear was that organized
groups would become the “factions” that James Madison and George Washington had warned about,
upsetting the balance of the fledgling democratic republic.8
At the heart of their misgivings was the
question: Do private associations make “some citizens ‘more equal’ than others,” thereby threatening
“to undermine the egalitarian foundation of the new governmental order”?9
This question continues
to concern us, particularly when those associations are large, well-funded philanthropic foundations.
This chapter looks at the history of foundations, how they are active in all four facets of the Nonprofit-Policy Framework, the rise of “philanthrocapitalism,” and its critiques, and relevant questions for
nonprofit management in this era.
Origins of Philanthropy in the United States
As Hall has demonstrated, wealthy philanthropic trusts have always been beset by public skepticism
and mistrust in the United States.10 For the nation’s first century, deep-seated fears led to bans on charitable corporations in some Southern states, and limited terms for incorporation in others; in Pennsylvania and New York, they existed only under strict state regulation. At the federal level, this distrust
played out in a debate, begun in 1835, over whether or not the U.S. government should accept James
Smithson’s half-million dollar gift for creation of an institute in Washington, DC. It was not until
1846 that final approval was granted to accept Smithson’s bequest and create a public corporation that
would become the Smithsonian Institution.11
Only in New England did philanthropic organizations flourish in the early decades of the nation.12
By the late 19th century, however, the end of slavery, rise of the industrial north, and the growing
number of extremely wealthy corporate leaders created many opportunities for the growth of secular
charity.13 In 1889, Andrew Carnegie proposed that these captains of industry use their excess wealth
to better society, and in 1892, John D. Rockefeller’s largesse helped found the University of Chicago.
Not content to address large-scale social problems in the piecemeal fashion of traditional charities, these
industrialists found a new approach to giving through institutional philanthropy.14 This was the Progressive Period in American history (1880–1920), and by this time, most states had loosened the legal
restrictions on philanthropy, which permitted the creation of modern philanthropic foundations.15 In
1907, Margaret Olivia Sage gave $10 million toward creation of the first, the Russell Sage Foundation,
named for her late husband.16 It, along with the Carnegie Corporation (1911) and the Rockefeller
Foundation (1913), shared the broad goal of improving society through research and scientific inquiry
by which foundation experts would better identify and understand the most important social problems
of the day. Through this scientific philanthropy, foundations would disperse grants to facilitate the most
viable solutions to those problems.17
26 Fundamentals and Environment of the Voluntary Sector
What Is a Philanthropic Foundation?
Identifying problems and dispersing grants continue to mark the approach and activity of philanthropic foundations, although, as detailed in the next section, new forms of organized giving have
arisen in recent decades. Philanthropy is generally understood as occurring through institutions; it
is viewed as coordinated giving, typically conducted by organizations that engage in financial grantmaking and exist in-perpetuity.18 According to tax policy, “foundations are donor-centered (usually
endowed) organizations that receive little if any external support on a regular basis.”19 As mentioned
in Chapter 1, most foundations are classified as 501(c)(3) organizations, but are differentiated from
public charities by the IRS; they are also subject to more stringent regulations, as discussed in Chapter
5. In 2015, private foundations comprised 5.52 percent of all nonprofits, and 7.92 percent of organizations classified as tax-exempt under section 501(c)(3).20 The nonprofit Foundation Center, which
merged with GuideStar in 2019 to become Candid, is the leading authority and resource for and
about foundations in the United States (see Exhibit 2.1).
Exhibit 2.1
For More Information
Candid (Formerly The Foundation Center)
In 2019, The Foundation Center, which had been the leader in information about philanthropy
since 1956, and GuideStar, one of the primary sources of information about the nonprofit sector,
joined forces to become Candid. Candid’s primary resource is information. It maintains the most
comprehensive database on grantmakers and their grants in the world, and provides research, education, and training programs to increase the capacity of nonprofit organizations. Candid has six
regional library/learning centers—Atlanta; Cleveland; New York; San Francisco; Williamsburg,
Virginia; and Washington, DC—along with partners in Asia, Africa, Europe, and Latin America,
and a network of more than 400 “funding information centers” located in public libraries, educational institutions, and community foundations across the United States.
Candid’s mission is to connect “people who want to change the world to the resources they
need to do it” through the most comprehensive collection of “data tools on nonprofits, foundations, and grants” in the world. This is done primarily through its website and regional centers.
Candid conducts its own research as well as facilitates the research of others on U.S. philanthropy.
Through its information database, it provides access to IRS Form 990 information as well as information on numerous funding sources. In addition, free online tutorials and webinars are available
on preparing grant proposals, while additional publications and workshops are available for a fee.
Candid derives support from almost 600 foundations whose contributions along with earned
income provide necessary funds for operation.
To learn more about Candid resources and services on philanthropy, go to foundationcenter
.org,, or
Source: (accessed May 30, 2019).
Like the nonprofit sector in general, foundation growth has been dramatic in the past 20 years. The
number of foundations increased each year in the last three decades until 2013 when there were 87,142
foundations; in 2015, that had dropped to 86,203.21 Foundations held an estimated total of $890 billion
Philanthropy and Foundations 27
in assets in 2015, up from $583.4 billion in 2009, and $448.6 billion in 1999.Further, overall giving by
U.S. foundations increased by 66 percent between 2004 and 2015,22 with international giving tripling
in that same period.23 On the other hand, a third of U.S. foundations had less than $1 million in assets
in 2015, and fewer than 4 percent had assets over $25 million.24 While most foundations are created
in-perpetuity, as the latest numbers indicate, not all continue forever. Foundation Center by Candid
has estimated an annual foundation termination rate of 1.5 percent based on data from 2005–2006.25
Candid identifies four types of private foundations: 1) independent foundations, 2) operating
foundations, 3) corporate foundations, and 4) community foundations. The IRS, on the other hand,
distinguishes primarily between operating and grantmaking foundations (see Table 2.1 for a clarification of these differences). Independent foundations derive their funds from “an individual, a family,
a corporation, or some combination of related parties”;26 these foundations may grant funds to other
organizations or may use funds to operate their own programs. Community foundations, however, have
grantmaking as their primary purpose. Their funding generally comes from multiple sources, including
government grants, individuals, and private foundations.27
Table 2.1 Foundation Types at a Glance
Type of Foundation Source of Funds to Establish Method of Dispersal of
Independent (family) foundation Individual or family gifts or bequests Grants
Operating (private) foundation Individual or family gifts or bequests Operate own programs
Corporate foundation Assets from a publicly held company Grants
Community foundation Government grants, individuals, foundations Grants
Types of Foundations and Other Philanthropic Giving
Independent Foundations (including family foundations) comprise 92 percent of the foundations
in Candid’s Foundation Center database. These foundations are established by individuals or families
through large gifts or bequests of funds, stocks, properties, and so on, and are varied in size, scope,
and types of interests. Family foundations often employ no staff; the donor and/or family members
manage resources and distribute funds. The very largest independent and family foundations, however, tend to be well staffed with professional employees in areas from fundraising to research, to social
media.28 Prominent family foundations include the John D. and Catherine T. MacArthur Foundation,
the Robert Wood Johnson Foundation, and the W.K. Kellogg Foundation, each of which has had
major policy influence through the projects it funds. The Robert Wood Johnson Foundation, for example, has partnered with the nonprofit Alliance for a Healthier Generation in its mission to change
school policy regarding food and beverage options in order to alleviate the problem of childhood
obesity; these efforts are highlighted in Chapter 3.
Operating Foundations comprise 4 percent of all foundations, are established with assets provided
by individuals or a small group of donors and are typically administered by professional staff. Unlike
family foundations, they use their resources to operate their own programs rather than or in addition
to distributing funds to other organizations. Operating foundations—such as the J. Paul Getty Trust,
which operates museums and research facilities for the visual arts—are required by the IRS to spend a
large portion of their income on the operation of their nonprofit activities.29 Family foundations that
move toward direct charitable activities and away from grantmaking would likely benefit from reclas28 Fundamentals and Environment of the Voluntary Sector
sification by the IRS to be private operating foundations because IRS restrictions and requirements
for private operating foundations are less strict. For example, greater deductibility of new donations
is allowed and they have a different payout requirement. More information on the regulations and
restrictions that apply to foundations is included in Chapter 5.
Corporate Foundations are established with assets received from a publicly held company,
although they are a separate legal entity. Comprising 3 percent of U.S. foundations, corporate
foundations accrue tax benefits to their parent companies, but face strict limits on expenditures involving company leadership.30 These foundations—including the Alcoa Foundation and Enterprise
Rent-A-Car Foundation—are typically established as a means to target giving in the geographic locations where the company operates, to support children of employees through scholarships, and/or
encourage charitable giving and volunteer efforts of company employees. Like all such foundations,
corporate operating foundations run their own programs rather than distribute funds to other organizations. Most foundations of this type have been established by pharmaceutical companies for the
direct distribution of medications such as the Bristol-Myers Squibb Patient Assistance Foundation
and the Lilly Cares Foundation.
Community Foundations provide a means for local donors to pool their assets with the goal of
bettering the community. They are unique among foundations for several reasons. First, unlike independent and corporate foundations that get their resources from a single or small number of sources,
community foundations are dependent on large numbers of donors and annual giving. One consequence
of this is that they have no family or single entity to administer their work, thus they tend to have larger
professional staff and boards of directors than other foundations. Further, their wide support and the
fact that they benefit a broad public, earn them classification as 501(c)(3) public charities under the
tax code.31 This classification means that community foundations are subject to fewer tax restrictions
than foundations in the other three categories.
The concept of a community foundation began in 1914 with the Cleveland Foundation whose
founder sought a permanent philanthropic endowment with the ability to adapt to the changing needs
of the community over time.32 Community foundations are considered anchors of their communities as
they are funded by and run for the benefit of a specific geographic location.33 In 2015, there were 795
community foundations in the United States, constituting 1 percent of U.S. foundations. By far the most
influential is the Silicon Valley Community Foundation (SVCF), which in 2015 was the eighth largest
in terms of assets and the third largest in terms of grants awarded of all categories of foundations.34 With
$13.5 billion in assets in 2017, SVF has distributed more than $6 billion since its founding in 2007.35
Donor-Advised Funds allow the donor to direct the use of funds with the expert advice of a nonprofit
professional. In 1931, the New York Community Trust was the first organization to use a donor-advised
fund (DAF), which is financed by individual donors but managed by 501(c)(3) charities. Community
foundations have used DAFs extensively since the 1970s by charging fees to advise and manage donor
funds in their local communities. They offer several advantages for donors, including the receipt of a
tax benefit for their entire donation in the first year they contribute, even if the funds are dispersed
over several years.36 Further, a DAF is easier and provides more flexibility than establishing a family
foundation, and simplifies tax filing for donors by eliminating excise taxes on investments, requiring
less transparency, and not requiring an annual fund payout.37
This model of community foundation funding has been, in some ways, a victim of its own success
as for-profit entities began competing for donors by entering the DAF market in the 1990s.38 In 1991,
mutual fund company Fidelity Investments was the first to establish a nonprofit arm, Fidelity Charitable,
and offer DAF services to its customers. This encouraged banks and other investment firms to follow
suit, and today, more DAFs are run through financial organizations than community foundations as
the financial industry has benefited both from serving existing clients and its ability to charge lower
Philanthropy and Foundations 29
fees for services.39 This trend has not gone unnoticed by critics who argue that these funds often “look
more like a collection of bank accounts for individual donors than a grantmaking organization.”40
Conversion Foundations are a type of foundation that is nearly 40 years old and typically the
result of a for-profit company acquiring a nonprofit entity. As a nonprofit, the organization, usually a
hospital or other healthcare organization, has been held as a public trust and there are no shareholders
or owners to receive proceeds of the sale; therefore, the nonprofit’s assets become the endowment for
the conversion foundation. Conversion foundations are typically hybrids of a grantmaking community
foundation and an operating foundation,41 although their tax status is as a private foundation, rather
than public charity. One example is the California Endowment, a conversion foundation created in
1996 when the former nonprofit health insurance provider, Blue Cross of California, turned its managed care programs into the for-profit, WellPoint Health Network Inc. With $3 billion in assets, the
California Endowment is the largest health foundation in the state, both making grants and operating
programs across California. Interestingly, in 2014, the California State Franchise Tax Board rescinded
the tax-exempt status of Blue Cross of California over criticism of high executive pay, excessive asset
holdings ($4.2 billion), and unnecessary customer rate hikes.42
Federated Giving Programs are another form of philanthropy that makes use of coordinated giving
efforts. Also known as a federated charity or federated fund, these organizations raise money through
mobilization of many donors, often through workplace campaigns, and whose boards disperse the funds
to fulfill public needs. Examples include United Way, UNCF (formerly United Negro College Fund),
and the Combined Federal Campaign. Given the nature of their diffuse fundraising and giving, these
organizations, like community foundations, are classified as 501(c)(3) public charities.
Venture Philanthropy is a relatively new form of philanthropy that is varyingly referred to as venture
philanthropy, impact investing, philanthrocapitalism, and micro-finance. It blurs the lines between the nonprofit and for-profit sectors. Derived from the concept of venture capitalism, venture philanthropy entails an
infusion of revenue to a nonprofit to help build organizational capacity and spur innovation to better address
public problems. In a practical sense, venture philanthropy differs from traditional charitable donations or
even foundation grants in that it typically focuses on long-term commitments of financial support for general
operating support. The primary difference, however, is that it embodies a philosophy of social investment;
venture philanthropists see their financial assistance not as simply a contribution, but also as an investment
in the work of the nonprofit. As such, they expect to receive tangible evidence of a return on that investment
(ROI). For venture philanthropists (also referred to as philanthrocapitalists, discussed later in the chapter),
it is not enough to feel good about giving money to charity or even to have a building named after them in
gratitude for their largesse; these individuals want to see demonstrated results that their money is making a
difference in solving problems. Therefore, just as with government grants and contracts, nonprofits must be
willing to engage in rigorous evaluation in order to benefit from venture philanthropy as a revenue source.43
Democratized Giving. Angela Eikenberry describes the growth of democratic volunteerism that has
been facilitated by skepticism of large institutions, and in which opportunities for participation and
direct giving are increased, individual donors better understand the needs of recipients, and benefits
are afforded to new and expanded groups.44 Her work centers on giving circles, which are groups of
individuals that pool resources, sometimes in-kind, and that fund existing nonprofits, people engaged
in voluntary service outside of a formal organization, or simply individuals with demonstrated need.
Sometimes formally incorporated as 501(c)(3)s and sometimes less formal organizations,45 giving circles
have been popular with women and minorities as well as those under the age of 40 because they allow
for a close connection to the community they fund.46
The dramatic rise of online crowdfunding is another example of democratized giving. The company
GoFundMe, founded in 2010, is the best known of more than 3,500 international online platforms
that, for a fee, allow nonprofit organizations easy access to Internet fundraising and allow individuals
30 Fundamentals and Environment of the Voluntary Sector
to raise funds for everything from funeral expenses, to concert tickets, to medical care, and college
tuition. Those who donate on crowdfunding sites tend to be younger, want to see immediate benefits,
and believe that those asking for help know best how to use it.47 See Exhibit 2.2 for a dramatic example
of how a change to federal immigration policy led to a record-breaking crowdfunding effort for San
Antonio’s Refugee and Immigrant Center for Education and Legal Services.
Online crowdfunding is an incredibly powerful tool for direct giving, allowing donors to express
their sympathy, support, or outrage with the click of a button. On the other hand, its very nature
means that Internet fundraising will leave out those on the other side of the digital divide. Pew research
indicates that those least likely to have made a donation via crowdfunding are age 65 and older, those
with a high school education or less, and those living in rural communities.48 Those using the Internet
to facilitate donations need to be aware of its limitations.
Exhibit 2.2
For Example
Crowdfunding the Refugee and Immigrant
Center for Education and Legal Services
To illustrate the power of online crowdfunding, consider the example of the Refugee and Immigrant
Center for Education and Legal Services (RAICES), a nonprofit in San Antonio, Texas, that provides
legal support for individuals in the immigration system. In April 2018, the Trump administration
initiated a zero-tolerance policy for those crossing the U.S. border without legal documentation.49
This policy directed federal attorneys to criminally prosecute all individuals caught crossing the border illegally, even those seeking asylum, and meant immediate detention by Immigration and Customs Enforcement (ICE). While criminal charges have always been an option, detainees typically
faced civil charges in immigration court.50 The change in policy was particularly problematic for the
thousands of detainees who crossed the border with children under the age of 18. As many adults
were sent to jails, thousands of their children (some less than two years old) were taken to shelters
managed by the Department of Health and Human Services. This created an incredible uproar across
the nation, and encouraged a couple from Silicon Valley to use Facebook’s fundraising tool to raise
money online for RAICES. Among its programs, RAICES has a Legal Representation, Advocacy,
and Education Fund (LEAF), which provides legal representation to minors in immigration court,
and a Family Reunification and Bond Fund, which helps immigrants pay their immigration bonds
for release from ICE custody. The original goal of the organizers was to raise $1,500, the minimum
set for an immigration bond;51 within days, the amount raised broke Facebook fundraising records,
eventually totaling more than $20 million. To the point of crowdfunding as democratized giving, the
average donation was just $40 and came from over 500,000 donors around the globe.52
The RAICES example highlights several important concerns for nonprofit organizations. First is
the ability of a small organization to spend vast amounts of money when it becomes a social media
“hit.” In the previous 3½ years, RAICES had spent a total of $400,000 on bail for detainee release;
after the influx of donations in 2018, it spent $82,000 in two months.53 How to disburse millions of
dollars quickly and meet the expectations of donors is neither a new, nor an insignificant, problem.
The second question raised by RAICES’ experience harkens back to the original debate over
accepting James Smithson’s gift to create the Smithsonian Institute: when to say “no” to a donor.
In July 2018, the technology company Salesforce contacted RAICES to offer $250,000 for the
Philanthropy and Foundations 31
organization’s work. The problem for RAICES was that Salesforce has government contracts with
U.S. Customs and Border Protection (CBP), a sister agency of ICE within the Department of
Homeland Security. RAICES executive director, Jonathan Ryan, declined the donation, responding, “Pledging us a small portion of the money you make from CPB [sic] contracts will not distract
us from your continuing support of this agency,’ Ryan continued. ‘We will not be a beneficiary of
your effort to buy your way out of ethical responsibility.”54 To remain true to its mission and the
population it serves, RAICES rejected a substantial gift from CBP.
Jonathan Ryan’s comment about ethical responsibility points to a long-standing concern about
corporate philanthropy as a sort of social absolution.55 It has been argued that early philanthropists
like Carnegie and Rockefeller gave in order to deflect criticism over their vast accumulations of
wealth and the ways in which it was earned.56 John Pratt noted that philanthropy is often a way
to burnish the image of businesses and their owners when public scandals arise.57 Linsey McGoey
pointed out that for today’s uber-wealthy, philanthropic generosity can stifle critics of growing economic inequality.58 A single online fundraiser for a small nonprofit provides many lessons about
the policy implications and nature of philanthropy today.
Philanthropy and Policy Solutions
As previously discussed, foundations and the programs that they fund and operate have been vital to
advancing social goals and public policy in the United States since the turn of the 20th century. Andrew Carnegie and John D. Rockefeller both pronounced very public goals for their respective foundation: Carnegie, to facilitate “the advancement and diffusion of knowledge and understanding,”59
and Rockefeller, “to promote the well-being of mankind throughout the world.”60 These pioneering
foundations provided a new means of organized philanthropy to facilitate social change by influencing
collective political action. According to Sheila Slaughter and Edward T. Silva, resource holders such
as Carnegie, Rockefeller, and Sage put their wealth to use to influence the “process of ideology formation—[defined as] the production, dissemination, and consumption of ideas” because it was believed
that such ideologies “supplied the social cement for collective political action.”61
Thus, the United States entered the 20th century with a new model of scientific philanthropy in
which foundations affected how public problems were perceived and how policy solutions were derived.62
For example, the Council on Foreign Relations (CFR), a nonpartisan nonprofit, has been instrumental
in U.S. foreign policy since 1921 when it was founded with grants from the Rockefeller Foundation
and Carnegie Corporation. The CFR designed important parts of the charter that created the United
Nations, helped to craft the Marshall Plan for post-World War II recovery in Europe, and advocated
for nuclear nonproliferation agreements throughout the 1970s and 1980s; its journal, Foreign Affairs,
has long been considered one of the most influential publications covering U.S. foreign policy issues.63
From the early 20th century on, philanthropic foundations have been drivers of research and scientific
inquiry in policy fields including foreign policy, criminal justice, public health, social work, and education. One prominent example involves the Community Oriented Policing Services (COPS) program
begun during the Clinton Administration, and implemented through the Department of Justice (DOJ).64
The National Police Foundation, highlighted in Exhibit 2.3, was instrumental in research and development of the community oriented policing model, implemented by police departments nationwide.
In addition to these public policy-shaping activities, philanthropic foundations in the United States
have engaged in civic strengthening activities, which are undertaken to facilitate the democratic process by
32 Fundamentals and Environment of the Voluntary Sector
encouraging transparency in governance, improved public leadership, and increased civic participation.65
Work in these areas includes voter registration, get-out-the-vote campaigns, leadership programs, and
collaborations with governments and community organizations to pursue governance and electoral reforms.
Exhibit 2.3
For Example
The National Police Foundation: Improving Law Enforcement
through Research and Innovation
In 1970, in response to rising crime rates, increased violence, and growing community tensions, the
Ford Foundation gave $30 million to establish the National Police Foundation, intended to fund
policing research and demonstration projects for a five-year period.66 Success in those early years led
to a 23-year funding partnership that culminated in a generous grant from the Ford Foundation to
the National Police Foundation’s endowment to ensure permanence of the institution and its work.
The National Police Foundation also receives contributions from individuals, corporations, and other
foundations; government grants and contracts have also supported specific projects and research.
Probably the most well-known and influential of the National Police Foundation’s efforts regarding
policing policy involves the concept of community-oriented policing, also known as problem oriented
policing. Research in Kansas City, Houston, and Newark funded by the National Police Foundation
during the 1970s provided the seeds from which the concept of community policing grew. Wilson and
Kelling’s 1982 “broken windows” theory of crime prevention derived from a Police Foundation research
project on police foot patrols in Newark, New Jersey. Community policing and the broken windows
theory both center on prevention of crime, with the idea that attention to minor crimes is a means
of preventing crime that is more serious. Research has shown that rather than random patrols being
a deterrent to crime, foot patrols and an active presence of the police in a community—for example,
identifying broken windows and other instances of vandalism and encouraging property owners to fix
them—lowers crime rates and contributes to a greater perception of safety among citizens.
This new approach to policing policy took hold in departments across the nation and was raised
to national prominence during the early years of the Clinton Administration with the formation of
the office of Community Oriented Policing Services (COPS) within the U.S. Department of Justice
(DOJ). In 1994, the first round of federal government grants to advance the concept of community-oriented policing were awarded. Since then, more than $14 billion in grants have been awarded
through the COPS program to over 13,000 state, local, and tribal law enforcement agencies for them
to hire or redeploy approximately 130,000 police officers to implement the COPS model.67
For more than 45 years, the National Police Foundation has been “a catalyst for significant
changes” in the field of policing; its independence from partisan politics allows it to speak “with a
unique and object voice.” In addition to its COPS research and development efforts, the foundation has funded research on the status of women in policing, collection of data and analysis on the
use of excessive force by police officers, and the effects of different shift-lengths on police officer
performance. In addition, the foundation has collaborated with government and nonprofit agencies, including the FBI, the American Bar Association, and the Urban Institute to promote policy
change and other efforts to improve policing. From its initial research funded by the Ford Foundation through its work with the federal government’s office of Community Oriented Policing
Philanthropy and Foundations 33
Services, and the efforts funded from its own endowment and contributions from supporters, the
National Police Foundation has had a continuing and significant impact on public policy related
to policing. Law enforcement agencies in communities throughout the country have participated
in studies funded by the foundation and have benefitted from grants related to policies resulting
from that research. As such, the National Police Foundation represents a compelling example of
the role of foundations in the advancement of public policy.68
During this time, foundation activity did not go unnoticed by members of Congress who, as discussed
earlier, had always been suspicious of the wealth and influence of major philanthropists. As explained by
the Nonprofit-Policy Framework, in addition to making and influencing public policy, foundations are
subject to government policy, and congressional concerns led to hearings and legislation during much of
the 20th century. In 1913, these concerns led to an investigation by the U.S. Commission on Industrial
Relations, known as the Walsh Commission, which probed the concentrations of wealth held by foundations and the degree to which they were accountable to the public. In the 1950s, the Cox Committee
and the Reece Committee investigated the potential that foundations had liberal, possibly Communist,
agendas. None of these investigations, however, “did more than nibble at the edges of grant portfolios or
foundation mission statements.”69 Finally, in 1961, Representative Wright Patman of Texas convened a
series of hearings on foundation activity, that eventually instituted important regulatory policies on the
sector. The Patman hearings lasted most of the decade and resulted in passage of the Tax Reform Act of
1969. Many of the policies that regulate foundation behavior today were created as a result. These regulations include the 5 percent payout rule, restrictions on owning businesses or their stocks, the prohibition
on self-dealing (enriching an officer of the foundation through foundation activity), and the clear distinction in the tax code between public charities and foundations. The details of government regulation
of foundations and other nonprofit entities are explained further in Chapter 5.
Philanthropy in the 21st Century
Interestingly, the 21st century opened with another new model of philanthropy facilitated by a fresh
group of enormously wealthy philanthropists. Called “philanthrocapitalism” by both proponents and
detractors, its aim is to transform the traditional foundation and emulate the for-profit business model
with a focus on strategic planning, efficiency, and measurable results.70 Philanthrocapitalism provides
numerous advantages for the very wealthy to advance their vision of a better world. These include the
fact that, unlike politicians, they do not have to suffer political elections, nor do they face shareholder
insistence that profits increase, like corporate leaders. They do not spend their days courting donors,
as nonprofit executives must. Instead, their foundations already hold vast amounts of wealth, which
“frees them to think long-term, to go against conventional wisdom, to take up ideas too risky for government, to deploy substantial resources quickly when the situation demands it.” 71
Most notable in this realm is the Bill & Melinda Gates Foundation. Created in 2000, it quickly
became the largest independent family foundation in the world, with over $47 billion in assets in 2018,
nearly 4 times larger than the second largest, the Ford Foundation.72 Among the reforms discussed by
the new philanthropists is movement away from in-perpetuity endowments to a limited-life endowment.
Gates is among the foundations that has advocated for limits, stipulating that its operations will cease
50 years after the deaths of founders Bill and Melinda. Which of the two is preferable has been debated
for 100 years.73 Those arguing for limited-life have worried about the concentration of wealth and have
34 Fundamentals and Environment of the Voluntary Sector
suggested that innovation and risk-taking are enhanced when foundation staff know its ability to make
a difference is time-limited. Opponents argue that the in-perpetuity foundation allows endowments to
continue to fund good work forever, and many donors continue to favor this model.74
This debate is related to the Giving Pledge, an effort to induce the uber-wealthy to promise to give
away at least half of their wealth in their lifetimes. Led by Warren Buffett and Bill Gates in 2010, more
than 200 of the world’s richest individuals and families, representing 23 countries, had signed the
pledge by mid-2019.75 A similar example is the Chan Zuckerberg Initiative (CZI) of Facebook’s Mark
Zuckerberg and his wife Dr. Priscilla Chan. Their pledge is to give away 99 percent of their wealth in
their lifetimes, with the twist that CZI is not a philanthropic foundation, but rather a limited liability
corporation created to manage their giving.76 On its face, the Giving Pledge is an enormous display of
generosity. As McGoey pointed out, however, it is also an excellent way to stifle those who criticize the
growth of economic inequality and the rise of the new robber barons.77
The Gates Foundation reveals another issue of debate over philanthrocapitalism: How much influence
is too much? Horvath and Powell used the term disruptive philanthropy to describe “any activity that
through the magnitude of donations either explicitly or by consequence alters the public conversation
about which social issues matter, sets an agenda for how they matter, and specifies who is the preferred
provider of services to address these issues without any engagement with the deliberative processes
of civil society.”78 They argue that disruptive philanthropy seeks to uproot the role of government
in provision of public services. It does so in three ways, first by seeking to “change the conversation”
(i.e., influence the political agenda through publicity or use of the foundation’s outsized public voice).
Second, disruptive philanthropy believes in the value of competition to force government to be better
(i.e., smaller, leaner). Third, it encourages governments to turn to public-private partnerships for service
provision or to allow philanthropic foundations great leeway to solve public problems and to engage
their nonprofit partners to serve as sole providers of public services.79
An international example comes from the World Health Organization (WHO), which in 2013,
relied on the Gates Foundation for 10 percent of its budget—a larger portion than provided by the U.S.
government.80 As McGoey pointed out, some have worried about the independence of WHO when such
a large portion of its budget comes from a single philanthropic foundation. Relatedly, critics suggest a
sort of “crowding out” effect that large amounts of private funding may have on government spending
and policy priorities.81 Why use governments’ ever-shrinking budgets when a generous foundation is
willing to address the policy problem? After all, haven’t nonprofits been granted tax benefits precisely
because they create public benefit without government involvement?
At the heart of these questions as they relate to philanthropy in the 21st century is the philosophical debate over the proper scope and function of government. As a representative democracy, should
the United States promote and rely on philanthropic foundations rather than government institutions
to design, implement, and evaluate solutions to public problems? Does more philanthropy equal less
government spending, and therefore, lower taxes for the general public? Is smaller government actually
in our collective public interest? Voters (at least theoretically) hold institutions accountable for their
policy actions via elected representatives, but foundations have no voters or shareholders to hold them
accountable for decisions regarding which problems deserve attention and the ways in which they are
addressed. Foundations also rarely coordinate activities designed to address similar public problems.
Notable examples abound in the area of education policy.
Public Education and the Philanthrocapitalists
No policy area in the United States has been more popular with philanthrocapitalists than public
education. Beginning in 1993, the Annenberg Foundation pledged $500 million dollars to improve
Philanthropy and Foundations 35
public schools in troubled inner cities. After their five-year experiment, studies of recipient schools in
New York City, Philadelphia, and Chicago indicated little improvement, suggesting that even large
infusions of money were not enough to overcome the problems associated with inadequate, unreliable,
and inequitable public school funding.82 The lack of success of the Annenberg Challenge did not deter
other wealthy foundations from attempting to influence education policy. Hess noted that in the early
2000s, the Foundation Center estimated that a quarter of all foundation gifts were going to K–12 or
higher education, and Reckhow and Snyder found a 73 percent growth in grants from major foundations between 2000 and 2010.83 As Brown and Martin argued, one result of philanthrocapitalism
is that issues of interest to the extremely wealthy get major funding “and right now they really like
As illustrated by the Nonprofit-Policy Framework and demonstrated by scholars, major foundations are
involved across the education policy process, from identifying problems to formulating policy to working
to create advocacy networks to guiding the implementation of their preferred policies, both at the local
and the national levels.85 Although major foundations have addressed education policy for nearly 30 years,
Reckhow and Snyder found a transition from Annenberg’s model of funding public schools at the local
level in the early 1990s, to today, when the largest foundations often seek to influence education outside
of the public system.86 Instead, they seek top-down policy change through funding nonprofit grantees,
charter schools, and research on strategies for teacher training and evaluation. These large funders, including
the Gates Foundation, the Walton Family Foundation, and the Eli and Edythe Broad Foundation, have
not worked with traditional actors in education policy such as teacher and parent organizations that may
oppose their interventions,87 but have increasingly engaged in federal level advocacy.88
This level of control over the entire policy process is a new phenomenon. It has been noted that the
Gates Foundation education efforts involve “strong-arming public policy in a way the Ford Foundation
would never have thought of doing.”89 This is precisely the effect that Horvath and Powell suggested
by disruptive philanthropy in which philanthrocapitalists use their amplified political voice to drive
problem identification, issue framing, policy formation, and implementation toward their preferred
outcomes.90 Among their concerns is that the new philanthropists are responsible for “determining
both the purposes and who carries them out to an unprecedented extent. …with little patience for
democracy and the political process.”91
Perhaps the most outspoken critic of the role of philanthrocapitalists in education policy is Diane
Ravitch, a former Department of Education staffer in the George W. Bush administration, who echoes
the concerns about disruptive philanthropy. Ravitch has written:
There is something fundamentally antidemocratic about relinquishing control of the public education policy
agenda to private foundations run by society’s wealthiest people; when the wealthiest of these foundations
are joined in common purpose, they represent an unusually powerful force that is beyond the reach of democratic institutions. These foundations, no matter how worthy and high-minded, are after all, not public
agencies. They are not subject to public oversight or review, as a public agency would be. They have taken
it upon themselves to reform public education, perhaps in ways that would never survive the scrutiny of
voters in any district or state. If voters don’t like the foundations’ reform agenda, they can’t vote them out of
office. The foundations demand that public schools and teachers be held accountable for performance, but
they themselves are accountable to no one. If their plans fail, no sanctions are levied against them. They are
bastions of unaccountable power.92
Finally, this level of foundation involvement in the policy process elicits a number of other concerns,
including that it limits identification of policy problems and narrows the solutions sought.93 Similarly, there are fears that foundations may work so closely with government agencies and others in the
36 Fundamentals and Environment of the Voluntary Sector
policy network that groupthink ensues.94 Foundations are also accused of having short attention spans
such that project funding ends when the next popular idea comes along or success is not immediate.95
Goldstein recounted the story of the Gates Foundation funding the small school movement beginning in 2000.96 Early evaluation of this structural reform indicated little improvement in student test
scores, and Gates funding ended. As is often the case when dealing with education policy, however,
long-term results were far more promising, and low-income students of color were later found to have
higher graduation rates and were more likely to attend college after having attended one of these small
schools. Regardless of this success, the Gates Foundation has moved to new policy priorities and has
no plans to return to funding reforms related to small schools.97
Both proponents and detractors agree that the scale of philanthrocapitalism sets it apart from traditional philanthropy. As the New York Times noted in 2017, today’s philanthrocapitalists “have eclipsed
the titans of the Gilded Age” in terms of their philanthropic giving.98 Many agree with Bishop and
Green99 that philanthrocapitalism represents a new, better, more effective approach to philanthropy,
while others argue that it is simply a variation on the scientific philanthropy of the early 20th century.
What detractors agree on is that, unlike the Gilded Age philanthropists such as Rockefeller and Carnegie, today’s philanthropic giants are under very little scrutiny about their out-sized role in politics
and policy.100 In contrast to the 1910s when the Walsh Commission called foundations “a menace to
the welfare of society,”101 or the 1960s when Wright Patman’s hearings led to significant regulation of
foundation activity, today’s philanthrocapitalists are generally lauded as heroes.102 Their philanthropic
motives and methods, and the means by which they have attained their great wealth, are rarely questioned. For more on this phenomena, see the Case Study in Exhibit 2.4.
Exhibit 2.4
Case Study
The Silicon Valley Community Foundation (SVCF):
With Great Power Comes Great Responsibility?
This case recounts the story of the self-proclaimed largest community foundation in the world, the
Silicon Valley Community Foundation (SVCF). It is a story of competition and an eventual merger between two community foundations, a story about traditional funding and grantmaking, and
the rise of philanthrocapitalism, a story about the uber-wealthy tech industry and rising poverty
that has left Silicon Valley with the largest income gap in the United States.103
There are two important facts to understand about California’s Silicon Valley as you read this
case. First is that its history as a hub of technological experimentation begins, not in the 1970s,
with Apple, Inc., or even the 1950s with Hewlett-Packard, but in 1909, with a young engineer,
Cyril Elwell. Elwell convinced Stanford University to finance the Federal Telegraph Corporation
in Palo Alto, California, which fostered a cycle of technological advancement and entrepreneurship that, over the next 100 years, created the Silicon Valley of today.104
The second fact to understand is that Silicon Valley is not a geographic place. At best, people
define it as the area south of the San Francisco Bay; most observers include all of Santa Clara
County; some also include all or part of San Mateo, Alameda, and San Francisco counties.105 Several cities have claimed to be the center of Silicon Valley: Palo Alto, home of Stanford; Mountain
View, former home of the Moffett Field Naval Air Station and current home of Googleplex; and
San Jose, the largest city in the region. In addition to Hewlett-Packard, Apple, and Google, Silicon
Philanthropy and Foundations 37
Valley is home to Facebook, Uber, and Airbnb, among others, and is synonymous with creativity,
innovation, and vast amounts of wealth.106 No wonder that Silicon Valley has been described as
being, “as much a state of mind as it is a physical place.”107
SVCF, founded in 2007, is the largest community foundation in the world with $13.5 billion
in assets in 2017.108 Although relatively new, its story begins long before anyone referred to Santa
Clara Valley as Silicon Valley, in 1954, with the conversion of a $55,000 World War II charitable
fund into the Community Trust of Santa Clara County.109 In 1997, a donation of stock from eBay
founders Jeff Skoll and Pierre Omidyar coincided with a name change to Community Foundation Silicon Valley (CFSV), and in 1998, CFSV created the Silicon Valley Social Venture Fund,
among the first funds to cater to the new breed of high-tech philanthropists.110 By 2004, serious
discussions had begun about a possible merger between CFSV and regional rival, the Peninsula
Community Foundation (PCF).
Created in 1964, major funding for PCF, formerly the San Mateo Foundation, came from a
$35,000 check, originally designated for efforts to find a cure for polio.111 In 1981, it was renamed
the Peninsula Community Foundation, and by 1989, stock gifted from Eastman Kodak, a challenge grant from the William and Flora Hewlett Foundation, and a $25 million anonymous gift
resulted in PCF assets of $42 million.112
When discussions about a merger with CFSV began in 2004, PCF was a traditional community
foundation with a large, unrestricted endowment, making program-based community grants. CFSV,
on the other hand, had “an ever-increasing clientele of newly-wealthy young philanthropists” and
its “giving was influenced by hundreds of philanthropists through donor-advised funds.”113 At the
time, observers had growing concerns about the two foundations encroaching on each other’s service
areas leading to duplication of effort, lack of coordination, and a growing rivalry for donors between
PCF and CFSV. In 2005, these concerns led several large independent foundations in Silicon Valley
to sponsor a study of the viability of a merger between the two. When the study recommended the
merger, the boards of both foundations agreed to pool their assets, over $1.5 billion, and the Silicon
Valley Community Foundation was born on January 3, 2007.114 The SVCF local service area includes San Mateo and Santa Clara counties as well as other counties in the Silicon Valley region. Its
mission states, “Silicon Valley Community Foundation is a comprehensive center of philanthropy.
Through visionary leadership, strategic grantmaking and world-class experiences, we partner with
donors to strengthen the common good locally and throughout the world.”115
Organizational mergers are never easy, and SVCF faced several hurdles. First were complaints
that community members were not brought into the conversation early enough, a real problem
for a community foundation. This was especially clear in SVCF’s new grantmaking strategy. While
PCF and CFSV had both made many small grants across broad categories of need, the new foundation narrowed its focus to five key areas. Even years later, some in San Mateo still complained
that the merger was a loss for PCF’s community.116 The new foundation clearly tailored its approach to the tech industry with its “interests in a diverse array of issues around the globe.”117
Similarly, neither foundation provided employees with enough information about the process.
Many did not know if they would still have a job in the SVCF, therefore, resignations followed and
open positions in both organizations went unfilled until the merger was complete.118 Finally, there
was no plan to integrate the two foundations’ staff and operations, which led to “An endless stream
of ‘us’ v. ‘them’ moments” as the two organizations attempted to become one.119 By all accounts, it
took at least 18 months for the merger to take hold. By that time, the nation was being plunged
into the Great Recession, and needs in the region were growing. SVCF, with its billions in assets,
38 Fundamentals and Environment of the Voluntary Sector
was able to make important grants to local nonprofits handling increased demand for aid. Some
have suggested that neither of the smaller foundations would have survived the recession as well
individually as they did together.120
By 2010, SVCF had become the second largest community foundation in the United States,
and in December 2012, Facebook founder Mark Zuckerberg and his wife Dr. Priscilla Chan,
donated 18 million shares of Facebook stock, valued at $498 million, making it the largest community foundation in the world by 2013. SVCF is so large that, in 2015, it was the eighth largest
foundation in terms of assets and the third largest in terms of grants awarded of all categories of
foundations in the U.S.121 With its enormous assets, SVCF had distributed $5.6 billion in its first
ten years.122 In 2017 alone, SVCF made $1.3 billion in grant awards, benefitting its five target
initiatives: economic security, building strong communities, education, community opportunity,
and immigration, in addition to other special projects.123
Zuckerberg and Chan are not the only billionaires to donate to SVCF; indeed, the list includes the founders or presidents of Fortune 500 companies from eBay, Netflix, Twitter, Google,
Starbucks, Microsoft, and many others.124 These new philanthropists are following the lead of the
“grandfathers of tech-industry philanthropy,” Bill Hewlett and Dave Packard.125 Some argue that
the generosity of the William and Flora Hewlett and David and Lucile Packard Foundations made
“philanthropist” an all-but-expected second career for those in the tech industry. The latest group
of tech giants, however, are much younger and giving far earlier than Hewlett and Packard. For
example, when Pierre Omidyar and Jeff Skoll donated a $1 million block of shares in eBay stock to
Community Foundation Silicon Valley, they were in their early thirties; the foundation sold those
stock shares several years later for $40 million.126
Silicon Valley has more than its share of philanthropists willing to give; however, it also has vast
and growing levels of need. The same entrepreneurial spirit that has filled the region with successful
business ventures for the past 100 years has also led to dramatic inequities in wealth. In 2016, nearly
30 percent of those living in Silicon Valley relied on public or private support services—food pantries, health clinics, housing assistance—to make ends meet.127 In 2015, rents were more than 200
times the national average, and more than 30 percent of children in the public schools received free or
reduced-price lunch. While the valley’s nonprofit sector grew by 28 percent between 2006 and 2016,
most local organizations are small, with fewer than 25 percent reporting revenue above $1 million.
A 2016 study found that 80 percent of local nonprofits experienced increased demand for services in
the previous five years, and more than half of them reported wait-listing potential clients.128
Vast wealth and increased private giving in a region whose community nonprofits are struggling to meet needs seems incongruous until you learn that the vast majority of Silicon Valley
philanthropy—made by private foundations or the SVCF—leaves the valley.129 In 2017, SVCF
made $254 million in grants to charities in San Mateo and Santa Clara counties, and another $182
million to other counties in the San Francisco Bay Area; however, that accounted for just over a
third of the community foundation’s grantmaking.130 Although SVCF is the valley’s largest grantor
to nonprofits serving local populations, it is also the largest grantor to nonprofits serving populations outside of the valley.131 As critics note, SVCF is a community foundation, an organization
explicitly created to address community needs.132
To understand the growth of giving outside of Silicon Valley, it is important to understand the
unique giving habits of high-tech philanthropists. More than others, they tend to be oriented toward causes and issues; are interested in being hands-on with their philanthropy; and expect data,
outcome measures, and return on investment (ROI).133 Exemplifying the nature of philanthroPhilanthropy and Foundations 39
capitalism, “these entrepreneurs also want to disrupt, displace, or reinvent existing dysfunctional
systems.”134 As Alana Semuels noted, this approach to philanthropy is unfamiliar to most nonprofits and has left many in Silicon Valley pondering ways in which to prove that they are worthy of
investment; as she pointed out, the local food bank isn’t able to disrupt poverty.135
In order to redirect philanthropic dollars to local needs, Culwell and Grant suggested a “new
giving code” for the valley, in which donors and community nonprofits come together to address
global needs locally. Using “both their wealth and their ingenuity,” Silicon Valley’s new philanthropists could “find new solutions to intractable problems” in their own backyards.136 From there,
they could scale them to other communities, regions, and nations.
On the other hand, Semuels argued that successful local nonprofits will need to begin to speak
the language of tech entrepreneurs—rather than talk about charity, talk about creating impact,
using technology, analyzing data, and sharing metrics. She provides several successful examples
of this strategy, including the Boys & Girls Club of the Peninsula, whose revenues have doubled
in four years at the same time Boys & Girls Club revenues have fallen nationally.137 While some
Silicon Valley nonprofit leaders interviewed by Semuels suggested that perhaps it is the donors who
need to learn the language of the voluntary sector, those leaders asked to remain off the record;
after all, they need the money.138
1. How has the entrepreneurial spirit of Silicon Valley influenced philanthropists in the region?
Is the current form of giving a passing fad, or the “new philanthropy”?
2. After reading this case study, do you think that the merger was in the best interest of the communities that the Silicon Valley Community Foundation serves? Why or why not?
3. Consider again the reason that the first community foundation was created in 1914, the mission
of the Silicon Valley Community Foundation, and the level of local grant making in which they
are engaged. Should the fact that SVCF is a community foundation mean that it should engage
in more local community grantmaking ? Why or why not?
4. Consider the four relationships described in the Nonprofit-Policy Framework (make policy,
influence policy, affected by policy, subject to policy); do any of these relationships apply to the
SVCF case? Why or why not?
Challenges for Foundations and Philanthropy
Beyond questions about philanthrocapitalism are general critiques of the way in which today’s philanthropic foundations conduct their work. These include relatively benign questions about payout
rates. While federal policy requires foundations to annually expend funds of no less than 5 percent of
the value of their assets, some argue that payouts should be larger to do more good.139 Then there are
concerns about transparency and accountability in philanthropic foundations because although their
40 Fundamentals and Environment of the Voluntary Sector
work is public, it tends to be undertaken in private. While it is in their best interest to involve grantees
and community members in decision making, they are under no obligation to do so. Aside from IRS
audits or a state attorney general investigation (for which there is increasingly less government funding available), there is little mechanism for public scrutiny of their activity.140 Foundations continue
to be “profoundly undemocratic” institutions that rely on elitist interpretations of what constitutes
the public good and how to achieve it.141 Increasing transparency and accountability among elites has
consistently been a challenge. Government regulatory policy (as is discussed in Chapter 5) has made
significant strides, but much work remains to be done to inject meaningful public participation into
philanthropic decisions.
Not only is the public generally excluded from foundation decision making, the diversity within
the general public is not adequately represented. Studies indicate that foundation boards are overwhelmingly white and male.142 A 2013 report by the Greenlining Institute found that 27 percent of
the 48 largest U.S. foundations did not have a single board member of color.143 This helps explain
why foundations have a dubious record when it comes to supporting the poor and minority-led
causes.144 A study by the National Committee for Responsive Philanthropy (NCRP) found that from
2003–2013 the assets of the 1,000 largest foundations in the United States grew by 70 percent. At
the same time, their support of underserved populations145 grew by only 15 percent.146 That growth
meant that 31 percent of domestic foundation grants went to those in most need; however, that funding did not necessarily affect social or policy change, a related critique of philanthropic foundations.
As Kohl-Arenas147 and McGoey148 pointed out, most of the programs funded by foundation grants
do nothing to solve the root or systemic causes of the problems they seek to solve. Schlegel called
this “band aid philanthropy” and found that foundation giving for long-term change, including
environmental justice, voter education, and community organizing, remained flat at 10 percent of
all funding from 2003–2013.149
More recently, Megan Ming Francis has argued that foundation funding can actually lead to
“movement capture—the process by which private funders leverage their financial resources to apply
pressure and influence the decision-making process of” vulnerable organizations.150 She argued that
this is precisely what happened when the National Association for the Advancement of Colored People
(NAACP) abandoned its early mission of fighting racial violence to pursue an agenda of educational
equality at the behest of its major donor, the Garland Foundation. Movement capture is more than
simple resource dependence that leads to program changes as nonprofits chase foundation money.
Rather, Francis argued that, “the Garland Fund participated in a process of movement capture whereby
it used its abundant financial resources to incentivize a shift in the NAACP’s agenda” to education; a
shift in strategy never fully embraced by NAACP leadership.151
This leads to the final question often asked about foundation work: how effective is it?152 The rise
of professional staff to engage in research, financial administration, and grant proposal evaluation has
certainly facilitated effectiveness. As Frumkin noted, simply hiring professional staff is a signal that the
foundation takes philanthropy seriously. 153 The rise of program evaluation, which is discussed in Chapter
14, is another indicator that foundations are concerned about the effectiveness of their work. Critics,
however, suggest that even the enormous wealth of philanthrocapitalists has not produced “great new
institutions (comparable to the modern research university) or initiatives (like the anti-slavery movement) that would make the world more just. Rather, they have served primarily to burnish the public
reputations of donors, to promote market triumphalism, and to remove regulations that historically
limited the public influence of private wealth.”154
Philanthropy and Foundations 41
This chapter reviews the history of philanthropic activity in the United States, including the
roles that foundations play in the Nonprofit-Policy Framework, from problem recognition and
policy implementation to government regulation of their activities. Today, there are efforts to
democratize philanthropy and create more inclusive ways of giving, such as giving circles and
crowdfunding; however, the rise of philanthrocapitalism has engendered a good deal of criticism.
In much of this chapter, we take a critical view of foundations, their largess, and their power over
the policy process.
On the other hand, examples of the value added to society by philanthropic foundations abound.
The city of Detroit owes its solvency, in large part, to the Grand Bargain, a deal in which major
foundations provided hundreds of millions of dollars to help the city resolve its 2013 bankruptcy. 155
The Grand Bargain involved a number of foundations with ties to Detroit, including Ford, Kresge,
W.K. Kellogg, Charles Stewart Mott, and Skillman, whose cooperation allowed the Detroit Institute
of Art to retain its art collection, and the city to salvage public employee pensions. The Carnegie
Corporation, responsible for the public library system, also created the Sesame Workshop, the folks
who bring us Sesame Street. The Rockefeller Foundation piloted what would eventually become the
federal Head Start Program to provide preschool education to low-income children. The Annie E.
Casey Foundation has published the annual Kids Count, a collection of 50-state data on the conditions
of children, since 1990. State and federal policymakers as well as nonprofit organizations have used
these data and other Casey reports for decades to identify problems and facilitate policy solutions
on issues related to children and families.
In addition, thousands of smaller, family-run and community foundations are rarely in the spotlight
yet create policy through important projects from after-school programs, literacy services, scholarship funds, and food pantries, every day. Most recently, foundations answered the call during the
COVID-19 pandemic to make new gifts to hard-hit communities, to reduce reporting requirements,
and to provide more unrestricted gifts to help the sector meet increased demands. It is important
to understand both the benefits and the challenges associated with philanthropic foundations, how
they shape all aspects of public policy and the questions that must be asked about their role in that
process in a democratic society.
Questions for Review
1. Discuss how foundations are in a unique position to influence public policy. Give an example of how foundations work in cooperation with public charities to identify and address
public problems.
2. Many consider philanthrocapitalism an exciting innovation in philanthropy. Do you agree
with this assessment? If so, discuss the ways in which it is new and innovative. If you disagree, discuss the reasons you do not find philanthrocapitalism to be innovative.
3. As is clear from the chapter, there are many reasons that wealthy philanthropic organizations
have often been subject of public skepticism and mistrust in the United States. Given the
nature of the U.S. democratic system, do you think this skepticism is warranted, or not?
Discuss reasons for your position on this important normative question.
42 Fundamentals and Environment of the Voluntary Sector
In this web-based assignment, take some time to get to know your local community foundation. With
nearly 800 nationwide, there is undoubtedly one near you. Among the questions to address in your
research: What is the community served? What is the total value of its assets, and from where do most
revenues come? How much did it award in grants in the most recent year? What are its funding priorities? With what organizations (nonprofit, public, and for-profit) does it partner? How does it make
and/or influence public policy in the community served? In what ways is the work of the foundation
affected by local-level policy in the community served?
Suggested Readings
Bishop, Matthew, and Green, Michael. (2008). Philanthrocapitalism: How the Rich Can Save
the World. New York: Bloomsbury Press.
Goss, Kristin A. (2016). “Policy Plutocrats: How America’s Wealthy Seek to Influence Governance.” PS: Political Science & Politics, 49(3), pp. 442–448.
Hall, Peter Dobkin. (2006). “A Historical Overview of Philanthropy, Voluntary Association,
and Nonprofit Organizations in the United States, 1600–2000.” In Walter W. Powell and
Richard Steinberg (Eds.), The Non-Profit Sector: A Research Handbook (2nd ed.). New Haven,
CT: Yale University Press, pp. 32–58.
Mazany, Terry, and Perry, David C. (Eds). (2014). Here for Good, Community Foundations and
the Challenges of the 21st Century. Armonk, NY: M.E. Sharpe.
McGoey, Linsey. (2015). No Such Thing as a Free Gift: The Gates Foundation and the Price of
Philanthropy. New York: Verso.
Rob Reich. (2018). Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do
Better, Princeton, NJ: Princeton University Press.
Web Resources
Learn Foundation Law, created in 2010 by legal staff from the William and Flora Hewlett Foundation,
Bill & Melinda Gates Foundation, the David and Lucile Packard Foundation, and Gordon and Betty
Moore Foundation, provides online learning modules for private foundations and their grantees. Modules include information on Advocacy & Lobbying, Working with Government Officials, and more.
Learn Foundation Law,
Candid’s Foundation Center, or
Council on Foundations,
The Giving Pledge,
Philanthropy and Foundations 43
1. Peter Buffet, “The Charitable Industrial Complex,” New York Times, July 27, 2013, https://www. (accessed June 2019).
2. Alexa Cortés Culwell and Heather McLeod
Grant, 2016. The Giving Code: Silicon Valley
nonprofits and philanthropy, Open Impact LLC,
pdf (accessed 8/2/18).
3. Dale Russakoff, The Prize: Who’s in Charge of
America’s Schools? Boston: MA: Houghton Mifflin
Company, 2015.
4. Mark J. Chin, Thomas J. Kane, Whitney Kozakowski,
Beth E. Schueler, and Douglas O. Staiger, School District Reform in Newark: Within- and Between-School
Changes in Achievement Growth. Working Paper
23922 Cambridge, MA: National Bureau of Economic Research.
October 2017,
changes.pdf (accessed March 16, 2019).
5. Ibid.
6. Kathryn E. Webb Farley, Kristin A. Goss, and
Steven Rathgeb Smith, “Introduction to Advancing
Philan-thropic Scholarship: The Implications of
Transformation,” PS: Political Science & Politics,
51, 1, 2018, pp. 39–42.
7. Steven Heydemann and Stefan Toepler, Foundations and the Challenge of Legitimacy, in Kenneth
Prewitt, Mattei Dogan, Steven Heydemann, and
Stefan Toepler, eds., The Legitimacy of Philanthropic
Foundations, New York: Russell Sage Foundation,
2006, pp. 3–26.
8. Peter Dobkin Hall, “A Historical Overview of
Philanthropy, Voluntary Association, and Nonprofit
Organizations in the United States, 1600–2000,”
in Walter W. Powell and Richard Steinberg, eds.,
The Non-Profit Sector: A Research Handbook 2nd
ed., New Haven, CT: Yale University Press, 2006,
pp. 32–58; Peter Dobkin Hall, “Philanthropy, the
Nonprofit Sector & the Democratic Dilemma,”
Daedalus, 142, 2, 2013, pp. 139–158.
9. Peter Dobkin Hall, 2006, “A Historical Overview,”
p. 36.
10. Peter Dobkin Hall, 2006, “A Historical Overview”;
Peter Dobkin Hall, “Philanthropy, the Nonprofit
11. Peter Dobkin Hall, “Philanthropy, the Nonprofit
12. Ibid.
13. Barry D. Karl and Stanley N. Katz, “The American
Private Philanthropic Foundation and the Public
Sphere 1890–1930,” Minerva, 19, 2, 1981, pp.
14. Ibid.
15. Peter Dobkin Hall, “Philanthropy, the Nonprofit
Sector”; David C. Hammack, American Debates on
the Legitimacy of Foundations, in Kenneth Prewitt,
Mattei Dogan, Steven Heydemann, and Stefan Toepler, eds., The Legitimacy of Philanthropic Foundations, New York: Russell Sage Foundation, 2006, pp.
16. Peter Dobkin Hall, “Philanthropy, the Nonprofit
17. Peter Dobkin Hall, “A Historical Overview”;
Peter Dobkin Hall, “Philanthropy, The Nonprofit
Sector”; Aaron Horvath and Walter W. Powell,
Contributory or Disruptive: Do New Forms of
Philanthropy Erode Democracy? in R. Reich, L.
Bernholz, C. Cordelli, and Ebooks Corporation,
2016, Philanthropy in Democratic Societies: History,
Institutions, Values, Chicago: University of Chicago
Press, pp. 87–122; Barry D. Karl and Stanley N.
Katz, “The American Private,” 1981; Leslie Lenkowsky, Foundations and Corporate Philanthropy,
in L. Salamon, ed., The State of Nonprofit America,
Washington: DC: Brookings Institute Press, 2012,
pp. 355–386.
18. Lewis Faulk and Jasmine McGinnis Johnson,
“Philanthropy Shaping and Being Shaped by Public
Policy.” In Elizabeth T. Boris, and C. Eugene
Steuerle, eds., Nonprofits and Government, Collaboration and Conflict, Lanham, MD: Rowman &
Littlefield, 2017, pp. 237–261; Leslie Lenkowsky,
19. Steven Heydemann and Stefan Toepler, Foundations
and the Challenge, p. 10.
20. Percentages calculated using data from Bruce
McKeever, Nonprofit Sector in Brief Table 1 (Current Growth), and Nonprofit
44 Fundamentals and Environment of the Voluntary Sector
Sector in Brief Figure 3 Table, https://nccs.urban.
Retrieved 6/18/2019 and Foundation Stats Annual
Fiscal Data of Foundations in the US, 2015, http:// (accessed June 18, 2019).
21. Foundation Center by Candid, Foundation Stats,
nationwide/total/list/2015 (accessed April12, 2019).
22. Larry McGill, U.S. Foundation Funding for
Nonprofit and Philanthropic Infrastructure,
2004–2015, 2018,http://foundationcenter.issuelab.
398060536.1555102152 (accessed April 12, 2019).
23. Foundation Center and Council on Foundations,
The State of Global Giving by U.S. Foundations,
2011–2015, Foundation Center and Council on
Foundations, 2018, (accessed June 13, 2019).
24. Internal Revenue Service, SOI Tax Stats—Domestic
Private Foundation and Charitable Trust Statistics,
2015, (accessed June 13, 2019).
25. Steven Lawrence and Reina Mukai, Foundation
Growth and Giving Estimates: Current Outlook,
Washington, DC: Foundation Center, 2010, http://
pdf/fgge10.pdf (accessed August 6, 2011); Steven
Lawrence and Reina Mukai, Foundation Growth and
Giving Estimates: Current Outlook, Washington, DC:
Foundation Center, 2008.
26. Foundation Center, Foundation Fundamentals, 8th
ed., Washington, DC: Foundation Center, 2008,
p. 1.
27. Ibid.
28. Lewis Faulk and Jasmine McGinnis Johnson,
“Philanthropy”; Leslie Lenkowsky, “Foundations.”
29. For more details on the IRS rules regarding
operating foundations,
30. Lewis Faulk and Jasmine McGinnis Johnson,
31. Kirsten A. Grønbjerg, “Foundation Legitimacy
at the Community Level in the United States,”
in Kenneth Prewitt, Mattei Dogan, Steven Heydemann, and Stefan Toepler, eds., The Legitimacy of
Philanthropic Foundations, New York: Russell Sage
Foundation, 2006, pp. 150–174.
32. Kirsten A. Grønbjerg. Foundation Legitimacy;
Ronald B. Richard, A Mandate to Innovate, 2014,
in Terry Mazany and David C. Perry, eds., Here for
Good, Community Foundations and the Challenges
of the 21st Century, Armonk, NY: M.E. Sharpe, pp.
33. Terry Mazany and David C. Perry, eds., Here for
Good, Community Foundations and the Challenges of
the 21st Century, Armonk, NY: M.E. Sharpe.
34. Foundation Center, by Candid, Foundation Stats.
35. Silicon Valley Community Foundation, https:// (accessed June 2,
2019). See Exhibit 2.4 for an in-depth look at the
Silicon Valley Community Foundation.
36. Lewis Faulk and Jasmine McGinnis Johnson,
37. Ibid; Kirsten A. Grønbjerg, “Foundation Legitimacy.”
38. Emmett D. Carson, “The Future of Community
Foundations,” 2014, in Terry Mazany and David C.
Perry, eds., Here for Good, Community Foundations
and the Challenges of the 21st Century, Armonk, NY:
M.E. Sharpe, pp. 43–58).
39. Ibid; Leslie Lenkowsky, “Foundations.”
40. Leslie Lenkowsky, “Foundations,” p. 472.
41. Leslie Lenkowsky, “Foundations.”
42. Chad Terhune, “With Billions in the Bank, Blue
Shield of California Loses Its State Tax-exempt
Status, Los Angeles Times, March 18, 2015, http:// (accessed June 7, 2018).
43. Peter Frumkin, “Inside Venture Philanthropy,” Society 40, 2003, pp. 7–15.
44. Angela M. Eikenberry, Giving Circles, Philanthropy,
Voluntary Association, and Democracy. Bloomington,
IN: University of Indiana Press, 2009.
45. Ibid; Lewis Faulk and Jasmine McGinnis Johnson,
46. Tom Held, “Giving Circles Popular with Minorities
and Younger Donors, Says Study,” The Chronicle of
Philanthropy, July 2, 2014,
(accessed June 11, 2018).
47. Ben Paynter, “How Will the Rise of Crowdfunding
Reshape How We Give to Charity?” Fastcompany, March 13, 2017, https://www.fastcompany.
com/3068534/how-will-the-rise-of-crowdfundingPhilanthropy and Foundations 45
reshape-how-we-give-to-charity-2 (accessed June 11,
2018; Aaron Smith, “Shared, Collaborative and On
Demand: The New Digital Economy,” Pew Research
Center, 2016.
2016/05/19/the-new-digital-economy/ (accessed
48. Aaron Smith, “Shared, Collaborative,” 2016.
49. Attorney General Announces Zero-Tolerance Policy
for Criminal Illegal Entry, United States Department of Justice, Press Release Friday, April 6, 2018,
(accessed Mach 16, 2019).
50. Dianne Solis, “Trump’s Zero-tolerance Immigration Policy Puts a Strain on the Border as Families
Are Separated,” Dallas News, 2018, https://www.
trumps-zero-tolerance-immigration-policy-getsuneven-enforcement-amid-growing-outrage (accessed June 23, 2018).
51. Erin Rubin, “Americans Rally Nationwide to Oppose Family Separations,” Nonprofit Quarterly, 2018,
(accessed June 22, 2018).
52. Teo Armus, “A Nonprofit Received $20 Million to Reunite Families: It Wants DHS to Use
that Money,” Washington Post, July 10, 2018,
html?utm_term=.0f2227e2d4d4 (accessed August
18, 2018); Darlena Cunha, and Avi Selk, “Two
Parents Hoped to Raise $1,500 for Separated Families: Then Their Facebook Fundraiser Went Viral,
Chicago Tribune, 2018, http://www.chicagotribune.
com/news/nationworld/ct-separated-families-facebook-fundraiser-20180622-story.html (accessed
June 23, 2018).
53. Teo Armus, “A Nonprofit Received,” 2018.
54. Julia Carrie Wong, “Aid Group RAICES Rejects
$250,000 from Salesforce over Border Agency
Contract, The Guardian, July 19, 2018,https://
(accessed August 18, 2018).
55. David C. Hammack, “American Debates on the
Legitimacy of Foundations,” in The Legitimacy of
Philanthropic Foundations, Kenneth Prewitt, Mattei
Dogan, Steven Heydemann, and Stefan Toepler
eds., New York: Russell Sage Foundation, 2006, pp.
52–53; Leslie Lenkowsky, “Foundations and Corporate Philanthropy,” in L. Salamon, ed., The State
of Nonprofit America, Washington: DC: Brookings
Institute Press, 2012, pp. 355–386; Linsey McGoey,
No Such Thing as a Free Gift: The Gates Foundation
and the Price of Philanthropy, New York: Verso,
2015; Jon Pratt, “Philanthropy Makes Amends?
Bad Boys, Generosity and Absolution (and When
to Take Their Name Off the Building,” Responsive
Philanthropy, 2011/12, pp. 3–5, https://www.ncrp.
org/wp-content/uploads/2012/01/ResponsivePhilanthropy_Winter 2011-12-1.pdf (accessed August 18,
56. David C. Hammack, “American Debates”; Leslie
Lenkowsky “Foundations.”
57. Jon Pratt, “Philanthropy Makes Amends.”
58. Linsey McGoey, No Such Thing.
59. Carnegie Foundation, Our Mission, 2008, (accessed August
4, 2008).
60. Rockefeller Foundation, Original Charter. An Act to
Incorporate The Rockefeller Foundation, p. 3.
61. David L. Gies, J. Steven Ott, and Jay M. Shafritz,
The Nonprofit Organization: Essential Readings, Pacific Grove, CA: Brooks/Cole Publishing Company,
1990, p. 375.
62. It is important to note that critics at both ends
of the ideological spectrum have questioned the
benefits of foundation resources used to facilitate
collective action. Political activities funded by
liberal foundations such as Soros Foundations
Network founded by billionaire George Soros
( incite attack by many on the right
just as top conservative foundation grantmakers
such as the Sarah Scaife Foundation (www.scaife.
com) are criticized for “financing the right wing
policy juggernaut” (Nonprofit Times, March 9,
2009). See Thomas R. Dye, “Oligarchic Tendencies
in National Policy-Making: the Role of the Private
Policy-Planning Organizations,” Journal of Politics,
40, 1978, pp. 309–331; Judith Sealander, Private
Wealth and Public Life, Baltimore: Johns Hopkins
University Press, 1997; Kenneth Prewitt, Mattei
Dogan, Steven Heydemann, and Stefan Toepler,
46 Fundamentals and Environment of the Voluntary Sector
eds., The Legitimacy of Philanthropic Foundations,
New York: Russell Sage Foundation,
63. “Foreign Affairs Advertising: Influence on Policy
advertising/influence (accessed January 17, 2012).
64. Jeffrey Roth, Christopher S. Koper, Joseph Ryan,
and Michael Buerger, “National Evaluation of the
COPS Program—Briefing Transcript,” The Urban
Institute, last modified September 7, 1999, http://
65. David F. Arons, “Public Policy and Civic Engagement: Foundations in Action,” in Power in Policy, A
Funder’s Guide to Advocacy and Civic Participation,
David F. Arons, ed., Saint Paul, MN: Fieldstone
Alliance, 2007.
66. Except where otherwise noted, the information for
this case study was derived from the National Police
Foundation website at
67. Community Oriented Policing Services (COPS),
“Department of Justice Awards Nearly $6 Million
to Advance Community Policing Efforts across
the Country,” September 24, 2018, https://cops.
Million-to-Advance-Community-Policing-EffortsAcross-the-Country (accessed July 10, 2019).
68. National Police Foundation, “Recent History (The
2000s and Beyond),” 2016, (accessed
July 10, 2019).
69. Kenneth Prewitt, “American Foundations: What
Justifies Their Unique Privileges and Powers,” in
Kenneth Prewitt, Mattei Dogan, Steven Heydemann, and Stefan Toepler, eds., The Legitimacy of
Philanthropic Foundations, New York: Russell Sage
Foundation, 2006, pp. 27–46, p. 42.
70. Matthew Bishop and Michael Green. Philanthrocapitalism: How the Rich Can Save the World, New York:
Bloomsbury Press, 2008; Aaron Horvath and Walter
W. Powell, “Contributory or Disruptive: Do New
Forms of Philanthropy Erode Democracy?” in Rob
Reich, Chiara Cordelli, Lucy Bernholz, eds., Philanthropy in Democratic Societies: History, Institutions,
Values, Chicago: University of Chicago Press, 2016,
pp. 87–112; Erica Kohl-Arenas, The Self-Help Myth:
How Philanthropy Fails to Alleviate Poverty, Oakland,
CA: University of California Press, 2016; Linsey
McGoey, No Such Thing.
71. Matthew Bishop and Michael Green. Philanthrocapitalism, p. 12.
72. Foundation Center, by Candid, Foundation Stats;
Bill & Melinda Gates Foundation 2018 Audited
Financial Statements, https://www.gatesfoundation.
Retrieved 6/18/2019; and The Ford Foundation
2018 Audited Financial Statements, https://www (accessed
June 18, 2019).
73. Leslie Lenkowsky, “Foundations.”
74. Ibid.
75. See for more information.
76. Lewis Faulk and Jasmine McGinnis Johnson,
77. Linsey McGoey, No Such Thing.
78. Aaron Horvath and Walter W. Powell. “Contributory or Disruptive,” p. 90.
79. Ibid., pp. 90–91.
80. Linsey McGoey, No Such Thing.
81. Kristin A. Goss, “Policy Plutocrats: How America’s
Wealthy Seek to Influence Governance,” PS: Political
Science & Politics, 49, 3, 2016, pp. 442–448; Kathryn E. Webb Farley, “Shifting Notions of Philanthropy: Themes in Scholarship and Practice, PS:
Political Science & Politics, 51, 1, 2018, pp. 48–53.
82. Colvin, Richard Lee, “A New Generation of Philanthropists and Their Great Ambitions,” in Frederick
Hess, ed., With the Best of Intentions: How Philanthropy is Reshaping K–12 Education, Cambridge,
MA: Harvard Education Press, 2005, pp. 21–48;
Frederick Hess, ed., With the Best of Intentions: How
Philanthropy Is Reshaping K–12 Education, Cambridge, MA: Harvard Education Press, 2005; Leslie
Lenkowsky, “Foundations.”
83. Frederick Hess, ed., With the Best; Sarah Reckhow
and Jeffrey Snyder, “The Expanding Role of Philanthropy in Education Politics,” Educational Researcher, 43, 4, 2014, pp. 186–195.
84. Eleanor Brown and David Martin, “Individual
Giving and Volunteering,” in Lester M. Salamon,
ed., The State of Nonprofit America, 2nd edition,
Washington, DC: Brookings Institution Press, 2012,
p. 511.
85. Sarah Reckhow, Follow the Money: How Foundation
Dollars Change Public School Politics, New York:
Oxford University Press, 2013; Sarah Reckhow and
Megan Tompkins-Stange, “‘Singing from the Same
Hymnbook’ at Gates and Broad,” in Frederick M.
Hess and Jeffrey R. Henig, eds., The New Education
Philanthropy: Politics, Policy, and Reform, CamPhilanthropy and Foundations 47
bridge, MA: Harvard Education Press, 2015, pp.
55–78; Megan Tompkins-Stange, Policy Patrons,
Philanthropy, Education Reform, and the Politics
of Influence, Cambridge, MA: Harvard Education
Press, 2015.
86. Sarah Reckhow and Jeffrey Snyder, “The Expanding
87. Both teachers and parents have been critics of education reforms funded by the largest foundations,
often due to lack of consultation. In 2014, parents’
privacy concerns led to the shuttering of a Gates
Foundation funded data management system for
student data (NPQ, https://nonprofitquarterly.
org/2014/04/22/gates-100m-philanthropic-ventureinbloom-dies-after-parents-say-no-way/) (accessed
August 18, 2018). See also Dana Goldstein’s The
Teacher Wars: A History of America’s Most Embattled
Profession, New York: Doubleday, 2014.
88. Michael Q. McShane and Jenn Hatfield, “The Backlash against ‘Reform’ Philanthropy,” in Frederick M.
Hess and Jeffrey R. Henig, eds., The New Education
Philanthropy: Politics, Policy, and Reform, Cambridge,
MA: Harvard Education Press, 2015, pp. 125–142;
Sarah Reckhow and Megan Tompkins-Stange,
89. Megan Tompkins-Stange, Policy Patrons, p. 116.
90. Aaron Horvath and Walter W. Powell, “Contributory or Disruptive.”
91. Ibid, 101.
92. Diane Ravitch, The Death and Life of the Great
American School System, New York: Basic Books,
2010, pp. 200–201.
93. Dana Goldstein, “Advocacy and Assumptions in
Foundation-sponsored Research,” in Frederick M.
Hess and Jeffrey R. Henig, eds., The New Education
Philanthropy: Politics, Policy, and Reform, Cambridge, MA: Harvard Education Press, 2015, pp.
105–124; Sarah Reckhow, “More than Patrons: How
Foundations Fuel Policy Change and Backlash,”
PS: Political Science & Politics, 49, 3, 2016, pp.
449–454; See also Nick Hanauer, “Better Schools
Won’t Fix America,” The Atlantic, July 2019, https://
education-isnt-enough/590611/ (accessed June 21,
94. Megan Tompkins-Stange, Policy Patrons.
95. Dana Goldstein, “Advocacy”; Sarah Reckhow, “More
96. Dana Goldstein, “Advocacy.”
97. Ibid.
98. David Gelles, “Giving Away Billions as Fast as They
Can,” New York Times, October 20, 2017, https:// (accessed June 21, 2018).
99. Matthew Bishop and Michael Green, Philanthrocapitalism.
100. Linsey McGoey, No Such Thing.
101. David C. Hammack, “American Debates,” p. 68.
102. Aaron Horvath and Walter W. Powell, “Contributory or Disruptive”; Linsey McGoey, No Such
103. Alexa Cortés Culwell and Heather McLeod Grant,
The Giving Code.
104. Timothy Sturgeon, “How Silicon Valley Came to
Be,” in Martin Kenney, ed., Understanding Silicon
Valley, Stanford, CA: Stanford University Press,
2000, pp. 15–47.
105. Alexa Cortés Culwell and Heather McLeod Grant,
The Giving Code; John Markoff, “Searching for
Silicon Valley,” New York Times, April 16, 2009, (accessed August 14, 2018).
106. Ingrid Burrington, “Who Gets to Live in Silicon
Valley?” The Atlantic, June 25, 2018, https://www
who-gets-to-live-in-silicon-valley/563543/ (accessed
August 20, 2018).
107. John Markoff, “Searching for Silicon Valley.”
108. Moss Adams, The Audit Committee Silicon Valley
Community Foundation, Report of Independent
Auditors, 2017,
independent-auditors-report.pdf (accessed June 13,
109. Janet Rae-Dupree, Tying the Knot: The Founding of
the Silicon Valley Community Foundation, October
files/svcf-case-study-2011.pdf (accessed August 16,
110. Silicon Valley Community Foundation, 2018a, (accessed August 16,
2018); Matthew Bishop and Michael Green, Philanthrocapitalism.
111. Janet Rae-Dupree, Tying the Knot.
112. Silicon Valley Community Foundation, 2018a.
113. Janet Rae-Dupree, Tying the Knot, p. 1.
114. Janet Rae-Dupree, Tying the Knot.
48 Fundamentals and Environment of the Voluntary Sector
115. Silicon Valley Community Foundation, 2018c,
(accessed August 16, 2018).
116. Janet Rae-Dupree, Tying the Knot.
117. Alexa Cortés Culwell and Heather McLeod Grant,
The Giving Code, p. 57.
118. Janet Rae-Dupree, Tying the Knot.
119. Ibid., p. 11.
120. Janet Rae-Dupree, Tying the Knot.
121. Foundation Center by Candid, Foundation Stats,
all/nationwide/total/list/2015 (accessed April 12,
122. Silicon Valley Community Foundation, 2018b, (accessed
July 16, 2018).
123. Silicon Valley Community Foundation, 2018d,
2017 Year in Review, https://flipflashpages.uniflip.
(accessed July 16, 2018).
124. Kerry A. Dolan, “Here Are 16 Billionaires Who’ve
Donated to the Silicon Valley Community Foundation,” Forbes, May 2, 2018, https://www.forbes
.com/sites/kerryadolan/2018/05/02/here-are16-billionaires-whove-donated-to-the-silicon-valleycommunity-foundation/#79ce020d1bfb (accessed
August 16, 2018).
125. Matthew Bishop and Michael Green, Philanthrocapitalism, p. 121.
126. Matthew Bishop and Michael Green, Philanthrocapitalism.
127. Alexa Cortés Culwell and Heather McLeod Grant,
The Giving Code.
128. Ibid.
129. Ibid.
130. Silicon Valley Community Foundation, 2018d,
2017 Year in Review.
131. Alexa Cortés Culwell and Heather McLeod Grant,
The Giving Code.
132. Jim Schaffer, “Through the Looking Glass with
Silicon Valley Philanthropy, NPQ, July 30, 2018,
(accessed August 20, 2018).
133. Matthew Bishop and Michael Green, Philanthrocapitalism; Alexa Cortés Culwell and Heather McLeod
Grant, The Giving Code.
134. Alexa Cortés Culwell and Heather McLeod Grant,
The Giving Code, p. 47.
135. Alana Semuels, “How Silicon Valley Has Disrupted
Philanthropy, The Atlantic, July 25, 2018, https://
565997/ accessed August 20, 2018).
136. Alexa Cortés Culwell and Heather McLeod Grant.
The Giving Code, p. 61.
137. Alana Semuels. “How Silicon Valley.”
138. Ibid.
139. Lewis Faulk and Jasmine McGinnis Johnson, Philanthropy; Leslie Lenkowsky, Foundations.
140. Lewis Faulk and Jasmine McGinnis Johnson,
Philanthropy; Peter Frumkin, On Being Nonprofit: A
Conceptual and Policy Primer, Cambridge, MA: Harvard University Press, 2002; David C. Hammack,
American Debates; Leslie Lenkowsky, Foundations;
Linsey McGoey, No Such Thing; Kenneth Prewitt,
American Foundations.
141. Peter Frumkin, On Being Nonprofit.
142. Lewis Faulk and Jasmine McGinnis Johnson, Philanthropy.
143. Greenlining Institute, Foundation Board Diversity:
No Change in Diversity since 2009, 2013, http://
(accessed June 21, 2018).
144. Leslie Lenkowsky. Foundations.
145. The National Committee for Responsive Philanthropy includes the following in its definition of
underserved populations: children, domestic
workers, the economically disadvantaged, immigrants and refugees, incarcerated/formerly
incarcerated, LGBTQ, people of color, those
with disabilities, HIV/AIDS patients, sex
workers, victims of violence/abuse, and women
and girls.
146. Ryan Schlegel, Pennies for Progress: A Decade of
Boom for Philanthropy, a Bust for Social Justice,
Washington, DC: National Committee for Responsive Philanthropy, 2016,
wp-content/uploads/2016/11/Pennies-for-Progresshighres.pdf (accessed June 21, 2018).
147. Erica Kohl-Arenas, The Self-Help Myth.
148. Aaron Horvath and Walter W. Powell, “Contributory or Disruptive”; Linsey McGoey, No Such Thing;
Sarah Reckhow, Follow the Money.
149. Ryan Schlegel, 2016, “Pennies for Progress.”
150. Megan Ming Francis, “The Price of Civil Rights:
Black Lives, White Funding, and Movement
Capture,” Law & Society Review, 53(1), 2019, pp.
275–309, p. 278.
Philanthropy and Foundations 49
151. Ibid, p. 305.
152. Peter Dobkin Hall, “Philanthropy”; Leslie Lenkowsky, “Foundations.”
153. Peter Frumkin, On Being Nonprofit.
154. Peter Dobkin Hall, “Philanthropy,” p. 155.
155. Reynolds Farley, Detroit in Bankruptcy, in Michael
Peter Smith and L. Owen Kirkpatrick, eds., Reinventing Detroit, New Brunswick, NJ: Transaction
Publishers, 2015; Rockefeller Philanthropy Advisors,
Detroit Grand Bargain, September 25, 2018, (accessed June 20, 2019).
50 Fundamentals and Environment of the Voluntary Sector
I embrace the view that a trilateral conception of the institutions of the Prince, the Merchant and the
Citizen encompasses the essential elements of the organizational map of the polis—the domain of both
policy and action.
Adil Najam1
Imagine a five-county, predominantly rural area. The largest city in the service area—Ridgeview—had
just over 50,000 people at the last census count and has grown at a steady pace since; it serves as
the shopping and healthcare hub for the four surrounding counties. Neighbors in Action (NiA) is a
501(c)(3) public charity based in Ridgeview with a mission of helping residents in the five counties
meet their health and human service needs. One of its program areas is transportation—connecting
residents to service providers in the region.
Sofia is the director of NiA Connects, the division responsible for all transportation activities provided
by the organization. This has traditionally included management of a fleet of vans used to transport residents to NiA senior centers for meals, meal delivery to homebound seniors, and a public transportation
system in Ridgeview that consists of a few small buses that run limited routes five days per week. The
Executive Director and members of the Board responded positively to Sofia’s request to explore options
to expand transportation services throughout their service area, so she has identified several options:
1) expansion of regular bus routes to include service to the industrial park to provide transportation to
and from work; 2) possible contract with the public university in town to provide shuttle service for
students; and 3) expansion of services in rural areas to transport seniors to healthcare appointments.
Each of these options is viable with the right collaborative partnership. The Federal Transit Administration has the Grants for Buses and Bus Facilities Program, so federal funding could pay for
purchase of new vehicles and retrofitting of others. Medicare/Medicaid fees-for-service could help with
the cost of transporting seniors to healthcare appointments. For-profit partnerships could be formed
with businesses in the industrial park to subsidize rider fees; a similar arrangement is expected from a
contract with the state university. While she is excited about the prospect of bringing valuable services
to NiA’s clients, Sofia knows it will be a challenge to coordinate the various state, federal, and for-profit
entities whose support is needed to make this work.
Nonprofits frequently face similar scenarios requiring collaboration with government, for-profit, and
other nonprofit organizations. As the lines between the sectors get more blurry, how public problems
are addressed gets more complicated. It is to this complex system that we turn in this chapter, briefly
discussing the history of federalism and the complex relationship between organizations in the nonprofit,
public, and for-profit sectors. The extensive network linking federal, state, and local governments with
the not-for-profit sector has been referred to as nonprofit federalism and is key in the implementation of
policies and delivery of services. Increasingly, collaboration and conflict between organizations in all three
sectors affect public policy; thus, it is important to understand how American federalism and cross-sector
relationships influence the work of nonprofit organizations.
The U.S. Federal System and Its Relationship with Nonprofit Organizations
Federalism, the division of authority and responsibility between the national and subnational governments, is the cornerstone of the American system. Unique in 1789, the U.S. Constitution outlines a
system that combines a national level of government with certain, limited responsibilities over a group
of state governments, each with its own limited responsibilities. The evolution of federalism over time
has led to a much more intergovernmental system of joint funding, delivery, and regulation of many
public policies. The nonprofit sector continues to be a critical element in this intergovernmental policy
system as foundations have funded policy research and pilot projects, and nonprofits have framed
public problems, pursued policy change, and delivered public programs at each level of government.
Importantly, the role of associations and societies—“the multiplicity of interests”—was encouraged
in The Federalist Papers, which were written in 1787 and 1788 to convince wary Americans to adopt
the Constitution. Arguably the most well-known of the 85 papers are Federalist No. 10 and No. 51;
both discuss the problem of factions in a democracy, particularly majority factions that can trample
the liberties of the minority. Federalist No. 10 and No. 51 make it clear that in order to control the ills
of faction in a free society, the Constitution must respect the pursuit of individual and group interests;
each group will serve as a check on the power of another. As Federalist No. 51 explains, “Whilst all
authority in [government] will be derived from and dependent on the society, the society itself will
be broken into so many parts, interests, and classes of citizens, that the rights of individuals, or of the
minority, will be in little danger from interested combinations of the majority.” Thus, Americans have
long been encouraged to join associations and societies to enjoy solidarity with like-minded peers and
to advance their policy interests.
While American federalism has remained in place for over two centuries, it has not evolved without
conflict—the Civil War serves as the prime example. The Civil War also exemplifies that nonprofit
organizations have a long history of influence on policymaking and politics in the United States. In
1833, decades before the war that would finally bring an end to slavery, the American Anti-Slavery
Society (AAS) was founded as the first national advocacy group for the abolition of slavery. By the
1830s, state-level abolitionist groups and the AAS were exercising their right to organize and petition
federal and state governments against slavery. AAS was among the first membership organizations in
the country, and in 1850, there were an estimated 250,000 members in over 1,300 AAS auxiliaries.
Members represented nearly 2 percent of the nation’s population at the time.2
In addition to question52 Fundamentals and Environment of the Voluntary Sector
ing the morality of slavery, its members played a pivotal role in moving the abolition of slavery to the
national political agenda where the economic interests of plantation farmers conflicted with the societal
and religious interests of those in the anti-slavery movement. Ultimately, the AAS policy goals were
two-fold: first, emancipation of slaves, and second, legal protections for the rights of freed slaves and all
African Americans. The Emancipation Proclamation of 1863 met the first goal, and since ratification
of the Fifteenth Amendment granting African American men the right to vote seemed to fulfill the
second, the AAS dissolved in 1870.3
Of course, it would take another century and several generations
of organizers to reach the goal of full legal protection for African Americans.
The issue of slavery highlights the classic questions of American federalism: Which level of government is in charge; which level of government can and should take responsibility for different public
policy problems? In the first decades following ratification of the Constitution, state governments
retained much power, and each level of government operated within distinct spheres with minimal
overlapping responsibilities. During the early years of federalism, the United States was relatively
small and largely agrarian; thus, neither level of government was involved in broad policy activities.4
In addition, ratification of the Constitution did not occur without a fight from those who supported the high degree of autonomy enjoyed by states under the former Articles of Confederation; the
Tenth Amendment, which reserved some powers to the states, was one concession granted to these
“Anti-Federalists” in order to achieve ratification. Maintaining the union of the United States under
the Constitution was an ongoing and difficult struggle in the early years of the republic, as George
Washington and others sought to carve out the role of the national government in relation to what
had traditionally been the purview of the states; this resulted in what has been characterized as dual
federalism or the layer cake model of governing.
Social services, as they existed in these early years, followed the structure for provision laid out by
the Statute of Charitable Uses in 1601, in which churches and charities took care of the ill and elderly, orphans and the poor, rehabilitation of criminals, and other such activities. These types of social
services were commonly understood to be the responsibility of the church and community, and were
not performed by governments or for-profit organizations. The scope of nonprofit involvement in the
delivery of social services is extensive and dates from the end of the 18th century in the United States.
In 1797, for example, Isabella Graham founded one of the first female-controlled charities, The Society
for the Relief of Poor Widows with Small Children, in New York City. Even at this time, many organizations devoted to the care of the destitute worked in partnership with government.5
For example,
Lester M. Salamon noted that by the 1890s, half of New York City’s public expenditures for the poor
went to the voluntary organizations that provided services.6
These groups “provided needed services
for cash-starved and overburdened governments. In effect, they subsidized the state by cutting social
service costs through their contributions of money and time.”7
Societal changes during the 20th century, particularly following the Great Depression and Franklin
Delano Roosevelt’s New Deal, moved the country from small and agrarian to large and industrial. With
state governments struggling to meet their budget obligations and the national unemployment rate
hovering at 25 percent, the federal government stepped in to create new programs and take on new
policy responsibilities to address the urgent needs of the nation. These new responsibilities included
aid to pensioners and the unemployed, creation of job programs, and provision of welfare support to
poor children. While not without political controversy, these policy changes reflected strong popular
support for an increased role by government in the provision of services. This resulted in a quadrupling
of federal spending as a percentage of Gross National Product between 1929 and 1939, in what Thomas
J. Anton describes as “the first great watershed” of modern federalism.8
At the same time, the movement toward more professionalized government gained a footing
in social service-related fields, including education and social work. The policies of the New Deal
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 53
added to the numbers of government employees hired and programs administered directly through
public agencies. Thus, after the 1940s, American federalism changed again with the growth of state
and local governments, including the employment of hundreds of thousands of new public sector
employees to administer programs in public education, health, and planning. It was during this
era that Morton Grodzins coined the phrase “marble-cake federalism” to describe the increasingly
sophisticated system of intergovernmental relations, which includes not only national and state governments, but also cities, counties, special districts, and quasi-governmental entities such as regional
development organizations.9
With this growth of government, the role of charities, churches, and other philanthropic
organizations waned, until federal policies of the 1960s encouraged the growth of partnerships
between public and nonprofit organizations. Between 1962 and 1974, for example, the federal
government amended the Social Security Act a number of times, encouraging state agencies to
employ nonprofit entities in service delivery.10 The Great Society programs of Lyndon Johnson
and Richard Nixon’s New Federalism ushered in an era of increased public attention to social
and economic problems. Thus, Anton described the period between 1965 and 1975 as modern
federalism’s “third great watershed.”
Johnson’s administration saw passage of the Civil Rights Act, Medicare, Medicaid, and the creation
of Head Start, each a significant expansion of the role of the government. Since that time, contracting
with nonprofits for delivery of social services has increased to the point that Salamon suggested the
nonprofit sector is responsible for direct delivery of more health and social services than is government.11
The establishment of the Environmental Protection Agency (EPA) under the Nixon administration
represented an expansion of government activity in this policy area, leading to the subsequent creation
of a large number of environmental nonprofits. Of particular note, administration and service delivery
of health, social service, and environmental policies involves all three levels of government as well as
organizations in both the not-for-profit and for-profit sectors.
Nonprofit Federalism
Salamon has called the extensive network linking federal, state, and local governments with the notfor-profit sector nonprofit federalism; he argues that the complex set of partnerships provides innovative solutions to many social problems.12 For example, Salamon contends that because nonprofits
are closer to the target population, easier to mobilize, and generally less bureaucratic, direct provision
of services often begins at the local nonprofit level. This helps to illustrate the functional theory of
federalism, which describes the situation in which services are provided at the level deemed most appropriate—in many cases, the level of the local nonprofit.13 The demand for services and/or funding
can eventually exceed local nonprofit resources, at which point nonprofits may turn to the government
for financial or policy assistance.
During periods of public support for smaller government or less direct government intervention,
nonprofit federalism offers political rewards to elected officials who support and subsidize nonprofit
service delivery rather than services delivered by public entities, in line with what Peterson termed
the legislative theory of federalism.14 This notion of political reward for using nonprofit organizations
and the long reliance on partnerships between the nonprofit and public sectors in the United States is
not surprising when one remembers that individual sovereignty is a guiding principle of the American
system. Vincent Ostrom explained the logic: “If individual citizens can be presumed to exercise the basic
authority specifying the terms and conditions of government and to know what it means to govern, they
can exercise the basic responsibility for governing their own affairs…. In democratic societies, people acting
54 Fundamentals and Environment of the Voluntary Sector
individually and voluntarily with others govern their own affairs without being subject to the ever-present
tutelage of government.”15
The underlying belief in citizen authority over the state is key to what Seymour Martin Lipset
called the American Creed, characterized by “liberty, egalitarianism, individualism, populism, and
laissez-faire,”16 and subsequently, a significant factor in the growth of the nonprofit sector and the
relationship between nonprofits and public policy. As a result of the American Creed, individual
Americans tend to be more generous philanthropists in terms of their time and money than those in
other countries,17 and correspondingly, tend to support less direct government action on many public
problems when compared with other developed nations. Rather than seek assistance from government,
Americans have often called on and created nonprofit organizations to fill perceived gaps in social
policy. One such example is Second Harvest Food Bank, a member of the larger nonprofit Feeding
America, which heads a network of food banks across the nation to secure donations from local and
national food manufacturers for distribution in 200 communities nationwide.18 Although a variety
of federal food programs exist, approximately 40 million Americans faced food insecurity in 2017;
the national rate of food insecurity fell from 2016 to 2017, but at 12.5 percent, remained higher
than the pre-Great Recession level.19 These gaps between government policy and human need often
facilitate the creation of nonprofit organizations; theories of nonprofit sector creation are addressed
in greater detail in Chapter 4.
The Three Sectors
Three distinct institutional sectors are recognized in the United States: 1) private business and commerce—known as the for-profit sector; 2) national, state, and local government—known collectively
as the public sector; and 3) charities, volunteer organizations, and associations—known as the nonprofit sector. Therefore, examination of federalism in practice—intergovernmental relations—must
include not simply the relationships between federal, state, and local governments but all three sectors
of the economy as well.
In characterizing the three sectors, Nerfin’s20 and Najam’s21 metaphors of the Prince, the Merchant,
and the Citizen, in which each sector represents an important component of society are especially
apt. The Prince represents political society, the Merchant represents market society, and the Citizen
represents civil society. As Najam explained, these “. . . are powerful images for conceptualizing the
three-legged organizational stool balanced on the state, the market, and the voluntary association sectors. . . . [T]hese images provide us with a canvas broad enough to holistically understand the three
sectors, not merely as residuals of the others but as the integrated, and interacting, social mesh that
they have always been—each, in its own way, trying to define the public interest.”22
The three sectors often operate in conjunction with one another because of the increasingly complex
tenor of society and governance. Goldsmith and Eggers explained that this governing by network operates through cross-sector partnerships, which rely “less on public employees in traditional roles and
more on a web of partnerships, contracts, and alliances to do the public’s work.”23 Given the current
dynamic environment in which ideas, resources, and responsibilities are shared among the three sectors,
government agencies and nonprofits have sought relationships not only with one another, but have also
sought ways to incorporate the for-profit sector in pursuing the public interest through the provision
of public goods and services.24
Organizations in the not-for-profit sector hold a unique position: They are not public organizations,
but they often seek to enhance the public welfare; they are not profit-focused, but they often need to
attract private resources. As the vignette at the start of the chapter indicates, government increasingly
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 55
relies on both the nonprofit and for-profit sectors to provide human services, such as public transportation.
The collaborative efforts of the public, nonprofit, and for-profit sectors in the delivery of transportation,
welfare, education, healthcare, and other services highlight the overlapping nature of the three sectors.
Because of this overlap, those working in and with nonprofit organizations must be aware of the differences
between the three as they have important consequences for the activities and administration of not-forprofit organizations.
Characteristics of the Three Sectors
Not-for-profit organizations can vary dramatically, but all have three characteristics in common:
1) unlike government, they are voluntary, that is, they cannot coerce participation; 2) while they
may earn income, unlike businesses, they do not distribute profits to stakeholders; and 3) unlike
both government and for-profit business, they operate without any clear lines of accountability or
ownership.25 In addition, most nonprofits, particularly those classified under section 501(c)(3), enjoy
a unique tax status whereby they are exempt from corporate taxes, local property taxes on land and
buildings, and as long as direct political activity does not constitute a significant amount of organizational resources, donors are eligible to deduct contributions from their income taxes. Thus, while
the nonprofit sector shares some characteristics with the for-profit sector and the public sector, it is
distinctly different from each.
Burton A. Weisbrod has done extensive research on the nonprofit sector and its relationship with
the public and for-profit sectors.26 He argued that the key distinctions between the three lie in the
different constraints and goals under which each sector operates. For example, the tax exemptions that
nonprofits enjoy are justified on the grounds that their services are of a public nature. These unique
tax benefits, however, can create disparate levels of competitiveness with for-profit firms operating in
the same industry. At the same time, those in the nonprofit sector are under more political constraints
than are those in the for-profit sector, where lobbying activity is far less circumscribed. The public
sector, through regulatory policy, has a great deal of influence over the activities of both for-profit and
nonprofit organizations.
Other ways in which the three sectors differ involve their labor forces and the behavior and
structure of their organizations. These differences have a clear impact on how organizations in the
three sectors are managed. For example, as Weisbrod explained, nonprofit organizations receive vast
amounts of voluntary labor, which means that they have lower overall labor costs. Only in the public
school system does the public sector even come close to the nonprofit sector in the amount of labor
volunteered; in for-profit organizations, voluntary labor is extremely rare.27 This leads to a difference
in organizational goals and outcomes, as nonprofits are often better-suited to labor-intensive work
than comparable for-profit organizations. Furthermore, organizations in fields such as social services,
education, and healthcare traditionally found profits relatively difficult to attain; this is changing
as government increases its use of contracts and fees-for-service rather than direct service delivery
in these areas. The reliance on voluntary labor, of course, results in unique challenges for human
resource managers in nonprofit organizations.
Differences in organizational behavior are also driven by the distinct ways in which each sector governs its resources. The for-profit sector, because it is dependent on sales for financial resources, will only
produce what it can sell at a profit. Further, for-profits can be expected to minimize production costs
and to provide goods or services only to those capable of paying for them. In the public sector, which
is dependent on taxes for its resources, provision of goods and services are determined via democratic
political processes; this provision can be expected to be offered at little or no direct cost to citizens.
56 Fundamentals and Environment of the Voluntary Sector
In the nonprofit sector, dependent primarily on memberships, donations, and grants for its revenue,
goods and services can be distributed as organization leadership sees fit.
However, there are typically constraints on nonprofit organizations, as funders often attach conditions or restrictions on the use of their gifts and grants, and members expect good stewardship of
organizational resources. Obviously, nonprofit boards and executive directors seek to minimize the
conditions imposed because they have more discretion over the use of organizational income when
there are fewer strings attached. When not-for-profit organizations face extensive restrictions on the
use of their resources, or when they receive grants and gifts for specific uses, they may find themselves
subject to co-optation or mission drift, in which the organization loses touch with its stated mission
and takes on new priorities to fit grantor or donor wishes. This problem highlights the crucial nature
of the mission for nonprofit organizations and their wise use of resources; the centrality of mission for
nonprofits is the focus of Chapter 6.
Finally, the three sectors differ with regard to organizational structure. The level of interaction with the
public, the degree to which formal oversight exists, and how oversight is conducted, vary between entities
in the nonprofit, for-profit, and public sectors.28 For example, organizations in the public sector are widely
recognized to be the most hierarchical because of the high levels of constraint and authority that legislative
bodies and members of the public exercise over government agencies. In the for-profit sector, organizations
are under the constraint and authority of shareholders, a board of directors, and/or the owner of the firm,
while politics and the general public have little direct influence on organizational behavior. The nonprofit
sector lies somewhere between these two. Because of their public purposes, nonprofits must be attentive to
the political sensitivities of the communities they serve, but boards of directors often take a very hands-off
approach.29 Not-for-profit organizations typically have flatter and more informal structures than organizations in the other sectors.30 Table 3.1 gives an overview of the different characteristics generally associated
with organizations in each of the three sectors.
Intersectorality and Welfare Policy
The nonprofit, for-profit, and public sectors intersect in many ways and on many policy problems, and nowhere is that more evident than in the area of welfare policy. While social services
have long been provided by the public and nonprofit sectors acting together and independently,
the 1996 reform of the welfare program Aid to Families with Dependent Children (AFDC)
brought the for-profit sector into this policy area in new and important ways. The events leading
up to this reform exemplify nonprofit federalism and the intersection of the public, for-profit,
and nonprofit sectors.
As a presidential candidate in 1992, Bill Clinton vowed “to put an end to welfare as we know it” if
elected president. This was not Clinton’s first foray into the world of welfare reform; in 1988 as governor
of Arkansas and chair of the National Governors Association, Clinton had secured broad support from
the nation’s governors to pass the first freestanding welfare reform bill in 26 years, the federal Family
Support Act.31 Thus, when President Clinton signed the Personal Responsibility and Work Opportunity
Reconciliation Act (PRWORA) in 1996, it is not surprising that it gave more discretion to the states
over their welfare programs.
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 57
Table 3.1 Basic Differences between the Nonprofit, Public, and
For-Profit Sectors of the Economy
Characteristics Nonprofit Sector Public Sector For-Profit Sector
Social model Civil society Political society Market society
Public participation Voluntary Required Voluntary
Type of goods provided Public/quasi-public goods Public/collective goods Private goods
What is valued? Achievement of social
purposes and satisfaction
of donors
Achievement of politically
mandated mission
Financial returns delivered to shareholders
Goal specificity General, mission-driven General, politically determined
Specific, profit-driven
Source of financial
Grants, gifts, donations,
Taxes, fees Sales
Earns profit? Yes; profits must be
directed back into the
No Yes; profit-seeking
Provides goods/services
via what mechanism?
Organizational mission;
donor/grantor direction
Political processes Market forces; profit
Source of authority Board of directors Citizens; government institutions (executives, legislatures,
Board of directors;
shareholders; corporate
executive or owner
Organizational structure Less formal Hierarchical/bureaucratic Hierarchical
Labor Typically “at will”; large
percent of volunteers
Often civil service/union protections; rarely volunteer
Typically “at will”;
occasional union
protections; very rarely
The change in authority over the welfare program occurred through what is known as devolution, a
process by which the federal government passes program responsibility and funding to the states.32
PRWORA, better known simply as “welfare reform,” changed the entitlement status of the former
AFDC program and replaced it with a time-limited, work-oriented program, Temporary Assistance
to Needy Families (TANF). These changes to the nation’s largest safety net program for children
and their parents gained the attention of many groups—both among governments and among the
nonprofit and for-profit sectors—that influenced the direction of the final welfare reform. These
groups included nonprofit associations such as the National League of Cities, the U.S. Conference
of Mayors, and the National Governors Association.33 In addition, there was strong opposition to
a number of proposed reform provisions, voiced most notably by nonprofit advocates of the poor
such as the Center for Law and Social Policy, Catholic Charities USA, and the Children’s Defense
The reformed program requires that adult welfare recipients obtain jobs within two years, and much
of the program is administered at the local level, through what is known as second-order devolution. At
the local level, nonprofit and for-profit sector contractors often deliver services to clients. The reasons
for the increased use of contractors in welfare provision are fairly clear. As Winston, Burwick, McConnell,
58 Fundamentals and Environment of the Voluntary Sector
and Roper explained, “Welfare reform provided an impetus to privatization in several ways. Its work
requirements spurred states and localities to find new ways to deliver employment services. By dropping
the requirement that eligibility for cash assistance be determined by public employees, it encouraged
contracting out of a broader set of services. And the change to funding through block grants gave new
incentives for privatization.”35
Add to these incentives the most common reasons that governments use contractors—purported cost savings and ease of program startup—and welfare assistance became a policy area ripe
for service delivery by organizations outside of the public sector. A study by the U.S. General
Accounting Office (GAO) found that state and local governments in forty-nine states and the
District of Columbia had used contractors for TANF-related services by 2001; of the $1 billion
dollars spent on federal and state TANF contracts that year, approximately 87 percent went to
nonprofit organizations.36
The complexity of these intersectoral relationships is illustrated in an Urban Institute report
on contracting between the nonprofit and public sectors, which found about 56,000 nonprofit
organizations were implementing around 350,000 government grants and contracts in 2013. Of
those, approximately 30,000 were human service nonprofits implementing 200,000 grants and
contracts. In 2012, almost $81 billion of the $137 billion governments paid to nonprofits through
grants and contracts went to human service nonprofits. Each human service nonprofit had, on
average, seven grants and/or contracts with local, state, and federal agencies. While these nonprofits
influence clients and policy by their direct service delivery, the vast majority are also subject to
policy regulations as a condition of their grant receipt. For example, half of organizations reported that their government grants and contracts explicitly excluded or limited reimbursement for
administrative spending, about half required matching grants or cost sharing, and 78–96 percent
(depending on the type of organization) were required to submit narrative reports on the results
and outcomes of their programs.37
Faith-Based Organizations
Adding even more complexity to social service delivery, the 1996 welfare reform act included a provision known as Charitable Choice, which encouraged states and counties:
. . . to increase the participation of nonprofit organizations in the provision of federally funded welfare
programs, with specific mention of faith-based organizations; establish eligibility for faith-based organizations as contractors for services on the same basis as other organizations; protect the religious character
and employment exemption status of participating faith-based organizations; and safeguard the religious
freedom of participants.38
Although it was included in the 1996 welfare reform, the Charitable Choice provision did not receive
much attention until 2001, when President George W. Bush institutionalized it with the formation of
his Office of Faith-Based Initiatives. Three assumptions led to creation of the office: 1) that faith-based
organizations (FBOs) are discriminated against in the awarding of public funds; 2) a large number of
FBOs would like to partner with government to serve the most needy, but are an untapped resource;
and 3) FBOs are more effective than secular providers at transforming the lives of those in need. Bush’s
Office of Faith-Based Initiatives fueled the controversy over Charitable Choice because it represented
a shift from merely allowing faith-based organizations to compete in limited ways for government
grants and contracts to specifically encouraging their participation and affording explicit protection
for religious practices.39
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 59
Concerns about the use of FBOs in social service delivery have come from people of various points
of view, including 1) those concerned about the perceived conflict with First Amendment protections
from state-sponsored religious activity;40 2) those concerned about the lack of capacity that small religious organizations have to compete for public contracts;41 3) those concerned that charitable choice
may not actually offer choice to clients but rather lock them into seeking services from FBOs;42 and 4)
social work professionals who believe that “the driving force behind social change should remain the
responsibility of the state.”43 What the research suggests is that concern over Charitable Choice and
FBOs was largely unfounded.44
First, there is little evidence to support the contention of discrimination against FBOs. Catholic
Charities and the Salvation Army, for example, have long partnered with government in the provision
of social services. In addition, approximately 70 percent of soup kitchens and food pantries are run by
religiously-affiliated organizations, and many receive federal commodities.45 Second, despite efforts by state
agencies to recruit FBOs, it appears that few submit applications for federal funding.46 Rather, faith-based
social service coalitions continue to be primarily funded by individuals and congregations; government
grants are their third most common revenue source.47 In 2004, the most recent year for which data are
available,48 less than 13 percent of federal social service grants went to FBOs.49 Finally, the research indicates
that there are few differences in effectiveness between faith-based and secular providers of welfare services;
most differences are small and seemingly represent disparate strengths rather than inherent weaknesses.50
Accordingly, the fears of those who were concerned about Charitable Choice should be somewhat
allayed, but the political issue remains. President Barack Obama changed the name to the Office of
Faith-based and Neighborhood Partnerships, and initiated rules changes designed to make it easier
for religious organizations to successfully engage in the federal grants process.51 Adding his official
voice on May 3, 2018, President Donald Trump signed an executive order referred to as the White
House Faith and Opportunity Initiative that altered some of the rules put in place during the Obama
administration; the Trump administration touts the rules changes as enhancing religious liberty for
organizations, critics claim it restricts religious liberty for individuals.52
Not-for-Profit Organizations as Government Contractors
Critics also fear that small FBOs and other neighborhood nonprofits lack the capacity to administer
government grants and contracts, and those fears likely have merit.53 The costs of monitoring program
progress, reporting, and auditing often exceed the capacity of small nonprofits. It is important, therefore, that nonprofit organizations consider these costs as well as the possible benefits before seeking
public contracts.
Benefits. First, in their public policy role, not-for-profit organizations are often eager to contract with
governments to meet the needs of citizens in their communities. Their level of experience and expertise in
specific policy areas and their first-hand knowledge of the communities they serve often make nonprofits
indispensable allies in the provision of public goods and services. In fact, Salamon noted that nonprofit
organizations “frequently find themselves in the fortuitous position of needing the federal government less
than the federal government needs them.”54 Second, nonprofits can gain much needed financial resources
from government contracting. Those contracts can add legitimacy to individual organizations, which
enhances their reputations, and in turn, leads to greater access to other government grants and sources
of funding.55 In addition, competition against for-profit firms for government grants and contracts can
foster innovation and improve performance in nonprofit organizations.56
Costs. The disadvantages for nonprofits include the fact that government funding is often insufficient
to meet citizen needs for services, and governments often have accounting and reporting requirements
that may be difficult for small nonprofits to meet.57 Small organizations may feel pressure to employ a
60 Fundamentals and Environment of the Voluntary Sector
more professional staff to meet these requirements.58 Most important, the services for which the organization has been contracted may not coincide with the historic mission of the nonprofit organization.
Indeed, a common concern in managing nonprofits is that chasing either government or foundation
money will lead the organization away from its primary mission and take it into policy areas, communities, or services that have little to do with the original purpose of the organization. This is an important
problem known as mission drift and is revisited in both Chapters 6 and 10.
Cross-Sector Competition and Conflict
Several factors, including the drive toward public sector privatization, have facilitated competition and
conflict between organizations in the three sectors. While the public and nonprofit sectors have long
been partners in service delivery, the entry of for-profit organizations into new markets like welfare assistance and job training came as a bit of a shock, especially to nonprofit organizations with long histories
in these policy arenas. In some cases, public policies have created incentives for profit-making firms to
enter policy areas previously dominated by nonprofits. In health policy, for example, the federal HMO
(Health Maintenance Organization) Act of 1973 encouraged employers to offer a choice of health insurance options to employees and opened the market to for-profit firms that saw the potential for growth.
Thus, as Salamon reported, nonprofits have lost market share particularly quickly to for-profit organizations in the healthcare field.59 Gray and Schlesinger explained that “Publicly traded, investor-owned
companies that own multiple facilities have become typical in all domains within healthcare, including
hospitals, nursing homes, HMOs, dialysis centers, and even hospices.”60 In this environment, it is increasingly difficult, and yet often more important, for nonprofit organizations to maintain a political voice
as advocates for themselves and the clients and communities they serve. Lobbyists hired by for-profit
health organizations generally have greater access to elected officials and can more easily pursue public
policies favorable to their clients. For example, for-profit lobbyists have sought to change the state and
local tax-exempt status of nonprofit hospitals and have fought against rules restricting the conversion
of nonprofit hospitals to for-profit status.61
Government grants and contracts have encouraged intersectoral competition in other ways. For example, few could have imagined that in the wake of welfare reform nonprofit organizations would have to
compete against a defense contractor for social welfare contracts. That is exactly what happened in 1996
when Lockheed-Martin created its Welfare Reform Services Division and won 11 welfare contracts in
three states.62 Such competition, particularly for small, community-based organizations, has had a notable
impact on nonprofits as they compete with profit-making firms in delivery of social welfare services.63
The structure of most government contracts for welfare assistance relies on performance-based
measures that reward quick job placement for clients. These policies provide an example of the ways in
which nonprofits are subject to public policy, as they have had immediate effects on nonprofit providers
of welfare services. For example, most of these contracts provide payment on a per-client basis and only
after job placement has been secured; for the nonprofit organization without vast resources with which
to sustain itself, these policies can have devastating consequences. The incentives in this system can
lead providers to eschew more costly support services and to engage in skim-creaming, which involves
serving the easiest-to-place clients first, leaving the most vulnerable, those with significant or multiple
barriers to employment, without sufficient assistance. Sanger summarized the dilemma: “Valuable and
worthy nonprofits are becoming more businesslike; some have even formed for-profit subsidiaries.
However, they also show signs of ‘losing their souls’ in their capitulation to market imperatives. Still
others risk extinction.”64 This dilemma represents a significant struggle for nonprofits as they seek to
improve efficiency in the management of resources while maintaining effectiveness in the pursuit of
mission, topics that are discussed in depth in later chapters.
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 61
In addition, there are simple market forces that have led to increased intersectoral competition,
particularly between the for-profit and nonprofit sectors.65 The growing financial needs of nonprofit
organizations have led them to compete with for-profit firms through commercial ventures. These
activities—for example, the Girl Scouts’ cookie sales, insurance packages through AARP—may or may
not negatively affect the core mission of the organization, but are increasingly important as a potential
source of organizational revenues.
Many scholars and practitioners have expressed concerns about for-profit ventures and values creeping
into the world of nonprofits, including market rivalries between nonprofit and for-profit organizations
that have often resulted in complaints of unfair competition from both sides.66 As nonprofit commercial ventures proliferate, the potential for conflict grows, as in the transportation case in the opening
vignette. Sofia would likely face resistance from private businesses already operating health-related
transport services eligible for Medicare reimbursement as well as those earning fares through private
ride services to and from the bars near campus.
As pressures increase for nonprofits to be more businesslike in generating revenues, they become
vulnerable to market forces determining who will be served, in what ways, and how much. They
also must prepare for potential threats of policy change related to their tax-exempt status. How does
one justify the tax-exempt status of a nonprofit daycare center, for example, when a for-profit center
receives no such tax benefit? Further, critics have asked, if nonprofits perform the same functions as
organizations in the for-profit sector—nursing homes, hospitals, job training centers—are they not
simply “for-profits in disguise”?
Evidence indicates that the answer to this question is “no”; most studies show that nonprofits behave
differently and serve different clientele than for-profits even in the same industry.67 Nonprofit hospitals,
for example, are more likely to locate in poor, underserved areas while for-profits are more likely to locate
in communities where people can afford to pay for their services.68 In provision of services to welfare
clients, nonprofit providers have continued to demonstrate their commitment to helping long-term
recipients overcome the many barriers to employment that they face while for-profit firms have
been found to avoid this clientele because they are more expensive to serve.69 Most nonprofits take
their role as representatives of civil society very seriously and use their organizational missions to
guide their activities. This results in different organizational behavior even when serving the same
clientele as their for-profit competitors.
Those in the nonprofit sector are often concerned that in the competitive marketplace nonprofits
are at a disadvantage; however, research indicates that nonprofit organizations do not have to lose to
for-profit firms in the competitive market.70 Their advantage lies in what has been called the “distinctiveness imperative,” the ability for nonprofits to maintain their positions due to attributes such as
trustworthiness and their ability to serve social purposes without concern about profit.71
Relying on examples of community development corporations and technology assistance providers,
Marwell and McInerney described three possible outcomes for nonprofit agencies in the competitive
marketplace: displaced markets, stratified markets, and defended markets.72 Their research suggests that
nonprofits are only at risk of being displaced when many consumers find themselves with the means to
purchase a service and for-profit providers find the market to be profitable, as has been the experience
for some healthcare providers. In the stratified market, both for-profit and nonprofit organizations find
their own niche by serving distinct groups of citizens (for example, low-income versus upper-income
families). In defended markets, organizations in the nonprofit sector continue to be highly valued as
providers based on their ability to address societal needs; thus, for-profits generally lack an incentive
to compete and do not enter these markets.
62 Fundamentals and Environment of the Voluntary Sector
Nonprofit managers must understand that they will have to work harder than ever to succeed in
this increasingly competitive environment. For example, it is important for nonprofits to improve
their management capacity in order to compete successfully, even in policy areas that have traditionally been within their purview.73 In addition, not-for-profit sector managers must recognize their
strengths and weaknesses in this new, competitive environment using their perceived trustworthiness
to their advantage and understanding that labor-intensive, complex, and highly visible policies are
well-suited to implementation by their organizations. O’Regan and Oster explained, “Nonprofits
perform well in the provision of complex, hard-to-evaluate goods and services, and when the ability
to sharply reward managers is less important than the ability of those managers to keep focused on
matters of long-term reputation and goals and to balance the interests of various constituents who
have a stake in the operation.”74
Cross-Sector Collaboration
While conflict across the sectors is an important trend to follow, nonprofits also find opportunities to
work in collaboration with those in the for-profit and public sectors as well as with other nonprofits.
Partnerships between multiple nonprofits are often formed to share needed resources—physical space,
information technology, payroll services, or fundraising capacity—especially for small organizations.75
As is suggested in the opening vignette, nonprofits sometimes form partnerships with multiple organizations from all three sectors, something that happens often in welfare policy delivery. One example of
collaborative effort is the Detroit area Downriver Community Conference Partnership (DCC), which
works in the area of welfare-to-work policy. (See Exhibit 3.1.)
Exhibit 3.1
For Example
The Downriver Community Conference Partnership:
Collaborating across Sectors
Highlighting the concepts of nonprofit federalism and intersectorality is the nonprofit Downriver
Community Conference Partnership (DCC) in the suburbs south of Detroit, Michigan. DCC
members include 20 cities, the nonprofit Arab Community Center for Economic and Social Services (ACCESS), the Southeast Michigan Council of Governments, the Southern Wayne Regional
Chamber of Commerce, and the for-profit firms Ross Innovative Employment Solutions and
Employment & Training Designs, Inc. Both state and federal grants allow the DCC to provide
employment services to welfare clients through the Partnership, Accountability, Training, Hope
(PATH) Program. The state Department of Human Services refers clients to the DCC, which operates seven Employment Service Centers in the region. These centers provide job search assistance,
offer information on resume writing, provide access to occupation guides and career exploration
tools, and link employees with employers. As a registered 501(c)(3) organization, DCC accepts
cash donations and operates the Chrysalis Boutique, which takes donations of gently used work
clothing and offers it free to low-income men and women for job interviews and the workplace.
For more information on the Downriver Community Conference Partnership, see
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 63
Collaborations between the nonprofit and public sectors are extensive—from public policy research
and development to project planning—and operate in a wide variety of policy areas—from the
environment to social welfare to transportation. While there is no definitive research to indicate
how many of these collaborative arrangements exist, they are clearly considered a growing trend and
research on them has grown substantially in the last decade.76 In one of the pioneering studies to
empirically examine these collaborations, Beth Gazeley and Jeffrey L. Brudney surveyed hundreds
of nonprofit and local public sector organizations in Georgia, finding that intersectoral partnerships were extensive; over half of the respondents reported that they were involved in at least one
cross-sector collaboration.77
Essential to the success of these partnerships was mission compatibility, a motivation to partner, and
sufficient staff resources to manage the collaborative project. Important for public sector managers,
local governments reported more benefits from partnership than did those in the nonprofit sector,
including improved service delivery and higher levels of citizen satisfaction and trust in government.78
The Gazeley and Brudney study confirmed that the motivations for collaboration differ by sector; for
nonprofit organizations, the desire to increase revenues motivates partnership, while the public sector
seeks partnerships to access expertise.
As has been discussed, public sector privatization has opened the doors to a variety of collaborative
arrangements between the three sectors. For example, Salamon79 and Sanger80 each noted that nonprofit
organizations have become subcontractors, hired by for-profit organizations to deliver welfare services
paid for by public grants. In other cases, nonprofits have become the primary contractors, subcontracting
work to for-profit firms, especially when tasks lend themselves to a businesslike emphasis on cost, such as
human resource management, particularly when labor negotiations are involved.81
There are also examples where the nonprofit and for-profit sectors have formed equal partnerships to
provide government contract work. In Wisconsin’s welfare program, Wisconsin Works (W-2), the YWCA
of Greater Milwaukee partnered with two for-profit firms, the Kaiser Group and CNR Health, to manage
and provide welfare services in the Milwaukee area by forming YW-Works, organized as a limited liability
for-profit company. The fact that YW-Works is a profit-making venture with profits shared among its
three partners allows the YWCA to reinvest its portion of the profits back into the organization, while the
for-profit partners can redistribute profits to shareholders.82
An important trend in collaborations involves for-profit organizational donations that help nonprofits
operate their programs and projects. For-profit firms have donated goods such as groceries to food pantries
and computers to job-training sites. While the public sector motivation for partnership with nonprofits is
typically to make use of nonprofit expertise, and the nonprofit motivation for partnership with either the
public or private sector is usually to gain resources, firms in the for-profit sector are typically motivated to
collaborate with nonprofits in the name of creating goodwill in the community.83
For example, we see many efforts by major corporations across the United States, including American
Express, Coca-Cola, and Eddie Bauer, to partner with nonprofit organizations. Minneapolis-based retailer
Target Corporation annually donates 5 percent of its income to community grants and projects and has done
so since 1946; in 2017, Target gave $217 million in cash and products.84 In addition, since 1996, Target
has supported the work of St. Jude’s Children’s Hospital in Memphis, Tennessee, through donations,
fundraising events, and activities at the Target House—the home-away-from-home for parents of kids
receiving treatment at St. Jude. Target and its partners have raised over $60 million to support the 2
buildings, 98 apartments, and the families that benefit from Target House.85 We discuss the pros and
cons of these partnerships in Chapter 10.
In many cases, such partnerships simply provide revenue for nonprofits engaged in meeting public
needs, as in the case of St. Jude’s, while in other cases, collaborative efforts are at the forefront of
64 Fundamentals and Environment of the Voluntary Sector
public policymaking. An example comes from efforts to remake the city of Detroit through the
New Economy Initiative,86 a complex collaborative effort involving nonprofits making important
public policy decisions concerning transportation, land use, and economic development strategies
in collaboration with city government and for-profit firms. Among the initiatives being undertaken
are investments in education, reviving a culture of entrepreneurship, industrial property reuse,
and creation of a light-rail system, the QLINE. The Kresge Foundation provided the lead gift
for the light-rail project ($35 million that grew to $50 million over the life of the project), and
was instrumental in assembling the partners—public and for-profit—to provide the financial and
policy support for the project.87 To address the problem of an over-abundance of vacant land in
the city, the Kresge Foundation hired a nonprofit consultant, Initiative for a Competitive Inner
City (ICIC), to develop an industrial development strategy. The ICIC hired a for-profit urban
planning firm to assist in assessment and planning for industrial reuse throughout Detroit. For its
part, city government sought to open additional land parcels to new uses and eliminate blighted
neighborhoods by encouraging residents in sparsely populated parts of the city to relocate to
nine districts that have been deemed more viable. The city’s policy strategy included removing
federal housing subsidies and reducing city services such as trash removal in blighted areas; it will
use federal funding to rebuild and renovate homes in the nine viable districts as an incentive for
residents in the city and suburbs to relocate.88
There are policy implications for government when the public sector is a partner in such extensive
collaborations. For example, might a city lose control over land use planning when a private foundation
is funding the project, or might a public agency be left picking up the pieces after a failed collaboration? What is the appropriate level of government oversight and regulation under these circumstances?
Collaborations of such magnitude are new enough that they lead us to more questions than conclusions.
Occasionally, partnerships between nonprofits and for-profits can create or change public policy
without government involvement. One such example is the Alliance for a Healthier Generation, which
has changed food and beverage policies in thousands of public schools across the nation without
government policymaking. (See Exhibit 3.2.) These partnerships showcase the goodwill of for-profit
firms, which enhances their reputations, while at the same time helping their nonprofit partners make
a positive impact on society. As Salamon explained, “The most successful of these efforts deliver benefits
to both the corporation and the nonprofit.”89
Exhibit 3.2
Case Study
The Alliance for a Healthier Generation Partners
with For-Profits to Make Public Policy
In May 2005, two nonprofits, the American Heart Association and the William J. Clinton Foundation, joined forces to create the Alliance for a Healthier Generation, which seeks to “empower
kids to develop lifelong healthy habits by ensuring the environments that surround them provide
and promote good health.”90 Working with for-profit partners in the food and beverage industries,
Healthier Generation has made important strides in a short time. For example, together with the
American Beverage Association (ABA)—the trade association of non-alcoholic beverage companies—Healthier Generation created a set of School Beverage Guidelines in 2006 with a memoCollaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 65
randum of understanding that ABA bottlers and distributors would amend their contracts with
public schools and districts to include more low-calorie and high-nutrient beverage choices in the
public school system.
By 2010, the ABA’s final progress report indicated that 98.8 percent of schools—both those
with compliance contracts and without—were in compliance with the School Beverage Guidelines. In addition, the ABA reported that the amount of full-calorie carbonated soft-drinks
shipped to the nation’s schools had decreased by 95 percent from 2004 and the percent of
calories in school beverages had been cut by 88 percent.91 Expanding the benefits of their 2006
agreement, in 2014 the cross-sector partners—Healthier Generation, the ABA, Coca-Cola, PepsiCo, and the Dr Pepper Snapple Group (now Keurig Dr. Pepper) announced the 2025 Beverage
Calories Initiative designed to reduce Americans’ consumption of calories from beverages by 20
percent by 2025.92
These extraordinary results affect some 135,000 schools and over 53 million students in the
United States.93 The cross-sector collaboration that created and implemented the School Beverage
Guidelines accomplished its goal without government involvement; in effect, public policy in tens
of thousands of school districts across the country was changed by a partnership of organizations
in the nonprofit and for-profit sectors.
Building on the success of the Beverage Calories Initiative, the Alliance for a Healthier Generation created a set of Competitive Foods Guidelines to help schools make healthier choices outside
of their standard meal programs—for example, in food offered in vending machines, à la carte
during meal times, and in school stores. As with the original beverage partnership, participating
companies included the biggest names in the food industry, including Kraft Foods, Dole Food
Company, and Mott’s as well as smaller, regional companies such as Anderson Erickson Dairy,
Farmland Dairies, and Shamrock Farms.
At the same time, Healthier Generation started the Healthy Schools Program—which by 2019
included more than 40,000 participating schools—that encourages physical activity and healthier
eating. Healthy Schools provides a variety of resources, including free online tools and resources
such as the 6-Step Process and Smart Food Planner; web tips to encourage healthier school parties
and fundraisers; and resources for parents, community members, and schools interested in learning more and/or joining the Healthy Schools Program. Healthier Generation annually recognizes
schools that have successfully created healthier campuses through awards at the bronze, silver, and
gold levels. There is no cost to schools to join the Healthy Schools Program.94
In 2011, the Alliance announced a voluntary agreement with major food industry companies
such as McCain Foods USA, Rich Products Corporation, and Schwan’s Food Service, to provide
healthier food options to U.S. schools at competitive prices. Participating food companies pledged
to increase the sales of compliant products by at least 50 percent within five years; results indicate
sales of products that comply with the 2010 USDA Healthy, Hunger-Free Kids Act and Smart
Snacks in School standards increased by $130 million (71 percent). The agreement streamlines the
ordering process and makes it easier for schools to identify healthier food options, including those
high in protein, low in fat, and cooked without trans fats.95
The efforts of Healthier Generation have been recognized nationally; in 2013, it was ranked
third on the list of most outstanding nonprofits in the category of Nonprofit in Childhood Nutrition/Health.96 The Alliance for a Healthier Generation continues to affect policy in food, nutrition, and exercise in U.S. schools without the aid of legislation, executive orders, or court settlements. Public policy has been advocated, made, and implemented by voluntary agreements
66 Fundamentals and Environment of the Voluntary Sector
between the nonprofit and for-profit sectors and the support of public schools and school districts
across the nation.
1. What motivated for-profit food and beverage companies to amend their sales contracts
with public schools to meet voluntary standards such as the School Beverage Guidelines
and Smart Snacks in School standards?
2. Why did beverage sales patterns change in schools without contracts or memorandums of
3. The Nonprofit-Policy Framework describes the four policy relationships between public policy
and nonprofit organizations (make policy, influence policy, affected by policy, subject to policy).
What does this case suggest about making public policy without formal passage of legislation?
4. Is this example unique? If so, in what ways? If not, in what other policy areas might voluntary
agreements between the nonprofit and for-profit sectors be successful in making public policy?
Additional information is available at
Changing relationships between the sectors have led some to argue that the blurring of the lines
places us at the threshold of a new type of organizational unit: the for-benefit organization that
will lie somewhere outside of the traditional three economic sectors, with a common interest in
pursuing social purposes through business activity.97 An interesting example of this, and of how
nonprofits are affected by public policy that is not directly related to them, is the creation of benefit corporations, established as a legal corporate structure in 2010 when Maryland became the first
state to adopt legislation. Benefit corporations are a new type of for-profit corporation that is required to: 1) create a positive social or environmental impact, 2) consider nonfinancial interests as
part of expanded fiduciary responsibilities, and 3) report its social and environmental performance
as assessed by a third party. Because benefit corporations allow organizations to pursue a socially
responsible mission while also distributing profits to owners and shareholders, some policy entrepreneurs will choose this route rather than start a nonprofit endeavor. Some for-profits will also
choose this route as a way to differentiate themselves in order to appeal to environmentally and
socially conscious consumers.98
Benefit corporations exist largely because of the efforts of B Lab®, a 501(c)(3) nonprofit started in
2006 as “a global movement of people using businesses as a force for good.”99 B Lab founders developed standards to measure a business’ commitment to social and environmental responsibility as well
as transparency and accountability. Companies that meet these standards are eligible for certification
as a B Corps, another way they can differentiate themselves as a for-benefit organization.
More important than enhanced marketing, B Lab argues that benefit corporation or certified B
Corp status allows company boards and officers the ability to pursue both social mission and financial
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 67
profits, while ensuring greater transparency to investors and other stakeholders. This can be particularly important when a for-profit company faces a liquidity scenario, as in the example of Ben &
Jerry’s, the Vermont ice cream company well-known for its socially responsible business practices. In
2000, when Unilever offered to buy the company for $326 million, founders Ben Cohen and Jerry
Greenfield were concerned that their social responsibility goals would be ignored. The legal advice
given to the board of directors, however, indicated the sale should go forward: the board members
were advised that their primary concern was the financial best interests of their shareholders.100 Since
2011, however, Vermont-based companies have had the option of incorporating as a benefit corporation to ensure both their socially responsible vision and their fiduciary responsibilities to shareholders
are considered in business decisions; Vermont is one of 34 states to have passed benefit corporation
legislation as of June 30, 2019. In September 2012, Ben & Jerry’s became the first wholly-owned
subsidiary to achieve B Corps certification, supported by its parent company Unilever.101
An interesting international example of the for-benefit concept comes from Cafédirect, a Fair
Trade beverage company based in the United Kingdom that purchases coffee, tea, and cocoa directly
from small growers in Africa, Latin America, and Asia. (See Exhibit 3.3.) This unique partnership
was created by four organizations: 1) Equal Exchange, a worker cooperative; 2) the international
nonprofit Oxfam; 3) foundation-owned Traidcraft; and 4) the government-created agency Twin
Trading.102 Whether or not sector blurring will result in a fourth sector remains to be seen, but
it is certainly true that the relationships between the public, for-profit, and nonprofit sectors are
increasingly complex.103
Exhibit 3.3
Going Global
Cafédirect Works across the Sectors,
Creating De Facto Policy
Cafédirect offers an interesting example of sector blurring and international cooperation in the
area of fairly traded coffee, tea, and cocoa. The story of its creation begins with the International
Coffee Organization (ICO), an intergovernmental organization that brings together exporting and
importing governments to address the challenges of coffee production and sales through international cooperation. Since 1963, the ICO has brokered seven International Coffee Agreements.
Cafédirect was founded in 1991 after the collapse of the 1989 International Coffee Agreement
dramatically decreased market prices and threatened coffee growers in developing nations. This
partnership between the public, for-profit, and nonprofit sectors led to the first company to market coffee under the Fairtrade label in the United Kingdom.104
Cafédirect provides a link between grower and consumer communities, works with 38 producer organizations in 13 developing countries, and benefits more than 600,000 farmers around
the world through its three core commitments: 1) Grower Focused in All We Do, 2) Integrated
Environmental Action, and 3) An Inspirational & Accountable Business. Its Fairtrade obligation
requires reinvestment of 30 percent of Cafédirect’s profits, although it has actually reinvested over
50 percent of profits during nearly 30 years in business. Reinvestment funds have helped to devel68 Fundamentals and Environment of the Voluntary Sector
op growers’ businesses and the communities in which they farm and live. Since 2009, its development projects have been managed by the Cafédirect Producers’ Foundation (relaunched in 2018
as Producers Direct), a nonprofit organization formed by Cafédirect and led by growers. The nonprofit status of Producers Direct allows it to raise additional funding to support growers and provide them access to training, education, and other services needed to improve their operations.105
Given the nature of intersectoral collaborations and the longevity of Cafédirect, it is not surprising that the original partnership has undergone changes beyond the creation of Producer’s
Foundation in 2009. For example, three of its original partners, Tradecraft, Twin Trading, and
Equal Exchange, sold their shares in 2010106 and in 2011.107 At that point, Cafédirect partnered
with Oikocredit Ecumenical Development Society U.A., a worldwide microfinance cooperative
that shares resources through socially responsible investing, to further its commitment to global
justice.108 Oxfam, an international nonprofit whose mission is “a global movement of people working towards a world without poverty,”109 is one of the four pioneering organizations that founded
Cafédirect,110 and continues to sell Cafédirect products on its website.
The nature of the international community means that there can be no global policymaking
in the way that policy is made in the United States. On the other hand, nongovernmental organizations (NGOs) such as Cafédirect exist to address the very real needs of communities around the
globe. The collaboration that created Cafédirect is an example of people in the public, for-profit,
and nonprofit sectors joining forces to mitigate the dramatic consequences of the breakdown
of the 1989 International Coffee Agreement. They pursued collective action on a global scale,
making de facto policy while operating outside of any formal policymaking sphere to better the
working and living conditions of coffee growers in developing countries.
For more information:
Oikocredit Ecumenical Development Co-operative Society U.A.,
This chapter covers a great deal of ground: from the founding of the United States and the creation
of its federal system, to intersectoral collaboration, which describes the current complex relationship
between nonprofits, for-profits, and the three levels of government. At every point in U.S. history,
voluntary associations have played an important part through their role as Citizen, representing civil
society in the push and pull between the public, nonprofit, and for-profit sectors. This push and pull
was seen clearly in the fight over slavery in the mid-19th century. The economic interests of plantation
farmers, the public interests of the states and federal government, and the civil and religious interests
represented by anti-slavery societies created a volatile period in U.S. history. The Nonprofit-Policy
Framework is evident in the influence that nonprofits had over the issue, exemplified by the Emancipation Proclamation and the Fifteenth Amendment.
Today, the relationships between the three sectors can be conflictual or cooperative, depending
on the issue. Although each of the three sectors in the U.S. economy has its own distinct motives,
goals, and organizational structure, they are intertwined, particularly in the arena of public policies
and programs. Whether through direct service delivery, program funding, advocacy, collaboration, or
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 69
contracting, the intersectorality of the system is apparent. This is especially true in the social welfare
policy arena where federal welfare reform gave state governments increasing responsibility for welfare
provision and all three levels of government increased their reliance on contractors—both nonprofit
and for-profit—for delivery of welfare services.
Nonprofit-Policy Framework is also evident in contracting relationships that create opportunities for
nonprofits to influence the direction of public policies and programs. Government grants affect nonprofit
involvement in public policy by inviting new organizations to participate in public programs, as the Social
Security Act amendments did in the 1960s and the Charitable Choice provisions of welfare reform did
for faith-based organizations. However, acting as public sector agents can also be problematic, especially
for small organizations that may lack the capacity to effectively compete for government grants. Other
times, grants may subject nonprofit agencies to requirements that cause them to deviate from their stated
missions to win a contract, or to spend precious resources monitoring and measuring their performance
to satisfy government auditors.
The U.S. system, characterized by both nonprofit federalism and cross-sector collaboration and
conflict, is incredibly complex, and it is becoming more and more difficult for the average citizen
to know where government ends and the nonprofit and for-profit sectors begin. Competition and
collaboration between organizations in the three sectors have opened opportunities for each sector
and at the same time shed light on the weaknesses of each. To be successful, it is imperative for those
managing not-for-profit agencies to remember their fundamental missions and the distinctiveness
of their organizations in the broader system. In addition to good management practices, nonprofit
managers must remember that they have several advantages over the Merchant and the Prince: their
perceived trustworthiness, their ability to act as advocates for the citizens and communities that
they serve, and their expertise in addressing the complex, hard-to-evaluate problems of individuals
in modern society.
Questions for Review
1. How do the increasing use of nonprofit federalism and the role of public sector contracts
and grants affect nonprofit organizations, for better and for worse? Give specific examples
from the reading and/or your own experience.
2. Describe the differences between the public, nonprofit, and for-profit sectors in the United
States. Are the differences as described in this chapter real and meaningful or have the three
sectors increasingly become indistinguishable from one another?
3. The three sectors are engaged in both collaboration and competition. In what ways are
the public and for-profit sectors helpful to the nonprofit sector and in what ways are they
harmful to the nonprofit sector?
4. What challenges do you think Sofia from the opening vignette is likely to encounter as she
seeks to design and implement expansion of transportation services through cross-sector
collaborations in NiA’s five-county service area?
70 Fundamentals and Environment of the Voluntary Sector
For this web-based assignment, think of a specific policy or service area in which all three sectors,
nonprofit, public, and for-profit, operate. The examples abound: from arts and entertainment to daycare centers and education, the intersectorality of the American economy is difficult to miss. Once a
specific area of inquiry is determined, search the web to find examples of organizations in each sector
that deliver the same basic goods or services. Note the similarities and differences between the three in
terms of web design and style, their references to the people they serve, and the people who manage
and run the organizations, their sources of income, their organizational missions, vision statements,
goals, and so on. Can you easily tell which organizations are in which sector or are the distinctions
between the three sectors blurred?
Suggested Readings
Boris, Elizabeth T., and Steurle, C. Eugene. (2017). Nonprofits and Government, Collaboration
and Conflict, Third Edition. Lanham, MD, and Washington, DC: Rowman & Littlefield
and The Urban Institute Press.
Emerson, Kirk, and Nabatchi, Tina. (2015). Collaborative Governance Regimes, Washington,
DC: Georgetown University Press.
McCarthy, Kathleen D. (2003). American Creed: Philanthropy and the Rise of Civil Society,
1700–1865. Chicago: The University of Chicago Press.
Salamon, Lester M. (1995). Partners in Public Service. Baltimore: Johns Hopkins University Press.
Weisbrod, Burton A. (Ed). (1998). To Profit or Not to Profit: The Commercial Transformation of
the Nonprofit Sector. New York: Cambridge University Press.
Web Resources
B Lab,
Census Bureau Federal Audit Clearinghouse, “Data Collection Form for Reporting on Audits
of States, Local Governments and Non-Profit Organizations,”
Fourth Sector Group,
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 71
1. Adil Najam, “Understanding the Third Sector: Revisiting the Prince, the Merchant and the Citizen,”
Nonprofit Management and Leadership, 7, 1996, p.
2. Kathleen D. McCarthy, American Creed: Philanthropy and the Rise of Civil Society, 1700–1865, Chicago:
University of Chicago Press, 2003.
3. Francesca Gamber, “The Public Sphere and the End
of American Abolitionism, 1833–1870,” Slavery and
Abolition, 28, 2007, pp. 351–368.
4. Laurence O’Toole Jr., “American Intergovernmental
Relations: An Overview,” in American Intergovernmental Relations, 4th ed., ed. Laurence J. O’Toole
Jr., Washington, DC: CQ Press, 2007.
5. McCarthy, American Creed.
6. Lester M. Salamon, Partners in Public Service, Baltimore: Johns Hopkins University Press, 1995.
7. McCarthy, American Creed, p. 38.
8. Thomas J. Anton, American Federalism and Public
Policy: How the System Works, New York: Random
House, 1989, p. 41.
9. Morton Grodzins, The American System: A New View
of Government in the United States, ed. Daniel J.
Elazar, Chicago: Rand McNally, 1966.
10. Marguerite G. Rosenthal, “Public or Private Children’s Services? Privatization in Retrospect,” Social
Service Review, 74, 2000, pp. 281–305.
11. Salamon, Partners in Public Service.
12. Ibid.
13. Paul E. Peterson, The Price of Federalism, Washington, DC: The Brookings Institution, 1995.
14. Ibid.
15. Vincent Ostrom, The Meaning of American Federalism, San Francisco: ICS Press, 1991, pp. 47–48.
16. Seymour Martin Lipset, American Exceptionalism:
A Double-Edged Sword, New York: W.W. Norton &
Company, 1996, p. 31.
17. Lipset, American Exceptionalism; Helmut K. Anheier,
Nonprofit Organizations, Theory, Management, Policy,
New York: Routledge, 2005.
18. Feeding America, “Our History,” 2018, https:// (accessed July 11, 2019).
19. Gaby Galvin, “Food Insecurity in America Tied to
Prices, Poverty,” May 1, 2019, https://www.usnews
2019-05-01/food-insecurity-in-america-tied-tofood-prices-poverty (accessed July 11, 2019).
20. Marc Nerfin, “Neither Prince nor Merchant:
Citizen—An Introduction to the Third System,” in
World Economy in Transition, K. Ahooja-Patel, A.G.
Drabek, and Marc Nerfin, eds., Oxford, UK: Pergamon Press, 1986.
21. Adil Najam, “Understanding the Third Sector: Revisiting the Prince, the Merchant and the Citizen,”
Nonprofit Management and Leadership, 7, 1996, pp.
22. Ibid, 209, emphasis in original.
23. Stephen Goldsmith and William D. Eggers, Governing by Network: The New Shape of the Public Sector,
Washington, DC: Brookings Institution Press, 2004,
p. 6.
24. Alfred Vernis, Maria Iglesias, Beatriz Sanz, and Angel Saz-Carranza, Nonprofit Organizations: Challenges
and Collaboration, trans. M. Donadini, New York:
Palgrave MacMillan, 2006.
25. Peter Frumkin, On Being Nonprofit: A Conceptual and
Policy Primer, Cambridge, MA: Harvard University
Press, 2002.
26. See Burton A. Weisbrod, The Voluntary Sector,
Lexington: D.C. Heath & Company, 1977; Burton
A. Weisbrod, ed., To Profit or Not to Profit: The Commercial Transformation of the Nonprofit Sector, New
York: Cambridge University Press, 1998.
27. Ibid.
28. Dennis R. Young, “Entrepreneurship and the
Behavior of Nonprofit Organizations: Elements of a
Theory,” in Nonprofit Firms in a Three Sector Economy, Michelle J. White, ed., Washington, DC: Urban
Institute Press, 1981.
29. Ibid.
30. Katherine M. O’Regan and Sharon M. Oster,
“Nonprofit and For-Profit Partnerships: Rationale
and Challenges of Cross-Sector Contracting,” Nonprofit and Voluntary Sector Quarterly, 29, 2000, pp.
31. R. Kent Weaver, Ending Welfare as We Know It,
Washington, DC: Brookings Institution Press, 2000.
32. Welfare reform was part of a broader federalism
experiment during the mid-1990s often called the
devolution revolution. Spearheaded by the Republican Contract with America, the point of devolution
was to move program regulation, responsibility, and
funding from the federal to the state level, purportedly in an effort to place policy and program
decisions closer to those most affected by them. Seen
72 Fundamentals and Environment of the Voluntary Sector
by many as more of a whimper than a revolution,
welfare reform and the ability for states to adjust
their highway speed limits were the two most recognized results of this effort (see O’Toole 2007).
33. Weaver, Ending Welfare.
34. For a thorough discussion of the passage of welfare
reform, see R. Kent Weaver, Ending Welfare as We
Know It, Washington, DC: Brookings Institution
Press, 2000.
35. Pamela Winston, Andrew Burwick, Sheena McConnell, and Richard Roper, Privatization of Welfare
Services: A Review of the Literature, Washington DC:
Mathematica Policy Research, Inc., 2002, p. 4.
36. United States General Accounting Office, Welfare Reform: Interim Report on Potential Ways to
Strengthen Federal Oversight of State and Local
Contracting, Washington, DC: GAO-02-245, 200).
37 Sarah L. Pettijohn and Elizabeth T. Boris with Carol
J. De vita and Saunji D. Fyffe, “Nonprofit-Government Contracts and Grants: Findings from the
2013 National Survey,” Urban Institute, December
publication/24231/412962-Nonprofit-Government-Contracts-and-GrantsFindings-from-the-National-Survey.PDF (accessed
July 11, 2019).
38. Ram A. Cnaan and Stephanie C. Boddie. “Charitable Choice and Faith-based Welfare: A Call for
Social Work,” Social Work, 47, 2002, p. 224.
39. Cnaan and Boddie, “Charitable Choice”; Carol J.
De Vita and Eric C. Twombly, “Nonprofits and
Federalism,” in Nonprofits and Government, 2nd
ed., Elizabeth T. Boris and C. Eugene Steuerle,
eds., Washington, DC: Urban Institute Press, 2006;
Sheila Suess Kennedy, “Privatization and Prayer: The
Challenge of Charitable Choice,” American Review
of Public Administration, 33, 2003, pp. 5–19; Sheila
Suess Kennedy and Wolfgang Bielefeld, Charitable
Choice at Work, Washington, DC: Georgetown
University Press, 2007; J. J. DiIulio, “Getting FaithBased Programs Right,” The Public Interest, 155,
2004, pp. 75–88.
40. Kennedy, “Privatization and Prayer”; Kennedy and
Bielefeld, Charitable Choice at Work.
41. Arthur E. Farnsley II, “Can Faith-based Organizations Compete?” Nonprofit and Voluntary Sector
Quarterly, 30, 2001, pp. 99–111; Cnaan and Boddie, “Charitable Choice”; Kennedy, “Privatization
and Prayer.”
42. Stephen V. Monsma, “Nonprofit and Faith-based
Welfare-to-Work Programs,” Society, 40, 2003, pp.
43. John R. Belcher, Donald Fandetti, and Danny Cole,
“Is Christian Religious Conservatism Compatible
with the Liberal Social Welfare State?” Social Work,
49, 2004, p. 274.
44. De Vita and Twombly, “Nonprofits and Federalism.”
45. Janet Poppendieck, Sweet Charity? Emergency Food
and the End of Entitlement, New York: Viking, 1998.
46. Kennedy and Bielefeld, Charitable Choice at Work;
Michael Leo Owens and R. Drew Smith, “Congregations in Low-Income Neighborhoods and the
Implications for Social Welfare Policy Research,”
Nonprofit and Voluntary Sector Quarterly. 34, 2005,
pp. 316–339; Steven Rathgeb Smith and Michael
R. Sosin, “The Varieties of Faith-Related Agencies,” Public Administration Review, 61, 2001, pp.
47. Helen Rose Ebaugh, Janet S. Chafetz, and Paula
Pipes. “Funding Good Works: Funding Sources of
Faith-based Social Service Coalitions,” Nonprofit and
Voluntary Sector Quarterly, 34, 2005, pp. 448–472.
48. An October 2017 study by the U.S. Government
Accountability Office (GAO) examined faith-based
grantees from the perspective of statutory restrictions on religious-based hiring. For the time frame
of 2007–2015, GAO identified 53 grant programs
that were subject to the statutory restrictions. Of the
2,586 grantees who received grant funds through
those programs during the time studied, only 117
(less than 5 percent) were faith-based organizations.
GAO, “Faith-Based Grantees: Few Have Sought
Exemptions from Nondiscrimination Laws Related
to Religious-Based Hiring,” October 2017, https:// (accessed July
11, 2019).
49. Lisa M, Montiel and David J. Wright, Getting a
Piece of the Pie: Federal Grants to Faith-based Social
Service Organizations, Albany, NY: Roundtable on
Religion and Social Welfare Policy, 2006.
50. De Vita and Twombly, “Nonprofits and Federalism”;
Kennedy and Bielefeld, Charitable Choice at Work
; Smith and Sosin, “Varieties”; DiIulio, “Getting
Faith-based Programs”; Rebecca Sager and Laura
Susan Stephens, “Serving Up Sermons: Clients’
Reactions to Religious Elements at Congregation-run Feeding Establishments,” Nonprofit and
Voluntary Sector Quarterly, 34, 2005: pp. 297–315;
Mark Chaves and William Tsitsos, “Congregations
and Social Services: What They Do, How They Do
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 73
It, and with Whom,” Nonprofit and Voluntary Sector
Quarterly, 30, 2001, pp. 660–683.
51. Paul Singer, “White House Sets New Rules for
Faith-based Grants,” USA Today, August 5, 2015, (accessed July 11, 2019).
52. Libby Hikind, “White House Initiative Opens
Doors to Federal Funds for Faith-Based Organizations,” GrantWatch, May 3, 2018, https://www. (accessed July 11, 2019); Melissa
Rogers, “President Trump Just Unveiled a New
White House ‘Faith’ Office: It Actually Weakens
Religious Freedom.” Washington Post, May 14,
fea74ed44e76 (accessed July 11, 2019).
53. De Vita and Twombly, “Nonprofits and Federalism.”
54. Salamon, Partners in Public Service, p. 21.
55. Michael J. Austin, “The Changing Relationship
between Nonprofit Organizations and Public Social
Service Agencies in the Era of Welfare Reform,”
Nonprofit and Voluntary Sector Quarterly, 32, 2003,
pp. 97–114; David M. Van Slyke, “Agents or
Stewards: Using Theory to Understand the Government-nonprofit Social Service Contracting Relationship,” Journal of Public Administration Research and
Theory, 17, 2007, pp. 157–187.
56. Mary Bryna Sanger, “The Welfare Marketplace:
Privatization and Welfare Reform,” Washington,
DC: The Brookings Institution, 2003; Barbara Peat
and Dan L. Costley, “Effective Contracting of Social
Services,” Nonprofit Management & Leadership, 12,
2001, pp. 55–74.
57. Boris, et al., National Study; De Vita and Twombly,
“Nonprofits and Federalism”; Austin, “The Changing Relationship”; Sanger, “The Welfare Marketplace.”
58. Austin, “The Changing Relationship”; Lester M.
Salamon, “The Resilient Sector,” in The State of
Nonprofit America, 2nd ed., Lester M. Salamon, ed.,
Washington, DC: Brookings Institution Press, 2012.
59. Lester M. Salamon, “The Resilient Sector.”
60. Bradford H. Gray and Mark Schlesinger, “Health,”
in The State of Nonprofit America, Lester M. Salamon, ed., Washington, DC: Brookings Institution
Press, 2002, p. 76.
61. Gray and Schlesinger, “Health.”
62. Peter Frumkin and Alice Andre-Clark, “When
Missions, Markets, and Politics Collide: Values
and Strategy in the Nonprofit Human Services,”
Nonprofit and Voluntary Sector Quarterly, 29, 2000,
Supplement, pp. 141–163.
63. Sanger, “The Welfare Marketplace.”
64. Ibid, 5.
65. Weisbrod, To Profit or Not to Profit; Dennis R.
Young. “Complementary, Supplementary, or Adversarial? A Theoretical and Historical Examination
of Nonprofit-Government Relations in the United
States,” in Nonprofits and Government, Elizabeth T.
Boris and C. Eugene Steuerle, eds., Washington,
DC: Urban Institute Press, 1999; Nicole P. Marwell
and Paul-Brian McInerney, “Nonprofit/For-Profit
Continuum: Theorizing the Dynamics of MixedForm Markets,” Nonprofit and Voluntary Sector
Quarterly, 34, 2005, pp. 7–28.
66. Weisbrod, To Profit or Not to Profit; Gray and
Schlesinger, “Health”; Henry B. Hansmann, “The
Role of Nonprofit Enterprise,” Yale Law Journal, 89,
1980, pp. 835–898; Dennis R. Young and Lester M.
Salamon, “Commercialization, Social Ventures, and
For-Profit Competition,” in The State of Nonprofit
America, Lester M. Salamon, ed., Washington, DC:
Brookings Institution Press, 2002.
67. Weisbrod, To Profit or Not to Profit; Anna Haley-Lock and J. Kruzich, “Serving Workers in the
Human Services,” Nonprofit and Voluntary Sector
Quarterly, 37, 2008), pp. 443–467; Teresa D. Harrison and Katja Seim. “Nonprofit Tax Exemptions,
For-profit Competition and Spillovers to Community Services,” The Economic Journal, 129, 620, 2018,
pp. 1817–1862; Rein De Cooman, Sara De Gieter,
Roland Pepermans, and Marc Jegers, “A Cross-Sector Comparison of Motivation-Related Concepts in
For-profit and Not-for-profit Service Organizations,”
Nonprofit and Voluntary Sector Quarterly, 40, 2009,
pp. 296–317.
68. Frank A. Sloan, “Commercialism in Nonprofit Hospitals,” in To Profit or Not to Profit: The Commercial
Transformation of the Nonprofit Sector,” Burton A.
Weisbrod, ed., New York: Cambridge University
Press, 1998.
69. Frumkin and Andre-Clark. “When Missions.”
70. Marwell and McInerney, “Nonprofit/For-profit
74 Fundamentals and Environment of the Voluntary Sector
71. Gray and Schlesinger, “Health”; Lester M. Salamon, “The Resilient Sector,” in The State of Nonprofit
America, Lester M. Salamon, ed., Washington, DC:
Brookings Institution Press, 2002; O’Regan and
Oster, “Nonprofit and For-profit Partnerships”;
Helmut K. Anheier, Nonprofit Organizations, Theory,
Management, Policy, New York: Routledge, 2005.
72. Marwell and McInerney, “Nonprofit/For-profit
73. Austin, “The Changing Relationship”; Paul C. Light,
Sustaining Nonprofit Performance, Washington, DC:
Brookings Institution Press, 2004.
74. O’Regan and Sharon M. Oster, “Nonprofit and
For-profit Partnerships,” p. 122.
75. William B. Werther Jr., and Evan M. Berman, Third
Sector Management: The Art of Managing Nonprofit
Organizations, Washington, DC: Georgetown University Press, 2001.
76. See John M. Bryson, Barbara C. Crosby, and Melissa
Middleton Stone, “Designing and Implementing
Cross-sector Collaborations: Needed and Challenging,” 2015, Public Administration Review, 75, 5, pp.
647–663 and also Isabella M. Nolte, “Interorganizational Collaborations for Humanitarian Aid: An
Analysis of Partnership, Community, and Single
Organization Outcomes,” Public Performance &
Management Review, 41, 3, 2018, pp. 596–619.
77. Beth Gazeley and Jeffrey L. Brudney, “The Purpose
(and Perils) of Government-Nonprofit Partnership,”
Nonprofit and Voluntary Sector Quarterly, 36, 2007,
pp. 389–451.
78. Ibid.
79. Salamon, “The Resilient Sector.”
80. Sanger, “The Welfare Marketplace.”
81. O’Regan and Sharon M. Oster, “Nonprofit and
For-profit Partnerships.”
82. Ibid.
83. Vernis, Iglesias, Sanz, and Saz-Carranza, “Nonprofit
84. Jennifer Niemela, “Target Boosts Giving to Salvation Army,” Minneapolis/St. Paul Business Journal,
December 16, 2008, http://twincities.bizjournals.
(accessed on October 30, 2009); Target, “Philanthropy,” 2019,
(accessed July 13, 2019).
85. Memphis Business Journal, “Target, Proctor & Gamble Partner to Raise Funds for St. Jude,” October 13,
stories/2009/10/12/daily7.html (accessed October
30, 2009); and Target, “Cue the Lights! Target Hosts
Spectacular Holiday Bash Celebrating 20-year Partnership with St. Jude,” December 5, 2016, https:// (accessed July 13, 2019).
87. The Kresge Foundation, “President’s Letter: Light
Rail in Detroit Only the Beginning,” May 12, 2017, (accessed July 13, 2019).
88. Jim Miara, “Detroit: The New Paradigm,” Urban
Land Magazine, (accessed February
7, 2012.); City of Detroit, “Detroit Demolition
Program,” 2019, https:// (accessed July 13,
89. Salamon, “The Resilient Sector,” p. 40.
90 Alliance for a Healthier Generation, “About Us,”
(accessed July 11, 2019).
91. American Beverage Association, Alliance School
Beverage Guidelines Final Progress Report, March 8,
uploads/School-Beverage-Guidelines-Final-Progress-Report-ExecutiveSummary.pdf (accessed July 11, 2019).
92. Healthier Generation, “Beverage Calories Initiative,”
(accessed July 11, 2019).
93. Maya Riser-Kositsky, “Education Statistics: Facts
about American Schools,” Education Week, January
3, 2019, (accessed July 11, 2019).
94. Healthier Generation, “Schools,” 2019, https://
(accessed July 11, 2019).
95. Healthier Generation, “School Beverage, Snack, and
Meal Agreements,” 2019,
school-beverage-snack (accessed July 11, 2019).
96. Philanthropedia, “Ranked Nonprofits: National
Childhood Nutrition/Health 2013,” https://www
childhood-nutrition-health/2013 (accessed July 11,
Collaboration and Conflict between the Public, Nonprofit, and For-Profit Sectors 75
97. Folser, Working Better; Heerad Sabeti and the Fourth
Sector Network Concept Working Group, The
Emerging Fourth Sector, Washington, DC: The Aspen
Institute, 2009; Fourth Sector Group, “A Platform
for Collaboration, Accelerating the Growth of the
Fourth Sector,” (accessed July 13, 2019).
98. Shannon K. Vaughan and Shelly Arsneault, “The
Public Benefit of Benefit Corporations,” PS: Political
Science & Politics, 51, 1, 2018, pp. 54–60.
100. Sabeti, The Emerging Fourth Sector.
101. Ben & Jerry’s, “Ben & Jerry’s Joins the B Corps
Movement!” (accessed July 13, 2019); B Lab, “Impact Report: Ben & Jerry’s,” 2019,
directory/ben-and-jerrys (accessed July 13, 2019).
102. Ibid.
103. For more information on the Third Sector Initiative
and the Fourth Sector Network, see Web Resources
at the end of this chapter.
104. Cafédirect, “About,”
about/ (accessed July 11, 2019).
105. Producers Direct, “History,” http://producersdirect.
org/about/history/ (accessed July 11, 2019).
106. Cafédirect Annual Report, 2010.
107. Cafédirect Annual Report, 2011, http://cafedirect.
AnnualReport-2009-2010.pdf (accessed November 16,
108. Oikocredit, “Cafédirect Plc,” (accessed July 11,
109. OXFAM, “How We Work,”
uk/what-we-do/about-us/how-we-work (accessed
July 11, 2019).
110. Cafédirect, “Our History,” https://www.cafedirect. (accessed July 11, 2019).
76 Fundamentals and Environment of the Voluntary Sector
Nonprofit organizations in the United States—educational, charitable, civic, and religious institutions of
every size and mission—represent the most widespread organized expression of Americans’ dedication to
the common good. . . . Individuals have continued to use their First Amendment freedoms of speech and
association to create and energize organizations that define common needs, rally popular support, and pursue
innovative approaches to public problems.
Panel on the Nonprofit Sector1
If you have ever driven a car on a foggy night up (or down) a mountain, you have likely given thanks
for the white-painted line that delineates the travel lane from the shoulder of the road. Our gratitude
should be directed primarily at the Dorr Foundation and the efforts of its founders, John and Nell
Dorr. John Dorr was a chemical engineer who worked with Thomas Edison and founded a company
that made him wealthy enough to establish the Dorr Foundation in 1940. In the early 1950s, his wife
Nell called attention to the propensity of drivers, when facing oncoming headlights or bad weather, to
either hug the center line or swerve dangerously toward the shoulder. Dorr addressed this problem by
speculating that a white painted line along the shoulder would serve to guide drivers into the center of
the travel lane and increase traffic safety.
Initially unable to convince the Connecticut Highway Commission to paint lines on the Merritt Parkway, the Dorrs used their foundation to fund demonstration projects to test the lines’ effectiveness. The
test of the lines on New York’s Hutchinson River Parkway led to a 55 percent decrease in traffic accidents
over seven months. Within a decade, due to the investment by the Dorr Foundation and the lobbying
actions of John Dorr, the white lines had gained nearly universal acceptance on the nation’s highways.2
Theories of the Nonprofit Sector
The preceding example and our earlier discussion in Chapter 1 show that nonprofit organizations have
long been used as a mechanism for resolving collective action problems as well as a way for individuals
to promote their own interests and goals for a better society. Meeting public needs and passion for
public purposes are critical concepts in understanding why nonprofit organizations are developed,
and serve as the basic rationales for the existence of the nonprofit sector. Not-for-profit organizations
serve as instruments of service delivery to meet needs—often referred to as the instrumental rationale
for a nonprofit’s existence. Likewise, nonprofits also facilitate the expression of individual values in
order to enhance the public welfare—often referred to as the expressive rationale for why nonprofits
exist. Accordingly, we use instrumental and expressive rationales as organizing principles throughout
this chapter to highlight the distinct, complementary, and sometimes controversial theoretical underpinnings of the sector. Because nonprofits operate within the four facets of the Nonprofit-Policy
Framework—defined in Chapter 1 as making and influencing public policy as well as being affected
by and subject to it—we also incorporate discussion of theories of policy change and democratic
theory in this chapter.
Incorporating instrumental and expressive rationales, scholars tend to group theories of the nonprofit sector along two primary dimensions—demand-side and supply-side. Demand-side theories are
those that focus on the instrumental role of nonprofits in providing services to meet societal needs.
Supply-side theories suggest that nonprofits exist for expressive purposes—that is, to allow individuals
to express their own values and pursue their preferences regarding the public interest. Just as nonprofits
can exhibit multiple facets in their relationship to public policy, they can also exhibit elements of both
instrumental and expressive rationales. Because organizations usually contain elements of each, a balance
of demand-side and supply-side motivations is needed for a successful voluntary sector.3
Demand-Side Theories: Nonprofits Form to Respond to Unmet Needs
The collection of theories encompassed under the rubric of demand-side explanations of nonprofit
formation basically argue that nonprofits are formed in response to an unmet need. A large (or
vocal) group demands certain goods and services that neither the government nor the market provides in sufficient quantities or appropriate applications, so a nonprofit is formed to meet those
demands. Food pantries and free clinics are examples of nonprofits formed to address urgent public
needs. How public demands are translated into nonprofit action is explained through four primary
theories, which are discussed in this chapter: 1) government and market failure, 2) contract failure,
3) nonprofit federalism, and 4) resource dependency. Research in these four areas describes the
demand-side approach with regard to government-nonprofit relations. Each of these embodies an
argument as to why nonprofit organizations are formed and why the sector has experienced significant growth in recent years.
Market and Government Failure. The market is typically understood as the first venue of organized
interaction in society; for example, people bartered for goods and services before there was currency and
before there was a government to regulate activity. Markets provide goods and services when 1) access
to those goods and services can be restricted to those with the ability to pay; and 2) when those who
want the goods and services are willing to pay an amount that will generate a profit for the business that
provides them. When these conditions are not met, markets generally elect not to provide the goods
or services, or do so at a level or in a manner that is insufficient for public demand.
With regard to public goods and services, the government often steps in when the market fails to
provide in order to ensure the goods and services are made available in accordance with the wishes
of the majority of its constituency. Clean air is a classic example of a public good that markets will
not provide. Access to the air we breathe cannot be restricted only to those with an ability to pay, so
companies have little incentive to incur costs to limit air pollution caused by manufacturing unless
required to do so by government.
78 Fundamentals and Environment of the Voluntary Sector
Neither government nor the market will provide goods or services desired by only a minority of the
population. Consider the opera as an example. Taxpayers who have no interest in opera will insist tax
dollars fund other services, while high production costs and low profit margins will dissuade for-profit
firms from entering the opera market. Goods and services with minority demand, such as opera, thereby
fall victim to failures of both the market and government.4
At this point, the voluntary sector will be
mobilized, in that not-for-profit organizations will be formed to fill the gaps left by government and
the market in meeting the demand for collective goods.
Contract Failure. The theory of contract failure explains the existence of nonprofit organizations
as resulting not from the unwillingness of the market or government to provide certain public goods
and services, but because of a preference for nonprofit service delivery. Hansmann, for example, explained that nonprofit delivery of goods and services results from a loss of trust by consumers in the
goods provided by the for-profit sector.5
Because not-for-profit organizations do not distribute profits
to benefit private parties, their mission is viewed more favorably and gives consumers more confidence
that quality is not sacrificed for efficiency in the goods and services produced. In addition, Coase argued that large bureaucracies are often considered inefficient because as an organization gets bigger the
administrative costs of adding new transactions (services) rise.6
At a certain point it becomes cheaper
to contract out an activity rather than perform it internally. Because public bureaucracies frequently
suffer from complaints about this type of inefficiency, contracting out provides an attractive option
for government agencies.
Accordingly, governments seek to contract out the provision of public goods or services when the
administrative costs associated with providing them directly become prohibitive. Since nonprofits have
different incentives from for-profit organizations and are considered more trustworthy, monitoring
and contract enforcement costs are expected to be lower with not-for-profit organizations.7
When a
program has a heterogeneous target population, for example, the costs associated with gathering and
applying information about potential recipients can be extensive; contracting with a local organization
that already delivers services to the intended constituency and has established that knowledge base, is
therefore a more efficient use of resources.8
As an alternative to direct government provision and as a preferred option to the private market,
nonprofits both make and influence public policy. Likewise, nonprofits are affected by public policy
when government contracting decisions provide them with additional resources and program responsibilities. It can also be politically advantageous to contract with nonprofits. When support for smaller
government prevails, contracting with nonprofit organizations is a politically acceptable means of
reducing the size and scope of government. Volunteerism is a concept steeped in American tradition,
and nonprofit service delivery engenders the spirit of voluntary action in ways that direct government
intervention does not. Nonprofit service providers are often more attractive not just because they are
more trustworthy than for-profit firms, but because they are more voluntary than government.
Voluntary Failure and Nonprofit Federalism. Voluntary failure occurs when not-for-profit organizations are unable to provide the necessary levels of public goods or desired services and must seek
assistance from government in order to pursue their missions (see, e.g., the case of children’s advocacy
centers discussed in Exhibit 4.4). Lester A. Salamon argued that the models of government failure,
market failure, and contract failure are inadequate to explain the relationship between government
and the voluntary sector. As history shows, voluntary organizations are often first-on-the-scene when
the market fails because volunteers are comparatively easier to mobilize and quicker to action than
government entities. However, while there is an inherent slowness to change built into the U.S. system
of government, its size, scope, and resources are often required to maintain consistent public service
provision by nonprofit organizations. The relationships between governments and nonprofits develop,
therefore, because of voluntary failure; Salamon referred to these relationships as nonprofit federalism.9
Theories of the Nonprofit Sector and Policy Change 79
As discussed in more detail later in this chapter, functional and legislative theories of federalism are
also relevant to the discussion of nonprofit federalism.10 As the functional theory of federalism dictates,
government is better able to finance service delivery in some areas, but because nonprofits are closer
to the target population, easier to mobilize, and generally less bureaucratic, actual provision of services
is initiated by not-for-profit entities. During periods of public support for smaller government and
less direct government intervention, nonprofit federalism also follows the tenets of legislative theory
wherein elected officials find it politically rewarding to support and subsidize the efforts of nonprofits.
In this sense, nonprofits make policy through the direct provision of public goods and services and
also influence policy by seeking government action and assistance, as suggested by the first two facets
of the Nonprofit-Policy Framework.
Supply-side Approach: Personal Interests and Resources Drive the
Development of Nonprofits
The example of a symphony lends itself well to understanding the supply-side perspective on the origin and growth of the nonprofit sector. A central tenet of supply-side theories is that the genesis of all
nonprofits is not found simply in meeting demand; some nonprofit organizations are developed and
maintained because of the specific interests of the donors, volunteers, and staff associated with them,
as in the case of a symphony. This rationale suggests that resources drive the organizations as much as a
specific demand for their services. Returning to the example of the Dorr Foundation and traffic safety,
it is important to note that it was the specific interests of John and Nell Dorr and their willingness
to contribute their own financial resources that led to the white lines on the highway. An iteration
of the white lines may eventually have been implemented as awareness of need increased with traffic
accidents, but the efforts of the Dorrs supplied the remedy prior to a public outcry.
Although donor-dictated philanthropy is often criticized when it does not meet the most urgent public
needs, as the symphony and Dorr examples illustrate, the supply-side orientation can be advocated on
normative grounds. It is important to encourage a sector that protects and promotes those who make
the decision whether to donate their funds, time, or talents. Supply-side theories also incorporate the
concepts of policy entrepreneurship in which innovative individuals use the nonprofit sector to give
expression to their values or faith, and social entrepreneurship whereby commercial venues are used to
foster charitable goals.11 In this way, nonprofits make policy and influence policy, but are not reacting
to the lack of public policy as they are in the demand-side theories.
Demand, Supply, and Theories of Resource Dependency
Economic theories addressing the existence of nonprofit organizations established a general belief that these
organizations “were really gap-filling entities that historically have arisen when public needs were sufficiently strong.”12 This demand-side approach gave rise to a normative argument that the purpose of nonprofit
organizations should be to meet the demands of those who are the neediest—the disadvantaged and disenfranchised of society. However, Peter Frumkin argued that nonprofits seek to fulfill their missions not only
by providing the direct delivery of services (instrumental rationale), but also by fostering civic and political
engagement as a means to allow individuals to express their values and beliefs (expressive rationale).13
Acquisition of resources is key to the survival of most nonprofits.14 Pursuit of those resources, however, can often take organizations in directions they prefer not to go. Resource dependence occurs when
nonprofits become overly reliant on a single source of funding—a government grant or contract, a large
foundation grant, or even fees-for-service— however, chasing the money can become an impediment to
achieving the mission. Government funding, for example, is generally viewed as a very stable funding
80 Fundamentals and Environment of the Voluntary Sector
resource,15 and nonprofits often turn to government for financial assistance. However, dependence
solely on government—or likewise a large grant from a private foundation—for the financial resources
necessary for operations leaves nonprofits vulnerable in a number of ways.
Tensions related to resources and other policy issues exist between government and nonprofits,
even when the not-for-profit organizations seek to fill demands not met by government or the
market. Contracted service delivery raises issues of codependence and loss of autonomy by the
nonprofits. As they become increasingly reliant on government contracts to survive, nonprofits
are perceived as simply an implementation arm of government rather than an independent group
in pursuit of a well-defined mission. Such a heavy focus on the instrumental role threatens the
ability of these organizations to provide for the expression of values by their members, donors,
volunteers, and staff.16
Tensions between governments and nonprofits are also palpable in the supply-side theories. Because social entrepreneurs seek to combine commercial ventures with charitable goals, they often
come dangerously close to the line between for-profit and not-for-profit ventures. The privileged
tax-exempt status enjoyed by nonprofits causes tensions with business regarding unfair competition
and leads government to question why it is forgoing tax revenue to encourage commercial activities,
especially in tough economic times. State and local governments such as in California have also
scrutinized the work of nonprofits to see whether the benefit to the state or locality is enough to
offset the tax expenditures.17
Resource dependency can also cause conflict with the expressive dimension of the supply-side orientation, particularly when the expression of values and faith are core elements of nonprofits engaged
in direct service delivery under government contracts. Religious faith is often central to the mission of
nonprofits that receive service contracts from government. For organizations such as Catholic Charities
USA, reconciling the tenets of that faith with government requirements is often a source of tension.18
For example, the Catholic Church has always opposed abortion and the use of contraception as key
tenets of its religious faith; in November 2011, the U.S. Conference of Catholic Bishops (USCCB)
lost federal funding for its program to assist victims of human trafficking after eight years of support
by the Department of Health and Human Services (DHHS). USCCB had made clear since its first
application for funds through the Trafficking Victims Protection Act (TVPA) that it would not use the
grant funds nor allow its subcontractors to use the funds for the provision of abortion or contraceptive
services, conditions of the contract to which DHHS agreed.19
In 2009, the American Civil Liberties Union (ACLU) filed suit against DHHS claiming that the
government violated the Establishment Clause of the Constitution by allowing USCCB “to impose a
religious-based restriction on the use of taxpayer funds.”20 In 2011, DHHS chose not to award a new
contract to USCCB and instead divided the TVPA funds among three other organizations; it is not
clear from the official record whether that decision was based on the issues identified in the ACLU
lawsuit or was related to another factor. In March 2012, U.S. District Judge Richard G. Stearns issued a
summary judgment on behalf of the ACLU and determined that DHHS had violated the Establishment
Clause of the Constitution. The last year in which USCCB received TVPA funds was 2016, however
USCCB received over $32 million in other federal grants and contracts in fiscal year 2018.21 As an ongoing expression of faith, USCCB has included the provision regarding abortion and contraception in
numerous other contract agreements with state and federal governments; they subsequently continue
to face legal challenges, primarily from the ACLU. In 2018, for example, a federal judge ruled that
DHHS had not violated the Establishment Clause by granting funds to USCCB to provide refugee
assistance, despite the group’s religious objections to abortion.22 These recurring legal battles highlight
interesting implications of the contracting relationships between the government and the expressive
dimension of faith-based organizations.23
Theories of the Nonprofit Sector and Policy Change 81
Compliance Costs of Resource Dependence
Issues of revenue volatility and threats of goal displacement are seen as generally less invasive with
government funding, but compliance with funding requirements associated with all large-scale grants
and contracts exacts a toll. Excessive rules and regulations pertaining to reporting, monitoring, and
data collection are examples of how nonprofits are subject to policy that may weaken the nonprofit’s
control over its own organizational structure and operations. In those cases, goal displacement can
occur when the rules of service provision, such as adherence to procedures and regulation, become
the dominant focus of the organization. Similarly, the goal of reaching program outcomes can be displaced by the goal of maintaining funder paperwork.24
While there are many funding options open to nonprofits such as member fees, donations, and grants,
it is important to remain mindful of the strengths and weaknesses of each as well as the negatives associated
with overdependence on any one source. Revenue diversification is often touted as the antidote for resource
dependence; having a budget that relies on multiple revenue streams decreases the problems associated
with any one type.25 The nature of the goods and services that the organization provides, however, can
restrict the ability of the organization to diversify types of revenues and their proportion to one another.
For example, nonprofits that provide mostly public goods, such as programs to reduce the recidivism rates
of recently released offenders, rely more heavily on government funding; nonprofits that provide mostly
private goods, such as the symphony, rely heavily on private contributions and commercial revenues from
ticket sales.26 What, then, does this tell us about the motivation for development of the not-for-profit
sector? Economists argue that nonprofits exist for the same reason that governments exist—failure of
the private market to provide collective goods. Supply-side rationale and Salamon’s theory of nonprofit
federalism, however, cannot be ignored. We argue that—especially considering the practical implications
of resource dependency theories—both supply- and demand-side arguments explain the existence of the
nonprofit sector. Instrumental and expressive rationales for nonprofit operations in conjunction with
resource dependency theory have interesting and important implications.
Nonprofit Impact on Democratic Theory
While nonprofits function as much more than interest groups, their roles as policy advocates and
promoters of civic engagement have long been recognized. Tocqueville’s writings, discussed previously,
illustrate well Americans’ long-standing proclivity to form associations to promote collective action.
As Jennifer Alexander discussed, nonprofits can:
. . . enable citizens to develop a social identity and to think and act in accordance with a collective good . . .
they generate democratic knowledge in the form of a community’s shared understanding of a given issue and
they articulate this knowledge in the interorganizational arena where citizens’ experiences inform policy
making . . . they serve as mediating institutions that represent the voices of the marginalized in the policy
making process.27
Nonprofits, as such, can be very good for democracy.
As the sector has grown dramatically in size and scope, however, questions have emerged regarding
the potential for the nonprofit sector to have detrimental impacts on democratic governance. Rudder,
Fritschler, and Choi, for example, warned of the dangers when private governance—“binding rules made
by nongovernmental groups that affect the opportunities and welfare of the broader public”—is not
recognized as public policy, arguing that it causes a loss of meaning to “the idea that people in democratic societies live in communities largely of their own collective making.”28 Growth in the numbers of
82 Fundamentals and Environment of the Voluntary Sector
nonprofits has led to corresponding growth in competition for resources (which is discussed in greater
detail in Chapter 10), and resource dependency theory indicates that instrumental and expressive
nonprofits alike are vulnerable to the siren song of funding opportunities29
The supply-side/expressive rationale of nonprofits has particular significance in discussions of nonprofits and democracy. As is discussed in Chapter 2, the recent rise of philanthrocapitalists and the new
robber barons has highlighted the substantial power wielded by wealthy elites targeting their favorite
causes. While this is a resource boon for nonprofits involved, there is no democratic determination of
the importance of those causes célèbres.
Nonprofits have historically been attractive because of their voluntary nature—individuals choose
which issues are important by choosing where to donate or volunteer their time. When an uber-donor
crowds out the need for multiple small donors, the democratic nature of the nonprofit is affected.
When society becomes less dependent on democratically-governed institutions and more dependent
on the voluntary sector for the provision of goods and services, concerns arise over issues of legitimacy.
Consent of the governed has been a core political value in the United States since our founding; issues
of accountability, transparency, and inclusiveness (which are explored more fully in Chapters 5 and 8)
are key to establishing consent of the governed.
Lack of inclusiveness is becoming a frequent criticism of projects spearheaded with large single
donations. For example, Mark Zuckerberg’s $100 million donation to fix the Newark, New Jersey,
public schools has been described as an effort in which “Newarkers say they weren’t heard”30 and that
“parachuted in and failed.”31 Even Bill and Melinda Gates, routinely celebrated for distributing massive
wealth through projects around the world, face criticism about what and where they choose to target
their giving, as is discussed in the Exhibit 4.1 case study on the Bill & Melinda Gates Foundation.
Exhibit 4.1
Going Global
Donor Interests, International Causes, and Questions of Who Should Decide
With an asset trust of $50.7 billion, the Bill & Melinda Gates Foundation is the largest foundation in the world based both on asset size and total giving ($4.6 billion in 2017). From inception
through the end of 2017, the Gates Foundation granted a total of more than $45.5 billion. Most
of its work is in the program areas of global health and global development; its work in the United States centers primarily on education. The foundation supports work through grants in more
than 130 countries, 49 U.S. states, and the District of Columbia.32 The first of its original fifteen
guiding principles explicitly states that the work of the foundation is driven by the “interests and
passions of the Gates family,” a decidedly supply-side rationale for establishing the foundation and
determining what projects to fund.
Once the world’s wealthiest individual, Bill Gates, along with his wife Melinda and his father
Bill Gates, Sr., chair the foundation and share its guiding philosophy that “every life has equal value.”33 Through their global initiatives, the specific interests of the Gates family not only influence,
but also make public policy in numerous countries as its funding helps define public problems,
devise solutions to them, and determine where its policy solutions will be implemented. For example, the foundation’s 2005 annual report highlighted funding for phase I trials for a new vaccine
for meningitis; in 2010, the vaccine was introduced in three African countries severely affected by
the disease. As CEO Jeff Raikes stated in his letter in the 2010 Annual Report, developing and imTheories of the Nonprofit Sector and Policy Change 83
plementing the new vaccine was the result of a public-private partnership that involved the Gates
Foundation, private pharmaceutical companies, the U.S. government, and African governments.
In their 2017 joint annual letter, Bill and Melinda Gates noted that since 2000, the Vaccine Alliance (Gavi) has helped immunize 580 million children worldwide. Such partnerships reflect the
potential of private foundations to influence public policy on a global scale.
The work of private foundations, particularly one with assets in the billions of dollars, has the
potential for tremendous impact on public policy, especially in countries with scarce resources,
overwhelming problems, and poor infrastructure. In their 2018 annual letter, Bill and Melinda
Gates responded to what they call the “10 toughest questions we get.”34 One of the questions
asked whether they impose their values on others through the work that they fund. This question
directly relates to the expressive, supply-side rationale of nonprofits and the fundamental issues of
democracy, such as who decides what public problems merit attention, how they will be addressed,
and for whom.
For more information on the Bill & Melinda Gates Foundation and to read the annual letter,
go to
The ways in which nonprofits are both beneficial and detrimental to democracy are subjects of increasing debate among political theorists and nonprofit scholars.35 What is evident throughout discussions
of the impact of the nonprofit sector on democracy is that nonprofits have well-established (if not fully
recognized) relationships with public policy. How nonprofits fit into prominent theories of policy
change is discussed in the next section.
Nonprofits and Public Policy Change
Policy reform or change is considered a normal part of the policy process, and nonprofits play a significant role. Just as there are various explanations for the existence of the nonprofit sector, there are a
variety of theories of policy development and change. The U.S. structure of federalism is an important
determinant of how policies develop; accordingly, functional and legislative theories of federalism (introduced earlier in the chapter) are relevant to understanding nonprofits as policy venues. Other relevant theories of policy change include Punctuated-Equilibrium Theory (PET), which seeks to explain
instances in which public policy experiences a dramatic shift or leap rather than incremental change.36
Multiple Streams theory argues that policy change is facilitated by having the right person, in the right
place, at the right time, to address a public problem by raising sufficient awareness.37 These and other
concepts are pertinent to understanding policy change as it relates to nonprofits.
Functional and Legislative Theories of Federalism
Central to the argument throughout this text is that not-for-profit organizations are an important venue with regard to public policy since nonprofits both make policy through direct service delivery, and
influence formal policy through advocacy efforts. As such, discussion of the functional and legislative
theories of federalism is relevant to understanding nonprofits as venues for public policy change. According to functional theory, government will provide more goods and services when such expansion
is considered efficient and effective, but will be limited or not operate at all in those areas where it is
84 Fundamentals and Environment of the Voluntary Sector
deemed less competent. In the case of a local police department, for example, analysis of crime scene
evidence such as fingerprints is performed in-house, but DNA evidence is sent to the state bureau of
Legislative theory, on the other hand, contends that political expediency will drive legislators to
distribute government services in order to maximize their ability to claim credit or to shift burdens so
as to minimize blame. For example, funding to restore the childhood sod home of the late entertainer
Lawrence Welk can be safely argued on functional grounds to be a local matter; however, because the
members of Congress from North Dakota, where the home is located, sought to benefit their district
with an additional tourism opportunity, a line-item appropriation for this restoration project was
included in the federal budget.38 Therefore, functional theory represents a more efficient (this is how
it should be done) distribution of government resources, whereas legislative theory embraces the more
politically feasible (this is how it really gets done) model.
Similarly, if the theory of nonprofit federalism holds, the particular needs of not-for-profit organizations drive the demand for policy change. For example, legislation will follow creation of children’s
advocacy centers (CACs) when they provide a critical mass of service delivery and when government
assistance is needed in order for CACs to continue providing the desired level of service.39 The functional
theory of federalism follows this argument: Because nonprofit organizations are closer to their target
audiences, they will be better able to serve them. Government should get involved only to the extent
that funding and/or technical assistance is needed to enhance nonprofit service delivery. Legislative
theory holds that legislators will adopt policies consistent with their re-election strategies; therefore, to
the extent that service provision through not-for-profit venues is preferred by voters, legislatures will
create policy change that furthers those efforts.
Punctuated-Equilibrium Theory: Explaining Non-incremental Policy Change
According to the theory of punctuated equilibrium, politics in the United States does not reach equilibrium;40 rather, stability exists as a result of a “…complex system of mutually non-interfering policy
monopolies buttressed by powerful supporting images.”41 Stability exists, therefore, because of the
way political institutions are structured and the way in which those institutions define policy issues.
Change is usually incremental, but in those instances when the image of the policy is redefined and the
institutional venue changes, significant policy change can occur quickly. These policy leaps are referred
to as punctuations in the political equilibrium, and interest group activity such as nonprofit advocacy
is often an integral part of this process.42
Policy Image. Policy image is defined as “how a policy is understood and discussed.”43 How a
problem is defined, or rather which definition of the problem is accepted by decision makers, is critically important to the formulation of public policy. Framing a problem in a certain way, or seeking a
redefinition of the problem, is usually the first strategic action of a nonprofit pursuing policy change.
Through the use of symbols, metaphors, and presentation of causal factors, it is possible to influence
perception of problems by making certain considerations seem more important than others.44 Studies
have found that public opinion is formed based on the weight people attach to the information with
which they are presented.45 People accept a definition of a problem (or change their minds to accept a
re-definition of the problem) because they shift the weight attached to relevant factors presented in an
argument. Framing is important, therefore, for its ability to advance one belief over another.
For example, in a study of policy image change in the issue areas of child abuse and mental illness,
we examined the impact of nonprofits on public problem definitions.46 We conducted a multi-year
content analysis of newspaper coverage of National Children’s Alliance (NCA) and the National Alliance on Mental Illness (NAMI). During the period studied, these nonprofits each sought a specific
Theories of the Nonprofit Sector and Policy Change 85
change in policy image in their respective issue areas. We found that the growth in affiliates of these two
national nonprofits corresponded with an increase in newspaper coverage as well as increases in public
policy change through legislative action. Like many nonprofit scholars before us, we were unable to
isolate the causal nature of a relationship we perceive to be symbiotic. However, our findings suggest
that nonprofits are effective at changing the way public problems are defined and support the tenets
of Punctuated-Equilibrium Theory in that a change in policy image corresponded with policy change.
Changing the policy image can be a successful strategy for smaller or less resource-rich organizations.
The California Wellness Foundation—a private, independent foundation formed in 1992—assisted
in the promotion of local gun control measures by bringing about a redefinition of gun violence from
a public safety problem to an issue of public health. (See Exhibit 4.2.) Through grants to gun control
interests and by financing a public opinion poll, the foundation worked to re-frame the issue. Gun
violence was framed as a disease with handguns as the primary agent of infection, thus moving the
focus from crime prevention to an issue of public health.47
Exhibit 4.2
For Example
The California Wellness Foundation: Changing Policy Image
The California Wellness Foundation (TCWF), a conversion foundation, was founded in 1992 when
the insurance company, Health Net, converted from a nonprofit organization to for-profit status. By
order of the California Department of Corporations, approval of the conversion to for-profit status required Health Net to create TCWF by transferring $300 million and 80 percent equity in Health Net’s
parent holding company (equivalent to the state’s valuation of Health Net at the time of conversion).
With these funds, TCWF pursues a mission “to improve the health of the people of California by making grants for health promotion, wellness education and disease prevention.” Grants average $35 million per year; since 1992, the foundation has awarded over 9,000 grants totaling more than $1 billion.48
TCWF grants have funded research and public education programs that contributed to the
passage of ordinances in more than 300 cities to restrict access to handguns as well as state legislation to ban the sale of so-called “junk guns.” Although TCWF cannot be isolated as the sole cause
of these policy changes, the foundation is widely recognized as a leader in the movement to treat
gun violence as a public health issue. Gun-related deaths and injuries have declined significantly in
the almost 20 years since TCWF launched its funding program; for individuals 12 to 24, firearm
deaths dropped 42 percent and injuries from firearms decreased 52 percent.49
Gary L. Yates, president and CEO of TCWF, testified before the Little Hoover Commission
on Youth Crime and Violence Prevention in September 2000. His comments make clear how the
foundation frames the issue of violence with regard to public policy:
The Foundation recognizes that violence is a public health issue, and that preventing violence is not just a
public safety matter but a public health mandate. Violence results in premature death, serious injury and
disability, especially among our youth. The Foundation’s Violence Prevention Initiative is grounded in a
public health approach, which takes into account not only the individual but also the physical and social
environments that foster or inhibit violence and the agents of violence, such as guns.50
Additional information is available at
86 Fundamentals and Environment of the Voluntary Sector
One of the factors involved in the change of policy image and ultimate success in changing policy
with regard to gun control initiatives was widening the scope of conflict. Any time a third party enters a conflict between two groups, the outcome is altered regardless of the nature of the third party’s
action.51 Conflict expansion, in most cases, requires that a policy entrepreneur be present to put forth
a new definition of the problem.52
Policy Entrepreneurs. Policy entrepreneurs are basically change agents. These individuals see problems
from new perspectives and develop innovative approaches to solve them; they are able to effectively mobilize
and lead others in support of their proposed solution.53 Why they expend the energy and resources necessary
to accomplish this is arguably because of an attempt to express their individual values, beliefs, or political
views in pursuit of policy goals. Policy entrepreneurs often choose the nonprofit sector to facilitate their efforts
because nonprofits are more accommodating of the expressive dimension inherent in entrepreneurship.54
Candy Lightner, the founder of Mothers Against Drunk Driving (MADD), is an example of such
a policy entrepreneur, using a nonprofit venue to influence public policy. When a drunk driver killed
her young daughter, she became increasingly frustrated by trying to get government to pay attention
to the problem of drunk driving and take action to protect other families from the suffering she experienced. At the time young Cari Lightner was killed, drunk driving was not seen as a public problem:
“[D]rinking and driving was how people got home. It was normal behavior.”55 Changing the perception
of the problem was the first step in the way Candy Lightner as policy entrepreneur brought about a
nationwide movement and public policy response to the problem of drunk driving. (See Exhibit 4.3.)
Exhibit 4.3
For Example
Mothers Against Drunk Driving:
Policy Entrepreneur Demanding Action
Following the 1980 death of her 13-year-old daughter when she was struck by a drunk driver,
Candy Lightner and a friend started Mothers Against Drunk Drivers (MADD) because they were
frustrated with the lack of response from public officials. Traffic safety advocates within government at the time were also frustrated with the lack of public attention to a growing problem.
According to Jim Fell, national board member for MADD and official with the National Highway
Traffic Safety Administration (NHTSA) in 1980:
Congress had put $35 million into Alcohol Safety Action Programs around the country, but nothing was
happening. Judges were treating it with a wink and a nod…. Alcohol was involved in nearly 60 percent
of fatal crashes and we were banging our heads against the wall. Then, all of a sudden, a woman named
Candy Lightner came along, kicking and screaming about her daughter who had been killed.56
Results came fairly quickly for the fledgling nonprofit. Almost immediately, other victims came
forward with their stories, sending in donations and forming MADD chapters across the nation. In
1982, President Ronald Reagan formed the Presidential Commission on Drunk Driving, and that
same year, Congress passed a federal highway bill that gave funds to states with anti-drunk driving
efforts. By 1983, a total of 129 new anti-drunk driving laws had been passed in more than half of the
states. One of the biggest early victories for MADD was when President Reagan signed the Uniform
Drinking Age Act in 1984; this effectively raised the legal drinking age to 21 nationwide.
Theories of the Nonprofit Sector and Policy Change 87
MADD continues its efforts to change behavior and change policy. While drunk driving fatalities decreased almost 24 percent between 2006 and 2018, 10,000 people still die each year as the
result of drunk driving.57 Through its Campaign to Eliminate Drunk Driving® MADD continues
to pursue its ultimate goal of No More Victims®
by advocating for policy change. Since the United
States is a federal system of government with constitutional powers reserved to the states, MADD’s
advocacy efforts require a 50-state strategy.
Choosing a strategy familiar to nonprofits and interest groups alike, MADD developed a fivestar rating system designed to encourage policymakers to take action. MADD rates each state’s
efforts to adopt policy in five specific areas proven to reduce impaired driving: 1) ignition interlocks, 2) increased use of sobriety checkpoints, 3) administrative license revocation, 4) additional
penalties for child endangerment, and 5) penalties for refusing an alcohol breath test.58 Identifying
desired policy action and scoring each state’s efforts provide concrete objectives for policy action.
The interactive map available on the organization’s website provides point and click access to each
state’s score, statistics, and snapshot of legislative accomplishments.
Additional information is available at
Multiple Streams Theory: Coupling Problems, Policies, and Politics for Change
MADD, under the leadership of Candy Lightner, was able to raise public awareness of the problems
associated with drunk driving and compel policymakers to act. The work of Lightner and MADD
provide a good example of multiple streams theory and the way policy decisions are made under
complex conditions. In these situations, several definitions of a problem exist simultaneously with
various ideas for potential solutions. Accordingly, a policy entrepreneur such as Candy Lightner is
key to the coupling of the problems, policies, and politics streams necessary for policymaking under
conditions of ambiguity. Successful coupling of at least two, but generally all three, of the multiple
streams is necessary to bring about policy change. Coupling is the process of joining a problem definition to an appropriate policy solution at a time when the public will be generally supportive. It
falls to the policy entrepreneur to know when and how to bring about the coupling of the streams,
usually by sensing the public mood and identifying critical moments in time known as windows of
Venue. A policy window presents the opportunity to shift public attention to new perspectives on a
problem. How, when, and where the window of opportunity opens, as well as the current state of the
public mood, affect the number and types of possible venues through which policy entrepreneurs can
attempt to promote policy change. In their leading work on agenda-setting, Baumgartner and Jones used
the term policy venue to refer primarily to government institutions—for example, legislative bodies,
committees, and executive branch agencies; however, their definition is broad enough to encompass
nongovernmental entities, such as nonprofit organizations as well. With the increasing prevalence of the
provision of public services by not-for-profit organizations, these agencies are likewise demonstrating
their “authority to make decisions concerning [an] issue.”60
Policy advocates increasingly find that it is possible to effectively change public policy through
direct service provision without appealing to a government institution first. Consider again the example of the Dorr Foundation in the opening vignette. Although the Dorrs initially appealed to
the state of Connecticut to test their idea about the white lines, when they were unable to obtain
88 Fundamentals and Environment of the Voluntary Sector
government support, they implemented the project with their own funds. It is important to note
that implementation required the tacit support of government because the roads on which the lines
were painted were public roads; however, because public roads are maintained by city, county, and
state transportation agencies, the foundation had multiple jurisdictional venues through which to
pursue government approval.
Both inherent organizational factors and resource availability determine the options of venues
to target. Groups with a sizeable and active membership but limited finances may have little access
to some institutional venues. For organizations with few members but with significant financial
resources and associated political clout, institutional venues such as the legislative body are much
more feasible.61 Using the courts, for example, requires substantial financial resources, commitment
of time, and, unless the group’s composition includes legal professionals, at least a partial abdication
of control to someone outside the group.62 It is wise, therefore, for nonprofits to be politically savvy
and understand which institutional or jurisdictional venue will be most amenable to their desires
for policy change.
Because of the potential limits on possible venues open to a nonprofit, agenda entrance requires
successful linkage of policy image with a receptive venue. Multiple venues of political action mean
that multiple policy images can exist simultaneously. There is no one objective definition of a policy
problem because problem definition is itself a political process.63 Political actors view a problem from
several different perspectives and are capable of constructing causal stories that assign responsibility
for a problem in various ways.
Gaining acceptance of a problem definition involves targeting the relevant audience to promote
a preferred solution. People disagree over whether or not something is a problem, what the cause
of the problem is, and whether or not there can or should be a public policy solution. Therefore,
in order to facilitate policy change, proponents must target the appropriate audience— such as
the general public, the mass media, legislative decision makers, and so on—with an acceptable
causal story. Success in bringing about a policy change depends on which policy image becomes
the dominant one. A change in venue can facilitate a change in the dominant rhetoric, which can
thereby lead to policy change. Policy subsystems can be created or destroyed through the interaction of policy image and venues, and nonprofits are often among the organizations pursuing
the change in both.
Children’s advocacy centers (see Exhibit 4.4), provide a good example of a number of the concepts
discussed in this chapter. For example, significant policy change such as the adoption of legislation is
not a necessary condition for center operation, but professional interest and policy entrepreneurship
are. Centers exist not simply because there is a need for the enhanced services they provide. They
exist because they also serve the interests of the donors, staff, and volunteers associated with them,
as is reflected in the activists’ passion for and involvement with center development. Although taking the necessary steps to structure a 501(c)(3) organization and getting IRS approval for that level
of tax-exempt status is not difficult, actually establishing a children’s advocacy center (CAC) and
getting the necessary professionals committed to its development and operation involves a great deal
of time and effort. Centers represent a venue other than government through which public services
can be delivered and are a good example of the relationship between governments, nonprofits, and
public policy.
Theories of the Nonprofit Sector and Policy Change 89
Exhibit 4.4
Case Study
Children’s Advocacy Centers (CACs)
Established as a Nonprofit Venue
Children’s advocacy centers (CACs) were introduced in Chapter 1 as predominately nonprofit
venues that provide an alternative approach to standard criminal justice procedures in the handling of child abuse cases. A children’s advocacy center is a child-friendly facility, usually operated by a not-for-profit organization, which provides a centralized location for law enforcement,
social services, legal, medical, victims’ advocate, and counseling professionals to come together
as a team in order to interview, examine, and provide support services to child victims. The
concept of CACs is revisited here because the centers provide a useful illustration of nonprofit
influence on policy change.
Even after child abuse was recognized as a public problem to be addressed via the criminal
justice system, the child victims who were rescued from their immediate abuse situation were
often subjected to additional trauma during the process of taking their cases through trial.
In order to build these cases, law enforcement and prosecution officials set about gathering
evidence in a manner similar to other criminal cases, which resulted in physical examination
and repeated interviewing of the child victim, often by professionals who were not trained
specifically to question children. It is important to note that children typically have a limited
vocabulary and even without having experienced a trauma often seek to provide answers they
think adults want to hear. As such, cases of child sexual abuse in particular began to break
down at trial or on appeal when conflicts emerged in victims’ recollections of events. One
notable example was the McMartin Preschool investigation and trial in California during
much of the 1980s; this was one of the longest and most expensive criminal cases in history,
which ultimately resulted in acquittal of the two defendants on 52 counts of alleged sexual
abuse of children.64 It was determined that the alleged victims were likely interviewed repeatedly by different officials and in such a way as to lead them to provide certain types of
responses, casting doubts on the credibility of their claims.
As one of many prosecutors throughout the country who saw the trauma inflicted on child
victims and who faced the difficulties involved with prosecuting cases with questionable evidence and testimony, Bud Cramer and a group of colleagues in Huntsville, Alabama, sought a
nonprofit solution to what they saw as a growing public problem. The National Children’s Advocacy Center (NCAC) was established in 1985 and became a model for other centers throughout the United States and in other countries, an example of policy diffusion discussed in this
chapter. Central to the CAC model is the multidisciplinary team approach, which is designed
to minimize the number of times a child victim must tell the story of abuse and submit to
other traumatic activities associated with preparing a case for trial. This strengthens the case for
prosecution by enhancing the evidence gathered, but more important, provides assistance to the
children to facilitate recovery.
The NCAC began operations in 1985, and the first state legislation pertaining to children’s
advocacy centers was adopted in 1986; Hawaii passed the first statutes—one regarding multidisciplinary teams and the other to establish a statewide support organization, commonly referred to
as a state chapter. According to data obtained from a survey we conducted in 2004, at least five
90 Fundamentals and Environment of the Voluntary Sector
states had a CAC in operation in 1987; by 1997, more than 140 centers provided services in at
least ten states. As the number of states with centers increased, formal public policy change in the
form of legislation also diffused among the states, but in various ways. For example, California
had one of the first CACs, established in 1985, but as of 2004, their legislature had not adopted a
single CAC statute, which, according to responses to our survey and discussion with CAC activists
from California, was despite their repeated efforts to encourage adoption of at least some type of
legislation. Texas, on the other hand, had at least one center in 1990, and by 1997, all seven types
of legislation were in effect in the state; at the time of our survey, Texas and Utah were the only
two states that had adopted all seven types. According to the Western Regional CAC, since 2007,
every state has had at least one center in operation and 34 states have adopted some form of CAC
The seven types of legislation sought by activists within the CAC movement are:
1. Requires that investigation and processing of child abuse cases be handled by multidisciplinary teams (MDT) with participation of CAC staff;
2. Creates a state-level organization to coordinate activities of CACs in the state;
3. Provides for direct funding or competitive grant programs for centers throughout the
state; does not include one-time appropriations;
4. Mandates that centers within the state must meet minimum standards for operation;
5. Requires that CAC staff have access to and maintain confidentiality of child abuse case
6. Provides some degree of liability protection for CACs within the state; and
7. Stipulates the size and disciplines/organizations/individuals to be represented on the
CAC boards of directors within the state.
Our survey data indicate that not all CAC activists pursue formal policy change through adoption
of statutes; some pursue a few types but not all seven, and some have actively pursued legislation
for years to no avail. Data indicate that states do not adopt the types of legislation in any particular
order—that is, there is no one type of statute that precedes all others. In addition, our subsequent
research has shown a strong positive correlation between development of children’s advocacy centers, media coverage of the centers, and adoption of state statutes. Our findings support the tenets
of Punctuated-Equilibrium Theory (PET) that a change in policy image (measured by the media
coverage) coupled with a change in policy venue (measured by the increase in the number of nonprofit children’s advocacy centers) contributes to a change in formal public policy (measured by
the adoption of state legislation).
While formal policy change—that is, the adoption of legislation specific to children’s advocacy centers—is not a necessary condition for center operation, professional interest and
policy entrepreneurship are. The efforts of policy entrepreneurs across the country have been
instrumental in the growing movement toward development of children’s advocacy centers, and
subsequently, in the promotion of CAC legislation. Policy entrepreneurs are significant factors
in several theories of policy change, particularly PET and the policy innovation and diffusion
theories mentioned in this chapter. Centers exist not simply because there is a need for the
Theories of the Nonprofit Sector and Policy Change 91
enhanced services they provide, but because these organizations also serve the interests of the
donors, staff, and volunteers associated with them. As such, the supply-side rationale of theories
of nonprofit development is exhibited by the role of activists as policy entrepreneurs in facilitating center development.
Additional information is available at
1. Discuss how the operation of a children’s advocacy center embodies a change in public
policy. What types of operational changes and challenges likely exist because the multidisciplinary teams include members who are representatives from public, for-profit, and
nonprofit organizations?
2. Since center operation alone causes a change in ways that child abuse cases are handled (a
policy change), why would CAC activists seek policy change in the form of state legislation?
Likewise, why would some choose not to pursue adoption of state statutes?
3. Discuss the importance of policy entrepreneurs to the development and expansion of the
CAC model. What are the most likely ways entrepreneurs have facilitated diffusion of the
concept throughout the states?
4. Consider the four relationships described in the Nonprofit-Policy Framework (make policy,
influence policy, affected by policy, subject to policy), and discuss which of these relationships is/are present in the case of children’s advocacy centers.
Stages of the Process as Venues for Policy Change
The stages of the policy process—problem definition, agenda-setting, policy formulation, policy
adoption, implementation, and evaluation—offer multiple venues for action. The implementation
stage has provided a venue for policy change—for example, in the case of Habitat Conservation
Plans developed pursuant to the Endangered Species Act (ESA). Habitat Conservation Plans are
developed through the U.S. Fish & Wildlife Service under the Endangered Species Act and are
designed to mitigate tensions caused when the interests of property developers conflict with the
provisions of the law.
Property developers who found it more difficult to influence policy at the problem definition or
formulation stages of policymaking found success during the implementation phase of the ESA. In
this instance, implementation served as a venue whereby property developers were able to avoid the
more burdensome requirements of ESA by taking actions such as appealing to those administering
the provisions of the act to design regulations favorable to their interests. Because developers engaged
during the implementation stage to pursue policy outcomes favorable to them, environmental advocacy groups were forced to engage in the implementation arena as well in order to combat what they
perceived to be the negative influence of developers. Although environmentalists had succeeded in the
policy adoption stage through passage of the ESA, their ultimate impact on the policy was dependent
on success during implementation, as well.66
92 Fundamentals and Environment of the Voluntary Sector
Venue is an important element in the policymaking process. While much of our argument is based
on the role of nonprofits as a policy venue, the stages of the policy process are also relevant for discussion since they represent multiple access points at which nonprofits can engage with government to
pursue policy change. Nonprofits engage in agenda-setting by raising awareness of a public problem.
In the policy formulation stage, they influence policy by being actively engaged in devising solutions
to public problems. Nonprofits often make policy, for example, through direct service delivery, and
by virtue of the work they do. In the implementation stage, nonprofits that contract with government
to provide services are subject to policy when they must meet the stipulations for receipt of funds. In
the evaluation stage, nonprofits can be affected by policy when the most efficient and effective means
of addressing public problems are evaluated; the results can serve to expand or diminish the role of
nonprofits in meeting public needs.
Policy Change in the States
U.S. federalism ensures that some government activities are left to the purview of the states. Implementation within a federal system of government, therefore, offers even more challenges and opportunities for venue shopping as federalism affords multiple potential access points through various levels
of government. The gun policy fight illustrated in the example of the California Wellness Foundation
emphasizes this point since it included controversy over the appropriate level—that is, jurisdictional
venue—for government action. Whereas gun rights organizations favored state government action,
gun control groups focused on local government entities to press for tighter restrictions.67 As is discussed in Chapter 3, devolution as a policy choice by the national government has placed even more
activities at state discretion in recent years. Because legislation related to nonprofit organizations more
often falls within the realm of state authority, it is relevant to examine the differences among the states
in policy change.
In our federal system of government, states are considered laboratories of innovation, engaging in
policy experiments and learning from the successes and failures of their fellow states’ agencies. States
have traditionally differed in the policies they adopt, both temporally and substantively. Many states
utilize federal pass-through dollars as well as state funds to subsidize nonprofit service delivery through
the process of second-order devolution. As states move away from direct service delivery and rely instead on not-for-profit organizations, state policies change as a result. Nonprofit service providers have
become increasingly important actors in the policy process and their preferences are reflected in the
policy choices made by state governments. Differences in state policy choices have spawned a significant body of research, centering primarily on: 1) the internal determinants of variations in state policy
adoptions, and 2) the diffusion of policies among the states. It is important to note that while research
has tended to focus on either internal determinants or diffusion, the reality is that internal factors
cannot be assumed to affect state policies without action taken by other states, nor can diffusion occur
without some impact from internal determinants.68
Policy Diffusion between the States
Diffusion is defined as “the patterns by which organizations adopt a particular innovation across both
space and time.”69 Geographic proximity is one factor in diffusion; successes or failures of neighboring
states are used as heuristics by states seeking a policy solution.70 Diffusion also has a temporal dimension; innovativeness has been found to be both issue and time specific.71 Risk-averse elected state
officials tend to wait for sufficient time to pass to evaluate the success of a policy in other states before
making a decision to adopt it themselves. Therefore, diffusion follows a temporal pattern of adoption
Theories of the Nonprofit Sector and Policy Change 93
by a few adventurous states, a period of evaluation by the remaining states, and then increased frequency of adoption as the benefits of the policy become apparent.72
Internal Determinants of State Policy Adoptions
Politics, resources, and demands are all forces that affect the decisions of the states to adopt particular
policies.73 The impact of these forces on a state’s decision to approve legislation favorable to nonprofits
varies according to the competitive climate within the state as well as the type of policy being addressed. Further, in states with direct democracy—the initiative process—nonprofits can bring legislation directly to voters to create policy. Not-for-profit organizations, therefore, need to understand
each force within their state—the political climate, level of and competition for resources, and the
severity of the problem they seek to address—in order to be successful at shaping policy within their
field of interest.
Theories of the nonprofit sector and how policy change occurs are relevant to practitioners as well
as scholars. The chicken-or-the-egg conundrum evident in the demand-side theories highlights the
importance of examining the extent to which not-for-profit organizations determine public policy or
are at the mercy of it. Nonprofit federalism is important to the study of nonprofits because if nonprofit organizations are first responders in the provision of public goods or certain types of services, it
is reasonable to expect that their service delivery successes affect state adoption of legislation to further
their activities.
The supply-side theories of the nonprofit sector are also relevant to discussions not only of why the
sector exists, but also how nonprofits facilitate adoption of policy relevant to them. Policy entrepreneurs embody the supply-side concept by promoting a new way of looking at a public problem and
new ways to address it. These policy entrepreneurs are critical actors in policy change by facilitating
changes in policy image and finding new venues through which to pursue policy action. Not-for-profit
organizations—alone and through partnerships with governments and the for-profit sector—are increasingly the venue of choice for innovation in delivery of public goods and services. Understanding
where they originated and how they affect public policy are, therefore, important to working for or
with any not-for-profit organization.
Questions for Review
1. Why is it important to understand the origins of the nonprofit sector?
2. Discuss one of the theories of the nonprofit sector, including a description, and its strengths,
weaknesses, and so on.
3. List and discuss three ways in which not-for-profit organizations have an impact on policy
4. Discuss the concept of policy venue. How are nonprofit organizations used as a venue
through which to pursue policy change?
94 Fundamentals and Environment of the Voluntary Sector
After reading Exhibit 4.3, access for more information on the work of the nonprofit
MADD (Mothers Against Drunk Driving) and respond to the following questions:
1. Which of the theories of the nonprofit sector discussed in the chapter best explains the
creation of the MADD organization? Why?
2. List two formal public policy changes—that is, specific legislation—pursued by MADD.
What was the general strategy used by the organization in pursuing formal policy change?
Discuss the extent to which the organization has been successful.
3. How do the theories of policy change discussed in the chapter facilitate your understanding
of the influence of organizations such as MADD on public policy? Discuss, for example,
the role of policy entrepreneurs, policy image, and venue.
Suggested Readings
Baumgartner, Frank R., and Jones, Bryan D. (1993). Agendas and Instability in American Politics. Chicago:
University of Chicago Press.
Boris, Elizabeth T., McKeever, Brice, and Leydier, Beatrice. (2017). “Introduction: Roles and Responsibilities of Nonprofit Organizations in a Democracy.” In Boris, Elizabeth T., and Steuerle, Eugene (Eds).
Nonprofits and Government: Collaboration and Conflict (3rd ed.). Washington, DC: Urban Institute
Press, pp. 1–35.
Salamon, Lester M. (1995). Partners in Public Service. Baltimore: Johns Hopkins University Press.
Stone, Deborah. (2011). Policy Paradox: The Art of Political Decision Making, Third Edition. New York:
W.W. Norton.
Web Resources
Johns Hopkins Center for Civil Society Studies,
Lilly Family School of Philanthropy,
The Urban Institute, Center on Nonprofits and Philanthropy,
Hauser Center for Nonprofit Organizations,
Theories of the Nonprofit Sector and Policy Change 95
1. Panel on the Nonprofit Sector, “Principles of Good
Governance and Ethical Practice: A Guide for Charities
and Foundations,” Washington, DC: Independent
Sector, 2007, p. 2.
2. Leighann C. Neilson, “The Development of Marketing
in the Canadian Museum Community, 1840–989,”
Journal of Macromarketing, 23, 2003, pp. 16–30;
Thomas J. Tierney and Alan Tuck, “To Succeed,
Philanthropy Needs to be Rooted in Deep Personal
Beliefs,” (accessed February 24, 2011).
3. Peter Frumkin, On Being Nonprofit: A Conceptual and
Policy Primer, Cambridge, MA: Harvard University
Press, 2002.
4. Lester M. Salamon, “What Is the Nonprofit Sector
and Why Do We Have It?” in J. Steven Ott, ed., The
Nature of the Nonprofit Sector, Boulder, CO: Westview
Press, 1999; Burton A. Weisbrod, The Voluntary Sector,
Lexington: D.C. Heath & Company, 1977.
5. Henry B. Hansmann, “The Role of Nonprofit Enterprise,” Yale Law Journal, 89, 1980, pp. 835–898.
6. Ronald H. Coase, American Philanthropy, 2nd ed.,
Chicago: University of Chicago Press, 1988.
7. Mary K. Marvel and Howard P. Marvel, “Outsourcing
Oversight,” Public Administration Review, 67, 2007, pp.
521–530; Dennis R. Young, “Complementary, Supplementary, or Adversarial? A Theoretical and Historical
Examination of Nonprofit-Government Relations in the
United States,” in Nonprofits and Government, Elizabeth
T. Boris and C. Eugene Steuerle, ed., Washington, DC:
Urban Institute Press, 1999.
8. Meeyoung Lamothe & Scott Lamothe. “To Trust
or Not to Trust—What Matters in Local Government-Vendor Relationships,” Journal of Public Administration Research and Theory, 22, 2012, pp. 867–892.
9. Lester A. Salamon, Partners in Public Service, Baltimore: Johns Hopkins University Press, 1995.
10. Paul E. Peterson, The Price of Federalism, Washington,
DC: The Brookings Institution, 1995.
11. Frumkin, On Being Nonprofit, 2002; Dennis R. Young
and Lester M. Salamon, “Commercialization, Social
Ventures, and For-Profit Competition,” in The State of
Nonprofit America, Lester M. Salamon, ed., Washington, DC: Brookings Institution Press, 2002.
12. Frumkin, On Being Nonprofit, 21.
13. Frumkin, On Being Nonprofit.
14. Jeffrey Pfeffer and Gerald R. Salancik, The External Control of Organizations, New York: Harper and Row, 1978.
15. Kirsten A. Grønbjerg, Understanding Nonprofit Funding, San Francisco: Jossey-Bass, 1993.
16. Ibid.; Margaret J. Wyzominski, “Arts and Culture,” in
The State of Nonprofit America, Lester M. Salamon, ed.,
Washington, DC: Brookings Institution Press, 2002.
17. Stephanie Strom, “California Scrutinizes Nonprofits, Sometimes Ending a Tax Exemption,” New
York Times, August 14, 2011, https://www.nytimes.
com/2011/08/15/business/california-scrutinizesproperty-tax-exemption-of-nonprofits.html (accessed
June 1, 2019).
18. Peter Dobkin Hall, The Organization of American
Culture, 1700–1900: Private Institutions, Elites, and
the Origins of American Nationality, New York: New
York University Press, 1982; Sidney Tarrow, “The Very
Excess of Democracy: State Building and Contentious
Politics in America,” in Social Movements and American
Political Institutions, Anne N. Costain and Andrew S.
McFarland, eds., Lanham, MD: Rowman & Littlefield,
1998; Mark Chaves, “Religious Congregations,” in
The State of Nonprofit America, Lester M. Salamon, ed.,
Washington, DC: Brookings Institution Press, 2002;
Frumkin, On Being Nonprofit.
19. American Civil Liberties Union of Massachusetts v. Kathleen Sebelius, Civil Action No. 09-10038-RGS, March
23, 2012, Memorandum and Order on Cross-Motions
for Summary Judgment and DefendantIntervenor’s Motion to Dismiss, http://pacer.mad.
20. American Civil Liberties Union of Massachusetts v. Kathleen Sebelius, p. 6.
23. American Civil Liberties Union of Massachusetts v. Kathleen Sebelius.
24. Karen A. Froelich, “Diversification of Revenue Strategies: Evolving Resource Dependence in Nonprofit Organizations,” Nonprofit and Voluntary Sector Quarterly,
28, 1999, pp. 246–268.
25. Ibid.; Deborah A. Carroll and Keely Jones Stater,
“Revenue Diversification in Nonprofit Organizations:
Does It Lead to Financial Stability?” Journal of Public
Administration Research and Theory, 19, 2008, pp.
26. Amanda L. Wilsker and Dennis R. Young, “How Does
Program Composition Affect the Revenues of Non96 Fundamentals and Environment of the Voluntary Sector
profit Organizations? Investigating a Benefits Theory of
Nonprofit Finance,” Public Finance Review, 38, 2010,
pp. 193–216.
27. Jennifer Alexander, “The Power to Control Our Story:
A Critique of Nonprofit and Voluntary Organization
Advocacy,” in Reframing Nonprofit Organizations: Democracy, Inclusion, and Social Change, Angela M. Eikenberry,
Roseanne M. Mirabella, and Billie Sandberg, eds.,
Irvine, CA; Melvin & Leigh, Publishers, 2019, p. 206.
28. Catherine E. Rudder, A. Lee Fritschler, and Yon Jung
Choi, Public Policymaking by Private Organizations:
Challenges to Democratic Governance, Washington, DC:
Brookings Institution Press, 2016, pp. 1–2.
29. Pfeffer and Salancik, The External Control of Organizations; Linda Milbourne, “A Pawn in Their Game? A
Critical Perspective on Collaboration,” pp.124–137;
and Simon Teasdale and Pascal Dey, “A Critical Analysis of Social Enterprise,” pp. 182–192) in Reframing
Nonprofit Organizations.
30. Dylan Matthews and Byrd Pinkerton, “Mark Zuckerberg Wanted to Help Newark Schools. Newarkers
Say They Weren’t Heard,” Vox, July 3, 2019, https://
mark-zuckerberg-cory-bookernewark-schools (accessed July 6, 2019).
31. Leanna Garfield, “Mark Zuckerberg Once Made a
$100 Million Investments in a Major U.S. City to
Help Fix Its Schools—Now the Mayor Says the Effort
‘Parachuted’ In and Failed,” Business Insider, May 12,
2018, (accessed July 6, 2019).
33. Bill Weir, “Bill Gates on Using His Money to Save
Lives, Fixing U.S. Schools, Reflecting on Steve Jobs,”
bill-gates-on-using-his-money-to-save-lives-and-fix-u-sschools-and-steve-jobs/ (accessed January 24, 2012).
35. Lester Salamon. “The Resilient Sector: The Future of
the Nonprofit Sector,” in Lester Salamon, ed., The State
of Nonprofit America, Washington, DC: Brookings
Institution Press, 2012; Theda Skocpol, “Recent Transformation of Civic Life,” in Theda Skocpol and Morris
Fiorina, eds., Civic Engagement in American Democracy,
Washington DC: Brookings Institution Press, 1999,
pp 461–509; Mark E. Warren, “The Political Role of
Nonprofits in a Democracy,” Society, 40, 4, 2003, pp.
36. Frank R. Baumgartner and Bryan D. Jones, Agendas
and Instability in American Politics, Chicago: University
of Chicago Press, 1993.
37. Michael Cohen, James G. March, and Johan P. Olsen,
“A Garbage Can Theory of Organizational Choice,”
Administrative Science Quarterly, 17, 1972, pp. 1–25;
John W. Kingdon, Agendas, Alternatives, and Public
Policies, Boston: Little, Brown, 1984.
38. This is not a hypothetical example; while ultimately
removed from the appropriations bill, this example of
a questionable use of federal funds received national
39. Shannon K. Vaughan, Government-Nonprofit Relations and Policy Change: The Impact of Children’s
Advocacy Centers on State Policy Adoptions, doctoral
dissertation, University of Kentucky, 2003.
40. A balance between what citizens want and what public
policies provide.
41. Baumgartner and Jones, Agendas and Instability in
American Politics, p. 15.
42. Edella Schlager, “A Comparison of Frameworks,
Theories, and Models of Policy Processes,” in Theories
of the Policy Process, Paul A. Sabatier, ed., Boulder, CO:
Westview Press, 1999; James L. True, Bryan D. Jones,
and Frank R. Baumgartner, “Punctuated-Equilibrium
Theory: Explaining Stability and Change in American
Policymaking,” in Theories of the Policy Process, Paul A.
Sabatier ed., Boulder, CO: Westview Press, 1999.
43. Baumgarner and Jones, Agendas and Instability in
American Politics, p. 25.
44. Deborah Stone, Policy Paradox: The Art of Political
Decision Making, New York: W.W. Norton, 2002.
45. Thomas E. Nelson and Zoe M. Oaxley, “Framing
Effects on Belief Importance and Opinion,” Journal of
Politics, 61, 1999, pp. 1040–1067; Thomas E. Nelson,
Rosalie A. Clawson, and Zoe M. Oxley, “Media
Framing of a Civil Liberties Case and Its Effects on
Tolerance,” American Political Science Review, 91, 1997,
pp. 567–584.
46. Shannon K. Vaughan and Shelly Arsneault, “Notfor-Profit Advocacy: Challenging Policy Images and
Pursuing Policy Change,” Review of Policy Research, 25,
2008, pp. 411–428.
47. Marcia L. Godwin and Jean Reith Schroedel, “Policy
Diffusion and Strategies for Promoting Policy Change,”
Policy Studies Journal, 28, 2000, pp. 760–776.
49. Frank O. Sotomayor, “Violence Prevention: A Longterm Commitment to Keep Youth Safe,” The California
Wellness Foundation Grantee, http://www.calwellness.
.pdf (accessed Fall/Winter 2011).
Theories of the Nonprofit Sector and Policy Change 97
50. Gary L. Yates, Little Hoover Commission Testimony,
.pdf, p. 2 (accessed September 28, 2000).
51. E. E. Schattschneider, “Intensity, Visibility, Direction
and Scope,” American Political Science Review, 51,
1957, pp. 933–942.
52. Bryan D. Jones, Reconceiving Decision-Making in Democratic Politics, Chicago: University of Chicago Press,
53. Elaine B. Sharp, “The Dynamics of Issue Expansion:
Cases from Disability Rights and Fetal Research Controversy,” Journal of Politics, 56, 1994, pp. 919–939;
Mark Schneider and Paul Teske, with Michael
Mintrom, Public Entrepreneurs: Agents for Change in
American Government, Princeton: Princeton University
Press, 1995; Keith Boeckelman, “Issue Definition in
State Economic Development Policy,” Policy Studies
Journal, 23, 1997, pp. 286–299; Michael Mintrom,
Policy Entrepreneurs and School Choice, Washington,
DC: Georgetown University Press, 2000.
54. Frumkin, On Being Nonprofit.
55. Laurie Davies, “25 Years of Saving Lives,” Driven, Fall
2005, p. 10.
56. Quoted in Laurie Davies, “25 Years of Saving Lives,”
Driven, Fall 2005, pp. 9–17.
57. 2018 report to the nation
59. Baumgartner and Jones, Agendas and Instability in
American Politics; Cohen, March, and Olsen, “A Garbage
Can Theory of Organizational Choice”; Kingdon,
Agendas, Alternatives, and Public Policies; Elaine B. Sharp,
The Sometime Connection: Public Opinion and Social
Policy, Albany: State University of New York Press, 1999;
Nikolaos Zahariadis, “Ambiguity, Time, and Multiple
Streams,” in Theories of the Policy Process, Paul A. Sabatier,
ed., Boulder, CO: Westview Press, 1999.
60. Baumgartner and Jones, Agendas and Instability in
American Politics, p. 31.
61. Brent S. Steel and John C. Pierce, “Resources and
Strategies of Interest Groups and Industry Representatives Involved in Federal Forest Policy,” Social Science
Journal, 33, 1996, pp. 401–420.
62. Kim Lane Scheppele and Jack L. Walker Jr., “The
Litigation Strategies of Interest Groups,” in Mobilizing
Interest Groups in America, Jack L. Walker Jr., ed., Ann
Arbor: University of Michigan Press, 1991.
63. Deborah Stone, Policy Paradox.
64. PBS Frontline, “Other Well-Known Cases Involving
Child Sexual Abuse in Day Care Settings,” 1998, (accessed July 8, 2019).
66. Suzanne M. Robbins, “Interest Group Politics: Strategic Choices in Environmental Policy Implementation,”
Paper presented at the Annual Meeting of the Southern
Political Science Association, Atlanta, GA, November
7–9, 2001.
67. Godwin and Schroedel, “Policy Diffusion,” pp.
68. Frances Stokes Berry and William D. Berry, “Innovation and Diffusion Models in Policy Research,” in
Theories of the Policy Process, 2nd ed., Paul A. Sabatier,
ed., Boulder, CO: Westview Press, 2007.
69. Mooney and Lee, “Legislating Morality,” p. 604.
70. Jack Walker, Jr., “The Diffusion of Innovations among
the American States,” American Political Science Review,
63, 1969, pp. 880–899.
71. Virginia Gray, “Innovation in the States: A Diffusion
Study,” American Political Science Review, 67, 1973, pp.
72. Berry and Berry, “Innovation and Diffusion Models.”
73. Christopher Z. Mooney and Mei-Hsien Lee, “Legislating Morality in the American States: The Case of PreRoe Abortion Regulation Reform,” American Journal of
Political Science, 39, 1995, pp. 599–627.
98 Fundamentals and Environment of the Voluntary Sector
The fact that the tax laws drive the regulation of charities today is less surprising than the transformation
of those laws and the way in which they are administered that has taken place since the enactment of the
income tax in the early twentieth century.
Marion R. Fremont-Smith1
On January 28, 2016, then-candidate Donald J. Trump skipped the final televised debate among
Republican candidates for U.S. president to hold his own televised political rally and fundraising
event for veterans’ charities. Trump proclaimed the event a great success, stating the rally had raised $6
million—including $1 million of his own funds. This claim and questions about where the money was
donated started Washington Post reporter David A. Fahrenthold on a journey of discovery that would
lead him to the 2017 Pulitzer Prize “for persistent reporting that created a model for transparent journalism in political campaign coverage while casting doubt on Donald Trump’s assertions of generosity
toward charities.”2
Fahrenthold’s initial quest to determine the sources of the $6 million and the charities that received
the money grew to a full-blown investigation of Trump’s charitable efforts. He uncovered what the
New York Attorney General has now alleged to be “persistent illegal conduct” by the Donald J. Trump
Foundation and its directors, which include President Trump and his three oldest children. On June
14, 2019, New York Attorney General Barbara D. Underwood filed a lawsuit in which the state alleged
that, among other violations, the Trump Foundation engaged in “extensive unlawful political coordination with the Trump presidential campaign.” AG Underwood cited evidence that the disbursal of the
money raised at the January fundraiser—specifically the “timing, amounts, and recipients of grants by
the Foundation”—was dictated by senior campaign staff.3
These specific actions as alleged would constitute violation of the Johnson Amendment—named for
then-U.S. House Minority Leader Lyndon B. Johnson, who introduced it in 1954. Signed into law by
President Dwight Eisenhower and strengthened by President Ronald Reagan in 1987,4
the amendment
allows tax-deductions only for donations made to organizations that do not “participate in, or intervene
in (including the publishing or distributing of statements), any political campaign on behalf of (or in
opposition to) any candidate for public office.”5
On May 4, 2017—National Day of Prayer—President Trump signed an executive order (EO) he touted
as the first step toward fulfilling his campaign promise to repeal the Johnson Amendment primarily to
allow political activity by churches. The U.S. Department of Justice has since conceded that Trump’s EO
would be ineffective in changing implementation of the amendment’s rules against electioneering—working
for or against a specific candidate—by 501(c)(3) organizations. Even an effective executive order cannot
repeal an act of Congress, but the nonprofit sector is still on alert. The House of Representatives has made
three recent attempts to change the legislation; the Senate was able to thwart the first two attempts, but
as of July 2019, a partial repeal remained active as part of an appropriations bill.6
As indicated by the Nonprofit-Policy Framework, nonprofits are subject to the provisions of the Johnson
Amendment, affected by the president’s efforts to repeal it, and they are also actively involved in influencing its continuance. The National Council of Nonprofits issued a statement that illustrates their stand:
[quote] The National Council of Nonprofits has long held that the public’s overall trust in the sector would
diminish and thus limit the effectiveness of the nonprofit community if individual 501(c)(3) organizations
came to be regarded as Democratic charities or Republican charities instead of the nonpartisan problem
solvers that they are [emphasis in the original].7
The National Council of Nonprofits posted to its website the results of surveys that found overwhelming support for keeping the provisions of the Johnson Amendment intact. More than 4,500 religious
leaders, 100 religious and denominational groups, and 89 percent of evangelical pastors agreed that
nonprofits should not use their resources for partisan campaign efforts.8
It would seem most churches
do not want the extra political activity they were promised.
Regulatory Policy Increasingly Affects Nonprofits
Most of the earliest nonprofit organizations in the United States were established under the authority
of an organized religion, which was commonly referred to as “the church.” Regulators continue to use
the term church to denote a body of religious believers of any faith as a means to differentiate religious
congregations from other types of nonprofits. The distinction is particularly relevant with regard to
regulatory policy because “churches”—which include mosques, temples, synagogues, and all other
places of worship as well as conventions and associations of churches—are regulated in a way that is
substantially different from other nonprofits.
Because of government’s historic reluctance to intrude on activities believed to be the purview of the
church, policymakers have traditionally taken a more lenient approach to the regulation of all nonprofit
activity. Recent proliferation of nonprofit organizations, questionable political activity by some nonprofits, and even scandals in the for-profit realm, however, have caused Congress, the Internal Revenue
Service (IRS), and some state legislatures to tighten regulations regarding not-for-profit organizations.
Government regulatory action at all levels is reflected in the Nonprofit-Policy Framework as ways in
which nonprofits are affected by and subject to public policy. Since nonprofits engage in self-regulatory
behavior and even establish regulations that affect government and the for-profit sector, they likewise
make and influence regulatory policy. Accordingly, in this chapter we consider the following questions:
How are not-for-profit organizations regulated? To what extent do federal and state laws and administrative rules restrict the behavior of these organizations? In what ways do nonprofits impose rules and
restrictions on public and for-profit sector organizations? How does the sector govern itself?
Policy scholars9
have long differentiated between types of public policies, including regulatory and
self-regulatory ones. Regulatory policies are categorized as those that restrict behavior of some and
protect others. Self-regulatory policies are those whereby government cedes its right of monitoring to
100 Fundamentals and Environment of the Voluntary Sector
those individuals and organizations being monitored; these policies are generally viewed as advantageous
to the subjects of the regulation.
Government rules and regulations have generally been regarded as enforceable against businesses, but
are becoming increasingly relevant with regard to nonprofits, especially considering the growth in the
sector since the 1960s. As the size and scope of the sector grew, accountability issues became increasingly
important. Because nonprofits operate within an environment in which they are significantly affected
by and subject to regulatory and self-regulatory policies, understanding regulation from all levels of
government is particularly pertinent for nonprofit managers.
Nonprofits Subject to Federal Government Regulation
The development of charity regulation has been delineated into three general phases: 1) development
of broad parameters for regulatory activity and a general reliance on self-policing; 2) establishment
of borders between exempt and non-exempt activity of nonprofits through passage of the Unrelated
Business Income Tax (UBIT) and clarification of lobbying restrictions; and 3) regulatory expansions
regarding foundation management and excess benefits limitations.10 While Congress did not envision
the Internal Revenue Service (IRS) as the regulator of the voluntary sector when it granted tax-exempt
status to public charities following enactment of the income tax, the IRS has proven quite effective in
this role. In addition to supervision by the IRS, Congress engages in direct regulation of nonprofits
through both passage of legislation and oversight activity.
Rules and Regulations of the Internal Revenue Service
As indicated above, regulation of nonprofits by the IRS is basically an unintended consequence, albeit a positive one, of federal policy regarding the income tax and establishing the parameters for
exemption from it. Examination of information available through the IRS website (
charities-non-profits) provides a clear indication that the agency views its regulatory role as an important responsibility. The following sections outline the criteria for awarding tax-exempt status as well as
discussion of the rules and regulations promulgated by the IRS with regard to annual reporting, taxes
on unrelated business income, and lobbying activity.
Tax-exempt Status. First and foremost, the IRS has authority over nonprofit organizations because
it is the IRS that determines whether or not and under what conditions an organization is recognized
as tax-exempt. Tax-exemption is a significant financial resource for an organization because it reduces
operational expenses. To date, the IRS has established almost 30 categories of tax-exempt organizations
(see Chapter 1), but it is section 501(c)(3) of the Internal Revenue Code (IRC) that is generally the most
relevant in the study of nonprofits. This is so not only because these organizations comprise more than
70 percent of all tax-exempt organizations, but also because these nonprofits are accorded additional
privileged status. Not only are 501(c)(3) organizations exempt from paying taxes, contributions to these
organizations are tax deductible, which grants them a substantial advantage in soliciting donations. As
a result, greater restrictions have been placed on their activities.
Most organizations seeking recognition as tax-exempt public charities are required to submit Form
1023, Application for Exemption Under Section 501(c)(3) of the Internal Revenue Code. As a result of
the Tax Reform Act of 1969 (discussed further in this chapter), Sections 509(a)(1) through (4) were
adopted into the IRC in order to distinguish between private foundations and other 501(c)(3) organizations commonly referred to as public charities. All organizations determined to be tax-exempt under
section 501(c)(3) are considered to be private foundations unless they can demonstrate they are one of
the types of organizations identified as not a private foundation under section 509(a). Private foundaRegulating Not-for-Profit Organizations 101
tions are subject to a higher level of scrutiny and regulation than public charities, so the distinction is
meaningful for nonprofits. The definition of what constitutes a private foundation and the additional
restrictions imposed on them are the focus of Exhibit 5.1.
Exhibit 5.1
For More Information
Private Foundations’ Tax-exempt Status11
Section 509(a)(1) to (4)12 define a private foundation by specifying which 501(c)(3) organizations
are not private foundations, namely:
Section 509(a)(1): traditional public charities—for example, churches (and their auxiliaries),
educational organizations, hospitals and medical research entities, and certain nonprofits
that support charitable organizations, as determined by an income test.
Section 509(a)(2):13 organizations such as museums and orchestras that charge admission and
receive more than one-third of revenue from contributions, grants, fees, and “gross receipts”
from tickets and other sales that are related to the exempt purposes of the organization;
no more than one-third of revenue can be from sources such as investment income or
unrelated business income.
Section 509(a)(3):14 supporting organizations—that is, nonprofits that do not themselves receive
public support, but provide support to one or more 501(c)(3) organization through a formal
relationship whereby they are operated, controlled, or supervised by or in conjunction with
the supported organization (e.g., a parent–subsidiary relationship or a subsidiary–subsidiary
with a joint parent relationship).
Section 509(a)(4): a special category of organizations that test for public safety.
Private foundations are subject to more onerous requirements than public charities (that is, the
other 501(c)(3) organizations), namely:
Section 4940:15 required to pay a 2 percent excise tax on net investment income.
Section 4941:16 prohibited from self-dealing—that is, cannot engage in specified transactions
with a disqualified person. Disqualified person is defined in detail and generally refers to an
individual with a close relationship to the foundation. The categories of prohibited transactions generally involve: sale of property; loans or leases; provision of goods and services
other than in the same manner as to the general public; financial compensation; and transfer
of income or assets to a disqualified person or government officials.17
Section 4942:18 payout requirement of 5 percent of net investment assets (administrative and
fundraising expenses can be included in the 5 percent).19
Section 4943:20 cannot maintain “excess business holdings” in any business enterprise; designed
to eliminate the use of foundations primarily as tax shelters rather than for charitable
Section 4944:21 subject to tax on investments considered to be risky.
Section 4945:22 subject to tax on political and other activities Congress deems improper.
102 Fundamentals and Environment of the Voluntary Sector
Organizations other than private foundations with gross annual receipts that are normally less than
$5,000 as well as all churches are automatically exempt from taxes so long as they meet the requirements of section 501(c)(3). To qualify for recognition as a 501(c)(3) tax-exempt organization, a nonprofit must demonstrate on its Form 1023 that each of the following is true:
1. The entity is organized exclusively for, and will be operated exclusively for, one or more of
the purposes (charitable, religious, etc.) specified.
2. No part of the organization’s net earnings will accrue to the benefit of private shareholders
or individuals.
3. The organization will not, as a substantial part of its activities, attempt to influence legislation
(unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office.23
The First Amendment to the U.S. Constitution as well as history and tradition afford churches the
greatest freedom from regulation of all not-for-profit organizations. Congress, state legislatures, and
the IRS all grant significant leeway to religious organizations in their activities. According to the IRS,
the term church includes all places of worship such as temples, mosques, and synagogues as well as
conventions and associations of churches. All churches are automatically exempt from taxes regardless
of their budget size, and as is discussed later in this chapter, are not subject to the requirements to file
Form 990.
However, as discussed in the opening vignette, ministries are still subject to oversight and certain
restrictions imposed by government, particularly with regard to direct endorsement of political candidates—electioneering. For example, the Church at Pierce Creek, located in Binghamton, New York,
lost its tax-exempt status when it took out a full-page ad in two national newspapers urging Christians
to oppose Bill Clinton’s 1992 bid for the presidency because of his positions on specific moral issues.
The ad contained a “sponsored by The Church at Pierce Creek” tag line and a request for tax-deductible
donations to defray the expense of the ads, in blatant disregard of the IRS ban on electioneering.24
Similarly, the Christian Coalition—prominent in the mid-1990s for its support of policies and candidates of the conservative right—lost its 10-year effort to attain tax-exempt status as a 501(c)(4) social
welfare organization.25
Form 990. Because tax-exempt organizations are not required to pay federal income taxes, they
do not file annual tax returns. Instead, they file Form 990, which is an informational return designed
to increase accountability of nonprofit organizations. In 2010, the IRS changed the basic Form 990
subsequent to the 2008 changes in the revenue threshold requirements.26 Since 2008, all tax-exempt
organizations (excluding churches) with annual gross revenues in excess of $50,000 are required to file
Form 990.27 Form 990 includes a core form consisting of 11 parts that must be completed, and up
to 16 individual schedules that organizations complete when applicable. Part IV of the core form is a
checklist for nonprofits to use to determine which schedules must be submitted. Most organizations
need to fill out only a few schedules.28
Part VI, the governance section, was added to Form 990 when revised in 2010. In this section,
among other items, organizations are asked to provide information pertaining to: 1) members of the
board of directors, 2) conflict of interest policies, and 3) procedures for documenting meetings. Provision of this information is not required by law, but the IRS added this section in an effort to improve
compliance with the information that is required. Because this section provides the opportunity and
space to explain, in detail, responses to questions elsewhere on the form, organizations can address potentially troublesome issues. Nonprofits are encouraged to use Form 990 to their advantage, especially
Regulating Not-for-Profit Organizations 103
the governance section, which can be used as a type of annual report.29 Governance issues related to
ethics and accountability, including conflicts of interest, are discussed further in Chapter 8.
Organizations with gross receipts of less than $200,000 and total assets that do not exceed $500,000
can file the simpler Form 990-EZ, which consists of a four-page core form and up to seven schedules.
Nonprofits (again, excluding churches) whose gross receipts do not typically exceed $50,000 are exempt
from filing Form 990, but since 2008, have been required to submit Form 990-N, also known as the
e-postcard because it is filed electronically. The annual electronic notice requires the provision of eight
basic pieces of information, including employer identification number (EIN), tax year, legal name and
mailing address, any other names used, the name and address of a principal officer, website address if
applicable, confirmation that gross receipts are less than $50,000, and notification if the nonprofit has
or is about to terminate.30
The most recent Form 990 filed by a nonprofit can usually be accessed online, either through the
organization’s own website or via sites such as or In
addition, the National Center for Charitable Statistics makes aggregate data from Form 990 available
through data files and reports on its website, While all Form 990 data provide valuable
information and insight regarding the voluntary sector, the addition of the 990-N was a particular
boon for nonprofit research. Prior to 2008, it was difficult for scholars and researchers to measure the
actual size and scope of the voluntary sector because there was no reliable measure of the number of
very small nonprofits. Since the e-postcard also collects information on nonprofits that have ceased
operations, tracking the real growth in the number of nonprofits is more accurate. Better information
on the size and scope of the voluntary sector assists policymakers as they develop and revise regulations
for the sector and as they seek to further incorporate the work of nonprofits into policy related to the
delivery of public services.
Unrelated Business Income Tax (UBIT). In 1950, Congress instituted the UBIT in response to
concerns that nonprofit organizations had an unfair competitive advantage over businesses. Prior to
1950, nonprofits were exempt from paying taxes on any income received based on a “destination of
income test”—meaning that when the income was used by a tax-exempt organization, it was exempt
from taxes. After 1950, income was assessed for exemption based on the degree to which it was generated in accordance with the achievement of the purposes for which the organization was granted
tax-exempt status.31
According to the IRS, “unrelated business income is income from a trade or business, regularly
carried on, that is not substantially related to the charitable, educational, or other purpose that is
the basis for the organization’s exemption.”32 Determining relatedness, however, is not straightforward under the law—for example, gift shop sales. When the Museum of Modern Art (MoMA)
sells reproductions of its artwork in the museum gift shop, the income is related to the organization’s
tax-exempt purpose—facilitating appreciation of the arts. However, income from the sale of T-shirts
and coffee mugs celebrating the city of New York are not related to art appreciation and are subject
to the UBIT.33
The UBIT was designed to address concerns about unfair competition when nonprofits engage in
operations dominated by the private market. Competition associated with business that is related to
the purposes of the exempt organization, and therefore exempt, from the UBIT is increasingly an issue
raised by for-profits, however. Since more for-profit businesses are entering fields of activity traditionally within the purview of nonprofits—for example, hospitals and day care centers34—new arguments
regarding competitive disadvantage arise. Tax-exemption provides a significant economic advantage
to nonprofits, as does the advantage of reputation. When nonprofits and for-profits provide the same
goods or services, consumers will tend to patronize nonprofits because their mission is viewed more
favorably and consumers have a higher degree of trust in them than in their for-profit counterparts.35
104 Fundamentals and Environment of the Voluntary Sector
When an exempt organization has more than $1,000 in annual unrelated business income, it must
file Form 990-T and is subject to tax on that income. According to the IRS, the total gross unrelated
business income reported by tax-exempt organizations was almost $13 billion in 2013; the amount
of total UBIT liability—the amount of tax revenue received from tax-exempt organizations—was just
over $581 million. While 501(c)(3) organizations accounted for just over 35 percent of Form 990-
Ts that were filed, almost half of the total tax receipts ($278.8 million) came from that category of
nonprofits.36 Less than 2 percent of 501(c)(3) organizations report having earned sufficient unrelated
business income to be subject to the tax.37
The emphasis added to the word report is relevant. The preceding figures seem to indicate that
for-profit businesses have little to fear from competition with the nonprofit sector, except for the fact
that these figures are self-reported. Since the likelihood of an audit is low due to scarce resources at the
IRS, it is difficult to know the extent to which self-reporting and reality converge in terms of the scope
of unrelated business income.38 Accordingly, participants at the 1999 Seminar on Emerging Issues in
Philanthropy concluded that the “UBIT has, in effect, become a voluntary tax and has served as an
‘intermediate sanction’ short of the loss of tax exemption.”39
Changes to the UBIT that may have a significant impact on nonprofits were included in the 2017
Tax Cuts and Jobs Act. Since it is how the revenue was generated, not the purposes for which it was
expended, that determine whether the funds are “unrelated” income, the National Council of Nonprofits
recommends caution for nonprofits that accept corporate sponsorships or advertising revenue. Under
the new law, income from these sources of funding may be considered “unrelated,” so nonprofits that
benefit from them should pay particular attention to the rules and guidance issued by the IRS. The IRS
has developed a new Form 990-T with instructions for complying with new reporting requirements.40
Changes included in the Pension Protection Act of 2006, discussed in detail later in the chapter, contain
a provision to increase transparency with regard to the UBIT.
Lobbying: IRS and Supreme Court Action Regarding Nonprofits’ Political Activity
Lobbying, which along with advocacy is the focus of Chapter 7, represents a way in which nonprofits
seek to influence public policy through support or opposition to specific legislation. The U.S. Supreme
Court determined, in Buckley v. Valeo, that Congress may regulate express advocacy (lobbying); the extent to which Congress can regulate the discussion of policy issues is still unclear.41 As discussed in the
opening vignette, 501(c)(3) organizations are prohibited from any type of electioneering; while they
are allowed to legally engage in lobbying activity, Congress and the IRS have imposed a number of
restrictions on their political activity. There are certain 501(c)(4) social welfare organizations, however,
that can legally engage in activities to promote candidates for public office, and political organizations
can seek tax-exempt status under Section 527 of the IRC.
Between 1996 and 1999, the IRS issued several private letter rulings interpreting section 527 of the
IRC. Organizations recognized under Section 527 are political organizations such as parties, political
action committees (PACs), associations, or funds that exist to receive contributions and make expenditures for what the IRS terms an exempt function; this type of tax-exempt organization is commonly
referred to as a 527. For purposes of Section 527, an exempt function “is influencing or attempting to
influence the selection, nomination, election, or appointment of an individual to a federal, state, or
local public office or office in a political organization”; an exempt function also includes the election
of members of the Electoral College as well as activities that directly or indirectly support one of the
specified exempt functions.42
The 1996–1999 rulings were controversial because they allowed 527 organizations to engage in
substantial electioneering without restriction. As long as the 527 focused on issues rather than candiRegulating Not-for-Profit Organizations 105
dates and did not act in coordination with a candidate, these independent expenditures were deemed
exempt from disclosure requirements. In response to criticism that these rulings resulted in the creation
of stealth PACs, since the organizations were not required to disclose the identities of their donors,
Congress sought to close the 527 loophole in mid-2000. Amendments to the IRC required all tax-exempt organizations making over $25,00043 annually—whether they advocated for candidates, issues,
or both—to register with the IRS (Form 8871), file annual information returns (Form 990), and
disclose donor names (Form 8872). Opponents argued that this placed an undue reporting burden on
many political organizations already subject to state election board disclosure requirements, and the
constitutionality of the law was called into question.44 The 2010 U.S. Supreme Court ruling in Citizens United v. Federal Elections Commission—discussed further in Chapter 7—has added to the ability
of tax-exempt organizations to engage in political activity, and the questions regarding disclosure of
donor identities raised after the 2010 midterm elections have added to the controversy surrounding
the activity of political nonprofits.45
Although electioneering by 501(c)(3) organizations is forbidden or strictly regulated, and they are
barred from using federal grant or contract funds for lobbying activity, Congress and the IRS generally
support advocacy activities, including lobbying with private funds, by nonprofits. The Tax Reform Act
of 1976 clarified and expanded the scope of lobbying activity permissible by 501(c)(3) organizations,
specifically by narrowing the legal definition of lobbying subject to restriction. Lobbying is differentiated from other advocacy activity because it is said to occur only when the tax-exempt organization
conducts activities aimed at influencing specific legislation. Advocacy involves providing information
in an effort to educate about and promote an issue or overall policy response.46 The rules regarding
nonprofit lobbying are discussed in more detail in Chapter 7.
Congressional Oversight and Legislation Directly Affect Nonprofit Action
Congress has engaged in oversight of the voluntary sector through its directives to the IRS as well as
through legislation and oversight hearings. Although nonprofit organizations had long been an integral part of U.S. society, the Revenue Act of 1913 officially defined them and permanently established
their tax-exemption to facilitate administration of the new federal income tax. Subsequent revisions to
the Act refined the role of nonprofits as follows:
1. In 1934, Congress included the “no substantial part” rule regarding lobbying activity (see
Chapter 7).
2. In 1936, charitable contributions by corporations became tax-deductible.
3. The Revenue Act of 1938 explicitly stated the rationale for tax-exemption as justified because
the loss of government revenue is offset by the relief from appropriating public funds in
the provision of public goods and services provided by nonprofits.
4. The 1950 imposition of the Unrelated Business Income Tax (UBIT).
5. In 1954, the Internal Revenue Code underwent a significant restructuring whereby the
sections were revised to incorporate the renumbering still in place today, including Section
501(c)(3) and the almost 30 categories of other tax-exempt organizations; the prohibition
regarding electioneering by 501(c)(3) organizations was also a part of this restructuring.47
House and Senate hearings typically accompany legislation, and reports commissioned by the Senate
Finance Committee have often foreshadowed legislative activity pertaining to nonprofits. The Com106 Fundamentals and Environment of the Voluntary Sector
mission on Industrial Relations, referred to as the Walsh Commission because it was chaired by Senator Frank Walsh, was established in 1912 at the request of President William Howard Taft because of
his concerns regarding the degree to which foundations were accountable to the public. No legislation
derived from the Walsh Commission, but many of its issues resurfaced in subsequent investigations
in the House of Representatives—the 1952 Cox Committee and the 1953 Reece Committee—which
focused on potential subversive or lobbying activity.48
Interestingly, over the course of congressional hearings, critics from each end of the political spectrum
denounced foundations as instruments of cultural manipulation. In 1912, critics attacked foundations
as instruments of “capitalist manipulation.”49 Critics during the 1950s argued that foundations were
undemocratic, elitist, and sought to use their power to shape the future according to their own values,50
by “encouraging ‘empiricism’, ‘moral relativity’, and ‘collectivist’ political opinions in education and the
social sciences.”51 These proved to be simply the opening act for later investigations led by Congressman
Wright Patman, which culminated in the Tax Reform Act of 1969.
Tax Reform Act of 1969. Scholars identify the Tax Reform Act of 1969 as one of the great
watershed events in the history of American philanthropy.52 While the act affected all charitable
organizations in some way, the overwhelming majority of changes were aimed specifically at private
foundations, which were defined clearly for the first time and subjected to significant regulation.
Among the most significant changes brought by the 1969 Tax Reform Act were the imposition
of a tax on investment income and the imposition of a minimum payout requirement, discussed
further in this chapter.
Representative Wright Patman of Texas has been referred to as “the strongest Congressional critic in
the history of foundations.”53 His investigation of foundations began in 1961 and spanned more than
a decade. Through extensive questioning of foundation officials and examination of the scarce public
information available about them, Patman identified what he considered to be the five primary areas
of concern regarding foundations:54
1. As their assets were rapidly increasing, so was their economic power;
2. Foundations were being used by some as tax shelters and means to funnel money to friends
and family;
3. Oversight of foundations by the IRS was insufficient;
4. Foundations focused too much of their funding efforts overseas; and
5. Businesses, particularly small businesses, were placed at a competitive disadvantage to those
that were owned or controlled by foundations because of the tax advantages the foundations
As a result of the Patman hearings and the subsequent IRS investigation at his request, several recommendations were made to address the problems identified; many, although not all, of the recommendations were codified in the Tax Reform Act of 1969. Among the most significant changes brought
about by the act was the imposition of a 4 percent (later reduced to 2 percent) excise tax on investment
income, and the minimum payout requirement. Under the minimum payout requirement of the act,
foundations must distribute in grants an amount equal to all of their investment income for the year
or 6 percent (later reduced to 5 percent) of the value of their assets, whichever is greater.
In addition, foundations were restricted in their ability to own or control businesses; since many
foundations were endowed with stock from the donors’ companies, this was a particularly onerous requirement for many. These stipulations were included to address concerns over the rapid accumulation
Regulating Not-for-Profit Organizations 107
of wealth by foundations and their use primarily as tax shelters by some; they were designed to force use
of foundation funds for the public interest in order to justify the tax-exemption granted to the donors.
Other changes of note included restrictions on grants to individuals, a prohibition against self-dealing,
and the delineation between foundations and public charities. While both are classified as tax-exempt
under Section 501(c)(3), only foundations are subject to the more stringent requirements, including
the excise tax, payout minimum, and greater limitations on lobbying and advocacy activity. The payout
minimum, in particular, had a significant impact on the sector as it mandated that foundations grant
at least a specified portion of their wealth to charitable work. Limitations on lobbying and advocacy
were designed to minimize the strategic advantage of the significant resources of foundations in influencing public policy.
Sarbanes-Oxley Act. Commonly referred to as SOX, the Sarbanes-Oxley Act was passed in 2002 in
response to major corporate scandals involving companies such as Enron. Although enacted primarily
to deter fraud in publicly traded companies, two provisions of SOX apply to all organizations, including nonprofits. Title III, Section 806, and Title XI, Section 1107, provide whistleblower protection
to employees by making it “a federal crime for any entity to retaliate against employees who report
suspected fraudulent financial activities.”55 The second provision, regarding document management,
is found in Title VIII, Section 802, and Title XI, Section 1102. These sections make it “a federal crime
to alter or destroy documents in order to prevent their use in an official proceeding.”56 SOX thereby
increased the regulatory authority of the federal government over nonprofit organizations.
SOX has also contributed to the increase in state regulatory authority over not-for-profit organizations.
Several states have enacted or are considering their own legislation to extend many of the provisions
of the Sarbanes-Oxley Act specifically to nonprofit organizations. California’s Nonprofit Integrity Act
(see Chapter 8) requires the state’s nonprofits to comply with some of the best practices provisions of
SOX, including auditing committees.57
According to the Urban Institute’s National Survey of Nonprofit Governance, the implications of
extending the SOX provisions to nonprofits are varied. Most nonprofits already complied with some of
the provisions, but some would require many nonprofits to change their behavior. For example, more
than half of the nonprofits surveyed indicated it would be somewhat or very difficult to comply with
provisions requiring an audit committee, and over 60 percent indicated it would be difficult to comply
with a requirement to rotate the audit firm and/or lead auditor every five years. Among nonprofits with
annual budgets under $100,000, 28 percent said it would be very difficult to comply with the audit
committee requirements.58
In contrast, half of the nonprofits surveyed already had a conflict of interest policy in place
for their board members. However, once again the difference between small and large organizations was compelling: 23 percent of small nonprofits had a conflict of interest policy compared
with 95 percent of large nonprofits.59 While this demonstrates that there was already significant
compliance with SOX best practices within the nonprofit sector, it also suggests that disparity
in the size of nonprofits would likely determine the capacity for overall compliance should these
provisions be made mandatory. SOX and its impact on nonprofit ethics and accountability are
discussed further in Chapter 8.
Pension Protection Act of 2006. Charles Grassley (R-IA) was first elected to the U.S. Senate in
1980; since then, he has devoted a significant portion of his efforts to government oversight, with particular emphasis on tax issues related to the nonprofit sector. In October 2004, Grassley and Senator
Max Baucus (D-MT), as Chair and Ranking Member, respectively, of the Senate Finance Committee,
encouraged Independent Sector to convene a Panel on the Nonprofit Sector and submit a report with
recommendations to Congress. The original report was submitted in June 2005, with a supplement
published in April 2006.
108 Fundamentals and Environment of the Voluntary Sector
Many of the recommendations of the panel were codified in the Pension Protection Act (PPA) of
2006. Although the legislation deals primarily with issues regarding employer-provided pension plans,
Title XII includes Provisions Relating to Exempt Organizations.60 The key provisions represent significant regulatory changes for 501(c)(3) organizations:61
• As referenced in the discussion of the IRS Form 990, since 2008, all tax-exempt organizations
(excluding churches) have been required to file an annual information return—whether
Form 990, Form 990-N, Form 990-EZ, or Form 990-PF. Failure to file for three consecutive
years results in automatic revocation of tax-exempt status; on June 8, 2011, the IRS released
its first list of automatic revocations, which included approximately 275,000 nonprofits;
• Organizations that file returns for unrelated business income tax (Form 990-T) must now
allow public inspection of them;
• Donor-advised funds (DAFs) were clearly defined by law for the first time and subjected
to more stringent regulation: rules imposed on private foundations regarding restrictions
on excess business holdings and disqualified persons were applied to DAFs and substantiation requirements as well as IRS disclosure and reporting requirements were significantly
increased for DAFs;
• New requirements were imposed on supporting organizations, controlling organizations,
and credit counseling organizations;
• Excise taxes and the excess benefits penalty doubled; and
• Numerous provisions dealing with charitable giving, including new standards for deductibility of the value of donated used household goods and clothing were included; many of
these allowances and restrictions on deductibility had sunset provisions attached.
In October 2007, the Panel on the Nonprofit Sector released Principles for Good Governance and Ethical Practice. Updated in 2015, the guide lists “33 principles of sound practice for charitable organizations and foundations related to legal compliance and public disclosure, effective governance, financial
oversight, and responsible fundraising.”62 The key provisions of the Pension Protection Act applicable
to tax-exempt organizations serve to increase transparency and enhance accountability within the sector. Opening Form 990-T to public inspection, for example, allows for a better understanding of the
commercial activities of tax-exempt organizations and the extent to which they compete with private
sector organizations. Tightening the regulation on donor-advised funds brings administration of this
type of philanthropy more in line with the restrictions imposed on foundations. DAFs can operate
somewhat like mini-foundations, and tighter restrictions are designed to prevent problems previously
seen with foundations when donors received a tax deduction for contributing funds but maintained
control over their disbursal.
Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act (TCJA) was signed into law by President Trump on December 22, 2017, with some provisions having an expected impact as soon as
January 1, 2018. As indicated by the Nonprofit-Policy Framework, nonprofits are subject to some of
the provisions of the policy, while other provisions affect them indirectly. The increase in the standard
deduction provided by the TCJA was not aimed at nonprofits, but 501(c)(3) organizations are expected
to be significantly affected by this change in policy. The Joint Committee on Taxation predicted the
change would decrease itemized deductions by $95 billion in 2018;63 IRS Tax Stats reports the actual
decrease was $54 billion.64 While actual charitable giving is not expected to decline that drastically,
Regulating Not-for-Profit Organizations 109
estimates do predict giving will shrink by $13 billion or more each year, and the elimination of 220,000
to 264,000 nonprofit jobs.65
Nonprofits are also subject to several provisions of the changes to the tax code, particularly with
regard to the UBIT (Unrelated Business Income Tax) and excise taxes. The TCJA imposes new excise
taxes on nonprofits with highly compensated employees ($1 million or more to the five most highly
paid), and imposes new excise taxes on net investment income of nonprofit college and university
endowments for institutions with at least 500 full-time students and assets of at least $500,000 per
full-time student. Some nonprofits face increased UBIT liability as a result of changes that now require
each trade/business be treated separately for the purposes of calculating net unrelated business income.
Prior to the change, nonprofits could aggregate unrelated business income and expenses from all sources
to calculate the net UBI and the subsequent amount of taxes for which the organization would be responsible. By disaggregating, nonprofits will likely pay more in UBIT.66
State Regulation: Offices of the Secretary of State and Attorney General
While most states require nonprofits to register for incorporation with the secretary of state, state regulation is enforced by states’ attorneys general. Attorneys general oversee: 1) board members’ duties of
obedience, loyalty, and care; 2) donor-imposed restrictions on gifts; and 3) solicitations of charitable
contributions.67 In all states, attorneys general have either statutory, case law, or implied authority to
oversee charitable organizations.68 Even though attorneys general theoretically have significant authority to regulate nonprofits, in most states, they are not actively involved in regulation primarily
because of limited resources.69 Two recent notable examples of successful efforts by states’ attorneys
general to enforce regulatory requirements involve four cancer-related nonprofits and the Donald J.
Trump Foundation.
In an unprecedented case of collaboration and one of the largest actions ever to combat charity
fraud, the Federal Trade Commission (FTC) and law enforcement partners from every state and
the District of Columbia charged four nonprofits and their executives with a series of violations
related to “bilking” more than $187 million dollars from consumers between 2008 and 2012.
The charities, which were created and managed by James Reynolds, Sr., members of his family,
and close associates used professional fundraisers—who typically retained 80 percent of the cash
donations collected—to solicit donations for the purpose of providing medication and services
to cancer patients. Instead, the nonprofits paid for excessive compensation packages, travel, and
luxury personal items for Reynolds and his associates. Under the settlement agreements, all four
charities have been dissolved with remaining assets distributed to reputable cancer-related charities,
and the four executives have been banned from “fundraising, charity management, and oversight
of charitable assets.” CharityWatch had repeatedly given the charities an F rating and have now
added Reynolds and 24 associates to their Hall of Shame. This case was the first time enforcement
officials from all 50 states, the District of Columbia, and the federal government had joined together to combat charity fraud.70
The more recent example involves the Donald J. Trump Foundation. In late 2018, the board of
directors—Trump and his three oldest children—agreed to dissolve the foundation after the New York
attorney general (AG) filed a lawsuit against the foundation alleging “a shocking pattern of illegality,” in
which the Trump Foundation operated as “little more than a checkbook to serve Mr. Trump’s business
and political interests.”71 While the foundation will be dissolved and the AG’s office will oversee disbursal
of the remaining assets, the lawsuit continues. New York AG Letitia James is seeking a 10-year ban to
prevent Donald Trump from serving on the board of any New York nonprofit as well as $2.8 million
in restitution and $5.6 million in penalties.72
110 Fundamentals and Environment of the Voluntary Sector
The attorney general for New York is well-positioned to pursue the case. Since 2002, when former
New York AG Eliot Spitzer reached a $100 million settlement with Merrill Lynch over conflict-ofinterest allegations, the enforcement strength of the office has grown. Spitzer and the attorneys general
who followed him made use of New York’s Martin Act, which “covers ‘all deceitful practices contrary to
the plain rules of common honesty,’” as stated in an appellate court ruling in 1926.73 The law allows for
civil suits as well as criminal charges, which increases flexibility and likelihood of success. While initially
intended to deter securities and commodities fraud in the years before the Securities and Exchange
Commission (SEC), the broad ruling by the court in 1926 renders the act useful in combatting fraud
in public and nonprofit organizations, as well.74
Board Members and the Duty of Care
Members of the board of directors of a public charity are accorded duties of obedience, loyalty, and
care. It is assumed that since 501(c)(3) organizations are prohibited from distributing excess revenues
outside of the organization that board members have no incentive other than to act in the best interest
of the nonprofit. Great trust, therefore, is placed in those who oversee the operations of not-for-profit
organizations. However, the IRS and state regulators do provide oversight, particularly with regard
to potential self-dealing activities—that is, those benefiting someone with a significant interest in
the organization such as a manager, director, or significant contributor. New York Attorney General
Letitia James contends in the state’s lawsuit against the Trump Foundation that the family—who also
comprised the leadership and governance body for the Foundation—failed to provide evidence that
they had met as a board to oversee expenditures or had set up policies to protect foundation funds
from abuse. The lawsuit alleges that because the board failed to exercise “oversight and diligence, Mr.
Trump caused the foundation to repeatedly enter into self-dealing transactions.”75
Form 990, annual filing of which is required by all nonprofits with more than $50,000 in annual
gross receipts, contains information regarding self-dealing activities in Schedule L. While in many
instances these transactions were completed to the benefit of the filer, for those instances in which
self-dealing did occur, evasive answers in this section can be a red flag to the IRS and state regulators.76
Self-dealing and boards of directors are discussed further in Chapter 12.
Donor-imposed Restrictions on Gifts
Donor advised funds (DAF), in which donors retain some control over fund distribution, have
increased in popularity in recent years, coinciding with the growth in the number of community
foundations77—795 in 2015 up from 208 in 1981—as reported by the Foundation Center.78 With
this growth has come attempts at increased regulation; some have been successful, such as under the
Pension Protection Act of 2006 previously described, while others have failed, such as a proposed
addition to the 2017 Tax Cuts & Jobs Act (TCJA).79 While more donors are now seeking to maintain control over their charitable contributions without establishing their own foundation, attempts
at donor control are not new phenomena. There is a long history of donors placing restrictions on
their largesse and a corresponding history of the involvement of attorneys general in litigation as a
Foundations and charitable trusts established by donors with a fairly broad mission—for example,
alleviating the suffering of the poor, facilitating environmental conservation—place minimal restrictions on directors in managing the trust and disbursing funds. Donors can be too specific, however,
resulting in trusts and foundations whose narrowly-defined missions can be impossible, or at best,
impractical to accomplish or even illegal to implement. In addition, some donors stipulate missions
Regulating Not-for-Profit Organizations 111
that are accomplished without depletion of funds, which creates its own set of challenges. Attorneys
general often get involved to protect the donor’s wishes by launching investigations. In the case of the
Buck Trust outlined in Exhibit 5.2, the attorney general for the State of California engaged in a lengthy
lawsuit in order to protect donor intent in the case of a narrowly-defined charitable trust. While the
donor’s intent prevailed, this case raised serious questions about the appropriateness of donor’s wishes
with regard to pursuit of the public interest.
In cases where the donor’s intent is either illegal—for example, funds to establish a school exclusively for white male orphans—or impossible—for example, a bequest of insufficient funds to carry
out the specified purpose—trustees or directors may ask the court to invoke the cy pres doctrine to
modify the terms of the trust. Cy pres is an old French law term meaning “so close.”81 Under cy pres,
a court can allow the use of the donor’s funds for other than the explicitly stated purpose, so long as
the use of the funds is as close as practicable to the donor’s intent. Charities have long been viewed as
friends of the court, and courts are subsequently loathe to divert funds intended for charitable purposes
back to potential heirs—hence, use of cy pres. However, the courts are equally hesitant to override the
legally-stated intent of donors. The result is what scholars refer to as the influence of the dead hands
in American philanthropy.82
Exhibit 5.2
Case Study
The Buck Trust and the Regulatory Impact of Donor Intent
In 1975, Beryl Buck died without direct heirs and bequeathed approximately 70,000 shares of Belridge Oil Company stock to the San Francisco Foundation (SFF) for the specific purpose of caring
for the needy or addressing other charitable, religious, or educational purposes in Marin County,
California. While the allowable activities to be undertaken with the funds were quite broad, the
geographic focus was narrow and problematic—Marin County is one of the wealthiest counties
in the state. In addition, at the time of the bequest, the shares of stock had an estimated worth of
$7 to $10 million. Under the requirements of the Tax Reform Act of 1969, foundations were restricted in their ability to own businesses, causing many to divest themselves of most of the shares
of stock with which they were initially endowed by their founder(s). Accordingly, the SFF sold the
majority of the Buck Trust’s shares in Belridge Oil Company stock in 1979, for a reported $264
million gain in assets. By 1984, the trust was worth over $400 million, with an annual investment
income of approximately $30 million.83
The SFF serves not only Marin County, but also four other counties in the Bay Area—San
Francisco, Alameda, Contra Costa, and San Mateo. Shortly after receiving the Buck Trust, the
directors began to feel the pressure of managing funds that had nearly tripled the size of the foundation and brought with them a great deal of controversy. Nonprofits in the other four counties
of their service area complained at the disparity in grants given to Marin County. In 1982, the
public interest law firm Public Advocates filed suit against SFF, claiming it had violated its charter
by granting a disparate proportion of its funds in Marin County compared to the other counties
in its service area. The suit alleged that approximately 70 percent of grant applications from Marin
County were approved compared to less than 20 percent of applications from the other four counties. The disparity was further evident in the per grantee distribution of funds—$88,000 on average for each Marin County grant versus $18,000 for all other grantees.84 While it seems obvious
112 Fundamentals and Environment of the Voluntary Sector
why nonprofits in the other parts of the SFF service area would oppose the geographic restrictions
of the Buck Trust, it is important to note that Marin County residents were not united in support
of the arrangement. Although many nonprofits and elected officials felt the trust should be dedicated to Marin County as Mrs. Buck intended, others felt the magnitude of beneficence would
have detrimental effects on levels of volunteerism and charitable contributions by the residents of
Marin County. There was a sentiment among many that the Buck Trust funds would come to be
viewed as the only game in town, leading to a decline in individual donations and the willingness
of many to volunteer their time amid a pervasive attitude that the Buck Trust would pay for what
was needed.
The situation reached a climax in 1986 when the San Francisco Foundation petitioned the
court to alter the terms of the trust under the cy pres doctrine, arguing that Mrs. Buck could not
have foreseen that her bequest would multiply to the extent it had and that it was impractical to
expend the funds solely in an area as wealthy as Marin County. The court disagreed; impractical
was not considered the same as illegal or impossible standards used in other cases involving cy pres.
While the level of need in Marin County was less than in other counties, the area was by no means
devoid of people who needed assistance, leading the court to conclude that the donor’s intent
could and should be carried out as stipulated in the provisions of the trust.85
As a result of losing their petition and as a condition of resolution of the case, control of the
Buck Trust was transferred from the SFF to the newly created Marin Community Foundation
(MCF). Despite the creation of MCF, the SFF did not change its service area, which includes all
five counties in the Bay area, and therefore, continues to serve Marin County and to grant funds to
organizations within Marin County; net assets for the SFF exceeded $1.5 billion in 2018.86 While
the Buck Trust funds were the impetus for establishment of the MCF and the Trust continues to be
the largest entity it manages, MCF oversees ten additional supporting organizations, administers
637 family and community funds, and continues to solicit donations on behalf of philanthropic
causes in Marin County; total assets for MCF were $2.18 billion in 2018.87
As of 2018, the Buck Family Fund was valued at $917.3 million.88 The goal of the fund is
“to create equity of opportunity for every resident of Marin.” MCF has developed four themes to
guide giving in pursuit of that goal: education, health, economic opportunity, and the environment. While all discretionary grants benefit residents of Marin, grant funds may be awarded to
organizations outside the county if it is determined that the programs and services provided would
benefit Marin residents. 89
In fiscal year 2018, the Marin Community Foundation distributed $39.6 million in grants on
behalf of the Buck Family Fund.90 According to its 2018 Financials, MCF granted an additional
$204.7 million through its other funds. Forty-five percent of grant funds were awarded to organizations within Marin County; 55 percent were granted outside of Marin. While grants from the
Buck Family Fund specifically benefit Marin County residents, as per the stipulations of Beryl
Buck, grants through the other MCF funds and supporting organizations encompass a wide geographic area that includes Marin County nonprofits as well as others in the Bay Area, throughout
California, and across the country.91
1. How was the concept of donor intent used to regulate the activities of the San Francisco
Foundation with regard to management of the Buck Trust funds?
Regulating Not-for-Profit Organizations 113
2. What difficulties were present in trying to stay true to the donor’s intent while abiding by
federal law regarding minimum payout of funds?
3. Consider the financial information previously presented regarding assets and grantmaking
of the San Francisco Foundation and the Marin Community Foundation. Does it appear
that the court’s interpretation of cy pres was appropriate for the disbursal of the Buck Trust
funds or were the fears of critics that spending the funds only in Marin County would have
devastating consequences realized? Explain your interpretation.
4. Consider the four relationships describes in the Nonprofit-Policy Framework (make policy,
influence policy, affected by policy, subject to policy), and discuss the ways in which formation and management of the Buck Trust reflect any (or all) of these relationships between
nonprofits and public policy.
5. Is the Buck Trust a unique example of regulation of a nonprofit? How does this case inform
your understanding of the challenges faced in regulating not-for-profit organizations?
More information on the Marin Community Foundation is available at Additional information on the nonprofit sector in Marin County can be found in the Marin County
Nonprofit Landscape Study, 2013, available from the Center for Volunteer and Nonprofit Leadership of Marin,
Regulation of Charitable Solicitations by the States
As of 2014, 39 states require nonprofits that solicit donations within their borders to register with the
designated state charity official. Most (34) also require annual financial reports to be filed with the
state. Of the states that require registration, only three—Colorado, Florida, and Oklahoma—have not
yet adopted the Unified Registration Statement (URS) promoted by the National Association of State
Charity Officials (NASCO) and the National Association of State Attorneys General.92 The URS was
developed by NASCO and the attorneys general in order to streamline compliance with state regulations by providing uniformity in reporting requirements.93
Research indicates that the nonprofit sector as a whole might benefit from fewer rules and regulation.94
Since the offices of state charity officials reportedly spend about two-thirds of their resources tracking
registration and reporting, the ability to engage in oversight and enforcement of abuse is limited. Six
states without registration or reporting requirements do not report significantly higher incidences of
fraud and abuse.95 Likewise, even states that require registration and annual reporting most often rely
on citizen complaints to initiate investigations of wrongdoing; as stated earlier, limited resources hamper
regulatory efforts in most state offices.
Indirect Regulation: Courts and Contracts
The Tenth Amendment to the U.S. Constitution reserves certain powers to the states. Accordingly,
the federal government has often used stipulations attached to the receipt of grant funds as a means
to encourage behavior that it could not compel the states to undertake. Likewise, compliance requirements attached to receipt of government grants serve as an indirect means to regulate nonprofits, as do
the conditions placed on nonprofits with government contracts. Court cases also serve as an indirect
114 Fundamentals and Environment of the Voluntary Sector
means of regulation. For example, the ACLU (American Civil Liberties Union) lawsuit against the
Department of Health and Human Services (DHHS), which is discussed in Chapter 4, illustrates
indirect regulation of nonprofit grantees; the ACLU sought to change the conditions for DHHS
funding in order to either change the services provided by Catholic Charities or have them removed
as a DHHS grantee.
Government Grants and Contract Compliance
In 2015, 8.4 percent of total revenues for reporting public charities came from federal, state, and local
government grants; 73 percent of revenue derived from fees for goods and services, some of which was
also from government sources.96 Making receipt of funds conditional on compliance with activities
such as historic preservation and maintenance of a drug-free workplace enables the federal government
to expand regulatory authority through enticement (a carrot rather than a stick). Such requirements
are neither unique to nor targeted toward regulation of the nonprofit sector, but nonprofits are affected by them nonetheless. The pursuit of government grants and contracts to deliver public services has
direct implications for operations within the nonprofit sector.
While most public charities are not required to submit to specific auditing procedures, federal grant
recipients are. Federal grant recipients are also required to provide specific information such as budget
data and program details, and are subject to site visits and records review of all grant program activity.
In addition, too heavy a reliance on government funds for operational support can lead to vendorism,
whereby the nonprofit exists simply to implement the government grant or contract.97 Mission is of
paramount importance to the voluntary sector; it is what defines and directs nonprofit activity. When
the focus on mission is compromised by increased attention to government regulation, the sector as a
whole is weakened. This is not to imply that nonprofits should forgo the pursuit of government grants.
As has often been stated, government and nonprofits have long enjoyed a mutually-beneficial partnership in the provision of goods and services. However, it is important for nonprofits to remain mindful
of the compliance costs associated with government grants and contracts as well as the program and
service delivery benefits of receiving them.
Direct Regulation through the Courts
Individuals are not likely to prevail in a lawsuit against a nonprofit organization, usually because of
the tenets pertinent to trust law. In order to be valid, private trusts must have an identifiable beneficiary with the capability of overseeing the trust. In contrast, charitable trusts (and foundations) have
no individual beneficiaries.98 Accordingly, the courts have usually held that only the state—through
the attorney general—has legal standing with regard to enforcement authority.99 For example, Oregon
law clearly states that “no court shall have jurisdiction to modify or terminate any trust of property for
charitable purposes unless the Attorney General is a party to the proceedings.”100 Thus, cases brought
by disgruntled donors are generally dismissed by the courts, and complaints are referred to the office
of the relevant state’s attorney general.
In some cases, directors and officers of a nonprofit may initiate a suit in state court to enforce charitable duties, and in rare instances, individuals have been given limited standing in state courts such as
Wisconsin and California.101 However, in general individuals do not have standing to sue nonprofits,
and they are specifically prevented from suing in U.S. Tax Court. Alleged abuses by charities have led
some in the field to suggest that Congress extend standing to sue in Tax Court to private individuals.
The Panel on the Nonprofit Sector (PNS) addressed this in its supplemental report of 2006 with a
recommendation that Congress not take action. Its investigation concluded that principles of current
Regulating Not-for-Profit Organizations 115
state and common law are sufficient to enforce the fiduciary duties of charitable organizations. Any
additional benefit derived from broadening the pool of those with enforcement capabilities would be
overridden by the harm brought from increased potential for nuisance lawsuits that might deter volunteers from serving on boards and would divert charitable funds to legal defense fees.102
Self-Regulation in the Voluntary Sector
In response to passage of the Tax Reform Act of 1969, leaders in the philanthropic community took
it on themselves to organize the Commission on Private Philanthropy and Public Needs. Commonly
known as the Filer Commission, this effort sought to provide a comprehensive examination of the
voluntary sector in order to explain and advance the role of nonprofits in American society. Led by
John Filer, then CEO of Aetna Life and Casualty Company, the Filer Commission was instrumental
in promoting research on the nonprofit sector as well as in coordinating and enhancing the work of
nonprofits in addressing public problems. Institutional infrastructure developments facilitated by the
Filer Commission include: 1) the establishment of the first academic center for not-for-profit research
at Yale University; 2) merger of the National Council on Philanthropy and the Coalition of National
Voluntary Organizations to form a new organization, Independent Sector; and 3) groundwork that
paved the way for the National Center for Charitable Statistics.103
In the first phase of charity regulation previously cited, self-policing was the norm, primarily because
there were no other mechanisms in place.104 Even with the developments in external regulation discussed
in this chapter, the nonprofit sector continues to regulate itself in a variety of ways. A few of the venues by
which the voluntary sector seeks to promote and maintain accountability include: evaluation by watchdog
groups such as CharityWatch (founded in 1994 as the American Institute of Philanthropy) and MinistryWatch; promotion of the adoption of codes of ethics by Independent Sector; Internet dissemination
of Form 990 financial disclosures via the Foundation Center by Candid; and accreditation procedures.
Watchdog Groups as Sector Regulators
A number of systems have been created to rate or rank nonprofits as a means of providing donors and
the public with a reliable way to compare organizations. In 2005, the National Council of Nonprofit
Associations and the National Human Services Assembly (NCNA-NHSA) formed a joint task force
to evaluate the rating and ranking systems of several of these nonprofit watchdog organizations. This
project was undertaken out of concern that the potential exists for donors and the media to be misled
or misinformed by the rating and ranking systems currently put in place by a myriad of watchdog
groups. The task force examined materials from nine entities.105
In the first group, rating systems of four not-for-profit organizations—American Institute of Philanthropy (AIP), Better Business Bureau Wise Giving Alliance (BBB-WGA), Charity Navigator, and Standards for Excellence Institute (SFXI)—and one government entity, the Combined Federal Campaign,
were compared. For the second group, four for-profit publications—The Chronicle of Philanthropy,
Forbes, Nonprofit Times, and Smart Money—that rate or rank charitable nonprofit organizations were
compared. Each entity was examined based on: 1) organization and structure 2) method of rating or
ranking, and 3) evaluation standards and criteria.106 Results indicate that the greatest consistency was
among the ranking systems of the four for-profit publications. Of particular note, none of the publications used program delivery or effectiveness in their rating/ranking systems. More information on
the nonprofit evaluators in the NCNA-NHSA study is found in Exhibit 5.3.
Because of variability in the criteria used to evaluate charities, it is advisable for donors to be well
informed about the watchdog group itself before employing its ratings or rankings in evaluating char116 Fundamentals and Environment of the Voluntary Sector
ities. NCNA-NHSA advises that there is sufficient variation among the systems currently employed
to cause confusion and even misinterpretation, leading to denial of contributions to worthy charities.
It recommends use of a set of criteria to evaluate the raters that includes: 1) ensuring the rating organization makes its methodology and criteria for evaluation readily available and understandable; 2)
applies the same evaluation standards to itself; and 3) offers its findings free-of-charge to donors and
those charities that are evaluated. The NCNA-NHSA task force argues that while financial measures
such as fundraising and overhead cost ratios are important measures, they are insufficient indicators of
nonprofit strength and worthiness. Rating/rankings should include measures of program effectiveness
and service delivery in order to depict the true capabilities of the charities evaluated.
Exhibit 5.3
For More Information
NCNA-NHSA Rate the Raters
In 2005, the National Council of Nonprofit Associations (NCNA) and the National Human Services Assembly (NHSA) published the results of their study on prominent evaluators of nonprofit
organizations. A brief synopsis of three of the watchdog groups they studied follows:
• American Institute of Philanthropy (AIP)/CharityWatch—the mission of AIP as stated on its
website is “to maximize the effectiveness of every dollar contributed
to charity by providing donors with the information they need to make more informed
giving decisions.” The ratings system employed is a grade scale—A+ to F—with additional
information on assets, fundraising costs, and program expenditures. Ratings are published
online at More than 600 organizations have been evaluated through in-depth analysis of public information as well as information submitted by
CharityWatch, including audits, tax forms, and annual reports. A detailed description of
the criteria and methodology for the ratings system is provided on the website.
• Better Business Bureau Wise Giving Alliance (BBB-WGA or the Alliance)—according to
its website,, the Alliance “helps donors make informed giving decisions and
advances high standards of conduct among organizations that solicit contributions from the
public.” The Alliance specifies that it does not rate or rank charities but does provide a “standard is met,” “standard is not met,” or “unable to verify” finding for each of its 20 Standards
for Charity Accountability. Information submitted by the nonprofit organization is the basis
for the evaluation. Nationally soliciting nonprofits are chosen for evaluation based on the
volume of inquiries the Alliance receives; the Wise Giving Guide is published three times
per year. Reports on thousands of organizations have been prepared over the years, but only
recent reports (less than two years old) are distributed. The Alliance places responsibility for
program effectiveness assessment on the nonprofit’s board; it requires the nonprofit’s board
to mandate a biennial performance evaluation with a written report of results.
• Charity Navigator—the mission of Charity Navigator is to work to “guide intelligent
giving,” as stated on its website, This watchdog uses financial
ratios to evaluate organizational efficiency and capacity; ratings are assigned on a scale of
0 to 4 stars. Charity Navigator calculates the overall score using a complex formula that
Regulating Not-for-Profit Organizations 117
takes into account the nonprofit’s financial health as well as its level of accountability and
transparency. The formula is not simply a sum of the two component scores (maximum of
100 points each), but rather takes into account the distance of each from a perfect score in
order to ensure that a charity performs well on each component in order to receive a high
overall score. Stars awarded relate to the overall score: nonprofits with an overall score of
90 or higher earn 4 stars; between 80 and 89, 3 stars, and so on.107 Charity Navigator has
rated more than 3,000 nonprofits based on public information, including Form 990 data,
website information, and the organization’s brochures. Currently, the ratings are based
solely on Form 990 data; providing program effectiveness ratings is a goal for the future.
Ratings are available through the searchable database on its website.
Sources: NCNA-NHSA, Rating the Raters: An Assessment of Organizations and Publications that Rate/Rank
Charitable Nonprofit Organizations, 2005,;;
Using Accreditation to Enforce Standards and Best Practices
Numerous nonprofit organizations exist for the purpose of accrediting other nonprofit organizations—that is, to establish, maintain, and enforce best practices and standards of behavior within a
particular field of expertise. While accreditation is most readily associated with institutions of higher
education and healthcare facilities, other organizations within the nonprofit sector also seek to regulate
themselves in this manner.
For example, as discussed in previous chapters, National Children’s Alliance (NCA) is a national-level, not-for-profit organization that was established through a federal grant to provide technical
support and financial assistance to develop children’s advocacy centers (CAC) nationwide. In 1991,
NCA recognized its first full member centers, those CACs that met all of the best practices standards
set forth in the model. CACs submitted to an application and site review process of evaluation to
achieve full member status.108 After 2002, NCA moved beyond recognition of associate and full
members to become an accrediting body of children’s advocacy centers nationwide. Accreditation
brings with it an assurance of quality and continued monitoring that center activities will meet the
stringent standards of best practices in handling cases of child sexual abuse. Because the delivery
of services by nonprofits is often a means by which they make policy, improving service delivery
through accreditation and establishing best practices standards enhances the impact of nonprofits
on public policy.
Nonprofits also use certification as a way to regulate the for-profit and public sectors. Organizations
such as B Lab® that certifies for-profit B Corps (which is discussed in Chapter 3), and Forest Stewardship
Council that certifies environmental sensitivity along the forest-to-lumber-store supply chain, engage in
what Rudder, Fritschler, and Choi termed private governance: “binding rules made by nongovernmental
groups that affect the opportunities and welfare of the broader public.”109 Rudder et al. also identified
the Governmental Accounting Standards Board (GASB) as a nonprofit engaged in private governance.
As is discussed in Chapter 11, GASB issues rules that government entities must follow in preparing
financial statements or risk not obtaining a clean audit. This reflects ways in which nonprofits make
regulatory policy in accordance with the Nonprofit-Policy Framework.
118 Fundamentals and Environment of the Voluntary Sector
The Nonprofit-Policy Framework indicates that the nonprofit sector is subject to a great deal of direct
government regulation; organizations also engage in a significant amount of self-regulatory behavior.
However, the size, scope, and diversity of not-for-profit organizations pose substantial challenges to
effective regulation of the sector as a whole. As the number of nonprofits increases, the competition
for scarce resources also increases. More and more nonprofits are exploring commercial ventures to
diversify and stabilize their funding streams, leading to greater relevance of the UBIT. Also, as nonprofit activity increases as a portion of GDP, the impact on local, state, and federal tax bases becomes
a greater concern.
Most public charities do not lobby, so regulatory activity that focuses heavily on lobbying as currently defined has little effect on the majority of 501(c)(3) organizations. Most nonprofit organizations,
however, do advocate for their causes and constituencies. Regulatory activity aimed at diminishing the
voice of nonprofits regarding public policy, therefore, will continue to meet stiff resistance. Independent Sector is one of the leading voices for the voluntary sector and has been quite successful in its
advocacy efforts.110
Despite the fact that only two of its provisions apply specifically to nonprofit organizations, the
Sarbanes-Oxley Act has a significant impact on the nonprofit sector. Many in the field look on the provisions of SOX as best practices for nonprofits, behaviors that would be in the best interest of individual
nonprofits and the sector as a whole. State regulation of nonprofit organizations includes best practices
legislation, either based on SOX provisions or at the request of the organizations it would govern.
Implementation is also an important factor. Enacting stricter government regulations and strengthening the sector’s commitment to governing itself are not enough. Without adequate resources to
enforce regulations, they will not have the desired effect. To this end, the Panel on the Nonprofit
Sector identified federal and state enforcement as its No. 1 recommendation in its report to Congress
on strengthening nonprofit governance. They recommended that additional funding be provided to
the IRS as well as state charity oversight agencies, plus provision of greater access to IRS information
by state attorneys general.
Regulation—by government entities and through self-regulation—represents a significant application
of the Nonprofit-Policy Framework; it is the primary way in which the voluntary sector is affected by
and subject to public policy. While the scope of regulatory action applicable to the sector has increased,
the data indicate that the voluntary sector is not opposed to more stringent oversight per se. Not-forprofit organizations, in general, recognize the need for greater accountability and standards of behavior.
However, the implications of regulatory activity are significant for the nonprofit sector. Diversity of
organizations dictates the relevance of certain types of regulations as well as nonprofits’ capacity to
comply with them. As with most policies, there is rarely a “one size fits all” approach.
Questions for Review
1. What must an organization demonstrate to the Internal Revenue Service (IRS) in order
to be recognized as tax-exempt under section 501(c)(3)? Explain the rationale for each
2. Describe the Unrelated Business Income Tax (UBIT) and explain why it was instituted.
Has this proven to be an effective way to regulate nonprofit activity? Why or why not?
3. How do the Title XII provisions of the Pension Protection Act of 2006 extend or expand
on the earlier requirements of the Tax Reform Act? How do these requirements relate to
Regulating Not-for-Profit Organizations 119
the impact on the sector of the Tax Cuts and Jobs Act of 2017? Explain how these policy
changes are both welcomed and opposed by the philanthropic sector.
4. Identify and explain three ways in which nonprofits are subject to either indirect or self-regulation. What are the merits and limitations of these approaches to monitor the voluntary
Go to the IRS Stay Exempt website at to access the Small to Mid-Size Tax-Exempt Organization Workshop (Training Topics 1 through 10). Complete the virtual workshop; you will need to
listen to the audio commentary and be prepared to submit responses to scenarios provided throughout. Upon completion of the Virtual Workshop, summarize the main points and evaluate the effectiveness of the workshop in improving your knowledge and capability to advise a nonprofit on the
requirements for getting and maintaining tax-exempt status.
Suggested Readings
Brody, Evelyn, and Cordes, Joseph J. (2017). “Tax Treatment of Nonprofit Organizations: A
Two-Edged Sword?” In Boris, Elizabeth T., and Steurele, C. Eugene (Eds.). Nonprofits and
Government: Collaboration and Conflict (3rd ed.). Washington, DC: The Urban Institute
Press, pp. 133–161.
Cafardi, Nicholas, and Cherry, Jaclyn Fabean. (2006). Understanding Nonprofit and Tax-Exempt
Organizations. Newark, NJ: LexisNexis.
Friedman, Lawrence M. (2009). “Charitable Gifts and Foundations.” Chapter 8 in Dead Hands:
A Social History of Wills, Trusts, and Inheritance Law. Stanford, CA: Stanford Law Books
of Stanford University Press.
Lott, Cindy M., and Fremont-Smith, Marion. (2017). “State Regulatory and Legal Framework.”
In Boris, Elizabeth T., and Steurele, C. (Eds.). Nonprofits and Government: Collaboration
and Conflict (3rd ed.). Washington, DC: The Urban Institute Press, pp. 133–161.
Rudder, Catherine E., Fritschler, A. Lee, and Choi, Yon Jung. (2016). Public Policymaking by
Private Organizations. Washington, DC: Brookings Institution Press.
Web Resources
IRS Stay Exempt Tax Basics for Exempt Organizations,
List of State Offices that Regulate Charities,
National Association of State Charity Officials,
National Council of Nonprofits. Resources on How the New Federal Tax Law Impacts Charitable Organizations. 2019.
Unified Registration Statement and Multi-State Filing Project,
120 Fundamentals and Environment of the Voluntary Sector
1. Marion R. Fremont-Smith, Governing Nonprofit
Organizations: Federal and State Law and Regulation,
Cambridge, MA: Belknap Press of Harvard University
Press, 2004.
2. The Pulitzer Prizes, “David A. Fahrenthold of The
Washington Post, 2019,
winners/david-fahrenthold (accessed July 14, 2019).
3. NYS Attorney General, “Attorney General Underwood
Announces Lawsuit Against Donald J. Trump Foundation and Its Board of Directors For Extensive and
Persistent Violations of State and Federal Law,” June
14, 2019, (accessed July 15, 2019).
4. Rick Cohen, “Fact Sheet on Johnson Amendment:
Trump Foundation Litigation and Pending Legislation,” National Council of Nonprofits, 2019, https:// (accessed July 15, 2019).
5. IRC §501, available via the Government Printing
Office at:
subtitleA-chap1-subchapF-partI-sec501.pdf (accessed
July 15, 2019).
6. John Wagner and Sarah Pulliam Bailey, “Trump Signs
Order Seeking to Allow Churches to Engage in
More Political Activity,” May 4, 2017, https://www
(accessed July 15, 2019); Rick Cohen, “Fact Sheet on
Johnson Amendment.”
7. National Council of Nonprofits, “Protecting the
Johnson Amendment and Nonprofit Nonpartisanship,” 2019,
trends-policy-issues/protecting-nonprofit-nonpartisanship (accessed July 15, 2019).
8. Rick Cohen, “Statement on Trump Foundation and
the Johnson Amendment,” June 15, 2018, National
Council of Nonprofits, https://www.councilofnonprofits
.org/article/statement-trump-foundation-and-thejohnson-amendment (accessed July 15, 2019).
9. Theodore J. Lowi, “Four Systems of Policy, Politics,
and Choice,” Public Administration Review, 33, pp.
298–-310; Randall B. Ripley and Grace A. Franklin,
Congress, the Bureaucracy, and Public Policy, Homewood, IL: Dorsey Press, 1980.
10. Marion R. Fremont-Smith, Governing Nonprofit
11. The primary source for the information in this exhibit
was drawn from Nicholas Cafardi and Jaclyn Fabean
Cherry, Understanding Nonprofit and Tax-Exempt Organizations. Newark, NJ: LexisNexis, 2006. Additional endnotes are provided with links to IRS or other
web-based sources.
12. I.R.C. §509(a), available via the Government Printing
Office at:
subtitleA-chap1-subchapF-partII-sec509.pdf (accessed
July 14, 2019).
13. IRS, “7.26.4 Private Foundations Defined IRC
509(a)(2) Exclusion,” last modified September 10,
004 (accessed July 14, 2019).
14. IRS, “Section 509(a)(3) Supporting Organizations,”
last modified March 26, 2019,
charities-non-profits/section-509a3-supportingorganizations (accessed July 14, 2019).
15. IRS, “Tax on Net Investment Income,” last modified
March 26, 2019, (accessed July 14, 2019).
16. IRS, “Taxes on Self-Dealing: Private Foundations,”
June 5, 2019, (accessed July 14, 2019).
17. IRS, “Acts of self-dealing by private foundations,” last
modified June 5, 2019, (accessed July 14,
18. IRS, “Tax on Net Investment Income of Private
Foundations: Reduction in Tax,” last modified March
26, 2019,
private-foundations/tax-on-net-investment-incomeof-private-foundations-reduction-in-tax (accessed July
14, 2019).
19. Grantspace by Candid, “What Is a ‘Payout Requirement’ for a Private Foundation?” 2019, https://
(accessed July 14, 2019).
20. IRS, “Taxes on Excess Business Holdings,” last modified June 5, 2019,
charities-non-profits/private-foundations/taxeson-excess-business-holdings (accessed July 14,
Regulating Not-for-Profit Organizations 121
21. IRS, “Taxes on Jeopardizing Investments,” last modified March 26, 2019,
charities-non-profits/private-foundations/taxes-on-jeopardizing-investments (accessed July 14,
22. IRS, “Private Foundation Taxable Expenditures:
‘Taxable Expenditures’ Defined,” last modified June
5, 2019,
private-foundations/private-foundation-taxableexpenditures-taxable-expenditures-defined (accessed
July 14, 2019).
23. IRS, Publication 557 Tax-Exempt Status for Your
Organization. Washington, DC: Department of the
Treasury, Internal Revenue Service, 2019; IRS, “Exemption Requirements—501(c)(3) Organizations,”
last modified November 28, 2018, https://www.irs.
(accessed July 14, 2019).
24. Alan L. Feld, Rendering unto Caesar or Electioneering
for Caesar? Loss of Church Tax Exemption for Participation in Electoral Politics, 42 B.C.L. Rev. 931 (2001),
25. Thomas B. Edsall and Hanna Rosin, “IRS Denies
Christian Coalition Tax-Exempt Status,” Washington
Post, (accessed June 11,
26. Prior to 2008, organizations with more than $25,000
in annual gross receipts were required to file the Form
990 or Form 990-Z; organizations with less than
$25,000 in annual revenues had no reporting requirements.
27. All private foundations, regardless of budget size or
activity during the fiscal year, must file an annual information return, the Form 990-PF; IRS Stay Exempt
Tax Basics for Exempt Organizations, last updated
October 15, 2018, “Form 990 Overview Course,” (accessed July 15,
28. IRS Stay Exempt, “Form 990 Overview Course.”
29. IRS Stay Exempt, “Form 990 Overview Course.”
30. IRS Stay Exempt, “Form 990 Overview Course.”
31. Evelyn Brody and Joseph J. Cordes, “The Unrelated Business Income Tax: All Bark and No Bite?”
Emerging Issues in Philanthropy, Washington, DC: The
Urban Institute, 2001; Marion R. Fremont-Smith,
Governing Nonprofit Organizations.
32. IRS, “Unrelated Business Income Tax,” last modified March 26, 2019,
(accessed on July 15, 2019).
33. Nicholas Cafardi and Jaclyn Fabean Cherry, Understanding Nonprofit and Tax-Exempt Organizations,
Newark, NJ: LexisNexis, 2006.
34. Bruce R. Hopkins, 650 Essential Nonprofit Law Questions Answered, Hoboken, NJ: John Wiley & Sons,
35. Henry B. Hansmann, “The Role of Nonprofit Enterprise,” Yale Law Journal, 89, 1980, pp. 835–898.
36. Tax-exempt funds or organizations other than public
charities such as colleges and universities, and
medical savings accounts as well as Individual Retirement Accounts and other pension plans are also
subject to the UBIT. Data are available from the IRS
Tax Stats website,
soi-tax-stats-exempt-organizations-unrelatedbusiness-income-ubi-tax-statistics (accessed November
23, 2019).
37. The percent reporting is derived from the number
of 2013 returns from 501(c)(3) organizations that
reported gross unrelated business income (16,416)
divided by the total number of registered 501(c)
(3) organizations in 2013 (950,000). IRS, “SOI Tax
Stats—Exempt Organizations’ Unrelated Business
Income (UBI) Tax Statistics,” 2013, https://www.irs
.gov/statistics/soi-tax-stats-exempt-organizationsunrelated-business-income-ubi-tax-statistics (accessed
July 18, 2019); Brice S. McKeever, The Nonprofit
Sector in Brief: 2015, Urban Institute, October 2015
(accessed July 18, 2019).
38. Evelyn Brody and Joseph J. Cordes, “The Unrelated
Business Income Tax”; Marion R. Fremont-Smith,
Governing Nonprofit Organizations.
39. Evelyn Brody and Joseph Cordes, “The Unrelated
Business Income Tax,” p. 1.
40. National Council of Nonprofits, “Unrelated Business
Income Taxation,” 2019, (accessed July 15, 2019).
41. David S. Karp, “Taxing Issues: Reexamining the Regulation of Issue Advocacy by Tax-Exempt Organizations
through the Internal Revenue Code,” New York University Law Review, 77 N.Y.U.L. Rev. 1805, 2002.
42. IRS, March 26, 2019, “Exemption Requirements—
122 Fundamentals and Environment of the Voluntary Sector
Political Organizations,” (accessed July 15, 2019);
IRS, May 3, 2019, “Exempt Function—Political Organization,”
political-organizations/exempt-function-political-organization (accessed July 15, 2019).
43. The reporting threshold in place at that time.
44. David S. Karp, “Taxing Issues.”
45. More information on tax-exempt political organizations and their filing/disclosure requirements are
available in IRS Publication 557.
46. Elizabeth Schmidt. Nonprofit Law: The Life Cycle of
a Charitable Organization, 2nd ed., Fredrick, MD:
Wolters Kluwer, 2017; Stephanie Geller and Lester
M. Salamon, “Nonprofit Advocacy: What Do We
Know? Center for Civil Society Studies Working
Paper,” No. 22, Baltimore, MD: Johns Hopkins
University Institute for Policy Studies, 2007.
47. Dennis McIlnay, “Philanthropy at 50: Four Moments
in Time,” Foundation News and Commentary, 39,
cfm?ID=1053 (accessed September/October 1998);
Gary N. Scrivner, “100 Years of Tax Policy Changes
Affecting Charitable Organizations,” in the Nonprofit
Organization:Essential Readings, David L. Gies, J.
Steven Ott, and Jay M. Shafritz, Belmont, CA: Wadsworth, Inc., 1990.
48. Waldemar A. Nielsen, Golden Donors: A New Anatomy of the Great Foundations, New Brunswick, NJ:
Transaction Publishers, 2002, pp. 255–264; Dennis
McIlnay, “Philanthropy at 50.”
49. Waldemar A. Nielsen, Golden Donors, p. 23.
50. Ibid.
51. Dennis McIlnay, “Philanthropy at 50,” p. 3.
52. Peter Frumkin, “The Ironies of Foundation Regulation,” Chronicle of Philanthropy, 16, 2004, pp. 31–33;
Waldemar A. Nielsen, Golden Donors; Dennis McIlnay, “Philanthropy at 50”; John G. Simon, “The Regulation of American Foundations: Looking Backward
at the Tax Reform Act of 1969,” Voluntas, 6, 1995,
pp. 243–254; Gary N. Scrivner et al. “100 Years of
Tax Policy Changes”; Gary D. Bass, David F. Arons,
Kay Guinane, and Matthew F. Carter, Seen but not
Heard, Strengthening Nonprofit Advocacy, Washington,
DC: The Aspen Institute, 2007.
53. Dennis McIlnay, “Philanthropy at 50,” p. 4.
54. Dennis McIlnay, “Philanthropy at 50.”
55. Francie Ostrower and Marla J. Bobowick, Nonprofit
Governance and the Sarbanes-Oxley Act, https:// p. 4 (accessed November 10, 2006).
56. Ibid.
57. Peggy M. Jackson and Toni E. Fogarty, Sarbanes-Oxley
for Nonprofits: A Guide to Gaining the Competitive Advantage, Hoboken, NJ: John Wiley and Sons, 2005.
58. Francie Ostrower and Marla J. Bobowick, Nonprofit
Governance and the Sarbanes-Oxley Act.
59. Ibid.; Francie Ostrower, Nonprofit Governance in the
United States: Findings on Performance and Accountability from the First National Representative Study,
Washington, DC: The Urban Institute, 2007.
60. Pension Protection Act (PPA), Public Law 109-280,
pdf/PLAW-109publ280.pdf (accessed August 17,
61. IRS, IRS Identifies Organizations that Have Lost
Tax-Exempt Status; Announces Special Steps to Help
Revoked Organizations, last updated June 28, 2019,
(accessed July 15, 2019); IRS, Pension Protection Act
of 2006 Revises EO Tax Rules, last modified June 5,
2019, (accessed July 15, 2019); Foundation for the Carolinas
(FFTC), New Charitable Giving Incentives & Exempt
Organization Reforms: Pension Protection Act of 2006,
Doc?id=102 (accessed June 9, 2011).
62. Independent Sector, Principles of Good Governance
and Ethical Practice, 2015, (accessed July 15, 2019).
63. National Council of Nonprofits, “Tax Cuts and Jobs
Act, H.R. 1 Nonprofit Analysis of the Final Tax Law,”
updated April 5, 2018, (accessed July 18, 2019).
64. Leslie Albrecht, “Americans Slashed Their Charitable
Deductions by $54 Billion after Republican Tax-code
Overhaul,” July 11, 2019, https://www.marketwatch.
com/story/americans-slashed-their-charitabledeductions-by-54-billion-after-trumps-tax-overhaul2019-07-09?mod=mw_share_facebook&fbclid=IwAR1aUh_tDhSdlEspNQOQNqS49UsYKCcKdi3CQE2KQx2nzzI6hl2p_NToKwo (accessed July
18, 2019).
Regulating Not-for-Profit Organizations 123
65. National Council of Nonprofits, “Tax Cuts and Jobs
66. Ibid.; Emily Chan, “New Year, New Rules: How the
New Tax Reform affects Exempt Organizations,”
January 2, 2018,
(accessed July 18, 2019).
67. Evelyn Brody, “The Legal Framework for Nonprofit
Organizations,” in The Nonprofit Sector A Research
Handbook, 2nd ed., Walter W. Powell and Richard
Steinberg, eds., New Haven, CT: Yale University Press,
2006, pp. 243–266; Independent Sector, Obedience to
the Unenforceable: Ethics and the Nation’s Voluntary and
Philanthropic Community, Washington, DC: Independent Sector, 2002,
.html (accessed July 15, 2019).
68. Marion R. Fremont-Smith, Governing Nonprofit
69. Woods Bowman and Marion R. Fremont-Smith,
“Nonprofits and State and Local Governments,” in
Nonprofits and Government, 2nd ed., Elizabeth T.
Boris and C. Eugene Steuerle, eds., Washington, DC:
Urban Institute Press, 2006.
70. Federal Trade Commission (FTC), “FTC, All 50
States and D.C. Charge Four Cancer Charities with
Bilking Over $187 Million from Consumers,” May
19, 2015, (accessed July 18, 2019);
CharityWatch, “Long Running Family Charity Scheme
Exposed,” July 27, 2015, https://www.charitywatch.
org/charitywatch-articles/long-running-familycharity-scheme-exposed/160 (accessed July 18, 2019).
71. Mary Papenfuss, “N.Y. Attorney General Calls for $5.6 Million Fine Against Trump’s
‘Self-Dealing’ Foundation,” March 18, 2019,
(accessed July 18, 2019).
72. Ibid.
73. David Voreacos, “The Martin Act,” November 10,
2015, Bloomberg (accessed July 18, 2019).
74. Ibid.
75. Mary Papenfuss, “N.Y. Attorney General Calls for
$5.6 Million Fine.”
76. Peter Swords, “Did the Filer Engage in Any Self-Dealing or Excess Benefit Transactions during the Year?”
How to Read the New Form 990, Nonprofit Coordinating Committee of New York, http://www.npccny.
org/new990/Chapter_8.pdf; Peter Swords, “How to
Read the IRS Form 990 & Find Out What It Means,”
Nonprofit Coordinating Committee of New York, (accessed
November 9, 2005).
77. Community foundations are defined and discussed in
Chapter 2.
78. Foundation Center, Change in Community Foundation
Giving and Assets, 1981 to 2008,
growth/2008/00_08.pdf (accessed June 11, 2011);
Foundation Center, Foundation Stats, “Aggregate
Fiscal Data of Foundations in the U.S., 2015 http:// (accessed July 18, 2019).
79. A provision to impose additional reporting requirements on DAF host organizations failed to make it
into the final version of the TCJA. The provision
would have required sponsoring organizations to
report on the average amount of DAF grants made,
as well as provide information on their policies (or
lack thereof ) regarding the required frequency and
minimum amounts of grants from DAF. See Emily
Chan, “New Year, New Rules: How the New Tax
Reform affects Exempt Organizations,” Adler &
Colvin, January 2, 2018, https://www.adlercolvin
.com/blog/2018/01/02/new-year-new-rules-newtax-reform-affects-exempt-organizations/ (accessed
July 18, 2019).
80. Lawrence M. Friedman, Dead Hands: A Social History
of Wills, Trusts, and Inheritance Law, Stanford, CA:
Stanford Law Books of Stanford University Press,
2009, pp. 140–70; Waldemar A. Nielsen, Golden
81. Lawrence M. Friedman, Dead Hands, p. 153.
82. Lawrence M. Friedman, Dead Hands; Evelyn Brody,
“Accountability and the Public Trust,” in The State of
Nonprofit America, Lester M. Salamon, ed., Washington, DC: Brookings Institution Press, 2002, pp.
471–498; Waldemar A. Nielsen, Golden Donors.
124 Fundamentals and Environment of the Voluntary Sector
83. Nielsen, Waldemar A. Nielsen, Golden Donors: A New
Anatomy of the Great Foundations, New Brunswick,
NJ: Transaction Publishers, 2002, pp. 255–264;
Lawrence M. Friedman, Dead Hands: A Social History
of Wills, Trusts, and Inheritance Law, Stanford, CA:
Stanford Law Books of Stanford University Press,
2009, pp. 140–170.
84. Nielsen, Golden Donors, p. 259.
85. Friedman, Dead Hands, pp. 159–160; John G.
Simon, “American Philanthropy and the Buck Trust,”
Faculty Scholarship Series, Paper 1940, last modified
86. San Francisco Foundation: Independent Auditors’
Report, Consolidated Financial Statements, and Supplementary Information, June 30, 2018,
wp-content/uploads/2019/05/SF-Fdn-2018-FS-Final1217-Reissued-0516.pdf (accessed July 18, 2019).
87. Marin Community Foundation (MCF) Financials,
“MCF Fund Structure as of June 30, 2018,” Combined Financial
financials (accessed July 18, 2019).
88. Ibid.
89. MCF, “Buck Family Fund of MCF,” 2019, https:// (accessed
July 18, 2019).
90. “MCF Financials, June 30, 2010.”
91. MCF, “Form 990, 2016,” https://s3-us-west-2. (accessed July 18, 2019).
92. MSFP (Multi-State Filer Project), “Which States
Require Registration of Charitable Soliciting
Organizations and Accept the URS?” and “Which
States Require Registration of Charitable Soliciting
Organizations and Do Not Accept the URS?” http:// (accessed July 18, 2019);
Renee A. Irvin, “State Regulation of Nonprofit Organizations: Accountability Regardless of Outcome,”
Nonprofit and Voluntary Sector Quarterly, 34, 2005,
pp. 161–178.
93. Detailed information on the URS and the Multi-State
Filer Project is available at
94. Renee A. Irvin, “State Regulation of Nonprofit Organizations: Accountability Regardless of Outcome,”
Nonprofit and Voluntary Sector Quarterly, 34, 2005,
pp. 161–178.
95. Irvin (2005) noted that these states—Delaware,
Idaho, Montana, Nebraska, Nevada, Wyoming—are
predominantly western states with smaller populations; it is possible that they simply do not have an
environment that is attractive to nonprofits likely to
engage in fraud and abuse. She, therefore, cautions
against drawing generalizable conclusions from the
96. IRS, “SOI Tax Stats—Charities and Other Tax-Exempt Organizations Statistics, 501(c)(3) Organizations: Form 990 Balance Sheet and Income Statement
Items,” 2015, (accessed July 18,
97. Lester A. Salamon, Partners in Public Service, Baltimore: Johns Hopkins University Press, 1995.
98. Lawrence M. Friedman, Dead Hands; Woods Bowman and Marion R. Fremont-Smith, “Nonprofits and
State and Local Governments.”
99. Smithers v. St. Luke’s–Roosevelt Hospital Center—a
New York case regarding a $10 million bequest to the
hospital for a center to treat alcoholism—is a notable
exception. The court allowed Adele Smithers , the donor’s widow and administrator of his estate, standing
to sue when the hospital did not use the funds to her
satisfaction. It was likely her position as administrator
of the estate in combination with her status as the
donor’s widow that led the court to allow her lawsuit
(Friedman, 2009).
100. Oregon Revised Statutes (ORS), “Chapter 128.710
Enforcement Jurisdiction of Court,” https://www (accessed June 11,
101. Lawrence M. Friedman, Dead Hands; Panel on the
Nonprofit Sector, Strengthening Transparency Governance Accountability of Charitable Organizations:
A Supplement to the Final Report to Congress and the
Nonprofit Sector, Washington, DC: Independent
Sector, 2006.
102. Ibid.
103. Alan J. Abramson and Rachel McCarthy, “Infrastructure Organizations,” in The State of Nonprofit America,
Lester M. Salamon, ed., Washington, DC: Brookings
Institution Press, 2002, pp. 331–354.
104. Marion R. Fremont-Smith, Governing Nonprofit
105. NCNA-NHSA, Rating the Raters: An Assessment
of Organizations and Publications that Rate/Rank
Charitable Nonprofit Organizations, Washington, DC:
National Council of Nonprofit Associations and the
National Human Services Assembly, 2005.
Regulating Not-for-Profit Organizations 125
106. Ibid, 5.
107. Charity Navigator, “Charity Navigator’s Methodology,”
(accessed November 23, 2019).
108. Nancy Chandler, ed., Best Practices for Establishing a
Children’s Advocacy Center Program, 3rd ed., Washington, DC: National Children’s Alliance, 2000.
109. Catherine E. Rudder, A. Lee Fritschler, and Yon Jung
Choi, Public Policymaking by Private Organizations,
Washington, DC: Brookings Institution Press, 2016.
110. Marion R. Fremont-Smith, Governing Nonprofit
126 Fundamentals and Environment of the Voluntary Sector
Strategies of Not-for-Profit Organizations

Non-profit institutions exist for the sake of their mission. The first task of the leader is to make sure that
everybody sees the mission, hears it, lives it.
Peter F. Drucker1
Imagine that you were raised in New York City surrounded by all of its arts and cultural amenities.
You saw plays on Broadway with your family, visited the Metropolitan Museum of Art on school field
trips, listened to the orchestra in Van Cortland Park on summer afternoons, and played the lead in
your high school musical. All of these experiences infused in you a love of the arts and appreciation
for the uplifting effects that art, theater, and music have on people’s lives. As an adult, your career has
taken you far from New York City, and to your dismay, children in your community have little access
to the arts. Budget cuts have meant that the public schools no longer have the resources to bring arts
and culture to students. There is no money for school field trips, and funding for visual arts, theater,
and music programs was cut years ago. As a strong proponent of all forms of artistic expression, you
find this situation untenable and decide to do something about it: You decide to bring children’s theater productions and opportunities to the community through creation of a Youth Community Theatre
Project. Your long-term vision is to partner with the local school district to bring art back into the
schools, but for now, armed with an idea, your passion, and a list of potential donors, you are ready
to make this happen.
The Mission: Critical for Nonprofit Success
Mission is described as the raison d’être, the reason for being, the driving force, or the guiding purpose
of an organization. In the nonprofit sector, mission is what guides organizations as they address public
needs. Whether through direct program delivery, policy advocacy, or member service, organizations
in the not-for-profit sector have always been mission-driven. Those who found, fund, and work in
nonprofit organizations do so because of their commitment to the purpose of the organization. As
Charles T. Goodsell explained, “more than any other quality, a strong sense of mission is indispensable
to morale, image and success.”2
Policy entrepreneurs who see the chance to make a difference often found nonprofits, such as
the Youth Community Theatre Project (YCTP) in the opening vignette. The creation of YCTP
provides examples of both demand-side and supply-side explanations of the voluntary sector, as
discussed in Chapter 4. Some would argue that a government failure—the lack of public commitment to the arts—created an instrumental need for arts education in the community. Others
would argue that YCTP is an example of meeting an expressive interest, in this case, the interests
of the founder, her donors, and volunteers. You may see the merit in both arguments. In either
case, YCTP’s founder identified an open window of opportunity to bring theater to children who
would not otherwise enjoy or participate in the performing arts. This mission will guide the decisions that YCTP makes, the programs it pursues, and therefore, the ways in which it will make
and influence public policy.
This chapter also discusses nonprofit missions from a practical perspective, with a number of key
concepts framing our discussion of articulating and pursuing the nonprofit mission. These concepts
include clarification of organizational values and the creation of a mission statement guided by those
values; articulation of a longer-term vision statement; the setting of organizational goals; and use of
strategic planning tools. All of these help the not-for-profit move from its guiding mission, through
identification and achievement of objectives, and ultimately, to the ability to use the mission as an
important policy tool for holding nonprofit leaders accountable.3
As the Nonprofit-Policy Framework suggests, there are important ways in which the nonprofit
mission is subject to public policy constraints. First, a description of the mission and the public
purpose of the organization are required when filing articles of incorporation with state government.4
Similarly, at the federal level, the organization’s mission is required for eligibility and 501(c) status
determination; subsequently, it must be included in annual IRS Form 990 filings. Finally, the mission must meet and maintain five characteristics in order for nonprofits to retain their legal status as
tax-exempt organizations. The nonprofit mission must be: 1) a social contract, or promise between
the organization, its members, and society that it will serve the purposes for which it has been
granted tax exempt status; 2) permanent, in that the mission is voted on by the board members and
not subject to dramatic changes, especially those changes that may threaten the tax-exempt status of
the organization; 3) clear, in that it articulates an approved tax-exempt organizational purpose with
clarity; 4) approved, by the board, the state, and the IRS; and 5) demonstrable, the nonprofit must
be able to show how and from where it received its income and resources, and for what purposes
those resources were used.5
Whether seeking grant funding from government or foundations, seeking donations of time and
money from the public, engaging in policy advocacy on behalf of clients, delivering services to the
community, or serving its members, a strong mission gives the organization its sense of direction. As
funders increasingly seek measurable outcomes from the organizations they support, a strong mission
and vision tied to organizational values and goals offer the nonprofit a clear way to demonstrate its
success. When considering collaborations with other organizations across sectors, the mission of the
nonprofit is critical to finding like-minded entities that will partner in policy advocacy, funding, and
Organizational Values and the Role of Stakeholders
A voluntary organization is created to do something. In the opening vignette, the founder seeks to fill
in a gap left by school budget cuts and fulfill her passion for the arts by bringing children’s theater
130 Strategies of Not-for-Profit Organizations
opportunities to the community through creation of the Youth Community Theatre Project. The
values of the founder are the principles that will guide the project and help the organization find
its niche in the broader environment. As Lakey, Lakey, Napier, and Robinson noted, “Values are
the bedrock of all organizational policies. They form the foundation for the vision, mission, and
goals of the group.”6
Let us assume that the founder of YCTP values access, education, and bringing
high-quality theater productions to children in a community with few opportunities to enjoy the
performing arts. Founding board members will be selected because they feel similarly passionate
about these issues, and together, they will take these values and infuse them into the work of the
Values and mission are inextricably linked in the voluntary sector, and both a clearly articulated
mission and strong values are vital for nonprofit success. For example, organizational values and mission
are important in communication with stakeholders; they provide insight into the nonprofit’s policy
orientation and activity. Clientele, members, grantors, staff, volunteers, policymakers, and others
must have a solid understanding of why the organization exists, the values it seeks to uphold, and the
approach it takes to fulfill its purpose in order to determine the extent to which their policy goals are
in alignment or opposition to each other.
Mission and values are also important for differentiating organizations because they become part of
each nonprofit’s unique organizational culture. The culture of an organization has been described as its
personality—the unique and intangible qualities that describe “how we do things around here.” The
concept includes the norms, values, rituals, and symbols of the organization, including logos, mottos,
and celebrations.7
The uniforms worn by Girl and Boy Scouts and the ceremony surrounding earning
patches and merit badges are obvious examples of their organizational cultures, which value community
service, personal responsibility, and celebrating success. These cultural attributes are widely recognized by
those directly involved in scouting as well as by the public; such recognition is important in attracting
and maintaining the support of external stakeholders. With large nonprofits such as the Scouts, wellknown missions and values foster ongoing relationships with participants, donors, and other partners
who help them to meet the public needs for which the organizations were created.
The Role of Leadership in Planning and Meeting Needs
Many authors have noted the importance of the organization’s leadership for advancing the nonprofit
In their study of nonprofit leadership, Dym and Hutson found that effective nonprofit leaders align themselves with the values, mission, strategies and culture of their organizations. They wrote,
“The leader’s raison d’être is to guide her organization toward the fulfillment of its mission by clarifying objectives and developing strategies, requiring others to design and implement tactics, and to hold
them accountable for their efforts.”9
A clear example of this comes in the Case Study of the National
Foundation for Infantile Paralysis, in Exhibit 6.2. The National Foundation, whose original mission
was to create a vaccine to eradicate the poliovirus, was able to use the high profile of its co-founder,
Franklin Delano Roosevelt, to develop strategies for fundraising, medical research, and clinical vaccine
trials that dwarfed even federal involvement in polio eradication. Its strategies and reach are legendary
and have led to decades of valuable research and health policies that have improved the well-being of
mothers, infants and children worldwide.
Bringing together the concepts of leadership and organizational culture, Edgar Schein has written, “it can be argued that the only thing of real importance that leaders do is to create and manage
culture.”10 In particular, the role of the founding leader has been especially important to shaping
the mission and culture of nonprofit organizations. The founding leader’s enthusiasm and passion
are the starting point for organizational action. An excellent example of this comes from the legacy
The Role of Mission and Strategic Planning 131
of John Muir, founding president of the Sierra Club. His unwavering love of nature and wish to
protect and experience it has guided the Sierra Club since its founding in 1892. The motto displayed
on the club’s website, “explore, enjoy, and protect the planet,” is a continuing reflection of Muir’s
vision (see Exhibit 6.1).
Exhibit 6.1
For Example
John Muir and the Sierra Club:
A Founding Leader’s Passion, and Organizational Action
Described as the spiritual leader of the Progressive Era conservation movement, John Muir arrived
in the Yosemite Valley in 1868 and never stopped fighting for the protection of America’s western
wilderness. A prolific writer, Muir published several books as well as numerous newspaper and
magazine articles on Alaska, the Sierras, the Yosemite Valley, Hetch-Hetchy, and the early National
Park System. His work described in great detail the natural beauty of these areas and the need for
government policies to protect them. For example, in 1890, he described at length the proposed
Yosemite National Park in Century magazine, urging swift passage of proposed legislation for the
federal protection of Yosemite from the devastating effects of commercial endeavors such as logging and ranching.
In 1892, Muir and several colleagues created the Sierra Club “‘to explore, enjoy, and render
accessible the mountain regions of the Pacific Coast; to publish authentic information concerning them,’ and ‘to enlist the support and cooperation of the people and government in preserving the forests and other natural features of the Sierra Nevada.’”11 Muir served as Sierra Club
president until his death in 1914. Over 120 years later, the Club’s mission statement remains
true to the original:
To explore, enjoy, and protect the wild places of the earth;
To practice and promote the responsible use of the earth’s ecosystems and resources;
To educate and enlist humanity to protect and restore the quality of the natural and human environment; and to use all lawful means to carry out these objectives.
The Sierra Club’s influence on public policy has continued unabated over the decades. For example, shortly after founding the club, in 1897, Muir published a piece in the Atlantic Monthly,
lauding the management of forest areas in France, Switzerland, and Japan, and arguing that in
the United States, “a change from robbery and ruin to a permanent rational policy is urgently
needed.”12 The activism of Muir and the Sierra Club led directly to the protection and federal
acquisition of Yosemite National Park in 1906 and the eventual creation of a nationwide system of
federal parks and their attendants, the National Park Service.13 Today, there are 419 national park
areas, the most recent of which is Indiana’s Dunes National Park, designated in 2019. For their
contributions, Muir and the Sierra Club were highlighted in the 2009 Ken Burns documentary
series The National Parks: America’s Best Idea.
Muir’s continuing influence on the mission of the Sierra Club and its success in changing
public policy is clear in the admiration of Yvon Chouinard, the founder of the outdoor clothing
company, Patagonia. In an interview with the club’s Sierra Magazine, Chouinard said:
132 Strategies of Not-for-Profit Organizations
If you think about all the gains our society has made, from independence to now, it wasn’t government. It
was activism. People think, “Oh, Teddy Roosevelt established Yosemite National Park, what a great president.” BS. It was John Muir who invited Roosevelt out and then convinced him to ditch his security and
go camping. It was Muir, an activist, a single person.14
The Sierra Club and its members embrace Muir’s history and passion; the club’s website, for example, contains an entire subsection entitled the John Muir Exhibit, which documents the life
and accomplishments of its founder. Muir’s guiding principles continue to guide the activities and
policies that the club pursues, as exemplified in its mission statement. John Muir’s Sierra Club
stands as an example of the enduring power of one person’s vision and commitment to harness the
power of organized action and affect the public good.
For more information, and
In addition to leadership from the executive, the leadership of the board of directors is vital to advancing the nonprofit’s mission; many argue that one of the first and foremost responsibilities of the
nonprofit board is the determination and maintenance of the organizational mission.15 Moreover, the
board should be willing and able to clearly articulate that mission to others. Ingram recommended that
each board member have an “elevator speech”—a compelling synopsis of the organizational mission
that can be explained in a minute or less.16 This leadership role is so important that a coalition of sector
advocates including BoardSource, Alliance for Justice, and the National Council of Nonprofits (see
Exhibit 6.4), launched the Stand for Your Mission campaign to encourage board members to actively
advocate on behalf of their respective nonprofit’s mission. The campaign is described as “a challenge to
all nonprofit decision-makers to stand up for the organizations they believe in by actively representing
their organization’s mission and values, and creating public will for positive social change.”17 Further,
as discussed later in the chapter, organizational leaders are responsible for periodic assessment of the
nonprofit mission, its accomplishment of organizational goals, and the strategic planning that moves
it closer to reaching those goals.
Managing the Mission
In the world of philanthropic foundations, the mission often includes an intention to pursue rather
lofty goals, as in the case of the Carnegie Corporation of New York. Begun by Andrew Carnegie in
1911, the Carnegie Corporation is one of the oldest foundations in the United States. Its original
charter with the state of New York indicated that its purpose was “to promote the advancement and
diffusion of knowledge and understanding among the people of the United States” and “to do real
and permanent good in this world.”18 Foundations with social change goals such as Carnegie’s usually
pursue their missions with a policy focus because, as Emmett D. Carson wrote, “Change-oriented
mission statements—by necessity—require a foundation to pursue public policy efforts that attempt
to fundamentally change how the system operates.”19
The Carnegie Corporation has continued to exhibit a desire for social change, as it evolved over the
past century from primarily being a grantmaking foundation to serving as a hub of policy activity and
analysis.20 The results of corporation activity are widely recognized; from the Carnegie libraries to the
Teachers Insurance and Annuity Association of America (now TIAA-CREF) to the Children’s Television
The Role of Mission and Strategic Planning 133
Workshop (now Sesame Workshop), the work of the corporation has touched the lives of virtually
all Americans. The boards of trustees and staff that have carried out the mission of the corporation
since Carnegie’s death in 1919 have moved the foundation along this social change trajectory, while
following the same general mission set forth in the original 1911 charter of promoting knowledge and
understanding and doing “real and permanent good in this world.”21
A broad organizational mission such as the Carnegie Corporation’s allows the nonprofit to adjust its
activity to match a changing external environment, particularly important for an in-perpetuity foundation like Carnegie. Likewise, a flexible mission allows the organization to find efficient ways to use its
resources.22 A similar idea is mission stickiness—the concept that organizations do themselves a disservice if they stay too committed to their original missions when their environment demands change.23
On the other hand, resource dependence—a nonprofit’s reliance on revenues from outside sources—
can lead the organization away from its mission, a problem known as mission drift or mission creep.24
This can occur in different ways, for example, government and foundation grants can be so attractive
that organizations begin to provide services beyond their original mission as they chase the money; in
this way, the organizations are affected by changes in policy related to funding. According to Burton
A. Weisbrod, “aggressive commercialism is causing nonprofits to sacrifice subtle elements of their social, collective-good mission—for which the subsidies and tax-exemptions are given—in the interest
of generating revenue.”25
Other factors can threaten the essential mission of a nonprofit organization, including attempts to
meet the priorities of external funders, having too large an endowment, and pressures to operate more
like a business.26 Peter C. Brinckerhoff admonished nonprofit managers that when faced with the
challenges of market pressures, “you need to use your mission, your values, and your personal ethical
compass to guide you and set appropriate limits.”27 Ultimately, it is the responsibility of the leadership
of each nonprofit to understand its mission and determine which opportunities it should seek out and
which will lead it too far from its primary purpose.
The Nonprofit Mission and Change
One responsibility of nonprofit leaders is the periodic review of their organization’s mission as times
and the organization change, potentially resulting in a change to the mission or administration of the
organization.28 Stauber detailed the change in mission undertaken by the Northwest Area Foundation
in 1998. The foundation covers the eight northern states of Washington, Oregon, Idaho, Montana,
North Dakota, South Dakota, Minnesota, and Iowa. An independent foundation, for its first 50 years
the Northwest Area Foundation behaved as a traditional grantmaker, awarding grants to organizations
in 39 different categories.29
In 1996, foundation leaders began to see a new environment for philanthropic organizations as
the federal government reduced its level of public policy involvement. Federal policies shifted responsibility for a wide range of public goods and services that affected the role of the foundation and led
its leaders to reexamine its mission. As Stauber explained, the social change model of philanthropy
in which “foundations promote change by legitimizing issues, funding the creation of new types of
institutions, and then garnering government support for the issue and the institutions,” was no longer
viable due to the retrenchment of federal policy activism.30 Therefore, after 50 years of operating
under a broad mission of social change, the foundation board narrowed and revamped its mission
to address a single problem, persistent poverty, through direct funding of community organizations,
often newly established nonprofits. Its new mission statement was to “support efforts by the people,
134 Strategies of Not-for-Profit Organizations
organizations and communities of our eight-state region to reduce poverty and achieve sustainable
In this way, the Northwest Area Foundation adapted its mission and strategy to better fit a changing
policy environment and better serve the communities in its service region. After ten years, an evaluation
of the new approach encouraged the foundation to maintain its mission but to adopt a new strategic
plan. The plan involves providing support to proven organizations “that either have a demonstrated
track record or are poised to do innovative or cutting-edge work moving people out of poverty.”32 The
Northwest Area Foundation provides a good example of the way policy changes can affect nonprofits
as well as the role leaders take in evaluating the mission and making course corrections; further, it
illustrates the iterative nature of this process.
There are certainly lessons here for nonprofit leaders: They must have a clear understanding of the
nature of their organization and its mission, they must periodically evaluate their missions and strategies, and they must recognize the fact that the organization and its environment will change. Consider
again the case of Candy Lightner, founder of MADD, highlighted in Exhibit 4.3.
By all accounts, MADD is a highly successful nonprofit organization with chapters in all 50
U.S. states, 10 Canadian provinces, and numerous international affiliates. It dramatically changed
public perceptions and the laws regarding drunk driving in a very short period of time. However,
just eight years after founding MADD, Lightner quit, insisting that other leaders were no longer
pursuing attainable public policies. She believed that they were moving the organization too far
in a prohibitionist direction and argued that “‘zero tolerance’ is counterproductive, impractical
and a waste of limited resources.”33 In this example, change came from the nonprofit’s leadership
but against the wishes of the founder. In keeping true to her original values, vision, and mission,
Lightner left MADD when the organization altered its mission and pursued public policy with
which she disagreed.
As in the examples of the Northwest Area Foundation and MADD, organizational change typically comes from the top. In order to change operations with the least opposition, leaders must
speak with a unified voice and solicit the input of staff and stakeholders.34 When change occurs,
it naturally causes discomfort to those within the nonprofit and the clientele that the organization
serves, pointing to the importance of open communication and participatory decision making.
The role of the board and the executive director is critical: They must remain unified, reiterate the
changes to the mission and administration of the organization, and hold training and information
sessions with staff and volunteers as an important way to help everyone in the organization ease
into its new phase.
Finally, on rare occasions an organization will completely fulfill its mission. Drucker suggested that
when this happens, nonprofit leaders should take the opportunity to expand or change the original
mission.35 Given the nature of most nonprofit activity—feed the hungry, cure disease, alleviate the
effects of poverty—completely fulfilling an organizational mission is rare. Famously, it happened with
the National Foundation for Infantile Paralysis (NFIP), established by President Franklin D. Roosevelt and his former law partner, Basil O’Connor, to eradicate the poliovirus. See Exhibit 6.2 for more
information on how the foundation’s mission evolved from development of a rehabilitation facility
to eradication of the poliovirus to prevention of infant mortality and other birth defects by what we
now call the March of Dimes. In 1946, the nation memorialized FDR’s involvement with the NFIP
by placing his profile on the U.S. dime.
The Role of Mission and Strategic Planning 135
Exhibit 6.2
Case Study
The National Foundation for
Infantile Paralysis Achieves Its Mission
In the late summer of 1921, Franklin Delano Roosevelt and his family vacationed at their island
home near the coast of Maine. The previous 12 months had been exhausting, as Roosevelt first
made an unsuccessful bid for the vice presidency in 1920 and then spent most of the summer of
1921 defending himself in a Naval scandal. A vacation with his wife and children, far from the
public eye, seemed to be the perfect reprieve. Instead, soon after his arrival, Roosevelt fell very ill
and was diagnosed with the poliovirus. Although polio typically afflicted children, hence the name
infantile paralysis, FDR was 39 years old when he contracted the virus. While his health eventually
improved, he would never again walk unassisted.
Seeking relief from the disease, Roosevelt spent time at the Meriwether Inn in Warm Springs,
Georgia, taking advantage of its soothing spring waters. Convinced of the waters’ ability to provide relief to polio sufferers, in the mid-1920s, Roosevelt purchased the Meriwether Inn and
its surrounding property for $200,000. Roosevelt and his law partner, Basil O’Conner, agreed
to found the nonprofit Georgia Warm Springs Foundation as a means to raise money for the
renovation and operation of the resort as a rehabilitation facility for those crippled by the effects
of polio. FDR envisioned the facility partially as a commercial venture—income from healthy
vacationers and charitable contributions would offset the reduced fees charged to those afflicted
with polio who sought treatment in the soothing waters of the resort’s warm springs. Unfortunately, fear of the virus led healthy vacationers to abandon the resort, and after the stock market
crash of 1929, contributions to Warm Springs nearly dried up; alternate funding was needed to
keep the facility open. Thus, following FDR’s presidential election in 1932, the Warm Springs
Foundation used Roosevelt’s birthday as the occasion to host 6,000 Presidential Birthday Balls
across the country, raising over $1 million. These became annual events, promoted as a way to
raise funds for Warm Springs with the slogan, “Dance so that others may walk.”36 By 1935, the
Warm Springs facility was financially secure, and the foundation announced that 70 percent of
funds raised at the annual dances would remain in their home communities to address the needs
of local polio victims.
In addition to the Birthday Balls, a particularly noteworthy fundraiser was the annual
Mother’s March, in which mothers walked up and down their neighborhoods collecting donations. Amid concerns that the title might be exclusionary, the name was changed to the March
of Dimes, as a play on words related to the March of Time newsreels played in movie theaters.
People offered handfuls of dimes for collection tins and even taped dimes to postcards and
mailed them to the White House. Building on the theme, a promoter calculated that 90,000
dimes laid end to end would fill one mile. In a series of radio ads based on the Mile O’ Dimes
concept, supporters were encouraged to start a dime line down their sidewalk to raise $9,000
a mile.37
Over the next few years, however, the link between FDR and the Georgia Warm Springs Foundation led many of his political opponents to refuse to support the charity; the mission of Warm Springs,
providing rehabilitation to those with polio, was threatened by partisan politics. It was at that point that
FDR created the larger National Foundation for Infantile Paralysis (NFIP) by presidential proclamation
136 Strategies of Not-for-Profit Organizations
on September 23, 1937. The new NFIP kept the Warm Springs facility as a center for research, but
broadened its organizational mission to support research nationwide to facilitate treatment of those
afflicted with polio and to explore the potential for a vaccine to prevent it.38 David M. Oshinsky noted
that NFIP “became the gold standard for private charities, the largest voluntary health organization
of all time,” whose success at fundraising, public relations, care of patients, and funding of medical
research would be the role model for future health related philanthropy.39
The National Foundation focused on the mission of curing polio to the point that it actually lobbied against federal research funding. An official with the National Institutes of Health
(NIH) told Congress in 1953 that the scale and scope of NFIP support for polio research was
so immense that it freed the NIH to focus on other diseases that did not benefit from similarly
strong financial support.40 By 1954, funds raised through the NFIP’s March of Dimes had
helped Dr. Jonas Salk develop a successful polio vaccine. The National Foundation funded and
administered subsequent public trials of Salk’s vaccine with the cooperation of public schools
and health departments in 211 counties across the country.41 Over the next four years, more
than 450 million doses were administered around the globe. Polio was largely eradicated in the
United States by the early 1980s, and the Centers for Disease Control last reported a polio death
in 2005; the deceased infant was among several children infected by an outbreak of the virus in
an unvaccinated Amish community in Minnesota.42
In 1958, with its mission of finding a cure for polio accomplished, the National Foundation
turned its attention to the prevention of birth defects and infant mortality. At a press conference at the Waldorf-Astoria in New York City, Basil O’Conner, still heading the foundation,
announced that its future lay in being a “flexible force” in public health. In 1979, the NFIP
officially changed its name to the March of Dimes. Its mission statement, displayed on every
page of their website, declares, “March of Dimes fights for the health of all moms and babies.
We’re advocating for policies to protect them. We’re working to radically improve the health
care they receive. We’re pioneering research to find solutions. We’re empowering families with
the knowledge and tools to have healthier pregnancies. By uniting communities, we’re building
a brighter future for us all.”
The March of Dimes has had much success over the past six decades in the research and advocacy of prenatal and perinatal healthcare. Its activities have included funding research on fetal
alcohol syndrome, premature births, and tests and treatment to eliminate several causes of mental
retardation. The organization has actively influenced the policy arena as well, leading the way for
a system of Neonatal Intensive Care Units across the United States, which have had a positive
effect on the health outcomes of premature and low birth weight babies. Further, the organization
helped to secure mandatory insurance coverage of tests and treatment for 30 serious infant disorders in all 50 states.43
March of Dimes provides a useful illustration of the Nonprofit-Policy Framework as it links
its mission to public policy. In 1988, it launched the national Folic Acid Campaign to educate
women about the benefits of folic acid on developing fetuses and its ability to prevent debilitating and potentially deadly neural tube defects (NTD). Influenced by the March of Dimes’s
effort, the federal Food and Drug Administration approved folic acid fortification of the U.S.
grain supply in 1998. The incidence of NTD in the United States has declined by one third
since 1998, in part, due to the public education, policy research, and advocacy efforts of March
of Dimes.44
In 1997, March of Dimes volunteers advocated for congressional approval of the State ChilThe Role of Mission and Strategic Planning 137
dren’s Health Insurance Program (S-CHIP), which expanded medical coverage for children of
the working poor. In 2010, the organization was instrumental in ensuring that maternity and
newborn care were included as essential health benefits in the Patient Protection and Affordable
Care Act (ACA).
Today, the march continues; its biggest fundraiser, March for Babies, is a pledge-walk that
involves more than 400,000 participants annually; since 1970, the March has raised $2.3 billion. From the original Georgia Warm Springs Foundation mission of creating a rehabilitation
facility for polio sufferers to the broadened mission of seeking a cure for polio as the National
Foundation for Infantile Paralysis to the current mission of fighting for the health of all moms
and babies, the March of Dimes has been an important factor in healthcare and policy for nearly
100 years.
For additional information, see the Centers for Disease Control at
polio/public/index.html; the March of Dimes at; and Post-Polio Health
1. What motivated the changes in mission from Warm Springs to the National Foundation
for Infantile Paralysis (NFIP) to the March of Dimes?
2. When a cure was found for polio, why didn’t the NFIP simply enjoy its success and close
its doors?
3. Contrary to most charities seeking eradication of disease, the NFIP sought to limit federal
funding of research on polio. Why did the NFIP take that policy stance? Would you have
urged the foundation to act differently? Why or why not?
4. Consider the four relationships that describe the Nonprofit-Policy Framework (influence policy,
make policy, affected by policy, subject to policy) and discuss which one(s) best exemplify the
relationship between the NFIP, and later the March of Dimes, and public policy.
5. Is the NFIP/March of Dimes a unique example of the relationship between nonprofit
mission and public policy? What does this case suggest about successful organizations and
their missions?
The Importance of the Mission Statement
In nonprofit organizations, a well-crafted, concise, and distinct mission statement serves multiple purposes. First and foremost, it should be an accurate reflection of the mission and purpose
of the organization; no longer theoretical, a formal mission statement allows the organization a
clear point of reference for its activities. Research has found that a strong and clearly articulated
mission statement is an important component in the success of a nonprofit organization and is a
critical factor in making organizational improvements and motivating innovation.45 The mission
statement also provides a basic framework to help understand the nonprofit’s policy focus and
evaluate its effectiveness, offering credibility to clients, donors, and grantmaking institutions.
138 Strategies of Not-for-Profit Organizations
Furthermore, the mission statement acts as a motivator for boards, staff, volunteers, and donors.46 For example, research has found that employee attachment to the organization’s mission
is positively related to satisfaction and retention in nonprofit organizations.47 For these reasons,
the mission statement should be prominently placed on the nonprofit’s webpage and any printed
material. Many organizations include the mission statement on the backs of business cards as a
regular reminder of the organization’s purpose.
The critical nature of a strong mission statement has led scholars to suggest a fairly consistent set
of characteristics for its development. First, there is general agreement that a good mission statement
is clear, concise, and to the point. According to Holland and Ritvo, it should be “memorable and
easy to explain.”48 Second, the nonprofit mission statement should express the societal need that the
organization fulfills. It should also be distinct enough for people to distinguish this nonprofit from
another organization.
Because the mission statement becomes the foundation for setting the organization’s priorities and
long-term goals, it must demonstrate the organization’s commitment to its underlying values. “Experience has shown that neglecting to create a solid foundation for planning by achieving consensus
on the basics of mission, vision and values will likely lead to a breakdown in planning at some later
stage.”49 While a specific and operational mission statement is more easily put into action by nonprofit
staff, translating a mission statement into a concrete program can be difficult, especially if community
circumstances, funding sources, or public policies change operating conditions for the nonprofit organization.50 It is important to remain mindful of the fact that a mission statement serves to both enable
and constrain the organization.51
Let us return to the opening vignette for a practical example. As the Youth Community Theatre
Project prepares to write its own mission statement, it has collected statements from several children’s
theater programs around the country: Drama Club in Long Island, New York; Rhode Island Youth
Theatre (RIYT) in Saunderstown, Rhode Island; and Nashville Children’s Theatre (NCT) in Nashville,
• “Drama Club’s mission [is] to provide theater training and positive mentor relationships to
New York City youth throughout each step of their journey through the criminal justice
system: detention, placement and aftercare.” ( )
• Rhode Island Youth Theatre “provides opportunities for children and teens to CREATE,
PERFORM, and EXPERIENCE exceptional theatre.” (
• Nashville Children’s Theatre, “Believing the culturally curious child is the future, Nashville
Children’s Theatre nurtures the next generation of global citizens by providing transformational theatrical experiences which reflect our evolving community, instill profound
empathy, and foster personal discovery.” (//
The three organizations have varying years of history in the communities they serve. The youngest,
Drama Club, has been in the New York City area since 2013, while NCT, founded in 1931, is the
oldest children’s theatre in the United States. Although each of these nonprofit theater groups has a
general mission of enriching children’s lives through theater, there are differences among the three that
are clear through their mission statements.
For example, Drama Club’s mission statement indicates that it exclusively serves youth in the criminal justice system. The statement implies that Drama Club uses theater to teach and mentor youth as a
way to help them cope throughout their experience within the system. This is the case as Drama Club
The Role of Mission and Strategic Planning 139
brings improvisational theater training, which empowers young people to express themselves, to five
facilities around the city. The program provides mentors and builds leadership skills among youth at
all stages of the juvenile justice system.
The mission statement of Rhode Island Youth Theatre implies that its actors are youth and it values
providing a participative environment for children. Again, the impression one gets from the mission
statement is on target: RIYT offers acting classes for children between the ages of 7 and 18, performs
multiple theater productions each year, and includes a mentoring program for young people interested
in playwriting and developing their own productions.
Finally, the mission statement from Nashville’s long-running NCT suggests that it values theater
productions designed specifically for children and the community. Again, this impression is correct:
NCT performs approximately 200 shows a year for school groups and families, and in recent years,
has sought productions and theater professionals who reflect cultural diversity. While NCT offers a
series of teaching workshops and camps for children, its focus has been on performance of child and
family-oriented theater productions since 1931.
The organizational mission statements for these not-for-profit children’s theatre groups convey the
distinct character of each organization and the values that each finds most important; this is a key
function of a good mission statement. For the founding leadership team of YCTP, this exercise would
be quite valuable. It would now be in a position to take its values, identified earlier as access, education,
and bringing high-quality theater productions to the community, and create a mission statement that
reflects these values and can serve as a tool to convey the mission and values of YCTP to community
Organizational Vision
In conjunction with the mission statement is the organizational vision, a look forward often expressed
as a formal vision statement or incorporated into the language of the mission. A vision statement
describes the hopes for the organization and becomes an important touch point for organizational
growth and guiding leaders into the future. Werther and Berman wrote that the “vision statement is
an ennobling, articulated statement of what an organization is and what it is striving to become. It
answers the questions of what the world would be like if the mission were attained.”52
An example comes from Rhode Island Youth Theatre, whose vision statement is:
Our goal is to create a permanent youth theatre organization—a model of excellence in the development of new works, innovative programs, and educational initiatives. We plan to accomplish this
through collaborations with centers of learning and distinguished artists, while continuing to provide
apprenticeships and internships to teens planning careers in the arts. (
Several of the phrases used in this vision statement—“our goal is” and “we plan to”—are good examples of what a vision statement should do: offer a sense of the future for the organization and guide
its leaders as they make decisions about which opportunities they should seek, clientele they should
serve, and policies they should pursue.
Because the organizational vision incorporates more than just the work of a single nonprofit—how
the world will be different when the mission is achieved—one nonprofit’s vision likely connects
with that of other groups and often involves collaborative efforts. In the case of the Sierra Club,
John Muir’s vision to protect the wilderness of the Pacific Northwest and promote a U.S. National
Park Service crossed the border into Canada to help inspire creation of Canada’s National Park
System. The cross-border efforts of the Sierra Club and Sierra Club Canada are discussed further
in Exhibit 6.3.
140 Strategies of Not-for-Profit Organizations
Exhibit 6.3
Going Global
Sierra Club’s Vision and Mission Extends to Canada
As is discussed in Exhibit 6.1, the Sierra Club was founded in the United States in 1892 with a
mission to protect America’s wilderness. Yet, while the northern U.S. territory ends at the Canadian
Border, the two countries share many of the most beautiful natural features of the North American continent, including the Great Lakes, the Waterton-Glacier International Park, and both the
Appalachian and Rocky Mountain ranges. Not surprisingly, then, the work of the Sierra Club and
founder John Muir have long had an influence on Canadian conservation efforts. Muir’s philosophy and writings on the Canadian wilderness, for example, heavily influenced the work of James
Bernard Harding, named the first Commissioner of the National Parks of Canada in 1911.53 In a
clear example of the effect of a policy entrepreneur’s vision and a nonprofit’s mission on policy across
international borders, Harding is considered the founding father of Canada’s National Park system.
The Sierra Club added its first Canadian chapter in 1963, and in 1989, opened a national office in Ottawa. In 1972, the Sierra Club Canada Foundation (SCCF) became a registered charitable foundation with the Canadian Revenue Agency. SCCF generates funding from individuals and
foundations to provide resources for environmental protection projects, education, and research.
Canadian regulations on tax-deductible donations are stricter than in the United States, allowing
tax deductions only for registered charities. Organizations cannot register as charities unless their
work falls into one of four charitable categories: poverty relief, advancement of education, advancement of religion, or other purposes deemed appropriate by the Canadian courts. Charities
may engage in a limited amount of nonpartisan political activity, so long as it is “connected and
subordinate” to the organization’s charitable purpose and “substantially all” of the organization’s
resources are devoted to charitable activities. The SCCF is a registered charitable organization and
does not engage in political action; therefore, its donations are tax-deductible.
In 1992, the Canadian chapters separated from the U.S. organization and formed Sierra Club
Canada, which was incorporated as an agent of SCCF and is a nonprofit organization engaged in
political advocacy. While separate and autonomous boards of directors govern Sierra Club Canada
and SCCF, they work together in pursuit of mutual goals. The primary work of Sierra Club Canada involves advocacy and action in four areas: 1) environmental and health policies, 2) biodiversity
protection, 3) atmosphere and energy policies, and 4) moving toward a sustainable economy. The
Canadian government does not allow tax deductions for nonprofit organizations (only for registered charities); therefore, donations to Sierra Club Canada are not tax-deductible.
Sierra Club Canada’s mission is to “empower people to protect, restore and enjoy a healthy and
safe planet!” This statement echoes the Sierra Club’s “explore, enjoy, and protect the planet,” and
reflects the visions of both Muir and Harding.54 Sierra Club and Sierra Club Canada occasionally
work together; for example, in 2005 they presented a joint resolution to oppose a mega-quarry in
Digby Neck and Islands, Nova Scotia, and in 2011, the two joined forces in a campaign against tar
sands oil production. In most efforts to influence public policy, however, Sierra Club Canada’s five
national chapters focus on distinctly Canadian environmental issues, such as Nuclear-Free Canada
and a major campaign to save the grizzly bears of Alberta.
For additional information:
Sierra Club Canada,
Sierra Club Canada Foundation,
Canada Revenue Agency,
The Role of Mission and Strategic Planning 141
Strategic Planning
The organization’s mission and vision statements answer the Why and Who questions; the strategic
plan helps address the questions of What, Where, When, and How. Once a nonprofit has developed a
clear mission statement and vision, it can begin strategic planning —a systematic process involving goal
identification and determination of action steps designed to fulfill the organizational mission (see Table 6.1). Cohen and Eimicke explained that the greatest value in strategic planning “is in helping align
an organization’s mission, goals, and means for achieving them with its available resources.”55 Further,
as suggested in step eight of Table 6.1, strategic planning is about clarifying and resolving issues that
face the organization; it is an iterative process, undertaken regularly because circumstances are always
changing.56 Finally, the logical, systematic process of strategic planning shown in Table 6.1 is only for
illustration; expect the process to be more complicated and less linear than illustrated.57
Table 6.1
Steps in the Strategic Planning Process
1. Determination of Nonprofit Values, Mission, Vision
2. Setting of Organizational Goals to Accomplish Mission
3. Organizational Accounting via SWOT Analysis or Other Analytical Tool
4. Identification of Problems/Issues to Address in Strategic Plan
5. Systematic Planning of Strategies to Meet Organizational Goals
6. Development of Implementation Plan
7. Measuring Outcomes/Evaluating Performance in Meeting Goals
8. Learning from Evaluation: Midcourse Corrections/New Strategies
Sources: Adapted from Steven Cohen and William Eimicke, Tools for Innovators, San Francisco: Jossey-Bass Publishers, 1998; John M Bryson, Strategic Planning for Public and Nonprofit Organizations, 5th ed., Hoboken, NJ: John
Wiley & Sons, Inc., 2018.
Strategic planning is an essential tool for good management in any organization. It improves decision
making by allowing the organization to focus on critical issues, and enhances effectiveness, responsiveness, and the sustainability of the nonprofit. Bryson argued that strategic planning allows the organization to “think, act, and learn strategically” so that it understands how to pursue its mission, achieve its
goals, and adapt to new situations.58 As noted in the earlier case of the Northwest Area Foundation, the
strategic plan should provide evaluation and feedback that leads to organizational learning and improvement. All of this enhances the nonprofit’s ability to generate or respond to public policy changes.
Again, the role of leadership is vital in this process. The nonprofit board and the executive director, with
input from the management staff, are responsible for determining the direction of the organization and
creating the strategic plan. Ingram suggests that effective strategic planning involves staying “focused on The
Big Picture—the high-order levels of policy and strategy—not the details.”59 Rather, the nonprofit staff and
volunteers will carry out the details. It is the responsibility of the organization’s leaders to communicate why
and how the new strategies will be pursued and then train and develop staff members, providing them with
specific performance guidelines so everyone involved with the organization acts in accordance with its mission.
Organizational Goals
Strategic planning requires identification of objectives or organizational goals. Nonprofits should be
prepared for a great deal of discussion at this stage of the process because although certain activities
142 Strategies of Not-for-Profit Organizations
may be mandated, stakeholders may disagree on the organization’s order of priorities. Once agreement
has been reached, the planning process involves identifying the means to meet those goals.60 For nonprofit organizations, the mission statement will drive the objectives that are pursued, and thus, can
both facilitate and constrain organizational activity. Organizational goals identify specific outcomes
that indicate the organization is fulfilling its mission.
Consider again the opening vignette’s YCTP. With its mission of enriching the cultural life of the
community’s children by providing them an introduction to and education in the performing arts, the
board of directors must determine the goals that will help to accomplish this mission. A specific goal
associated with YCTP’s mission might be “to share with children the excitement of the theatre through
creation of interactive programming.”
Organizational Accounting and Identification of Problems
After developing a clear sense of mission and specific organizational goals–or confirming them in an
established nonprofit—it is important for the organization to take an honest accounting of itself both
internally and externally in order to determine specific strategies to fulfill those goals. Importantly, an
assessment of financial capacity—over time—is vital to an attainable strategic plan; good plans without the financial resources to carry them out are useless.61
Organizational accounting allows the organization to assess formally its internal and external environments. Probably the most common tool of assessment is the SWOT analysis, an evaluation of
the strengths, weaknesses, opportunities, and threats the nonprofit faces. Kevin P. Kearns suggested
that the most useful SWOT analysis will be part of an iterative process of matching, “in which the
objective is to identify salient links between internal strengths and weaknesses and external opportunities and threats.”62
The organization must be honest about its internal strengths and weaknesses in terms of its
available resources, capacity, and commitment. It must also be aware of the external threats and
opportunities that it faces. An externally focused assessment tool is the PEST analysis, which
evaluates the political, economic, social, and technological factors that affect the organization,
also known as an environmental scan.63 While they may be out of the organization’s control,
external dynamics can present opportunities, such as new grant money made available from the
state, or threats, such as changes to tax policy that could negatively affect donations. The SWOT
and PEST analyses are often used together for a thorough assessment of the nonprofit’s ability to
pursue its mission.
It is important to remember that not everyone within the organization will view the same conditions
in the same way; thus, good organizational accounting will involve multiple stakeholders. Gathering
useful and varied information may involve using surveys, focus groups, and interviews. Asking nonprofit
leaders to host focus groups and conduct interviews can be a valuable way to engage board members in
the process and indicate to stakeholders the high level of commitment the board has to the organization
and its future.64 It is important that those involved in the SWOT and PEST analyses are committed
to using the results to make decisions; otherwise, both risk becoming little more than an exercise in
making lists, and their results simply ignored.65
Kearns recommended facilitating decisions based on SWOT analysis through creation of a twoby-two matrix of external opportunities and threats, and internal strengths and weaknesses. Each
cell in the matrix offers a generic strategic option for decision makers. The four decision categories
are Comparative Advantage, Investment/Disinvestment, Mobilization, and Damage Control. (See
Figure 6.1.)
The Role of Mission and Strategic Planning 143
Figure 6.1
SWOT Matrix Linkages and Strategic Options
Opportunities Threats
Comparative Advantage:
The nonprofit is in a position to
leverage its strengths and capitalize on opportunities
The nonprofit needs to mobilize its strengths to
avert threats or turn threats into opportunities
The nonprofit must decide whether or not to invest scarce resources in potential opportunities or cut
its losses
Damage Control:
The nonprofit is in a vulnerable position and
must decide how best to control or minimize its
Source: Adapted from Kevin P. Kearns, “From Comparative Advantage to Damage Control: Clarifying Strategic Issues
Using SWOT Analysis,” Nonprofit Management and Leadership, 3, 1992, pp. 3–22.
When performing the SWOT analysis, the nonprofit’s internal constituents include its leadership, staff,
volunteers, clients, participants, and members. The perspectives of each must be considered as the organization evaluates its strengths and weaknesses. Perhaps it has particularly devoted volunteers, or board
members who are politically well-connected. On the other hand, it may lack certain resources that keep
it from fully meeting its mission; perhaps no one on staff is adept at writing successful grant applications,
or the organization lacks adequate computer technology to handle an increase in demand.
Externally, the organization must take into account the perspectives of stakeholders such as donors,
policymakers, politicians, the public, the media—any group that is important to the organization and
the pursuit of its mission. Some will be obvious allies, others will be obvious opponents, and some may
be either one, depending on the circumstances. Consider the situation of a church that allows a local
not-for-profit to operate an evening soup kitchen out of its parish hall. An important strength of the
soup kitchen has been the support it receives from church congregants and leadership because it meets
an important need in the community and helps to fulfill the outreach mission of the church. However,
this support could quickly wane if soup kitchen guests begin sleeping on or defacing church property.
The organization must also be aware of external threats such as other organizations in the area whose
missions are similar, and who become competitors for clientele, fees, and grants. These groups may be in
the nonprofit, public, or for-profit sector, reminding us again about the importance of operating with
a distinct organizational mission that differentiates one nonprofit from other, similar organizations;
Chapter 9 discusses differentiation in more detail.
On the other hand, organizations within the same general service industry may offer opportunities
for collaboration in service delivery, fundraising, policy advocacy, and even management, such as
sharing bookkeeping expertise or physical space for particularly small organizations. Other opportunities may come in the form of sympathetic city council members or public policies that support the
mission, both in terms of finances and through encouraging the kind of services the agency provides.
New public policies and new sources of grant funding from governments or foundations are important
opportunities about which the leadership of a nonprofit must be always aware.
As is noted throughout this book, it is vital that not-for-profit organizations are mindful of the political
process, the policies that will affect them, and the policies that they can affect. For example, the American
Recovery and Reinvestment Act (ARRA) of 2009 offered $50 million in one-time federal grants to state arts
144 Strategies of Not-for-Profit Organizations
agencies and regional arts organizations for the preservation of jobs in the arts community during the Great
Recession. Nonprofits were eligible to apply directly to the federal government or through their state governments for access to stimulus funds. Savvy nonprofits in the arts community, like the Nashville Children’s
Theatre discussed earlier, applied to their state arts agencies for financial help in preserving jobs; the NCT
was awarded a $25,000 grant in July 2009.66 Similarly, the Coronavirus Aid, Relief, and Economic Security
(CARES) Act of 2020 included a number of emergency loan programs relevant to nonprofit organizations.
The one-time nature of these federal and state programs underscores the importance of watching closely for
policy and grant opportunities to arise and always being ready to put together a successful grant application.
Systematic Planning and Implementation
Once a thorough accounting of the organization’s situation, problems, and goals is completed, development of strategies to meet those goals begins. Think of the strategic plan as a road map: The
nonprofit has its mission and objectives (where it wants to go and what stops to make along the way),
and the strategies are the directions that will help it reach its final destination. Strategic planning helps
ensure that the trip is feasible and that the organization does not run out of gas—financial, personnel,
or technical resources—due to poor budgeting. To carry the metaphor into the implementation phase,
the strategic plan should include targets in the same way that travelers use estimated times of arrival.
There will be multiple routes that the organization can take and a variety of means to get to the destination. Occasionally, the organization may need to detour, but ultimately, the mission must be the
driving force for all strategic decisions made by the nonprofit leaders.
Consider again the example of YCTP’s goal “to share with children the excitement of the theatre
through creation of interactive programming.” Achieving this goal would likely involve outreach to
parents, grandparents, teachers, and community members who are patrons of the arts. It might involve
accessing space to deliver on-site programs and activities, or bringing amateur theater productions to
the community. Exposing children to theater in this manner could involve hands-on activities involving
costume design, set decoration, and special effects. All of these strategies for meeting the goal may be
used or some may be beyond the current capacity or resources of the organization; some may become
long-term goals, requiring the nonprofit to seek additional resources. Because the organization’s resources,
potential partners, and strengths and weaknesses have been evaluated before beginning this journey,
the road map for meeting organizational goals—the strategic plan—will be much easier to follow.
Measuring and Evaluating Outcomes
Finally, it is important to consider the performance of the organization in meeting its goals. For the
nonprofit whose mission is vague and its outcomes unclear or long-term in nature, this can be difficult. As Frumkin and Andre-Clark noted, nonprofits are unique in that they:
. . . face a far more complex test of relevance that is related to their mission. For a nonprofit to thrive, it
must fulfill a mission that is valued by the community, staff, board, and funders. Nonprofits must create
value within operational and environmental constraints that are at once more complex than those faced by
corporations and more opaque than those confronted by government.68
For this reason, nonprofits should use multiple methods and measures of the outcomes of their service
activity. Understanding both the direct and indirect value created by the organization helps determine
how targets and outcomes are measured. Chapter 14 details the evaluation process.
For YCTP, we have set a goal of sharing with children the excitement of the theater using a strategy
The Role of Mission and Strategic Planning 145
that involves creation of interactive programming. How well we have shared that excitement may not lend
itself to easy measures; however, we can easily track the number of children who have been engaged in
our activities, their ages, and the types of programming that garnered the highest levels of participation.
Although tracking numbers served is an example of measuring outputs (or “units of service”) rather than
measuring outcomes (the benefit to participants), it offers an objective target and allows us something
tangible to report to donors, the public, the government, and our volunteers.69 In addition to offering
goals and telling us whether we are meeting them or not, measuring outputs allows for comparison
from year to year—a measure of the growth of our program. We can assess how well our programs
meet our less-tangible goals by the fact that children continue to seek out our programs and by taking
surveys of children, parents, and program contributors. These qualitative measures of success will then
become important components of the YCTP’s year-end report and marketing materials. For example,
quotes from parents praising the quality of our programs and activities are invaluable in marketing the
nonprofit to other families, donors, and the public, and will make the job of fundraising much easier.
Learning from Evaluation
The strategic planning process is of most value when it is cyclical; therefore, evaluation of performance
and measurement of goals is vital to making use of strategic planning. When the organization evaluates itself and finds that it has met its goals, it may wish to set new goals. If it finds that it has fallen
short, it can use the results of evaluation to refine its strategies, seek new resources or new approaches,
or reevaluate its original goals. To go through the steps of strategic planning and ignore the important
feedback gathered through evaluation is a waste of precious resources. Acting on this feedback makes
the strategic plan instrumental in systematic planning and learning for the future.
Finally, a word about business plans for nonprofit organizations, which, while often used interchangeably,
are different from strategic plans. All nonprofits should engage in strategic planning, particularly when
they face problems or change; however, a business plan borrows more heavily from the for-profit sector and
typically focuses on strategies for generating income and improving the marketability of the organization.
The concepts important in business planning for nonprofits include market analysis, revenue projections,
and communication plans. They are very popular among nonprofits engaging in social enterprise, particularly
when the organization is courting potential investors and lenders. A solid business plan helps a nonprofit
send the message that there will be a return on investments and loan repayment.70 Therefore, business plans
typically require quantifiable outcomes as measures of success, and focus on specific products and services.
Nonprofits that rely heavily on fees-for-service or commercial ventures would likely benefit from development of a business plan in addition to a strategic plan, as a way to better understand the market for their
goods and services and attract the capital that they require to serve the needs of their organization. The
National Council of Nonprofits is a good source of information about both business plans and strategic
plans (see Exhibit 6.4). We talk more about business plans and planning for sustainability in Chapter 11.
Exhibit 6.4
For More Information
The National Council of Nonprofits
Initially founded in 1989 to provide a venue for collaboration among state associations of nonprofits, the National Council of Nonprofit Associations changed its name in 2008 to reflect a new
federated membership model. By allowing local community-based nonprofits to join the National
Council of Nonprofits (Council of Nonprofits) via membership in their state associations, the
organization now provides resources and a policy voice for 39 state association members and more
146 Strategies of Not-for-Profit Organizations
than 25,000 community-based nonprofits. The Council of Nonprofits describes itself as “a trusted
resource and proven advocate for America’s charitable nonprofits,” offering online guides and resources to nonprofits as it seeks to inform and empower nonprofit organizations.
The Council of Nonprofits explains its work as “connecting the policy dots across all levels and
branches of governments,” and then sharing that knowledge with its network “to create a positive
public policy environment that best supports nonprofits in advancing their missions.” In addition
to direct member support activities, the Council of Nonprofits publishes the e-newsletters Nonprofit Advocacy Matters and Nonprofit Knowledge Matters as well as conducts research and analysis
on issues and challenges relevant to nonprofits. The council is also actively involved in public
policy, identifying trends in state and federal policies and advocating on behalf of its nonprofit
members, providing tools and resources to help nonprofit organizations thrive. These resources
include practical help with implementing both strategic plans and business plans.
To learn more about the National Council of Nonprofits resources and services, go to www
For help with strategic planning,
For help with business planning,
The values, mission, and vision of the nonprofit play a vital role in creating the sense of purpose that
drives the organization. Whether communicating internally or externally, seeking funding or a change
in policy, delivering services or creating programs, nonprofits must keep their missions in the forefront
of all organizational activity; not to do so would break the social contract between the nonprofit and
society and could ultimately lead to the loss of tax-exempt status.71 For philanthropic foundations,
their mission guides how they spend their money, which projects and public policies they pursue, and
therefore, to which nonprofits they award grants. Importantly, strategic planning techniques help organizations to identify and more fully understand their purpose and execute their mission and vision
statements. While we recognize that this is not always easy, especially for resource-poor nonprofits
and those with particularly difficult-to-measure goals, using these tools systematically to assess the
organization’s capacity and opportunities followed by iterative planning is essential to good nonprofit
management. Good management, of course, is essential to meeting the organization’s mission.
Although this chapter describes the nuts-and-bolts concepts of articulating mission and vision statements and doing strategic planning, it is clear that doing these tasks well is a bridge to implementing
and affecting public policy. When the tools and strategies discussed here are applied in well-managed,
not-for-profit organizations, they are used with an eye toward the public purposes of the nonprofit
and the policy implications of their activity. Whether one considers the Carnegie Corporation’s role in
the establishment of public libraries; the research and public service campaign of the March of Dimes,
which led the Food and Drug Administration to approve folic acid enrichment in the U.S. grain
supply; or the advocacy efforts of the Sierra Club that led to creation of the National Park System, we
see the impact that nonprofits have had on public policies and programs. Even when we consider the
missions of smaller organizations such as children’s theater projects, the public role these organizations
play is clear: Through the outreach and services they offer in communities, the educational value they
offer to schools and other institutions, and the public funding they receive, the missions of nonprofit
organizations embody public policy in many ways.
The Role of Mission and Strategic Planning 147
Questions for Review
1. We have made the argument that a strong mission and vision and a solid strategic plan
will help to strengthen the role of nonprofit agencies and philanthropic foundations in the
public policy process. Trace the logic of this argument.
2. A key point of this chapter has been the importance of having a well-structured and solid
mission statement. If the mission is so important, how can we explain why nonprofit mission statements are sometimes vague or lacking in substance?
3. Consider the process of strategic planning in large versus small nonprofit organizations: Are
there ways in which the process differs depending on organizational size? Does the need
for strategic planning vary according to organizational size?
For this web-based assignment, you will collect and analyze the mission statements from at least
three nonprofit organizations that operate in the same general area of nonprofit activity, such as the
children’s theater example in the chapter. Begin by looking only at the organizations’ formal mission
statements; what sense of each organization do you get? Consider what the chapter indicates a mission
statement should do and determine whether these mission statements meet those goals. Then, do a
more thorough analysis of each organization from other information offered on the website: Did the
mission statement do an adequate job of conveying the distinct characteristics and the actual mission
of each organization or not?
Suggested Readings
Allison, Micheal, and Kaye, Jude. (2005). Strategic Planning for Nonprofit Organizations. San
Francisco: Jossey-Bass.
Bell, Jeanne, and Zimmerman, Steve. (2014). The Sustainability Mindset: Using the Matrix Map
to Make Strategic Decisions. San Francisco: Jossey-Bass.
Bryson, John M. (2018). Strategic Planning for Public and Nonprofit Organizations (5th ed.).
Hoboken, NJ: John Wiley & Sons, Inc.
Kearns, Kevin P. (1992). “From Comparative Advantage to Damage Control: Clarifying
Strategic Issues Using SWOT Analysis.” Nonprofit Management and Leadership, 3(1),
pp. 3–22.
Web Resources
Blue Avocado (Nonprofit Business Model Statements)
Foundation Center’s GrantSpace (Mission Statements)
National Council of Nonprofits (Resources for Business Plans)
Stand for your Mission (Board advocacy to advance organizational missions)
148 Strategies of Not-for-Profit Organizations
1. Peter Drucker, Managing the Nonprofit Organization,
New York: HarperCollins, 2005.
2. Charles T. Goodsell, Mission Mystique, Washington
DC: CQ Press, 2010, p. 15.
3. George Candler and Georgette Dumont. “A
Non-profit Accountability Framework.” Canadian
Public Administration, 53, 2, 2010, pp. 259–279;
Alnoor Ebrahim, Julie Battilana, Johanna Mair, “The
Governance of Social Enterprises: Mission Drift and
Accountability Challenges in Hybrid Organizations,”
Research in Organizational Behavior, 34, 2014, pp.
81–100; Dana Brakman Reiser, “Dismembering Civil
Society: The Social Cost of Internally Undemocratic Nonprofits,” Oregon Law Review, 82, 2003, pp.
4. Dana Brakman Reiser “Dismembering Civil Society.”
5. Herrington J. Bryce, Financial and Strategic Management of Nonprofit Organizations, 3rdd
ed., San Francisco: Jossey-Bass Publishers, 2000.
6. Berit Lakey, George Lakey, Rod Napier, and Janice
Robinson, Grassroots and Nonprofit Leadership: A Guide
for Organizations in Changing Times, Philadelphia: New
Society 1995, p. 107.
7. Edgar H. Shein. Organizational Culture and Leadership,
San Francisco, CA: John Wiley & Sons, Inc, 2010.
8. Peter Drucker, Managing the Nonprofit Organization; Barry Dym, and Harry Hutson, Leadership in
Nonprofit Organizations, Thousand Oaks, CA: Sage
Publications, 2005; William B. Werther, Jr., and Evan
M. Berman, Third Sector Management: The Art of
Managing Nonprofit Organizations, Washington, DC:
Georgetown University Press, 2001.
9. Barry Dym and Harry Hutson, Leadership, p. 104.
10. Edgar H. Schein, “The Concept of Organizational Culture: Why Bother?” in Classics of Organization Theory,
7th ed., Jay M. Shafritz, J. Steven Ott, and Yong Suk
Jang, eds., Boston, MA: Wadsworth Cengage Learning,
2011, p. 352.
11. “History: Origins and Early Outings,” http://www (accessed March 30,
12. John Muir, “American Forests,” Atlantic Monthly, 80,
1897, p. 150.
13. Charles T. Goodsell, Mission Mystique.
14. Daniel Duane, “The Revolution Starts at the Bottom,”
Sierra Magazine, March/April 2004, https://vault. (accessed
August 5, 2018).
15. Richard T. Ingram, Ten Basic Responsibilities of Nonprofit Boards, 2nd ed., Washington, DC: BoardSource,
2009; Michael J. Worth, Nonprofit Management:
Principles and Practice, Thousand Oaks: Sage Publications, 2008; Thomas P. Holland and Roger A. Ritvo,
Nonprofit Organizations, Principles and Practices, New
York: Columbia University Press, 2008; BoardSource,
The Nonprofit Board Answer Book: A Practical Guide for
Board Members and Chief Executives, San Francisco:
Jossey-Bass, 2007.
16. Ingram, Ten Basic Responsibilities, p. 64.
17. National Council of Nonprofits, (accessed August 24, 2018).
18. Ellen Condliffe Lagemann, The Politics of Knowledge:
The Carnegie Corporation, Philanthropy, and Public Policy, Middletown, CT: Weslyan University Press, 1989,
p. 3.
19. Emmett D. Carson, “On Foundations and Public Policy,” in David F. Arons, ed., Power in Policy, A Funder’s
Guide to Advocacy and Civic Participation, Saint Paul,
MN: Fieldstone Alliance, 2007, p. 14.
20. Lagemann, Politics of Knowledge, p. 261.
21. Carnegie Corporation, “About Us,” http://carnegie.
org/about-us/mission-and-vision/ (accessed August 18,
22. Burton A. Weisbrod, ed., To Profit or Not to Profit: The
Commercial Transformation of the Nonprofit Sector, New
York: Cambridge University Press, 1998.
23. Mark H. Moore, “Managing for Value: Organizational
Strategy in For-Profit, Nonprofit, and Governmental
Organizations,” Nonprofit and Voluntary Sector Quarterly, 29, 2000, pp. 183–204.
24. Alnoor Ebrahim, Julie Battilana, and Johanna Mair,
“The Governance”; Dana Brakman Reiser, “Dismembering Civil Society.”
25. Weisbrod, Managing for Value, p. 290; see also Lester
M. Salamon, “The Resilient Sector: The Future of
Nonprofit America,” in Lester M. Salamon, ed., The
State of Nonprofit America, 2nd ed., Washington, DC:
Brookings Institution Press, 2012, pp. 3–86.
26. Marshall B. Jones, “The Multiple Sources of Mission
Drift,” Nonprofit and Voluntary Sector Quarterly, 36,
2007, pp. 299–307; Peter C. Brinckerhoff, Mission
Based Marketing: Positioning Your Not-for-Profit in an
Increasingly Competitive World, 2nd ed., Hoboken, NJ:
John Wiley & Sons, 2003; Lester M. Salamon, “The
Resilient Sector.”
27. Brinckerhoff, Mission Based, p. 33.
The Role of Mission and Strategic Planning 149
28. Peter Drucker, Managing the Nonprofit Organization;
Ingram, Ten Basic Responsibilities.
29. Karl N. Stauber, “Mission-driven Philanthropy: What
Do We Want to Accomplish and How Do We Do It?”
Nonprofit and Voluntary Sector Quarterly, 30, 2001, pp.
30. Ibid., 394.
31. Northwest Area Foundation, 2009, http://www.nwaf
.org/Content/Mission (accessed November 20,
32. The Northwest Area Foundation, “About,” https:// (accessed August
8, 2018).
33. Frances Westley, Brenda Zimmerman, and Michael
Quinn Patton, Getting to Maybe: How the World Is
Changed, Canada: Random House Canada, 2006, p.
34. Samantha L. Durst and Charldean Newell, “The Who,
Why, and How of Reinvention in Nonprofit Organizations,” Nonprofit Management and Leadership, 11,
2001; Nancy Winemiller Basinger and Jessica Romine
Peterson, “Where You Stand Depends on Where You
Sit,” Nonprofit Management and Leadership, 19, 2008;
Sharon Oster, Strategic Management for Nonprofit
Organizations Theory and Cases, New York: Oxford
University Press, 1995.
35. Drucker, Managing the Nonprofit.
36. David M. Oshinsky, Polio: An American Story, New
York: Oxford University Press, 2005.
37. Jeffrey Kluger, Splendid Solution: Jonas Salk and the
Conquest of Polio, New York: G.P. Putnam’s Sons, 2004.
38. Ibid.
39. Oshinsky, Polio, p. 53.
40. Ibid., p. 189.
41. Oshinsky, Polio.
42. Centers for Disease Control, “Poliovirus Infections in
Four Unvaccinated Children—Minnesota, August–
October 2005,
mmwrhtml/mm54d1014a1.htm (accessed August 6,
43. “A History of the March of Dimes,” http://www.
(accessed March 31, 2012).
44. Salimah R. Walani and Janis Biermann, “March of
Dimes Foundation: Leading the Way to Birth Defects
Prevention,” Public Health Reviews, 38, 12, 2017, pp.
45. Robert B. Denhardt, The Pursuit of Significance: Strategies for Managerial Success in Public Organizations, New
York: Waveland Press, 2000; Robert E. McDonald, “An
Investigation of Innovation in Nonprofit Organizations: The Role of Organizational Mission,” Nonprofit
and Voluntary Sector Quarterly, 36, 2007, pp. 256–281;
E. B. Knauft, Renee A. Berger, and Sandra T. Gray,
Profiles of Excellence: Achieving Success in the Nonprofit
Sector, Jossey Bass Nonprofit & Public Management
Series, San Francisco: Jossey-Bass, 1991.
46. Oster, Strategic Management; William A. Brown and
Carlton F. Yoshioka, “Mission Attachment and Satisfaction as Factors in Employee Retention,” Nonprofit
Management & Leadership, 14, 2003, pp. 5–18; Seok
Eun Kim and Jung Wook Lee, “Is Mission Attachment
an Effective Management Tool for Employee Retention?” Review of Public Personnel Administration, 27,
2007, pp. 227–248.
47. Brown and Yoshioka, Mission Attachment; Kim and
Lee, Is Mission Attachment.
48. Holland and Ritvo, Nonprofit Organizations, p. 128.
49. Worth, Nonprofit Management, p. 171.
50. Holland and Ritvo, Nonprofit Organizations; Worth,
Nonprofit Management.
51. Helmut K. Anheier, Nonprofit Organizations, Theory,
Management, Policy, New York: Routledge, 2005;
Worth, Nonprofit Management.
52. William B. Werther, Jr., and Evan M. Berman, Third
Sector Management: The Art of Managing Nonprofit Organizations, Washington, DC: Georgetown University
Press, 2001, p. 8.
53. Connie Bresnahan, “The Canadian Spirit of John
Muir,” 1996 John Muir Conference, www.sierraclub.
54. National Historic Sites in the Mountain National
55. Steven Cohen and William Eimicke, Tools for Innovators, San Francisco: Jossey-Bass, 1998, p. 16.
56. Evan M. Berman, Performance and Productivity; John
M Bryson, Strategic Planning for Public and Nonprofit
Organizations, 5th ed., Hoboken, NJ: John Wiley &
Sons, Inc., 2018.
57. See John M Bryson, Strategic Planning.
58. Ibid., p. 33.
59. Ingram, Ten Basic Responsibilities, p. 33.
60. Michael Allison and Jude Kaye, Strategic Planning for
Nonprofit Organizations, San Francisco: Jossey-Bass,
61. Jeanne Bell, “Strategy and Planning: Turning a Dream
into Reality,” in Nonprofit Management, 101, Darian
Rodriguez Heyman, ed., San Francisco: Jossey-Bass,
62. Kevin P. Kearns, “From Comparative Advantage to
150 Strategies of Not-for-Profit Organizations
Damage Control: Clarifying Strategic Issues Using
SWOT Analysis,” Nonprofit Management and Leadership, 3, 1992, p. 11.
63. Sandra Emerson, Royce Menkus, and Kathy Van Ness,
The Public Administrator’s Companion, Washington,
DC: CQ Press, 2011.
64. Bell, Strategy and Planning.
65. Kearns, From Comparative Advantage; Chartered
Management Institute, Performing a SWOT Analysis,
Entrepreneur (online), 2001.
66. Tennessee Arts Commission, “Tennessee Arts Organizations Receive Grants from the National Endowment
for the Arts, 2009,” (accessed April, 16, 2012).
67. Tim Delaney, “Cutting through the Jargon: How the
CARES Act Works for Nonprofits,” Nonprofit Quarterly
(March 30, 2020)
12387045&mc_cid=01b3e8c956&mc_eid=407e1d00c1 (accessed April 1, 2020).
68. Peter Frumkin and Alice Andre-Clark, “When
Missions, Markets, and Politics Collide: Values and
Strategy in the Nonprofit Human Services,” Nonprofit
and Voluntary Sector Quarterly, 29, 2000, p. 160.
69. Harry Hatry, Therese van Houten, Margaret C. Plantz,
and Martha Taylor Greenway, Measuring Program
Outcomes: A Practical Approach, Alexandria, VA: United
Way, 1996, p. xv.
70. Allison and Kaye, Strategic Planning for Nonprofit Organizations.
71. Bryce, Financial and Strategic.
The Role of Mission and Strategic Planning 151
Politically active nonprofits contribute to democratic governance by representing civic concerns in policymaking, by enlarging opportunities for citizen participation in public decisions, and by creating accountability between government and citizens.
Elizabeth J. Reid 2
The executive director of a medium sized nonprofit in a major U.S. city is in a quandary. Her organization delivers welfare-to-work services for recipients of the Temporary Assistance to Needy Families
(TANF) program, including remedial reading and math education, GED preparation, and daycare
services for program participants while they are engaged in training, job readiness, and job search
activities. For 15 years, the organization has had a relatively high level of success in helping clients to
get and keep jobs and leave the welfare system.
Unfortunately for this executive director and her clients, Congress is considering legislation that
would change the funding formula for programs such as hers. These changes would have a detrimental
effect on the number of clients she could serve and may eliminate her ability to provide the daycare
services that many of her clients find invaluable. The implications of this legislation are worrying nonprofit leaders all over the country, and a national organization of which her nonprofit is a member has
suggested that executive directors and board members meet with their congressional representatives and
voice their objections to the proposed legislation. The national organization has even suggested asking
program clients to contact their representatives and senators on behalf of their programs. Although
she is concerned about her program and its participants, our executive director worries that political
activity might further endanger her government funding; furthermore, she thinks that these suggestions
sound a lot like lobbying, and as a 501(c)(3), her agency cannot lobby members of Congress. Or can it?
Articulating the Nonprofit Voice within Governmental Constraints
Even more than for-profit organizations, nonprofits like the one just described have an important stake
in the policy process. Advocating for the rights of clientele, patients, and members, as well as seeking
policies favorable to them,3
is an important and expected activity for many not-for-profit organizations, and one that enjoys First Amendment protections. Unlike their profit-making peers, however,
Congress directs the Internal Revenue Service (IRS) to impose limits on the level of legislative advocacy
(lobbying) in which nonprofit and philanthropic organizations can engage. The unique tax status,
especially of 501(c)(3) nonprofits that are both tax-exempt and receive tax-deductible donations, has
led the IRS to limit activities that include “carrying on propaganda, or otherwise attempting, to influence legislation.”4
Unfortunately for charitable organizations, the IRS limits are quite vague, and the
penalties for violation can be severe, leading to confusion about what is acceptable and what is not.
Advocacy is a general term that includes “activism in support of an idea or cause which is intended
to increase awareness, influence public opinion, direct decision makers toward a solution, and change
policies, laws or practices” and can be undertaken through protest, demonstration, media campaigns,
public education, letter writing, and lobbying legislators.5
While lobbying is a type of advocacy, as is
noted in Chapter 5, there is a clear legal distinction between the two. According to the U.S. Department
of Treasury regulations, lobbying occurs when nonprofit activities are designed to influence specific
pieces of legislation.6
Advocacy encompasses all other efforts to educate and promote an issue or policy
response. As Geller and Salamon explained, “so long as they are not supporting particular candidates
for elected office or particular legislative enactments, nonprofits can engage in other forms of policy
work without limit.”7
Limiting lobbying and restricting campaign activity are among the ways in which
nonprofit organizations are subject to federal and state regulations.
Because lobbying and advocacy are distinct activities, they are discussed separately in this chapter.
However, we begin with the most important point: Both policy advocacy and legislative lobbying are
legal activities for organizations in the nonprofit sector. Unfortunately, the tax policies surrounding
these activities are confusing: 501(c)(3) public charities operate under a different set of regulations than
do 501(c)(4), 501(c)(5), and 501(c)(6) organizations, and although private foundations are classified
as 501(c)(3), they are subject to their own set of regulations. Chapter 7 begins by making some sense
of how nonprofit organizations are constrained and empowered by their role in issue advocacy and
legislative lobbying.
Who’s Afraid of Advocacy?
Delineation between lobbying and advocacy is quite important for 501(c)(3) organizations because
these public charities can lose their tax-exempt status if attempts to influence legislation constitute
a substantial part of their activities. Organizational fines, taxes on expenditures, and even individual
fines on staff and board members can result from such activity. Conversely, nonprofits can legally
engage in legislative lobbying, and policy advocacy is often done by not-for-profit organizations with
great success. The issues and processes are complex, and nonprofits often operate in fear of IRS investigations or suggestions that they have broken the law if they are perceived as being overly involved in
lobbying activity. Further, as the example of the executive director in the opening vignette illustrates,
those in organizations heavily dependent on government resources may worry that political activity
will reduce their ability to win future grants or access other government funds.8
In addition, several congressional actions against nonprofit lobbying in the 1960s left an indelible
impression on many nonprofit organizations that they could not engage in lobbying activity. First, in
1966 came the revocation of the 501(c)(3) status of the Sierra Club after its efforts to stop dam building
Lobbying and Advocacy: Politics, Policy, and Possibilities 153
on the Colorado River. Three years later, Congress enacted the 1969 Tax Reform Act, the provisions
of which had a chilling effect on advocacy by philanthropic organizations.
For the Sierra Club, the trouble stemmed from its response to a congressional proposal to build two
dams on the Colorado River, the result of which would have been to turn part of the Grand Canyon into
a 500-foot deep lake.9
The Club’s response was to run full-page ads in major newspapers condemning
the idea. Just before a House subcommittee vote, the ads included a form that readers could clip and
send directly to Wayne Aspinall (D-CO), the subcommittee chair. Likely at the behest of Aspinall, the
IRS had a notice of investigation hand-delivered to the Sierra Club the next day; its tax-deductible
status was suspended during the investigation and eventually revoked.10
The Club’s response illustrates the complexity of policy advocacy for nonprofit organizations, including options available to them and regulations that constrain their activity. First, they reactivated
the existing 501(c)(3) Sierra Club Foundation, which had tax-exempt status and was eligible to receive
tax-deductible donations. Next, they re-classified the Sierra Club as a 501(c)(4) social welfare organization, which means that it can engage in unlimited lobbying; as a 501(c)(4), the organization itself
is tax-exempt, however, it cannot receive tax-deductible contributions.11 In addition, the Sierra Club
created the Sierra Club Political Committee that, as a traditional political action committee, is regulated
by the Federal Election Commission. The Sierra Club Political Committee receives no tax-exemption,
and its donors’ contributions are not tax deductible. The public response to Sierra Club following the
incident was quite favorable, and both membership and donations increased in the aftermath. The
impact of the revocation of their tax-deductible status, however, had a far more negative effect on
lobbying activity throughout the nonprofit sector.12
In 1969, the Tax Reform Act had a significant impact on the sector by limiting the amount of lobbying in which foundations could engage or fund. As is discussed in Chapter 5, the 1969 act passed
following a series of dramatic congressional hearings on purported foundation abuses. The hearings
spanned the 1950s and 1960s, culminating in a memorable investigation of the Ford Foundation.
Members of Congress were troubled by several Ford Foundation projects that funded registration of
African American voters in the south and desegregation of schools in the north. The last straw, however,
came after the 1968 assassination of presidential candidate Bobby Kennedy, when the Ford Foundation
provided generous fellowships to eight former Kennedy staffers; many members of Congress viewed
these as grants for political purposes.13
Described as dramatic and explosive, the congressional hearings resulted in changes to the tax laws that
imposed more federal control over foundation behavior. Among the changes brought by the 1969 Tax
Reform Act were the imposition of a tax on investment income, the addition of payout minimums that
required foundations to distribute a certain percentage of their assets annually, the creation of new conflict
of interest rules, and restrictions on foundation funding of voter registration. As Bass et al. explained,
“Foundations were shell-shocked by the new law, and it has had a lasting impact.”14 Subsequently, since the
late 1960s, many nonprofit leaders have been trained to fear congressional hearings, the IRS, and additional
restrictions on policy activity. It is no surprise that many nonprofits eschew political activity altogether.
Recently, however, there has been a concerted effort to encourage nonprofits and foundations to
engage in and fund lobbying and advocacy. Beginning around 2000, groups such as Independent Sector,
Grantmakers for Effective Organizations, and the National Committee for Responsive Philanthropy
have encouraged increased advocacy and lobbying throughout the nonprofit sector. In 2007, The Aspen Institute published Seen but not Heard: Strengthening Nonprofit Advocacy, a sort of call to arms for
nonprofit policy engagement. More recently, the Council of Nonprofits’ Everyday Advocacy campaign
has provided resources for nonprofits including a bi-weekly newsletter, Nonprofit Advocacy Matters,
to encourage organizations to use the tools of advocacy and lobbying to advance their organizational
missions15 (See Web Resources at the end of this chapter).
154 Strategies of Not-for-Profit Organizations
Nonprofit Advocacy Can Shape the Policy Environment
Regardless of whether or not an organization decides to engage specifically in lobbying (the limits of
which are discussed in more depth later), advocacy efforts are a vital way to influence the system of policymaking, not just the symptoms of social problems. Arons, Levine, and Simone defined public policy
advocacy as including “a wide range of activities designed to shape decisions and uses of resources that
affect people, causes, and communities.”16 Advocacy, therefore, does not have to be focused on legislation, but rather can include efforts to change public opinion or behavior using media campaigns,
research findings, educational outreach, petition drives, and by hosting community events. Advocacy
can be directed at government officials, but it need not be; individual businesses or entire industries
may be the targets of nonprofit advocacy campaigns.17
In 1995, Lester Salamon predicted that the advocacy role of nonprofits would decline as organizations became more involved in the competitive marketplace and managers lost the time and incentive
for competing in the political realm. This prediction has clearly not come to fruition. On the contrary,
what has been more notable is the success of the nonprofit sector in the policy realm, especially considering its relative dearth of resources when compared with the for-profit sector. Advocacy efforts are
often quite successful and organizations increasingly work toward these ends: The IRS reports that over
1,000 nonprofits are in the category of organizations that work to change public opinion and policy;
of these, over 75 percent have been created since 1970.18
Less than a decade after making his original prediction, Salamon reversed himself, attributing the
increased political clout of the nonprofit sector to “changes in public attitudes and in political circumstances” and “the capacity and effectiveness of the citizen organizations themselves.”19 As such, the
influence of nonprofit advocacy has increased even though profit-making interest groups continue to
outspend nonprofits by wide margins.20 Among the reasons for this success is the fact that “nonprofit
advocacy has become highly professionalized, with complex organizations mobilizing hundreds of thousands of members, conducting expert research, and using sophisticated public relations techniques.”21
Most nonprofits have also made good use of the Internet and other social media tools to enhance
public relations and mobilize supporters. These offer organizations an easy way to maintain contact
with clients, members, politicians, and other stakeholders and have been instrumental in keeping lines
of communication open while facilitating fundraising and advocacy efforts.22 The national Parent
Teacher Association (PTA), for example, keeps in touch with stakeholders via PTA Action Updates
and PTA Action Alerts sent directly to millions of email addresses by the PTA Office of Programs and
Public Policy. Similarly, savvy nonprofits are making increased use of social media by using Facebook,
Twitter, and Instagram. Research indicates that 55 percent of people engaging nonprofits via social
media take some sort of action; 43 percent have attended an event, 25 percent have contacted a political
representative, and 15 percent have organized their own community event.23
Another trend increasing the advocacy capacity of the nonprofit sector is the growing participation in associations and coalitions of nonprofit organizations, as with the nonprofit example in our
opening vignette. In a survey of 311 nonprofits, Salamon and Geller found that 89 percent belong to
at least one membership or coalition organization, and 87 percent of those organizations are involved
in some type of lobbying or policy advocacy efforts.24 Similar to the discussion of policy networks
in Chapter 1, a key benefit of these coalitions and associations is that most are field or issue-specific,
offering members the ability to work together over time and pool information and resources. Often,
the associations offer training and encourage members to engage in policy activity. In other cases, the
associations focus on advocacy and lobbying, allowing the individual member organizations to focus
on their primary organizational missions.25
Lobbying and Advocacy: Politics, Policy, and Possibilities 155
The Importance of Advocacy in Pursuit of Mission
Increased ability and effort regarding policy advocacy is vital, as the stake in the political arena has
grown for nonprofits in direct relation to government reliance on them. As discussed in Chapter 3, in
the past several decades, federal, state, and local governments have increasingly sought a subcontracting relationship with nonprofits to administer government social service programs. For even longer,
since Lyndon Johnson’s Great Society, the federal government has sought to take advantage of the
capacity of nonprofits—their grassroots orientation, flexibility, and ability to raise private funds.26
Because of their relationship with government, it is imperative that nonprofit organizations, both large
and small, find and use their voices in policy advocacy and the legislative process.
For some nonprofit and philanthropic organizations, such as those whose mission is to pursue broad,
societal goals such as civil rights protection or environmental conservation, advocating for public policy
and social change is their primary focus. More often, nonprofits play an advocacy role only occasionally,
as an incidental part of their broader service delivery functions.27 When nonprofits act, they address
policy problems in a variety of ways in relation to diverse public interests, from recreation and cultural
programming to alleviating homelessness. For example, there are policy implications in whom the shelter
serves and whom it does not serve: Adults only? Women and children? Is it a sober living facility? Are
pets allowed? Policy implications, including structuring problems and solutions with regard to means
and methods of service delivery, are embedded in service delivery decisions.
The role of not-for-profit advocacy is to build leverage in the system. Rather than simply changing “the
world one client at a time, advocacy efforts focus on broad changes in systems and policy.”28 Frumkin
identified three key ways in which nonprofits create this leverage. First, nonprofits can bring neglected
issues to the attention of the media and the wider public. Second, because they exist outside of the
formal government structure, they can introduce policymakers to new ideas and unique solutions to
social problems, expanding the range of policy options. Finally, changes that nonprofit organizations
effect at the local level can reverberate throughout the system, shaping and reshaping decisions and
priorities at the state, national, and even international levels. For examples of the work that nonprofits
do to address problems in the international arena, see Exhibit 7.1.
Exhibit 7.1
Going Global
Nongovernmental Organizations and Issues of International Concern
Although there is no formal mechanism by which to make policy on a global scale, the nature of
globalization and improved technology have meant that many issues garner international attention
and draw advocates who seek redress of problems that affect people around the world. These advocates, or policy entrepreneurs, often take it upon themselves to develop nongovernmental organizations (NGOs) to address global problems, including human rights violations, the environment,
and diseases such as HIV/AIDS and malaria that affect the global community. The most recent
data on NGOs indicate that, in 2005, there were more than 20,000 such organizations operating
around the world to effect change in these and other issue areas.29
Since NGOs have no global policymaking body to lobby, they seek change via appeals to
international organizations such as the United Nations (UN), by encouraging policy in individual
nations, and through advocacy regarding international treaties and conventions. It is important to
note that the UN is not a legislative body, thus cannot be lobbied; if a treaty or convention requires
approval by a legislative body such as the British Parliament, communication with members of
parliament about that vote is lobbying.30
156 Strategies of Not-for-Profit Organizations
Following World War II, the UN General Assembly created the Geneva Conventions, the
core guidelines of international humanitarian law. Among the Additional Protocols of the Geneva
Conventions was the 1950 creation of the office of the UN High Commissioner for Refugees
(UNHCR), the United Nations Refugee Agency. The agency’s mission is maintenance of legal
protections and provision of humanitarian aid to refugees; when a nation signs on to the Geneva
Conventions, it has agreed to follow these protocols. The UNHCR’s guiding document is the
1951 Refugee Convention, which defines a refugee as someone “unable or unwilling to return to
their country of origin owing to a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group, or political opinion.”31 The Convention
also sets minimum standards for treatment of refugees and allows for universal refugee protection.
The International Rescue Committee (IRC) is a 501(c)(3) charity in the United States with
offices around the world working on refugee and other global issues. The IRC predates the UN
and UNHCR, originating in 1933 as the U.S. branch of Europe’s International Relief Agency,
aiding refugees in Germany, Italy, and Spain prior to World War II.32 Although not as high profile
as other international relief NGOs, the IRC is one of the most influential, working on issues from
education, to public health, to legal aid, and refugee settlement.33 The IRC “responds to the world’s
worst humanitarian crises and helps people whose lives and livelihoods are shattered by conflict
and disaster to survive, recover, and gain control of their future.”34
Among the 40 countries in which it works, IRC has been in Syria since 2012. Its focus in 2018
was in war-torn Idlib province, where 1.5 million people have fled waves of military bombing. In
addition to direct aid on the ground in the form of medical care and emergency cash assistance,
the IRC has engaged in advocacy, calling on the governments of Syria and Russia to end fighting in
Idlib and seek a diplomatic solution to end the humanitarian crisis. Further, its advocacy includes
asking supporters to contact both U.S. elected officials and world leaders to implore all nations to
offer refuge to Syrian families fleeing the war.35
NGOs are also involved in direct policymaking, as these organizations make important decisions about how best to use funds for programs at the local level.36 For example, the IRC conducted research with Yale and the University of Brasilia on distribution of pre-loaded cash cards to Syrian refugees in Lebanon.37 While providing cash assistance, rather than in-kind relief such as food
and clothing, is controversial, the IRC study indicated that the program was beneficial to both
the families, who are now able to make their own purchasing decisions, and to the local economy
where the money is spent. The IRC has expanded this program to other refugee communities in
the Middle East and Europe, an important shift in relief policy.
Raising awareness of global problems and obtaining the resources to combat them is crucial
to global NGO involvement and makes them important actors in problem recognition, advocacy
efforts, and policy implementation of international programs. However, while NGOs focus their
policy advocacy on identifying problems and seeking solutions, their efforts are hindered by the
fact that there is no entity to make or enforce international policy. Even the UN, which created a
Global Compact on Refugees in 2018 to establish “the architecture for a stronger, more predictable
and more equitable international response to large refugee situations,”38 cannot compel signatories
of the Compact to abide by its principles. Raising public awareness and engaging in policy advocacy
by putting pressure on international leaders and calling on the global community to do the same are
among the most important tools that NGOs have in affecting international activity and policy.
See also UN High Commissioner for Refugees, The UN Refugee Agency, and
International Rescue Committee,
Lobbying and Advocacy: Politics, Policy, and Possibilities 157
Policy advocacy is an indelible part of what nonprofits do; when asked about specific activities, researchers have found that most have engaged in some sort of advocacy efforts. For example, in a 2000 study
of 1,173 nonprofits conducted by the Strengthening Nonprofit Advocacy Project (SNAP), about 75
percent reported having engaged in some type of effort to influence public policy at least once. Similarly,
Salamon and Geller found that 73 percent of the 311 nonprofits they studied had engaged in policy
advocacy (62 percent) or lobbying (59 percent) in the previous year. Furthermore, 61 percent of those
organizations reported engaging in advocacy or lobbying efforts once a month or more.39
While their involvement can be described as wide, it is not particularly deep; the form of advocacy
employed by organizations in the study varied, and tended to be of the least demanding type. While
57 percent reported signing correspondence to a government official, only 35 percent engaged in grassroots lobbying, encouraging the public to communicate with officials. Further, while 55 percent had
responded to a request for information from a public official, only 29 percent had organized a public
event and only 24 percent had released a research report. As Salamon and Geller concluded, “lobbying
and advocacy, while widespread and varied, tend to involve relatively limited-commitment activities
for most organizations most of the time.”40
More recently, of course, not-for-profits that engage in policy advocacy and lobbying have a web
presence and use technology (from email, to Twitter, Instagram, and Facebook) to advocate and to alert
activists to potential legislative and policy changes that might affect the organization. Research has found
that state nonprofit associations make frequent use of email to engage their member nonprofits and
that they rate emails to legislative staff as a highly effective tool in lobbying and advocacy.41 California’s
Association of Nonprofits (CalNonprofits) includes a California Legislation Tracker on its webpage,
complete with the CalNonprofits’ position on each piece of legislation it follows.42
Nonprofits are making extensive use of these tools because they are convenient, increase the rapidity
of communication, use few staff resources, allow wide audience reach, and are affordable.43 In general,
there are three ways nonprofits use social media: providing information, building community, and making
calls to action.44 A 2014 study of advocacy organizations found that 93 percent were using social media,
particularly Facebook and Twitter, with some organizations tweeting as many as 1,000 times per month.45
The primary use of tweets was to share information (67 percent), followed by community building (20
percent), and calls to action (12 percent total with 2 percent specifically calling for grassroots lobbying).
In 2015, Saxton and his colleagues looked at use of Twitter hashtags among health nonprofits, in particular, finding that 50 percent of hashtags were about public education, 3.5 percent were about policy
issues, and another 3 percent were calls to action, which may or may not have had a policy component.46
Of those not-for-profit organizations that engage in lobbying and policy advocacy, the motivation
is clear. Nearly 90 percent in the SNAP study “said that the key reason for their advocacy was to carry
out their nonprofit missions.”47 Research suggests that groups are most likely to engage in advocacy: 1)
to raise awareness about important issues; 2) when they perceive government to be threatening their
ability to deliver services; or 3) because of the relevance of legislation to their programs and the people
they serve.48 These motivations are increasingly relevant to nonprofit organizations, further solidifying
the influence policy facet of the Nonprofit-Policy Framework.
An example of the involvement of not-for-profit organizations in policy advocacy comes from a
general overview of the policy issues important to the National Alliance on Mental Illness (NAMI) and
its Public Policy Platform. It is clear that NAMI casts a wide net with its policy advocacy efforts, from
service delivery to health insurance coverage to mental health financing. NAMI also includes a wide
variety of stakeholders in its efforts, including patients and their families, researchers, and policymakers
at the local, state, and federal levels. The creation of a set of public policy priorities is consistent with the
trend by nonprofits to advocate for important policy change on behalf of their constituents, engaging
both policymakers and the public. More information on NAMI policy efforts is included in Exhibit 7.2.
158 Strategies of Not-for-Profit Organizations
Exhibit 7.2
For Example
The National Alliance on Mental Illness:
Creating Public Policy Priorities
Nonprofit organizations often set public policy priorities. The following is an example from the
2016 Public Policy Platform of The National Alliance on Mental Illness:
Public policy makes a difference in the lives of both the people living with mental health conditions and
the people in their lives.
Changes in policy can mean better outcomes.
Our advocacy efforts have led to many victories including:
Securing better funding for research.
Protecting access to treatments and services.
Attaining mental health parity to ensure that mental illness is treated equally to physical illness in most
insurance plans.49
NAMI’s Public Policy Platform includes policy statements on issues such as access to treatment,
nondiscriminatory insurance coverage, legal rights of the mentally ill, and criminal justice policies.
To advance its public policy efforts, NAMI is active in advocacy and lobbying in the U.S. Capitol
and all 50 states, where they advocate for state, county, and local laws and policies that benefit
those affected by mental illness. Its webpage includes information on all of its policy priorities,
including NAMI policy statements and links to “Take Action Now.” They invite supporters to become advocates by registering through an Advocacy Headquarters page where advocates can access
direct links to both their federal and state legislators about mental health issues on the legislative
NAMI also conducts and publishes research on mental health policy issues called Public Policy
Reports. Among NAMI’s most important policy successes to date was the federal mental health
parity law, signed in 2008, which guarantees insurance coverage for substance abuse and mental
health disorders equal to that provided for treatment of any other chronic health condition. Because disparities in coverage have continued, and the parity assurances under the Affordable Care
Act are under threat, NAMI has published a series of policy reports on parity laws and mental
health coverage. These reports can be used to inform policymakers and the public, and further
NAMI’s advocacy and lobbying efforts.
To download the NAMI Policy Platform, go to
To access NAMI’s Public Policy Reports, go to
For additional information, go to
Lobbying and Advocacy: Politics, Policy, and Possibilities 159
Importantly, research indicates that not-for-profit organizations have been quite successful in their
advocacy efforts: While public charities are a small percentage of the interest group organizations in
Washington, D.C., they are a major force in congressional testimony and press coverage on issues, and
are far more likely to get legislation passed regarding their issues than are private business interests. 50
Fundamental to this success is the fact that knowledge is power; because nonprofit organizations have a
wealth of information about social problems and programs to address them, their policy recommendations
carry significant weight with legislators at the federal and state levels. An example comes from a Minnesota
consortium of nonprofits, which fought off $200 million in state cuts to social services in 2002. The director
of the consortium explains: “We found that if you weren’t at the table you were on the table when it came to
welfare reform. Decisions will be made with or without our information. Which do you prefer?”51
Regardless of whether the organization exists to provide goods and services to clientele or has its
primary purpose in advocacy, it would be difficult to overestimate the influence of nonprofit organizations on law, policy, and regulation in the United States. From women’s suffrage to civil rights for
African Americans to consumer protection, advocacy efforts of nonprofit organizations have changed
American society and its laws for decades.52 For an in-depth example of the power of nonprofit policy
activity, see Exhibit 7.3 on the work of the National Rifle Association.
Exhibit 7.3
Case Study
Advocacy and Influence: National Rifle Association
versus Gun Safety Organizations
In 1871, after the conclusion of the Civil War, two Union military officers, Colonel William C.
Church and General George Wingate, formed the National Rifle Association (NRA) in response
to the poor marksmanship skills exhibited by Union troops during the war.53 The group languished
early in its history, but by the 1940s had 50,000 members, primarily interested in sport shooting
and marksmanship. As a 501(c)(3) charitable organization, it had very limited involvement in
politics. After World War II, membership grew dramatically; by the mid-1950s, it had 300,000
members and moved its headquarters to Washington, D.C. As Robert J. Spitzer has noted, “When
Congress turned its attention to gun control in the 1960s, so too did the NRA.”54 In 1975, it
created the Institute for Legislative Action (ILA), a 501(c)(4) organization, which is described as
“the lobbying arm of the NRA,” and which also manages the NRA’s political action committee,
the Political Victory Fund, formed in 1976. The ILA describes its purpose as preserving “the right
of all law-abiding individuals to purchase, possess and use firearms for legitimate purposes as guaranteed by the Second Amendment to the U.S. Constitution.”55 As part of its efforts to influence
legislation, the ILA mobilizes the political support of NRA members, spending millions each
election cycle on member-focused political communications; in the 2016 elections, the ILA spent
a record $76 million.56
The power of the NRA over gun policy is renowned. For example, although more than 30,000
people die annually by gun violence, “the firearm industry is one of the least regulated in the
nation.”57 Public opinion polls consistently find that only a minority of Americans support NRA
policy positions, yet the organization is dominant in the gun control debate and has successfully
fought government regulation of firearms for decades.58
160 Strategies of Not-for-Profit Organizations
How has the NRA maintained its dominance in gun policy? There are several explanations.
One is organizational: The NRA has deep pockets that allow it to provide many incentives to
members, including monthly publications, discounts on firearm insurance, and partnerships with
corporations that provide members with discounts on hotels and rental cars.59 It has a fiercely
loyal member base and a force of volunteer organizers in every congressional district each election
season.60 In addition, it has strong industry ties, as gun manufacturers often include NRA membership information in materials they provide to gun buyers.61
Second is their ability to frame gun policy. The NRA has been wildly successful in casting gun
ownership as an expression of freedom, individualism, and opposition to an overbearing government,62 including using the Holocaust as an example of what government may do if the public
is unarmed.63 Calling itself “America’s oldest civil rights organization,” the NRA has created significant public support for the position that the Second Amendment creates an individual right
to gun ownership—regardless of the fact that among legal scholars this view is highly debatable.64
This policy frame allows the NRA to argue that any gun regulation is an infringement on one’s
constitutional rights and a step toward an outright ban.65
The NRA has not been without opponents on the gun control side of the debate. Among the
oldest is the Brady Campaign to Prevent Gun Violence, formerly Handgun Control, Inc. (HCI).66
In 1981, a failed assassination attempt against President Ronald Reagan left his press secretary,
James Brady, partially paralyzed. Shortly thereafter, James and his wife Sarah Brady began working
with HCI to push for federal gun control legislation. HCI was renamed the Brady Campaign to
Prevent Gun Violence in 2000, to honor James and Sarah’s work.
Its success, most importantly, the passage of the Brady Handgun Violence Prevention Act of
1994, known as the Brady Bill, is an example of the power the NRA wields over firearms legislation.67 To many, the bill is quite tepid, requiring a five-day waiting period and background checks
for firearms purchased from federally licensed dealers, but no bans on types of guns sold; however,
its passage has been described as a “political struggle…nothing less than furious.”68 Initially introduced in early 1987, it required multiple congressional votes over the course of seven years, faced
several Senate filibusters, and spanned the terms of three presidents before final passage.
Kristin Goss has chronicled the failure of gun control advocates to turn moments of anger—
after political assassinations and high profile mass shootings—into a social movement that effects
policy change.69 Her argument is that the public benefit of gun control has not been personalized;
the costs of the collective effort to change gun laws is greater than the perceived individual benefit. Further, Goss argues that gun safety advocates have faltered by seeking large-scale, rather than
incremental policy change.
Other scholars have argued that the public has little self-interest in gun control in the way
that gun owners have a self-interest in protection of gun rights.70 This is among the reasons that
decades of gun control advocacy have made little dent in the NRA’s policy narrative.71 Others have
emphasized the importance of issue framing in gun control policy, and the fact that the NRA has
long held the more powerful frame of a constitutional right, thus hindering the efforts of gun
control advocates who have “found it difficult to introduce an alternative frame into the debate.”72
The NRA’s control over the narrative and policies surrounding guns, however, has recently
begun to face serious challenge. While gun regulation advocacy organizations such as the Brady
Campaign and the Legal Community Against Violence (LCAV) have existed for decades, they
have recently picked up political strength as groups have merged, formed coalitions, created 501(c)
(3), 501(c)(4), and political action committees, and worked to change the policy frame. One
Lobbying and Advocacy: Politics, Policy, and Possibilities 161
such example involves organizations spearheaded by former Arizona Congresswoman, Gabrielle
Giffords. In 2011, Giffords was left partially paralyzed after a nearly fatal shooting during a “Congress on your Corner” community event; six others were killed in the attack.73 In January 2013,
Giffords and husband Mark Kelly created Americans for Responsible Solutions (ARS); in 2016,
ARS merged with LCAV to form the Giffords Law Center to Prevent Gun Violence, a 501(c)
(3) charitable arm of Giffords Courage, a 501(c)(4).74 Giffords and Kelly also formed a Political
Action Committee, Giffords PAC, to support political candidates who champion gun safety.75 The
Law Center, PAC, and Giffords Courage, therefore, span the spectrum of allowable political activity by tax-exempt organizations.
Giffords Courage is a partner in Everytown for Gun Safety (Everytown), a coalition of gun
safety organizations that has become the most powerful opponent to the NRA. In addition to Giffords Courage, Everytown’s coalition partners include Mayors Against Illegal Guns, co-founded
in 2006 by New York City Mayor Michael Bloomberg and Boston Mayor Thomas Menino, and
Moms Demand Action for Gun Sense in America, founded the day after a mass shooting at Sandy
Hook Elementary School in Newtown, Connecticut.
Many have pointed to the 2012 Sandy Hook shooting, in which a gunman opened fire at the
elementary school killing 20 kindergarten and first graders and six of their teachers, as a turning
point in the battle between gun rights and gun safety nonprofits.76 In the immediate aftermath
of Sandy Hook, more states actually loosened gun laws than strengthened them, and several federal bills, including a ban on assault weapons of the sort used at Sandy Hook, failed.77 However,
these losses strengthened the resolve of gun control advocates,78 who formed the Everytown
coalition in 2013. Everytown has both a 501(c)(3), Everytown for Gun Safety Support Fund,
and a 501(c)(4), Everytown for Gun Safety Action Fund. In 2018, the Action Fund endorsed
196 candidates for office at the local, state, and federal levels, spending $30 million on contributions and independent expenditures; 150 of its candidates won election.79 Everytown is also
credited with helping Democrats take control of the Virginia state legislature in 2019, for the
first time in a generation. After spending $2.5 million on 22 competitive seats, their candidates
won in 15 of those races.80
In addition to electoral success, gun safety groups saw legislative success in 2018 as well, as 26
states and the District of Columbia passed legislation to reduce gun violence and/or regulate guns,
including bans on rapid-fire “bump stocks” and sales to those under 21.81 While these successes
are surely attributable to the improved advocacy efforts of Everytown and similar groups, they are
also the result of a more nuanced strategy of policy framing by candidates and advocates who have
pivoted from “gun control” to “gun safety.”82
These advocates have also been “beneficiaries” of the continuing incidence of mass shootings, particularly those with large casualty numbers. These include the June 2016 Pulse Nightclub
shooting that killed 50 in Orlando, Florida; the October 2017 Las Vegas music festival shooting
in which 59 were killed and 851 injured; the November 2017 shooting at a Baptist church in
Sutherland Springs, Texas, which killed 27; the shooting at Tree of Life Synagogue in Pittsburgh,
Pennsylvania, which killed 11 in October 2018; and back-to-back shootings in El Paso, Texas and
Dayton, Ohio, which killed 32 and injured 51 in August 2019. A watershed moment for gun
safety advocates came on Valentine’s Day 2018, when a shooting at Marjory Stoneman Douglas
High School (MSDHS) in Parkland, Florida, killed 17 and injured 15.
Student survivors of the MSDHS mass shooting immediately went on the offensive against
gun rights groups. With the tagline, Not One More, which sparked a social media frenzy of re162 Strategies of Not-for-Profit Organizations
sponse via #notonemore, they launched two nationwide protests—1) a National School Walkout
a month after the shooting, and 2) the March for Our Lives protest march and rally in Washington, D.C., on March 24, 2018, that spawned over 800 “sibling marches” around the globe.83 The
students partnered with several organizations, including Everytown and Giffords Courage, and
created the March for Our Lives Action Fund, a 501(c)(4) organization, affording them maximum
ability to lobby legislators.84
This student-led movement, described as reminiscent of student protests of the Vietnam era,85
garnered swift reaction from elected officials in Florida. In a classic example of policy change
following a focusing event, new gun control laws went into effect in Florida just weeks after the
shooting.86 The mass demonstrations also empowered gun safety advocates whom, in 2018, outspent gun rights groups for the first time in U.S. election history.87
In addition to mobilizing hundreds of thousands of marchers and protestors, March for our
Lives students met with state and federal lawmakers, gave media interviews, and advanced a
ten-point policy platform.88 They called for: 1) Centers for Disease Control funded research on
gun violence; 2) digitalization of Bureau of Alcohol, Tobacco, and Firearms records; 3) universal
background checks and closing of the so-called “gun show loophole” that allows private sales
of firearms without a background check; 4) a ban on high-capacity magazines, those that hold
more than 10 rounds of bullets; 5) a ban on assault-style, semi-automatic weapons; 6) funding
for community-based gun violence prevention programs; 7) legislation that allows extreme risk
protection orders (ERPO), so that concerned family members can have guns removed from
those who present a risk to themselves or others; 8) laws to disarm all domestic abusers, including those who abuse or stalk dating partners; 9) federal legislation to target gun trafficking
between states; and 10) legislation to require safe weapon storage and mandatory reporting of
gun thefts.
It is too soon to know whether the recent victories of the gun safety movement will fundamentally change gun policy because there are encouraging signs for both sides of the debate. First,
in addition to electoral and legislative wins for gun safety advocates in 2018 and 2019, the NRA
found itself in serious financial trouble after Governor Andrew Cuomo encouraged New Yorkbased financial and insurance companies to cut ties with the organization as a “matter of public
safety” and a way to curtail gun violence in the state.89 Second, the NRA’s Form 990s indicate
a drop in membership and income as well as campaign spending between 2016 and 2017.90 In
addition, the New York Attorney General’s Office opened an investigation of possible self-dealing,
inaccurate tax filings, and questionable political activity after accusations of misconduct became
public during the 2019 NRA annual convention.91 All of this may be encouraging news for gun
safety advocates.
On the other hand, it could only be a temporary setback for gun rights policy. The NRA
has already taken the state of New York to federal court, arguing that it is infringing on the free
speech of one of the nation’s “oldest constitutional rights advocates.”92 It is possible the NRA’s
financial and legal difficulties will be resolved and it will once again dominate the gun policy
debate during the 2020 election season. Further, a report on school safety released in late 2018
by the Trump administration said little about gun violence, emphasizing instead mental-health
services, school discipline, and suggesting that school shooters gain “no notoriety.”93 While gun
safety organizations have recently moved the needle, they have a long way to go before claiming
Lobbying and Advocacy: Politics, Policy, and Possibilities 163
1. What motivated organizations such as Giffords Courage, Mayors Against Gun Violence,
and Moms Demand Action to form the Everytown for Gun Safety coalition?
2. Coalitions seeking policy change often break down when the details of policy are being
developed. Why might that be? What might lead to a breakdown of the Everytown for
Gun Safety coalition?
3. Both the NRA and Giffords Courage have multiple organizational arms, including a
501(c)(3), a 501(c)(4), and a political action committee. What are the advantages of
having each of these? Are there potential disadvantages to having multiple organizational
4. Consider the four relationships that describe the Nonprofit-Policy Framework (make
policy, affected by policy, influence policy, subject to policy) and discuss which one(s)
best exemplify the relationship between the NRA and public policy over time.
5. Consider James Madison’s concerns about “the mischiefs of factions” in a democracy—
that strong groups would dominate policy when faced with weak competition, and that
competitive groups would create political havoc. What does this case study tell us about
Madison’s concerns?
For additional information:
The Brady Campaign to Prevent Gun Violence,
Everytown for Gun Safety,
Giffords Law Center to Prevent Gun Violence,
March for our Lives,
The National Rifle Association,
Lobbying within the Limits
Earlier we defined lobbying as occurring when activities are designed to influence decision makers
on specific pieces of legislation. Typically, that means elected officials in Congress, state houses and
senates, and council or board members in city and county government, but it also includes voters in
states—such as California, Oregon, and Washington—that allow citizen groups to bring legislative or
constitutional initiatives directly to voters through direct democracy. At the federal level, nonprofits
that employ lobbyists are subject to the Lobbying Disclosure Act of 1995 (LDA), which requires that
they register with the House of Representatives and the Senate. Some states and local governments
also require registration of nonprofit organizations that engage in lobbying.94 There are many nuances
to the Internal Revenue Code (IRC) regarding nonprofit lobbying, but the most important factor for
public charities is that while they can engage in lobbying, it cannot be a substantial part of their activities or they risk denial or revocation of tax-exempt status.
Unfortunately for these organizations, the IRC regulations, created in 1934, are rather murky;
what constitutes a “substantial part” has never been defined. Elizabeth Schmidt noted that from
164 Strategies of Not-for-Profit Organizations
the legal record, “it appears that ‘substantial’ activities include the percentage of funds spent on
legislative activities as well as the time and effort spent lobbying; the importance the organization
attaches to its lobbying activities; the frequency of its legislative activities; and its success in actually
influencing legislation.”95
Because the substantial part rule is spectacularly unhelpful, in 1976, Congress enacted the 501(h)
expenditure test, providing clear lobbying guidelines and limits. All 501(c)(3) public charities are eligible
for the expenditure test by filing Form 5768, and “electing” to come under the 501(h) provision. The
expenditure test defines two types of lobbying, direct and grassroots; the difference between the two
has to do with the target of influence. Direct lobbying involves correspondence and conference with
legislators and their staffs or publication of materials intended to influence specific legislation and the
group’s view on that legislation. Note, however, that when such actions are undertaken at the request
of the legislative body, in testimony before the legislature, for example, the nonprofit has not engaged
in lobbying.
Grassroots lobbying involves efforts to appeal to the general public to take action in support of or
opposition to specific legislation.96 Thus, when an organization simply informs the public and its own
membership of its position on pending legislation, it has not engaged in lobbying. If, however, that
information includes a call for action by the general public, the organization has engaged in grassroots
lobbying; therefore, a call to action aimed specifically at an organization’s own members is considered
direct lobbying.
Although Congress has generally been supportive of the rights of nonprofits to lobby, studies find
that few charitable organizations do so.97 The key barrier to nonprofit lobbying activity appears to be
a lack of resources: time, staff, and funding.98 Other important barriers include the tax laws and IRS
regulations, the skill levels of staff and volunteers, the fact that the organization receives government
funding,99 and negative attitudes toward lobbying from their boards, staff, and the public. Further,
Salamon and Geller found that foundation resource dependence may pose a barrier to lobbying; in their
research, nonprofits that rely heavily on foundation grants are less likely to engage in policy advocacy
or lobbying.100
Myths about Nonprofits and Lobbying
The myth that 501(c)(3) organizations cannot lobby has been promulgated because of the Sierra Club
incident and the 1969 Tax Reform Act discussed earlier as well as several attempts to restrict lobbying
that have been introduced and defeated in the 1980s and 1990s. These proposed limitations, while
ultimately unsuccessful, were designed to increase the administrative burden on nonprofits by forcing
them to isolate lobbying funds from all other operational funds. This furthered the misperception
among not-for-profit organizations that they cannot legally engage in lobbying activity.
In addition, the myth that nonprofits cannot lobby persists because they often misunderstand
their rights under the law, as exemplified in the opening vignette. In his research, Jeffery Berry found
that nearly half of the respondents he surveyed gave incorrect answers to a series of questions testing
knowledge of their respective organization’s rights in advocating a legislative position before Congress;
only 61 percent knew they were allowed to publicly state a general policy position.101 Similarly, the
Strengthening Nonprofit Advocacy Project identified confusion over lobbying laws as one of the most
common barriers to effective lobbying in its 2000 study.102 Further, Salamon and Geller found that
31 percent of their survey respondents mistakenly believed their organizations were prohibited from
lobbying. In truth, of course, all nonprofits can legally lobby; the confusion lies in the determination
of limits on allowable lobbying activity.103
Lobbying and Advocacy: Politics, Policy, and Possibilities 165
Lobbying Allowable under the Law
Lobbying is only of concern to the IRS when an organization attempts to influence specific pieces of
legislation; under the 501(h) election, lobbying must involve an expenditure of funds; thus, if there
is no expenditure of funds (for example, on mailings, travel, staff time, etc.), there is no lobbying. As
mentioned earlier, under federal law, legislation is defined as an “action by Congress, a state legislature,
a local council or similar governing body, and the general public in a referendum, an initiative, a constitutional amendment, or a similar procedure.”104 It includes attempts to influence members of the
Senate during confirmation of judges to the federal courts, and proposals for laws in other countries.
For tips on engaging in advocacy and lobbying, see Exhibit 7.4.
It is equally important to note that for nonprofit organizations, lobbying members of the executive
branch, including mayors, governors, presidents, and agency directors, is also acceptable under the
law. Further, filing a suit or amicus curiae brief in court is not considered lobbying; thus, nonprofits are
free to do both. Self-defense activity, in which the nonprofit organization lobbies to protect its own
existence, powers, or tax-exempt status, is also allowed without restrictions.
Even the laws that prohibit legislative lobbying are more flexible than they may seem on the surface.
First, nonprofits face no restrictions on communication with legislators if they are asked for advice or to
testify before a legislative body. Furthermore, public charities can conduct nonpartisan policy analysis,
as well as publish and disseminate the results, without the costs accruing as lobbying expenses—even
if legislative action is needed to implement the results —as long as the organization does not call for
specific legislative adoption or action.105
Finally, communication with legislators designed solely to educate or inform about an issue, in general,
is not lobbying and is, therefore, permissible. It is important to keep in mind that such education efforts
are undertaken with relative frequency, making the relationships between elected officials and nonprofit
organizations reciprocal: While nonprofits often have a vested interest in legislative outcomes and policy,
policymakers often rely on the help and expertise of those in nonprofit organizations as they make important policy decisions. Therefore, differences between “education and advocacy” and “advocacy and
lobbying” might appear to be subjective. Indeed, Jeffery Berry has concluded: “the difference between
educating legislators and lobbying legislators has no real meaning outside of the tax code. It is the same
thing.”106 For those working in the nonprofit sector, however, the tax code is the meaning that matters.
Exhibit 7.4
For More Information
Advocacy and Lobbying Tips
Make an Appointment: If you are a constituent, mention it when you make the appointment.
If you have to meet with a staff member, remember that senior staff can wield a lot of power and
are often able to give you more time than the legislator.
Be Reliable: Be on time for your appointments. If you tell a legislator that you will send him or
her additional information, do so promptly.
Introduce Yourself: If you are not a district voter, introduce your organization and explain its
importance to the legislator’s district.
Be Prepared: Provide organized, useful, clear, concise, and accurate information. When you are lobbying about specific legislation, know the bill number, bill author, proponents/opponents, where the
bill (or budget issue) is in the legislative process, and have responses to the opposition’s arguments.
166 Strategies of Not-for-Profit Organizations
Do not hesitate to say: “I don’t know, but I will try to get that information for you.”
Do not guess or make up an answer.
Do not waste the legislator’s time or yours: Be succinct! Avoid getting sidetracked and stay on
Give anecdotes and specific examples pertinent to your organization or its clientele. Legislators
need to hear the “real world impact” of issues; give them a personal story that will stick
with them.
Anticipate tough questions such as, “If we don’t cut this funding, then where should we cut?” It’s
your task to advocate for your issue and clients, not to provide solutions to all social problems.
Beware of overkill. Recognize when you’ve gotten what you came for or as much as you’ll get.
Be specific about the action you would like the legislator to take.
Be Respectful and Polite: If you disagree with the legislator’s position, say so, but focus your arguments on the facts and your reasons for disagreeing. If a legislator is not supportive on the issue,
accept that fact, but continue lobbying through letters, district, or capital office visits. Remember,
today’s unsupportive legislator could be your ally on the next issue.
If You Are in a Group, Select a Spokesperson and Assign Roles: Appoint one person to begin
the conversation (make sure all present introduce themselves). Plan what each member of the
group will discuss, and role play prior to your meeting. Give everyone in the group an opportunity
to speak. Be sure that each person in your group takes notes for later debriefing.
Leave Something Tangible: Leave a fact sheet, informational brochure, business card, or a copy
of a bill—anything tangible that will visually remind the legislator of your visit and your issue.
Debrief and Follow-Up: Immediately following your meeting, you (and group members) should
review your meeting notes and evaluate the meeting to identify strengths and weaknesses for next
time. Be sure to follow through with any promises made in a timely manner.
Thank You Letter: Send a thank you letter that 1) expresses your appreciation for the meeting;
2) summarizes the purpose of the meeting; and 3) reiterates the action you want taken by the
legislator. No form letters!
Keep Them Accountable: Follow your legislators—their votes, statements on issues, and the bills
they sponsor. Send a letter or email, or make a telephone call to let them know that you approve
or disapprove of their actions.
Source: Adapted from the Government Relations Office, California Faculty Association, “Do’s and Don’ts of
Lobbying,” and from the Center for Lobbying in the Public Interest, “Personal Visits with a Legislator.”107
Limits on Lobbying: The “Substantial Part Test” and 501(h)
The federal government instituted tax deductions for charitable contributions in 1917 as a way to
facilitate charitable giving by taxpayers. By 1930, however, a federal appeals court held that organizaLobbying and Advocacy: Politics, Policy, and Possibilities 167
tions receiving tax-exempt donations could not engage in “agitating for the repeal of laws”108 because
the tax exemption could be considered a government subsidy. In the 1934 Revenue Act, Congress
instituted the substantial part test, disallowing tax-exempt status for organizations that engage in
legislative lobbying as a substantial part of their activities.109 The substantial part test derives from the
provision of IRC section 501(c)(3) which regulates nonprofit expenditures, such that “…no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence
legislation….” For better or worse, however, what constitutes a substantial amount of an organization’s
time or money has never been consistently defined.
Thus, while lobbying is a legal activity for 501(c)(3) organizations, many of them are still reluctant,
uninterested, or financially unable to engage. Until April 2003, the IRS routinely conducted targeted
audits on a sample of public charities that reported lobbying activity.110 The fear of audit and the possible loss of tax-exempt status if lobbying activity was deemed excessive under the ambiguous substantial
part rule have caused many nonprofits to eschew any legislative lobbying activities.
Fortunately for public charities, the substantial part rule can be avoided if the organization simply
chooses the 501(h) election, which was created in the Tax Reform Act of 1976 to provide clearer
guidelines for nonprofits engaging in lobbying activities. Although public charities must actively elect
to fall under the expenditure test of the H election by filing Form 5768, choosing this set of rules
affords greater predictability and protection regarding permitted lobbying activity. Nonprofits that do
not choose the H election will, by default, fall under the substantial part rule governing lobbying. The
determination of what amount of lobbying constitutes a substantial part of organizational activity is
then left to subjective interpretation (see Table 7.2).
The H election sets specific ceiling amounts on nonprofit lobbying expenditures, as noted in Table 7.1.
These limits are set based on a sliding scale of exempt-purpose expenditures, which include all expenses
for organizational programs, but do not include expenses related to managing investments, unrelated
businesses, and certain fundraising. Total lobbying expenditure limits include the amounts that can be
spent for either direct or grassroots lobbying.111 Many experts recommend that nonprofits, particularly
those engaged in lobbying, choose the H election because the substantial part test leaves them vulnerable
to a subjective interpretation by authorities with no consistent rules regarding penalties.112 Opponents
of the lobbying limitations have called for, at a minimum, the repeal of the distinction between direct
and grassroots lobbying113 and a clarification of IRS regulations governing nonpartisan voter activities.114
For a comparison of the differences between the substantial part rules and section 501(h), see Table 7.2.
Table 7.1
Limits to Lobbying under Section 501(h) Election of 1976
Total Exempt-Purpose
Direct Lobbying
Expenditure Limits
Grassroots Lobbying
Expenditure Limits
Up to $500,000 20 percent of exempt-purpose expenditures
$500,000–$1 million $100,000 + 15 percent of excess over
$25,000 + 3.75 percent of excess over
$1 million$1.5 million $175,000 + 10 percent of excess over
$1 million
$43,750 + 2.5 percent of excess over $1
$1.5 million–$17 million $225,000 + 5 percent of excess over
$1.5 million
$56,250 + 1.25 percent of excess over
$1.5 million
Over $17 million $1 million $250,000
168 Strategies of Not-for-Profit Organizations
Table 7.2
The “Substantial Part” Test versus 501(h) Election Rules
Nonprofits under the Substantial
Part Rules
501 (h) Electors
What is “lobbying” activity?
No clear definitions; organization must
keep careful accounting of public policy
Clear definitions; many activities
are not considered lobbying and
are not subject to limits
What are the spending limits?
Lobbying activity cannot be a “substantial
part” of nonprofit efforts, but “substantial”
is undefined
Clearly defined (see Table 6.1)
What counts? Money spent and volunteer time Only money spent, not volunteer
hours, for example
How involved is the recordkeeping and accounting?
All lobbying activities and expenses must
be recorded. Detailed descriptions of
activities and a classified schedule of
expenses reported on annual information
return Form 990 Schedule C filed with IRS
All lobbying expenses must be
recorded; expenses are reported
on annual information return Form
990 Schedule C filed with the IRS
What are the penalties for
exceeding limits?
If revocation of tax-exempt status occurs,
the nonprofit is assessed a 5 percent excise tax on all funds spent on lobbying.
Directors/officers can be personally taxed
if found to have willfully authorized the
substantial lobbying
Organization assessed a 25 percent excise tax on spending over
allowable limits; no penalties for
When does revocation of
tax-exempt status occur?
Unclear; a nonprofit could lose its status
in a given year
If lobbying exceeds 150 percent
of allowable limits for four or more
Source: Adapted from CLPI (Center for Lobbying in the Public Interest), Make a Difference for your Cause, Washington,
DC: Center for Lobbying in the Public Interest, 2006.
Far fewer organizations have chosen to take the H election than proponents of the legislation anticipated. This could be attributed to the recordkeeping burden of complying with section 501(h), but it
is more likely that most charities do not engage in a great deal of lobbying, and expenditures by those
that do lobby generally constitute less than 10 percent of their funds.115 Because data are not available
regarding taxes collected on violations of the lobbying limitations, it is difficult to assess the full impact
of the H election on the nonprofit sector.116
Other Options: 501(c)(4) Affiliation and Professional Lobbyists
The 1983 U.S. Supreme Court decision Regan v. Taxation with Representation of Washington, affirmed
the government’s right to limit lobbying activity by citing precedent that tax-exemption is a privileged
status and that limiting lobbying activity by public charities is not a restriction on free speech, but
rather a restriction on the subsidy received. The court did, however, expand the ability of 501(c)(3)
organizations to lobby indirectly by allowing them to create or affiliate with 501(c)(4) organizations.117
Organizations that are tax-exempt under section 501(c)(4) of the IRC, such as AARP and the NRA,
Lobbying and Advocacy: Politics, Policy, and Possibilities 169
are not restricted in their ability to lobby; however, it is important to remember that contributions to
501(c)(4) organizations are not tax deductible.
The Regan decision makes it clear that public charities can control the activities of their affiliated
501(c)(4) organizations, and that the two organizations may share the same legislative priorities,
boards of directors, office space, facilities, and staff. There are some restrictions on 501(c)(4) organizations: They must be incorporated as a separate legal entity, must fund their activity solely using
non-tax-deductible funds, and must keep adequate records to show that all costs are properly divided
between the 501(c)(3) and the 501(c)(4) organizations for such expenses as rents and leases, salaries,
equipment, and so on.
Most 501(c)(4)s operate in the NTEE categories of public and societal benefit or human services,
allowing these organizations to operate for decades under the radar.118 Beginning in 2008, however,
election spending by 501(c)(4)s jumped dramatically, leading to concerns about “dark money”—
contributed by donors who remain anonymous because their donations are to a (c)(4) organization—in
the political system.119 The situation was further complicated when the 2010 Supreme Court decision,
Citizens United v. Federal Elections Commission, enhanced the ability of a host of organizations—including
501(c)(4) social welfare organizations, 501(c)(5) labor unions, and 501(c)(6) trade associations—to
engage in “electioneering communications” and make “independent expenditures” in federal and state
elections.120 The Citizens United decision means that these organizations may now refer to a specific
candidate in television communications—including cable or satellite—within 30–60 days of an election.121 Further, these nonprofits are allowed to spend money expressly to elect or defeat a particular
candidate, as long as they are not acting in coordination with any political party or candidate for office
and have complied with all applicable federal election and tax laws.
Not surprisingly, many are concerned about the increased ability for nonprofits and anonymous
donors to influence campaigns and elections. Several organizations, including Citizens for Responsibility & Ethics in Washington (CREW) (a 501[c][3]), Move to Amend (a 501[c][4]), and End Citizens
United (a political action committee), have sought to roll back this influence. In 2016, CREW sued the
Federal Election Commission and Crossroads GPS (a 501[c][4]), arguing that anonymous donations
undercut the public’s right to know who is funding election campaigns.122 In 2018, the federal courts
agreed, ruling that the names of donors contributing $200 or more per year must be publicly disclosed
to ensure greater transparency in campaign finance.
On the other hand, as Nikhil Pillai of the Bolder Advocacy Initiative has argued, the political activities afforded 501(c)(4)s are often necessary tools for activists to advocate for policies that affect the
most vulnerable.123 Pillai argued that the ability for small donors to “speak out in a collective voice,”
may be the only way to assert their policy preferences in the face of corporate political spending.124 This
enhanced ability for social welfare organizations to effect policy change is what spurred the 108-yearold NAACP to shift its status from 501(c)(3) to 501(c)(4) in 2017.
Some nonprofits seek professional assistance in advancing their legislative agenda and hire a
lobbyist; very large nonprofits may have more than one paid lobbyist on staff. The registration of
nonprofit lobbyists is regulated at the federal level through the Lobbying Disclosure Act of 1995;
similarly, most states and some cities require lobbyist registration as well.125 While this may be
anathema to many nonprofits, a specialist in the legislative process may be needed if the organization faces a legislative crisis or there are other indicators that a legislative professional is needed.126
In particular, organizations would benefit from a professional lobbyist if they: 1) are missing key
votes or are unaware of the committee and subcommittee changes being made to their legislative
priorities; 2) have difficulty meeting with legislators or their staff; or 3) simply do not understand
the legislative process.127
170 Strategies of Not-for-Profit Organizations
Exhibit 7.5
For More Information
Alliance for Justice
The Alliance for Justice (AFJ) is an association of over 130 organizations nationwide “committed
to progressive values and the creation of an equitable, just, and free society.” To that end, AFJ has
fought for environmental, consumer, and civil rights for over 30 years. Its efforts are based on the
belief that “all Americans have the right to secure justice in the courts and to have our voice heard
when government makes decisions that affect our lives.”
In 2015, AFJ published The Philanthropy Advocacy Playbook: Leveraging your Dollars, a guide
for private foundations interested in funding advocacy efforts. The activities that AFJ considers
advocacy include policy research and analysis, public education campaigns, nonpartisan voter education and get-out-the-vote drives, and lobbying efforts. Its comprehensive guide includes an indepth review of the laws surrounding lobbying for philanthropic foundations as well as strategies
for advocacy campaigns and tools for evaluating the success of advocacy efforts.
AFJ and its Bolder Advocacy initiative provide other publications on nonprofit and foundation
lobbying and advocacy (including resources on lobbying and election laws in the 50 states) as well
as advocacy coaches who offer technical assistance on questions about advocacy work. In addition,
it offers regular webinars on a variety of issues related to policy advocacy, community organizing,
and legislative lobbying in the not-for-profit sector.
To learn more, see Alliance for Justice, and Bolder Advocacy, www.bolder
Public Policy Advocacy and Foundations
Perhaps even more than the average 501(c)(3) organization, foundations are often leery about engaging in public policy advocacy for fear of running afoul of IRS rules. As discussed earlier, the
Tax Reform Act of 1969 imposed strict legal limits on types of foundation grantmaking as well
as requiring greater transparency in IRS reporting. These factors have certainly curbed the public
policy activity of philanthropic foundations.128 The rules for private foundations—those deriving
their funds from an individual, family or corporation—are particularly restrictive: While they can
make grants to nonprofits that engage in policy advocacy and legislative lobbying, they cannot support specific lobbying activity, nor can they support partisan get-out-the-vote or voter registration
drives.129 Private foundations may only engage in lobbying to protect their own interests.130 On
the other hand, community foundations—those deriving funds from government, or individual
and private foundation sources—fall under the same rules as charity nonprofits, and therefore, can
engage in the same public policy activities. In addition, community foundations are allowed to
make grants to nonprofits for legislative lobbying. There are several good sources of information on
advocacy and lobbying by philanthropic foundations, including the Alliance for Justice (see Exhibit
7.5) and the website Learn Foundation Law, a project of the Bill & Melinda Gates, David & Lucille
Packard, Gordon & Betty Moore, and William & Flora Hewlett foundations. Learn Foundation
Law is a free, online training program for grantmakers that includes courses on advocacy and lobLobbying and Advocacy: Politics, Policy, and Possibilities 171
bying, election funding, and working with government officials (see Web Resources at the end of
this chapter).
Unfortunately for those who think that philanthropic foundations should be more politically
active, they rarely make use of the full range of these options. In 2010, for example, the Foundation Center reported that only 12.3 percent of foundation giving fell under the category of
public affairs/society benefit, which includes civil rights, social action and advocacy, community
improvement and development, and public affairs, including consumer protection and multidisciplinary public policy research.131 Fear is the key explanation for foundation reluctance to fund
political efforts—fear of violating IRS regulations, fear of appearing to wield too much power,
fear of boards of directors, fear about alienating the public, or fear of harming a family name by
advocating on controversial issues.132
Beginning in 2007, discussion and research on the importance of philanthropically funded policy
advocacy began to grow, and many groups, such as the National Committee for Responsive Philanthropy, the Alliance for Justice, and the Council on Foundations, have subsequently encouraged
foundations to get more politically involved.133 It has been argued that “Only public policy engagement
can affect the laws that determine how people will be treated, what services will be provided, what
behaviors are acceptable, and the incentives and disincentives to compel compliance.”134 Therefore,
foundations whose mission statements say they are oriented toward social change should be fully
involved in public policy efforts and act as catalysts to that change.135
Shaping Policy, Strengthening Community
As is discussed in Chapter 1, Arons has identified two forms of policy involvement that foundations often take: 1) public policy shaping activities, including influencing agenda-setting, policy
formulation, and implementation of laws, programs, and regulations; and 2) civic strengthening
activities, which facilitate the democratic process by encouraging transparency in governance,
improved public leadership, and increased civic participation.136 Foundations are increasingly
involved in both policy arenas and with significant success.137 Important examples come from
the Grantmaking for Community Impact Project by the National Committee for Responsive
Philanthropy (NCRP). In 2008, NCRP began publishing the results of the project, including
the impact of philanthropic foundation grants on advocacy, organizing, and civic engagement in
communities across the United States. The first set of studies, from New Mexico, North Carolina,
Minnesota, and Los Angeles, examined the work of nonprofits in each jurisdiction over a fiveyear period, encompassing a host of policy areas, including civil rights, poverty, workers’ rights,
transportation, and immigration.
NCRP reported that foundation grantmaking had significant impacts on shaping policy and
strengthening civil society in these diverse regions of the United States.138 In North Carolina, for
example, an investment of $20.4 million in 13 nonprofits led to $1.8 billion in benefits to the communities and constituents of those nonprofits; importantly, foundations provided 86 percent ($17.5
million) of the $20.4 million invested. Tangible policy outcomes in North Carolina included passage
of a Patient’s Bill of Rights that contained a provision securing hospital visitation rights to same-sex
couples and an increase in the state’s minimum wage from $5.15 to $6.15 an hour. Civic strength
was improved through coalition building and mobilization of those in affected communities. Over
five years, these efforts resulted in more than 125,000 people becoming members of community
organizations, more than 76,000 attending public events or meetings to voice their policy concerns,
and over 31,000 constituent communications with government officials.139
172 Strategies of Not-for-Profit Organizations
Similar results were found in the other three regions. Investment in New Mexico nonprofits resulted
in more than $2.6 billion in benefits. In Minnesota, where foundations provided 70 percent of the
$16.5 million investment, the benefit accrued was more than $2.28 billion. The Los Angeles area saw
the biggest impact; foundations provided 77 percent of the $75.5 million in funding for advocacy
and civic organizing, and the community benefit was $6.88 billion. In 2012, NCRP reported that the
project had “documented $26.6 billion in benefits for taxpayers and communities in 13 states, and
found that every dollar grantmakers and other donors invested in policy and civic engagement provided
a return of $115 in community benefit.”140 These dollar amounts do not include the nonmonetary
benefits accrued to the people and communities studied, including improved environmental and health
conditions. Nor do they include the multiplier effect of these efforts. For example, the minimum wage
increase in North Carolina affected 139,000 workers, whose higher incomes allowed them to re-circulate
that money in the local economy, thus making the value of the advocacy efforts even greater than the
amount that could be quantified.141
Entering the realm of policy advocacy and lobbying is certainly complex for nonprofit organizations.
The rules and regulations, spending limits, potential consequences for violators, and the negative
connotations of lobbying are enough to dissuade any 501(c)(3) from stepping into the fray of legislative activity. On the other hand, advocacy and lobbying are vital to most nonprofits and can be quite
rewarding; they are also legal activities. While numerous attempts have been made to increase the
stringency of lobbying regulations, Congress has been consistent in its reluctance to significantly curtail nonprofit policy efforts. With the 1976 lobbying law, Congress made it even easier for nonprofits
to engage in lobbying.
Educating, informing, and persuading politicians and the public about preferred policy outcomes
is a key function of nonprofit organizations and is increasingly important due to the growth of the
nonprofit sector, especially in the health and social service policy arenas. Nonprofits that represent
and serve needy and marginalized populations do their clientele a significant disservice if they are not
engaged in legislative advocacy, as these citizens often have no one else to speak for them on policy
issues. As David Cohen, a long-time public interest lobbyist, has written, “being a public interest lobbyist is a career you can write home about,” adding that, “[m]ost important, a public interest lobbyist
helps create what social analysts call the ‘civic balance,’ allowing the public interest to be incorporated
into public policy.”142 The effects of this activity are great and can range from local grassroots impact
to international change.
The increasing number of nonprofit organizations and growing governmental reliance on nonprofits
make it important for those in the not-for-profit sector to familiarize themselves with advocacy strategies and lobbying laws and make good use of their ability to speak for and on behalf of their clients
and constituents. Effectively managing a nonprofit requires a solid understanding of the four facets of
the Nonprofit-Policy Framework, including the ways in which nonprofits influence public policy on
a regular basis. Fortunately for organizations in the nonprofit sector, the past decade has been one of
increased capacity for advocacy, allowing many not-for-profit groups to become quite adept at maneuvering through the political landscape and achieving their policy goals.
Lobbying and Advocacy: Politics, Policy, and Possibilities 173
Questions for Review
1. In what ways do lobbying and advocacy for charitable nonprofits differ? How meaningful
are these differences?
2. What role(s) do nonprofit organizations play in advocacy and policymaking? Does it depend
on the type of organization?
3. What is the difference between grassroots lobbying and direct lobbying? When are these
differences important? Under what circumstances may a nonprofit engage in each, and
what are the constraints on each?
4. If you were consulting with a nonprofit organization, what factors would you take into
consideration in making the determination to choose between the “substantial part” and
the H election for tax purposes?
For this assignment, reread the opening vignette and answer the following questions: First, if the
executive director meets with members of Congress on behalf of her organization and clients, is that
considered lobbying or advocacy? If she meets with them, does she risk jeopardizing the tax-exempt
status of the organization? What about asking program participants to contact their representatives
and senators—is that lobbying? Does it threaten the organization? What are the limits on political
activity for this organization, and what would you recommend that the executive director do in this
Suggested Readings
Arons, David F. (Ed.). (2007). Power in Policy, A Funder’s Guide to Advocacy and Civic Participation. Saint Paul MN: Fieldstone Alliance.
Bass, Gary D., Arons, David F., Guiane, Kay, and Carter, Matthew F. (2007). Seen but not
Heard: Strengthening Nonprofit Advocacy. Washington, DC: Aspen Institute.
Berry, Jeffrey M. (2003). A Voice for Nonprofits. With David F. Arons. Washington, DC: Brookings Institution Press.
Libby, Pat. (2012). The Lobbying Strategy Handbook. Thousand Oaks, CA: Sage Publications.
Pidgeon, Walter P., Jr. (2001). The Legislative Labyrinth. New York: John Wiley & Sons.
Smucker, Bob. (1999). The Nonprofit Lobbying Guide (2nd ed.). Washington, DC: Independent
174 Strategies of Not-for-Profit Organizations
1. The information provided in this chapter should
be not be taken as legal advice; always consult an
authority well versed in the tax law with specific
questions about your organization.
2. Elizabeth J. Reid, “Advocacy and the Challenges It
Presents for Nonprofits,” in Nonprofits & Government, 2nd ed., Elizabeth T. Boris and C. Eugene
Steuerle, eds., Washington, DC: The Urban Institute Press, 2006, pp. 343–372.
3. Christopher R. Prentice and Jeffrey L. Brudney,
Nonprofit Lobbying Strategy: Challenging or
Championing the Conventional Wisdom? Voluntas,
28, 2017, pp. 935–957.
4. Elizabeth Schmidt, Nonprofit Law: The Life Cycle of
a Charitable Organization, 2nd ed., Fredrick, MD:
Wolters Kluwer, 2017, p. 544.
5. Christopher R. Prentice, “The ‘State’ of Nonprofit
Lobbying Research: Data, Definitions, and Directions for Future Study, Nonprofit and Voluntary Sector Quarterly, 47, 4S, 2018, pp. 204S–217S, 206S.
6. Elizabeth Schmidt. Nonprofit Law, p. 559.
7. Stephanie Geller and Lester M. Salamon, “Nonprofit Advocacy: What Do We Know?” Center for Civil
Society Studies Working Paper No. 22, Baltimore,
MD: Johns Hopkins University Institute for Policy
Studies, 2007, p. 3.
8. Pat Libby, “Lobbying and Advocacy: What Does It
Mean and Why Should You Do It?” in The Lobbying
Strategy Handbook, Pat Libby & Associates, Thousand Oaks, CA: Sage, 2012, pp. 5–17. Elizabeth J.
Reid, “Advocacy and the Challenges It Presents for
Nonprofits,” in Nonprofits & Government, 2nd ed.,
Elizabeth T. Boris and C. Eugene Steuerle, eds.,
Washington, DC: Urban Institute Press, 2006, pp.
343–372; Hillel Schmid, Michal Bar, and Ronit
Nirel, “Advocacy Activities in Nonprofit Human
Service Organizations: Implications for Policy,” Nonprofit and Voluntary Sector Quarterly, 37, 4, 2008,
pp. 581–602.
9. Jeffrey M. Berry, A Voice for Nonprofits, with David
F. Arons, Washington, DC: Brookings Institution
Press, 2005.
10. Ibid.; Gary D. Bass, David F. Arons, Kay Guinane,
and Matthew F. Carter, Seen but not Heard: Strengthening Nonprofit Advocacy, Washington, DC: Aspen
Institute, 2007.
11. Bass, et al., Seen but not Heard; Karen M. Padget,
“The Big Chill: Foundations and Political Passion,”
American Prospect, 44, 1999, pp. 26–33.
12. Berry, A Voice; Padget, “The Big Chill”; Bass, et al.,
Seen but not Heard; Elizabeth Heagy, “The Rules of
Engagement,” in The Lobbying Strategy Handbook,
Web Resources
Bolder Advocacy,
IRS Information for Charities & Other Nonprofits,
National Committee for Responsive Philanthropy,
The Foundation Center by Candid,
Independent Sector—Policy Issues,
Council of Nonprofits—Everyday Advocacy,
The Center for Civil Society Studies at Johns Hopkins University,
Learn Foundation Law,
Lobbying and Advocacy: Politics, Policy, and Possibilities 175
Pat Libby & Associates, Thousand Oaks, CA: Sage,
2012, pp. 19–32.
13. Padget, “The Big Chill”; Bass, et al., Seen but not
14. Bass, et al., Seen but not Heard, p. 70.
15. Council of Nonprofits—Everyday Advocacy, www (accessed September, 11, 2018).
16. David F. Arons, Abby Levine, and Kelly Shipp
Simone, “Advocacy Language” in Power in Policy: A
Funder’s Guide to Advocacy and Civic Participation,
David F. Arons, ed., Saint Paul, MN: Fieldstone
Alliance, 2007, p. 62.
17. Arons, Levine, and Simone, “Advocacy Language.”
18. Christopher Gergen, “Volume Up in Charity Advocacy,” Washington Times, December 2, 2009, http://
volume-up-in-charity-advocacy/ (accessed August
15, 2012).
19. Lester M. Salamon, The Resilient Sector, Washington,
DC: Brookings Institution Press, 2003, p. 72.
20. Elizabeth T. Boris and Jeff Krehely, “Civic Participation and Advocacy,” in The State of Nonprofit
America, Lester M. Salamon, ed., Washington, DC:
Brookings Institution Press, 2002; Elizabeth T.
Boris and Matthew Maronick, “Civic Participation
and Advocacy,” in The State of Nonprofit America,
2nd ed., Lester M. Salamon, ed., Washington, DC:
Brookings Institution Press, 2012.
21. Elizabeth T. Boris and Jeff Krehely, “Civic Participation,” p. 300.
22. Elizabeth T. Boris and Matthew Maronick, “Civic
Participation”; David F. Suarez, “Nonprofit Advocacy and Civic Engagement on the Internet,” Administration & Society, 41, 2009.
23. Nonprofits Source, “The Ultimate List of On Line
Giving Statistics for 2018,” 2018, https://nonprofits (accessed September 18, 2018).
24. Lester M. Salamon and Stephanie Lessans Geller,
“Nonprofit America: A Force for Democracy?” Center for Civil Society Studies Listening Post Project,
Communiqué No. 9, Baltimore, MD: Johns Hopkins University Institute for Policy Studies, 2008.
25. Elizabeth T. Boris and Matthew Maronick, “Civic
Participation”; Geller and Salamon, “Nonprofit Advocacy”; Salamon and Geller, “Nonprofit America.”
26. Berry, A Voice.
27. Reid, “Advocacy and the Challenges.”
28. Peter Frumkin, On Being Nonprofit: A Conceptual
and Policy Primer, Cambridge, MA: Harvard University Press, 2002, p. 53.
29. Eric Werker and Faisal Z. Ahmed, “What Do
Nongovernmental Organizations Do?” Journal of
Economic Perspectives, 22, 2008, pp. 73–92. We
use Werker and Ahmed’s numbers because they
have limited their data to organizations that would
be considered nonprofits/charities in the United
States, but which operate internationally. Other
data collection methods have indicated far larger
numbers of NGOs because they include far more
organizational types in their numbers. For example,
according to the Union of International Associations there were more than 65,000 civil society
organizations in operation internationally in 2010,
and 75,500 in 2017. These numbers are skewed by
inclusion of professional organizations, recreational
clubs, and intergovernmental organizations, www (accessed September 18, 2018).
30. Learn Foundation Law, “Advocacy and Lobbying
Rules and Restrictions,” http://learnfoundationlaw.
org/course-modules/advocacy/story_html5.html?lms=1 (accessed October 7, 2018).
31. UNHCR, “Convention and Protocol Relating to the
Status of Refugees,” UNHCR Communications and
Public Information Service Geneva, Switzerland:
United Nations High Commissioner for Refugees,
3, 2010,
(accessed September 24, 2018).
32. International Rescue Committee, “The IRC: 85
Years of History,”
history-international-rescue-committee (accessed
September 24, 2018).
33. Matthew Shaer, “Inside the IRC: How a Visionary Aid Organization Is Using Technology to
Help Refugees,” Fast Company, November 21,
how-a-visionary-aid-organization-is-using-technology-to-help-refugees (accessed September 24, 2018).
34. International Rescue Committee, “The IRC’s Impact
at a Glance,” (accessed September 24, 2018).
35. International Rescue Committee, “How to Help
Syrian Refugees,”
how-help-syrian-refugees (accessed September 24,
176 Strategies of Not-for-Profit Organizations
36. Werker and Ahmed, “What Do Nongovernmental
Organizations Do?”
37. Matthew Shaer, “Inside the IRC.”
38. UNHCR, “The Global Compact on Refugees,
UNHCR quick guide, p. 4, http://www.unhcr.
org/5b6d574a7 (accessed September 24, 2018).
39. Salamon and Geller, “Nonprofit America.”
40. Ibid., 6.
41. Katrina Miller-Stevens and Matthew J. Gable,
“Lobbying in the Virtual World: Perceptions in the
Nonprofit Sector,” Nonprofit Policy Forum, 4, 1,
2013, pp. 47–63.
42. See
43. Ibid.; Jonathan A. Obar, Paul Zube, and Clifford
Lampe, “Advocacy 2.0: An Analysis of How Advocacy Groups in the United States Perceive and Use
Social Media as Tools for Facilitating Civic Engagement and Collective Action,” Journal of Information
Policy, 2, 2012, pp. 1–25.
44. Youyang Hou and Cliff Lampe, “Strategic Nonprofit
Management: Frameworks and Scaffolding,” Nonprofit Quarterly, 23, 2016, pp. 3107–3116; Lovejoy,
Kristen, and Gregory D. Saxton, “Information,
Community, and Action: How Nonprofit Organizations Use Social Media,” Journal of Computer-Mediated Communication, 17, 2012, pp. 337–353.
45. Chao Guo and Gregory D. Saxton, “Tweeting Social
Change: How Social Media Are Changing Nonprofit
Advocacy,” Nonprofit and Voluntary Sector Quarterly,
43, 1, 2014, pp. 1–23.
46. Gregory D. Saxton, Jerome N. Niyirora, Chao Guo,
and Richard D. Waters, “#AdvocatingForChange:
The Strategic Use of Hashtags in Social Media
Advocacy,” Advances in Social Work, 16, 1, 2016, pp.
47. Gary D. Bass, “Advocacy Is Not a Dirty Word,”
Chronicle of Philanthropy, 20, 2007, p. 45.
48. Jill Nicholson-Crotty, “Politics, Policy, and the Motivations for Advocacy in Nonprofit Reproductive
Health and Family Planning Providers,” Nonprofit
and Voluntary Sector Quarterly, 36, 2007, pp. 5–21;
Salamon and Geller, “Nonprofit America”; Bass,
“Advocacy Is Not.”
49. National Alliance for Mental Illness (NAMI),
50. Jeffrey M. Berry, The New Liberalism, Washington,
DC: Brookings Institution Press, 1999; Berry, A
51. CLPI (Center for Lobbying in the Public Interest),
Make a Difference for Your Cause, Washington, DC:
Center for Lobbying in the Public Interest, 2006, p.
52. See Michael O’Neill, Nonprofit Nation: A New
Look at the Third America, San Francisco: JosseyBass, 2002; Frumkin, On Being Nonprofit; Boris
and Krehely, “Civic Participation”; Kathleen D.
McCarthy, American Creed: Philanthropy and the
Rise of Civil Society 1700–1865, Chicago: University
of Chicago Press, 2003; Elizabeth J. Reid, “Advocacy and the Challenges”; Pat Libby, The Lobbying
Strategy Handbook: 10 Steps to Advancing Any Cause
Effectively, Thousand Oaks, CA: Sage Publications,
53. Theda Skocpol, “Recent Transformation of Civic
Life,” in Theda Skocpol and Morris Fiorina, eds.,
Civic Engagement in American Democracy, Washington DC: Brookings Institution Press, 1999, pp.
461–509, p. 505; Robert J. Spitzer, The Politics of
Gun Control, New York: Routledge, 2018.
54. Robert J. Spitzer, The Politics, p. 131.
55. National Rifle Association Institute for Legislative
Action, (accessed
January 3, 2019).
56. Lachlan Markay, “The NRA Just Reported Losing
$55M in Income,” The Daily Beast , November 27,
(accessed January 3, 2019).
57. Scott Medlock, “NRA = No Rational Argument?
How the National Rifle Association Exploits Public
Irrationality,” Texas Journal of Civil Liberties & Civil
Rights, 11, 2005, pp. 39–63, p. 40.
58. Scott Medlock “NRA”; Robert J. Spitzer, The
59. Ibid.
60. Scott Medlock, “NRA”; Robert J. Spitzer, The Politics; Robin M. Wolpert and James G. Gimpel, “Selfinterest, Symbolic Politics, and Public Attitudes toward Gun Control,” Political Behavior, 20, 3, 1998,
pp. 241–262.
61. Scott Medlock, “NRA.”
62. Scott Medlock, “NRA”; Robin M. Wolpert and
James G. Gimpel, “Self-interest.”
63. Ibid.
Lobbying and Advocacy: Politics, Policy, and Possibilities 177
64. Scott Medlock, “NRA,” p. 59.
65. Robin M. Wolpert and James G. Gimpel, “Self-interest.”
66. The Brady Campaign to Prevent Gun Violence, (accessed January 1,
67. Robert J. Spitzer, The Politics.
68. Ibid., p. 23.
69. Kristin A. Goss, Disarmed: The Missing Movement for
Gun Control in America, Princeton, NJ: Princeton
University Press, 2006.
70. Scott Medlock, “NRA”; Robin M. Wolpert and
James G. Gimpel, “Self-interest.”
71. Scott Medlock, “NRA.”
72. Scott Medlock, “NRA,” p. 62. See also, Anthony
K. Fleming, Paul E. Rutledge, Gregory C. Dixon,
and J. Salvador Peralta, “When the Smoke Clears:
Focusing Events, Issue Definition, Strategic Framing, and the Politics of Gun Control,” Social Science
Quarterly, 97, 5, 2016, pp. 1144–1156.
73. Robert J. Spitzer, The Politics.
74. Gabrielle Giffords, “Getting Shot Seven Years Ago
Gave Me Courage to Fight Gun Violence: Gabby
Giffords,” USA Today, January 8, 2018, https://
(accessed January 1, 2019); Giffords Courage to
Fight Gun Violence, “About,”
about/ (accessed January 1, 2019).
75. Giffords Courage to Fight Gun Violence, “About.”
76. Melissa Block, “2018 Brought A ‘Tectonic Shift’
in the Gun Control Movement, Advocates Say,”
National Public Radio, December 26, 2018, https://
php?storyId=678248648 (accessed January 3, 2019);
John Hudak, “Six Years after Sandy Hook: House
Democrats Can Build on Grassroots Gun Reform,”
Brookings, December 14, 2018, https://www. reform/?utm_campaign=Governance%20
Studies&utm_source=hs_email&utm_medium=email&utm_content=68467494 (accessed January 3,
77. Melissa Block, “2018 Brought”; Adam Harris, “The
Year the Gun Conversation Changed,” The Atlantic,
December 27, 2018,
education/archive/2018/12/2018-year-gun-conversation-changed/579067/?fbclid=IwAR3ng9UbkPyzCfbJjOvgVFd8x0bAFEDpq4Uerp0oJD6qCxoVGs_trZU_-ZI (accessed January 3, 2019;
Robert J. Spitzer, The Politics.
78. Robert J. Spitzer, The Politics.
79. Katie Zezima, “Gun-control Group Claims Victory
at Ballot Box, in Statehouses,” The Washington Post,
December 12, 2018, https://www.washingtonpost.
com/nation/2018/12/12/gun-control-group-claimsvictoryballot-box-statehouses/?noredirect=on&utm_term=.72b5858ca72e ( accessed January 3, 2019).
80. Everytown for Gun Safety, “New Everytown-Schoen Consulting Poll Reveals Gun Safety
Was Number One Issue in Virginia’s Election
With Gun Issue Voters Supporting Democratic
Candidates by More Than Two-to-one Margin,”
November 8, 2019.
new-everytown-schoen-consulting-poll-reveals-gunsafety-was-number-one-issue-in-virginias-electionwith-gun-issue-voters-supporting-democratic-candidates-by-more-than-two-to-one-margin/ (accessed
November 11, 2019); Gregory S. Schneider and
Laura Vozzella, “Democrats Flip Virginia Senate and
House Taking Control of State Government for First
Time in a Generation,” The Washington Post, November 5, 2019,
ff5b-11e9-8501-2a7123a38c58_story.html (accessed
November 11, 2019).
81. Adam Harris, “The Year.”
82. Adam Harris, “The Year”; Michelle Ye Hee Lee, Kyle
Swenson, and Katie Zezima, “Suburban Democrats Like Jason Crow Campaign on Gun-control
Polices as NRA Spending Plummets,” Denver
Post, November 3, 2018, https://www.denverpost.
com/2018/11/03/democrats-gun-control-nra-midterms-jason-crow/ (accessed January 3, 2019).
83. Michael D. Shear, “Students Lead Huge Rallies for Gun Control across the U.S.,” New York
Times, March 24, 2018, https://www.nytimes.
com/2018/03/24/us/politics/students-lead-hugerallies-for-gun-control-across-the-us.html (accessed
January 3, 2019).
84. March for Our Lives, “Frequently Asked Questions,”
n.d., (accessed
March 26, 2018).
85. William H. Frey, “The Post-millennial Movement
178 Strategies of Not-for-Profit Organizations
against Gun Violence Could Solidify Long-term
Democratic Support,” Brookings, February 27, 2018,
medium=email&utm_content=61054304 (accessed
January 4, 2019).
86. Melissa Block, “2018 Brought.”
87. Ibid.
88. March for our Lives, “Policy Agenda,” n.d., https:// (accessed January 4,
2019); Scott Simon, “Parkland Student David Hogg
on the Gun Control Movement Driven by Teens,”
March 24, 2018,
(accessed March 26, 2018).
89. Tim Dickinson, “The NRA Says It’s in Deep Financial Trouble, May be ‘Unable to Exist,’” Rolling
Stone, August 3, 2018,
(accessed January 4, 2019); Emily Price, “NRA
Claims ‘Deep Financial Trouble’ May Soon Put It
Out of Business,” Fortune, August 3, 2018, http:// (accessed
January 4, 2019).
90. Lachlan Markay, “The NRA.”
91. Tim Dickinson and Andy Kroll, “WTF Is Happening at the NRA, Explained,” Rolling Stone, May 3,
2019, (accessed May 5, 2019); Danny Hakim, “At the NRA:
A Cash Machine Sputtering,” New York Times, May
14, 2019,
(accessed May 5, 2019).
92. Tim Dickinson, “The NRA Says.”
93. Adam Harris, “The Year.”
94. Elizabeth Heagy, “The Rules of Engagement.”
95. Elizabeth Schmidt, Nonprofit Law, p. 564.
96. Bruce R. Hopkins, “The Legal Aspects of Government Affairs and Lobbying,” in The Legislative Labyrinth: A Map for Not-for-Profits, Walter P. Pidgeon,
Jr., ed., New York: John Wiley & Sons, 2001.
97. Berry, A Voice; CLPI, Make a Difference; Bass, et al.,
Seen but not Heard; Daniel E. Chand, “Lobbying
and Advocacy: Money and Membership Matter—
But Not for All” Social Science Quarterly, 98, 5,
2017, pp. 1297–1312.
98. Bass, et al., Seen but not Heard; Salamon and Geller,
“Nonprofit America.”
99. Note that an organization receiving government
funds may, in fact, engage in lobbying so long as
that lobbying is not paid for with government funds.
100. Salamon and Geller, “Nonprofit America.”
101. Berry, A Voice.
102. CLPI, Make a Difference.
103. Salamon and Geller, “Nonprofit America.”
104. Elizabeth Schmidt. Nonprofit Law, p. 559.
105. Hopkins, The Legal Aspects.
106. Berry, A Voice, p. 53.
107. Center for Lobbying in the Public Interest, “Personal Visits with a Legislator,” 2007, https://www
07_personalvisits.pdf (accessed October 1, 2018).
108. Slee v. Commissioner, 42 F.2d 184, 2d Cir., 1930.
109. Boris and Krehely, “Civic Participation.”
110. Independent Sector, “IRS Halts Targeted Audits
of Charities that Lobby,” 2003, http://www
(accessed June 1, 2003).
111. Bob Smucker, The Nonprofit Lobbying Guide, 2nd
ed., Washington, DC: Independent Sector, 1999.
112. Roger Colinvaux, “Nonprofits and Advocacy;” in
Nonprofits & Government, 3rd ed., Elizabeth T. Boris
and C. Eugene Steuerle, eds., New York: Roman &
Littlefield, 2017, pp. 191–215; Smucker, The Nonprofit Lobbying Guide; Berry, A Voice; CLPI, Make a
Difference; Libby, The Lobbying Strategy.
113. Marion R. Fremont-Smith, Governing Nonprofit
Organizations: Federal and State Law and Regulation,
Cambridge, MA: Belknap Press of Harvard University Press, 2004.
114. Larry Ottinger, “Bringing Nonprofit Advocacy
Rules and Culture into the 21st Century,” Responsive
Philanthropy, Winter, 2010/2011, pp. 9–11.
115. Charles S. Clark, “Regulating Nonprofits,” CQ
Researcher, 7, December 1997, pp. 1129–1152;
Fremont-Smith, Governing Nonprofit Organizations;
Salamon and Geller, “Nonprofit America.”
Lobbying and Advocacy: Politics, Policy, and Possibilities 179
116. Fremont-Smith, Governing Nonprofit Organizations.
117. Ibid.
118. Jeremy Koulish, “From Camps to Campaign Funds:
The History, Anatomy, and Activities of 501(c)(4)
Organizations,” Washington, DC: Urban Institute,
.pdf (accessed October 2, 2018).
119. Open Secrets, “Political Nonprofits (Dark Money),” (accessed October 2, 2018).
120. Alliance for Justice, “Frequently Asked Questions
on Citizens United v. Federal Elections Commission,” (accessed June 9, 2010); Daniel
E. Chand, “Lobbying and Advocacy.”
121. The limits are 30 days before a primary and 60 days
before a general election.
122. Peter Overby, “Judge Shuts Down Multimillion-Dollar Loophole in Election Law,” August 6,
judge-shuts-down-multi-million-dollar-loophole-inelection-law (accessed October 2, 2018).
123. Nikhil Pillai, “501c4 Nonprofits’ Image Problem
Is a Problem for All of Us.” Nonprofit Quarterly, May 15, 2019, https://nonprofitquarterly.
cid=12cad1e60d&mc_eid=407e1d00c1 (accessed
May 26, 2019).
124. Ibid.
125. Roger Colinvaux, “Nonprofits and Advocacy”; Pat
Libby, “Lobbying and Advocacy.”
126. John Chwat, “The Use of Outside Legislative
Consultants: When and How to Hire a Lobbyist,” in
The Legislative Labyrinth: A Map for Not-for-Profits,
Walter P. Pidgeon, Jr., ed., New York: John Wiley &
Sons, 2001.
127. Ibid.
128. David C. Hammack, “The Statute of Charitable
Uses, 1601,” in Making the Nonprofit Sector in the
United States, David C. Hammack, ed., Bloomington: Indiana University Press, 1998; Bass, et al., Seen
but not Heard.
129. Roger Colinvaux, “Nonprofits and Advocacy”; Lloyd
H. Mayer, “The Legal Rules for Public Policy and
Civic Impact by Foundations,” in Power in Policy, A
Funder’s Guide to Advocacy and Civic Participation,
David F. Arons, ed., Saint Paul, MN: Fieldstone
Alliance, 2007; Elizabeth Schmidt. Nonprofit Law.
130. Boris and Krehely, “Civic Participation.”
131. Foundation Center, “Distribution of Foundation
Grants by Subject Categories, circa 2010,” http://
fund_sub/2010/10_10.pdf (accessed August 15,
2012). Because of the nature of the recordkeeping,
it is difficult to assess exactly how much money is
spent on policy activity by philanthropic foundations; see Bass et al., Seen but not Heard.
132. Emmett D. Carson, “On Foundations and Public
Policy: Why the Words Don’t Match the Behavior,”
in Power in Policy: A Funder’s Guide to Advocacy and
Civic Participation, David F. Arons, ed., Saint Paul,
MN: Fieldstone Alliance, 2007.
133. Aaron Dorfman, “Bang for the Buck: Why Grantmakers Should Provide More Funding for Policy
Advocacy and Community Organizing,” Responsive
Philanthropy, 1, 2008: pp. 2–5.
134. Emmett D. Carson, “On Foundations and Public
Policy,” p. 14.
135. Ibid.
136. David F. Arons, ed., Power in Policy: A Funder’s
Guide to Advocacy and Civic Participation, Saint
Paul, MN: Fieldstone Alliance, 2007.
137. Melissa Johnson, “Making Progress Toward Increasing Funding for Advocacy, Community Organizing
and Civic Engagement,” Responsive Philanthropy, 2,
2009, pp. 5–7; Arons, Levine, and Simone, “Advocacy Language.”
138. Lisa Ranghelli and Julia Chang, Strengthening
Democracy, Increasing Opportunities: Impacts of
Advocacy, Organizing and Civic Engagement in North
Carolina, Washington, DC: National Committee for
Responsive Philanthropy, 2009.
139. Lisa Ranghelli and Julia Chang, Strengthening
Democracy, Increasing Opportunities: Impacts of
Advocacy, Organizing and Civic Engagement in North
Carolina, Washington, DC: The National Committee for Responsive Philanthropy, 2009.
140. Lisa Ranghelli, Leveraging Limited Dollars: How Grant180 Strategies of Not-for-Profit Organizations
makers Achieve Tangible Results by Funding Policy and
Community Engagement, Washington, DC: National
Committee for Responsive Philanthropy, 2012, p. 1.
141. Lisa Ranghelli and Julia Chang, Strengthening Democracy.
142. David Cohen, “Being a Public Interest Lobbyist Is
Something to Write Home About,” in The Nonprofit
Lobbying Guide, 2nd ed., Bob Smucker, ed., Washington, DC: Independent Sector, 1999, p. 94.
Lobbying and Advocacy: Politics, Policy, and Possibilities 181
True ethical behavior must be internally driven. External agents can only force compliance, not encourage
choice, and ultimately, virtuous behavior is a choice.
Ronald R. Sims1
Having recently retired and relocated to a new city, Bill is interested in getting more involved in his
new community. In early February, he saw a flyer at the library about a local nonprofit organization that will be hosting a week-long day camp for kids in early June. The program includes nature
walks, crafts, clean-up day at the park, canoeing at the lake, as well as reading time at the senior
center; with so much activity, the organization needs volunteers to assist. After 30 years as a middleschool teacher and track coach, Bill is sure he has the experience and the capabilities to make a
useful contribution. Since he’s relatively new to the area, Bill asks a few friends for their impressions
of the nonprofit. While none had worked directly with the organization, none had heard anything
negative about it either. He searches the group’s website and decides to send a message volunteering
to help with the day camp.
Since he worked with kids for so many years, he knows how difficult it can be to recruit volunteers
and organize kids’ programs, so he expects a reply to his offer that is a mixture of relief and gratitude
that someone signed up without being cajoled. He was a bit surprised, then, when he received a prompt
and courteous email reply from the day camp committee chair, thanking him for his offer, but rather
than simply telling him what his volunteer duties would be, gave him information about an orientation session for potential volunteers. At the orientation session, he would be given information about
the organization and the day camp programs as well as afforded the opportunity to ask questions. If
he still wanted to volunteer, he would be asked to complete an application that included information
about his prior professional and volunteer experience, and to provide written consent to submit to a
criminal background check. All volunteers who cleared the screening process would then be required
to attend two training sessions prior to the camp and would be given a packet of information that
included contact information for the staff and members of the board as well as copies of the nonprofit’s
code of ethics and policies on confidentiality, whistle-blowing, and so on. Upon reading all this, Bill
does not know whether to be overwhelmed or impressed; he is definitely intrigued enough to sign up
for the orientation session.
Importance of Ethics in Nonprofit and Policy Interactions
As is discussed in Chapter 4, nonprofits are typically viewed as inherently trustworthy organizations,
and trust is a key element in building the social capital needed to successfully address public problems,
the purview of public policy. Social capital develops through trust and reciprocity, which are foundational aspects of ethics. Virtually all cultures incorporate the importance of trust and reciprocity into
the ethos of their society via some version of the Golden Rule—do unto others as you would have
them do unto you.2
Ethical behavior, therefore, is at least aspirationally recognized as a crucial element
to resolving issues of collective action.
Philosophers have discussed and debated the nature of ethics for centuries, but for our purposes, a
useful definition of ethics must evoke practical application in an administrative setting. Transcending law
and regulations, ethics connote what Lord John Fletcher Moulton called “obedience to the unenforceable,” something he likened to old-fashioned manners; Moulton argued that manners encompass both
duty and morals but go beyond both. Exhibiting manners involves complying with social expectations
of acceptable behavior that cannot be enforced, which is basically doing the right thing even when
there are no external means to compel you to do so.3
Making policy via nonprofit action often falls
along these lines, such as when a nonprofit chooses to shelter the homeless when government doesn’t
have a program— voluntarily doing its duty without external enforcement.
Ethics scholar James Svara developed a model for administrative ethics based on the concept of duty.4
Acknowledging the narrow scope of duty in the broader scheme of ethics, Svara argued that duty lies
at the core of ethical behavior by public and nonprofit administrators and is, therefore, a central tenet
in terms of understanding the ethical culture of public and nonprofit organizations. Duty is the aspect
of ethics based on public service and one of the four components—along with virtues, principles, and
benefits to society—that comprise the standards of right and wrong with regard to human behavior.
He defined administrative ethics, accordingly, as:
. . . well-based standards of right and wrong that prescribe what public administrators ought to do, in terms
of duty to public service, principles, virtues, and benefits to society.5
Most persons in public service, including those in the nonprofit sector, have internalized a similar
working definition of administrative ethics. People who work in the public service are drawn to such
work because they are motivated by the opportunity to meet public needs.6
Nonprofit employees
are more likely to place a high value on public service and are likewise more responsive to intrinsic
motivators than external rewards for performance. The challenge for nonprofits is to formalize and
expound on this individuals-based conceptualization of ethics to foster a culture of ethics throughout
each organization and sector-wide.
In this chapter, we discuss the elements of a strong culture of ethics and the means by which to facilitate its development within an organization. Nonprofits are affected by and subject to public policies
that impose external constraints, such as the Sarbanes-Oxley Act (SOX); they also make and influence
public policies such as when the nonprofit Governmental Accounting Standards Board (GASB) issues
formal Statements of Governmental Accounting Standards designed to foster transparency and accountability in public accounting. We discuss the policy implications of nonprofit ethics as well as the
benefits associated with public perception of an organization’s commitment to ethics.7
Ethics and Accountability 183
Developing Organizational Commitment to Ethics and Accountability
All organizations—from informal groups of students working on an assignment to well-established
nonprofits employing hundreds of people—develop a distinctive culture in which there are norms of
behavior that become accepted and types of behavior that are shunned. Embedded within an organizational culture is its ethical culture—that is, the degree to which those within the organization value
doing what is right, just, and fair. As many scholars have argued, a strong culture of ethics does not
happen without deliberate effort within an organization and it cannot simply be imposed from the
Transparency Combats Corruption, Inhibits Compromise, and Affects Policy
Transparency is a key component of an ethical culture; since the 1990s, the term has been associated
with issues of good governance within nonprofit organizations. Initially discussed as a means to counter corruption, use of the term has evolved to include “a means to encourage open decision-making and
public disclosure, to increase accountability, and as a value to incorporate in policies and by which to
evaluate policies.”9
Transparency relates to the level of perceived openness in the provision of information, which contributes to the level of trust accorded to the provider of the information.
It is important to note there is a downside to transparency. While openness in conveying information can lead to greater trust in the content of the information, increased openness during discussions
can inhibit frankness in communications that is often vital to successful negotiations, such as when
compromise is necessary to adopt or implement public policy. In addition, for nonprofit practitioners,
transparency was initially linked to issues of regulation and subsequently carries negative connotations
such as the increased costs associated with compliance. Conversely, for those engaged in policymaking
and research, transparency is seen as a solution to problems caused by limited access to information,
and therefore, is believed to make a positive contribution to each stage of the policy process.10 As
nonprofits are increasingly involved in the policy process, these differing perspectives on transparency
have important implications.
Three metaphors associated with transparency have been developed.11 In the first one, transparency is an indirect metaphor for good governance; transparency counteracts corruption because trust
is engendered through open decision making. Second, transparency is a direct metaphor for open
decision making; transparency is used to connote the degree to which it is easy to obtain and use
information as well as to determine when confidentiality and restriction of access are appropriate.
In the final case, transparency relates to issues of policy—that is, “the inputs, outputs, and outcomes
of decisions.”12
Policy scholars view transparency as an inherent attribute of public policy; policies fall along a
continuum from transparent to opaque, with more transparent policies being preferred. Transparent
policies have accountability measures built into them; these accountability measures represent a facet
of policy inputs in that they affect the manner in which information is generated and made available.
Likewise, the information that is disseminated as a result of transparent policies is a policy output
and is designed to aid program participants in choosing program services. When the information is
actually used by the public in making decisions, the provisions regarding transparency facilitate better
outcomes. Accordingly, transparency is seen as a necessary component of good policy, and nonprofits
that provide greater access to information about the work that they do will tend to be more attractive
to donors and policymakers.
For example, the Community Development Block Grant program administered by the U.S. Department of Housing and Urban Development contains a requirement for public hearings—a transparency
184 Strategies of Not-for-Profit Organizations
provision in the policy—to determine the community projects to be proposed. When area residents
attend the meetings to receive information on potential projects and then act on that information to
choose which project would be most beneficial to their community, the transparency provisions are
directly related to the policy outcomes. Transparency is therefore “an attribute as complex as measuring
effectiveness and efficiency and equally as important as accountability.”13 Democratic principles are
promoted through these transparency provisions.
A commitment to transparency is important for nonprofits seeking to develop an organizational
commitment to ethical behavior. Open access to financial and program information limits the possibilities for corrupt practices and facilitates informed decisions by donors, volunteers, and program
participants. Justice Louis D. Brandeis is oft-quoted on this subject; “Sunlight is said to be the best of
disinfectants; electric light the most efficient policeman.”14 In general, democratic pursuit of public policy
goals is facilitated through a commitment to transparency; open meetings and public participation in
decision making can help nonprofit managers better understand the needs of their constituencies and
enhance the culture of ethics within the organization as well.
Transparency may be particularly important for organizations that do their work at significant
distance from donors and government regulators. In the case of U.S.-based nonprofits that provide
services internationally, donors and government regulators must rely to a greater degree on the information provided by the nonprofit since site visits are rarely an option. Exhibit 8.1 contains a case study
that compares the work of two U.S.-based nonprofits that provide services in Africa. These examples
illustrate divergent perspectives on organizational transparency and accountability.
Exhibit 8.1
Going Global Case Study
Assessing the Accountability of Nonprofit Efforts Overseas
Africa is the poorest of the world’s continents, and people within its 54 countries face numerous
challenges to improve their lives. Two of the primary obstacles to overcome involve access to
clean water and universal education for children. U.S. and international efforts to assist include
government research and funding through the U.S. Agency for International Development (USAID) as well as projects and advocacy by numerous nongovernmental organizations (NGOs),
including the United Nations Educational, Scientific and Cultural Organization (UNESCO).
With so many NGOs actively working to address these and other problems through direct service delivery and attempts at policy change, it is difficult for donors (or potential donors) to
monitor nonprofit efforts. As you read the following case, keep in mind that nonprofits differ
with regard to their ethical cultures and commitments to transparency and accountability. This
diversity is illustrated by two U.S.-based nonprofits with projects in Africa— and Raising Malawi.
In July 2009, Matt Damon, actor and co-founder of Africa H2O, and Gary White, founder
of Water Partners, merged the two organizations to establish, a nonprofit focused on
assisting communities in Africa, South Asia, and Central America with providing clean water and
sanitation services. A brief scan of the homepage at yields much information about
the nature of the problems addressed by the organization, proposed solutions, and its more than
25 years of experience in the water sector. Basic water facts are depicted graphically throughout
the website to highlight the problems, such as: 1) every 2 minutes a child dies from a water-related
illness; 2) approximately 1 in 9 people (884 million) lack access to safe water; and 3) women
Ethics and Accountability 185
around the world spend 200 million hours per day collecting water. References for the water facts
are cited (with links when available), and include sources such as the World Economic Forum,
UNICEF, and the World Health Organization. Stories of individuals and information on projects
by country are also available.
In addition to information on the organization’s activities, financials for the organization are
also posted, including 12 years of audited financial statements, 12 years of IRS Form 990s, and
copies of each annual report since 2007. It is also noted that is an accredited charity
with the Better Business Bureau’s Wise Giving Alliance and holds a 100 percent accountability
and transparency rating and overall score of 95.99 from Charity Navigator. Further, the fourteen
members on the Board of Directors are identified on the website by name, title, and affiliation. In
addition, more than 100 staff members are identified on the website by name, title, and locus of
operation—United States, Africa, Asia, and South America. The Contact Us link is prominent in
the upper right-hand corner of each page in the website; it includes FAQs and links to commonly
requested information in other areas of the website as well as a form to contact the organization
via email. Resources provides links to recent coverage of the work of by news outlets such
as CNN, CNBC, and the Weather Channel as well as links to press releases by and its
philanthropic partners.
While media reports on have been overwhelmingly positive, news stories about Raising Malawi have focused largely on scandals related to allegations of poor management, financial
improprieties, misleading statements, and broken promises. Raising Malawi was formed in 2006
by the entertainer Madonna to address issues of extreme poverty and hardship faced by orphans
and vulnerable children in the landlocked East African country of Malawi. The website includes
information about the three issue areas on which the organization works: 1) health, 2) education,
and 3) community support. While some statistics illustrate the nature of the problems in Malawi,
the sources for the data are not identified.
Likewise, numbers are offered to illustrate the impact of the nonprofit without detailed
explanation or supporting documentation. For example, Raising Malawi indicates in the Education section of its website that nearly 10,000 children are served in the 14 schools they have
constructed in partnership with BuildOn. In 2013, Madonna toured 10 schools that her charity
said it had built, but the Malawi education minister refuted that claim to the BBC,15 stating that
Madonna had built classrooms at existing schools, not entire schools. The $400,000 Raising
Malawi spent on those 10 classroom blocks was in stark contrast to the $15 million the pop star
pledged in 2009 to fund an elite academy to educate approximately 400 girls—an academy that
never materialized.
Other than numerous pictures of Madonna and repeated references to her involvement with
the organization, there is no information available on the website regarding the staff or members of
the board of directors. Raising Malawi was originally established as a supporting organization for
the religious Kaballah Centre in Los Angeles, which was the focus of investigations by the IRS and
Federal Bureau of Investigation (FBI) in early 2011. A blog post dated April 20, 2011, indicates
that the board of directors for Raising Malawi retained Global Philanthropy Group, Inc., to design
a new strategy for the organization, make major management changes, and take the appropriate
steps to re-structure Raising Malawi as an independent nonprofit.16 Raising Malawi was also embroiled in scandal when reports surfaced in March 2011 that $3.8 million had been spent with no
demonstrable progress toward construction of the $15 million academy. The Guardian reported
186 Strategies of Not-for-Profit Organizations
that, in 2012, Malawi’s governing cabinet decided to convert the abandoned construction site into
a cemetery for national heroes.17
Raising Malawi partners are listed by logo on the website, but without links to their organizations’ websites or information as to the nature of each partnership. Information on the Our
Impact page provides some specific project information such as the claim of 14 schools built
with BuildOn, as well as support for the Mercy James Institute of Pediatric Surgery and Intensive Care, opened in 2017. Details regarding the amount of financial support and the nature
of these partnerships are sparse. Financial information for the organization—annual reports,
audited financials, Form 990 data—is not provided on the website. IRS Form 990 data are
available through GuideStar by Candid at Raising Malawi has not yet been
rated by Charity Navigator.
While monitoring the activity of any nonprofit that is not in your hometown can be difficult,
those involved with activities overseas present even greater challenges. Donors and potential donors must rely on limited information sources—the nonprofit’s own commitment to transparency
via its website, press reports, information from partner organizations, and ratings groups such
as Charity Navigator. Assessing the relevance and quality of the available information can be an
additional impediment.
Additional information can be found at and
1. As a potential donor, which specific types of information presented in the case are most
important to you in making the decision to donate? Which types of information are
irrelevant to your decision?
2. Based on the limited information presented in the case, what is your initial impression
of the ethical culture of each nonprofit? Explain.
3. For this question, look at the web page for both and Raising Malawi. From
what you see there, and information in the case study, suggest ways in which each
organization could enhance its level of accountability to supporters.
4. Consider the four relationships described in the Nonprofit-Policy Framework (nonprofits
make policy, influence policy, are affected by policy, are subject to policy) and discuss
the ways in which public policy has facilitated the level of accountability for
and Raising Malawi.
The Importance of Accountability
Accountability refers to the ways in which individuals or groups are held responsible for their actions, either because of their internal determination of responsibility or because they are forced
to accept responsibility by an external authority. For-profit organizations are accountable to their
shareholders; public organizations are accountable to their citizens; and nonprofits are accountable
to their stakeholders; all are accountable to some degree to the general public. It is important to
Ethics and Accountability 187
note that issues of accountability in the not-for-profit sector are generally more complex than in
business or government because nonprofit stakeholders are often more diverse, which makes reconciling their competing demands on the organization more difficult. As the lines between the sectors
continue to blur (as is discussed in Chapter 3), however, issues of accountability likewise become
more complex.18
Stakeholders with heterogeneous interests and demands across the sectors magnify the potential for
collective action problems. Ethics are at the core of collective action problems because it is often in
an individual’s self-interest to engage in unethical behavior, while the collective interest is best served
when individuals act ethically. Good policy decisions, therefore, reflect a commitment to ethics when
accountability mechanisms are incorporated.
The nonprofit in the opening vignette illustrates an organizational commitment to accountability
through its requirements for staff and volunteers with regard to preparing for the day camp. As discussed,
the organization’s commitment to transparency and its method of establishing accountability (e.g.,
through background checks and training sessions) may not be seen as desirable by all its stakeholders.
Qualified volunteers such as Bill may choose to take their talents elsewhere rather than spend time on
training they see as unnecessary, or potential donors may see the training requirements or background
checks as too expensive and prefer their funds be used for more direct programming. Requiring the
measures reflects an internal obligation to the public interest over the organization’s self-interest. With
its commitment to accountability and transparency, the nonprofit communicates its confidence in the
work it performs and strengthens its overall ethical culture.
Unfortunately, not all nonprofits willingly choose an internal system of accountability. Nonprofits
have traditionally enjoyed a good reputation as a choice for service delivery because they are typically
viewed as more voluntary than government and more trustworthy than business. They are seen as more
directly accountable for the work that they do because stakeholders, including potential donors and
volunteers, have the option of withdrawing support if the work of the organization deviates from the
Nonprofit Quarterly has reported extensively20 on the growing phenomenon of stakeholder resistance—also termed stakeholder rebellion—in which “those who are linked to an organization
in ways other than a formal contract” are able to “limit the autonomy of organizational decision
making.”21 Examples include two Girl Scouts who mobilized support from environmental activist
groups in their efforts to stop the Girl Scouts organization from using palm oil in their cookies;
the scouts had learned that rainforest destruction to build palm oil plantations was diminishing the
habitats for orangutans in Southeast Asia.22 Turmoil following allegations of scandal revealed at the
spring 2019 convention of the National Rifle Association (NRA) led some major funders to speak
publicly about their concerns and intent to suspend donations to the organization.23 To that point,
a March 2018 MissionBox survey of 1,000 women in the Midwest found that more than 40 percent
intended to lower their charitable donations in 2018, indicating the decision to reduce giving was
affected by nonprofit scandals.24
Scandals within the sector in recent decades have evidently tarnished its image, and consequently,
the higher levels of ethical behavior among nonprofits began to slip. According to the Ethics Resource
Center’s (ERC) National Nonprofit Ethics Survey,25 nonprofit organizations experienced higher levels
of financial fraud in 2007 (the last year the survey was conducted) than either business or government;
also, nonprofits experienced violations of law or organization standards at levels comparable to both
for-profit and public organizations. More than 50 percent of nonprofit employees had witnessed at
least one type of misconduct; conflicts of interest, lying to employees, abusive behavior, and misreporting of hours worked were the most common types of misconduct observed.26
188 Strategies of Not-for-Profit Organizations
On a more positive note, almost one third of nonprofit employees said they work in an organization
that has a well-implemented ethics and compliance program, and eleven percent of nonprofit organizations were reported to have a strong ethical culture. Well-implemented ethics programs and strong
ethical cultures continued to be more widespread in the voluntary sector than in business or government. Importantly, the presence of each has been shown to reduce ethics risk, as levels of misconduct
and the pressure to compromise ethical standards are lower in nonprofits with well-established ethics
programs and strong ethical cultures.27
Fostering a Strong Ethical Culture
While understanding the concepts of ethics, transparency, and accountability are important, placing
these concepts within a framework helps illustrate how an ethical culture can be developed in nonprofit
organizations. Maslow’s theory of human motivation28 provides the framework for a hierarchy of ethical values in a nonprofit setting developed by Strickland and Vaughan. Similar to Maslow’s assertion
that lower level physical needs must be met before higher level social needs can be fulfilled, nonprofits
must first satisfy basic levels of accountability before developing a strong ethical culture. The five levels
include: 1) Financial Competence, which includes wise asset management; 2) Accountability, which
involves transparency and honesty; 3) Reciprocity—similar to Maslow’s affiliation needs—refers to the
mutually beneficial relationship that should be established with donors; 4) Respect for all stakeholders,
which involves responsiveness to their differing perspectives; and 5) Integrity, which is comparable to
self-actualization in that the nonprofit has “an internalized moral code, is able to engage in creative
problem-solving, and pursues its mission to the fullest extent possible.”29
As stated earlier, a strong ethical culture cannot be imposed on an organization by external forces.
While laws and regulations can compel a nonprofit to comply with basic standards of financial competence and accountability and to address certain aspects of the nonprofit’s relationship with donors and
clients, achieving reciprocity, respect, and integrity can only be accomplished through internal efforts.
For example, as a potential volunteer, Bill from the opening vignette would like to donate his time
and expertise to the nonprofit’s provision of day camp services. In order to ensure a mutually beneficial
reciprocal relationship and out of respect for the perspectives of the children who will attend the camp
as well as their parents, camp sponsors, and the other volunteers, the organization screens all potential
volunteers. This helps match the needs of the organization with the capabilities of the volunteers; because the nonprofit’s clients in this instance are children, the screening process also helps to ensure the
safety and security of participants. While the nonprofit is not required by law to conduct background
checks or provide extensive training for volunteers, the board and day camp committee have decided
to expend resources for these purposes. Providing for the safety of the children as well as a positive
experience for volunteers are both sufficiently valued by the nonprofit to warrant the additional costs
of screening and training.
While the National Nonprofit Ethics Survey indicates that more nonprofits have strong ethical cultures when compared to business or government, the number of nonprofits with weak or
weak-leaning ethical cultures increased from 38 percent in 2000 to 42 percent in 2007.30 Fifty-eight
percent of employees in the nonprofits surveyed reported that their respective organization had
a strong or strong-leaning ethical culture, a decrease from the 63 percent reported in each of the
three previous surveys. According to the Ethics Resource Center, strong ethical cultures are found
in nonprofits “where top management leads with integrity, supervisors reinforce ethical conduct,
peers display a commitment to ethics, and the values of the organization are embedded with
Ethics and Accountability 189
Leadership, therefore, is a crucial factor with regard to organizational ethics. Nonprofit organizations
are better able to address their ethics risk, defined as how often misconduct occurs and how often it is
reported, when their leaders are instrumental in establishing and maintaining a strong ethical culture.32
The link between leadership and accountability has also been supported by empirical research; the
presence of transformational leadership in nonprofits was found to have a strong, positive relationship
with the level of accountability demonstrated by nonprofits.33
Likewise, leadership figures prominently in the five most important components to achieving a
strong ethical culture organization (SECO), which are: 1) the focus of leaders’ attention; 2) leaders’
responses to crises; 3) leaders’ overall behavior; 4) allocation of rewards by leaders; and 5) handling
of personnel issues, such as hiring and firing by the nonprofit leadership.34 Leaders set the tone for
ethical behavior by constantly communicating the value to the organization of acting in an ethical
manner.35 When the public perception is that a nonprofit is acting in the public interest rather than
its own, the organization is in a better position to deliver public services and successfully advocate
for its public policy issues. As discussed earlier, ethics must be internalized as an organizational value
in order to promote an ethical culture. Codes of conduct—discussed further in this chapter—are
useful tools by which to communicate the value of ethical behavior to stakeholders, but they must
be disseminated throughout the organization and incorporated into employee training in order to
successfully encourage stakeholders to internalize the commitment to ethics.
System of Accountability: Influences on Nonprofit Behavior
Since there is often a great diversity of stakeholders for a nonprofit, four spheres of accountability have
been delineated. First, nonprofits are accountable to the government through their role in regulating
behavior through laws and regulations. The voluntary sector as a whole provides the second sphere of
accountability through its role in providing peer review and self-regulation. Direct constituents of a
nonprofit—clients, staff, members, donors, funders—who seek to control the organization’s mission
and ensure the effectiveness of programs and services represent the third sphere. Finally, the general
public, as tax-payers, is entitled to information and reassurance about the social value of the work of
the tax-exempt organization.36
It follows, therefore, that nonprofit accountability has four basic goals: 1) adherence to the highest ideals and principles with regard to financial management; 2) pursuit of best practices and good
governance; 3) responsiveness to donors’ wishes and faithfulness to the nonprofit’s mission; and 4)
effectiveness in providing for the public good and protecting the public trust.37 Achieving these goals
requires a system of accountability that combines external constraints and internal measures, while
taking into account how important it is that the public has a positive perception of the organization’s
commitment to ethics and accountability.
External Constraints on Nonprofits
Laws and regulations represent external constraints on nonprofit behavior—ways in which they are
subject to public policy. Nonprofits must comply with the provisions or face sanctions ranging from
financial penalty to loss of tax-exemption. As is discussed in Chapter 5, many of the legal restrictions
on nonprofits were enacted in response to perceived abuses and were designed specifically to reduce
certain behaviors. Scandals such as the fundraising improprieties of the Red Cross following the tragedies of 9/11 and allegations of fraud surrounding voter registration by the now-defunct ACORN
organization increased scrutiny of the nonprofit sector.38 Somewhat predictably, scandal has spread
190 Strategies of Not-for-Profit Organizations
along with the proliferation of fundraising via social media; more than 2,000 of the Internet sites
soliciting donations to provide relief following Hurricane Katrina were found to be fraudulent according to the FBI,39 calling attention to what is sure to be a growing concern among those who seek to
protect donors.
Public perception of nonprofits embroiled in scandal affects their ability to weather the storm.
For example, the American Red Cross has a long-standing reputation for providing crucial services
following disasters. Despite severe criticism of how the organization solicited and handled donations
in the wake of the events of September 11, 2001, the nonprofit took steps to mitigate the scandal,
and because of its reputation for trustworthiness, has continued to enjoy the benefits of a strong
nonprofit brand. Conversely, the community-organizing nonprofit known as ACORN was unable
to survive allegations of fraud in its efforts to register voters. The organization came under investigation in several states, and the scandal was increasingly seen as a partisan issue by both supporters
and opponents of the nonprofit. Ultimately, Congress ceased federal funding of the organization,
which contributed to its demise. Increased scrutiny of nonprofits in the wake of scandal resulted
in cries for greater regulation and the passage of legal requirements and restrictions, such as those
discussed in the next section.40
Sarbanes-Oxley Act. Commonly referred to as SOX, this law was enacted in 2002 in direct response to the corrupt corporate practices of Enron, WorldCom, and Arthur Andersen. It is relevant to
the discussion of nonprofit ethics because the two provisions that apply universally to organizations,
including nonprofits, caused quite a stir in the sector. As a result of SOX, nonprofits are required to
preserve certain documents, including financials, for five years, and must institutionalize the protection
of whistle-blowers and prohibit retaliation against informants. Most organizations choose to comply
with these requirements through the adoption of document retention policies and whistleblower
protection policies.
Upon passage of SOX and the realization that these two provisions would apply equally to
nonprofits, there was a sense of general concern about the level of burden that compliance would
place on the sector, particularly on small nonprofits. Nezhina and Brudney found that in addition
to the two mandatory provisions identified above, SOX contains 17 requirements that are deemed
by experts in the field to be relevant, although not mandatory, for nonprofits.41 Exhibit 8.2 contains
the list of relevant provisions.
Because of the concern regarding the impact on nonprofits of the SOX provisions, Nezhina and
Brudney sought to determine the degree to which nonprofits complied with the Act. Through their
survey of approximately 300 nonprofits, they discovered that all but two had adopted at least one SOXlike provision prior to the passage of the Act, and that the majority of SOX-like practices existed within
the sector prior to 2002. For example, prior to SOX, 92 percent of respondents conducted a regular
external audit and almost 72 percent had a conflict of interest policy. The findings of this study suggest
that SOX has likely not posed an undue burden on nonprofits since such a high percentage already
had similar provisions in place.42 Rick Cohen’s assessment of Sarbanes-Oxley ten years post-adoption
concluded, “SOX put good governance and board oversight into the public policy parlance…” and
“did effect a positive change of context and behavior for nonprofits in the arenas of governance and
financial accountability.”43
Ethics and Accountability 191
Exhibit 8.2
For More Information
Provisions of Sarbanes-Oxley Act Relevant for
Nonprofit Organizations
Provisions of the Sarbanes-Oxley Act that affect nonprofit organizations are summarized as follows:44
• Auditors prohibited from performing certain non-audit services;
• Audit firm must be rotated every five years;
• An audit firm cannot perform an audit for an organization whose executive was employed by the audit firm within the previous year;
• Board of directors must establish an audit committee;
• Board of directors must ensure the audit committee operates independently;
• Audit committee must be given the authority to select, compensate, oversee, and discharge the auditor;
• CEO and CFO must certify the accuracy of financial reports;
• CEO must be given responsibility for the evaluation of internal controls;
• Personnel must be prohibited from exercising undue influence on the auditor;
• All off-balance-sheet transactions must be disclosed;
• Personal loans to executives and directors must be prohibited;
• Electronic filing of all public disclosures must be instituted;
• Internal control reports must be incorporated into annual reports;
• Must disclose whether a code of ethics has been adopted for senior executives;
• Must disclose whether at least one member of the audit committee is financially qualified;
• Personnel are subject to criminal penalties for knowingly destroying, altering, concealing,
or falsifying records in order to obstruct a federal investigation; and
• Federal income tax returns must be signed by the CEO.
Form 990. As is discussed briefly in Chapter 5, Form 990 was redesigned in 2008 to include a new
section on governance issues, which includes questions about items such as conflict of interest policies
and meeting documentation. Filers are not required to include this information, but are encouraged
to do so in the interest of greater transparency and accountability. Part VI of the Form 990 also asks
questions regarding whistleblower protections and document retention policies, pursuant to the mandatory provisions of SOX. Organizations are asked to disclose information about the composition of
their boards of directors and to discuss their procedures for managing conflicts of interest when they
occur. While there is no enforcement mechanism tied to provision of information in the governance
192 Strategies of Not-for-Profit Organizations
section, the IRS asserts that because voluntary compliance promotes good governance, it is in the best
interest of the individual nonprofit as well as the sector as a whole.45
Benzing, Leach, and McGee studied the readiness of arts and culture nonprofits in the greater Philadelphia area to comply with the provisions of the new Form 990 as well as SOX. Approximately half of
the organizations surveyed had written ethics and whistleblower protection policies, and slightly more
than half required board members to complete a conflict of interest form. Similar to the findings of
Nezhina and Brudney,46 Benzing et al. found that the overwhelming majority of the nonprofits studied
had an annual external audit and almost half had an audit committee. As with other studies, Benzing
and colleagues found that size and age are directly related to SOX compliance; older and larger arts
and culture nonprofits are more likely to adhere to SOX-related best practices. Of particular note with
regard to their findings is that a large percentage of the nonprofit executives who responded to the
survey believe that compliance with the provisions of SOX does promote transparency and improves
financial management at little cost to the organization.47
California’s Nonprofit Integrity Act. Whereas SOX resulted from corrupt corporate practices, the
Nonprofit Integrity Act was a response to scandal in the nonprofit sector. See Exhibit 8.3 for more
information on the fraudulent fundraising practices that led California’s attorney general and a state
senator to shepherd these reforms into law in 2004. The Act is an extension of the relevant SOX requirements to nonprofits and imposes strict regulation on commercial fundraisers operating in the state
of California, but was viewed by many in the sector as the harbinger of things to come for nonprofits
nationwide. According to the National Council of Nonprofits, which regularly monitors state legislation,
this has not been the case. Some states, however, do have laws mandating conflict of interest policies
for nonprofit boards, and most require charitable fundraising registration.48
Increased external accountability measures do come at a cost, however.49 Decades of regulatory efforts
by the states have resulted in what Reneé Irvin calls a “50-state mix of fees, registration, auditing, and
financial reporting requirements.”50 While these regulations were initially intended to enhance nonprofit
accountability and public trust, there are also other motivations for increased regulation— namely,
the political benefits to elected compliance officials such as states’ attorneys general who benefit from
an image of fighting charitable fraud and abuse as well as the revenue generated from registration and
compliance fees. Regulations are designed to protect the interests of donors as well as to safeguard those
who benefit from charitable goods and services.
The resulting hodge-podge of state regulations has spawned a system that actually discourages
compliance by many nonprofit organizations that find the rules to be too complex or costly. Those
organizations that do comply with the myriad reporting requirements contribute to the drain on resources of compliance officials. State charity officials devote a significant amount of their budgets to
the monitoring of registration and reporting requirements, leaving few resources for investigation of
fraud and abuse. From her comparison of states with and without registration and reporting requirements, Irvin concluded that even among states with strict regulations, consumer complaints are the
primary means of identifying fraudulent activity. There is little evidence to indicate that state reporting
requirements are effective at reducing instances of fraud.51
As the Nonprofit-Policy Framework suggests, these policies subject nonprofits to legal and
regulatory constraints, and promote ethical behavior by imposing penalties for failure to comply.
While effective at increasing the availability of information about nonprofit organizations and
providing a basis for the investigation of fraud and abuse, these measures have limited ability to
advance a culture of ethics within the nonprofit sector. Rather, ethical behavior must be internalized by the organization.
Ethics and Accountability 193
Exhibit 8.3
For Example
California’s Nonprofit Integrity Act:
Combating Corruption, Promoting Accountability
Signed into law on September 29, 2004, by Governor Arnold Schwarzenegger, California’s Nonprofit Integrity Act took effect on January 1, 2005. Whereas the Sarbanes-Oxley Act of 2002 was
designed in response to scandal in the for-profit sector, California’s legislation was designed specifically to apply to the nonprofit sector. According to the state’s attorney general at the time of
adoption, Bill Lockyer, the reform measures he proposed that were introduced as SB 1262 by State
Senator Byron Sher were prompted by two specific scandals, each of which involved fraudulent
fundraising practices.52 Both involved suits brought by the state’s attorney general, but one also
involved a contentious lawsuit between two not-for-profit organizations.
In mid-2003, PipeVine, an organization formed by and closely linked with the United Way
of the Bay Area, closed its doors amid allegations that it did not deliver almost $20 million in donations that it had collected on behalf of various charities. PipeVine processed donations received
from workplace campaigns and online fundraisers such as Network for Good and then routed
those funds to charitable nonprofits for a fee. Following months of investigation and contentious
negotiations, the United Way of the Bay Area (UWBA) agreed to pay a $13 million settlement to
resolve the case.53 Subsequently, Network for Good sued the UWBA for donations lost as a result
of the collapse of PipeVine, arguing that even though PipeVine was spun off from its founder,
UWBA, the two organizations remained intertwined. In 2007, the court ruled that while UWBA
had not committed fraud, it had engaged in misconduct, specifically the manipulation of financial
records in an attempt to conceal its role in the downfall of PipeVine. On an interesting note, the
attorney for Network for Good, Sharon Mayo, praised the ruling, commenting that it demonstrated nonprofits are held to the same standards as for-profits.54
Nine of the thirteen key provisions of the Nonprofit Integrity Act pertain to fundraising. Although no other states followed its lead, California’s reaction to the PipeVine case is an example
of both nonprofit action influencing policy creation, and state government subjecting the sector
to increased regulation.
A summary of the key provisions is available from the California Registry of Charitable
Trusts at
Internal Measures Exercised by Nonprofits
As is discussed in Chapter 5, the nonprofit sector was long believed to be capable of policing itself.
The altruistic nature of nonprofit missions and the requirement that excess revenues be retained by
the organization rather than distributed to shareholders were believed to be sufficient to ensure that
nonprofits would act in the public interest. As the size and scope of the voluntary sector grew, and
nonprofits repeatedly demonstrated that they are not immune to scandal, scholars, practitioners, and
194 Strategies of Not-for-Profit Organizations
policymakers have increased their attention to nonprofit ethics. Internal actions such as the development of codes of ethics, as well as policies regarding confidentiality and donor privacy, significantly
enhance the ethical culture of a not-for-profit organization.
Codes of Ethics. Independent Sector recommends that all charitable organizations have a formally
adopted, written code of ethics that reflects the values and best practices agreed on by staff, board,
and volunteers. All directors, staff, and volunteers should be familiar with the code and agree to abide
by its principles. The code should include expectations of how the staff, board, and volunteers should
conduct themselves—for example, with regard to confidentiality and in showing respect for clients
and others within the organization.55
Codes of ethics are increasingly needed by nonprofits that have a more diverse group of stakeholders. When members, staff, board, and clientele do not have a shared moral philosophy, a code
of ethics is a useful vehicle through which to identify common values that are important to the
organization.56 Through his content analysis of 150 codes of ethics of tax-exempt membership organizations, Gary Grobman concluded that there are significant differences among codes according
to their primary constituency—public, for-profit, or nonprofit. His results indicate a difference in
values across sectors. For example, more than half of nonprofit codes mentioned issues of proficiency
or competence, compared to 28 percent of government codes. Although not one government or
for-profit code mentioned sexual misconduct, nearly 25 percent of nonprofit codes mentioned it.
Nonprofits were also substantially more likely to address issues of client dignity and pluralism in
their codes when compared with public and for-profit organizations. Interestingly, only one-third of
all the codes mention quality of services, and only 38 percent have codes that identify enforcement
mechanisms by which to address noncompliance.57
Codes of ethics have three basic purposes: 1) to constrain behavior by stipulating the types of conduct to be avoided; 2) to guide those within the organization by specifying obligations or preferred
actions; and 3) to inspire by establishing broad goals of desirable conduct that should be emulated
throughout the organization.58 The low number of enforcement provisions seems to indicate that,
by design, most codes of ethics tend to be inspirational rather than regulatory.59 Independent Sector
provides information and resources on core concepts as well as legal and compliance issues related to
developing a code of ethics.60
Policies on Conflicts of Interest and Confidentiality. In its Principles for Good Governance
and Ethical Practices, the Panel on the Nonprofit Sector makes a recommendation in Principle 3,
as follows:
A charitable organization should adopt and implement policies and procedures to ensure that all conflicts
of interest, or the appearance thereof, within the organization and the board are appropriately managed
through disclosure, recusal, or other means.61
It is important to note that not all conflicts of interest are bad for the nonprofit. Some members of
the board might have personal or financial interests in the work of the nonprofit that would result in
an illegal or unethical transaction, but in other cases, transactions might be in the best interest of the
organization. For example, suppose that a board member of a grantmaking foundation also serves on
the board of a nonprofit that has applied to it for funding. Since the board member is in a leadership
position with both organizations and can, therefore, influence decisions, there is a potential conflict
of interest. However, because this foundation encourages its staff and board members to be actively
engaged with charities that they might fund, it is neither illegal nor unethical for the board member
to be involved with both organizations. It is imperative, however, that he or she disclose the potential
conflict and would not receive a material gain from any transaction between the two. Nonprofits often
Ethics and Accountability 195
mitigate conflicts of interest through the use of conflict of interest forms; sample forms are available
through the National Council of Nonprofits. Exhibit 8.4 contains more information on resources
available from the council.
Many social services nonprofits collect personal data on clients through the course of providing
services. All nonprofits that receive contributions from individuals collect at least minimal data on
donors. Treating clients and donors with respect and preserving their trust in the organization require
a commitment to maintaining the confidentiality of data to the full extent of the law. Adopting a policy
of confidentiality and donor privacy are embodied in Principle 33 of the Principles for Good Governance
and Ethical Practice.
62 A sample confidentiality policy is available through the National Council of
Nonprofits, discussed further in Exhibit 8.4.63
The internal measures and external constraints previously discussed are intended to facilitate the
development and maintenance of a strong ethical culture. They also serve as documentation of the
organization’s commitment to ethics and accountability, thereby contributing to a positive public
perception of the nonprofit’s ability to deliver services and promote sound public policy. In order
for a nonprofit to determine the merits of its actions regarding organizational ethics, the National
Council of Nonprofits recommends the organization undertake a comprehensive ethics audit every
three to five years.64
Exhibit 8.4
For More Information
Ethics and Accountability
Resources from the National Council of Nonprofits
As is discussed in Exhibit 6.4, the Council of Nonprofits seeks to empower and inform nonprofit
organizations, offering online guides and resources such as their series related to promoting nonprofit ethics and regulatory compliance:
• Ethics and Accountability in the Nonprofit Sector. General information on ethics
and accountability, including definition of a code of ethics as well as discussion of the
importance of ethical leadership are included in this part of the resources section of the
website. Laws and regulations regarding nonprofit ethics plus information on self-regulation via charity watchdog organizations is included as well. www.councilofnonprofits.
• Conflict of Interest. General information on conflicts of interest as well as sample conflict of interest policies are available at
• Conducting an Ethics Audit at Your Nonprofit. A two-page “road map” designed
to help nonprofits assess compliance with external constraints and internal measures
designed to facilitate ethical behavior in the organization is available at https://
196 Strategies of Not-for-Profit Organizations
Despite numerous efforts by Congress and state legislatures, many of which have been successful at
improving reporting and compliance efforts of nonprofits, the ethical character of organizations is
still largely determined by internal forces. Basic financial competence and accountability measures
can be mandated by law and regulation and most organizations will comply out of fear of negative
consequences associated with non-compliance. However, in order to promote Moulton’s obedience
to the unenforceable, the leaders within the organization have to set an ethical tone.
As Bill in the opening hypothetical situation discovered, an organization with a strong ethical
culture puts the needs of its clientele first, expending extra resources when necessary to promote
safety and security for program participants as well as ensure competence and build confidence
among the volunteers and staff delivering its program services. Informing participants about
their rights, especially with regard to privacy and confidentiality of information, reflects respect
for the individual. Developing and disseminating a code of ethics, especially one that specifically addresses consequences for violations, serves to inspire as well as compel all those involved
with the organization to be accountable for their actions in the public interest. Basically, ethics
means striving to do the right thing—particularly when it is difficult to do so and when no one
is looking.
Fostering a strong ethical cultural and maintaining a system of accountability are crucial elements for
nonprofits, since these organizations rely on public trust and confidence for their survival. To reiterate,
nonprofits have a long history of trustworthiness and public confidence in their altruism. However, as
the size, scope, and diversity within the nonprofit sector, as well as the size of assets under its control,
have grown significantly in recent years, scandals have also proliferated and somewhat diminished the
automatic assumption of trustworthiness. In order for nonprofits to effectively deliver public services
and be successful policy advocates, the public must have confidence that the organizations are acting
in the public interest and not for their own purposes. Nonprofits, therefore, must pay greater attention
not only to building strong ethics and accountability within their organizations, but also to making
sure the public is aware of their efforts.
Questions for Review
1. Define ethical behavior as it pertains to nonprofit organizations. Are organizational ethics
different from personal ethics? Discuss the extent to which the two concepts are related to
or divergent from one another.
2. Is deliberate cultivation of an ethical culture needed in nonprofit organizations? Why or
why not? How is development of an ethical culture different for nonprofits as opposed to
public or for-profit entities?
3. To what extent are external constraints imposed by state and federal policymakers useful to
building a culture of ethics within nonprofit organizations? Do you agree or disagree with
the assertion that external constraints are not sufficient to facilitate a strong ethical culture
within an organization? Explain.
4. To what extent are internal measures to promote transparency and accountability useful
in fostering an ethical culture in nonprofits? Discuss the strengths and weaknesses of
specific measures that nonprofits can undertake voluntarily to enhance their commitment
to ethics.
Ethics and Accountability 197
5. Why is public perception of a nonprofit’s commitment to ethics and accountability important? How does a nonprofit’s reputation for trustworthiness affect its ability to deliver
public services and engage in policy advocacy?
Choose a large nonprofit organization of particular interest to you and for which you can obtain information to assess the strength of its ethical culture. Use websites such as,, or to rate the organization on external compliance factors such as financial
competence and transparency. To assess the extent to which the nonprofit has internalized a strong
ethical culture, explore its website, annual reports, and Part VI of the Form 990 for information. Does
the organization have policies regarding conflict of interest and confidentiality? Does the organization
voluntarily comply with the relevant provisions of SOX? What other information did you find useful
in assessing whether the nonprofit has a strong ethical culture? What are your conclusions regarding
the organization’s commitment to ethics?
Suggested Readings
Ball, Carolyn. (2009). “What is Transparency?” Public Integrity, 11(4), pp. 293–307.
Bowman, Woods. (2012, October 26). “Nonprofit Accountability and Ethics: Rotting from the Head
Down.” Nonprofit Quarterly.
Independent Sector. (2002). Obedience to the Unenforceable: Ethics and the Nation’s Voluntary and Philanthropic Community.
Lynch, Thomas D., and Lynch, Cynthia E. (2019). Ethics and Professionalism in the Public Service. Irvine,
CA: Melvin & Leigh, Publishers.
St. Clair, Travis. (2016). “How Do Nonprofits Respond to Regulatory Thresholds: Evidence from New York’s
Audit Requirements.” Journal of Policy Analysis & Management, 35(4), pp. 772–790.
Svara, James H. (2015). The Ethics Primer for Public Administrators in Government and Nonprofit Organizations,
Second Edition. Sudbury, MA: Jones and Bartlett.
Web Resources
California’s Nonprofit Integrity Act,
IRS Public Disclosure Requirements,
Independent Sector, Principles of Good Governance and Ethical Practice,
Stay Exempt Required Disclosures Course,
198 Strategies of Not-for-Profit Organizations
1. Ronald R. Sims, “Restoring Ethics Consciousness to
Organizations and the Workplace: Every Contemporary Leader’s Challenge,” in Ronald R. Sims and Scott
A. Quatro, eds., Leadership: Succeeding in the Private,
Public, and Not-for-Profit Sectors, Armonk, NY: M.E.
Sharpe, 2005, p. 300.
2. John C. Maxwell, There’s No Such Thing as “Business
Ethics,” Warner Business Books, 2003, pp. 21–23.
3. The Right Honorable Lord John Fletcher Moulton,
“Law and Manners,” Atlantic Monthly, 134, 1, July
1924, pp. 1–4,
.pdf (accessed November 22, 2019).
4. James H. Svara, The Ethics Primer for Public Administrators in Government and Nonprofit Organizations,
Sudbury, MA: Jones and Bartlett, 2007.
5. James H. Svara, The Ethics Primer, p. 16.
6. James L. Perry and Lois Recascino Wise, “The Motivational Bases of Public Service,” Public Administration Review, 50, 1990, pp. 367–373.
7. Woods Bowman, “Nonprofit Accountability and
Ethics: Rotting from the Head Down,” Nonprofit
Quarterly, October 26, 2012, (accessed July 9, 2019);
National Council of Nonprofits, “Code of Ethics
for Nonprofits—Why Your Nonprofit May Want to
Adopt a Statement of Values,” (accessed July 9, 2019).
8. Ruth Ann Strickland and Shannon K. Vaughan, “The
Hierarchy of Ethical Values in Nonprofit Organizations: A Framework for an Ethical, Self-Actualized
Organizational Culture,” Public Integrity, 10, 2008,
pp. 233–251; James H. Svara, The Ethics Primer;
Ronald R. Sims, “Restoring Ethics Consciousness to
Organizations and the Workplace: Every Contemporary Leader’s Challenge,” in Leadership: Succeeding in
the Private, Public, and Not-for-Profit Sectors, Ronald
R. Sims and Scott A. Quatro eds., Armonk, NY: M.E.
Sharpe, 2005.
9. Carolyn Ball, “What Is Transparency?” Public Integrity, 11, 2009, p. 297.
10. Ibid.
11. Ibid.
12. Ibid., p. 300.
13. Ibid., p. 303.
14. Louis D. Brandeis, “What Publicity Can Do,” Harper’s Weekly, 58, December 20, 1913, p. 10, https://
&view=1up&seq=594 (accessed July 7, 2019).
15. BBC, “Madonna Row Over Malawi ‘Schools,’” April
3, 2013, (accessed July 7, 2019).
16. Global Philanthropy Group, “Statement on Raising
Malawi,” April 20, 2011, http://www.globalphilanthropy
(accessed on July 9, 2019).
17. Godfrey Mapondera and David Smith, “Zeroes to
Heroes: Madonna’s Defunct School in Malawi to
Become Cemetery,” The Guardian, July 20, 2012,
madonna-malawi-school-site-cemetery (accessed July
7, 2019).
18. Andrew P. Williams and Jennifer A. Taylor, “Resolving Accountability Ambiguity in Nonprofit Organizations,” Voluntas, 24, 2013, pp. 559–580; Tracey M.
Coule, “Nonprofit Governance and Accountability:
Broadening the Theoretical Perspective,” Nonprofit
and Voluntary Sector Quarterly, 44, 1, 2015, pp.
19. Bobbi Watt Geer, Jill K. Maher, and Michele T. Cole,
“Managing Nonprofit Organizations: The Importance
of Transformational Leadership and Commitment
to Operating Standards for Nonprofit Accountability,” Public Performance & Management Review, 32,
2008, pp. 51–75; Evelyn Brody, “Accountability and
the Public Trust,” in The State of Nonprofit America,
Lester M. Salamon, ed., Brookings Institution Press:
Washington, DC, 2002, pp. 471–498; Sean Buchanan and Patricia Bradshaw, “The Voice from Outside:
Stakeholder Resistance in Nonprofit Organizations,”
Nonprofit Quarterly, April 11, 2019, (accessed July
9, 2019).
20. Woods Bowman, “Nonprofit Accountability and
21. Sean Buchanan and Patricia Bradshaw, “The Voice
from Outside,” paragraph 2.
22. Ibid.
23. Martin Levine and Ruth McCambridge, “NRA
Donors Demand Action,” July 3, 2019, https://nonprofitquarterly
Ethics and Accountability 199
.org/nra-donors-demand-action/ (accessed July 9,
24. MissionBox Staff, “Will Nonprofit Scandals Significantly Lessen Your 2018 Charitable Donations?” July
2, 2019,
will-nonprofit-scandals-significantly-lessen-your2018-charitable-donations (accessed July 8, 2019).
25. The survey results discussed are taken from the 2007
National Nonprofit Ethics Survey, the fourth in a
longitudinal study of employees in U.S. workplaces
across all three sectors. Participants were randomly
selected, and 558 of the 3,452 respondents were
nonprofit employees. More information on the survey
and its methodology is available at
26. Ethics Resource Center (ERC), National Nonprofit
Ethics Survey: An Inside View of Nonprofit Sector Ethics,
last modified 2007,
27. Ibid.
28. Abraham H. Maslow, “A Theory of Human Motivation,” Psychological Review, 50, 1943, pp. 370–396.
29. Ruth Ann Strickland and Shannon K. Vaughan, “The
Hierarchy of Ethical Values in Nonprofit Organizations: A Framework for an Ethical, Self-Actualized
Organizational Culture,” Public Integrity, 10, 2008,
pp. 233–251.
30. ERC, National Nonprofit Ethics Survey.
31. Ibid., pp. 4–5.
32. Ibid.
33. Geer et al., “Managing Nonprofit Organizations.”
34. Ronald R. Sims, “Restoring Ethics Consciousness to
Organizations and the Workplace: Every Contemporary Leader’s Challenge,” in Leadership: Succeeding in
the Private, Public, and Not-for-Profit Sectors, Ronald
R. Sims and Scott A. Quatro, eds., Armonk, NY:
M.E. Sharpe, 2005.
35. Ibid.
36. Evelyn Brody, “Accountability and the Public Trust.”
37. Ibid.
38. Deborah Sontag, “Who Brought Bernadine Healy
Down?” New York Times Magazine, 2001, 6.32.; Livia
Gershon, “Creating the Voter Fraud Myth,” JSTOR
Daily, 2016, (accessed July 9, 2019); Michael
Wyland, “ACORN Successors Subjected to Special
IRS Scrutiny,” Nonprofit Quarterly, 2013, https://
nonprofit (accessed July 9, 2019).
39. Janet Greenlee, Mary Fischer, Teresa Gordon, and
Elizabeth Keating, “An Investigation of Fraud in
Nonprofit Organizations: Occurrences and Deterrents,” Nonprofit and Voluntary Sector Quarterly, 36,
2007, pp. 676–694.
40. The Tax Reform Act of 1969 represents major legal
restrictions and requirements designed to encourage
ethical behavior. Because it is discussed extensively in
Chapters 5 and 7, the Tax Reform Act of 1969 is not
included in this discussion of accountability.
41. Tamara G. Nezhina and Jeffrey L. Brudney, “The Sarbanes-Oxley Act: More Bark than Bite for Nonprofits,” Nonprofit and Voluntary Sector Quarterly, 39,
2010, pp. 275–301.
42. See, for example, Francie Ostrower and Marla J. Bobowick, Nonprofit Governance and the Sarbanes-Oxley
Act, last modified 2006,
43. Rick Cohen, “Sarbanes-Oxley: Ten Years Later,”
Nonprofit Quarterly, December 20, 2012, https://
(accessed July 8, 2019), paragraph 16, line 13, and
paragraph 18, line 8.
44. Tamara G. Nezhina and Jeffrey L. Brudney, “The
Sarbanes-Oxley Act.”
45. Information on the IRS public disclosure requirements as well as a tutorial on required disclosures are
available online; website information is contained in
the Web Resources section at the end of the chapter.
46. Tamara G. Nezhina and Jeffrey L. Brudney, “The
Sarbanes-Oxley Act.”
47. Cynthia Benzing, Evan Leach, and Charles McGee,
“Sarbanes-Oxley and the New Form 990: Are Arts
and Culture Nonprofits Ready?” Nonprofit and V
oluntary Sector Quarterly, 60, 2011, pp. 1132–
48 National Council of Nonprofits, Ethics and Accountability in the Nonprofit Sector, last modified 2019,; Affinity, “Fundraising
Registration,” https://www.fundraisingregistration.
(accessed July 8, 2019).
49. Travis St. Clair, “How Do Nonprofits Respond to
Regulatory Thresholds: Evidence from New York’s
Audit Requirements,” Journal of Policy Analysis &
Management, 35, 4, 2016, pp. 772–790.
50. Reneé A. Irvin, “State Regulation of Nonprofit Organizations: Accountability Regardless of Outcome,”
Nonprofit and Voluntary Sector Quarterly, 34, 2005, p.
200 Strategies of Not-for-Profit Organizations
51. Ibid.
52. Gene Takagi, “The Nonprofit Integrity Act of 2004,”
last modified December 19, 2005,
53. Todd Wallack, “Charity Settles in PipeVine Fiasco,”
San Francisco Chronicle, last modified February 19,
17413968_1_million-settlement-bay-area-unitedway (accessed November 22, 2019).
54. Bob Egelko, “Judge Holds Bay Area United Way
Responsible for Spun-Off Nonprofit,” San Francisco
Chronicle, last modified October 25, 2007,
charity-united-way-nonprofit (accessed November 22,
55. Independent Sector, Principles for Good Governance
and Ethical Practice, Principle 2: Code of Ethics, last
modified 2015,
programs/principles-for-good-governance-and-ethicalpractice/principle-2/ (accessed July 8, 2019).
56. Gary M. Grobman, “An Analysis of Codes of Ethics
of Nonprofit, Tax-Exempt Membership Associations:
Does Principal Constituency Make a Difference?”
Public Integrity, 9, 2007, pp. 245–263.
57. Ibid.
58. James H. Svara, The Ethics Primer.
59. Gary M. Grobman, “An Analysis of Codes of Ethics.”
60. Website is listed in the Web Resources section at the
end of the chapter.
61. Independent Sector, “Principles of Good Governance and Ethical Practice, Principle 3: Conflicts
of Interest,” last modified 2015, (accessed July
8, 2019).
62. “Independent Sector, “Principles of Good Governance
and Ethical Practice, Principle 33: Donor Privacy,”
last modified 2015,
programs/principles-for-good-governance-and-ethicalpractice/principle-33/ (accessed July 8, 2019).
63. Issues of confidentiality are pertinent to the process
of program evaluation, which is discussed further in
Chapter 14.
64. National Council of Nonprofits, Conducting an Ethics
Audit at Your Nonprofit, last modified 2011, https://
Audit%20at%20Your%20Nonprofit.pdf (accessed
November 22, 2019).
Ethics and Accountability 201
The choice facing those who manage [nonprofit] organizations is not whether to market or not to market,
for no organization can avoid marketing. The choice is whether to do it well or poorly. . . .
Philip Kotler and Sidney J. Levy1
Samuel has recently agreed to be the new executive director of the fledgling nonprofit, Pets Rescue. A
small group of animal lovers that wanted a no-kill alternative to the county-run animal control shelter
in its rural community started the new organization two years ago. Prior to Samuel taking on the only
full-time salaried position, the group of founders shared the workload. They worked together to pick
up homeless pets about to be euthanized at the county shelter and then relied on family and friends
to foster pets and assist with finding appropriate permanent home placements. One member of the
group is a veterinarian, so she handled healthcare—including spaying and neutering—for the rescued
Communication about the work of the organization has been relayed throughout the county largely
by word of mouth, and as news has spread, demand has increased. People are now calling founders
individually with reports of abandoned animals and asking what services Pets Rescue provides, how to
donate and volunteer to help, and to plead with the organization to get involved before the animals
are taken to the county shelter. Founders, as well as their friends and families are now overwhelmed
with requests for information as well as trying to meet the demand for foster families and forever
homes for the homeless dogs, cats, and various other small animals; the one veterinarian on the board
can no longer handle all of the healthcare needs. Fortunately, the founders—who are also the board
members—have secured sufficient grant support from the local community foundation and a corporate
giving program to hire a full-time executive director to handle the communication and administrative
needs of the growing nonprofit.
Samuel is a millennial with some corporate marketing experience and a love of technology, and the
board members feel fortunate that he accepted the position. For his part, Samuel is looking forward
to solving the current challenges and planning for growth with a group of people as committed to
animal welfare as he is. In many ways, he has a blank slate on which to write a marketing plan; there is
a mission statement and a Facebook page, but no logo, tagline, color scheme, or website. There are the
two grants, and the founders are regular donors, but there is no financial arrangement with the county
animal control division nor is there a process to receive donations from the public at large. Fortunately for Samuel, with all these challenges there are also opportunities, if he can develop an appropriate
communication and marketing strategy for his various target audiences.
Marketing Basics
Marketing has two basic conceptualizations: a negative one that is predominant and a positive
one that is rapidly gaining acceptance.2
In the negative view, marketing is perceived to be the process by which organizations trick consumers into buying items they do not need or into believing
something that is not true. What many people who study or practice marketing argue, however, is
that deliberately misleading marketing techniques are used only at the fringes of current business
practices, mainly because of recognition that such misinformation is ultimately detrimental to the
company’s bottom line.3
The more positive view of marketing embodies “sensitively serving and satisfying human needs.”4
According to the American Marketing Association (AMA), “Marketing is the activity, set of institutions,
and processes for creating, communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large.”5
This definition (updated in 2013) reflects significant changes in the conceptualization of marketing—namely, that marketing: 1) is not just within the
purview of marketers because everyone associated with the organization has a duty to participate; 2) is
an exchange of value between relevant stakeholders; and 3) is not about generating “irrelevant goods
and services”—the dark side of marketing—but is about meeting specific wants and needs of not just
those involved in the direct exchange but the broader public as well.6
General Marketing Principles and Techniques
Marketing, in general, is most readily associated with principles and techniques designed to sell
goods and services—what is commonly referred to as commercial sector marketing. In order to
give consumers what they want and need, organizations devise a marketing plan that identifies the
techniques most suitable for “creating, communicating, delivering, and exchanging offerings that
have value” as the AMA definition previously cited indicates. At the core of this definition is the
focus on customers, clients, partners, and society at large as the relevant stakeholders in all marketing endeavors.
A marketing plan is similar to a strategic plan in that it is a document derived through a process of
organizational assessment, identifying goals and objectives that are codified in a formal written document that is used for implementation and evaluation of the marketing efforts. It is easier to identify
and implement suitable marketing techniques and communication strategies such as direct mailings,
radio ads, and Facebook pages when they are derived from program objectives. Therefore, undertaking
activities such as revising and updating the organization’s website while the board is in the midst of the
strategic planning process is not a good idea.
One of the central aspects of a marketing plan is the way in which the organization devises its
marketing mix—that is, how the organization plans to utilize the marketing tools known as the 4Ps—
product, price, place, and promotion—to reach its potential customers, clients, and partners. Price,
place, and promotion are tools used primarily to position the product itself relative to its competitors.
Mere mention of the golden arches evokes a mental picture of a logo and a wealth of inforMarketing and Branding the Nonprofit Organization 203
mation associated with the fast-food giant McDonald’s. This happens because the golden arches
are what the AMA refers to as a brand—“a name, term, design, symbol or any other feature that
identifies one seller’s good or service as distinct from those of other sellers.”7
Branding results
when an organization is able to successfully position its product relative to the competition.
This is accomplished through differentiation, where product attributes are highlighted in order to
demonstrate how they are distinct from and better than competing goods and services. All of the
aforementioned are principles and techniques most readily associated with commercial marketing,
but that are also applicable to what is termed social marketing, discussed further in this chapter.
Each is also relevant for nonprofit marketing.
Marketing in a Nonprofit Environment
Philip Kotler and Sidney Levy are credited with the seminal article applying the principles of marketing to nonbusiness organizations and for broadening the definition of marketing to encompass
Marketing is that function of the organization that can keep in constant touch with the organization’s consumers, read their needs, develop “products” that meet these needs and build a program of communications
to express the organization’s purposes.8
Somewhat ironically, marketing traditionally suffered from an image problem, particularly among
nonprofits. Many in the nonprofit sector were resistant to the concept of marketing, perceiving it
to be tainted by the negative attributes of commercial business. In his study of public services marketing in the United Kingdom, Angus Laing stated that a more positive view of the marketing of
public services is warranted. He argued that the philosophical perspective that marketing weakens
the public sector ethos is misguided; rather, it can be stated that “marketing concepts are in fact
entirely consistent with democratic values in that they reiterate the primacy of the citizen in [public]
Whether you embrace the positive view of marketing or continue to relegate it to the dark side of
organizational management, the reality is that nonprofit marketing is now extensive. Indeed, there
are currently three academic peer-reviewed journals devoted specifically to nonprofit marketing—
the Journal of Nonprofit & Public Sector Marketing, published since 1993; the International Journal
of Nonprofit and Voluntary Sector Marketing, published since 1996; and the International Review on
Public and Nonprofit Marketing, published since 2004.10 More than 30 textbooks have been published
specifically on nonprofit marketing, most since the mid-1990s, and blogs devoted to the concept
proliferate. As Kotler and Levy suggested, the debate is not whether nonprofits engage in marketing;
it is whether they do it well or not. A well-constructed marketing plan enhances nonprofit effectiveness, as Samuel in the opening vignette is well aware. Accordingly, the marketing plan is the subject
of the following sections.
The Importance of a Marketing Plan
As previously discussed, a marketing plan contains the goals and objectives for the marketing
efforts of an organization; the plan is developed through a process similar to an overall strategic
planning process. A marketing plan should include identification of target audiences or markets
and the barriers to reaching them, as well as the goals and objectives that specify the actions
204 Strategies of Not-for-Profit Organizations
the nonprofit is encouraging target audiences to take. It also sets out a positioning statement
that outlines how the organization wants the target audience to perceive its goods, services, and
mission with regard to other nonprofits; this also reflects the nonprofit’s brand identity. It is also
important that a marketing plan include procedures for implementation and evaluation of the
marketing efforts identified.11
Not-for-profit organizations generally have two primary goals in developing their marketing plans:
to increase visibility of the organization and its programs, and to generate resources. Sarah Durham
coined the term brandraising to describe the process by which a nonprofit establishes its identity, and
develops a system of organizational communication that facilitates achievement of visibility and fundraising goals as well as promotion of the overall mission. Just as communities came together to assist
their neighbors in building—or raising—their barns, brandraising embodies the concept that it takes
everyone in a nonprofit to effectively construct and implement a marketing plan. Marketing plans are
best developed after the organization’s vision and mission are fully articulated—that is, after the strategic
planning process has been completed.12 Key elements in the marketing plan are the nonprofit’s target
audience/stakeholders, differentiation of the nonprofit through positioning, and the nonprofit’s brand
identity, each of which is discussed further in the sections that follow.
Identifying the Nonprofit’s Target Audience
Target publics are variously identified as: 1) those who will be served by the nonprofit;13 2) internal
stakeholders such as employees as compared with external publics;14 3) fundraising, program, and advocacy audiences;15 and 4) multiple market stakeholders.16 Defining a target public as those who will
be served by the nonprofit might appear to be the most comprehensive and straightforward definition,
but it is surprisingly complex. Consider the example of Pets Rescue, the hypothetical animal welfare
nonprofit from the opening vignette. Who is actually served by the organization? Is it everyone in the
county’s geographic area? If so, is everyone served equally?
Commercial sector marketing focuses on the selling of goods and services and is generally associated with private business; since many nonprofits also offer goods and services, often at a price
to consumers, the strategies associated with commercial sector marketing can also apply to nonprofit marketing. However, since selling a product is not usually a nonprofit’s mission, the simple
transactional relationship that predominates in private business does not always translate well to the
voluntary sector. In those instances, the term more appropriately applied would be social marketing.
Marketing professor Philip Kotler and colleagues differentiated social marketing because: 1) it seeks
to change behavior—for instance, ending addiction—rather than sell a product; and 2) the primary
beneficiary of the marketing efforts is society, in general, rather than a corporate shareholder (or the
nonprofit’s revenues).
Social marketing experts argue that its most fundamental principle is to view the target audience as
customers, in order to identify potential barriers to changing their behavior.17 A customer orientation
is seen as a positive focus on the individuals targeted for service by the nonprofit; it is not viewed as a
commercial exchange relationship. However, this universal concept of the customer is not shared by
all nonprofit scholars. Indeed, referring to those served by a nonprofit as customers has evoked quite
heated debate. For example, while those who purchase tickets for a nonprofit symphony’s performance
are readily acknowledged as customers, to identify either college undergraduates or individuals in a
court-ordered substance abuse program as customers instead of students or clients, respectively, significantly alters the perception of the relationship. Students and clients recognize that they will be held
accountable for finishing specified tasks in order to successfully complete the program or course of
Marketing and Branding the Nonprofit Organization 205
study in which they are enrolled; customers expect that paying the required fee is sufficient to ensure
they will receive their desired outcome.
The problem is not simply that nonprofits have a different relationship with those they serve; it is
that there are multiple relationships because nonprofits serve multiple groups. Some correlation can
be drawn with private businesses that also serve the interests of their owner(s) or shareholders, but
nonprofits have more diverse and a greater number of stakeholders to whom they are accountable. For
example, according to Sarah Durham’s18 model of audience-centric communication strategies, a nonprofit should design communication and marketing strategies to inform and influence three specific
audiences: 1) resources, 2) program, and 3) advocacy. Fundraising goals are one of the primary goals
and objectives included in a marketing plan, so the first audience to target involves those with resources
to assist the nonprofit in accomplishing its mission. The second, or program audience, includes current
and potential clients of the programs and services provided by the organization. Policymakers and the
interested public—those members of the general public who are or who are likely to become interested
in the work of the nonprofit—comprise the third audience; this is the advocacy audience and includes
the individuals likely to help the nonprofit achieve its public policy goals through legislative action
and heightened public awareness.
Segmenting the Target Audience. Viewing the nonprofit’s target audience in three parts such as
those identified by Sarah Durham involves segmentation. Through segmentation, those devising a
nonprofit’s marketing plan seek to identify the segments of target publics most likely to respond to the
organization’s offers of services or requests for assistance. Segmentation as a marketing strategy is even
more relevant for a nonprofit that must maximize the use of limited resources; identifying the portion
of a target audience that is most likely to respond favorably allows a nonprofit to tailor its communication efforts in a way that is more cost-efficient as well as effective.
Social media are a prime example of potential venues for segmented communications. Facebook
and Twitter presences flourish among nonprofit organizations, each representing a quicker and more
flexible communication medium than a website alone. However, social media as well as websites and
even basic email require an investment of personnel resources to establish, update, track, and respond
in a timely manner in order to maintain effectiveness as a marketing strategy. In addition, nonprofits
should keep in mind that social media experts indicate that only a small percent of people who “like”
a page ever return to it.19 The point for nonprofits to take from the low incidence of return is that
getting someone to “like” its Facebook page is only a first-step marketing strategy; once “friends”
have been recruited, the organization must tailor its offerings to continually market the work of the
nonprofit to them.
Pew Research Center began tracking social media adoption via survey in 2005, when 5 percent of
American adults reported use of at least one social media platform; by 2011, social media use had risen
to about half of all U.S. adults.20 In 2016, approximately 7 out of every 10 adults (69 percent) reported
use of social media, a level that has remained stable since, according to the 2019 Pew Research Center
survey.21 YouTube and Facebook are not only the most widely used social media (73 percent and 69
percent of U.S. adults, respectively); their users are also the most representative of the U.S. population.
Twitter (22 percent), Pinterest (28 percent), and LinkedIn (28 percent) are the next most popular,
with Instagram being the only social media platform to see an increase in users since 2016, reaching
37 percent of U.S. adults in 2019.22
There are also notable differences in platform use among different age groups. Snapchat, Twitter, and
Instagram are much more popular among 18- to 24-year-olds than other age groups; while YouTube
and Facebook are more popular with those 25 and older, more 18- to 24-year-olds say they have used
Facebook (76 percent) and YouTube (90 percent) than any other social media platform.23 The trends
206 Strategies of Not-for-Profit Organizations
illustrated by the results of the Pew Research Center annual surveys highlight the importance of knowing who the target audience is when designing a social media marketing campaign. The case study in
Exhibit 9.1 demonstrates how social media represent a powerful marketing tool with significant impact
and consequences for the nonprofits that use them.
Exhibit 9.1
Going Global Case Study
Kony 2012, A Cautionary Tale about Social Media
Social media can be a powerful marketing tool, as the young filmmakers and policy advocates of
the nonprofit Invisible Children discovered when their film Kony 2012 went viral and became the
most rapidly distributed video in Internet history at that time. While the nonprofit had utilized
film as its primary marketing tool since its formation in 2005, distribution generally involved
showings on college campuses and in high schools to raise awareness and generate funds. As you
read this case study, consider the impact of the immediacy of the Internet as a means of communicating a nonprofit’s message and the degree to which social media can heighten awareness and
bring pressure to bear on policymakers.
In the late 1980s, Ugandan forces led by Yoweri Museveni overthrew the regime of Tito Okello. When President Museveni sought to impose his rule over the Acholi people, closely aligned
with Okello, Museveni’s government was met by an array of resistance groups. Within a few years,
Museveni’s forces were able to defeat all but the Lord’s Resistance Army (LRA), led by Joseph
Kony. Over the next two decades, the northern Acholi region of Uganda was embroiled in war
with atrocities on both sides. Early in the 2000s, the world became aware of LRA abductions and
use of child soldiers, and in 2005, the International Criminal Court (ICC) issued its first arrest
warrants. Joseph Kony was at the top of the list.24
At about this same time, three young men, Bobby Bailey (21), Laren Poole (19), and Jason
Russell (24) traveled to Africa to make a film; their subject became clear one evening when they
found themselves stuck in the Ugandan city of Gulu where thousands of children came each night
to sleep on the streets, in bus depots and in hospital hallways to avoid being abducted from their
homes by LRA rebels.25 Appalled by a conflict and conditions that were previously unknown to
them, in 2005, they formed the nonprofit Invisible Children (IC), located in San Diego, California, with the following mission: “Invisible Children uses film, creativity, and social action to
end the use of child soldiers in Joseph Kony’s rebel war and restore LRA-affected communities in
Central Africa to peace and prosperity.”26
While never a large group, the LRA has been powerful: it is estimated to have killed tens of
thousands, abducted more than 60,000 children for use as soldiers and wives, and displaced millions of people.27 For these reasons, the LRA has been a popular subject of international NGOs
in addition to Invisible Children, including Resolve and the Enough Project. The strategy used
by IC included road shows to high schools and colleges across the country—more than 14,000
of them,28 at which they screened their films to generate support for the cause. By 2008, the
LRA and Kony were one of the most well-known international issues among students in the
United States.29
Marketing and Branding the Nonprofit Organization 207
Also in 2008, President George W. Bush sent 20 special-operations advisors to the region of
northern Uganda, southern Sudan, the Democratic Republic of Congo, and the Central African
Republic, where LRA forces had spread. In May 2010, President Barack Obama signed the Lord’s
Resistance Army Disarmament and Northern Uganda Recovery Act, and in October 2011, he
announced that he would be sending 100 “combat-equipped troops” to go after Kony.30 After the
bill’s passage, a dozen members of the House of Representatives publicly praised IC for its advocacy on the LRA legislation.31
Shortly thereafter, IC made Internet history with the March 2012 release of a 29-minute film,
Kony 2012. As the film declares, IC’s intent was to make Joseph Kony more famous than George
Clooney: to raise awareness of his crimes and his status at the top of the ICC list of war criminals
as well as to keep pressure on governments, particularly the U.S. government, to help bring Kony
to justice. In the film, IC identified two lists, one of the top 20 culture makers and one of the top
12 policymakers, whom it believed were essential for viewers to contact with the message that U.S.
withdrawal of support for finding Kony would have dire consequences. The film urged viewers to
directly contact these 32 influential people via Facebook, Twitter, or email, to forward the message
to friends and family, and to get involved in making Kony (in)famous in order to bring him to
justice. This effort was to culminate in worldwide “cover the night” activities that would include
posters, T-shirts, wall art, and other ways to convey the message of Kony 2012. Using classic language of policymaking, they noted that there was a “window of opportunity” to find Kony, and
that it would not be open for long.
The use of film and social media had always been a tool in IC’s strategy to advance its
cause. For example, in 2010, IC was the recipient of a Chase [Bank] Community Giving
contest in which it won $1 million by collecting votes on Facebook.32 The Kony 2012 video,
however, was something different; it quickly went viral, receiving more than 100 million
views in less than a week to become the most rapidly distributed Internet video in history.
It is at this point that the controversy began in earnest, which ultimately led IC’s “cover the
night” activities to fizzle.33
Kony 2012 was criticized as: simplistic in that it gives essentially no background into the
history of the Ugandan conflict; odd and manipulative in its scenes of Jason Russell’s fiveyear-old son; bigoted in its suggestion that African problems need Western solutions; and even
harmful to the cause as it risks creating compassion fatigue among a public that cannot sustain
the momentum and effort that it would take to bring change to this complex, war-torn region.34
IC’s finances and management were questioned and unsubstantiated claims of embezzlement
and misuse proliferated.35
Bailey, Poole, and Russell were savvy young USC film school graduates, expert in the use of
social media, and well aware that film on the Internet is there forever. Nonetheless, the exposure
and notoriety of Kony 2012 took an immense toll on Russell, IC’s filmmaker and primary spokesman during the media frenzy that ensued once the video went viral. He was arrested for public
exposure and hospitalized just two weeks after the release of the film; his doctors were unable to
reach consensus on a definitive diagnosis, but the event was described as “a schizophrenic manic
episode brought on by post-traumatic stress.”36 In interviews two years later, Russell described the
toll the instant fame and accompanying criticism took on his mental health. In the years of their
traveling road show, the founders built the organizational infrastructure for IC and a network of
partners on the ground in Africa; they planned for the policy effects of increased awareness from
208 Strategies of Not-for-Profit Organizations
social media. They were not prepared for the proliferation of misinformation and the vitriolic
criticism it bred.37
In the midst of the response when the video went viral, IC’s one PR person—a volunteer—estimated a consistent flow of no fewer than 4,000 email messages in her inbox; at any
given moment, the website had 37,000 unique users. There were hundreds of thousands of
dollars of orders through the online shop for the Kony 2012 action kits, which included a red
Kony 2012 T-shirt; they had the functional capacity to fill approximately 100 orders a day of
the hundreds of thousands of orders they received. They reached the difficult decision to shut
down the shop; “[w]e sourced every single red t-shirt in the entire U.S. There were no more
to buy.”38
The website crashed; the phone system crashed. IC’s chief operating officer at the time said the
organization’s Tumblr site was its only means of communicating:
. . . so all the stuff about our financials, our five years of audited accounts, the detail of our programmes,
the 11 schools we have built, the thousands of scholarships we have paid for, the early warning radio system
we have built, none of that was up there.39
Into the information vacuum rose a maelstrom of criticism and allegations of financial impropriety
that the organization had the evidence to dispel, but no means to disseminate it.40
To counter its critics, IC presented a follow-up video one month after the original to clarify its
mission and goals. It should also be noted that Charity Navigator gave the organization four out
of four stars and stated that approximately 80 percent of expenses were for programs and services.41
The chief prosecutor for the International Criminal Court announced his support and appreciation for the work of IC shortly after the first film went viral.42 Further, if making Kony widely
known was its goal, IC surely succeeded.43 Among the figures from popular culture who tweeted
about the film were Taylor Swift, Oprah Winfrey, Justin Beiber, and Alec Baldwin.44 Finally, there
is no question that Kony is a warlord who cut a path of kidnap, rape, torture, and murder across
Central Africa for more than two decades.
In the end, the “cover the night” activities, set for April 20, 2012, did not result in the desired
blanketing of the landscape with the Kony 2012 message. It may be that the criticism of the Kony
2012 campaign was too much to maintain momentum among supporters. Conversely, it could be
that this type of Internet “click-and-send-your-money approach”—called “clicktivism” or “slacktivism” by detractors—was simply too passive to result in take-to-the-streets style mass activism.45
IC was definitely caught off-guard by the intense interest and subsequent criticism of its tactics
and message.
In the realm of international problems, there is no single policymaking body. Indeed, the United States has not even ratified the statute of the International Criminal Court, so Kony’s status as
an indicted war criminal there may carry little weight. Still, advocacy pressure from IC and others
affected the passage of the Lord’s Resistance Army Disarmament and Northern Uganda Recovery
Act and placement of 100 troops in the region to help the Ugandan Army find Joseph Kony.
Shortly after the release of the first video, the African Union offered to send 5,000 troops to assist
in the efforts.46 While Kony remains at large, as of 2014, three of five senior LRA commanders
indicted by the International Criminal Court had been removed from the battlefield, improving
safety in LRA-affected communities.47
Marketing and Branding the Nonprofit Organization 209
While the harsh critics were far-removed from the affected areas, those with on-the-ground
knowledge of Invisible Children expressed appreciation for what the organization has accomplished. Anneke Van Woudenberg from Human Rights Watch said the IC video:
. . . massively, massively raised awareness of Kony…awareness is step one in pushing for policy change. We
found so much more interest from a whole range of policymakers . . . the criticism of the video, which was
so scathing and vitriolic and which focused on Invisible Children, has just completely missed the point.
Kony is still out there but the implementation of UN strategy is the thing that will make a difference. And
it achieved that.48
Regardless of the outcome or the wisdom of using the Kony 2012 film as its medium, Invisible
Children will forever hold a place in nonprofit history as an amazing use of social media to market
a nonprofit’s mission. Despite reports of its impending demise,49 Invisible Children remains an
active force in the region, spending almost 83 percent of its $4.4 million budget on programs in
2018.50 The nonprofit was restructured in 2015, moving away from its 11-year focus on advocacy
and awareness to a deeper commitment to programming in the Central African Republic, the
Democratic Republic of Congo, and South Sudan.51
The story of Kony 2012 is, of course, a cautionary tale for nonprofit organizations. They
must be ready for marketing efforts that are too successful as well as prepare for criticism of their
efforts. The old adage “all press is good press” is certainly not true for organizations in the nonprofit sector.
1. What motivated the heavy use of social media and the release of Kony 2012 by Invisible
2. In a survey just two weeks after the release of Kony 2012, the Pew Research Foundation found that those in the 18–29 age group were twice as likely to have heard “a lot”
about the video and nearly twice as likely to have watched it. What might nonprofit
organizations take from those findings?38
3. Consider the mission of Invisible Children. Does its mission have any bearing on the
use of social media, and in particular, the Kony 2012 film? Why or why not?
4. Consider the four relationships described in the Nonprofit-Policy Framework (make
policy, influence policy, affected by policy, subject to policy) and discuss in which way(s)
Invisible Children has interacted with public policy. How does its status as an NGO
affect those interactions?
5. In what way(s) is Invisible Children and Kony 2012 a unique example of a nonprofit
organization? What does this case suggest about successful use of social media by nonprofits?
210 Strategies of Not-for-Profit Organizations
The main point in this regard is to know your multiple audiences; if your organization has the
resources, engage in market research to determine the different target segments of your audience
and discover how each prefers to be contacted. At a minimum, once you have engaged a client,
donor, or volunteer, ask how he or she prefers to receive information about the nonprofit and
how frequently. Tailoring communications has long-term benefits in addition to cost savings:
clients, donors, and volunteers feel more valued and are more likely to remain engaged with the
As you can see, nonprofits need to direct their communications to meet the different information
needs of each segment of their target audience. Consider again the hypothetical case of Pets Rescue.
In order to market the programs of the new nonprofit, the leadership needs to develop “audience-centric” communication strategies. Durham suggested that “instead of telling [your audiences] why your
organization is so great, start by understanding who they are and how they’ll benefit from supporting
your work.”52 For example, Pets Rescue diverts homeless pets from the county animal control facility
and works with local veterinarians to provide health care, including spay and neuter services; the
organization also needs to recruit foster families to care for the homeless pets until they are adopted.
In order to facilitate the needed collaboration with private and public sector entities, Pets Rescue’s
marketing efforts should include information about how the proposed partnership would benefit
each through the potential for increased consumer traffic at the businesses and lower fees for the
county government for pet care and animal control. It is also important for the nonprofit to ensure
that its efforts comply with local ordinances and other policies, that it will not pose an additional
burden on either the county or pet care providers, and if it will, for the organization to delineate
how it will mitigate the negative effects.
In the case of those for whom nonprofit organizations seek to provide services, communication strategies may also need to address individuals who do not want or may even actively resist receiving services.
Convincing an alcoholic in denial to accept treatment requires a different approach than informing
homebound seniors about the new meals-on-wheels program, for example. As has been highlighted
throughout this book, nonprofit service-delivery is imbued with policy implications. Accordingly, the
marketing plan should also incorporate ways to meet the information needs of policymakers and to
heighten public awareness not only of the needs being met but the overall importance of the public
problems and issues involved.
Consider the case of the American Cancer Society (see Exhibit 9.2). While it cast the widest possible
net with its tagline “The Official Sponsor of Birthdays,” they also targeted their information and varied
appeals to address different audiences. All nonprofits have multiple target publics and stakeholders who
seek different types of information and respond in different ways to their missions and means of pursuing
them. Therefore, through marketing, nonprofits seek to differentiate themselves with stakeholders in
order to increase their likelihood of success.
Marketing and Branding the Nonprofit Organization 211
Exhibit 9.2
For Example
American Cancer Society: Marketing More Birthdays
In 1913, the American Society for the Control of Cancer (ASCC) was established and was subsequently reorganized in 1945 to form the American Cancer Society (the Society). Since 1946, the
society has provided more than $4.8 billion for cancer research, making it the largest investor in
cancer research in the United States outside of government.53 Founded by a small but committed
group of physicians and business leaders who sought to end the social stigma attached to a cancer
diagnosis, this nonprofit has continued to raise public awareness and dispel myths regarding the
disease as well as advance research toward its prevention and cure. In the United States alone, approximately 17 million people are cancer survivors;54 the American Cancer Society is a significant
contributor to the progress made in enhancing the survival rate, progress that creates about 500
birthdays each day for cancer survivors.55
The familiar white Sword of Hope logo—a sword to represent a crusading spirit with the
handle formed by caduceus, the twin-serpent representing science and medicine—was chosen in
1928 through a nationwide poster contest. In April 2009, the society launched a brand campaign,
“Official Sponsor of Birthdays,” with the trademarked slogan situated adjacent to the iconic logo.
Based on the fact that birthdays are something everyone has in common, the society sought to engage its target audiences through a common theme of the importance of celebrating another year.
More than 50 music artists including Justin Bieber, Celine Dion, Rihanna, Darius Rucker, and the
Village People recorded music videos of the song Happy Birthday, some of which were used in the
national ad campaign and all of which were available as downloads with a donation to the society
through the website While no longer an active campaign, the morebirthdays
website redirects to the American Cancer Society webpage, continuing the connection to previous
marketing efforts.
In addition to the Official Sponsor of Birthdays tagline, the society wove the “more birthdays” theme throughout its website, in press release materials, and throughout discussion of its
mission-based program activities—for example, stating that they “save lives by…fighting back
through public policy.” In cooperation with its nonpartisan advocacy affiliate the American Cancer
Society Cancer Action Network, the Society highlighted its advocacy for public policies with the
campaign tagline to “create a world with less cancer and more birthdays.”56
The More Birthdays campaign provides an excellent example of nonprofit use of a vast array of
marketing techniques. Through their familiar logo enhanced with a special campaign logo, repeated references to being the “Official Sponsor of Birthdays,” consistent application of logo, tagline,
and color scheme in both the web and print media, use of celebrity sponsors with diverse appeal,
and audience segmentation, the society created and executed a successful marketing campaign.
For additional information, see
Differentiating the Nonprofit through Positioning
A mission statement allows a nonprofit to frame the issues with which it is involved and suggest
solutions to address public problems. For example, the American Cancer Society’s mission is “to save
212 Strategies of Not-for-Profit Organizations
lives, celebrate lives, and lead the fight for a world without cancer.”57 This succinct statement frames
its issue involvement as “attacking cancer from every angle”—by supporting research and prevention,
providing services to those with the disease, and raising awareness to advance public policy related to
cancer. Communicating the issue frames and proposed solutions is one of the key elements of nonprofit marketing, and its primary purpose is to express how the nonprofit is unique from other organizations in its approach. Referred to as differentiation, it is the process through which an organization
identifies how it is different from others and why it warrants the resources needed to accomplish its
goals. Organizations target their communications to relevant stakeholders and accomplish differentiation through a process called positioning, designed to enhance the brand strength and brand equity
of the organization.
Positioning through the Marketing Mix. In the language of marketing, organizations differentiate
themselves through positioning, which basically involves influencing how stakeholders perceive the
reputation of one nonprofit relative to others. Nonprofits achieve a desired position by devising a marketing plan that includes a mix of the 4 Ps also used in commercial sector marketing: product, place,
price, and promotion. For nonprofits, product refers to the goods or services offered in pursuit of its
mission or the behavior change it wishes to facilitate; in the case of Pets Rescue, the product would be
reducing the number of homeless pets via adoption rather than euthanasia. Place refers to the service
area of the organization, and price relates to the value of the programming offered (even when no fee is
charged). Promotion is how the nonprofit communicates its purpose, activities, and accomplishments.
Each of the 4 Ps represents an opportunity to set the organization apart from others. For example,
the local YMCA could market its fitness facility and programs as having greater value to potential
clients when compared to a for-profit gym because the fees are significantly lower, but the quality of
equipment and classes is comparable. Even nonprofits that usually do not face direct competition in
providing services—such as a halfway house for released offenders—do compete with a pool of other
nonprofits seeking funds from similar sources. Likewise, the halfway house can market itself as having
greater value to potential donors than other social service nonprofits because of the number of clients
served and outcomes achieved. By providing information on how the community as a whole is improved
by the work it does—that is, through promotion, the nonprofit sets itself apart from other nonprofits
competing for the same pool of resources.
Promotion is defined as comprising the methods by which a nonprofit communicates with its target
audiences, and:
. . . promotion refers to any activity of an organization that intends to inform, persuade, or remind its
target publics about the organization or its offers, when and where they are or will be available, and other
pertinent information the target market may need in order to change its feelings, beliefs, or behavior.58
Communication strategies identified as useful in promoting nonprofits include public service announcements (PSAs), paid advertising, and publicity/public relations. For example, following the
devastating earthquake in Haiti in 2010, former presidents Bill Clinton and George W. Bush were
featured in radio and television PSAs produced by the Ad Council ( in which they
asked viewers and listeners to donate to the Clinton Bush Haiti Fund. While public service announcements are more readily associated with the work of nonprofits than paid advertising, the television
commercials run by the American Cancer Society (see Exhibit 9.2), as well as the Salvation Army ads
that run around the holidays, are notable examples of paid advertising by nonprofits. With regard to
positioning through publicity and public relations, a common tactic is to engage a celebrity spokesperson; the relationship between celebrity and charity is explored further in 9.3.
Marketing and Branding the Nonprofit Organization 213
Exhibit 9.3
For Example
The Celebrity Spokesperson:
Promoting a Charitable Cause
On September 4, 2011—for the first time since 1966 when he began the show to raise funds for
the Muscular Dystrophy Association (MDA)—Jerry Lewis did not host the annual Labor Day
telethon. He was abruptly dropped as host and dismissed as the national spokesman for MDA in
early August 2011, despite an almost 60-year tenure with the nonprofit. In the 45 years that Mr.
Lewis served as host, the telethons raised approximately $2.5 billion dollars. Neither MDA nor
Mr. Lewis commented on why the decision was made with such short notice.59 For those who grew
up watching what was a major television event and who made first forays into philanthropy with
a donation for “Jerry’s Kids,” it was the end of an era. For those who saw the telethon as a fundraising relic and the image of “Jerry’s Kids” as out-of-touch with the reality of life with muscular
dystrophy, it was a new beginning for the national nonprofit.
Nonprofits frequently seek affiliation with a celebrity spokesperson to increase attention to their
organization, its mission, and policy efforts. U2 lead singer Bono, for example, has built a solid reputation for charitable activism for the people of Africa, particularly those suffering from HIV/AIDS.
In 2002, he co-founded the nonprofit DATA—an acronym for debt, AIDS, trade, Africa—to raise
public awareness and influence public policy on those issues. He has been an effective advocate,
meeting with U.S. Presidents and members of Congress, as well as other world leaders, and calling
attention through his celebrity to crises affecting the continent (see, e.g., his December 9, 2005, interview on PBS’s Frontline at
Likewise, the late Paul Newman set the charitable gold standard for nonprofit commercial ventures, primarily by using his name and likeness on specialty food products sold to benefit his Newman’s Own Foundation. Since 1982, the foundation has given more than $550 million60 to thousands of charities, through grants to support projects worldwide, including funds to support children
with serious health concerns and to facilitate solutions to issues of hunger and poor nutrition as well
as for his Hole in the Wall camps for seriously ill children (
Because, by definition, celebrities are accorded attention wherever they go and whatever they
do, nonprofits seek their affiliation and support to share in that limelight. Relationships between
celebrities and charities, however, run the gamut between successful and less-than-stellar. Finding
the right match between the mission and policy priorities of a nonprofit and the interests and
reputation of the celebrity is key to a mutually beneficial relationship.
For additional information on the generally positive effects of celebrity charity work and how
to promote a good relationship between a nonprofit and its celebrity benefactor, see the article by
Mark Harris entitled “How to Train Your Celebrity: Five Hollywood Charity Myths.”61.
Developing the Nonprofit’s Brand Identity
The overall goal of the marketing plan is to establish a brand for the organization. A brand is “the
collection of perceptions in the minds of [a nonprofit’s] target publics that is based on how they value and relate to the organization’s mission, offers, and reputation.”62 No longer the sole purview of
214 Strategies of Not-for-Profit Organizations
commercial products such as Coca-Cola or Kleenex, many nonprofits such as the Red Cross and the
American Cancer Society are now considered to be nationally recognized brands.
Brands are considered “important vehicles for differentiating among services, people, ideas, and
organizations.”63 Because of the mental connection with cattle ranching, brands are often thought of
as logos or symbols that represent a product or organization (e.g., the curved Coke bottle or Mickey
Mouse’s ears). While these elements are important, branding also includes names, taglines (or slogans),
and color schemes as well as typeface and fonts used in printing.64 Table 9.1 lists the taglines of several
of the nonprofits highlighted throughout this book, along with their website addresses, to facilitate
examination of their logos and color schemes. These symbolic elements are designed and intended to
evoke a positive emotional response to the organization and its mission.
It has been empirically demonstrated that individuals exhibit an emotional response to nonprofits and
their work by ascribing to them human traits and characteristics. This is conceptualized by marketers
as a brand personality, sometimes referred to as brand image.65 Brand personality may be particularly
relevant with regard to soliciting contributions because donors tend to react more favorably to brands
that reflect their own values—whether their actual values, or those to which they aspire.66 Stakeholders
ascribe personality traits to nonprofits along four primary dimensions—integrity, sophistication,
ruggedness, and nurturance. Charity brand personalities differ from commercial brands in that most
traits attributed to nonprofits are not unique to one organization, but are likewise shared with similar
charities. Differentiation thus becomes more challenging as nonprofit brands must maximize their
distinctiveness as well as overcome traits that were not deliberately developed by their organization.
Table 9.1
Examples of Nonprofit Slogans/Taglines
Nonprofit Slogan/Tagline Website
Alliance for Justice Fighting for a Fair America
American Humane First to Serve
ASPCA We Are Their Voice
Bill & Melinda Gates Foundation All Lives Have Equal Value
Blue Ridge Conservancy Saving the Places You Love
Carnegie Corporation of NY “To do real and permanent good in this
Columbus Association for the
Performing Arts Living, breathing art.
Foundation Center by Candid Candid gets you the information you
need to do good.
March of Dimes leads the fight for the health of all moms
and babies
National Children’s Alliance Empowering local communities to serve
child victims of abuse
National Police Foundation Advancing Policing Through Innovation
and Science
Sierra Club Explore, Enjoy, and Protect the Planet
Zócalo Public Square Connecting People to Ideas and to
Each Other
Marketing and Branding the Nonprofit Organization 215
Framing. As stated earlier, brands are generally associated with symbols and logos but encompass
much more. When considered as a collection of perceptions that affect how an individual responds
to an organization’s mission, branding embodies what public policy scholars refer to as issue framing.
Consider again the example of local gun control policies in California discussed in Chapter 4, in which
proponents sought to reframe the issue of gun violence as a public health rather than criminal justice
issue. While changing the predominant school of thought on an issue or public problem is difficult,
it is obviously not impossible in view of the many examples discussed throughout this book. Framing
is generally not sufficient to cause individuals to change what they believe, but it can change how and
what they think about in response to issue frames.67 Issue frames are embedded in a marketing plan and
are important for nonprofits, not only to promote their respective organization, but also to highlight
the predominance of how it perceives public problems and solutions relevant to its work.
The Impact of Brand Strength and Equity. The relevance of a brand to a nonprofit’s target audiences
and the extent to which it serves to differentiate the organization and its services from its counterparts
is termed brand strength. Brand equity refers to the value-added aspect of marketing activities—that
is, the extent to which certain marketing strategies increase the brand relative to similar nonprofits
and their services. In measuring brand equity, several marketing research models use dimensions such
as loyalty, esteem, quality, and relevance.68 Respondents to a 2005 survey by the American Marketing
Association identified the following three characteristics as the most important when deciding whether
or not to give to a charity: 1) “Trust in the Organization,” 2) “Personal Belief in the Organization’s
Goals,” and 3) “Reputation of the Organization.”69 Each of the three is generally considered to be an
attribute of a brand.
As a theoretical construct, brand equity as the value-added dimension of marketing is relatively
easy to grasp. In practice, measuring a nonprofit’s brand equity is quite difficult, usually because the
intangible elements such as perceptions and feelings about public problems and nonprofit missions
defy consistent quantification. Many nonprofits address this by establishing marketing benchmarks,
which involve identifying similar organizations and tracking relative changes in their marketing
activities and stakeholders’ responses over time.70 Colleges and universities routinely engage in
benchmarking on issues such as faculty salaries, student retention, and alumni services; tracking the
marketing strategies of similar institutions assists the organization in staying current and competitive
in their service delivery venues.
It is important for nonprofits to be aware of their position in the sector relative to other nonprofits
as well as their position relative to for-profit and public sector entities. As the lines continue to blur
between the three sectors, and with the recent rapid growth in the number of nonprofits, branding
becomes increasingly important for charities competing for volunteers, limited funding, and the attention of policymakers. An increasingly common tactic is for nonprofit and for-profit organizations
to seek to differentiate themselves through cooperative ventures, generally referred to as corporate social
responsibility (CSR).
Corporate Social Responsibility as a Source of Nonprofit Support
Just as nonprofits and governments enjoy mutually beneficial relationships in the provision of public
goods and services, nonprofits and for-profit businesses have incentives to form alliances in the public
interest. Corporate social responsibility (CSR) refers to the response by for-profit corporations to the
growing opinion among consumers that business has an obligation to contribute to the social good.
Historically, a few forward-thinking businesses engaged in CSR, but usually through basic philanthropy rather than as a form of marketing. As many economists and management scholars argue,
the primary duty of corporations is to their shareholders, which requires the maximization of profits;
216 Strategies of Not-for-Profit Organizations
altruism is not a sufficient reason for business to assist public charities.71 With growing awareness by
companies that they are likely to reap bottom-line benefits from social responsibility initiatives, more
are now engaging in activities related to CSR—and the nonprofits involved with those initiatives
benefit as well.
Corporate social responsibility embodies various forms of brand alliances between for-profit and
not-for-profit organizations, including corporate sponsorship of events such as food drives at concerts to benefit local food pantries, licensing and endorsement of products by nonprofits as well as
donations to foundations from the proceeds of sales. Walk down an aisle of your local grocery store
or check your pantry, and you are likely to find at least one product that reflects a CSR endeavor.
A box of Cheerios is a good example. It has the ubiquitous Box Tops for Education coupon that
adorns many products and can be exchanged for funding for elementary schools; the program has
generated more than $913 million in total school earnings since 1996.72 The box also includes the
heart checkmark logo that indicates the product is certified as a heart-healthy food by the American
Heart Association (; a product must meet strict nutrition requirements
to achieve certification.73
Nonprofit Fundraising Events and Corporate Sponsorship
It is unlikely an overstatement to assert that everyone reading this has participated or sponsored a
participant in a walk, ride, bike, swim, drive, or golf event for a charitable organization; every one of
those events likely involved multiple corporate or business sponsors. Charity event sponsorship, in
which a for-profit organization contributes money, volunteers, and/or in-kind donations such as food
or T-shirts, is mutually beneficial for the nonprofit and its corporate sponsors. The nonprofit is able to
host an event with few overhead costs and gains donors, volunteers, and publicity for its cause, while
the for-profit organization increases its visibility, attracting good press, new customers, and conveying
a sense of community involvement.
Ted Gup, former chair of the journalism department at Emerson College, noted:
Those who oversee such fund-raising spectacles argue that there is more to these events than meets the eyes—
mine included. These walks and runs are incubators for future volunteers and donors. They constitute a
public proclamation that others matter. They make the invisible visible. More to the point, it is easier to
get relatives, friends and colleagues to open their pocketbooks than it is to win over the largess of strangers. . . . In
the end, getting others to give is as much art as science, and if traversing great distances is what it takes to
discover that charity begins at home, then so be it. These events have become so deeply rooted in our cities
and culture that their eccentricities and irrationalities escape our notice, lost in the blur of matching T-shirts,
sponsors’ logos and banners.74
As Gup so aptly put it, and as is discussed further in Chapter 10, these types of special events defy
logic as fundraisers; the corporate sponsorship of such events is usually the critical factor in ensuring
the endeavor generates revenue in excess of the expenses required to stage it.75 What these events are
most successful at accomplishing is a sense of community and shared experience; they allow nonprofits
to enhance civic engagement while raising a little revenue and hopefully signing up a few volunteers.
The reason these events are attractive to sponsors is because just as it is easier to get friends to open
their pocketbooks to donate to charity; it is likewise easier to get “friends”—acquired through shared
service to a nonprofit—to open their pocketbooks to buy your products. As such, event sponsorship
is a mutually beneficial relationship for nonprofits and their corporate partners. These relationships
Marketing and Branding the Nonprofit Organization 217
are often long-term in nature, allowing the nonprofit a steady source of funding to host annual events,
and both share in the benefits of marketing the event to participants, volunteers, donors, and the media. Importantly, the community benefits through greater awareness of the public problems addressed
by the nonprofit as well as more resources to resolve them.
Benefits and Risks of Product Endorsements and Licensing Agreements
By endorsing a product or service, a nonprofit organization extends its brand to the for-profit entity
that produces it. In the case of the American Heart Association, allowing a company to use its heart
checkmark logo with the tagline “Certified by the American Heart Association” extends the positive
image and reputation of the nonprofit to the product. Therefore, if the American Heart Association certifies Cheerios, they must be good for your heart. Likewise, the Arthritis Foundation endorses products
through its Ease of Use Commendation program. After passing rigorous testing, products that pass are
deemed user-friendly for people who suffer from arthritis; the company can then market the product as
commended by the Arthritis Foundation.76 Endorsement of a product by a nonprofit is a statement to
consumers that the organization has tested the product and approves its use as being relevant to accomplishing the mission of the nonprofit. Cheerios help promote heart health, which is part of the mission
of the American Heart Association; thus, the nonprofit endorses consumption of the cereal.
While these are examples of explicit endorsements of a product by a nonprofit that are intended to
imply a seal of approval, some CSR initiatives stop short of a nonprofit endorsing a company’s product.
Licensing agreements, for example, allow a business to use a nonprofit’s logo in marketing a product
but there is no endorsement of the product by the nonprofit. For example, Sesame Workshop, the
producer of Sesame Street has a licensing agreement with Earth’s Best Organic Foods, which is a sponsor of the television show and uses the Sesame Street characters on its packaging and in promotional
materials. Sesame Workshop uses the proceeds from the licensing agreement to fund production of the
show and other children’s activities around the world. Licensing agreements are a mutually beneficial
arrangement; the nonprofit receives revenues from the sales of the products, and the for-profit likely
generates more sales as consumers are motivated to purchase by the opportunity to assist a nonprofit.
However, there is growing concern among researchers that consumers are likely to infer that every
CSR initiative constitutes more than a simple charitable donation. The American Cancer Society, for
example, has within its policies regarding CSR that it does not endorse the products or services of its
corporate partners. In 1996, after the FDA approved nicotine replacement therapies to help people quit
smoking, the American Cancer Society entered into a licensing agreement with SmithKlineBeecham
that allowed its logo to be used in advertising for Nicoderm patches and Nicorette gum. Two years
later, the attorneys general of 12 states entered into a settlement agreement with SmithKlineBeecham
regarding allegations of misleading advertising. The attorneys general contended that the use of the
American Cancer Society logo in advertising for the smoking cessation products implied endorsement
of those products by the nonprofit, especially when used in ads comparing the products to those of a
competitor. The American Cancer Society cooperated fully with the investigation, and subsequently,
altered its CSR policies to provide even greater protection from the inappropriate use of its logo.77
Subsequent research by Bower and Grau suggested that the attorneys general in the SmithKlineBeecham case were right: CSR initiatives are likely to generate a perception among consumers of an
endorsement by the nonprofit of the company’s product. Consumers tend to interpret a licensing
agreement or cause-related marketing campaign as a seal of approval by the nonprofit, inferring that
the products have been tested and found worthy to support the goals of the nonprofit. Absent an
explicit statement of monetary contribution, consumers are more likely to view CSR initiatives as
endorsements rather than funding relationships. This is particularly important for nonprofits because
218 Strategies of Not-for-Profit Organizations
they can suffer negative consequences from implied endorsements; they could be held legally liable
for misleading claims—or consumer fraud—and at a minimum, would suffer loss of reputation and
diminished brand image, which would certainly hinder their ability to provide public services and
effectively advocate for policy changes.
In addition, CSR efforts are sometimes criticized as “greenwashing,” which describes corporate efforts to
clean their image by using tactics, including nonprofit endorsements or sponsorship, and to appear more
environmentally conscious, or “green” than they are in reality.78 More specifically, CSR related to breast
cancer nonprofits, such as Ford Motor Company’s Warriors in Pink, have been decried as “pinkwashing.”
Since Ford’s cars and production process are sources of known carcinogens, critics are skeptical that their
support of breast cancer causes is enough to offset the health damage of Ford’s products.79
Cause-Related Marketing
The mutually beneficial relationship of cause-related marketing entails an appeal to consumers to
purchase a particular product in order to prompt a donation from the manufacturer of the product
to the nonprofit organization. American Express is widely credited with initiating the practice with
its support of the restoration of the Statue of Liberty in 1983.80 In terms of strength and numbers of
corporate partners, Susan G. Komen (formerly Susan G. Komen for the Cure) is the leading pioneer
of cause-related marketing. Exhibit 9.4 illustrates its success and commitment to this approach to
generating resources for breast cancer research, treatment, and prevention.
Exhibit 9.4
For Example
Susan G. Komen for the Cure:
Pioneering Cause-Related Marketing
Nancy Brinker established the Susan G. Komen Foundation (now Susan G. Komen) in 1982 in
order to fulfill a promise she made to her sister Suzy who was dying from breast cancer to do all in
her power to end breast cancer forever. Brinker is now recognized as an influential and knowledgeable member of the cancer community. Since 1982, Komen has invested more than $2.2 billion in
research, education, and community programs to prevent, treat, and ultimately, cure breast cancer.81
Not only a pioneer in the cause-related marketing movement, Susan G. Komen has demonstrated how successful nonprofit-corporate partnerships can be with regard to raising money and
awareness for a cause. The Komen pink ribbon logo has become ubiquitous on products ranging
from yogurt to potted dahlias, and consumers know that their purchase will result in a donation by
the corporate partner to the fight against breast cancer. Komen has recruited more than 150 partners—30 of which have given at least $1 million to the cause. In addition, the Susan G. Komen
series of 1K/5K walks and runs, first held in Dallas in 1983 as the Komen Race for the Cure, now
has more than 1 million participants each year. Among the most successful run/walk events for
charity in the United States, Susan G. Komen relies on national event sponsorship from companies such as American Airlines, Bank of America, and Ford Motor Company. Komen’s marketing
success is demonstrated through widespread recognition of its brand, the ever-present pink ribbon,
and the more than $2 billion it has raised in its 30 years.
Additional information can be found at
Marketing and Branding the Nonprofit Organization 219
Engage for Good (formerly Cause Marketing Forum) reports that, in 1990, spending for cause-related marketing was $120 million; cause-related sponsorship is expected to reach $2.23 billion in
spending in 2019.82 CRM has been found to benefit corporations in a number of ways. For example, it has been shown to assist companies to “do well by doing good,”83 may assist in attracting
and retaining employees,84 and generally results in positive outcomes for relevant stakeholders.85
However, not all companies or nonprofits are well-suited to each other or even to engaging in
Runté, Basil, and Deshpande in their qualitative analysis of CRM from a nonprofit’s perspective
identified a series of goals that nonprofits expect to achieve through partnerships with business entities.
Through empirical testing of these goals, the authors differentiate between first-order benefits—those
primarily related to obtaining operational resources—and second-order benefits—those that provide
recognition and nonfinancial advantage to the organization. They conclude that through CRM, nonprofits primarily hope to obtain:
. . . event support as well as opportunities for networking and increasing public awareness. . . . Seeking other
funding from the business and seeking public donations are moderately important. Using the business as a
resource does not appear to be a strong goal or outcome of the CRM alliance.86
The authors also stress that while CRM may be a desired strategy, it may not be a realistic one for some
organizations. Nonprofits with negative or controversial public images may not be able to attract corporate partners; likewise, corporations that produce and market controversial products, or that have
been embroiled in a scandal, may find it more difficult to attract nonprofits willing to accept a brand
Empirical studies of CRM indicate that structural issues such as how the cause-related marketing
campaign is framed are important to the success of these partnerships. In general, promotions are
perceived more favorably by consumers if they involve specification by the corporate sponsor of the
dollar amount to be donated, both per purchase and in total if the donation is capped. Consumers are also more likely to purchase a cause-related product if it is considered a frivolous or luxury
good; this is most likely because the associated charitable donation eases the guilt associated with
the purchase.88 For the most part, consumers view CRM efforts in a positive light; however, companies must be careful when using CRM as part of their overall corporate social responsibility efforts.
Providing details about the campaign—what is expected of the customer, what will be donated to
the nonprofit, and the overall contributions made once the campaign is complete—has been shown
to increase consumer confidence. However, too much marketing of the effort may serve to spotlight
the company’s gain from the venture and lessen consumer affinity for the nonprofit organization
receiving benefits.89
Marketing is not something that nonprofits can ignore, except at their own peril. Besides, whether
they use the term or not, all nonprofits engage in marketing, even if it is not formally structured as a
campaign. Any time the Executive Director writes a grant proposal or a member of the board solicits
a donation, information is communicated about the organization in an effort to enhance its image.
Research is increasingly demonstrating that nonprofits can benefit from marketing in many ways other
220 Strategies of Not-for-Profit Organizations
than increased financial resources, and getting started with a marketing plan is not the daunting task
it may appear to be.
Once the organization has articulated its mission, goals, and objectives, putting together a marketing
plan is the next step to help focus efforts on achieving them. It is important to identify the nonprofit’s
target audiences and determine their preferred means of receiving communication from the organization. Nonprofits should also develop strategies to provide relevant information that appeals to potential
clients, donors, volunteers, and policymakers.
Establishing a unique position relative to other nonprofits, whether in the same field or the
same geographic area, allows the organization to facilitate a positive brand image. One way to
differentiate the organization and share positive brand attributes is through corporate social responsibility, which has been shown to enhance a company’s image but also raises awareness and
increases financial and human resources for the nonprofit. It is important that the nonprofit
choose its business partners carefully; CSR initiatives with closely-related partners may increase
the likelihood of implied endorsements when the nonprofit allows the use of its name and logo
through licensing agreements.
Finally, cause-related marketing represents the most common CSR initiative and probably the most
lucrative. This represents another blurring of the lines between the nonprofit and for-profit sectors,
with associated policy implications. Corporate sponsorship has the potential to provide great benefit
to the nonprofit’s pursuit of mission by expanding the resources available for service delivery. However,
corporate partnerships can also be detrimental to the pursuit of mission by causing the nonprofit to
commit attention and resources away from its primary goals. Corporate alliances through funding are
discussed further in Chapter 10.
Questions for Review
1. Identify the likely target audiences for the hypothetical nonprofit Pets Rescue, introduced
in the opening vignette. Discuss strategies the organization could employ to successfully
market its new program to the different audiences. What challenges is it likely to face?
2. Compare and contrast the terms differentiation, positioning, and segmentation, and discuss
how each relates to the marketing efforts of the American Cancer Society.
3. Discuss the benefits of cause-related marketing for both the business and the nonprofit.
What challenges are faced by each?
4. In what ways do the marketing efforts of nonprofits incorporate and facilitate their public
policy priorities and advocacy efforts?
For each of the five issue areas listed, name the first nonprofit organization that comes to mind:
1. disaster relief
2. animal welfare and rescue
3. the visual arts
4. needs of the homeless
5. literacy promotion
Marketing and Branding the Nonprofit Organization 221
Think about the reasons why you chose each and make a list of five adjectives to describe each nonprofit. (If you have difficulty, try thinking in terms of “If this nonprofit were a person, how would I
describe him or her.”) If you cannot name a nonprofit for one or more of the categories, think about
why—did several come to mind, but one does not stand out, or are you simply unfamiliar with the
issue area(s). In either event, conduct a search of the Web to select a relevant nonprofit to complete
your list of five.
Once you have the list of five nonprofits with associated adjectives, describe the relative strength of
each nonprofit’s brand with regard to other major nonprofits in that issue area. For the one with the
weakest brand, what marketing tools or techniques would you recommend for the nonprofit to employ
to better position itself through differentiation?
As an alternative assignment, name five local nonprofits that operate in different issue/service
areas from one another. Identify five adjectives to describe each of them, and assess the strength of
each one’s brand within the local community. Because local nonprofits tend to compete with
disparate nonprofits, rather than those within the same issue area, for local resources—corporate
giving, volunteers, and so on—what particular challenges do these organizations face in differentiating themselves? For the nonprofit with the greatest challenges, what marketing tools and
techniques would you recommend for the nonprofit to employ to better position itself through
Suggested Readings
Burnett, John J. (2007). Nonprofit Marketing Best Practices. Hoboken, NJ: John Wiley & Sons.
Durham, Sarah. (2009). Brandraising: How Nonprofits Raise Visibility and Money Through Smart
Communications. San Francisco, CA: Jossey-Bass.
Kotler, Philip, and Lee, Nancy. (2015). Social Marketing: Changing Behaviors for Good (5th ed.).
Thousand Oaks, CA: SAGE Publications.
Kotler, Philip, and Levy, Sidney J. (1969). “Broadening the Concept of Marketing.” Journal of
Marketing, 39, pp. 10–15.
Miller, Kivi Leroux. (2010). The Nonprofit Marketing Guide: High-Impact, Low-Cost Ways to
Build Support for Your Good Cause. San Francisco, CA: Jossey-Bass.
Trull, Hannah. (2018, December 17). The Best Nonprofit Media Campaigns of 2018.
Web Resources
Beth’s Blog,
Engage for Good,
Cone Communications CSR Study,
Nonprofit Marketing Guide,
222 Strategies of Not-for-Profit Organizations
1. Philip Kotler and Sidney J. Levy, “Broadening the
Concept of Marketing,” Journal of Marketing, 39,
1969, p. 15.
2. Philip Kotler and Sidney J. Levy, “Broadening the
Concept of Marketing,” Journal of Marketing, 39,
1969, pp. 10–15; Angus Laing, “Marketing in
the Public Sector: Towards a Typology of Public
Services,” Marketing Theory, 3, 2003, pp. 427–445;
Leighann C. Neilson, “The Development of
Marketing in the Canadian Museum Community,
1840–1989,” Journal of Macromarketing, 23, 2003,
pp. 16–30.
3. Walter Wymer, Jr., Patricia Knowles, and Roger
Gomes, Nonprofit Marketing: Marketing Management
for Charitable and Nongovernmental Organizations,
Thousand Oaks, CA: SAGE Publications, 2006;
John J. Burnett, Nonprofit Marketing Best Practices,
Hoboken, NJ: John Wiley & Sons, 2007; Sarah
Durham, Brandraising. San Francisco: Jossey-Bass,
4. Philip Kotler and Sidney J. Levy, “Broadening the
Concept of Marketing,” p. 15.
5. American Marketing Association (AMA), “Definitions of Marketing,” July 2013, https://www.ama
.org/the-definition-of-marketing/ (accessed July 19,
6. John J. Burnett, Nonprofit Marketing Best Practices,
p. 24.
7. American Marketing Association (AMA), “Common
Language Marketing Dictionary,” (accessed July 19, 2019).
8. Kotler and Levy, “Broadening the Concept of Marketing,” p. 15.
9. Angus Laing, “Marketing in the Public Sector,” p.
10. American Marketing Association, “Academic Journals,”
(accessed November 21, 2019.
11. Philip Kotler and Nancy R. Lee, Social Marketing:
Influencing Behaviors for Good, 3rd ed., Los Angeles,
CA: SAGE Publications, Inc., 2008.
12. Sarah Durham, Brandraising.
13. Walter Wymer, Jr., et al., Nonprofit Marketing.
14. John J. Burnett, Nonprofit Marketing Best Practices.
15. Sarah Durham, Brandraising.
16. Angus Laing, “Marketing in the Public Sector.”
17. Philip Kotler and Nancy R. Lee, Social Marketing.
18. Sarah Durham, Brandraising.
19. Neely, Daniel, “How Much Is that Facebook Fan
Worth Anyway?” Social Media Today, last modified July
21, 2011,
474551/ (accessed November 21, 2019); although
very few are likely to return to a nonprofit’s fan page,
it is important to note that they will continue to receive
posts from the organization in their feeds, so they may
not feel the need to return to the page.
20. Julie Moos, “Pew: Social Networking Use Doubles
among Adults, Does Not Weaken Relationships,”
Poynter, last modified June 16, 2011, https://www. (accessed November 21,
21. Pew Research Center, “Social Media Fact Sheet,” June
12, 2019,
social-media/ (accessed July 19, 2019).
22. Andrew Perrin and Monica Anderson, “Share of U.S.
Adults Using Social Media, Including Facebook,
Is Mostly Unchanged since 2018,” April 10, 2019,
share-of-u-s-adults-using-social-media-including-facebook-is-mostly-unchanged-since-2018/ (accessed July
19, 2019).
23. Ibid.
24. Mareike Schomerus, Tim Allen, and Koen Vlassenroot, “Obama Takes on the LRA,” Foreign Affairs,
November 15, 2011,
articles/uganda/2011-11-15/obama-takes-lra (accessed
November 21, 2019).
25. Alex Perry, “The Warlord v. The Hipsters,” Time,
March 26, 2012, pp. 36–41.
26. Invisible Children, 2011 Form 990,
pdf (accessed July 22, 2019).
27. Alex Perry, “The Warlord v. The Hipsters”; Invisible
Children, “Our Story,” 2019, https://invisiblechildren
.com/our-story/ (accessed July 22, 2019).
28. Carole Cadwalladr, “Jason Russell: Kony 2012 and
the fight for truth,” March 2, 2013, The Guardian,
jason-russell-kony-2012-interview (accessed July 22,
Marketing and Branding the Nonprofit Organization 223
29. Perry, “The Warlord”; The White House, Statement
by the President on the Signing of the Lord’s Resistance Army Disarmament and Northern Uganda Recovery Act of 2009, May 24, 2010, https://
statement-president-signing-lords-resistance-armydisarmament-and-northern-uganda-r (accessed November 21, 2019).
30. Perry, “The Warlord.”
31. Perry, “The Warlord.”
32. Chase Community Giving Program Final Winners
Announced, Foundation Center, January 29, 2010,
33. Rick Cohen, “Why Did ‘Kony 2012’ Fizzle Out?”
Nonprofit Quarterly, April 26, 2012, https://nonprofit (accessed
November 21, 2019).
34. Kate Cronin-Furman and Amanda Taub, “Solving
War Crimes with Wristbands: The Arrogance of
‘Kony 2012,’” Atlantic Monthly, www.theatlantic
.com/international/archive/2012/03/solving-warcrimes-with-wristbands-the-arrogance-of-kony2012/254193/ 3/08/12 (accessed November 21,
2019); Max Fisher, “The Soft Bigotry of Kony 2012.”
35. Cronin-Furman and Taub, “Solving War Crimes”;
Cadwalladr, “Jason Russell.”
36. Carole Cadwalladr, “Jason Russell: Kony 2012.”
37. Ibid.
38. Cadwalladr. “Jason Russell”; Tony Perry and Shelby
Grad, “‘Kony’ Creator Jason Russell Will Remain
Hospitalized for Weeks,” Los Angeles Times, March
21, 2012, (accessed November 21,
39. Ibid.
40. Ibid.
41. Ibid.
42. Mary Slosson, “ICC Prosecutor Courts Hollywood
with Invisible Children,” April 1, 2012, http://www (accessed
November 21, 2019).
43 Mike Keefe-Feldman, “Kony 2012: Can Social Media
Help Topple a Tyrant?” March 7, 2012, National Public Radio, March 7, 2012, http://nonprofitquarterly
.org/policysocial-context/19938-kony-2012-cansocial-media-help-topple-a-tyrant.html (accessed
November 21, 2019).
44. Lee Rainie, Paul Hitlin, Mark Jurkowitz, Michael
Dimock, and Shawn Neidorf, “The Viral Kony 2012
Video,” March 15, 2012, Pew Research Center.
45. Rick Cohen, “Why Did ‘Kony 2012.’”
46. Ibid.
47. Sam Sanders, December 15, 2014, “Organization
Behind ‘Kony 2012’ Set to Close Its Doors in 2015,”
National Public Radio (NPR), December 15, 2014,
set-to-close-its-doors-in-2015 (accessed July 22,
48. Cadwalladr, “Jason Russell.”
49. Sam Sanders, “Organization Behind ‘Kony 2012’ Set to
Close”; Kristof Titeca and Matthew Sebastian, December 30, 2014, “Why did Invisible Children Dissolve?”
December 30, 2014, https://www.washingtonpost.
294ac3e3e54e (accessed November 21, 2019).
50. Invisible Children, “Financials.”
51. Invisible Children, “Our Story.”
52. Sarah Durham, Brandraising, p. 19.
53. American Cancer Society, “Making a Difference,”
making-a-difference.html (accessed July 22, 2019).
54. National Cancer Institute, Division of Cancer
Control & Populations Sciences, Office of Cancer
Survivorship, “Statistics,” January 2019, https://
(accessed July 22, 2019).
55. American Cancer Society, “Our History,” last updated
July 13, 2017, (accessed July 22, 2019).
56. American Cancer Society, “American Cancer Society
Creates a World with More Birthdays at MoreBirthdays
.com, and on Facebook,”
May 7, 2009, (accessed July 22, 2019).
57. American Cancer Society, “Facts about the American
Cancer Society,” 2019, (accessed July 22,
58. Walter Wymer, Jr., et al, Nonprofit Marketing, p. 152.
59. Steven Zeitchik and Deborah Vankin, “Jerry Lewis
Ousted as MDA Telethon Host,” Los Angeles Times,”
last modified August 5, 2011, https://www.latimes.
com/entertainment/la-xpm-2011-aug-05-la-et-jerrylewis-20110805-story.html (accessed November 21,
224 Strategies of Not-for-Profit Organizations
60. Newman’s Own Foundation, “Total Giving,” July
total-giving/ (accessed July 22, 2019).
61. Mark Harris, “How to Train Your Celebrity: Five
Hollywood Charity Myths.” last modified June 22,
2011, www (accessed November 21, 2019).
62. Walter Wymer, Jr., et al., Nonprofit Marketing, p. 40.
63. Beverly T. Venable, Gregory M. Rose, Victoria D.
Bush, and Faye W. Gilbert, “The Role of Brand Personality in Charitable Giving: An Assessment and Validation, Journal of the Academy of Marketing Science,
33, 2005, p. 297.
64. Walter Wymer, Jr., et al., Nonprofit Marketing; Sarah
Durham, Brandraising.
65. Walter Wymer, Jr., et al., Nonprofit Marketing; Beverly
T. Venable et al., “The Role of Brand Personality”;
Philip Kotler and Nancy R. Lee, Social Marketing.
66. Adrian Sargeant, John B. Ford, Jane Hudson, “Charity Brand Personality: The Relationship With Giving
Behavior,” Nonprofit and Voluntary Sector Quarterly,
37, 2008, p. 471.
67. Thomas E. Nelson and Zoe M. Oaxley, “Framing
Effects on Belief Importance and Opinion,” Journal of
Politics, 61, 1999, pp. 1040–1067.
68. Walter Wymer, Jr., et al., Nonprofit Marketing.
69. John J. Burnett, Nonprofit Marketing Best Practices, p.
70. Walter Wymer, Jr., et al., Nonprofit Marketing.
71. See Murray, J. Haskell, “Choose Your Own Master: Social Enterprise, Certifications,” 2012; Dana
Brakman Reiser, “Benefit Corporations—A Sustainable Form of Organization?” 2011, Wake Forest Law
Review, 46, pp. 591–625. Brian V. Larson, “Gaining
from a Giving Relationship: A Model to Examine
Cause-Related Marketing’s Effect on Salespeople,”
Journal of Nonprofit and Public Sector Marketing, 8,
2001, pp. 31–43; John Cantrell, Elias Kyriazis, Gary
Noble, and Jennifer Algie, “Towards NPOs Deeper
Understanding of the Corporate Giving Manager’s
Role in Meeting Salient Stakeholders Needs,” Journal
of Nonprofit and Public Sector Marketing, 20, 2008,
pp. 191–212.
72. BOXTOP$ FOR EDUCATION, https://www (accessed July 23, 2019).
73. American Heart Association, “How the Heart-Check
Food Certification Program Works,” May 1, 2018,
(accessed July 23, 2019).
74. Ted Gup, “The Weirdness of Walking to Raise
Money,” New York Times, last modified June 18,
2011, (accessed
November 21, 2019).
75. Joanne Fritz. “Make the Most of the Special Events for
Your Nonprofit,” the balance small business, updated
November 23, 2018,
(accessed November 21, 2019); Anne Kadet, “Are
Charity Walks and Races Worth the Effort?” MarketWatch, June 14, 2011, https://www.marketwatch
.com/story/are-charity-walks-and-races-worth-the-effort-1306536923690 (accessed July 23, 2019).
76. Vicki Thomas, “Cause-Related Marketing: Bringing Together Senior Organizations and Business,”
Generations, Winter 2004–2005, pp. 71–74; Arthritis
Foundation, “Ease of Use,” https://www.arthritis.
(accessed July 23, 2019).
77. Amanda B. Bower and Stacy Landreth Grau, “Explicit
Donations and Inferred Endorsements: Do Corporate
Social Responsibility Initiatives Suggest a Nonprofit
Organization Endorsement?” Journal of Advertising,
38, 2009, pp. 113–126: Mark Pryor et al., “What’s
in a Nonprofit’s Name?” last modified April 6, 1999,
mkting.pdf (accessed November 21, 2019).
78. Magali A. Delmas, and Vanessa Cuerel Burbano.
“The drivers of greenwashing.” California management
review 54, no. 1 (2011): 64-87; Laura Illia, Stelios
C. Zyglidopoulos, Stefania Romenti, Belén Rodríguez-Cánovas, and Almudena González del Valle Brena. “Communicating corporate social responsibility to
a cynical public.” MIT Sloan Management Review 54,
no. 3 (2013): 2.
79. Samantha King, Pink Ribbons, Inc : Breast Cancer and
the Politics of Philanthropy. Minneapolis, MN: University of Minnesota Press (2008).
80. Stacy Landreth Grau, Judith A. Garretson, and Julie
Pirsch, “Cause-Related Marketing: An Exploratory
Study of Campaign Donation Structures Issues,” Journal of Nonprofit & Public Sector Marketing, 18, 2007,
pp. 69–91; Brian V. Larson, “Gaining from a Giving
Relationship”; Pryor et al., “What’s in a Nonprofit’s
81. Susan G. Komen, “Nancy G. Brinker,” https://www
Marketing and Branding the Nonprofit Organization 225 (accessed
July 23, 2019).
82. Engage for Good, “Social Impact Statistics You
Should Know,” 2019,
guides/statisticsevery-cause-marketer-should-know/ (accessed July 23,
83. Vicki Thomas, “Cause-Related Marketing”, p. 74.
84. Brian V. Larson, “Gaining from a Giving Relationship.”
85. Stacy Landreth Grau et al., “Cause-Related Marketing”; Mary Runté, Debra Z. Basil, and Sameer
Deshpande, “Cause-Related Marketing from the
Nonprofit’s Perspective: Classifying Goals and Experienced Outcomes,” Journal of Nonprofit & Public Sector
Marketing, 21, 2009, pp. 255-–270.
86. Mary Runté et al., “Cause-Related Marketing from
the Nonprofit’s Perspective,” p. 265.
87. Ibid.
88. Stacy Landreth Grau et al., “Cause-Related Marketing”; Chun-Tuan Chang, “To Donate or Not to
Donate? Product Characteristics and Framing Effects
of Cause-Related Marketing on Consumer Purchase
Behavior,” Psychology & Marketing, 25, 2008, pp.
89. Stacy Landreth Grau et al., “Cause-Related Marketing.”
90. This assignment was inspired by the discussion of
positioning strategies in Walter Wymer, Jr., Patricia
Knowles, and Roger Gomes, Nonprofit Marketing:
Marketing Management for Charitable and Nongovernmental Organizations, Thousand Oaks, CA:
SAGE Publications, 2006, and the experiments
regarding brand personality in Beverly T. Venable,
Gregory M. Rose, Victoria D. Bush, and Faye W.
Gilbert, “The Role of Brand Personality in Charitable Giving: An Assessment and Validation, Journal
of the Academy of Marketing Science, 33, 2005, pp.
226 Strategies of Not-for-Profit Organizations
People do not give time and money to organizations because organizations have needs; they give because
organizations meet needs…. [A] gift to an organization is really a gift through the organization: It is an
investment in the community.
Kay Sprinkel Grace 1
Imagine you are someone like Marcus, who views his life as an opportunity to make a contribution.
Over the years, he has worked hard—founded a successful company, promoted the well-being of his
family, volunteered in his community. Retirement time is approaching and he wants to give more,
about $1 million more. The question is: How can he donate his money so it will be used the most
effectively? Having a million dollars to give away is a nice problem to have, but deciding how to give
it away is not as easy as it might seem.
Over the years, Marcus has volunteered for several nonprofits—cooking meals at the Salvation Army
shelter, handing out programs for the local theatre group, building houses with a team for Habitat
for Humanity, and serving on the board of the state’s children’s museum. He has given money as well
as time to these organizations, so he could simply divide the $1 million among them, but would that
have the impact he wants? The nonprofits are different sizes, serve different needs, and vary in fiscal
health, so how much does each deserve?
Also to be considered is his alma mater, or rather four alma mater, since he has degrees from three
universities and his high school still calls from time to time. His heart and team support lean heavily
toward one of the institutions of higher learning, which also happens to be in the midst of a major
campaign to increase scholarship funding. How nice it would be to endow a scholarship in the name
of his parents, who were so instrumental to his achieving the financial success that enables him to
donate the $1 million. Scholarships could be awarded to students pursuing a degree in his chosen field
of study. Think of the impact those generations of college graduates could have. Is that the best way to
give? There are a lot of options for a budding philanthropist, so what should Marcus do?
Deciding how and where to give money may be a dilemma for some potential philanthropists, but
obtaining sources of funding is an issue of concern for nearly all nonprofits. Many nonprofits struggle
with maintaining the basic organizational capacity to operate their programs to pursue their mission.
Governments at all levels and private foundations grant substantial resources to nonprofits every year,
and the choices they make regarding what projects and which organizations to fund have an impact
on public policy. Fundraising campaigns consume resources as well as generate them, so they must be
chosen and executed wisely. Commercial ventures are growing in popularity, but raise important public
policy issues as they serve to further blur the lines between the nonprofit and for-profit sectors. These
and other aspects of resource development for nonprofits are the focus of Chapter 10.
The Sector’s Fiscal Health and Capacity
Recent data on the fiscal health of the nonprofit sector reveal both good news and bad. Giving USA,
which for more than 50 years has collected data and reported on annual changes in philanthropy
and charitable giving, reports that an estimated $427.71 billion in charitable donations were made
in 2018, representing a decrease of 1.7 percent (adjusted for inflation) from the record-breaking level
of giving in 2017.2
This contrasts with the decrease of 6.2 percent (adjusted for inflation) during the
Great Recession (between 2008 and 2009), which was the steepest decline in real dollars since Giving
USA began annual reports in 1956. On a more positive note, overall charitable giving has increased
over time, from 1.8 percent of Gross Domestic Product (GDP) in 1974 to 2.1 percent of GDP in
A 2018 report on the fiscal health of nonprofit organizations from the Nonprofit Finance Fund
(NFF) provides a similar mix of results. Key findings from the 3,400 nonprofits responding to the NFF
annual survey (about two-thirds of which had 2017 expenses of $2 million or less), involved concerns
about meeting increasing demand, affirmations of progress through determination and creativity, and
fears for clientele:
• 86 percent of respondents indicated demand for services is rising, and 65 percent of those
serving low-income clients thought they would not be able to meet the increasing demand;
• Positive findings included staff increases among 54 percent of respondents, with 55 percent
reporting an increase in compensation in 2017;
• 68 percent reported collaboration with other nonprofits, and 63 percent expected to expand
programs or services in 2018;
• Two-thirds believed that federal government policies and positions made the challenges
affecting their clients harder;
• More than half indicated that federal government policies and positions made the funding
environment harder (52 percent) and the policy environment harder (58 percent) for their
• Affordable housing was a top client need, cited by 40 percent of respondents.4
Survey results regarding the financial health of organizations in 2018 (n = 2,636) were generally encouraging for the sector:
228 Strategies of Not-for-Profit Organizations
• 50 percent of respondents achieved an operating surplus, 24 percent had an operating
• In 2017, 67 percent of organizations (n = 2,577) received funding from government
sources, with 25 percent of them indicating the 2017 revenue represented a decrease from
the previous year;6
• The situation regarding cash-on-hand has improved since 2009; while 14 percent had no
cash reserves in 2009, only 9 percent reported less than one month cash-on-hand at the
time of the 2018 survey. Additionally, respondents with cash reserves to last three months
or less decreased from 62 percent in 2009 to 50 percent in 2018.7
Many of the financial indicators were encouraging for nonprofits—high levels of charitable giving,
budget surpluses, a strong national economy through the end of 2019. However, there are reasons for
concern about the ways in which the sector is affected by federal policy changes such as the impact
on giving by the increase in the standard income tax deduction, or increased demand for services as
a result of changes such as the ones regarding immigration policy and procedures. More importantly,
the economic crisis, coupled with increased demands for nonprofit services due to the COVID-19
pandemic, will leave many nonprofits on shaky financial ground. These challenges highlight the importance of establishing and maintaining diverse and sustainable revenue streams.
Nonprofit Sustainability
According to the U.S. Small Business Administration (SBA), approximately half of all new small
businesses fail within their first five years and about one-third survive 10 years or more.8
data on the voluntary sector are more encouraging, suggesting that 10 years after receiving tax-exempt
status, about 64 percent of nonprofits remain active; about 55 percent remain active 20 years after establishment.9
In their oft-cited work on resource dependency theory,10 Pfeffer and Salancik stated that
“the key to organizational survival is the ability to acquire and maintain resources.”11 While seemingly
obvious, this simple prescription is often difficult for nonprofits to achieve. Small nonprofits—those
with less than $500,000 in annual expenses—comprised almost 67 percent of all reporting public
charities in 2015, but represented less than 2 percent of the total expenditures by reporting public
charities. On the opposite side of the spectrum, 5.3 percent of reporting public charities had annual
expenses in excess of $10 million, but those 16,556 organizations were responsible for 87.7 percent of
all public charity expenditures that year.12
Resource Dependence and Revenue Diversification
As has been discussed throughout this book, nonprofit organizations make their mission-related,
service delivery decisions within the dynamic context of the environment they inhabit. For example,
media coverage of natural disasters such as hurricanes and wildfires have highlighted the work of
animal welfare nonprofits in the rescue and sheltering of homeless pets, resulting in more donations
at a time of increased demand for service. Conversely, the Great Recession significantly intensified
the demand for housing services provided by emergency shelters, without a corresponding influx
of financial resources. Nonprofits often compete with one another for available resources, such as
government funding, foundation grants, and individual contributions. Public policy changes such
as tax laws affecting deductibility of charitable donations as well as stock market declines that reduce the size of endowments are external factors with far-reaching consequences for the sector as a
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 229
whole. In addition to the immediate increase in demand to deliver basic food and health services,
nonprofits will undoubtedly feel the long-term effects of COVID-19 on the financial health of the
sector. Revenue diversification is a strategy long advocated for nonprofits as a means of spreading
the risk of vulnerability in times of economic crisis.13
However, there are those who contend that diversification can have negative implications for
nonprofits. Multiple revenue streams create inefficiencies for nonprofits—for example, the impact of
non-uniform administrative and reporting requirements.14 Commercial ventures—a growing source of
income for the sector and increasingly popular method of diversifying resources—have critics who argue
these activities move the organization’s focus from its mission, weaken the public nature of services,
and may even call into question the justification for tax-exemption.15
Empirical research supports revenue diversification based on benefits theory, “which postulates that
revenue streams derive from the nature of the services offered by nonprofit organizations.”16 Nonprofits
tend to have a mix of revenue sources that reflects the nature of the goods and services provided by
them; therefore, revenue diversification is actually a reflection of what they do. Organizations providing
services of a public nature will rely more heavily on public sources of revenue; those providing private
goods will have a corresponding degree of revenue from earned income. Because programming determines to a great extent the type of revenue sources most likely to be successfully pursued, nonprofits
should integrate program planning with resource development.17
Sources of Revenue and Their Relation to Mission
Nonprofit scholars and practitioners categorize revenue sources in diverse ways. For example, public
sources of funding generally refer to any government allocation—federal, state, or local—whether in
the form of a grant, contract, or line-item appropriation; private sources are, therefore, all nongovernmental revenues, including private donations, foundation grants, and proceeds from commercial ventures. Earned income includes the proceeds from commercial ventures such as a thrift shop, but also
encompasses member fees, ticket sales, and fees-for-service, sometimes generated through government
contracts. Philanthropic gifts include individual donations, foundation grants, and corporate sponsorship of fundraising events; licensing agreements with corporate sponsors, however, would be an
example of earned income. Clearly, attempts to classify the diverse types of nonprofit revenue present
challenges due to the potential for overlap, even within the six basic sources of nonprofit revenues we
identify and discuss: 1) government grants and contracts, 2) foundation grants, 3) earned income and
commercial ventures, 4) corporate giving or sponsorship, 5) individual contributions and fundraising
events, and 6) endowments or other investment income.
While Form 990 data yield some information about the degree to which nonprofits rely on each of
these sources, the available data are limited and may not adequately reflect the fiscal disparity among
different-sized nonprofits. Most reporting charities are relatively small and constitute a small percentage
of total spending in the sector, making it unwise to conclude that very large charities (e.g., hospitals
and universities) have the same potential types of funding as small ones (e.g., homeless shelters). For
example, because of their missions, hospitals and universities are better able and much more likely to
rely on fee-for-service income, whereas human services organizations cannot easily attach a price to
their services; more important, they often seek to serve a clientele precisely because the individuals
cannot afford to pay a fee. Hospitals and primary care facilities comprised 2.3 percent of reporting
public charities in 2015, yet received 49.4 percent of revenues; human services nonprofits comprised
35.2 percent of charities, yet took in only 11.8 percent of total revenues.18 Although not-for-profit
organizations have become quite creative in pursuing commercial ventures, many work in fields that
do not lend themselves to generating earned income.
230 Strategies of Not-for-Profit Organizations
Since resource development is not a one-size-fits-all activity for nonprofits, the most important factor for them to consider is the relationship between resource development and their mission. Mission
should always drive the pursuit of revenue sources and determine the revenue strategies selected; as is
discussed in Chapter 6, altering the nonprofit’s mission in order to attract funding is a seductive but
dangerous activity. Foundation funding, which is discussed extensively in Chapter 2, is also addressed
in the discussion of government grants and contracts in this chapter. Commercial ventures and other
sources of earned income as well as corporate giving, fundraising, and endowments are each identified
and discussed with regard to its relationship with nonprofit mission.
The Role of Grants in the Nonprofit Sector
Grants are generally defined as payments from one entity to another based on a set of established
criteria, and they represent a significant revenue source for nonprofits. Nonprofits utilize grant funds
in numerous ways, including to support programs and basic operations as well as to facilitate major
capital projects. Government entities grant funds in order to encourage provision of public programs
and activities without directly operating them; grantmaking foundations provide grants in pursuit of
their mission as well as to comply with federal regulations, as is discussed in Chapter 5. For the most
part, grants provide a mutually beneficial relationship between funder and nonprofit to pursue policy
goals. It is important to note that grants take various forms and have varying requirements associated
with them; further, there can be problems when nonprofits pursue grants that do not tightly align
with their mission.
Types of Grants
Under the U.S. Constitution, Congress is empowered to provide for the general welfare of the public.
Spending for that purpose quite often takes the form of grants-in-aid, commonly referred to as grants.
While grants are generally thought of as given by the federal government to states or localities, grants
originate in all sectors and at all levels of government. Government entities regularly give grants to
nonprofits, but governments have also been the recipients of private foundation or corporate grants.19
While grants are typically monetary awards, some grantors provide goods such as food or computer
equipment, or services such as free shipping, as in the example of Federal Express, discussed later in
this chapter. Most government grants are made pursuant to a Notice of Funding Availability (NOFA),
which sets forth the guidelines and eligibility criteria for receipt of funds. Foundations usually identify
general areas of interest for funding and review proposals on a set schedule—for example, monthly,
quarterly, or annually. When seeking grant funding, it is important to understand the basic types of
grants generally awarded by funders: project or program grants, operating grants, seed money, and
challenge or matching grants.
Project or Program Grants
Most foundation grants are in the area of program (or project) support, ranging from 43.9 percent of
all grant dollars in 1998 to 52 percent in 2012.20 These tend to be the favored types of grant awards
because funders like to support specific projects with recognizable goals and objectives. While program grants are generally the most attractive to funders, they pose challenges for small nonprofits with
limited capacity. Paying the rent for office space and salaries for the executive director and secretary
(known as administrative or overhead costs), are rarely considered eligible expenses under a project
grant, although some grantors do allow a percentage of these costs to be allocated to a project. These
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 231
grants often require a promise by the organization to continue the programs and services after the
grant period ends, which commits the nonprofit to future expenditures without grant funds.
Bricks and mortar is the common term used when referring to grants for capital projects, which are awarded
in fewer numbers than grants for programming. Some funders refuse to consider funding capital projects;
some only fund capital projects. When grants are awarded for construction, renovation, or a major purchase
of equipment, the resulting building, hospital wing, or playground is often named for the funder. For example, the Peter J. King Family Foundation in Minneapolis, Minnesota, is an example of a foundation that
focuses almost exclusively on the provision of grants for bricks and mortar projects to align with its mission
of “improvement in children’s health, education, and welfare and the family environment.”21 Several of the
facilities constructed with grant funds bear the foundation name, such as the Peter J. King Family Health
Center and the Salvation Army King Family Foundation Corps Community Center.
Operating Grants
What many small nonprofits need most are basic operating funds. General support operating grants
are largely unrestricted funds that nonprofits can use for overhead expenses such as management
salaries, building rent or maintenance, and office supplies. Unfortunately, funders historically have
not been as enamored of awarding operating grants as nonprofits are of receiving them. An Urban
Institute survey in 2003 of 850 staffed, private foundations found that more than one third never or
rarely gave grants for operating support.22
Fortunately, in 2004, Independent Sector (IS) highlighted this issue when it endorsed guidelines
drafted by the Building Value Together initiative regarding funding for nonprofits.23 A primary statement
within the guidelines reflects a preference for general operating support, specifically:
Funders can often achieve their strategic goals through core support24 for organizations whose goals are
substantially aligned with their own. Where appropriate and feasible, funders should prefer multi-year,
reliable core support to project support.25
Foundation funding for general operating support (expressed as a percentage of total grant dollars
awarded) rose steadily from a low of 13.7 percent in 1998 to 24 percent in 2012.26
The Building Value Together initiative also heralded the importance of foundation grants to build
endowments in order to assist nonprofits in achieving their missions.27 As discussed later in this chapter,
endowments provide income from the long-term investment of the funds and can consist of restricted
and/or unrestricted funds. Unrestricted funds can be used for any purpose the board deems necessary,
including operating support; likewise, endowment funds may also be restricted for sole use as general operating support. Because endowments provide a stable revenue source for nonprofits, foundation funding
to establish and build endowments can do much to enhance the organizational capacity of nonprofits.
Seed Money
Grants for the startup of new organizations or pilot programs are commonly referred to as seed money.
Grants for startup projects generally involve programs and activities that might raise an eyebrow or two,
precisely because demonstration projects are excellent venues to try unproven strategies for addressing
issues of public concern. Foundations especially, but also government entities, use grants of seed money to fund innovative approaches to solving public problems, often with quite positive results. One
prominent example involves the Community Oriented Policing Services (COPS) program implemented through the U.S. Department of Justice (DOJ).28 The National Police Foundation, highlight232 Strategies of Not-for-Profit Organizations
ed in Chapter 2, was instrumental in research and development of community oriented policing pilot
projects in the 1970s. COPS has been adapted and utilized by police departments nationwide—largely
because of federal funding initiated in 1993—and has had a significant impact on law enforcement
policy development and implementation.
Challenge or Matching Grants
The Foundation Center defines challenge or matching grants as those that, once awarded, “will be paid
only if the donee organization is able to raise additional funds from another source(s). Challenge
grants are often used to stimulate giving from other donors.”29 Government grants often use matching
requirements as a way to maximize funding impact and facilitate greater commitment from recipient
organizations. For example, local governments with greater financial capacity to provide matching
funds tend to receive an increased number of federal grants and higher numbers of grants per capita.30
Matching grants generally receive mixed reviews in the nonprofit community. Grantmakers tend to
like them because they enable limited grant funds to be stretched further for greater impact and also
ensure significant buy-in for the project from local stakeholders. Nonprofit recipients like them in the
sense that they are an approved source of funds for a project, but usually harbor misgivings and some
degree of apprehension over the resources needed to generate the required matching funds.31 In other
instances, such as government grant programs that require a match, disbursement of any grant funds
is contingent on the nonprofit first demonstrating its ability to provide the required matching funds,
which can be difficult for small, cash-strapped social services nonprofits.
Government Grants and Fee-for-service Contracts
As exemplified in the Nonprofit-Policy Framework, government has used public policy to encourage
and subsidize nonprofit service delivery since the founding of Harvard University, the Metropolitan
Museum of Art, and numerous early healthcare institutions.32 In the 1960s, when the federal government began to provide substantial sums for the provision of social services, nonprofits were a big
part of grant programs. Amendments to the Social Security Act in 1962 and 1967 provided for state
agencies to employ nonprofit entities in service delivery. Since then, grant awards and contracting out
to nonprofits for delivery of social services has been increasing.33
Nonprofits experience both benefits and costs from government funding. For example, nonprofits should
be wary of accepting grants or contracts to provide services that do not coincide with the organization’s mission. Indeed, a common concern in managing nonprofits is that chasing either public sector or foundation
funding will lead to mission drift, pulling the organization into policy areas, communities, or services that
have little to do with the original purpose of the organization. A related concern is that grantors may gain
too much control over nonprofit behavior through the rules and regulations that accompany contracts and
grants administration, and that this could result in less oversight by nonprofit governing boards.34 Delayed
government payments—a problem for which the public sector is notorious35—is another source of concern
since these can lead to cash-flow problems for nonprofits.36 Further, nonprofits that are entirely dependent
on government resources are vulnerable to the whims of public finance and policy priorities.
On the other hand, nonprofits gain substantial financial resources from government sources and have
a long history of successful partnership in the provision of public goods and services. The influx of funds
and a heightened role in public policy implementation that accompanies receipt of government funds
can enhance a nonprofit’s reputation and improve access to other government grants and contracts.37
In addition, preparing the required documents in response to a Request for Proposals (RFP) assists
nonprofits in planning and goal clarification. The competition with other nonprofits or for-profit
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 233
firms also fosters innovation and improves performance sector-wide.38 All of this helps organizations to
succeed in public policy development and implementation. Maximizing the advantages and minimizing the disadvantages of government grants and contracts requires adequate resources and appropriate
oversight by both the nonprofits and the government agencies.
Distribution of Government Grants
Grants from governments to nonprofits are either direct—that is, given directly by the government
agency to the not-for-profit organization that provides the actual service delivery—or indirect. Indirect grants reach nonprofits via a pass-through agency, usually a department of a state or local government. Most grant dollars for social services nonprofits are distributed as indirect grants.39 In addition,
governments grant funds in four general ways: 1) in a block designed to address a general policy area;
2) according to a set formula; 3) for a specific project or category of activity; and 4) as a line-item
budget appropriation.
The Community Development Block Grant (CDBG) program administered by the U.S. Department of Housing and Urban Development (HUD) often provides pass-through funds to nonprofits
utilizing three of the ways governments grant funds; it, therefore, serves as an illustrative example here.
Block Grants
As the name implies, the CDBG represents funds awarded in a block to state and local governments to
fund activities within the general area of community development; while the funds are granted to state
and local governments, nonprofits are often the recipients of pass-through funds or are the beneficiaries of projects such as building construction or renovation completed by the government agency on
their behalf. Block grants are attractive methods of funding for policymakers, administrators, and the
general public. While basic threshold requirements are fixed and non-negotiable, such as the CDBG
requirement that funds be used to serve primarily low to moderate income residents, recipients are
given flexibility to determine how best to use the funds. In the case of CDBG funds, each designated
state agency sets the parameters within the CDBG criteria for the specific types of community development activities that would best suit the needs within its state.
Formula Grants
One part of the CDBG is the Entitlement Communities program, in which grants are awarded based
on an eligibility formula. Formula grants are the least competitive of the four ways funds are granted
since all organizations that meet the criteria are awarded funds, with the amount of the grant determined according to an allocation formula. In the case of the CDBG, cities with a population over
50,000 automatically receive an allocation of the grant, which the cities can then use for their choice
of activities so long as they meet the general criteria of the block grant program.
Project Grants
As previously discussed, project grants are for specific purposes and are usually the most competitive
way in which governments disburse grants. State funds for the CDBG–Small Cities program are
usually awarded as project grants on a competitive basis; local governments submit applications and
state officials decide which projects will receive funding. Although all applicants must be a local government entity, cities or counties can apply for a project grant on behalf of a nonprofit organization.
234 Strategies of Not-for-Profit Organizations
Examples include a Tennessee county that applied for funds to renovate an old school building to
serve as a community center with programming provided by a local nonprofit, and a Kentucky city
that applied for funds to renovate four historic structures to be administered as a museum by the local
nonprofit historical society.
Line-item Appropriations
Of all the ways governments distribute grants, line-item appropriations are the most political. Sometimes referred to as pork-barrel spending, these funds are often subject to the application process and
administrative guidelines of other grant programs, but there is a guarantee of funding so long as the
grantee complies with the rules and regulations. As a source of revenue for nonprofits, line-item appropriations are not necessarily less competitive than project grants since organizations must vie with
other nonprofits as well as other government entities for support needed to include the appropriation
in the government budget. Likewise, appropriations are not always a sure thing; once the organization
gains the necessary support to have the appropriation included in the budget, it still must overcome
numerous hurdles, including adoption of the final budget and potential budget cuts due to revenue
shortfalls, before the funds are actually disbursed. Once the funds are disbursed, the nonprofit will still
be accountable to the same administrative regulations as other government grant recipients.
Such projects are usually controversial because they are narrowly focused; whether a state or the federal government (or another organization) is the appropriate venue for provision of the project funding
is frequently debated. However, most so-called pork-barrel projects are not inherently bad, especially
to the recipient organizations. Appropriations aided significantly in the construction of the nonprofit
Center for Rural Development in Somerset, Kentucky, for example. The facility serves a 42-county
area in eastern and southern Kentucky, including economically distressed Appalachian counties, and
focuses on technological, cultural, and economic development for the region.40
Public Goods and Services via Government Contracts
Not-for-profit organizations are often eager to use their experience to implement public policy in their
communities, and governments are typically in need of the expertise and first-hand knowledge of the
community that nonprofits possess. This mutually beneficial relationship is often codified by contracting,
in which the government agency agrees to pay an agreed-upon fee for the provision of specified goods or
services. Contracts differ from grants in that grants typically involve disbursement of a preset amount of
funds to the grantee, who agrees to engage in a range of activities specified in the grant proposal. Contracts usually involve an agreement to pay a set fee for each service provided to the designated clientele
during the duration of the contract. For example, a government agency might contract with a nonprofit
to provide job training and agree to pay a fee for each client who successfully completes the program.
Generally described as a fairly linear process, contracting begins when the public agency creates parameters and issues an RFP. This is followed by the review of proposals from qualified contract bidders,
then the awarding of the contract and determination of final contract details. Following delivery of services, contractors submit to monitoring and evaluation of the execution of the service contract, and the
government agency makes a determination regarding whether to renew or terminate the relationship.41
Delivery of Services
The process of submitting the response to the RFP and negotiating the contract should provide
nonprofits with sufficient information regarding the requirements to fulfill the contract obligations.
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 235
However, successful delivery of the contracted goods and services depends on several factors: appropriate facilities, adequate financial and technical resources, staff training, specific and consistent program goals that have been agreed on by both parties, and clientele who can access needed
services. Sometimes a nonprofit may lack these attributes, making successful implementation of
policy difficult.42 In some instances, the contracting agency may step in to offer assistance to help
improve programs, in order to meet government objectives.43 Of course, the public sector funding
for program implementation may be inadequate to meet citizen needs for services.44 Each of these
represent challenges and opportunities for nonprofits when providing goods and services via government contracts.
Government Monitoring
Effective government monitoring is absolutely vital to successful service delivery; thus, public agencies
have increasingly used performance-based contracts to help monitor nonprofit service providers.45
The ability of governments to monitor contracts, however, has come into question in much of the
contracting literature.46 In keeping with the theories of contract failure that are discussed in Chapter
4, there is evidence of less monitoring of nonprofit contractors than monitoring of either for-profit
or in-house service providers.47 Constraints on the administrative capacity of government contracting
agencies means that public sector managers are not able to engage in monitoring of the organizations
with which they contract to the extent they would like;48 because nonprofits have an edge with regard
to trustworthiness, this may be the reason they experience less contract monitoring.49
Contract Termination or Renewal
Finally, at the end of the specified contract, the question for the public agency is whether to continue
the program through renewal of the contract or to terminate the relationship. The perspective of the
public manager is instrumental in determining whether a contractor is deemed to be more or less
successful. Public administrators with a management focus will be more interested in the efficiency
of the nonprofit; those with a professional orientation will be more interested in agency effectiveness;
and politicos will be focused on the political attention (or lack thereof) garnered by the contractor or
the program itself.50
It is a general rule that more experienced nonprofit contractors will be more effective at winning
service contracts. This is likely related to resource availability and the relationships that grow between
the contract agency and nonprofit provider. For example, it has been demonstrated that when public
managers trusted their nonprofit contractors, they offered them assistance in writing other proposals such as ways to navigate the bureaucracy, tips on reviewers’ preferences, insight regarding what
programs the legislature might fund in the future, and ways the nonprofit could leverage additional
contract funding.51
Government Influence and the Risk to Nonprofits
Public agencies often impose accounting and reporting requirements that may be difficult for small
nonprofits to meet, and they may feel pressure to employ a more professional staff to meet these requirements.52 Nonprofits may also experience the crowding out effect of government funds, in which
funds from other sources can decrease when nonprofits receive government contracts.53 The resulting
resource dependency can be particularly problematic for nonprofits when economic conditions cause
governments to cut spending on social service contracts.54 Nonprofits that rely too heavily on govern236 Strategies of Not-for-Profit Organizations
ment contracts also run the risk of co-optation—that is, the contracting agency exercises more control
over nonprofit activity through procedural rules and regulations, resulting in less active oversight by
the board of directors.55
Earned Income as a Stable Source of Revenue
Earned income typically refers to some type of commercial activity in which a nonprofit is able to
sell a product or service or charge a fee in order to generate revenue. Examples include Girl Scout
cookie sales, tickets to a local symphony performance, and tuition for a nonprofit preschool. For
member-serving nonprofits such as AARP, membership dues are a staple of earned income. Raising
revenues through earned income is attractive for nonprofits because the funds come with few if any
restrictions on their use. Because the revenues are obtained through an exchange relationship in which
the buyer was probably going to buy a similar good or service anyway, both parties gain something
from the transaction. While not a new source of revenue for nonprofits—examples of nonprofit commercial activity date to the early 1900s—its popularity has been growing, due in part to the stability
it offers.56
Commercial Ventures: Bake Sales to Thrift Shops
The primary reason that nonprofits undertake commercial ventures is to make up for revenues lost
from other sources.57 Whether the venture involves opening a thrift shop, launching a line of designer
neckties based on fine works of art, or the ubiquitous bake sale—raised to national proportions with
Share Our Strength’s Great American Bake Sale (—selling something is increasingly attractive if not necessary for today’s nonprofits.
Government, nonprofit, and for-profit entities are increasingly engaged in partnerships, shared
provision of services, and even competition with one another. With regard to commercial ventures,
four primary areas of “blurred boundaries”58 exist: 1) cross-subsidization of service delivery that does
not generate revenue with activities that do produce net earned income, such as thrift shops and gift
shops; 2) establishment of for-profit subsidiaries or affiliates, such as professional licensing exams administered by Prometric, a for-profit subsidiary of Educational Testing Services; 3) direct competition
between for-profit and nonprofit organizations, such as childcare centers; and 4) conversions, such
as a nonprofit hospital that converts to for-profit status. Cross-subsidization is quite common and is
growing in popularity. Conversions are still rare, but are gaining momentum in the areas of education
and healthcare, as the ability to charge fees and the need for greater capital expenditures increase.59
The Unrelated Business Income Tax (UBIT), which is discussed in Chapter 5, is of particular relevance in a nonprofit’s decision to establish a for-profit partner. Although the IRS rules are vague, as a
rule of thumb, once 15 percent or more of a nonprofit’s revenues are derived from unrelated sources, it
is time to set up a for-profit subsidiary.60 As is discussed in earlier chapters, nonprofits enjoy a privileged
status under the law that often affords them a financial advantage in business operations. Having a
for-profit affiliate carry out the unrelated business activities alleviates some of the criticisms regarding
unfair competition. Making sure that commercial ventures are closely tied to the organization’s mission
also helps allay concerns regarding appropriateness of the competition.61
Commercial ventures offer opportunity for a stable and unrestricted revenue source, but there are
risks involved and no guarantee of success. With thrift shops, for example, nonprofits are increasingly
competing not only with each other for donations of quality used goods, but with for-profit consignment shops that have grown in popularity. Also, the greater the reliance on volunteer labor to make
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 237
the venture succeed, the more challenges the nonprofit will face in recruiting and maintaining an
adequate workforce.
Social Enterprises: Social Aims with Market Principles
Tying the commercial endeavor to a larger public service mission carries the benefits even further, as
in the case of the Habitat for Humanity (Habitat) ReStore outlets. While ReStore outlets mirror the
well-known thrift shop concept, they promote an additional mission of environmentalism and social
responsibility. Donations include surplus building materials as well as items removed during home
renovations that normally would be discarded in a landfill. ReStore outlets serve to reduce the volume
of waste entering landfills by promoting reuse and recycling; many outlets even list the tonnage of
waste diverted from landfills on their websites. The first Habitat for Humanity ReStore outlet opened
in Austin, Texas, in 1992. By 2019, the number of ReStores had grown to more than 900 outlets in
the U.S.62
ReStore outlets are commercial ventures that embody a social purpose. This concept of social enterprise—loosely defined as ventures in which business methods are used to generate revenue to achieve
social goals63—is growing in popularity. According to enp (enterprising non-profits), social enterprises
are “businesses operated by non-profits with the dual purpose of generating income by selling a product
or service in the marketplace and creating a social, environmental or cultural value.”64
Social enterprises are started for reasons that range from strictly financial—to generate revenue
for the parent nonprofit—to completely mission-focused, but usually fall somewhere in between.
The Social Enterprise Lancashire Network (Selnet) requires demonstration of three primary
characteristics before recognizing an organization as a social enterprise: 1) social aims, 2) direct
involvement in business activity, and 3) ownership and governance by stakeholder groups with
profits distributed among stakeholders or for the benefit of the community.65 Ownership structure
seems to be a point of contention among those debating an acceptable definition: Some argue
social enterprises must have collective ownership and/or nonprofit status, while others contend
the definition should be broad enough to encompass private, for-profit organizations that embody
the requisite social goals.66 It is important to note that social enterprises, like other commercial
ventures involve risks. The for-profit market generally avoids an activity that does not generate
revenue. Since social enterprises are, by definition, trying to make money while filling a social
need that the market does not, there is inherent risk, but also the opportunity to demonstrate that
social aims can be achieved using market principles.
A compelling example involves Hart Community Homes (HCH), a Fullerton, California, nonprofit
serving foster youth. Since 2005, HCH has operated the Monkey Business Café as a social enterprise.
The café meets the criteria of multiple definitions of social enterprise in that it: 1) uses a business model
(food service) to generate revenue; 2) fills a social need that the market will not (job training for young
men who have aged out of the foster care system); and 3) reinvests profits to advance the organization’s
mission (the revenues generated support the job training efforts and further the mission of HCH to
assist former foster children in their transition to adulthood).67
The Role of Corporate Giving and Sponsorship
As a business owner, our fictitious friend Marcus from the opening vignette was well acquainted with
requests from local nonprofits for donations. Early in his company’s history he established a budget
for charitable giving and delineated the specific organizations to be supported. Corporate giving pro238 Strategies of Not-for-Profit Organizations
grams, also referred to as corporate philanthropy, generally involve cash or in-kind contributions to
not-for-profit organizations and increasingly include support of volunteer efforts by employees.
These giving programs are separate from corporate foundations (which are discussed in Chapter 2);
they are generally administered by corporate staff using operating budget funds. As such, corporate
giving programs usually do not have a separate endowment, and disbursal of funds tends to fluctuate
with company profits.68 From a research standpoint, further study is required to empirically establish
this relationship; from a practical standpoint, nonprofits should expect lower levels of corporate giving
when corporate profits are in decline.
Why Corporations Give
Started in 1999, Chief Executives for Corporate Purpose (CECP) is a nonprofit based in New York
City dedicated to improving corporate philanthropy by focusing on leaders within the business community. Membership in the organization includes CEOs and chairpersons of 250 companies that represent $21.2 billion in social investment.69 In 2008, CECP released a report based largely on research
by McKinsey & Company, which included in-depth interviews with 24 CEOs and executives as well
as a global survey of more than 700 business executives regarding their companies’ philanthropic
efforts. Among the findings were that 84 percent of international respondents believe society expects
businesses to be more actively involved in addressing social, political, and environmental issues than
in the past; 75 percent of respondents identified corporate philanthropy as an effective means to accomplish that.70
CECP’s Giving in Numbers: 2018 Edition was based on corporate giving information provided by
252 companies—including 67 of the Fortune top 100 publicly traded companies in the United States—
that generated a combined $11.3 trillion in aggregated revenue. According to these data, the median
total giving was $19.2 million; the median for those companies in the top quartile was $55.3 million.
Ninety percent of companies matched employee donations to charity, and 65 percent of companies
had programs offering paid time off for employees to volunteer.71
Christina Gold, CEO of Western Union Company, in an interview with The Chronicle of Philanthropy,
noted that corporate philanthropy has moved beyond the traditional method of simply presenting an
oversized check to a worthwhile cause, and that there is a growing interest in partnerships to address
issues of mutual concern. In the case of Western Union, she stated:
We engage in philanthropy because it is the right thing to do and are not looking for a business return in
the traditional sense. However, we have aligned our corporate citizenship with our brand and identity as
a corporation. As a business, we create tremendous economic opportunity.72
Aligning corporate citizenship refers to the tendency among corporations to channel their philanthropy dollars to causes and issues that are related in some degree to their business interests. In the case of
Federal Express, for example, three of the ways the company focuses its corporate giving involve: 1)
emergency and disaster relief (requests for free shipping are granted almost exclusively in this area);
2) road safety; and 3) environmental sustainability, primarily in the area of transportation solutions.73
The Influence of Corporate Philanthropy
The most effective corporate philanthropy programs have three primary characteristics in common: the
CEO provides active leadership, the giving program is structured in conjunction with the overall business
strategy, and corporate philanthropy is viewed as an investment in the business of the company.74 In the case
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 239
of FedEx just cited, thousands of company vehicles are on the road every day; enhancing pedestrian safety
and awareness, particularly among children, has direct bearing on the daily operations of the company.75
Corporations are increasingly aware of the dangers of paying too little attention to social responsibility.
Not only can their choice of causes as well as giving levels affect market share, but there is some evidence to
suggest that corporate philanthropy has an impact on the ability to recruit and retain employees, as well.76
Corporate philanthropy is generally considered a win-win situation for corporate partners and
the nonprofits that receive funding from them. Whether it involves enough ice cream sandwiches to
feed 150 kids at the annual farm safety day camp or $15,000 in matching funds to buy playground
equipment, nonprofits rely on corporate partners in myriad ways. When the mission of the nonprofit
organization meshes with the company’s product or services, the nonprofit’s ability to influence policy
is enhanced beyond just the ability to deliver more services with greater resources. In the case of FedEx,
for example, the company partners with SafeKids Worldwide, a global nonprofit focused on preventing
unintentional childhood injury.77 FedEx is the sponsor of the nonprofit’s Safe Kids Walk This Way
program; through grants to establish task forces in local communities, FedEx and Safe Kids Worldwide
provide funding to community leaders to determine which projects would best facilitate a safer, more
walkable community, especially for children.
Individual Contributions and Fundraising
Individual contributions can take the form of cash placed in the Salvation Army kettle or a check mailed to
the World Wildlife Fund, but can also encompass donations of used clothing to Goodwill, canned goods to a
food bank, and pledges raised for the annual bike-a-thon. While often the first type of revenue that comes to
mind with regard to nonprofits, private contributions accounted for just over 13.3 percent of total nonprofit
revenue in 2013, as reported to the IRS.78 It is important to note that IRS data exclude churches, which are
not required to file the IRS Form 990. According to the 2018 edition of Giving USA (which does collect data
on donations to churches), for 55 years, religion has received the lion’s share of charitable contributions—33
percent of total giving in 2009—this dropped below 30 percent for the first time ever in 2018.79
While churches rely almost exclusively on individual contributions, it is likely that small nonprofits
also rely on private donations to a disproportionately greater degree than larger ones. According to
the Nonprofit Research Collaborative (NRC) February 2011 survey of more than 1,600 nonprofits,
36 percent of the smallest organizations received 75 percent or more of their contributions from individual donors.80 Changes in giving patterns by individuals, therefore, are more likely to have serious
consequences for small as compared to larger organizations. Fortunately for small nonprofits, the
Winter 2018 NRC survey indicated that for the second year in a row there was no statistically significant difference in fundraising success rates by size of organizations; for all survey years prior to 2016,
smaller nonprofits were less likely to meet their fundraising goals.81
Individuals, through either direct contributions or bequests, gave over $292.09 billion dollars to
nonprofits in 2018; despite being the third-highest total dollar amount of individual contributions
(adjusted for inflation), this represents a slight decrease in total charitable giving from 2017.82 The
NRC survey found other major sources of donations were major gifts (94 percent), planned giving (92
percent), and foundation grants (90 percent).83 Fundraising methods that resulted in notable increases
in receipts for nonprofits included special events, email, and SMS/Text. The percent of respondents
that indicated they successfully used these methods in 2016 and 2017 rose from 54 percent to 63
percent for special events, the largest percentage increase. It is important to note that use of SMS/Text
generated increased receipts for 44 percent of respondents in 2016 and 47 percent of respondents in
2017, exceeding the number of organizations that saw increased receipts from telephone solicitations
(38 percent in 2016 and 43 percent in 2017).84
240 Strategies of Not-for-Profit Organizations
Individual contributions are obviously important to nonprofits, particularly small organizations.85
People contribute to nonprofits primarily because they have established some sort of relationship with
the organization. This is supported by the NRC study, which found that 86 percent of respondents
reported contributions by board members, as compared with only 25 percent receiving contributions
as the result of telephone solicitations. The nature of the relationship can be a long association as with
board members or a new affiliation because someone asked them to attend a special event fundraiser.
Major gifts—whether through a sizable donation for a specific project or as a bequest in a will—
usually result from the cultivation of a long-term relationship with the donor, including good stewardship of earlier donor gifts.
The process of fundraising, also known as fund development, has its risks as well as rewards. Risks
with major gifts may arise when the donor seeks too much control over the funds donated or when the
donor stipulates a use of the donation that is contrary to the mission of the organization. In that case,
it is in the best interest of the organization to decline the contribution, which can be quite a delicate
matter to handle.86 There are the risks that the process of raising the money will incur expenses that
exceed the revenues generated, as noted in the following discussion of special events fundraising, or
that a donor’s reputation or policy-related actions conflict with those of the nonprofit. Michael J. Rosen
provided two examples that illustrate this point well—Lucy the Elephant and the Jimmy Savile Trust.87
Lucy the Elephant—a six-story elephant built of wood and tin in 1881—was in need of repairs, so
the nonprofit that operates Lucy as a tourist attraction began a fundraising campaign. People for the
Ethical Treatment of Animals (PETA) offered a significant donation with stipulations that a large tear
be painted below one of Lucy’s eyes and a shackle be attached to one foot; this was intended to advance
PETA’s efforts to change policy allowing elephants to be used as circus animals. Lucy the Elephant’s board
of directors rejected the gift, stating that the alterations required as part of the gift were inconsistent
with the organization’s mission to provide a happy experience for children who visit.
In the second example, Jimmy Savile had been a huge radio and television star in the United
Kingdom from the 1960s until his death in 2011. In addition to being a celebrity, Savile was a popular fundraiser, including his work with the foundation that bears his name, the Jimmy Savile Trust.
Following his death, hundreds of individuals came forward with claims that Savile sexually abused
them; the incidents of abuse spanned five decades, and many of the victims were children at the time.
Savile is now largely viewed as a “wicked predator,” and his name has been removed from many places
or organizations that had been named for him. The work of the Jimmy Savile Trust has become more
challenging as organizations question the appropriateness of accepting funding tainted with his name.88
Using Electronic Media to Solicit Contributions
Idealware is a 501(c)(3) organization established to provide “thoroughly researched, impartial and accessible resources” to assist nonprofits in making decisions about software.89 In November 2009, Idealware conducted a survey of 459 staff members at nonprofits who were using some form of social media
at the time—Facebook, Twitter, MySpace, LinkedIn, video-sharing, photo-sharing, or blogs. Results
indicated that while almost three-fourths of respondents felt social media were effective at enhancing
relations with people who already knew their organization, only 26 percent felt social media tools were
effective at raising money.90 Ten years later, the landscape had significantly changed.
Approximately two-thirds of the respondents to the NRC Winter 2018 survey saw increases in dollars
raised using general online fundraising methods; almost half (47 percent) saw increases in dollars from
SMS/Text methods.91 Further evidence of the growth in online fundraising comes from the M+R 2018
Benchmark Study of data from 154 nonprofits. Its results indicated online giving increased in 2017 by 23
percent, following an increase of 15 percent in 2016; monthly online giving rose 40 percent from 2016.92
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 241
Other research has confirmed the growth of fundraising through online platforms.93 For example, the
Blackbaud Institute Index, which tracks $37 billion in charitable giving (9,000+ organizations), found that
small nonprofits (<$1 million in revenue) lead their larger counterparts in percent of total fundraising from
online sources; 13.4 percent of total fundraising for small nonprofits in 2018 came from online donations.94
The Gift of Giving
In a related vein are situations in which individuals are foregoing gifts to celebrate milestone occasions,
soliciting contributions for nonprofits instead. For example, the for-profit tech company Causes (www. makes charity gift cards available in some grocery stores in California for those who want to
give the gift of giving. Increasingly, individuals are foregoing gifts for special occasions and asking friends to
make donations instead. Facebook announced in August 2018 that the first year of its birthday fundraisers
generated in excess of $300 million for nonprofits, including $1.08 million for Raising Malawi from those
celebrating Madonna’s 60th.95 Probably the most high-profile recent example that set a trend in this area
was the 2011 request for donations in lieu of gifts to The Prince William & Miss Catherine Middleton
Charitable Gift Fund. For the first time, a royal couple requested that those who wished to give them a
wedding gift do so in the form of a donation to support one of the 26 charities active in the five issue areas
identified as important to them.96 This was followed with requests in 2018 and 2019 from Prince Harry
and Meghan Markle, now the Duke and Duchess of Sussex, for donations in lieu of gifts for their wedding
and the birth of their first child. While this type of giving has increased in popularity, it is not likely to be a
stable source of revenue for nonprofits because they are not actively involved in generating it.
Special Events Fundraising
As anyone who has organized a bake sale or golf tournament knows, special events provide great marketing as well as fundraising opportunities, but they usually require a significant amount of human and
financial resources to accomplish successfully. In deciding whether to conduct a special event, or ask a
donor to participate in one rather than make a direct contribution, it is important to also consider the
intangible benefits of special events. A gala Fur Ball event can be as much a way of rewarding animal welfare supporters and recognizing shelter volunteers as raising funds. A sand sculpting competition incurs
significant expenses, but it is also likely to receive good press coverage for the not-for-profit organization.
Some events, like the American Cancer Society’s Relay for Life are successful at raising money as well as
generating intangible benefits. In 2016, the American Cancer Society (ACS) had fundraising revenues
in excess of $391 million; its Charity Navigator fundraising efficiency metric—the cost to raise $1—was
$0.22.97 Relay for Life is not ACS’s only series of fundraising events, but it is the most prominent, raising
awareness about cancer and offering emotional support to survivors, their friends and families, as well as
to those who have lost loved ones to the disease. As is discussed in Chapter 9, the primary value of special
events is often to serve as a successful marketing tool for the nonprofit.
An innovative way to overcome the costliness of special event fundraising is to generate economies of
scale by hosting an event to benefit nonprofits community-wide. In 1997, the Community Foundation
of Jackson Hole’s Old Bill’s Fun Run for Charities was the first event of its kind in the United States.
That first year, Old Bill’s Fun Run generated more than $1.8 million; the 2018 total was $13.3 million.
Each annual Fun Run has generated more than the previous year, and more than $159 million overall
has been raised for nonprofits in Teton County, Wyoming.98
Events such as Old Bill’s Fun Run are a way to address donors’ concerns about efficiency—specifically whether a direct contribution would be a more efficient way to donate than by participating in
a special event—because they use contributions as matching funds to leverage additional donations.
242 Strategies of Not-for-Profit Organizations
Old Bill’s Fun Run was initiated by an anonymous couple (known to the community as Mr. and Mrs.
Old Bill), who proposed the idea when they gave their first matching gift. Each year Mr. and Mrs. Old
Bill donate the first $500,000 and then co-challengers are recruited to enhance the pool of matching
funds; the Community Foundation of Jackson Hole then challenges the community to give. Area
nonprofits solicit individual donations to be matched by the challenge funds leading up to the events
of Fun Run Day, which include a 5K fun run/walk, and a 5K or 10K timed run as well as information
booths provided by participating nonprofits. Matching funds are distributed based on a formula that
depends on the total amount of challenge funds raised as well as the funds generated by the participating
nonprofits. In 2018, the challenge funds totaled $3,583,188 and the designated contributions from
3,808 donors totaled $13,316,364. This resulted in a matching grant of approximately 50 percent to
each of the 200 participating nonprofit organizations.99 More information on Old Bill’s Fun Run and
the Community Foundation of Jackson Hole is available at
Old Bill’s Fun Run is not only an example of a consistently successful nonprofit fundraising event, it is
also a model for how the local nonprofit community can share the expense of fundraising and minimize
the negative effects of competing for revenues from a common pool of donors. Too many fundraising
events in a community run the risk of inducing donor fatigue. Even the most philanthropic can easily
grow weary of being asked to buy yet another item through silent auction, and new nonprofits often
scramble to choose a unique event to compete with the 5Ks and Fur Ball galas of the long-established
organizations. While nonprofits are still likely to host individual fundraisers that reflect in some way
on the mission of the organization, community-wide fundraising events such as Old Bill’s Fun Run
have great potential for the nonprofit community overall.
Endowments Promote Long-term Viability
Endowments provide income to nonprofits through the proceeds of their long-term investment and
are the final source of revenue to be discussed in this chapter. Nonprofit organizations benefit from
having an endowment due to the security of the stable revenue stream that it provides. Revenues are
not guaranteed, of course; they are subject to the rate of risk inherent in the investment strategies
chosen. When properly established and maintained, endowments can be a valuable tool to ensure
the long-term viability of the programs offered by the organization as well as providing for ongoing
maintenance of buildings and materials pertinent to the nonprofit’s mission. Endowments can be
established with funds from a single donor, as a result of a fundraising campaign aimed at multiple
donors, or can be compiled from excess revenues generated by the nonprofit’s operations.
Legal Restrictions on Endowments
While commonly understood to be funds invested to provide ongoing income for a nonprofit, endowments are defined in a legal sense based primarily on whether use of the funds are restricted by the donor at
the time of endowment. Under the Uniform Management of Institutional Funds Act (UMIFA) of 1972,
endowment “refers to a restricted fund whose specifications at the time of the original gift require that
the funds are not wholly expendable on a current basis.”100 In this sense, endowments are restricted funds
designated by their donor to be invested and a portion of the proceeds disbursed over time for a specified
charitable purpose. UPMIFA provides guidance and restrictions to nonprofit boards on issues such as investment of funds and expenditures of earnings.101 As of June 2011, all 50 states had enacted UPMIFA.102
One of the primary differences between UMIFA and UPMIFA is the restriction regarding the amount
of funds that can be expended from the endowment each year. Under UMIFA, boards had to protect the
“historic dollar value” (HDV) of the endowment—that is, the dollar value of the original and subsequent
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 243
donations to the specified purpose. While initially considered prudent guidance, in severe economic times,
the provision proved a serious hurdle. The stock market declines in 2001–2002 and 2008–2009 placed many
endowments underwater—the term used to describe a situation in which the current value of investments
is below the value of the original donation(s)—and the charities that relied on them were unable to draw
from their fund at a time of corresponding budget crisis. UPMIFA addresses this situation by removing
the HDV requirement and giving boards the ability to expend “in good faith” as much of the endowment
funds as they deem prudent.103 Some states have adopted an optional provision that prevents expenditure
of more than 7 percent of an endowment in one year or requires notification of the attorney general if the
charity plans spending that would reduce the endowment below its HDV.104
Given the financial effects on individual nonprofits and the sector as a whole of the COVID-19 pandemic,
UPMIFA and related state laws may once again be key to nonprofits’ survival. Endowments have undoubtedly been affected by significant fluctuations in the stock market caused by concerns related to COVID-19.
Nonprofit revenues were affected in unprecedented ways as ticket sales disappeared when performances were
canceled and facilities closed because of stay-at-home orders across most of the states. Unprecedented millions
of Americans lost their jobs, a harbinger of reduction in charitable giving during an expected increase in
demand for human services nonprofits. While too early to predict the overall financial toll of COVID-19
on the voluntary sector, it appears poised to eclipse the negative impacts of the Great Recession.
The UPMIFA only applies to endowments as specifically defined in the act—that is, funds restricted
by the donor. Funds that are combined from various sources and designated by board members to serve
as an endowment are referred to as quasi-endowments and are not subject to the same legal restrictions.105
For example, if Marcus from the opening vignette donated $50,000 to endow a scholarship to benefit a
student studying engineering, the university would be subject to the provisions of UPMIFA in administering the endowment. In contrast, if one of the ReStore outlets previously discussed had a particularly
good year and sales revenue exceeded current operating expenses, the Habitat board could place the excess
revenues in its building fund endowment; these funds would be considered unrestricted and not subject
to UPMIFA, which means they could be withdrawn and spent completely at the board’s discretion.
For organizations such as the Milton Hershey School, endowments not only provide funds for establishment and basic maintenance, but also can generate revenue to serve clients beyond the donor’s
expectations. The $60 million that Milton Hershey donated to the School Trust in 1915, for example,
is part of an endowment that exceeded $14.22 billion in 2016;106 the trust and the school it supports
are discussed further in Exhibit 10.1.
Endowments are not without their detractors. Some scholars and practitioners argue that endowment funds should be spent to benefit the current generation rather than accumulated by foundations
and not-for-profit organizations for future needs.107 While the overwhelming majority of foundations
indicate plans to exist in perpetuity, attention has focused recently on what some believe is a growing
trend toward limited life foundations.108 Discussion centers on whether funds should be used to address
the policy issues and public problems of today or invested to address the issues of the future.
Exhibit 10.1
For Example
The Milton Hershey School Trust: Endowing a Better Future
The Hershey Chocolate Company began operations in 1894; in 1909, Milton and Catherine Hershey
established a boarding school for orphan boys and established the Milton Hershey School Trust to pro244 Strategies of Not-for-Profit Organizations
vide funding. Initially, the Hersheys endowed the Trust with farmland and related accoutrements of the
Homestead, Milton Hershey’s birthplace. Following the death of his wife in 1915, Hershey transferred
most of his wealth—$60 million in Hershey’s Chocolate Company stock as well as other assets—to
the School Trust in what has been referred to as one of the largest philanthropic gestures of the century.
The School Trust has grown tremendously over the last 100 years. By 2016, Hershey’s endowment had grown in value to over $13.22 billion. According to Schedule R of its 2016 Form 990,
the Milton Hershey School Trust held 56 percent of the total outstanding Common Stock and
Class B Common Stock in Hershey’s Chocolate Company; this, in effect, means that the School
Trust controls almost 82 percent of the voting power, thereby making the trust the company’s
largest shareholder. In addition to chocolate company stock, the trust has 100 percent ownership
in the Hershey Entertainment & Resorts Company (HERCO). As these for-profit entities prosper,
the Milton Hershey School Trust and the school’s students do likewise.
From an initial size of 486 acres and enrollment of 10 boys, the Milton Hershey School has
grown to encompass a 2,640-acre campus and enrollment of more than 2,000 underprivileged
boys and girls (the original Deed of Trust was modified during the 1970s to allow admission of female and minority students). According to the explanation of mission on Schedule O of the 2016
Form 990, the mission of the Milton Hershey School is to provide “a nurturing home and school
to children in need.” Neither the children nor their families are charged tuition or fees, and all
students come from families living at or below the federal poverty line. Children as young as four
years old are accepted at the School, which educates students from pre-K through 12th grade. The
more than 173 student homes are each staffed with full-time, live-in house parents and accommodate 8 to 12 students each. In addition to a free pre-K–12 education, students are also given
the opportunity to earn scholarship credits toward college expenses based on annual academic
performance and certain other conditions. In 2016, the trust indicated that 81 percent of its high
school graduates go on to a two- or four-year college and that the trust’s scholarship credits cover
most of their tuition, fees, room and board.109
More information on Catherine and Milton Hershey, the Milton Hershey School, and the
Hershey School Trust can be found by accessing: 1) the school website at;
2) the Hershey’s Chocolate Company website at and search Hershey’s History of
Happiness; and 3) the website for the Hershey Trust Company at
The Policy Implications of Charitable Giving
Every charitable contribution has at least passive public policy implications; a dollar given to one nonprofit is a dollar denied to the pursuit of another one’s mission. Given the growing number of nonprofit
organizations and proliferation of donation options, the policy implications of nonprofit funding are increasingly important. Nonprofits strapped for cash may choose funding options that strain their pursuit
of mission. Conversely, nonprofits that suddenly find themselves flush with cash from the benevolence of
a large gift may struggle with how best to enhance their public interest mission with the new largesse. For
example, Ruth Lilly (the pharmaceutical heiress) gave $175 million to the Modern Poetry Association
in 2002. At the time the gift was announced, the annual budget of the Association was $600,000 and
its primary activity was publication of Poetry Magazine. Obviously, the gift altered the operations of the
nonprofit as well as its defined mission, but it also led some to question the public benefit of the gift and
whether the funds would be better spent elsewhere.110 In this case, a favorite line from a movie comes to
mind, “More isn’t always better . . . sometimes it’s just more.”111
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 245
More is not always better even with regard to disaster relief. In 2004, Doctors Without Borders,
USA/Médecins Sans Frontières received swift criticism for its decision to stop accepting donations
three days after a tsunami in South Asia. In those three days, it had raised $20 million ($16 million
via the Internet), which was enough to send 200 aid workers and 2,000 metric tons of relief supplies
to the affected region. Its reason for refusing additional donations was that they would not have been
able to honor donors’ intent; the money was not needed for the organization’s tsunami relief efforts,
and would have had to be used elsewhere.112
Subsequently, in the case of the devastating earthquake and tsunami that hit Japan in early 2011,
the nonprofit charity watchdog advised prospective donors not to donate to charities
soliciting donations for the tsunami relief effort. The lack of government request for assistance coupled
with the Japanese Red Cross statement that they were not seeking external assistance led GiveWell.
org to conclude that donations would likely be used for other purposes. Specifically, the position of
GiveWell was that “the people and government of Japan are extraordinarily well-prepared, as well as
competent and well-resourced, and do not need significant external assistance . . . [t]herefore, you as
a donor do not have the power to improve the relief and recovery effort in Japan.” For those who still
wanted to make a donation, Doctors Without Borders was the recommended option because it was
not soliciting donations specifically for tsunami relief and was explicit that donations to it would be
used for their general international relief efforts.113
All giving has policy implications, and in this case, the likelihood that donations solicited for one
purpose would be used for another led a charity watchdog organization to encourage potential donors
to redirect their largesse. For victims of the Japanese tsunami, more funding from donors probably
would not have improved the disaster relief efforts. The desire to help, however, makes people susceptible to unscrupulous fundraisers; when the disaster is thousands of miles away, it is even more difficult
for donors to ensure their contributions are used as intended. Organizations such as,
therefore, provide useful counsel for potential contributors.114
Over funding in the immediate wake of disaster was a lesson learned by Americans post-9/11. Immediately following the tragedies of September 11, 2001, several well-meaning celebrities rushed to organize
a telethon to raise money for the victims and their families. Americans responded with typical generosity,
some celebrities gave their own six-figure gifts, and much money was raised for a very good cause. The
problems came with regard to disbursal of the funds. Because the funds were raised for a cause and not
for a specific organization, the nonprofit infrastructure to disseminate the largesse was lacking. Even the
well-established Red Cross experienced difficulties when faced with record amounts of blood donations
and more funds designated for 9/11 relief than could be appropriately spent. When the Red Cross tried
to use some of the funds generated through the solicitation of donations for 9/11 relief efforts for other
purposes, a scandal erupted that ultimately led to the resignation of the CEO, Dr. Bernadine Healy.115
As stated earlier, how individuals give affects public policy, often in ways they do not realize if
they do not properly research the organizations before sending their donation. For example, the
devastating effects of Hurricane Katrina on New Orleans and parts of the Gulf Coast heightened
awareness of the impact of natural disasters on pets. Many were moved by the images of dogs
and cats that were abandoned when their owners were forced to evacuate without them. Several
nonprofits solicited donations in order to rescue and care for those homeless pets, and increased
awareness led to passage of the Pets Evacuation and Transportation Standards (PETS) Act of
2006. State and local governments are now required to include plans for evacuating pets into
their emergency preparedness plans in order to receive funding from FEMA (Federal Emergency
Management Agency).116 The PETS Act illustrates how contributions affect policy and how policy
can affect funding; Exhibit 10.2 illustrates how funding for four different animal-related nonprofits
has different public policy implications.
246 Strategies of Not-for-Profit Organizations
Exhibit 10.2
Case Study
The Policy Implications of
Donations in Support of Animal Causes
All charitable contributions have at least basic policy implications because a dollar donated to one
organization is a dollar that is not contributed to any other organization; because nonprofits use
their funds to support a myriad of activities, the direct and indirect impact on public policy varies.
For example, within the area of animal care and protection, dollars donated to seemingly similar
nonprofits result in at least passive support for quite different policies. Before donating to a nonprofit to improve animal well-being (or for any cause, for that matter), it is important for donors
to make sure they agree with the philosophical orientation of the organization because their dollars
will likely facilitate advocacy and other policy-related activities.
Animal-related nonprofits such as the American Society for the Prevention of Cruelty to
Animals (ASPCA), American Humane (AH), the Humane Society of the United States (HSUS),
and People for the Ethical Treatment of Animals (PETA) oppose cruelty to animals. Specifics as
to what constitutes cruelty and how best to protect the well-being of animals vary among them,
however. Organizations with an animal welfare perspective oppose cruelty to animals and view
pets as private property whose owners have a duty to care for them with compassion. Individuals active in organizations with an animal rights perspective distinguish nonhuman animals as
having legal and social rights on par with human animals and advocate guardianship rather than
ownership of pets.117 Variations in the policy stances of the four organizations are illustrated
using two issues: 1) mandatory spay/neuter ordinances, and 2) use of animal actors.
Mandatory spay/neuter (MSN) laws are typically local government ordinances aimed at reducing the overpopulation of dogs and cats by requiring pet owners to sterilize their animals or pay
a fine. Professional or hobby breeders— individuals who breed and train dogs to be companion
or working animals—are generally opposed to these ordinances because of the fines they face in
order to continue to breed their dogs and the risk that an animal might be sterilized without their
consent if it were lost and taken to an animal shelter. The ASPCA and American Humane support
voluntary spay/neuter programs, but neither supports legislation that mandates sterilization of all
dogs and cats.118 HSUS supports mandatory spay/neuter laws.119 PETA opposes the breeding of
dogs and cats, particularly purebred dogs, and advocates for universal spaying/neutering.120
Animal actors are those trained to perform for public audiences, primarily in movies, television
shows, and commercials. PETA opposes the use of live animals in film, considering all animal actors to be subjects of abuse by their trainers;121 the Humane Society of the United States opposes
the use of “captive wild animals” in film and television.122 The ASPCA is not categorically opposed
to animal actors so long as the animals are treated humanely.123 Finally, American Humane is the
group sanctioned by the Screen Actors Guild to protect animal actors. Through its regulations
and on-site monitoring efforts, AH is responsible for the presence (or notable absence) of the “no
animals were harmed…” end credit in films.124
As these examples make clear, before donating to a cause, it is important to review the philosophy and stance on policy issues of any nonprofit organization. In addition to reading information
on mission and advocacy activities from each nonprofit’s website, it is a good idea to check its
ratings and financial information as well as the reviews posted by previous donors available from
watchdog groups such as Charity Navigator and GuideStar by Candid.
Resource Development: Capacity, Campaigns, Commercial Ventures, and Grants 247
1. If you have contributed to any of the organizations previously discussed, were you
aware of the policy stances of the organization at the time you donated? If you have
not contributed in the past, to which organization would you be the most likely to
donate? To what extent did the policy positions of the organization affect your choice
of organization and/or the amount you would contribute?
2. For each of the four organizations discussed, identify the most likely and least likely
sources of its funding—including online contributions, special events, commercial
ventures, corporate funding/sponsorship, or endowments. Explain.
3. Consider the four relationships described in the Nonprofit-Policy Framework (make
policy, influence policy, affected by policy, subject to policy) and discuss in which
way(s) these relationships are reflected in the examples of the four animal-related
4. Is the situation of competing perspectives such as animal rights versus animal welfare
unique among nonprofits active in the same policy issue area? Explain how competing
perspectives could either facilitate or hinder public policy development.
Public Policy Consequences of Grants and Contracts
Just as revenues from private donations imply public policy choices, government and foundation
grants as well as government contracts embody p