Like business, I believe nonprofits should be rewarded when they demonstrate financial success and laid to rest when they don’t. (I can feel jaws dropping and arrows hurtling toward me).
Businesses are held financially accountable by the market. Increasingly, we’re holding them accountable for their social impact as well. We reward humanistic companies with our purchases, our employment and our advocacy.
Yet our relationship (both the positive and negative) with nonprofits hasn’t evolved. We expect nonprofits to be socially effective and financially solvent without much reward for success in either category. Sure, Charity Navigator rates the efficacy of nonprofits, but that holds about the same amount of sway as a Good Housekeeping seal today. It’s a minimal influencer of donor dollars and social benefit.
Why don’t we apply the same market forces to reward nonprofits for their social impact and penalize them for lousy financial performance?
Robert Egger, founder of D.C. Central Kitchen, advocates a return on investment (that is, a donation) that corresponds to the social productivity of nonprofit. Currently, a $20-donation to DCCK helps the organization train and put to work hard-to-employe individuals, the financial impact of which is significant. These gainfully employed individuals now pay taxes and are less likely to revert to crime or drug use, saving tax payers money in social service and prison costs. Much like a business, DCCK is able to leverage my $20-investment. Egger’s proposal to the nonprofit sector is to pay donors yearly dividends on their donations, based on the organization’s performance.
In a core conversation on crowd-sourcing social impact at SXSW, Brian Reich advocated that nonprofits that can’t cut it, should bow out. It’s a heretical perspective (applying supply and demand principles to social aid) that I share. If an organization can’t levy adequate (donor) support, it should make way for ones that can.
Cause Capitalism is about creating stronger businesses by integrating a social objectives. Why not also look at creating superior nonprofits by applying specific market mechanisms?
*N.B. I understand the absurdity of the term ‘nonprofit’ in this post, but it’s an understood label that I hope allowed me to communicate my point without messy jargon.