Wolf (1999) notes that a nonprofit organization is neither in the profit sector nor in the public sector but sits somewhere between the two. This position allows the nonprofit great flexibility in its operation but requires great skill in its management. Nonprofit organizations have characteristics of profit and public organizations. Wolf defines nonprofit organizations as “those legally constituted, nongovernmental entities incorporated under state law as charitable or not-for-profit corporations that have been set up to serve some public purpose and are tax exempt.” All nonprofit organizations must have the following characteristics:
• They must have a public service mission-their main goal must be to serve others, not themselves.
• They must be organized as a not-for-profit or charitable corporation-they must formally claim to be non-profit.
• Their governance structure must preclude self interest and private financial gain-this goes back to the first characteristic in that the organization’s main goal is to serve people.
• They must be exempt from paying federal tax.
• They must possess the special legal status that stipulates gifts made to them are tax-deductible.
It is obvious that the nonprofit sector has expanded dramatically over the past few years, so has public scrutiny over the sector. Governance is needed to ensure that the organization is providing services that are permitted within the legal system and the bylaws and to ensure that the organization does not permit fraud, potential abuse, and violations of the expectations of the public. Governance of a nonprofit can be defined as the ultimate authority, accountability, and responsibility for an organization (Ott 2001). Leadership, such as the board, is important in the nonprofit sector because it is governed through a complex set of functional roles and procedures that are defined in laws and tax codes that differ from those for the public and for-profit sector. The board is responsible for policies, procedures, financial outcomes, and ensuring that the mission of the organization is being implemented and accomplished to the best of the organization’s ability to serve its target population or general public.
Nonprofit organizations are created because of a need to help others, to create a safer environment, or just to be an active part of modern society. Nonprofits were developed to serve a public need, whether that need is to inform the public of health issues or to offer recreation to youth in a low-income neighborhood.
There are some challenges that nonprofit organizations face in our modern societies. The first major challenge for a nonprofit organization is articulating a clear public service mission. A nonprofit organization is required by law to limit its activities to those articulated in the mission statement, so the mission statement must be broad enough to cover all possible activities. The mission statement must also guide the direction of the organization’s programs, services, and activities. In addition, a mission statement may require review and revision over time. For example, an arts council can begin with a mission to develop, foster, and promote the arts, and then develop a stronger mission statement that provides detailed plans for programs and activities, such as working with the school district to develop art education programs, and seeking funds from state, federal, and private sources.
The second major challenge is risk/survival analysis: the search for the proper balance between organizational extension and risk-taking, and organizational security. Engaging in risk/survival analysis means having an understanding of what should and should never be compromised, always being cognizant of the mission and whether or not daily activities or decisions are in harmony with that mission. This challenge identifies a great dilemma for nonprofit organizations: whether it is more important to ensure survival of the organization or to stay true to the mission. There is no easy answer. To meet this challenge, the organization must continually plan, analyze future options (both practical and idealistic), and debate the pros and cons of each option.
The third major challenge facing a nonprofit organization is constituency identification and involvement. Identifying and involving the constituency entails having a working knowledge of the clientele you desire to serve. This must not be too narrow or too broad. The nonprofit organization must establish a concise identification of its constituency in order to avoid problems in this area. The organization must identify the group that it seeks to serve, and then must create a structure that supports a commitment to that group. To meet this challenge, the organization must have a well-defined understanding of its constituency, seek to involve the constituency at all levels of the organization (particularly at the trustee level), and provide programs and activities that reflect a commitment to the constituency.
The fourth major challenge is testing for organized abandonment: that is, disbanding that is the result of careful deliberation, rather than unplanned events, such as financial crisis or management problems. In order to meet this challenge, the organization must have a clearly defined mission, establish criteria for evaluation of the mission, and have a formal system to determine whether or not the mission is relevant and effective. The organization must examine whether or not its mission is obsolete or if other organizations are more effective in achieving its mission.
In conclusion, nonprofit organizations go where other organizations fear to tread. Nonprofits eagerly work with the most disadvantaged members of society-the homeless, the hungry, the ill, and the befuddled. Nonprofits fill the gaps in society-consider the thousands of charter schools that have sprung up to provide a genuine alternative, most frequently for students from disadvantaged backgrounds. Nonprofits extend and even function as government service-providers: how would most governmental social service agencies function if not by contracting out to tens of thousands of nonprofit service providers. Think too of the thousands of neighborhood associations that knit together their communities, and sometimes act indistinguishably from chartered governments. Nonprofits help people find meaning-both through quiet worship and organizing millions of people to do “good deeds.” People who want to “do something, to give back to society” sometimes do so through governments, but most do so through nonprofits. Millions of volunteers contribute and share in the nonprofit sector. Finally, unlike the other sectors, the nonprofit sector does not start out by asking how much money can be made, or where the money is going to come from; no, the nonprofit sector asks what the need is and how to fulfill the need. Only then does it seek strategies to support the social needs it discovers. Although by nature humble, it is the nonprofit sector that makes our complex and frequently materialistic and even selfish society, humane, purposeful, and cohesive. The private sector may provide the engine of growth and a quality of life; the public sector may organize us and keep the private sector in line; but it is the nonprofit sector that is our heart, our soul, and our spirit as a society.
Ott, J. Steven (ed.), Understanding Nonprofit Organizations: Governance, Leadership, and Management, Westview Press, Boulder, CO: 2001.
Wolf, Thomas, Managing a Nonprofit Organization in the Twenty-First Century, Simon & Schuster, New York: 1999.