Why Does “Non-Profit” Seem So Special?


I have talked a bit about this phenomenon before, but it just keeps showing up. Recently there was a “study” that compared non-profit hospice agencies with for-profit agencies. I was at a meeting last week with a number of organizations, all in the senior care industry, with a few representatives around the table reflecting on the aura of ethics in the not-for-profit world. Last night, I saw three commercials (can we all absorb the meaning of that word for a moment?) for a large non-profit organization in the senior care industry, with each of the commercials stressing the not-for-profit nature of the organization.

As someone who served as President and Executive Director of a non-profit association for ten years, I get frustrated when folks think that status equates to the highest level of altruism and ethics. All it really means is that there are no stock owners to whom profits are distributed at the end of the year. It does not mean that there are no profits – any business that is not making a profit at the end of the year is not going to be around very long – nor is the management team that is running it.

Profit

So, does the Red Cross distribute dividends and profits at the end of the year? No. During the year, however, a heck of a lot of money is being paid to the people who work there. In 2010, the top 15 executives had total compensation ranging from a low of $316,572 to a high of $621,779. That is a heck of a lot more than most for-profit small business owners make. Does it mean the Red Cross is evil? Of course not. Does it mean that the Red Cross is making a whole lot of operating profit, in order to be able to pay out that compensation? You better believe it. Being a non-profit organization, frankly, means nothing about the quality of service or the operating ethics.

Some non-profits look a lot more like opportunities for paying salaries than for providing service. A number of years ago, the State of Washington published a study of fund-raising and charitable spending in that state. Part of the conclusion was,

Commercial fundraisers soliciting in Washington state reported raising more than $225 million in charitable donations during their most recent fiscal year. Of that amount, $131.5 million went for fundraising expenses and profit. The remaining $93.5 million was retained by client charities — an average of 41.5 percent.

More than a third of the 80 fundraisers listed in the report provided their charity clients with 20 percent or less of their contributions they collected. Of those, seven provided their clients with ten percent or less, including one whose charity client received less than three percent of the total funds raised.

So, my point is, whether it is deciding which charities to contribute to or which businesses to choose for services, we really need to understand that the label of non-profit versus for-profit is, from the standpoint of quality and ethics, meaningless. I have managed businesses in both categories. The way I ran the businesses, ethically and in terms of service to the community and clients, was exactly the same.

Regardless of for-profit or non-profit status, look for transparency in the operation. Will the business tell you how money is being obtained and how it is being used? Great. If not, look again.

Best wishes. Bert

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