About The Author

D.Grabitske

An article last week on GuideStar’s newsletter reminded me of the classic Wendy’s commercial with an elderly woman demanding to know, “Where’s the Beef?” The article, Branding as a Fundraising Tool by Larry Checco, suggests that transparency, accountability, tracking and measuring results, professionalizing development efforts, having a web presence, and promoting your brand are what successful business people would recognize and find relevant at nonprofits.

He writes: “When asked how they would feel about operating in a more businesslike fashion, as well as incorporating branding strategies into their daily activities, many nonprofit leaders still tell me that “it would make us look too much like the for-profit sector.” And my response is always the same – Get over it!” Yet Checco does not advocate “nonprofits compromise their passion for their missions or co-opt their values or program strategies to appease business-oriented donors.”

Keeping Steven Miller’s comments in mind from the Under a Microscope discussion, are Checco’s remarks in line with Miller? Above all, where’s the line between charity and business?

 

6 Responses to Where’s the Line?

  1. Claudia Nicholson says:

    I don’t honestly see that these two men are talking at cross-purposes. I suspect that Miller is more concerned (properly) with the business enterprises that non-profits are taking on the aid them with their bottom line. The Monterey Bay Aquarium’s catering operation [competing with local caterers] is the example I remember most clearly as a non-profit organization using its status to compete against for-profit businesses. It is troublesome to consider that many non-profits need to supplement their fundraising with some type of for-profit activity set up entirely to generate revenue and not serve the mission, but that seems to be the world we are living in. [David's statistics on the rate of creation of new non-profits frightened the bejabbers out of me, when I look at raising funds.]

    What Checco seems to be saying is that good business practice is good business practice, whether it takes place in the non-profit or for-profit sector. He also says that potential donors who are business people will be attracted to a well-run organization. I do not read any of the activities he thinks we should be doing as something that would somehow turn us into for-profit businesses. Donors ARE demanding more accountability from us in how we manage and spend the money they’ve given us. Likewise, government IS demanding this accountability as well. Non-profit organizations exist on the landscape for a very specific purpose. And we get ourselves in trouble when we forget that.

    The line between charity and business is clearly defined, at least for me: a charity uses its assets and profits to serve the public good, whereas a business uses its assets and profits or serve the business owners/shareholders. But they should both be transparent, accountable to shareholders/the public, track and measure results, professionalize development efforts, have a web presence, and promote their brands.

    Reply

  2. David Grabitske says:

    In Minnesota the line is clearly defined in a legal ruling, North Star Research Institute v. County of Hennepin (1975), commonly called "North Star." The ruling specifies 6 factors in determining a public charity:

    (1) whether the stated purpose of the undertaking is to be helpful to others without immediate expectation of material reward;
    (2) whether the entity involved is supported by donations and gifts in whole or in part;
    (3) whether the recipients of the charity are required to pay for the assistance received in whole or in part;
    (4) whether the income received from gift and donations and charges to users produces a profit to the charitable institution;
    (5) whether the beneficiaries of the charity are restricted or unrestricted and, if restricted, whether the class of persons to whom the charity is made available is one having a reasonable relationship to the charitable objectives;
    (6) whether dividends, in form or substance, or assets upon dissolution are available to private interests.

    http://www.mncourts.gov/opinions/sc/current/OPA070468-1206.htm

    The above link is to a December 6, 2007 opinion of the Minnesota Supreme Court in a ruling that reversed a tax court ruling on property tax exemption for a day care in Red Wing. The court ruled that the Rainbow Day Care failed to satisfy factor 3. The Minnesota Council on Nonprofits is concerned and probably will follow up the ruling with conversations with state legislators.

    See: http://www.mncn.org/doc/CourtDecision.pdf

    In your opinion, how close to the line did Rainbow come?

    Reply

  3. Claudia Nicholson says:

    I think the Supreme Court makes a decent case for its decision in Rainbow, but I worry about it for the rest of us because it seems to suggest that we are somehow enjoined from charging for any of our services. I suspect that Rainbow Day Care’s owner got the idea to incorporate as a non-profit from someone and thought it sounded like a sweet deal. Nowhere in the opinion did I read that she sought funds from other sources but counties and local governments, and then, only through her parents. It simply doesn’t sound like a non-profit to me, but rather, a for-profit business trying to take advantage of non-profit status. Certainly, as a genuine non-profit, she would have had other strategies for funding kids of low-income parents?

    I answer the North Star Factors questions every time we renew our property tax exemption, but upon reflection, the factor that concerns me most is #4, which says that the organization cannot make a profit. That makes it sound as if a positive fund balance at the end of the year would put an end to our tax-exempt status. I am sure that is not the case, but sounds as if.

    The court was also careful to say that the North Star Factors notwithstanding, each case should be examined on its own merits. For us in museums, I do not see any worries in this decision, but I can see the MCN’s position, as it does pose new challenges to social service agencies that have for-profit counterparts in the world (nursing homes might be a good example).

    This is certainly something for us all to watch, but I won’t lose sleep over it.

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  4. David Grabitske says:

    Just to follow up. Minnesota Council of Nonprofits is very concerned with the Rainbow ruling. They have launched an education campaign urging the legislature and governor to clarify property tax exemptions for nonprofits. Follow this link for more information:

    http://www.mncn.org/event_policy.htm#ExemptionStrategy

    Reply

  5. David Grabitske says:

    A second follow-up. I got a card from Fieldstone Alliance with some interesting numbers on it. The card states that there has been zero growth in giving by individual donors in the last 30 years, as a percentage of adjusted gross income. That figure is balanced by a 219 percent increase in commercial activity as a revenue generator for nonprofits between 1982-2002. Now 60 percent of the nonprofit sector’s total annual income is generated from fees and payments made directly in exchange for services.

    Are donors maxed out? Or, have public charities generally failed to make their case? Has the lure of enterprise and business practices beguiled charities into feeling as though it is unnecessary to make their case? What is your sense of these numbers?

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  6. Mary Warner says:

    Not to be snarky (okay, maybe I’m being a little snarky), but you know you’ve crossed the line when the IRS or the State Attorney General is breathing down your neck. David brings up the current case of the Rainbow Day Care, but not too many years ago, Minnesota Public Radio was investigated for the catalog sales arm of its organization. This amounted to unrelated business income in the eyes of the IRS, the result being that MPR spun its catalog sales off into a separate for-profit entity. All of us with gift shops have to be careful that what we are offering for sale can be explained in terms of our mission.

    The North Star ruling is concerning for points 3 and 4 above. Are we allowed to charge for our services? Can we have something left in our bank accounts at the end of the year? If the answer to those questions is no, then asking nonprofits to act more like businesses is hamstrung from the get-go. All the fancy marketing in the world, which should be limited from the standpoint of IRS expectations to spend most of our income on our programming, isn’t going to do us much good.

    There’s only so much donors will be able to give when necessary costs such as food and fuel continue to rise. We can passionately make our case, and many of us do, but when someone has to choose, the necessity will win out first.

    Extrapolate out that zero growth in giving across the 70,000 new nonprofits formed nationwide each year, plus the existing ones, and you’ll have a look at the enormity of the problem. It explains why so many of us have had to start charging for our services.

    Reply

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