Benefiting the public can be good business

By Todd Cohen

A growing number of businesses are expanding how they gauge their bottom line, counting not just profits but also their social and environmental impact.

And a small but growing number of states are changing their laws to make it easier for those kinds of companies to incorporate.

Laws that let for-profit companies that have the dual goals of maximizing shareholder value and making a positive social impact incorporate as “benefit corporations,” or “B corps,” have been enacted in Maryland, Virginia, New Jersey, Vermont and Hawaii, and are in the works in New York, California and North Carolina.

Under traditional state laws, boards of directors of companies that do not focus only on maximizing profits put themselves at risk of challenges from shareholders.

The new B-corporation laws, however, let boards set social goals in addition to maximizing profits, and require B corporations to prepare an annual report spelling how they carry out their public-benefit purposes.

The laws also would require the board of a B corporation to include an independent director who would have to certify annually that the company acted according to its public-benefit purposes.

In North Carolina, where the state Senate this year unanimously passed a bill to let B corporations incorporate in the state, the state House is expected to take up the bill in its short session that begins next May.

The bill is based on model legislation promoted by Pennsylvania-based B Lab, a nonprofit that receives significant support from the Rockefeller Foundation.

The measure was introduced by Republic and Democratic leaders in the N.C. Senate, and has been endorsed by a broad range of companies and organizations, including the Chapel Hill-Carrboro Chamber of Commerce and the N.C. Center for Nonprofits.

Kevin Trapani, president and CEO of The Redwoods Group, a North Carolina-based insurance provider that focuses on YMCAs, Jewish community centers and nonprofit resident camps, says the proposed legislation would provide an important protection for companies that make it part of their business to provide a public benefit.

B corporations, he says, provide a “competitive but more sustainable return to investors” than do traditional companies motivated by having to produce short-term financial results.

B corporations also provide a return to the community by providing a “more stable employment environment,” he says.

People who run those kinds of companies “are not going to want capital that will require them to run their businesses in a way that conflicts with their values,” Trapani says. “This bill enables us to attract capital and recognize multiple stakeholders.”

A company that is “built to recognize a balance of interests between multiple stakeholders – including shareholders but also customers, employees, the environment, the community – puts itself at risk when it makes balanced decisions,” he says.

By removing that risk and requiring that B corporations pursue a public benefit into addition to maximizing shareholder value, Trapani says, the bill would help create jobs because it would “allow community-focused companies to grow by giving them access to capital that aligns with their mission.”

Finally, he says, B corporations provide a return to the public “by passing on fewer costs to the community at large.”

Traditional companies “have learned how to private profits while socializing costs,” Trapani says.

Large companies, for example, typically provide health benefits “to as few as possible of their employees in order to maximize profits, thereby passing on the costs for adequate access to health care for their employees to the taxpaying public,” he says. “Socially-conscious companies don’t do that. We simply look at it in a more balanced ways.”

Rather than passing on those costs to taxpayers, he says, a socially-responsible companies that wants to provide its employees with adequate access to health care needs to bear the costs of that health insurance.

In the turbulent and troubled economy, nonprofits are looking for ways to be more business-like and entrepreneurial, and businesses are looking for ways to be more socially responsible.

The Committee Encouraging Corporate Responsibility, for example, is promoting a social-enterprise strategy known as “sustainable value creation.”

By applying their business thinking to their philanthropy, and using their philanthropy to address social problems underlying their business problems, the group says, companies can be more effective in their business and their philanthropy.

The growing interest in B corporations reflects the growing convergence of nonprofit organizations with an entrepreneurial focus and for-profit companies with a public-benefit focus.

Allowing the incorporation of this new kind of social enterprise should be good for business and good for our communities.

AFP aims to boost collaboration, education

Todd Cohen

Collaboration and access to information and education are the key components for successful fundraising, and the new chief of the Association of Fundraising Professionals wants the organization to help make the latest innovative thinking and research about fundraising more accessible.

The 30,000-member AFP offers a broad range of resources on its website, is part of a national research collaborative, and is working to expand its membership, particularly to younger professionals and college students, says Andre Watt, who served as deputy chief executive of the Institute of Fundraising in Britain before joining AFP in 2006.

For the past 18 months, he says, AFP has partnered with a handful of other leading philanthropic groups in a new initiative known as the Nonprofit Research Collaborative.

The Collaborative partners — which also include the Center on Philanthropy at Indiana University, Center for Charitable Statistics at the Urban Institute, Council on Foundations, GuideStar and Blackbaud, and soon will include Giving USA – had been duplicating to some extent their respective research efforts and now aim to provide a common platform that anyone can use to find that information, Watt says.

Now, the Collaborative is set to launch its third survey.

Watt also says the charitable marketplace is best served by a range of approaches to professional development, including various options for certification, as well as academic programs.

AFP, for example, has made a huge investment over the years in the U.S. in the voluntary Certified Fund Raising Executive professional-certification program, or CFRE, which focuses on helping fundraisers “identify a body of knowledge” and “demonstrate that they are aware of and understand the body of knowledge,” Watt says.

In other countries, such as Britain, fundraisers seeking certification are asked “to demonstrate that you can apply the body of knowledge through testing,” he says.

Both approaches, Watt says, are valid and “attractive to difference audiences, and there are many ways that people can demonstrate an ongoing commitment to professional development.”

Younger fundraising professionals, for example, “are interested in learning but don’t necessarily perceive the value of certification,” he says, “so they want to demonstrate that they have a commitment to learning through educational programs and opportunities, but they don’t necessarily as yet feel that certification is the only way they can demonstrate that commitment.”

And a growing number of younger professionals are interested in academic programs that lead to a degree or diploma, including master’s programs.

“There is great value in certification but there also is great value in demonstration of commitment in undertaking a master’s degree, and the two things are not necessarily mutually exclusive,” Watt says. “Different cultures and different environments dictate different solutions to similar needs.”

He says he does not believe “there will ever be a market for one consistent approach” and that “there’s always going to be a need for different approaches.”

AFP currently is developing a three-year business plan focusing on its strategies for membership, its annual conference, and new products and services, and expects to present that plan to its board in October.

The primary focus, Watt says, will be to create a program “that is accessible to as broad a range of fundraisers as possible, and so the focus has to be on the new membership structure and on the communications around that.”

He says AFP hopes to continue to offer memberships to individuals, including through organizational memberships both to large and small shops.

And it plans to create a new membership program for young professionals, and to continue to develop collegiate chapters and educational programs.

In the two years since it launched its program on college campuses, AFP has enlisted 26 collegiate chapters.

Watt says the turbulent economy can be a promising time for fundraising.

“Times of extreme change are always times of great opportunity, and there’s seldom been a more exciting time for the fundraising professional than the one we’re in at the moment,” he says. “And if we see it as an opportunity to develop new and innovative approaches to our key audiences, we’ll look back at this as being one of the most influential moments in the last 50 years of fundraising.”

Fundraising needs innovative strategies

By Todd Cohen

To continue to be effective, fundraising professionals in the U.S. no longer can rely only on their professionalism but must strive to be more innovative.

And with the economy leaving people anxious about giving, fundraisers need to be much more creative about how they approach donors, and to pay attention to the way charities in emerging markets have made innovative use of technology for fundraising in the face of limited organizational resources.

That is the view of Andrew Watt, the new president of the Association of Fundraising Professionals, or AFP.

Watt, a native Scot who served as deputy chief executive of the Institute of Fundraising in Britain before joining AFP in 2006, says the 30,000-member organization aims to make information and resources about fundraising more accessible to professional fundraisers, and to offer more options for them to become AFP members.

“What we’re trying to do is provide platform that gives access to as much new thinking as possible to fundraisers,” he says. “And we’re constantly exploring the ways in which they wish to access information.”

In the eyes of the world, the U.S. has been “an exemplar for fundraising,” Watt says, “but not for innovative or lateral thinking.”

Because the scale of the domestic market in the U.S. is so much larger than those in the rest of the world, he says, achieving growth of 1 percent or 2 percent in fundraising required individual nonprofits to be professional more than creative.

But that has changed, he says, because of a generational shift “that is going to lead to a more discriminating audience” that “wants to be wooed,” and because the unstable economy will require a much more focused approach to donors.

Younger generations have a different sense of “community value” then previous generations, Watt says.

“So they need to have a case made to them,” he says. “They need to have a value statement that wasn’t necessarily required before.”

As a result, fundraisers will need “to understand what it is those people are looking for from us,” he says. “We can’t just assume they are going to buy the message we are giving them.”

Fundraisers increasingly “need to understand what motivates them, the environment they live in,” Watt says. “We need to understand much more about the way in which they connect than we have done in the past.”

That means that the “old tried-and-trusted mechanism – direct-marketing, cold mail, telemarketing campaigns – are not necessarily going to work the way they have in the past unless we truly understand the messages we’re putting out there and how they fit with those people,” Watt says.

With the economic collapse hurting nonprofits and donors alike, he says, fundraisers in the U.S. can learn a lot from fundraising outside North America.

Using text-messaging and other technologies for fundraising has been tried and tested for many years in Latin America, the Asia-Pacific region and Eastern Europe, Watt says, “because all those have been emerging markets where the need has become very great, and therefore the corresponding need for innovation has been critical.”

In the past, fundraisers have “relied on professionalism,” he says. “Professionalism is no longer enough to carry us through. What’s needed is the innovation and creativity that we see in emerging markets throughout the world.”

Thriving, not just surviving

Despite the fact that the U.S. economy has been in free-fall over the past three years, North Carolina-based Habitat for Humanity of Forsyth County has pursued what at first glance might seem like the counter-intuitive strategy of looking for ways to grow.

To learn about steps nonprofits can take to thrive in tough times, please join the Philanthropy Journal on Sept. 21 for a webinar presented by Sylvia Oberle, executive director at Forsyth Habitat.

To register for the webinar, click here.

Nonprofits must invest in their leaders

By Todd Cohen

Nonprofit executive directors and boards, and their funders, need to be smarter about professional development.

Sustaining nonprofits for the long term depends on leadership, which will require that executives and boards invest the time and resources to support, better understand and work with one another.

That investment, including support from funders, is even more critical in the current economic crisis, with 84 percent of nonprofits reporting they are financially weaker from the recession and 26 percent saying they pared their annual operating budgets because of reduced funding, according to Daring to Lead 2011, a new report by CompassPoint and the Meyer Foundation.

Based on an online survey in the fourth quarter of 2010 that generated responses from over 3,000 executive directors, the report also says executive directors are suffering from recession-related anxiety and burnout, and are delaying transitions out of their jobs.

It also finds that a significant minority of executives are “not deeply financially literate.”

And while they reported relatively high levels of financial oversight at the board level, compared with other potential aspects of board engagement such as fundraising or public policy, executive repeatedly said it was a challenge to get boards to full understand their organizations, with 39 percent saying that lack board engagement in strategic decision-making.

“Overall, the recession has underscored the endemic weaknesses in many nonprofit business models,” says a brief following up on the report. “The degree to which board leaders are partnering with staff on fundamental questions of business model and sustainability remains in question.”

While 91 percent of them are very happy in their jobs or have more good days than bad, the report found, executives tend to be more energized by job functions that focus outside the organization, yet they still struggle to spend enough time on them.

And while they had a lot of good impressions about their boards, most executives reported strong board participation in only a handful of areas, and most do not spend much time working with and supporting the board, despite evidence from the report that executive directors’ satisfaction with board performance shows a strong positive correlation with time spent supporting the board.

What is to be done?

A series of briefs following up on the report call for executives and boards, as well as foundation program officers, to improve their own financial literacy, and for boards to expand their role beyond financial oversight to include “deeper engagement in questions of sustainability.”

They also call for nonprofits to integrate into leadership development into the way their do business, including budgeting, mentoring, performance reviews and succession planning.

And they call for executives to invest more time supporting and working with their boards; for boards take steps to improve their performance, such as job descriptions and periodic training; and for funders to increase the attention they pay to boards and to become “more explicit in their expectations around effective governance.”

Nonprofits are serious business, and executive directors and boards need to make it their business to get the training and support they need to better understand their business and make it succeed.

For their part, funders need to understand that investing in the professional development of nonprofit executives and boards is essential if their organizations are going to survive and thrive.