Being a Not-for-Profit. Business vs Purpose - Is It Really a Contest?

I recently found myself embroiled in an online discussion that appeared to view the not-for-profit sector as necessarily being one that conceptually needed to be split two-ways. The initiator of this discussion appeared to be suggesting that on the one hand there were those NFPs who were larger and operated within a more corporate environment, whilst the other group of NFPs are those that are somehow more community based, potentially smaller, and are more ‘grass-roots’ orientated. 

The discussion centred on the perceived need for the ACNC, in the context of the current Federal Government’s recently introduced legislation which would seek to effectively close down the ACNC without necessarily identifying what, if anything, would replace it. The discussion centred on the pros and cons of the current ACNC in the context of what was needed, from a governance perspective, for the efficient running of this sector. A further dimension to this discussion was the role that consultants are playing in shaping the ongoing debate regarding the need for an additional regulator of the type and style of the ACNC.

There are different aspects to this discussion which are worthwhile further considering, especially in the context of a sector which everyone agrees, plays an important part in the economic and social life of the Australian community.

The importance of ‘community’ cannot be overstated. At this level it is worthwhile remembering that the role of this sector is important because of its very heavy focus on individuals. An American author writing about what is often referred to as the third sector (van Til – 2008), suggested that “society is best organized if voluntary organizations are numerous, effective, and thick in meaning”.  He further suggested that in a Western style democracy, there were only four institutional means of solving society’s challenges, namely governments, business, the third sector and finally, what he referred to as the “informal sector”, constituted by family and neighbourhood. This structure very much focuses attention on the distance between services design and delivery at a policy level and at a front-line service delivery level. 

The grass-roots service delivery approach that smaller third sector organisations espouse and are very good at delivering, must also be considered in the light of the economic realities that now face this sector, and will continue to challenge their very existence. 

A well known Australian academic who researched extensively the Australian nonprofit sector, the late Mark Lyons suggested that third sector organisations needed to carefully balance the need to maximise their financial bottom line without becoming purely bottom-line focused, indicating that profit was necessary to ensure sustainability and the ongoing provision of effective front-line services into the future. His call was for an appropriate focus on improving business performance within these organisations. His 2001 publication entitled “Third Sector” highlighted this business performance issue and the management practitioner conundrum when he stated “Over the past 20 to 30 years huge resources have been committed to developing understandings and techniques to improve business performance. But not all of the management techniques developed by and for business are directly applicable to third sector organisations. Third sector organisations have special characteristics that require their own solutions but little effort is put into developing best practice management for the third sector.”

The current and future economic reality within which third sector organisations operate necessitates the consideration and application of a wide range of commercial and managerial issues. These will not disappear in an attempt to change back the clock to an earlier era. The economy has changed and the social structures have changed. The challenge is to ensure that the changes required to be made by organisations in this sector are made in a way that focuses on the outcomes necessary to enhance the lives of those that rely on the services that this sector provide, whilst doing so in financially sustainable terms.

In this context, there is no substitute for sound governance practices and structures within third sector organisations. The ACNC could prove to be a very strong and effective tool for driving such governance frameworks across the third sector and its potential demise, in the absence of any realistic alternative is a negative for organisations operating within this sector as well as those who interact with it. If it is going to be replaced, the sector and those that involve itself with it should be given a detailed picture of what will replace it. Simply going back to what was in existence pre ACNC, may not suffice, especially given the challenging economic and social issues that Australia face and will face into the foreseeable future.

OPTIMUM NFP has been supporting not-for-profit organisations through the provision of strong nonprofit-specific governance related consulting assignments in areas of Risk Management, Strategic Financial Management, Strategic Planning, and Change Management. Contact David Rosenbaum for a free no-obligation meeting to discuss your not-for-profit’s requirements and how OPTIMUM NFP could assist.