Opinion

Why do we call them non-profits?

I was at an interesting Seattle Social Venture Partners event tonight for a discussion on philanthropy. Doug and Maggie Walker very openly shared their journey along the path of giving their time and money towards their passions.

One of the words that seemed to keep jumping out at me tonight was the term “non-profit.”

Some of this might have been because I’m still processing the thought-provoking new book I just finished called Uncharitable by Dan Pallotta which researches the origins of why we think of and require charities to be not-for-profit organizations.  Dan discovered that the non-profit mandate is an American invention which came out of early American Puritan (Christian) doctrine. Puritans believed in the “depravity of man” and so worried that growing materialism would lead to “worldliness” and corruption. So, they instituted charity as a penance for making money.  “So, how could you possibly make money helping the poor if helping the poor was your penance for making money?

So, today we talk about “the non-profit sector” and the predominant description and defining characteristic of charities is that they are “non-profit”.  Why do we focus on this?  Why do we focus on what they’ve “not” vs. what they “are”?

There have been attempts to refer to charities as “non-governmental organizations” (NGOs).  But again, why the “non” emphasis?

Alternatively, we describe charities as 501c3’s (based on IRS section which authorizes their tax treatment).  But, we don’t refer to attempting-to-earn-profit companies predominantly as “C Corps”, “S Corps” and other government technical descriptions, do we?

Automobiles were once called horseless carriages.  But that didn’t last too long because they were important enough to get their own defining category.

I think language matters.  By constantly referring to charities as “non-profits” or “NGOs” we are continuing to re-enforce the belief that these organizations … many of whom are seeking to solutions to the largest and most important social challenges of our generation … as 2nd class citizens or somehow not that important.

I have been as guilty as anyone of this language issue.  So, I’ve decided to take a small step and to stop using the terms “non-profit”, “not-for-profit” and “NGO” and to start experimenting with new language which is more positive and reflective of the importance and value of charities.

I’m going to experiment with terms like “for benefit organizations” and “social enterprises” and other terms. I’m not sure what term will “win out”, but I’m interested in the feedback and reactions of people as I start on this new language trail.

And this doesn’t even begin to address the question about why charities can’t earn profits… (I know they can technically do so in some circumstances, but it gets pretty complicated with IRS)

8 thoughts on “Why do we call them non-profits?

  1. Dave – wow, the history of the non-profit mandate really helps make some non-profit cultural characterisitcs make sense.

    It would be interesting to have a discussion about the terms at some future SVP event where grantees could participate. I gravitate toward “social enterprise” but I can just hear some of the arguments against it.

    It would be great to talk more about the for-profit / non-profit business model ideas we talked about. Let me know if you have some time in your schedule.

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  2. A terrific topic. May the best term win! Philosophic lawyers and accountants will have to pitch in as we worry the subject through Congress to come up with an appropriate designation. I’m lunching with a U.S. District Attorney on Memorial Day. He may be just the right guy to advance a solution.

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  3. It’s a good point–although “for benefit” organizations will get confused with the new “for benefit” companies that are gaining steam. These are for profits with social missions. Social enterprises have sort of been coopted by the movement to embed businesses within nonprofits.

    I’ve been hearing rumblings about this for 20 years. Maybe Dan Pallotta’s new org, the International Charity Defense Council, will get some traction. I’ve been talking with him about it and am delighted that he’s not just complaining about the current status–he’s trying to change the environment.

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  4. Agreed Dave – language matters. As a long-time, small “for benefit corporation” leader who consistently champions the need for communities to recognize the value of essential services to pregnant and parenting individuals, I regularly encounter the ‘second class citizen’ feeling. This decidedly unhelpful language posturing perpetuates the us vs them model, and often keeps us at the bottom of the funding food chain. (Attempting to procure funding from the gov’t is even more challenging due to the inordinate admin requirements!)

    As a “for benefit” corp, we have a direct-impact upon the overall health of our communities families. New language to reflect such a fundamental need in our society would potentially release more resources to meet increasing need.

    However, I also agree that confusion would surface with the term ‘for benefit’ – but I love the conversation toward a more helpful, and in turn, more hopeful way of communicating the mission of organizations doing crucial work.

    Language play is a good start.

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  5. I’ve almost finished Jacqueline Novogratz recent book, The Blue Sweater. She is president and CEO of Acumen Fund which lends money to entrepreneurs/ organizations that help to bring the very poor out of poverty. In her summaries at the end of the book she mentions a beautiful partnership between for profit and non-profit. Her take on it is that the for profit can bring a product to market, understand the market and work in the economic aspect of lifting people out of poverty, but it’s the NGO’s the non-profits that know the community and will continually advocate for the poor to be sure they are not taken advantage of by the for-profits. She sees more of a marriage between the two groups working on behalf of the poor. Interesting.

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  6. Thanks Dave for the great post! Thinking of ‘for benefit’ really creates a positive mind shift in how I look at these organizations.

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  7. I think you are misunderstanding why people say “non-profit.” In my experience, “non-profit” doesn’t make it less important… Many charities boast that they are “non-profit” to show that the reason they are doing charitable work is simply to help people, and not to get some benefit for themselves out of it.

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  8. I agree a term such as ‘social enterprise” is more useful. Some for-profit firms have a ‘mission’ which keeps them focused on serving the poor and also may keep the impulse to grab profits down.

    I recommend Henry Hansmann’s “The Ownership of Enterprise” as a great place to read about this topic. He traces the heterogeneity and evolution of ownership forms in the US and gives clever and convincing theoretical explanations for why it is often strategically useful (and hence in a deeper sense ‘profit maximizing’) to commit yourself to not distributing profits. This helps understand the dominance of non-profits in health and education and why, until fairly late into the 20th century, mutuals dominated the insurance industry.

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