Investing in Great Nonprofit Employees

My recent column in the Financial Times has sparked the biggest response of my year old career as a newspaper columnist. I’ve gotten a ton of email, comments and the Chronicle of Philanthropy featured the column in Philanthropy Today. The response (of people who have contacted me directly) has been overwhelmingly positive. But I hear through the grapevine of at least a couple prominent people who don’t like the column. I’d love to hear any negative feedback that’s floating around our there.

I would like to clarify something in the column that I think deserves further attention (I only get 800 words in the Financial Times, so I have to leave out some points). In the column I say that donors do not understand how social impact is created (they tend to think it is the money they give, so they want to eliminate nonprofit costs, instead of recognizing that it is what the nonprofit does with their money that creates impact). I then state that for-profit investors have a better understanding than donors do of how the input of money (an investment or a donation) is transformed into an output (profit or social impact).

Here’s the important point that I hope is implicit in my column, but that I want to make explicit: for-profit investors and donors are the same people! I’m not suggesting that “for-profit investors” are smarter than philanthropists. I’m saying that when most people put their donor hat on, they also put on some bizarre kind of glasses that make them see the nonprofit world in a completely dysfunctional way. Instead of seeing nonprofits as firms that create value, the way we see for-profit organizations, they see nonprofits as bureaucratic entities that destroy the value of our donation as it travels from us to the “cause” we hope to support. It is only through this Alice in Wonderland looking-glass approach to understanding the social sector that we could possibly justify underpaying nonprofit employees, demanding that nonprofits only spend our donations on their “program”, and worry intensely about “overhead expenses.”

But I am not in the least suggesting that “business people” or “investors” have a better approach. Business people and investors are donors too and they view the nonprofit sector just as bizarrely as other donors. My discussion of how investors understand that for-profits are organizations that produce value is meant as a template for understanding how donors should view nonprofits as organizations that produce value. My additional point is that many of the behaviors that for-profit firms exhibit in their pursuit of maximizing value production (Handsomely rewarding employees in order to attract the best, for instance) are viewed as scandalous in the nonprofit sector.


  1. Non-profits Are Not Businesses

    By Bill Huddleston, CFC Expert

    The non-profit sector has done a spectacularly lousy job of explaining what it does and how it does it, and has spent fifty years convincing the American public that “administrative expenses” are bad and that “program costs” are good and now complains about how hard it is to get unrestricted funds.

    Non-profits are not businesses. That simple fact is being ignored in the vast majority of economic mumbo jumbo currently written about non-profits.

    Non-profits can, of course, be businesslike in their operations: they can have efficiently run organizations and a well-trained staff, and they can certainly deliver superior results.

    Non-profits are not businesses in that people give money to non-profits with no possibility of getting it back.

    Donating to a charity is not the same as investing in the stock market or putting money in a savings account or money market fund.

    Non-profits are not businesses in that for many non-profits, volunteer labor is a core component of their business model — people volunteer to work at non-profits. Volunteers at a non-profit are actually making a double contribution. Not only are they working for free, they pay a personal “opportunity cost,” missing out on money they could be earning and time they could spend elsewhere if they were not donating time and talent to the non-profit. Most importantly, for many non-profits, if the volunteers were not there to help deliver the services, the non-profit simply could not exist.

    Non-profits are not businesses in that people care so passionately about the non-profit’s mission they willingly donate time, money and energy to help the charity succeed. When was the last time you went to your local supermarket and said, “Hi, I’m here to work for you for free, where do I start?” Or, “Since you only charged me $80 for my groceries, let me give you an additional $20 just because I’m glad you’re here and I appreciate the needed service you provide.”

    When you apply the norms of non-profits to businesses, it becomes immediately apparent that non-profits bear little resemblance to typical businesses.

    Non-profits are not businesses in that they are completely different entities than businesses, needing to satisfy many more stakeholders and constituencies before they are able to say, “Yes, we are successful.”

    Businesses really only need to satisfy their owners (and their customers), and yes, of course, they need to operate within the law.

    It’s also true that many businesses are good corporate citizens and donate lots of money to various charities; indeed, some of the best encourage volunteerism in their employees, and I applaud all of them.

    The point, however, is that non-profits are more complex entities than businesses, and have many more constituencies than owners or shareholders. Non-profits must also satisfy the community; their board of directors; their service recipients; their donors; their volunteers; and their professional staff. Some that provide services on behalf of government contracts have many additional sets of requirements for service delivery, reporting, and government auditing regulations for contractors. Non-profits must also meet the legal requirements of being a non-profit (as defined by law and IRS regulations).

    Some of the current efforts to come up with the dollar value of donated time or count the hours that one donates cheapen the whole concept of the non-profit sector. These efforts are doomed to failure because they miss the fundamental point of “Why?” Why does someone volunteer? Why does someone give money? I believe that the short, truthful, and unifying answer for all donors and volunteers is the response, “I care!”

    Donors and volunteers naturally want recognition, and to know that their gifts (monies or personal effort) are being used effectively; they may give more because of the tax codes at certain times of the year. But the first and fundamental response is always, “I care, that is why I give,” or “I care, that is why I donate my time to this great non-profit.”

    That is to be absolutely applauded and celebrated, and it is one of the unique and unifying qualities of being an American. We are the most generous people on earth, with Americans giving more than $260 billion in 2005 according to Giving USA. That fact should be recognized, celebrated, and applauded.

    What Do All Non-profits Share?
    So if non-profits are not businesses, what are they? All non-profits share a common purpose, and it is actually a very simple concept. They exist to make their community and the world a better place. Now granted, the exact definition of what constitutes “a better place” is not easily agreed upon, and differs widely among these non-profits. That’s fine. There are more than 1.4 million non-profits in the United States, and there are probably 1.4 million different answers to that question. I have decided to not list all 1.4 million mission statements from these organizations, but even without having read all of them, if you look for the common ground you’ll see that they believe that accomplishing their mission would make the world a better place.

    One of the things that lends to the confusion by the American public is that non-profit organizations can look like businesses. Many have paid staff, the employees wear suits, or business casual clothes, and they work in a decent office environment, looking like many other business organizations. The fact that the underlying rules and how the game is played is fundamentally different is not obvious.

    To use a sports analogy, no one would expect a baseball team to oppose a football team, even if the games were played in the same stadium. We know that those activities have fundamentally different rules, processes, and ways of measuring success and determining impact.

    This is where the national leaders in the non-profit sector have failed to articulate what the differences are, and why that is important. I am certainly not saying that all organizations should be non-profits, but just as the Founding Fathers recognized that for a country to succeed, there needs to be three fundamentally different branches of government, Executive, Legislative and Judicial — The non-profit sector needs to loudly proclaim that for our society to be successful, it takes all three major components – the government, the for-profit sector, and the non-profit sector.

    To learn more about the ways that workplace giving can promote the common good, as well as provide leadership development opportunities, please go to and request my special report about the Combined Federal Campaign (CFC).

    Bill Huddleston, CFC Expert

  2. Chris Bailey says:

    Bill, with all due respect, I’m not sure if you’re trying to support or argue against Sean’s point.

    Sean, I think what you did was propose an alternate point of view and the fact that there’s some strong disagreement from “prominent people” tells me that you’ve hit a nerve among the status quo. For goodness sake, keep it going.

    We’re finally coming to a great point in time where the value of people are front and center. The sharp and incredibly talented people managing non-profits are a part of the rich value that these organizations offer the world. Take that away and you’re often left with organizations where expertise and innovation is lacking.

    Let’s continue to urge our non-profits to seek value-added innovative growth rather than seek yet more ways to curb and slash spending in order to always come in under budget. I’m not proposing reckless financial behavior…just a more progressive approach to exceeding what is thought possible by the non-profit organization.

  3. I really was making three points:

    The first one is that I absolutely agree with Sean that people in the non-profit sector should be paid well, get decent benefits, work in decent surroundings so that if they wish to make a career of it, they can.

    My second point is one where I do disagree with Sean, and that is that donating to a charity is fundamentally different than investing, because of the simple fact that when you invest you expect some financial reward to come back to you personally. Yes you may also have added to the greater social good in both cases, but as an investor you put your money where you think there is the possibility of a return that will benefit you personally, and you will get a fungible benefit (stock or cash) if the investment succeeds.

    My third point, and this is the really the main point of that essay, is that the non-profit sector itself is to blame for much of cowtowing to “funders” because the leaders haven’t had the chops to stand up and say, “What we are doing is important, you need talented and dedicated people to do it, and they deserve a decent salary as well.” The distinction between “overhead” and “program” is ludicrous and how many of you would want a fire department to have firefighters (which are program) but no hoses or fire stations (which are overhead.)

    Where is the John Gardner of the 21st Century?

    (BTW, in case anyone reading doesn’t know who John Gardner was, he was the founder of Common Cause, and Secretary of the U.S. Department of Health, Education and Welfare (HEW)before it split into HHS and Education) and a towering leader of the non-profit sector in the 20th century.)


    Bill Huddleston, CFC Expert

  4. Executive Pay Issue – The NC UW Board Failed Both the “Smell Test” and the “Optics Test”

    I absolutely support non-profit personnel being paid a good salary with good benefits. However, this week with the North Carolina United Way of the Central Carolinas pay package for the CEO, they made some fundamental mistakes in judgment, which will undoubted hurt the fundraising climate at least in the Charlotte area.

    I don’t fault the CEO one bit, if any employee was asked “We plan to increase your retirement fund by sixfold, what do you think?”, the answer of course will be “Great idea, Thanks!”

    The failure here is for the NC UW board to not recognize the negative impact that this would have on the non-profit sector. Don’t they know the United Way history with the Aramony scandal?

    If she was owed 8 years of back retirement fund payments, that should have been handled separately as an error correction, not a sixfold increase in her retirement account in one year.

    BTW, The Combined Federal Campaign (CFC) is the world’s largest workplace giving and there are many safeguards in place to prevent the type of coercion and pressure mentioned in some of the other posts.

    It is also the most donor friendly, and least expensive way for a charity to raise funds.

    In terms of actual giving, if the CFC were a foundation it would be the 10th largest foundation in the US. $1 billion of unrestricted gifts over the past five years — how much did your non-profit receive?

    Bill Huddleston
    CFC Expert