The Nonprofit Entrepreneur

Trends & Predictions

Fifteen years ago, who would have guessed that not only would e-commerce be so prevalent, but that a leading web moneymaker would be a non-profit (Consumer's Reports On-Line), that over 350 hospitals would be owned by a single for-profit hospital chain, that a few select nonprofit employees would earn $20-30 million per year (some Harvard University investment managers), or that a few select nonprofit executives, such as William Aramony and the Rev. Jim Bakker, would serve time in prison.

What big nonprofit changes will the next decade bring? To put it in historical perspective, let's quote a reliable source. "And Joseph made it a statute concerning the land of Egypt unto this day, that Pharaoh should have the fifth (of produce), only the land of the Priests alone became not Pharaohs. Genesis 47:26. This basic concept of tax-exemption has not really changed.

Given this extended time frame, it's difficult to claim that a few years on either side of a millennium will make much difference in exempt organization practices. Yet within the next twenty years, an estimated 2 trillion dollars will be passing from one generation accustomed to thinking about nonprofits in certain ways to a new generation of potential donors.

Donors themselves are by and large becoming savvier consumers. Solicited relentlessly, they are demanding more for their charitable dollar. Less willing to give to large umbrella organizations, they want accountability, more control, and even active participation in the use of their charitable dollar. Among other things, this will likely lead to the formation of many more operating foundations, i.e., organizations that actively provide nonprofit services which are closely controlled and/or operated by their founding donors.

What will nonprofit organizations look like another decade from now? Herewith a sampling of predictions.

1. Overriding Trend of Trends. Nonprofits will continue to become more complex and diverse, leading to the following simultaneously contradictory trends:

2. Grasp of the "Nonprofit" Idea. There will be increased understanding of nonprofits, as more business-like management approaches are adopted, advanced nonprofit degree programs are further formalized, and the industry is further professionalized.

   At the same time there will be increased misunderstanding of nonprofits as the public, still vague about the negative and inaccurate connotation of the word "nonprofit", finds more of them in different settings, some with huge wealth. Media portrayals, often misleading or simply wrong, will add to the confusion.

3. Nonprofit Business Practices. Legislators and government officials will call on nonprofits to become still more financially self-sufficient.

   At the same time, legislators and government officials will increasingly criticize nonprofit revenue generating ideas.

   Likewise, legislative and regulatory demand will continue to grow for nonprofits to behave more like businesses in their financial and accounting practices.

   Yet, legislative and regulatory demand will continue to grow for nonprofits not to behave so much like businesses in their commercial and sales practices. After much grandstanding and vows of tighter controls to appease business claims of unfair competition, no truly significant legislation will pass. A surprisingly small number of lawsuits concerning nonprofit business practices will be filed. Some judges will have, shall we say, a less complete understanding of the "nonprofit" concept (see #2 above), leading to some confusion and conflicting legal opinions. But in the end, the law will remain substantially unchanged.

   This scenario will allow for-profit/nonprofit distinctions to blur further. There will be both for-profit and nonprofit corporations in most areas of human endeavor (for instance, in the provision of food, clothing, housing, health care, education, scientific research, the arts, travel, consumer products...). More nonprofits will form subsidiary for-profit companies while more for-profits form controlled nonprofits. And limited partnerships between nonprofits and for-profits operating in the same industry will flourish. This will lead to some tax and reporting issues, but will also enable social problems to be addressed by a new array of innovative entities.

   Finally, at that point, tax-exempt status will be increasingly understood for what it truly is under the law: not a moral end in itself, but a value neutral tax classification - simply a tool that is helpful in conducting certain endeavors.

4. Lobbying. A number of bellicose but key legislators will again decree nonprofit lobbying and hold committee hearings. Nonprofit lobbyists will lobby for continued nonprofit lobbying.

   In the end, the law will remain substantially unchanged.

5. Mergers vs. Independence. There will be greater emphasis on providing comprehensive community services, controlled and focused at the local level.

   There will be continually greater pressure for local and larger organizations to merge.

   It will be found that most nonprofit mergers produce no real economic efficiencies or program value. Many mergers will then be undone through complex corporate spin-offs, which will become the next nonprofit legal trend du jour, much to the delight of idle merger lawyers. Spinning-off will then be overly proscribed as an organizational cure all, leading to many nonprofit bankruptcies and dissolutions, much to the delight of idle spin-off lawyers.

6. Governance. Boards will be better. Through increased attention to effective governance, many more organizations will become truly mission-driven. More organizations will develop a "corporate culture" and internal momentum that instills the following: the organization is a business; its business is the effective delivery of specific nonprofit services; its board is not a constituent-benefit assembly and will not tolerate other agendas; however, all avenues of frank and open discourse in pursuit of the organization's core business will be encouraged.

   Boards may get better, but people will still be people. Nonprofits will more easily lose focus due to the temptations of power, prestige, and potential self-benefit from nonprofit board service. Nonprofit abuse and self-dealing will increase as nonprofits control more money and play an even larger role in society. A few high profile cases will shock the conscience, leading to bandwagoneering for legislative action but in the end...(see #3 and #4 above).

7. Tax Exemption. Federal standards for tax-exempt qualification will expand into newer, more broadly defined areas.

   State standards for sales and even income tax exemption will tighten.

   Local property tax abatements and exemptions will be much more difficult to obtain.

8. Liability. The corporate protection against liability of officers, directors, employees and volunteers will be breached more frequently.

   New impediments to liability (new state immunity statutes, increased indemnification, and expanded insurance coverage) will be developed.

9. Conclusion. The economic realities of providing nonprofit services, low salaries, and legal complexities will deter many from nonprofit careers. Even so, we have applications for tax-exemption pending with the IRS for a dozen new organizations. Each founder has a vision of how to improve society. The U.S. tax code supports this type of private initiative, entrepreneurship, and citizen and community participation in both the business and nonprofit sectors. This fosters innovation, social and economic stability, and a dynamic and continually advancing society. In the end, nothing will deter either for-profit or nonprofit entrepreneurs from seeking their goals.