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The Third Force: Indispensable to Society, Nonprofits Should Redirect Oversight Efforts
Homelessness. Entrepreneurial services for the poor. The arts. Spirituality. Who — or what — in our society can best address these issues? Here's a hint: It's not business, and it's most definitely not government. "Nonprofits are the most effective organizations in providing these things," HBS professor Regina E. Herzlinger contended at a fall reunion presentation titled "The Four by Four Report: Effective Oversight of Nonprofit Organizations."
An expert in health care and nonprofit management control, Herzlinger made the case that nonprofits fulfill five critical roles in society by raising unpopular social issues, enabling spirituality, redistributing wealth to the needy, supporting cultural activities, and effectively and efficiently providing long-term solutions for social needs.
Government and business, she said, cannot always be relied upon to stay the course with social issues. Further, the voting cycle truncates long-term progress. "Government is an interest-group groupie," she said. "Who speaks for the less fortunate? The homeless, for example, are not a powerful interest group."
Businesses, she added, "will sponsor social issues only if it serves their corporate purposes. They can provide effective and efficient services, but they have a short-term focus and, appropriately, go where the money is. After all, that is their obligation to their stockholders."
Herzlinger noted that, unlike business and government, nonprofit organizations can be socially entrepreneurial because they have a long-term focus to serve long-term social problems. "We owe a lot to nonprofit organizations," she said. "The Sierra Club, for example, has been an effective voice for the environmental movement, and the International Rescue Committee is an extraordinary advocate for immigrants and refugees. In effect, nonprofit organizations act as a check and balance on government and on business."
Valuable as they are, Herzlinger asserted that nonprofits need to overcome the Achilles' heel — ineffective oversight — that diminishes their potential to have a positive impact on society. "I'm a great believer in nonprofits," Herzlinger said, "but sometimes they don't achieve their mission. Nonprofit managers more than agree with me. Many grade their own performances as poor."
Herzlinger ticked off a few examples: declining membership in spiritual associations, inadequate efforts by cultural organizations to serve lower-income individuals, and hospitals' reluctance to help the uninsured. Even the foundations that benefited from huge monetary increases in the booming economy have given less to charitable causes in recent years.
Furthermore, contemporary foundations maintain risk-reducing "portfolios" of causes instead of focusing on one. In contrast, she noted, "at one time, the Rockefeller Foundation helped revolutionize university education, the Ford Foundation helped create the Public Broadcasting System, and the Carnegie Foundation spurred public libraries. But presently, it is very difficult to point to a foundation and say that it has uniquely accomplished a similarly important goal."
Herzlinger blamed these problems on the absence of a framework for full analysis of performance and poor disclosure of information to constituencies. To combat this, she proposed a basic self-assessment tool that nonprofit board members can use.
Calling it the "Four by Four Report," Herzlinger suggested that nonprofits ask themselves four specific questions and address the answers to their four constituencies: clients, donors, staff, and society (or, as she said, "how it would play if reported in the New York Times").
The questions, as enumerated by Herzlinger, are substantial. "Do we as a nonprofit have insufficient or excessive resources to accomplish our mission? Are we being fair to future and past generations, and are we being fair across sectors of society? Do we have long-term resources to achieve long-term goals, or are we fantasizing about our ability to achieve them? Do we have sufficient diversification of resources so that we are sustainable?"
Herzlinger conceded that these are tough questions to answer, but they can help a nonprofit board to begin to track its effectiveness and set benchmarks for improvement. "Nonprofits are so important in our society," she said. "They fulfill essential purposes. But they lack the market mechanisms of corporations where, if a board falls asleep at the switch, sooner or later they're going to have their lunch handed to them. Because such mechanisms are much less prevalent in the nonprofit sector, the role of boards is so much more important. The Four by Four Report can help them fulfill that role."
— Margie Kelley
The Four by Four Report will be published by Jossey-Bass later this year.
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