Nonprofits: The Least Effective Structures for Social Change

V.2, N.73

Twenty years ago, Merrian Fuller and I wrote a cover story for The Nation called “Profits for Justice” that elaborated why nonprofits are awful business structures for changing the world. Among the reasons we discussed:

• By law, nonprofits are limited in their ability to lobby and prohibited from electioneering altogether. For-profits, in contrast, can participate robustly in both (increasingly so).

• Nonprofit structures, regulations, and reporting rules are more demanding than most for-profit companies, which impose costs that for-profits can avoid.

• Nonprofits are largely driven by donations, and their leaders believe this insulates them from the self-interested demands of investors. That’s, of course, nonsense. The leaders are instead beholden to the self-interested demands of their biggest donors and waste huge amounts of their time fundraising.

• More nonprofit leaders should be trained businesspeople, developing revenue-generating departments that cover expenses. Instead, most nonprofits are run by activists with no business training whatsoever. Not a few treat their workers poorly, pay abysmal wages, foolishly rack up deficits, and drive the organization into bankruptcy.

• Most nonprofit boards are highly undemocratic. Most are simply an in-crowd who appoint friends and relatives. If you want stakeholder governance on your board, for-profits offer many more options.

• If you’re beef with for-profits is profits, guess what: You never have to pay any, as long as your investors are apprised of your intentions. Even publicly traded companies have enormous discretion about what dividends to award and when.

One of the reasons I’ve enjoyed teaching for nearly a decade at Bard’s Green MBA Program is that most of my business students today understand the defects of nonprofits. My generation thought social change was working for Public Citizen at starvation wages and begging mommy and daddy for care packages. This generation is formulating for-profit business designs to solve critical global problems. The mission is driven not by profit, but by finding long-term, self-financing tools for social change. And the business structures they favor are increasingly co-ops, employee ownership trusts, or just creatively structured LLCs.

Our lead article in this issue is from Marjorie Kelly, who notes with approval that OpenAI, which was founded as a nonprofit by Sam Altman, Elon Musk, and others, is now being reborn as a for-profit Public Benefit Corporation (PBC).

“Here’s why this matters—why, in fact, it’s a huge deal: The PBC model takes a firm step away from maximizing gains for investors as the purpose of the firm, while still allowing a firm to have investors and provide good returns. It marks the difference between profit-making and profit-maximizing. Such a commitment should push OpenAI to more effectively tackle the massive water and energy usage of AI, two environmental justice issues that the industry has failed to address adequately thus far.”

Paying readers will also find other articles of interest:

• An excellent summary of the most recent Neighborhood Economics Conference, in Asheville, North Carolina, where speakers (including me) and residents discussed how community capital is rebuilding a region still reeling from Hurricane Helene.

• Twenty-two hundred miles north, another conference in Fogo Island, Newfoundland, continued discussions among Canadian and American community capital experts to define the best tools available for “investing in place.” Fogo Island provided a beautiful venue for the meeting, because in recent years it has demonstrated that even a remote island with just 2,200 residents can go far in reducing its dependence on outside imports.

• While Republicans and Democrats are barely talking to each other about the “big, beautiful” budget bill, a bipartisan group of Senators and Representatives has introduced the American Ownership and Resilience Act (AORA). The bill aims to help convert legacy small businesses into worker-owned entities with “a zero-subsidy cost investment facility at the U.S. Commerce Department dedicated to providing low-cost, government-backed debt to private investment funds that are eligible to receive an Ownership Investment Company (OIC) license.”

• In a sad testimony to the tough challenges facing print media, YES! Magazine has announced that it’s shutting its doors. For 30 years, YES! has published dozens of articles about new options for local investment, local ownership, and local business success. We will miss you!

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