The Nonprofit Sector and the Will to Change Pablo Eisenberg A…

The Nonprofit
Sector and the
Will to Change

Pablo Eisenberg



A greater portion of our nonprofit activities in the future will have to be
devoted to policies and actions that can produce constructive change. The
extraordinary problems of our society as we enter the twenty-first century
-- poverty, racism, environmental degradation, lack of health protection,
declining trust in governments -- can only be tackled by strong policy
work, advocacy, and citizen mobilization. The author outlines seven
challenges that nonprofits need to address including promoting democracy,
strengthening government, asuring public accountability, redefining the
nonprofit sector, reforming philanthropy, developing new leadership, and
engaging institutions of higher learning in promoting democracies and
communities. Providing services is not enough. We need to develop new
nonprofit leadership with the vision, competence, and courage.




T     he beginning of the twenty-first century is an important time for the
      nonprofit sector. The challenges and opportunities we face call for a more
thoughtful, creative, and courageous approach than that which we have taken
in the past. So it is particularly opportune for us to discuss what needs to be
done to make our nonprofit world more visionary, vibrant, and effective.
   I do not want to minimize the critical need of nonprofit management
capacity builders to increase their technical skills, the quality of their work, or
their professionalism. This is an important agenda for all of us, but it is
overshadowed by what I believe are larger and even more significant issues.
Too often, in our concern for professionalism and technical competence, we
tend to do a poor job of listening to the needs, issues, and wishes of the people
and organizations we are supposed to serve. Consumed by our day-to-day
work, we often lose sight of the sector as a whole and the challenges that go
beyond the narrow interests of one organization or the needs of some practi-
tioners. It is on this set of broader issues that I want to focus my attention.
Pablo Eisenberg is a senior fellow at Georgetown University. For twenty-three years he
served as Executive Director of the Center for Community Change. This article was taken
from The Community Action Digest and is reprinted here with permission.

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   If there is one characteristic of our civil society that has distinguished it
from all others, it is the vitality and extensive influence of its public policy,
advocacy, and constituency mobilization functions. Other civil societies have
provided social, fraternal, and other services, but have in general neglected
that advocacy activity that is at the heart of democracy. That is the genius of
our independent sector: it is at once the protector and enforcer of democracy.
To the extent that our civil society fails to exercise its advocacy functions, our
democracy is likely to be endangered.
   Too many of us, practitioners and observers alike, have tended to view the
nonprofit sector largely as a vast network of services, programs, and projects.
We have downplayed, as have foundations, the increasingly significant role of
public policy and advocacy. The extraordinary problems that are tearing at the
fabric of our society as we enter the twenty-first century -- poverty, racism,
environmental degradation, lack of health protection, declining trust in gov-
ernment, and many others -- can only be tackled by strong policy work,
advocacy, and citizen mobilization. They will not be resolved by better services
and programs, although these are important. A much greater portion of our
nonprofit activities in the future will have to be devoted to policies and actions
that can produce constructive change.
  We need to keep this in mind as we look at the challenges to the future
development of the nonprofit sector, as well as to the strategies needed to
confront them.
   The nonprofit sector suffers from serious problems of public accountability;
its first amendment rights are under attack; its structure as a sector needs to be
rethought and redefined; its fragmentation is an obstacle to unified action on
major issues; its philanthropic institutions have become bureaucratic ware-
houses of wealth and have not kept up with either the times or the needs of
public and nonprofit organizations; and its leadership cadres are thin and in
need of revitalization. These issues are the ones that should command priority
attention. The following are seven of the major challenges we need to address.

Promoting Democracy
The first, and possibly most urgent, challenge is simply to preserve and pro-
mote democracy. Historically, the independent sector has pursued this goal by
providing checks and balances to government, giving expression to minority
voices, contributing to the public policy debates, developing an engaged
citizenry, and leveling the playing field for all citizens. It must continue to do
so, but much more effectively.
   Extensive poverty still haunts and undermines our nation's commitment to
social and economic justice. The poor are getting poorer. One of every five
children is growing up poor. By any reasonable definition of poverty, some 60
million Americans or almost 20 percent of our population doesn't enjoy the
opportunities and benefits of first-class citizens. The "invisible poor" described


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so starkly by Michael Harrington in 1962 are still "invisible." Poverty has
fallen off the radar screen of the current administration. Cutbacks in federal
funds, organizational survival, increased dependence on fees for service, and
the lack of political leadership have all contributed to this diminished concern
about poverty by nonprofits in general. This attitude needs to change if we are
going to do more than just give lip service to the notion that persistent poverty
is not consistent with the goals of our democracy. Fighting poverty must
become a part of every nonprofit's agenda.
   Attempts to curtail the advocacy voice and first amendment rights of
nonprofits also threaten our democracy. That role must be jealously guarded.
The Istookamendment and sons of Istook, though repulsive, did raise an
important issue about our lobbying laws . . . that they are complex, involve a
good deal of paperwork and are not understood by most citizens and
nonprofits. At minimum, they need to be updated. The dollar limits on non-
profit lobbying should be increased to reflect the cost of inflation over the past
twenty-three years. So should the limits on grassroots lobbying. But in the
interest of first amendment rights and better policy-making, all lobbying
restrictions on nonprofit organizations, except those prohibiting the use of
federal funds, should be eliminated. The result would be a much cleaner and
less confusing system. And think of all the paperwork and money it would
save! We need to think seriously about implementing such a change.
   Devolution and the federal cutback in domestic social programs are teach-
ing an important lesson to most local and state nonprofit institutions: services
alone can no longer satisfy the needs of their Georgetown public constituencies
and clients. Nonprofits must therefore reserve a portion of their agendas for
public policy, organizing, and advocacy activities. But they need "new" money
to do this. Most foundations, except the conservative institutions, are still
reluctant to support public policy and advocacy. They have not changed their
priorities to accommodate the need for a more level playing field at the local
and state levels. Their resistance to change is a major obstacle to the local
democratic process.

Strengthening Government
A second major challenge to the independent sector is to strengthen govern-
ment. For years, government-bashing has been a popular public sport, fueled
by irresponsible politicians of both parties, and not infrequently, by the actions
of nonprofits themselves. Combined with the destructive impact of big money
on our electoral system, these activities have resulted in an alienated citizenry
and political leadership beholden to special interests. What can the nonprofit
sector do to help restore public confidence in government and convince our
citizenry that the problem is not big government but good government?




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  Nonprofits should close ranks to develop sufficient public and political influ-
ence to pass comprehensive campaign finance reform measures, without which we
will continue to be saddled with mediocre politicians tied to big money.
   Civic, community, and other nonprofit organizations must also do a better
job of monitoring the performance of state and local governments to make
certain they are accountable and effective. They will need additional money to
perform this task, funds that philanthropy to date has been unwilling to supply.
   Devolution is demonstrating the vulnerability of state and local govern-
ments. Many are unaccountable, poorly staffed, undermined by ineffectual
state legislatures, and incapable of forging productive partnerships with other
sectors. They are in need of structural and procedural reform, as well as
capacity-building efforts. Here again, foundations have been unwilling to
invest in such initiatives. Some are wary of working with government. Others
lack the understanding and know-how to do so. It is time for philanthropy to
make these efforts a priority.
   Ensuring strong, good government is the business of the independent sector.
Without it, our own capacity will diminish. Our work and programs will
suffer, and so will the quality of our democracy.

Assuring Public Accountability
Assuring public accountability and the integrity of the nonprofit world is the
third major challenge to the nonprofit sector and one on which the future of
charitable funding will heavily depend. In recent years, the sector has been
shaken by financial scandals, questionable practices, ethical lapses, huge
compensation packages, and poor public reporting. The sector's staunchest
defenders have attributed these problems to a small number of organizations
that have allegedly tainted the entire field. This is neither true nor a good
defense. Too many nonprofits have violated the public trust for us to be
nonchalant about public accountability. We need to be more vigilant. The
media could be enormously helpful in this respect. Unfortunately, many of us
view the media with fear and are unwilling to work cooperatively with them.
Because sometimes they bring us bad news, we often want to kill the messen-
ger rather than listen to the message.
   Better reporting is a key to greater accountability. The current "990
reports" that all nonprofits with a budget of $25,000 or more are required to
submit annually to the Internal Revenue Service are an inadequate public
accountability mechanism. These reports need to be both simplified and
modified to include much more information about the programs and activi-
ties of nonprofit organizations. Nonprofits that don't submit 990s or fail to
complete them should be penalized. Annual public reports could be a good
supplementary tool. I believe all nonprofits with a budget over $125,000
should also be required to issue an annual report with full financial and
programmatic disclosure.


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   By themselves, nonprofits cannot ensure adequate public accountability. Self-
reform has serious limitations. Without adequate rules of the game and a strong
referee, we will not achieve the level of accountability required to maintain the
public trust. The Internal Revenue Service has the responsibility for policing the
sector and enforcing the rules. For a variety of reasons -- inadequate resources
and staff, low priority assigned to nonprofit activity and political pressures -- it
is doing a poor job. New 501 (c)(3) organizations are approved almost auto-
matically. These tax exempt groups are not required to be recertified periodi-
cally, no matter what changes they may have undergone. The IRS simply does
not have the resources to identify potential scandals in a timely fashion.
   Either the IRS should be given a new mandate and the resources it needs to
do the job or it should be replaced by a new oversight mechanism. A quasi-
governmental commission such as the British Charities Commission, might be
a suitable substitute. Whatever the alternative, nonprofits should actively press
the government for an oversight mechanism that has teeth and works.

Redefining the Sector
The fourth challenge to our sector is the need to rethink its structure, rules,
functions, practices, and limits. The nonprofit world has been in the throes of
substantialchange for most of the past decade. As a growing number of
nonprofits have initiated for-profit businesses, either as subsidiaries or part of
their own operations, the line between nonprofits and for-profits has become
blurred. There is some confusion about which of these enterprises are consid-
ered non-related and thus subject to federal taxes.
   The differences between private for-profit hospitals and many nonprofit
hospitals have all but disappeared. Universities and hospitals have become so
large that it is difficult to find similarities between them and smaller social
service and community organizations. Fees for service now constitute the
largest source of income for nonprofit organizations, with government funds a
close second. Philanthropy provides a much smaller amount now than twenty
years ago. How has this factor changed the mission and operation of nonprofit
institutions? Private for-profit businesses now compete successfully for the
delivery of services in areas which previously were almost exclusively the
domain of nonprofit organizations. We can now anticipate the formation of
$50 or $100 billion foundations, larger than the budgets of many countries.
Will we eventually need to apply anti-trust measures to philanthropy? Do we
need to reassess the legislation and regulations that govern nonprofit prac-
tices? These and many other issues need to be addressed, and soon.
   Though a few umbrella organizations and some academics have considered
these concerns, there has been no organized attempt to tackle these problems
as a whole. A few select conferences have commissioned papers, held meetings,
and issued reports. But the matter ended there. What we need is a comprehen-
sive assessment of the sector with recommendations for change. The Filer


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Commission effectively completed such a task twenty-five years ago. It is time
to update its study by appointing a national commission composed of repre-
sentatives from all segments of the nonprofit sector as well as from govern-
ment, business, and the media, to conduct a two-year inquiry with sufficient
funds to undertake a thorough examination. We can't afford to wait much
longer for such an initiative.

Reforming Philanthropy
While philanthropy is no longer a dominant source of income for most indepen-
dent sector organizations, the $20 billion that foundations currently dispense
remains the lifeblood of tens of thousands of nonprofits that cannot subsist on
fees and public funding alone. With the anticipated enormous transfer of wealth
to foundations and charities over the next thirty years, foundations will play an
even more important financial role in the future. How to make philanthropy
more effective is the fifth significant challenge to our sector.
   Too many foundations continue the priorities established many years ago.
Many have become entrenched bureaucracies, unable or unwilling to respond
to new demands and changing public needs, to targets of opportunity, and to
the requirements of their grantees. They often act as though they are the end
of the philanthropic process and not the means by which to serve communities
and the sector. Their commitment to the poor and disadvantaged remains
minimal, as does their willingness to underwrite activist activities, public
policy work, government reform, and long-term capacity-building.
   But their most egregious failing is their persistent reluctance to provide
general operating support, the kind of funding that all nonprofit organizations,
regardless of size, type, or mission claim is their most urgent need. In 1997
only 13.1 percent of all grant dollars distributed by foundations went to
general operating support, a decrease from 1994 when such funds constituted
18 percent of all grant dollars. At a time when foundations and nonprofits
argue that capacity-building is crucial to nonprofit development, philanthropy
is denying organizations the very kind of support that makes capacity-building
possible. It is truly an intolerable situation, against which nonprofit organiza-
tions should organize a vehement protest. As a general rule, at least 50 percent
of all foundation money should be targeted to general operating support.
   One of the reasons foundations have frequently failed to meet the needs of
nonprofits is the accommodating attitude of grantees. Acting like beggars in
the philanthropic process, grantees have been unwilling to assert their views
and challenge foundation assumptions and practices. They have been cowed
by the "mystique of philanthropy." Unless they are willing to change their
approach, both individually and collectively, grantees will continue to be the
handmaidens, not the partners, of philanthropic institutions.
   As a result of the enormous increase in their assets over the last ten years,
foundations have become vast warehouses of wealth. Their annual payout in


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grants to nonprofits has lagged far behind their increase in assets and their
mounting administrative costs. By law, foundations are required to distribute
annually at least 5 percent of their net assets; most of the large foundations
have kept their distribution rates close to this minimum requirement. Since
foundations are permitted to include all staff expenses, trustee fees, public
related investments, rental costs and other administrative expenses as part of
this payout, many of the large foundations are in fact giving much less than 5
percent of their assets in grants.
  It is time to raise the minimum payout rate. The cutback in federal funds, the
huge increase in foundation assets, the promise of trillions of new dollars to
foundation coffers and the scarcity of resources for nonprofits all call for such a
measure. A payout requirement of 6 percent in grants would probably add $6 to
$7 billion annually to the national income of nonprofit organizations. All
nonprofits should support this initiative. And for the first time, a number of
foundations and individual major donors have joined this movement.

Developing New Leadership
The absence of leadership is perhaps the most serious threat to the future of
the independent sector. This is our sector's sixth major challenge.
   Many of our most talented and visionary leaders have left the nonprofit
field over the past few years for a variety of reasons, most notably the increas-
ingly time-consuming demands of fundraising. In general, they have not been
replaced by commensurate leadership. The narrow agendas of so many organi-
zations, spurred on by the categorical pattern of foundation giving, have not
encouraged the development of leaders with broad agendas and vision. There
has also been a loss of people with ideals and passion committed to making a
difference. For too many people, working in nonprofits has become just
another job. We need to develop a new cadre of leadership with the vision,
competence, and courage to lead our sector in the twenty-first century.
   What is surprising is how little nonprofit organizations are doing to develop
new leadership. Many lack young and energetic staff and frequently don't
consider that a problem. Often, for budgetary reasons, they do not make
decently paid entry-level jobs available to promising interns and young re-
cruits. And many are reluctant to anticipate future leadership transitions in
their own organizations.
   While more and more people are beginning to talk about leadership devel-
opment, few foundations sponsor such programs. Several, in fact, have
stopped these initiatives. Those leadership programs that do exist tend to be
devoted more to recognition than development, and are aimed at mid to top
level executives. With the exception of internships, relatively few are targeted
to young people. This is where we need to invest our resources.
   There are currently few bridges between intern programs and decent entry-
level jobs in the nonprofit world. This is the weak link in our efforts to recruit

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future leadership. While many nonprofits have no interest in hiring young
people, those who are interested often lack the money. These organizations
should be subsidized by foundation-sponsored leadership development pro-
grams so they may hire young people for at least two years. Such initiatives at
the national, state and local levels would enable thousands of young people
over the next decade to establish roots in the nonprofit sector while receiving a
decent salary and full benefits. The cost to sponsoring foundations would be
relatively small. The billions of dollars foundations spend every year won't
make much of a difference unless they invest now in strengthening nonprofits
by developing future leadership.

Higher Education: Going Beyond Service Learning
Institutions of higher education have enormous potential to help build our
communities, especially those with severe economic and social problems, by
promoting active citizenship and developing as well as providing leadership for
democratic change. Yet in our public discussions about civic renewal, commu-
nity leadership or sectoral partnerships, colleges and universities are rarely
mentioned. Our seventh challenge, then, is to galvanize the resources and
talents of these institutions on behalf of communities and the public interest.
   In recent years, many colleges and universities have embraced service
learning programs that enable students to expand their knowledge and skills
through volunteering and what Harry Boyte from the University of Minnesota
calls "public work." While they are willing to volunteer students, however,
they are reluctant to volunteer the paid time of their faculty. Until faculty
involvement in "public work" is made a criterion for academic promotion, the
contribution of academics to community improvement will be limited.
   Nor are these institutions of higher education willing to invest their own
money in the surrounding cities and towns that sustain them, even though this
would be in their own self interest. Many of these institutions have large endow-
ments, some well over one billion dollars. A portion of these funds should be set
aside for civic revitalization. Their lack of investment, even regarding scholar-
ships to local poor students, raises the question of whether there should be a
minimum payout requirement for all college endowments similar to that for
foundations. This failure to invest in community building is accompanied by an
unwillingness to adopt institutional positions on issues critical to communities,
such as the Community Reinvestment Act, local school reform, or low--income
housing. Full time practitioners in residence could not only provide colleges and
universities with a useful community sounding board, but also serve as advisers
to administrators in search of new approaches.
   There are, of course, some notable exceptions. Trinity College in Hartford,
Connecticut College in New London, Clark University in Worcester, and the
University of Pennsylvania have all demonstrated what responsibly led institu-
tions of higher education can do to forge meaningful partnerships with their


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communities. But such institutions are few in number. Recently, more than 240
presidents of colleges and universities signed a Declaration on the Civic
Responsibility of Higher Education calling for institutions of higher education
to renew their role as agents of democracy by adopting policies that go beyond
service learning. This is a hopeful sign, because it recognizes the importance of
institutional leadership in higher education.
   A declaration, however, is only worth the paper it is written on. If meaning-
ful changes are to take place in our colleges and universities, public pressure
will need to be exerted to make the document a living legacy. Students need to
press their college presidents, administrators, and faculties for action. Non-
profit organizations, especially community and civic groups, will need to
persuade college officials that there is more to building democracy and com-
munities than service learning.

The Will to Change
Meeting the seven challenges I have outlined will take all of our sector's
resources and determination. We have the capacity, but do we have the cour-
age and the will? One of the major impediments to the sector's progress has
been its lack of intellectual vigor, introspection, and critical analysis. In few
other sectors has there been so little concern for standards, innovation, reflec-
tion, institutional change, and serious discussion about the field. There has
been minimal debate among philanthropic and nonprofit colleagues and a
reluctance to criticize peer institutions. Collegiality on both sides has become a
highly developed art form. Is it surprising that there is so little vision among
our current leadership?
   For both foundation and nonprofit practitioners, their history is oral. With
few notable exceptions, they have not documented their experiences, perspec-
tives, or policy ideas. As they have left the field, we have not benefited from
the lessons they could have taught us. Nor have we encouraged them to reflect
and write. Few nonprofits and foundations give their employees sabbaticals,
and little money has been available for this purpose. Academics, especially
those rooted in practice, have been able to cover some of this lost ground, but
they are not a substitute for good and thoughtful practitioners.
   This situation must change if we are to tackle the challenges ahead. It will
take all the reflection, ideas, and suggestions our sector can muster. Collec-
tively we must place much greater emphasis on encouraging practitioners to
reflect, write and debate. Discussions about the development of the sector
must be widespread and not limited to the few so-called "infrastructure"
organizations. They must be broad and visionary, extending beyond profes-
sional and technical concerns to those greater issues that are crucial to both
our democracy and our sector.
   A second impediment to the sector's progress is the lack of courage on the
part of leadership and institutions. This is reflected in the unwillingness of


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practitioners to speak out on potentially controversial issues and is mirrored in
the reluctance of grantees to criticize foundations or other donors. It is inher-
ent in the fear of many nonprofits to engage in legal lobbying on tough public
policy issues, or to reach beyond their narrow organizational priorities to
embrace broader agendas. And, finally, it is manifested in the avoidance of
risk-taking by philanthropy in general.
   We need to inject a dose of courage into our individual and collective
spines. We require a growing number of organizations and leaders who will
show us that candor and courage, as well as thoughtful approaches, are the
avenues to change. It's not inappropriate today to recall the old western
refrain, "if you ain't got brains, and you ain't got guts, then you ain't got
nothing." We desperately need both brains and guts.




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