Published in Nonprofits

Philanthropy’s role blurs as more businesses adopt social enterprise models

BY Friday, March 01, 2019 01:20pm

Industry trends increasingly are blurring the lines between philanthropy and business.

As government funding to address issues such as food insecurity, homelessness and poverty continues to shrink, requests to funders are increasing as the nonprofit sector seeks to fill those service gaps. The result from this growing trend is perhaps most visible in philanthropic support of economic development efforts, often through significant investments.

“The nonprofit and philanthropic sectors as a whole are inextricably linked to government and the public sector,” said Teresa “Teri” Behrens, executive director of the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University.

“The nonprofit and philanthropic sectors are distinct, but not unrelated to what makes for healthy communities,” she said. “Identifying trends is important because it demonstrates how what’s happening in a community may be tied to these trends.”

In its annual ranking of the 11 trends in the philanthropic sector, the Johnson Center cited the blurring of philanthropy and business as the top issue to watch for 2019.

According to Michael Moody, Frey Foundation Chair for Family Philanthropy at the Johnson Center, the state of Michigan has been a real hotspot for the emergence of this interaction of philanthropy with the private sector. He cited as examples the work of Grand Action in Grand Rapids and the Kalamazoo Promise and the Foundation for Excellence in Kalamazoo.

“The ways in which the two are blurring are much more significant now and even more so than in the last 20 or 30 years,” Moody said. “Philanthropy is becoming more businesslike and business is becoming more socially responsible and interested in philanthropic ends. Those are very clear.”

Donor conversations increasingly are peppered with terms such as “investments” and “due diligence,” and nonprofits are being asked to focus on sustainable revenues and business models. Conversely, Moody says businesses on the whole are putting more emphasis on social responsibility and on the development of a double or triple bottom line.

Socially minded

The double bottom line looks at the return on investment from both a financial and a social perspective, while the triple bottom line also includes environmental considerations.

Businesses that take these types of social enterprise approaches can go after “Benefit Corporation” certification. The nonprofit B Lab certifies companies based on how they create value for non-shareholding stakeholders, such as their employees, the local community and the environment.

“B Corps are often legally organized as for-profit, but are officially committed to social purposes,” Moody said. “While Ben and Jerry’s were pioneers in this space three decades ago, B Corps like Patagonia are now the norm. Social entrepreneurs with a passion for a cause are often choosing to create ‘social enterprises’ instead of traditional nonprofits.”

The B Corp website lists a dozen companies in the greater Grand Rapids region that it has certified, ranging from manufacturer Cascade Engineering Inc. and Brewery Vivant to software designer Atomic Object LLC and marketing firm Highland Group of Grand Rapids LLC.

“They’re formally committed to promoting an environmental, social and financial bottom line,” Moody said of B Corps. “Certainly, there were socially responsible business owners in the past who were serving as a positive social service. But businesses formally organizing themselves as committed to social and environmental possibilities, that is a new trend.

“The widespread popularity and championing of it is new and changing.”

Meeting millennials

These changes have been driven primarily by new generations of donors who support socially conscious entities.

“Millennials on large and small scales are not going to be doing philanthropy in the same way that their parents did,” said Tory Martin, director of communications and engagement for the Johnson Center. “If they’re most interested in supporting a socially conscious business, that has the potential to be absolutely revolutionary for nonprofits and how they work.”

Moody, who co-authored a book about how next generation donors will affect giving, said Millennials have grown up with an understanding that business should be pursuing social responsibility and the public good.

“They don’t want to work for you or buy products if you’re not socially responsible,” Moody said.

While some have called it a marketing ploy for companies to say that they’re socially responsible with the intent of getting Millennials to buy their products, Moody said it’s still a good idea to move in this direction because companies know it’s “really popular” with a large group of consumers.

Channeling good

In addition to the growing emergence of B Corps, Moody said one of the most notable developments in the philanthropic world in the last decade was the decision by Facebook founder Mark Zuckerberg and his wife, Dr. Priscilla Chan, to use a for-profit entity — a “charitable LLC” — to channel their vast fortune for the public good.

Moody said Zuckerberg and Chan are “sector agnostics,” meaning they believe good can arise from any sector, not just from nonprofits. A similar way of thinking is behind the rise in “impact investing,” he said, noting that trying to create solely financial or solely philanthropic value is now considered by many to be an ineffective and old-school model.

“Philanthropy has a lot more expectations on it these days,” Moody said, citing the push to become more effective, efficient and outcome-focused.

He said this is why organizations in the philanthropic sector increasingly are using business practices as part of their daily work.

“There is a move toward impact and socially responsible investing,” Moody said.

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