1. © 2014 SAGE Publications, Inc. Chapter 3: Theories of the Nonprofit Sector and Nonprofit Organizations

2. © 2014 SAGE Publications, Inc. Nonprofit Functions vs. Government 1.Accommodate diversity – Since government’s obligation is to treat all citizens equally, nonprofits provide a voice and services in areas that are not addressed by government. 2.Undertake experimentation – Nonprofits have greater freedom to begin new programs on a smaller scale than government is allowed to using public funds. 3.Provide freedom from bureaucracy – Government moves slowly by virtue of its bureaucracy while nonprofits can respond to social needs more quickly and efficiently. 4.Attention to minority needs – Government priorities must match those of the majority of voters while nonprofits fill the gaps.

3. © 2014 SAGE Publications, Inc. Theories Explaining the Nonprofit Sector Discipline-centered explanations Historical -- distrust of government, voluntary associations, religion, First Amendment rights, population diversity, income tax and tax deductions, shifts in public policy Social -- socialization, reinforcing norms and values, social capital, nonprofits as mediating structures Political -- accommodating diversity, experimentation, freedom from bureaucracy, attention to minority needs Economic -- private versus public goods, externalities, market and government failures, nonprofits as gap fillers, supply-side theories Motivation theories (altruism versus self-interest) Theory of the Commons

4. © 2014 SAGE Publications, Inc. History The nonprofit sector reflects voluntary traditions of early America, changing social needs arising from various historical movements, and the tax structure as it has evolved throughout U.S. history. Sociology Involvement in nonprofits helps socialize individuals, reinforce norms and values, and develop social capital. Nonprofits are mediating structures that help people interact with large bureaucracies, such as government and business. Political science Nonprofits exist to accommodate diversity, undertake social experimentation, provide freedom from bureaucracy, and address minority needs. Economics Nonprofit organizations fill gaps left by market failure and government failure. Some nonprofits arise because of action on the supply side, that is, social entrepreneurs or donors who are motivated to solve a problem or promote a cause. Interdisciplinary Lohmann’s Theory of the Commons defines common goods as a separate category, distinct from private and public goods. At least some nonprofits exist to provide common goods to groups of individuals who share an interest in them.

5. © 2014 SAGE Publications, Inc. Common Characteristics of Nonprofit Organizations Organized Entities – chartered as formal organizations; most incorporated under state law Private – not agencies of the government but may receive some funding from the government Non-Profit Distributing – excess revenues are reinvested in the organization; no dividends to individuals or investors Self-Governing – control lies with a board of directors or board of trustees responsible for the overall welfare of the nonprofit Voluntary – board of directors and some service providers are volunteers Of Public Benefit – exists to serve a social purpose deemed to be of public benefit

6. © 2014 SAGE Publications, Inc. Theories Explaining the Nonprofit Sector Failure Theory Market and Government Failure Gap Fillers Supply-Side Theories Altruism and Giving

7. © 2014 SAGE Publications, Inc. Theory of Commons Public Good versus Common Good? Question on Social Return on Investment. Dual bottom line. Do we need our own theory?

8. © 2014 SAGE Publications, Inc. External Environment Open systems -- nonprofits are dependent on and interact frequently with their external environments Shift away from emphasizing the internal mechanics of an organization’s operation (e.g., bureaucracy) Focus on the relationship between an organization and its external environment (e.g., social context)

9. © 2014 SAGE Publications, Inc. External Environment (cont’d.) Resource dependency -- nonprofits are dependent on external constituencies for revenue, information, and other resources Goal displacement, performance measurement, internal impact, adaptation and management

10. © 2014 SAGE Publications, Inc. External Environment (cont’d.) Isomorphism -- nonprofits in the same field tend to become more like each other as a result of facing similar influences from their environments

11. © 2014 SAGE Publications, Inc. Internal Structures and Organizational Culture Attempt to explain why some organizations are relatively bureaucratic and centralized, while others are more entrepreneurial and flexible Task environment -- internal structure as a reflection of the day-to-day transactions that make up an nonprofit organization’s work Organizational culture – the unwritten rules that prescribe dress, manner of doing business, social mores in the office In Search of Excellence (Peters and Waterman, 1982) Built to Last: Successful Habits of Visionary Companies (Collins and Porras, 1994 )