Nonprofits: The Good, Bad, and Disturbing

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We usually believe nonprofits are out to do good in the world — feed the homeless, donate blood, protect an endangered species. What if some aren’t? What if how we see nonprofits is a bit skewed? The reality is, not all nonprofits are in it to create world change, cure world hunger, and instill peace. Instead, for some, it’s all about the money, as you’ll find out. (It may just change how you go about conducting South Dakota entity search, or any state search in general.)

Read on to learn the good, bad, and disturbing sides of the nonprofit world.

Nonprofit and For-Profit Goals Defined

Much like the stereotype, the goal of a nonprofit is based on how well it advances its cause (which is normally expressed in the mission statement). If the organization helps to take the bumble bee off of the endangered species list, a cause it champions, you can bet it’s achieved its goal. Substitute bumble bee and endangered species list for a number of social causes, and you have the same thing: a less tangible yet very real goal.

Arguably, this is the biggest difference between nonprofit and for-profit businesses. For-profit business entities (think LLCs, corporations, partnerships, sole proprietorships) spell out one singular, tangible goal: money. Which isn’t surprising given that “for-profit” literally means that.

So, when we really think about the divide in nonprofit and for-profit goals, it makes sense how we’ve gotten this stereotype that nonprofits are, as its name sounds, not for profit — or greed. And for-profit businesses are.

The Good

Apply this nonprofit goal definition and there you have it, your stereotypic, good nonprofit. The donors give money to help a cause the nonprofit champions, as well as keeps it running (i.e. pay for salaries, replace equipment…). We’re not going to bore you with more of “the good” since we’d be regurgitating the stereotype you know too well.

Instead, let’s paint a different picture. Did you know for-profit business structures don’t receive the same tax break benefits as a nonprofit? It’s actually an extra for for-profit organizations. Something that’s added onto a company’s social program.

Since businesses aren’t making money for their shareholders or members from social causes, the founder and board must strongly be behind this cause and go out of their way to support it. In other words, financially, it literally isn’t in their best interest to provide funds and resources to the cause, which makes it that much more endearing when a for-profit organization does it anyways. Suddenly, the greedy (philanthropic) corporations look a little better. But here’s where things really get interesting…

The Bad

Some nonprofits may have the right goals in mind — wanting to springboard a social cause — but go about it poorly. Specifically, we’re talking about mismanaging funds, mishandling resources and time, and hiring inexperienced and overwhelmed employees responsible to oversee massive, philanthropic projects.

As a Huffington Post article points out, there are roughly 4,000 NGOs in Kenya. There’s a likelihood that some of them are run by people who aren’t familiar with the region let alone the culture, failing to provide a framework that will have tangible results. Even worse, as Hussein Kurji, creator of nonprofit mockumentary, “Samaritan,” says in the article that he’s witnessed nonprofit workers eating lobster at a five-star hotel, discussing poverty. It doesn’t get much more ironic than that, but it does.

The Disturbing

What if we told you some nonprofits intentionally are the middle men, helping rich, anonymous donors fund political campaigns? Yep, you heard that right. Here’s how it works. Wealthy, anonymous donors make a “large donation” to the nonprofit. The nonprofit then passes that money along to the political campaign/bill/investment…There you have it, a legal loophole that bypasses campaign finance laws. But let’s get more specific.

Campaign Finance Loophole Explained

Nonprofits have the 501(c)4)s tax designation, meaning they don’t have to disclose donors and have a tax exempt status, given that they’re not in it for profit but for positive social change. To keep this tax-exempt status, nonprofits can only give 50% of their resources to a political endeavor. This is where one organization helps another. The wealthy donor (either an individual or another organization) gives money to the nonprofit – as a donation. This is important. You see, since the contribution is a donation, it isn’t strictly the nonprofit’s funds so it doesn’t apply to that 50% mark. The nonprofit can then invest that “donation” into politics without risking their tax-exempt status.

And, as we’ve said, donors are anonymous. Meaning that they can potentially funnel in as much money as they want. One social welfare program in particular, according to NPR’s and Center for Responsive Politics’ findings, churned out $16.9 million to other nonprofit groups. What we have here is an ethically questionable situation at best and a disturbingly corrupt scheme, at worst.

Is This Ok?

You have nonprofits, organizations that are supposed to be supporting a positive social cause actively behaving like an investment fund in an ethically questionable political scheme. Perhaps some of these donations that pass through such nonprofit organizations really are backing a noble cause? What about bipartisan (more like universal) issues such as ending world hunger and poverty?

Maybe — and we’ll stick to maybe — some of these organizations capped out at their 50% mark and really do want to further support a good cause — clothing and feeding the homeless or providing educational opportunities to underprivileged youth. Even if this is the case, the question still remains, is this the best way to go about achieving that?

Here’s Where the Irony Lies

For-profit companies have a reputation for being greedy, but is that a fair assumption? For some, maybe. Others, maybe not so much, especially when we factor that for-profit businesses don’t receive nearly the same amount of incentives as nonprofits do for taking up a social cause. For this reason, some companies really do go out of their way to champion a cause the founder and board both strongly believe in.

So, which really is “better”? Nonprofits? Or for-profits? Well, it really depends.

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