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Nonprofit executives discuss legal, finance, tax, and operational issues at CLA’s first-ever Nonprofit Executive Summit.

Leaders Speak on Protecting the Nonprofit Business Model

  • 11/5/2013

Leaders Speak on Protecting the Nonprofit Business Model

The traditional nonprofit business model is threatened by financial sustainability issues, generational and technology trends, globalization, and government policy. On September 26, 2013, CliftonLarsonAllen and the law firm Venable LLP hosted the first Nonprofit Executives Summit in Washington, DC, to address these issues and chart a new course for nonprofits.

This article is adapted from a panel discussion moderated by John Langan, managing principal of CLA’s public sector practice. Langan interviewed a group that included a university president and two association leaders.

Do associations really have “members” or just a loose affiliation of individuals and corporations that interact and buy when need and value intersect?

Andrew Watt, President and CEO, Association of Fundraising Professionals: We have a complex governance structure that can be tough to manage and we need to review that as we change our culture. We also need to better understand how we can leverage our strengths, and create a direct mandate to secure more investment in AFP and protect our long-term future. This requires a strong cultural shift and better communications with external organizations about what we do. We need to see ourselves as a capacity-building nonprofit, review our membership structure, and leverage more corporate and foundation support versus the current individual support.

Chris Brantley, Managing Director, Institute of Electrical and Electronics Engineers, Inc. — United States of America (IEEE-USA): Membership is important to IEEE, but it tends to be a loss leader, so we have to grow strong lines of business to complement membership. We also have many people engaged with IEEE in volunteer roles, as editors, authors, conference organizers, etc., who are not members. So we constantly ask the question, “what is a member,” and more importantly, how can we engage the broader community of professionals who are not IEEE members, but who are essential to our success.

Kevin Ross, President, Lynn University: From a higher education perspective the issue is perceived value and relevancy. We need to leverage technology without losing our institutional soul. For example, our iPad initiative has saved students and their families 50 percent on textbook costs. But our greater calling and ecosystem is to give people something that they don’t get elsewhere — in society or at another institution — so we must balance the value of the higher education experience with the funder’s need for transparency and accountability.

Is expanding beyond our shores the answer?

Brantley: IEEE already has more than 400,000 members in more than 160 countries around the world, and we’re committed to growing as a global organization. Our goal is to go where the growth is, with a focus on expanding our various lines of business, including standards and education. Membership growth is not the primary driver, but having existing local membership helps us assimilate and understand culture. As our footprint expands, membership tends to grow as a byproduct.

Watt: We must engage in international expansion to maintain our relevance to all our audiences, here in North America and overseas. It supports our mission and can set us apart. To establish credibility internationally, we need to lead with a mission focus and not naked business interest. Our learning from this informs everything we do.

Ross: International is where the growth is for most for-profits and nonprofits. We don’t rely on one region. In an institution of less than 3,000 students we are 24 percent international, with representation from more than 90 countries. It is more than a strategy for us, it’s a niche. Most schools have finally gotten the message and added international recruiting counselors.

Is tax exemption and government funding worth the compliance burden?

Ross: Student financial aid, grants, and tax-exemption are both benefits and burdens. On balance it’s a plus, but the cost of compliance is rising faster than the benefits derived. For example, steep tuition discounting by many schools by increasing financial aid is a slippery slope for students, their families, and the U.S. taxpayer. We need a new model.

Watt: Our challenge is that we are focused on one issue, and it’s always harder to work in a broader context on multiple issues. We’re trying hard to get elected officials to understand the broader impact of our organization and how it helps everyone. We need to get public discourse to move beyond the tax deduction issue, recognizing that it remains critical to us.

How do you see organizations taking advantage of data to innovate and grow?

Brantley: The explosion of data measuring tools and options reinforces the push to support planning with meaningful numbers, but the challenge is in knowing the best metrics to use. We need thoughtful measures of trends and economic developments across various sectors, but often find that there is no single measure of true impact and that success looks different in different circumstances.

Publishing is a big part of IEEE’s revenue stream, so naturally we have been concerned about the impact on our revenue model of open access to government-funded research and data. Interestingly, we have found that open access has brought new authors and audiences for our publications, often in spaces not well served by our existing publications, which we see as a positive. We’re committed to open access and offer a variety of publishing options, with an author-pays model to cover our publishing costs, while we continue to drive revenue from subscription sales to our IEEEXplore Digital Library.

Are you engaging your key constituents with social media?

Ross: We were a little late to the party on social media but caught up quickly. This is where our students live. We regularly engage with social media platforms to raise our profile. Organizations need to pursue every avenue to authentically tell their story.

Watt: Our young professional membership group has grown significantly. We’re making sure people are aware of our mission, and not just focused on membership. We look at current outreach to show how it fits and why it’s relevant at an early age — to create a point of entry driven by our chosen audience.

Can governance structures be focused and accountable and still be nimble and relevant?

Watt: Yes, we manage change incrementally toward a shared vision. We look at things in cycles, create a structure that allows the organization to be flexible, and listen to others in order to encourage them to play a role in that change. With a cultural shift within an organization, you need to be fair about what you’re trying to do, and everything is framed in that context. You need to create an environment where change can happen, and then keep reinforcing it.

You get momentum when things change up and down in an organization, and people can then apply change in their daily work. By changing the personnel structure, you can encourage people to thrive within their areas. We want to avoid the “Peter Principle” — which states that “Employees tend to rise to their level of incompetence” — and make sure we are moving people through an organizational structure that promotes creativity and organizational vision rather than just moving them up.

John Langan, Managing Principal, Public Sector or 301-902-8532