Beware Blurring of Sectors

From the beginning, Stanford Social Innovation Review has been a strong proponent of the idea that the nonprofit sector had much to learn from the for-profit sector and vice versa. In fact, one of the feature articles in this issue, “The Promise of Lean Experimentation,” does just that. Consultants Peter Murray and Steve Ma write about how the “lean model”—an increasingly popular approach to building a business, especially in Silicon Valley—can be adapted for the nonprofit sector. Much like design thinking, which was also adapted from the for-profit sector, the lean model provides new ways for nonprofit organizations to launch, test, and implement new programs and services more efficiently and effectively.

The lines between the nonprofit and for-profit sectors that were once sharp are indeed blurring. The difference between a for-profit Benefit Corporation and a nonprofit social enterprise, for example, is sometimes hard to distinguish. Both sell products and services to customers. Both are driven by a social mission. And both make decisions only after considering their impact on all stakeholders and society. The main difference between the two, it seems, is their ownership structure.

Although the blurring of the two sectors is no doubt occurring, some argue that this is not necessarily a good thing. One of those is noted McGill University management Professor Henry Mintzberg. In our cover story, “Time for the Plural Sector,” Mintzberg argues that each sector—public (government), private (for-profit), and what he calls “plural” (nonprofit) plays an important and distinct role in creating a healthy society. When one sector becomes too dominant (as it was under communism when the public sector took control, or as it is now in a growing number of countries where the private sector is becoming supreme), society becomes unbalanced and people suffer.

A third feature article in this issue, “The Wall Street Takeover of Nonprofit Boards,” provides a cautionary tale about what happens when the nonprofit sector becomes too much like the for-profit. Ohio State University law Professor Garry W. Jenkins studied the backgrounds of board members of three types of US nonprofits—private research universities, liberal arts colleges, and New York City nonprofits. What he found was that over the last 25 years, people from the finance industry made up a growing percentage of board members—and an even greater percentage of board leaders, in some cases alarmingly so.

At 23 leading private research universities (Stanford University among them), for example, financiers now make up 40 percent of board membership and 56 percent of board leadership. There are many reasons why this imbalance matters. It crowds out people from other parts of society; leads to uncritical adoption of financial and business methods; makes it more difficult to achieve gender and racial equity; and leads to greater groupthink. Hardly the attributes one wants from a nonprofit board.

The takeaway from these articles is that although there are things that organizations from all sectors can learn from one another, one shouldn’t think that all blurring is good. In fact, there are important reasons why society needs three different sectors and why the organizations that compose each of them should retain some of their distinctive qualities.

Read more stories by Eric Nee.