Is the Nonprofit Sector Socially Responsible?

By Mal Warwick

Copyright © 2005

Check out almost any business conference these days, and you’re bound to find one or more sessions on how companies can do better by their employees, their customers, their suppliers, their communities, and the environment.

Sure, there’s a lot of green-washing in the private sector that goes by the name of “corporate social responsibility.” Truth to tell, though, the concept of the “triple bottom line” – people, planet, and profits – has made inroads into thousands of companies both here and abroad. Socially responsible business, though still the exception, is no longer an oxymoron. More and more, it’s taking hold in companies around the world.

But what about us? Yes – I mean you and me. The nonprofit sector, the voluntary sector, the social sector, the independent sector, the third sector – call us what you will. We’re the people who are exempted from paying taxes, on the grounds that we serve the public interest, remember? And our donors get all sorts of tax benefits, too, because they’re supporting “philanthropy.”

Let’s get real.

For starters, not every tax-exempt organization incorporated under Section 501(c)(3) is engaged in philanthropy. Many of our biggest not-for-profit institutions are accidents of history or politics. Some are repositories of wealth hiding from the IRS. Others are businesses in everyone’s eyes but the law’s. Philanthropy – “the love of humankind” – has little or nothing to do with them. When the lion’s share of the benefits accrue to the donors rather than the public, that’s not philanthropy.

Equally important, and in some respects even more galling, is the way so many nonprofits manage their affairs, heedless of the fact that they exist to advance the public interest.

For example, consider the way employees are treated at many nonprofit organizations. Low salaries – often shockingly low – are the norm. Benefits are reasonably good but rarely compare favorably with those at Fortune 500 companies. Management is resolutely hierarchical, allowing little or no leeway for individual initiative. With notable exceptions, opportunities for career advancement are almost nonexistent.

I’m well aware that Peter Drucker, the management gurus’ management guru, has famously said that nonprofits on the whole are better managed than businesses. If that’s true – and I would not contradict the venerable Mr. Drucker – then the U.S. economy is in sad shape, indeed. Because what I’ve seen of the management practices at too many of America’s nonprofits would suggest that the business bankruptcy rate is bound to rise alarmingly.

So, it’s no wonder to me that the rate of employee turnover in the nonprofit sector is horrific. (Granted, there are no reliable statistics on this question. I rely on my own anecdotal observations – and that of the overwhelming majority of the 200 nonprofit leaders I surveyed on this question not long ago.) Is it surprising that employees sometimes turn to labor unions to help them bargain for better working conditions?

And what happens when local folks come together in a campaign for a “living wage,” as they have in dozens of cities all across America? Guess who’s invariably on the front lines in the opposition? You’ve got it – everybody’s favorite nonprofit organizations.

Shockingly, the $5.15 minimum wage now mandated by federal law is about $4,000 per year below the poverty level for a family of three. The “working poor” who receive this meager income impose a burden in healthcare and other social service costs on the rest of us because their employers haven’t yet figured out that they, too, would benefit from paying higher wages. And I’m not referring just to Wal-Mart, which has gotten clobbered in the news media of late for this short-sighted practice: thousands of employers, including many nonprofits, reflexively oppose wage and salary increases. Because of the human costs, the social costs, and lowered productivity that result from below-subsistence wages, the living wage movement has sprouted in America during the past two decades. Now, some 70 jurisdictions have enacted living wage requirements for municipal or other government contractors. Many far-sighted companies have voluntarily increased compensation to match the living wage level. 

Usually, the living wage is set in comparison to the federal poverty guidelines, taking the local cost of living into account. In many jurisdictions, the living wage is the hourly rate that a full-time worker would need to earn in a year to support a family of four at the poverty line ($17,690 a year, or $8.20 an hour, at the 2000 rate still in effect at this writing). Sometimes, the living wage is set at 130% of the poverty level—the maximum income a family can receive and remain eligible for food stamps. The wage rates specified by living wage ordinances range from a low of $6.25 in Milwaukee to a high of $12 in Santa Cruz, California.

Consider those numbers for a moment. Think about how it might be to support yourself, a spouse, and two children in Milwaukee on $6.25 an hour or on $12 an hour in Santa Cruz, California, a high-cost beachfront community. Six-and-a-quarter an hour is the equivalent of $250 per week, or $13,000 per year with two weeks of paid vacation. Twelve dollars an hour becomes $480 a week, or $24,960 per year. Unless you and your family are accustomed to dressing only in hair-shirts and eating spaghetti and corn flakes, I strongly suspect you would be hard-pressed to survive at even those wage levels in either place—and that’s the living wage.

Yet most businesses, and almost all nonprofit organizations, that have addressed the issue oppose taking even such a minimal step toward humane levels of compensation for the people who keep our organizations and our economy running.

“The living wage will bankrupt us,” they say, using the same argument the U.S. Chamber of Commerce has raised in opposition to every single attempt to raise the minimum wage since the minimum first went into effect in 1938 at 25 cents an hour.

“Our donors will never allow it,” they say, sounding strangely like those businesspeople who pretend to be arguing on behalf of their shareholders.

“The public expects us to be frugal,” they say, oblivious of the fact that few in the public are aware how very low wages are at so many nonprofits.

“We’re creating jobs, and we’d have to lay people off if you made us pay them more,” they add, mouthing another knee-jerk argument from the playbook of the Chamber of Commerce that has been repeatedly disproved by real-world experience.

“Our employees receive many rewards other than the wages we pay them,” they say, ignoring the revolving-door turnover that belies this argument. (If those “rewards” were so great, why do so many of our employees leave to earn more money elsewhere?)

Boosters of the voluntary sector are inclined to argue that America’s nonprofits are inherently good because the missions they serve are philanthropic. Well, maybe. In some cases, for sure. But it’s time America’s nonprofits came to understand that philanthropy begins at home.