Charity Begins at Home: Benefits of Being Non-Profit

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Table of Contents

Introduction
Charitable Contracts
Problems in Enforcing Contracts
Non-Profit Accountability
Limitations in Dispensing Donations
References

Introduction

Non-profit organizations exist to provide services that have little monetary profits that for-profit organizations focus on providing (Haruko & Sotashi 2006). Non-profits also participate in the provision of goods and services whose beneficiaries are too minimal for government agencies to undertake. In addition, these organizations play the key role of being the intermediaries between donors who provide funds and recipients who are the customers. Having to play the role of go between the two stakeholders means there exists a market for Non-profit services in the economies. This paper shall elaborate on the non-profits’ intermediary role, and how efficiency could be achieved in meeting the goals of main stakeholders, donors, and recipients.

These organizations are better placed to provide this role compared to business establishments, the reason being that the latter’s bottom line is to make tangible (monetary) and intangible (market share and recognition), both of which are not in the interest of the former. Indeed, the bottom line for non-profits is to serve as many recipients as possible using the most efficient means. without expecting to gain anything in return (Carella et al., 2007. p. 950). Given this scenario, it would be counterproductive for business establishments to provide nonprofit services. However, the inability of businesses to provide those services efficiently does not mean staying away completely; instead, entrepreneurs running businesses use portions of their earnings to run non-profits and therefore contribute to the well-being of such organizations.

Many businesses, especially multinationals, have throughout history established non-profits directed at financing certain causes. Indeed, the second half of the twentieth century saw the explosion of nonprofit organizations targeted at achieving organizational Corporate Social Responsibilities (Zaleski & Esposto, 2007, p. 322). However, not many companies can afford to establish and maintain internal non-profits, which mean that most of them have continued to support independent establishments. The reason for not establishing internal non-profits rise from fact that senior management in many companies would lose the focus of organizational goals as they concentrate on non-profits ones.

Further, non-profits are more befitted to facilitate the flow of donations from donors to recipients given the difference in stakeholder groups between them and business establishments. With regard to non-profits, the stakeholder group constitutes of donors and the recipients. Donors’ goals include funding courses believed to be worthwhile by the involved individuals or establishments, whereas goals of recipients included being provided with means to achieve ends. On the other hand, the major stakeholder groups in business establishments include shareholders whose primary goals include increasing return on investments. The other stakeholder group in businesses include consumers whose goal is to be provided with high quality goods and services at competitive prices. These differences in interests of stakeholder groups call for individual organizations (businesses and non-profits ) to stick to what they do best: help stakeholders achieve their goals, which further means specializing.

Charitable Contracts

Charitable contracts between donors and recipients is hardly developed or signed by the two parties instead, non-profits who play as intermediaries help both groups to enter into a contract (Ramia & Carney 2003). In fact, it can be said that donors enter into a contract with non-profits independently and the same happens with recipients. Non-profits therefore play the role of contract enforcers between the two groups. A broken contract is therefore between the non-profits and recipients, or non-profits and donors. This puts the non-profits at a tricky situation of playing the go between the two stakeholders that rarely gets to see each other. However, the non-profits are able to deal with the situation because that is one of their main roles, and which employees happen to be trained for.

Recipients role in the contract is to ensure that resources provided by donors are utilized in best ways possible. This means taking time to ensure that rules and regulations stipulated by non-profits are followed to the letter, failure of which means bleaching of contract. In order to ensure that contracts are drafted in ways agreeable to stakeholders, many non-profits are increasingly involving donors and some recipients in drafting processes (Karlan & List, 2007, p, 1780). This communicating to the stakeholders in matters pertaining to the contracts. Most importantly, non-profits should ensure that donors understand the rules and regulations that would govern the contract on recipients point. On their part, the donors have to feel obliged to follow into the contracts stipulated by non-profits.

Donations made to recipient can be said to meet the needs, because they are channeled through organizations that have accumulated enough faith from both stakeholder groups. Before providing funds, donors first ensure of undertaking research regarding the non-profits undertaking activities that they (donors) feel passionate about. This also happens when non-profits themselves are the ones that approach donors for funding. In addition, donors ensure of only funding non-profits that are more likely to abide by the rules and regulations that government such establishments. Dealing with many recipients does not mean that non-profits have to develop as much contracts. In fact, most of them develop just one contract that get copied to all recipients. However, non-profits have to develop individual contracts with donors, especially those ones providing significant amount of funds.

Non-profits role as intermediaries also comes out as a market where donors and recipients come to transact their businesses. In this regard, the non-profits help donors come to the market and identify non-profits that meet goals in line with donor interests. In their role as markets, non-profits position themselves in ways that would attract donors. This is especially done in the process o developing contracts. In fact, it is common to see non-profits offering donors some incentives that help in attracting funds, this could be done through free brochures or free subscription.

The issue of moral hazard does arise in the non profit sector, and it could happen both at the organizational and recipient levels. At the non profit level, organizations might become so used to getting funds from specific sources up to a pint of becoming totally dependent on such single source of funds. This is a dangerous way of running a non profit, because withdrawal of a major donor could mean total collapse of the organization (Eric 2006). At the recipient level, individuals getting donor help though non-profits may become so glued to the help to an extent that they fail to access other sources of finance. Such individuals fate is similar to organizations depending on one source: lack of financing when major donors end their relationship with the said organization.

The issue of private property arises when non profit facilities are used in by both donors and recipients. Despite being major stakeholders, both groups must respect the non-profits property. Also, private property issues might develop from from fact that non-profits are funded by donor funds, meaning that the this group of stakeholders have a stake in the running and taking care of facilities. In addition, the funds being used in the day-to-day running of non-profits are still the private property of the donors. This means that non profit themselves have to treat the funds and organizational facility as such, failure of which could lead to reduction of donor funds or end of meaningful relationship that could deal a blow to the affected non profit.

Problems in Enforcing Contracts

There are several greater problem associated with enforcing contracts in a non profit setting, most of which originate from donors. First, some donors that provide resources to run non-profits are happen to be busy with other occupations that leaves less time to deal with non-profits that receive funds from them. In this case, some non-profits just keep sending materials and fund requests with hope the moneyed donors would be enticed in providing more resources. The failure of the big donors to keep track of what is going on in the non-profits. This lack of time to allocate to non profit issues mean that ensuring that contrasts enforcement would not be followed.

Second, some classes of classes of stakeholder groups happen to take non profit matters too trivial to an extent that they do not take chance to follow on the governance on non-profits. As a result, the do not take time to ensure that contracts they signed with the non-profits are being enforced. This originates from fact that most donors provide smaller amounts of funds, meaning that following too closely on the governance of these organizations would equate to sort of wasting time that could be used in other productive activities. It is not even unique to find donors that give to non-profits just for the sate of tax write-offs.

Individuals providing larger amount of funding to these on profits ensure that contrasts are upheld through boards of directors, where larger groups of donors happen to have a presence (Bruno 2000). Being in the boards of directors help the big donors to ensure that best practices are followed in day-to-day running of the organization, failure of which they can decide to replace senior management until they are satisfied. In addition, the donors are provided with the ability to take part in drafting contractual agreements between them and the non-profits. Contracts drawn in this manner have the capabilities of meeting stakeholder demands, which explains reasons why may non-profits are encouraging big join respective boards of directors (Zaleski & Esposto, 2007, p. 320).

Another route used by donors to ensure that contracts are enforced is through voting with the feet (Margaret 2006). That is, deciding to stop supporting the non profit failing to adhere to the contract between the two. This is tactic used by both big and smaller classes of donors. Since non-profits themselves understand that their lifeline lies in proper provision of services through adherence to contracts agreed between them, donors and recipients, they (non-profits ) are more likely to follow agreements. This may also mean developing rules and regulations that would make it easy for the organization to adhere to the agreed contracts.

Non-Profit Accountability

As mentioned in earlier sections, non-profits are wholly accountable to donors that provide fund ad the recipients that depend on donor funds to achieve certain goals. In addition, non-profits are also accountable to regulatory authorities that govern several areas of improvisational activities. All this mean that organizations have to consider the wider group of stakeholder in making decisions regarding transferring of donations from donors to recipients. Any failure to meet demands of these groups would eventually affected organizational performance. This form of accountability is no much different from the one that business establishment are subjected to, which means that both forms entities are affected in the same way. This is shown by the repercussions which is faced by businesses and non-profits. One reason for this similarity is that governments are increasingly demanding greater transparency in non profit organizations, just like their profit counterparts (Levi 1998). This greater demand for transparency is meant to keep stakeholders and members of public well informed in how non profit organizations conduct their business, and how donor funds are utilized. Another reason for the increasing demand for non-profits to be subject to stringent accountability demands from states is because of their surge in number. Indeed, the number of non profit establishments has been getting bigger in the last few decades. Some of them are actually label non profit but have become conduits of making money. In addition, the greater number of them mean that they could be prone to some activities that need to be brought into the open, reason being that they are funded with individuals money and sometimes tax payers funds.

Limitations in Dispensing Donations

The growth in non profit industry has led to greater specialization targeted at increasing efficiency in individuals organizations (Edwar et al. 2007). The non-profits are therefore ensuring to just providing services that help achieving very specific goals, those that are in line with organizational comparative advantages. In this regard, it has become possible to pass donations from donors to the recipients. Government regulations requiring more transparency has also provided non profit organizations with incentives to use more open means of achieving transparency in the way funds are collected and utilized. This can easily be seen in the detailed annual reports filed with governments and made available to members of the public though various publications as well as websites.

As mentioned earlier, organizations are increasingly establishing internal foundations spearhead Corporate Social Responsibility goals. The companies having such arrangements tend to reduce their contribution to independent non-profits. Having internal non-profits also helps companies to have direct contact with recipients, which lead to better ways of understanding whether funds being provided are completely meeting the goals intended. Independent non-profits feel challenged to improve their accountability and performance, which leads to better provision of services to the donors and recipients, as well as attracting more stakeholders. Given the increased competition and efficiency in the industry, government involvement, other that demanding more accountability and adherence to laws of the las is highly discouraged.

The aforementioned aspects of non-profits indicate that they are best positioned to provide the service of transferring donations from donors to recipients. For profit establishments do not have the comparative advantages of undertaking non profit services, because the industry lacks monetary profits that drive entrepreneurs. Governments are equally not qualified to undertake the process, because non profit industry may not have large enough beneficiaries to attract government services. Maintaining charitable contracts between donors and recipients is the primary role of non profit organizations.

References

Bruno, B 2000, Managerial Directions in Non-profits , Public Choice, vol., 105, pp. 17-41.

Carella, M., Gurrieri, A. & Lorizio, M. (2007). Non-Profit’s Role in Migration. Journal of Socio- Economics, 36, 914-31.

Edward L., James C. and Kick, D 2007, The Role Non-profits in Public Sector, Urban Studies, vol. 44, 13, 215-94.

Glaeser, E and Andrei, S 2001, Not-for-Profit Entrepreneurs; Public Economics Journal, vol., 78, pp. 85-120.

Haruko, N. and Sotashi S 2006, Investigating Quality of Do Non-profit Management Operations, Economics Journal , v. 47, 112-41.

Levi, Y 1998. Rethinking the For-Profit vs Non-profit Argument: A Social Enterprise Perspective Economic Analysis, vol. 1, pp. 39-60.

Margaret, M 2006 , Policy Analysis in Voluntary Sector, Policy Studies, vol., 27, pp. 9-30.

Karlan, D. & List, A. (2007). Price and Charitable Giving. American Economic Review, 97, 1774-93.

Ramia, G and Carney, T. 2003, Non-profit Strategies in Public Management Networks, Labour Economics, v. 6, pp 249-81.

Zaleski, P. & Esposto, A. (2007). Market Power in Profit Hospitals and Non-Profit Hospitals.Atlantic Economic Journal, 35, 315-25.

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