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date: 28 September 2022

Agencies and Organizations in Nonprofit Settingsfree

Agencies and Organizations in Nonprofit Settingsfree

  • Jennifer E. Mosley, Jennifer E. MosleyUniversity of Chicago
  • Jade WongJade WongUniversity of Chicago
  •  and Jan IveryJan IveryGeorgia State University

Summary

Nonprofit organizations play a dominant role in providing social services in the United States. This entry begins by exploring the roles and origins of the nonprofit sector, reporting on its current scope and scale, and reviewing federal regulations governing nonprofit organizations. Special attention is then given to understanding human service organizations and their financing, including the implications of changing government–nonprofit relationships. Also discussed are four additional issues facing the sector—accountability, marketization, political participation, and nonprofit growth around the world—as well as recommendations for meeting future challenges.

Subjects

  • Administration and Management
  • International and Global Issues
  • Macro Practice
  • Policy and Advocacy

Updated in this version

Content and references updated for the Encyclopedia of Macro Social Work.

The diverse set of organizations known to make up the nonprofit sector has been gaining influence and recognition across the globe; nonprofit organizations are increasingly being called upon to help strengthen communities, promote civil society, and meet new human service needs (Salamon, 2002). Best known in social work as the organizational form that most human service organizations take, “nonprofit” is the term commonly used in the United States to describe organizations that may have historically been called “charities” and includes both religious and secular organizations. Nonprofits are unique because of their dependence on donations or grants from outside the organization (by individuals, foundations, and government) and because they exist to serve the public (as opposed to private) good.

The term “nonprofit” is synonymous with “not-for-profit” and serves as a counterpoint to the business (or for-profit) sector. Nonprofits are bound by the nondistribution constraint, which means that when they do make a profit (as well-managed nonprofits should), they must invest those profits back into the organization or use them to subsidize future programmatic efforts rather than distribute those profits to individual stakeholders in the organization in the way that for-profit businesses do. Other terms are also used to refer to the nonprofit sector. It is alternatively known as the “third” sector (after the governmental “first” sector and the commerce-oriented, profit-making/proprietary “second” sector), the voluntary sector, and the independent sector.

Nongovernmental organization (NGO) is another term that is used to refer to nonprofit organizations, often implying organizations that work internationally.

Nonprofits operate all over the world and in many different fields, including human services, arts and culture, health care, education, and civil rights. For example, hospitals, day care centers, art museums, community action groups, and softball leagues can all be nonprofits because all are credited with serving the public good in some way. Foundations, such as the Ford Foundation or the Bill & Melinda Gates Foundation, are also nonprofits, as are most religious organizations and congregations. Diversity also exists in the size of nonprofits. Nonprofits vary from multibillion- dollar corporations, such as Kaiser Hospitals or Harvard University, to tiny all-volunteer networks operating in low-income rural areas. Despite the diversity of the field, many nonprofits have common features. In their cross-national work, Salamon and Anheier (1992) suggested that five defining elements must be present for an entity to be considered a nonprofit. They must be (a) actual organizations and not just a single person, (b) private and nongovernmental, (c) nondistributing of profits, (d) self-governing, and (e) containing elements of voluntarism. In this context, the term voluntarism indicates more than simply the inclusion of volunteers and is expanded to include a voluntary board of directors, community involvement, and donations freely given.

Oversight and Regulation

In the United States, although informal organizations that run on a voluntary basis are also legally considered part of the nonprofit sector, organizations are usually considered nonprofit based on their tax status with the federal Internal Revenue Service (IRS). Nonprofits are officially recognized by the U.S. government if they show that they are organized for public purposes. They are regulated, defined, and granted tax-exempt status under section 501 of the federal tax code. There are 29 different subsections under section 501(c). The tax status granted depends primarily on the overall function of the organization, how it is structured, and who it benefits. Nonprofits are also subject to varying forms of state-level regulation and reporting.

Section 501(c)(3) describes organizations that serve what the IRS considers religious, charitable, scientific, literary, or educational purposes. Most social service organizations have 501(c)(3) status. Only 501(c)(3)s qualify for the important benefit that donors’ contributions to the organization are tax-deductible. This is an important incentive for donors and is critical to fund-raising for many of these organizations. For this reason, most organizations that are eligible file as public charities under section 501(c)(3).

The second most common subsection is 501(c)(4), which the IRS terms the “civic leagues and social welfare organizations.” These organizations are considered “social welfare–serving” rather than “public-serving,” for they promote the general welfare of people in a specific community rather than the public at large. Donations to 501(c)(4)s are not tax-deductible. Examples of 501(c)(4) organizations are service clubs, such as the Lions and Kiwanis, as well as the main arms of advocacy organizations, such as the Sierra Club, AARP (formerly the American Association of Retired Persons), and the National Rifle Association.

Legal restriction placed on certain forms of political participation is another primary distinction between 501(c)(3)s and 501(c)(4)s. Although nonprofit advocacy is recognized as an important vehicle for citizens to express their political preferences, one form of advocacy, namely lobbying, which is defined as the attempt to influence specific pieces of legislation, is limited though not prohibited for 501(c)(3)s. This is primarily due to the tax-deductible donations received by 501(c)(3)s. If lobbying were unlimited for these organizations, wealthy donors could write off their political activities by lobbying through 501(c)(3) organizations. In contrast, lobbying is not limited for 501(c)(4)s. Other forms of advocacy, such as public education or providing information to government committees, are not limited for either type of organization. Partisan communications directly related to an election are prohibited for 501(c)(3)s and limited for 501(c)(4)s (Koulish, 2013).

Scope and Scale of the Nonprofit Sector

IRS Form 990 data are frequently used to give an overview of the scope and scale of the nonprofit sector in the United States as well as patterns of growth. Using these data, McKeever (2015) reports that, in 2013, about 954,476 (67.5%) of the roughly 1.41 million nonprofits in the United States have 501(c)(3) status. The number of 501(c)(3)s grew by about 19.5% from 2003 to 2013. The number of 501(c)(4)s declined by 0.32% between 2003 and 2013. Religious congregations are another large group of nonprofit organizations; however, they are not required to file with the IRS. In the United States in July 2015, there were about 345,000 houses of worship, of which about 235,000 were registered with the IRS, according to American Church Lists. Many religious congregations also provide some social services (e.g., 88% in Philadelphia) (Cnaan & Bodie, 2001). Altogether, nonprofit organizations involved an estimated 62.8 million volunteers who contributed 8.3 billion hours in 2013. According to the Bureau of Labor Statistics, in 2012, nonprofits employed more than 11.4 million people, which represented 10.3% of all American workers (BLS, 2014). Although historically it has often been assumed that nonprofit organizations pay employees less than for-profit organizations that provide comparable services, current research shows little to no difference between nonprofit and for-profit wages (BLS, 2016).

The latest statistics indicate that most 501(c)(3) public charities are fairly small (McKeever, 2015). Excluding organizations with gross receipts below $50,000 (which are not required to file Form 990), about 29.5% of 501(c)(3) organizations have expenditures of less than $100,000 annually and about 66.4% have expenditures below $500,000. Only 5.3% have expenditures over $10 million. In spite of this, 501(c)(3) public charities account for more than three quarters of revenues ($1.73 trillion) and expenses ($1.62 trillion) for the entire nonprofit sector. Also, organizational size is unevenly distributed across all areas of nonprofit activity. In terms of the number of nonprofits operating in each area, human service made up about 35.5% of all 501(c)(3) public charities, followed by, education (17.1%) and health (12.9%). In terms of revenues and expenses, health-related nonprofits accounted for nearly three fifths of all public charity revenues and expenses, followed by education (17.1% of total revenues and 16.6% of total expenses) and human service (12.4% of total revenues and 12.7% of total expenses) nonprofits..

History

Nonprofit organizations are not new. Indeed, early chronicler of culture and society in the United States, de Tocqueville (1835/1969, p. 513), noted that in the early 1800s, Americans, unlike their European counterparts, were “forever forming associations” to solve community problems, regulate collective goods, or provide services that the government was not providing. The Elizabethan Poor Laws and subsequent poor law reforms in Britain in the 17th and 18th centuries codified the distinction between the “deserving” and “undeserving” poor; religious and voluntary organizations (i.e., nonprofits) took care of the deserving poor, and state-run workhouses were run to house the undeserving. The United States largely inherited and then adapted this system to the developing American society. For example, “Charity Organization Societies” (COSs), which organized the efforts of local private charities, emerged and expanded in the 1870s in the United States. At the beginning of the COS movement, COSs relied on the voluntary efforts of “friendly visitors” to investigate, supervise, and assess the deservingness of individuals and families receiving charitable assistance. As the COS movement grew, the movement increasingly professionalized; for example, social work leaders such as Mary Richmond pushed COSs to train workers. Often nonprofits have also been used by immigrant communities in order to maintain specific cultural, linguistic, and religious practices and ensure that needs in their community are met. In this way, social work has long been associated with the nonprofit sector through the concept of charitable work. Early settlement houses and child protection societies important to social work history, such as Hull House (before its closure in 2012) and the Children’s Aid Society, are considered nonprofit organizations. Other large historical social service nonprofits also have a long history. For example, the YMCA was founded in 1851, the Salvation Army in 1878, and United Way in 1887.

Theoretical Developments

Several different theories attempt to explain the origin of the nonprofit sector and specifically the division of labor between the nonprofit, government, and for-profit sectors. These theories generally complement each other by explaining different aspects of the nonprofit sector rather than offering competing and exclusive accounts of the origin and shape of the nonprofit sector.

Economic theories on nonprofits have focused on three forms of “failure”: market failure, government failure, and voluntary failure. The idea is that each sector has strengths and weaknesses and the “failures” of each sector contribute to the need for the other sectors. Market failure, most closely associated with the work of Hansmann (1980, 1987), asserts that under conditions of information asymmetry, where providers of services have more information about the quality of service provided than consumers, profiteering is likely. Namely, if consumers cannot gauge the quality of services they receive, information asymmetry allows providers to shortchange their customers by providing lower-quality services. This is relevant to the nonprofit sector; it is thought that the nondistribution constraint mentioned earlier makes nonprofits less likely to participate in that kind of behavior because there are fewer incentives to shortchange customers when providers are unable to pocket residual profits. Social service examples of this include day care centers, inpatient mental health facilities, and nursing homes, where the user of the service may not be able to reliably report on the quality of the services they are receiving. From this perspective, nonprofits exist to provide a more trustworthy alternative to for-profit services.

Government failure, most closely associated with the work of Weisbrod (1975), asserts that because of demand heterogeneity—the fact that in a pluralist society different people will have different needs and desires for public goods—the government will focus primarily on the needs of the “median voter” or typical citizen. In this view, nonprofits exist to fill the gaps that government leaves unfilled by providing services to niche groups. Human service examples include innovative art and music therapies and faith-based services.

Voluntary failure, most closely associated with the work of Salamon (1987), identifies four failures on the part of nonprofit organizations. First is philanthropic insufficiency—because of inadequate resources, nonprofits are unable to sufficiently and reliably provide all the services that are necessary. Second is philanthropic particularism—nonprofit organizations and the foundations and individuals that donate to them will have a tendency to focus on some groups or problems to the exclusion of others, such as providing services only for the “deserving” poor, such as the elderly and children. Third is philanthropic paternalism—when nonprofit organizations provide services or address problems that they think need addressing but that may not necessarily be what society or the client wants or needs. Both philanthropic particularism and paternalism raise strong social justice concerns. Fourth is philanthropic amateurism—poorly funded nonprofit organizations may be more dependent on volunteers and low-skilled workers than on professionals, leading to a lack of expertise in dealing with complex social problems. Voluntary failure theory essentially turns the tables on the other two failure theories, explaining why we need partnerships between sectors. For example, the growth of government–nonprofit partnerships and contracting is often explained as a means to help resolve the twin problems of government and voluntary failure, and the growth of social entrepreneurship has been explained as a response to market and voluntary failure.

Although the three failure theories are economic in nature, Clemens (2006) points out their consistency with dominant political theories. These theories have often focused on a market model of democracy wherein decisions about which public goods will be provided by government and which will be left to the residual nonprofit sector are in accordance with the preferences of the median voter. Other political conceptions of the nonprofit sector have focused on the role of voluntary organizations in providing outlets for civic engagement and representing diverse interests in a pluralistic society (Putnam, 1993). Lohmann’s (1992) conception of the “commons” and the noninstrumental rewards and benefits of nonprofit membership is also related to the civic engagement role of the sector. He argues that, in a liberal democracy, people should join together in associations to make their voices heard and to combine resources for collective action and that nonprofit organizations are the result of this process.

Boris (1999) highlights four distinct roles of the nonprofit sector, drawing on both the economic and political theory traditions. First, nonprofits serve to build social capital, which consists of networks of trust and cooperation between people, mostly through membership groups but also through voluntarism. Second, they facilitate civic involvement and political engagement. Through nonprofits, regular citizens can express their views and get involved in politics. This can range from a neighborhood reform level (such as a concerned parents’ group) to a professional level (such as a local social service agency) to the national level (such as think tanks and professional interest groups). Third, they safeguard and promote cultural, religious, and artistic pursuits and values. Last, they provide services that government and business either cannot or will not provide.

Whereas the preceding theories focus on the demand for nonprofits, a prominent “supply-side” theory is Young’s (2013) entrepreneurial theory of nonprofits, where he asks: who are the people or “entrepreneurs” responsible for forming nonprofits? According to Young, entrepreneurs are the people who innovate products, processes, and organizational forms. He suggests that nonprofits emerge from entrepreneurs’ creativity; thus, entrepreneurship is an important determinant of nonprofit ideas and programs. His theory can explain nonprofits’ important role in innovating and piloting new ideas and social programs, including experimenting with different organizational structures such as social enterprises and inter-organization collaborations, and testing new social programs before the government adopts and scales up these programs.

Nonprofit Human Service Organizations

Human service organizations, a slightly broader term for what are also called social service organizations, are generally formed as nonprofits and are of special interest to the social work profession. Hasenfeld (1983, p. 1) defines them as “that set of organizations whose principal function is to protect, maintain, or enhance the personal wellbeing of individuals by defining, shaping, or altering their personal attributes.” Agencies that provide material goods and support, individual and family services, including mental health and substance abuse treatment, residential care, child care, job training, and services to the elderly and disabled are all examples of human service organizations.

This wide range of services has resulted in a large and diverse sector. Data from the National Center for Charitable Statistics (NCCS, 2016) give a rough idea of the number of human service nonprofits operating in different fields. Using an inclusive definition of what fields fall into the broad category of human service, the NCCS online database shows the sector break down as follows for August 2016: Out of a total of 388,674 registered human service organizations, 30% were classified as recreation and leisure, 26% as multipurpose, 11% as youth development, 9% as housing and shelter, 8% as employment, 6% as public safety, 5% as crime and legal, and 5% as food, agriculture, and nutrition.

Financing

The typical human service organization is financed by a combination of individual donations, foundation grants, government grants and contracts, and client fees. The most current information from The Nonprofit Almanac (Roeger et al., 2012) reports that, in 2010, 28% of human services’ revenue came from privately paid fees for services and goods (including private insurance) and 25% from government payment of fees (including Medicaid). Government grants accounted for 23% of revenue, private contributions accounted for 20%, and the remaining 4% came from investment and other income. Altogether, the human services reported $196.4 billion in revenue in 2010.

This funding arrangement can be difficult for organizations to manage. For example, some, government grants and contracts are fraught with time-consuming difficulties, including the need to meet extensive reporting requirements, which can drain staff time. Partly for this reason, government funding tends to go to larger organizations with greater capacity and organizational resources. Foundation funding generally comes in smaller amounts and is limited to specific programs. Most foundations see themselves as innovators and incubators, giving organizations funds to start new programs. They then expect the organization to find additional funding after the program has completed its grant. Foundations tend not to support the same programs for years on end, and the provision of grants for general operating expenses is rare. Grants for general operating expenses are highly coveted, however, as they allow the most freedom and flexibility for organizations to spend the money how they best see fit.

Private donations are often small for the amount of effort that is spent recruiting them. Many private donors, worried about funding “overhead,” also place restrictions on how donations may be spent. Communicating to donors that services cannot be provided if the organization cannot sustain itself is a difficult task for many nonprofits. Revenue from donations can also fluctuate greatly from year to year, making it a fairly undependable source of income for many organizations.

Finally, increasing revenue by charging fees to clients is complicated for many human service nonprofits. Fees are an attractive source of revenue because they are fairly predictable and can be spent in flexible ways. However, many clients do not have the resources to pay for the full cost of their services, making an increase in the fees they pay an untenable solution. In addition, many human service nonprofits believe they must keep fees down in order to keep providing services to those who need them most. Nonprofits that are forced to rely more on fees may inadvertently exclude low-income people who depend on their services. Despite this, some studies indicate that reliance on fees is growing. Salamon (2002) reports that, from 1977, income from fees rose over 500% in the nonprofit social service sector, the largest increase among the different funding types.

Government–Nonprofit Relations

Government funding is a large part of the budget for many human service organizations. For example, in 2012, government agencies gave close to $80.6 billion to about 30,000 human services nonprofits through the provision of contracts and grants; these human services nonprofits also had, on average, seven government contracts or grants or both (Pettijohn et al., 2013). These figures reflect the increased trend toward the privatization of social services in the United States. Privatization is the word used to describe the turning over to private organizations, both nonprofit and for-profit, the responsibility to provide services that used to be provided directly by the government. It also captures the fact that the United States has a long history of providing safety net services through private providers—indeed, many social services, even those funded by the government, were never actually provided by the government in the first place (e.g., homeless services). Though privatization has been enacted throughout the history of social services in the United States, the rhetoric of privatization took off in the 1970s and 1980s and is at least partly based on fears that government-provided services are too inefficient and bureaucratic to be effective. Currently, the social service delivery system in the United States reflects a “partnership” between nonprofits and government, whereby the government provides a large portion of the funding but scales back direct services in favor of contracting with nonprofits (Salamon, 1995).

Privatization has created both opportunities and challenges for human service nonprofits. While it has opened up new funding streams, it has also led to a growth in the number of organizations and has increased competition. For example, accountability issues brought about by privatization are connected to the growth in managed care models and performance-based contracts. This has led to an increasingly competitive funding environment for many human service nonprofits. Privatization is also related to devolution, the transferring of decision-making and funding power to state and local government. Devolution is also changing the environment for human service nonprofits because it changes who is responsible for funding decisions through new government funding arrangements, such as block grants. In this new service environment, rules and regulations may change from state to state and county to county. As a result of these trends, many human service nonprofits have become overly dependent on government funding and have begun to face increased scrutiny by the taxpaying public. Although increased access to local government agencies has opened up opportunities for advocacy, closer government–nonprofit relations can lead to legitimacy concerns, and clients or members of communities can feel as though the organization is more responsive to government needs than to their own needs.

Increased reliance on government funding may also carry implications for the diversity of organizations in the community. For example, in a 2012 national survey on U.S. nonprofit–government contracts and grants, more than half of human service organizations reported problems associated with the complexity and time taken to complete the application (62%). They also reported issues with inconsistent reporting requirements across grants and contracts, including different reporting formats (81%), different financial or budget categories (70%), and different outcome reporting requirements (68%) (Pettijohn et al., 2013). Owing to the amount of paperwork and documentation required to both receive and maintain government contracts and grants, smaller human service nonprofits may be shut out from receiving them.

Current Issues Facing the Nonprofit Sector

Partly because of the changing government–nonprofit relations discussed above, the nonprofit sector currently faces a turbulent financial and political environment. Four issues are highlighted here: accountability, marketization, political participation, and nonprofit growth around the world.

Accountability

Nonprofits are often called to be accountable—this means they are expected to give accounts for their actions while another party inspects and assesses these accounts. In terms of internal oversight, in the United States, nonprofits are generally governed by volunteer boards of directors. Nonprofits must have at least one board member to qualify for tax-exempt status (Blackwood et al., 2014). Typically, the board oversees a paid executive director, who manages the day-to-day operations of the organization. Board members are responsible for providing financial oversight, selecting the management team for the organization, helping to determine the mission and ongoing strategy of the organization, and monitoring performance, among other tasks. The board is legally, fiscally, and publicly accountable to external stakeholders of the organization, such as donors, consumers, and the community at large. Ensuring accountability requires maintenance of clear written policies, careful communication about expectations and priorities, and efforts to maintain transparency in operations. These accountability practices aim to safeguard nonprofits’ position of trust in society and minimize nonprofits’ opportunities for fraud and mismanagement. Concerns about accountability also reflect prevailing politics and ideologies. The political shift to neoliberalism, for example, has heightened the degree to which funders are able demand a specific level of performance and, in some cases, value for money (Munro, 2004). Likewise, the growth of New Public Management theories in public administration has led to increased demands for the public sector to adopt practices from the for-profit sector in an attempt to improve its efficiency and performance. This has included adopting business practices that improve accountability for nonprofit contractees, such as devising standards and targets for performance and then measuring them. Concerns about accountability also reflect a society that is preoccupied with risk, as accountability is seen as one way to control and minimize risk (Munro, 2004). Accountability is an important issue in the nonprofit sector because of the numerous and sometimes conflicting accountability demands made on nonprofits. Ebrahim (2010) summarizes these demands by enumerating the various parties nonprofits are accountable to (upward to funders, downwards to clients, and internally to self), the objects nonprofits are accountable for (finances, governance, performance, and mission), the accountability rationale (compliance or strategy), and the different mechanisms that enforce accountability (report and disclosure statements, evaluation and performance assessments, industry self-regulation, participation of stakeholders, and adaptive learning). According to Ebrahim (2010), the challenge for nonprofits is to balance the various accountability demands with the mission of the organization.

The ubiquity of accountability demands is reflected in U.S social policy and practices.

The legislative trend towards more restrictive accounting and activities emerged at the federal level with the passage of the Sarbanes–Oxley Act in 2002. Although this law was primarily brought about in response to corporate corruption, the law nonetheless recommends that nonprofits adopt good governance practices—to disclose financial conditions, prohibit personal loans to executives, certify financial statements, change auditors on a regular basis, and have separate and independent audit committees. The expectation for nonprofits to be accountable is also reflected in the IRS’s 2008 amendment in the annual reporting requirements, which gives larger nonprofits a field where they can disclose information on governance policies and practices (Blackwood et al., 2014). The prevalence of accountability practices is also reflected in nonprofit reporting requirements—in 2012, most human service nonprofits that received government contracts or grants (or both) were required to provide administrative data on persons served (86%), services provided (68%), and program outcomes (76%) to government agencies (Pettijohn et al., 2013).

Marketization

Marketization is defined as a framework of market-oriented principles and values, the process where marketing and management strategies that are traditionally found within the for-profit sector infiltrate other arenas, and a universal discourse (Simpson & Cheney, 2007, p. 191). Pressures to marketize arise from various factors: government cutbacks may induce nonprofits to find alternative funding sources, nonprofits may partner with for-profit companies to gain greater support and legitimacy in an environment where the market predominates, and nonprofits may adopt market-based solutions because of an underlying belief that the market logic is better (Eikenberry & Kluver, 2004).

The marketization of the nonprofit sector is seen through a variety of developing trends. For example, nonprofits may partner with for-profit companies as the beneficiaries of corporate social responsibility or cause-related marketing programs. Alternatively, nonprofits may attempt to imitate for-profit companies through adopting market principles in the pursuit of a social good, such as creating social enterprises where individuals seek social change through entrepreneurial solutions. The marketization of the nonprofit sector is also reflected in the funding arrangements of some nonprofits. Examples include venture philanthropy and impact investing, where philanthropic “investors” apply market principles to invest in social programs or nonprofit organizations with the aim of achieving financial, social, and environmental returns on their philanthropic investments. Governments can also exert pressure on nonprofits to marketize through the process of privatization and devolution. As described above, rather than governments providing public services, governments induce private organizations, including nonprofits, to compete for government contracts and grants to deliver public services. Competition in the human service nonprofit sector has intensified over the years.

Though marketization offers numerous benefits to nonprofits, such as additional funding streams, the professionalization of services, and enhanced accountability and legitimacy, marketization can also bring challenges. For example, pressures to marketize might reduce the responsiveness of nonprofits to meet the needs of niche communities. Thus, if funding from philanthropic “investors” is based on investors’ conception of performance, which may not pay heed to the voices of the users and providers of social services, nonprofits may be tempted to prioritize the goals of the for-profit sector or funder (or both), which might lead to mission drift or diminish their traditional values of public spiritedness and commitment to the public good. Some scholars suggest that market and nonprofit principles are irreconcilable. Edwards (2010), in particular, enumerates the differences between the market and nonprofit sector—the market is concerned with the financial bottom line, whereas nonprofit organizations have many bottom lines; the market has a single strategy to achieve the bottom line (profit maximization), whereas nonprofit organizations have multiple strategies; the market aims for economic efficiency, whereas nonprofit organizations aim for human fulfillment. Indeed, some scholars argue that market principles might be “incompatible with democratic accountability, citizenship, and an emphasis on collective action for the public interest” (Eikenberry & Kluver, 2004, p. 132).

Political Participation

Finding the financial resources and making the time commitment to participate in policy advocacy are struggles for many nonprofits, especially human service nonprofits that are balancing their main commitment toward service provision (Berry, 2003). Many good reasons exist for human service nonprofits to participate in policy advocacy, however. Policy advocacy can help secure a more stable funding environment for the organization. It can also help communicate the needs of the organization’s often marginalized and under-represented clients to lawmakers. As human service nonprofits often have specialized knowledge regarding the challenges their clients face, communicating that information to policymakers can help improve policy and the lives of their clients.

Despite these important reasons to participate in policy advocacy, most human service nonprofits have only limited advocacy programs, if they have them at all. The reasons for this are many. Misunderstanding of the legal implications of advocacy for 501(c)(3)s is an important one (Berry, 2003), as are limitations in terms of financial capacity (Mosley, 2010), support from board members (Gibelman & Kraft, 1996), and skilled and committed leadership (De Vita et al., 2004). There has also been a move away from teaching macro social work skills, like advocacy, in many bachelor of social work (BSW) and master of social work (MSW) curricula.

To overcome these barriers, researchers have suggested several solutions. Working in coalitions can make it easier to maintain a long-term advocacy presence while possibly reducing risks and costs (Mizrahi et al., 2011). The Internet can be an effective and inexpensive tool for distributing an organization’s advocacy message (McNutt & Boland, 1999). Finally, focusing on local policymakers and administrative agencies may lead to increased access for many nonprofits, while devolution has increased the power wielded by these local decision-makers (Sherraden et al., 2002).

Privilege, Power, and Oppression within Nonprofits

Although nonprofits work with diverse stakeholder groups (board members, organizational partners, funders, and service users) in their roles as change agents, the nonprofit sector itself is not immune from the broader impact of issues related to privilege, power, and oppression. For nonprofit leaders, mangers, and supervisors in the nonprofit sector, (a) recognizing the various forms of racism that clients and staff experience and (b) how these issues are reflected in the organization’s policies, practices, and procedures are components of their roles (Green, 2007). This is important because racism and other forms of marginalization, when present in a nonprofit, not only take a human toll but also may lead to low morale, higher absenteeism, increased stress, and higher staff turnover. In addition, if a nonprofit becomes known in the community as an unwelcoming place to work, recruiting employees will become challenging if potential applicants distrust the organization and assume (perhaps correctly) that they will be treated unfairly and in a biased manner (Curry-Stevens & Reyes, 2014). Organizational privilege represents the intersection of personal characteristics with a nonprofit’s structure and culture that contributes to some individuals having a professional advantage over others. It happens when ascriptive characteristics such as race, class, and gender are unequally distributed across employee tenure, position, and role. Such employees may see unearned privileges such as upward mobility, increased authority, and higher wages (Collins & Barnes, 2014). McPherson et al. (2001) described how dominant, privileged groups are at an organizational advantage as they acquire employment and advance more easily because employers tend to hire, mentor, and promote people who share their characteristics and “look” like them. Factors such as inadequate salaries, limited role models and professional networks, and lack of established, trusting relationships with funders are barriers that result from lack of organizational privilege. For example, the percentage of people of color in the executive director/CEO role has remained at less than 20% for the last 15 years (Thomas-Breitfeld & Kunreuther, 2017). Leadership development programs that aim to increase diversity in leadership have not resulted in the type of top-level leadership they expected.

Workforce composition is also critical for providing culturally responsive services. Research has shown that when staff reflect the characteristics of the local community, service users feel like the providers better understand the context of their lived experiences (Curry-Stevens & Reyes, 2014). Culturally responsive services are those that are respectful of, and relevant to, the beliefs, practices, cultural and linguistic needs of diverse consumer/client populations and communities whose members identify as having particular cultural or linguistic affiliations by virtue of their place of birth, ancestry, or ethnic origin, religion, preferred language or language spoken at home. Cultural responsiveness describes the capacity to respond to the issues of diverse communities. It thus requires knowledge and capacity and different levels of intervention: systemic, organizational, and professional, and individual. (p. 10) Nonprofits have been criticized for using problem-focused, reactive strategies instead of practices that promote equity and justice within their structures (Collins & Barnes, 2014). To make the shift toward internal policies and cultures that reflect social work’s value of social justice, an awareness of race bias, privilege, and unconscious bias within the organizational culture is essential to understanding how a nonprofit’s structure and internal processes perpetuate power differentials and exclusive practices in their overall functioning. Nonprofit leaders will continually need to assess the power dynamics within the organization to determine who controls access to power and how decisions are made (Greene, 2007).

A starting point for nonprofits to develop policies and practices that create an inclusive environment is to minimize structural inequalities and exclusionary decision-making practices (Mor Barak et al., 2016). In addition to assessing the power dynamics, diversity management strategies include targeted efforts to recruit and retain a more diverse workforce (i.e., recruiting from outside of closed networks), creating an environment where employees feel valued and recognized for their contributions, and ongoing assessment of policies and practices. One strategy to expand recruitment is to build relationships with affiliate groups, such as the Black Executive Directors (BLK ED) Network in Maryland or Latinos LEAD (Latinos for Leadership Excellence and Diversity), to welcome professionals into their networks with whom they might not interact with regularly. This strategy may increase awareness of the depth and breadth of qualified applicants for potential leadership positions.

Nonprofits can develop a policy that clearly states the rationale for cultural responsiveness and equity that will allow all staff and volunteers to understand the benefits of being culturally responsive to stakeholders as an extension of their mission (Currey-Stevens & Reyes, 2014). To initiate changes in the nonprofit’s culture, leadership can develop satisfaction surveys, suggestion boxes, lunch-and-learns, and other methods to collect feedback from staff and service users about community responsiveness. Of course, it is then essential that the organization take that information seriously and act on it; otherwise, these strategies can quickly become ceremonial. Organizations can also conduct a formal review of brochures, reports, documents, social media, and other forms of community-facing information to assess responsiveness in terms of language, images used, terminology, and the like in order to ensure that the materials they distribute reflect their stakeholders.

Nonprofit Growth around the World

In the past 40 years or more, the nonprofit sector has expanded around the world in terms of size, scope, and prominence (Salamon, 1994). We have seen what is sometimes called the “global associational revolution”: a growth in the number of nonprofit organizations in countries where the sector was already established as well as burgeoning nonprofit sectors where previously there was little organized action of that type (Salamon, 1994; Salamon et al., 2013). Note that in other parts of the world, particularly the Southern hemisphere, nonprofit organizations are sometimes called “nongovernmental organizations” (NGOs). For eight countries where longitudinal data are available, the nonprofit sector’s contribution to gross domestic product (GDP) grew at an average rate of 5.8% per year from the late 1990s to the mid-2000s; this is greater than the average GDP growth of 5.2% for these eight countries (Salamon et al., 2013). Voluntary contributions to nonprofits have also increased worldwide. Based on the Charities Aid Foundation’s (2016) Giving Index, which contains giving data from 140 countries across the globe, average participation levels for helping a stranger, donating to charities, and volunteering time increased for developed countries, transition countries, and developing countries between 2011 and 2015.

Nonprofit growth worldwide has been attributed to both demand- and supply-side factors (Anheier, 2005). On the demand side, the high profile of humanitarian issues has raised the popularity and support of international issues among international donors. Recent examples include the ongoing European Refugee Crisis, which has seen high levels of refugees enter Europe from worn-torn Syria, Afghanistan, and Iraq, and public health emergencies, such as the outbreak of Ebola in Africa in 2014 and the Zika virus in the Americas in 2016. According to Anheier (2005), increased demand for nonprofits also comes from various groups with different ideological leanings. Conservatives view nonprofits as agents that can replace the services of an overly bureaucratic and inefficient state. Neoliberals perceive nonprofits as agents that can balance the power of the state and increase democratization. Meanwhile, left-leaning activists often believe that grassroots nonprofits are the central agents of change and development that can disrupt the status quo. Supply-side factors have also opened up opportunities for nonprofits to expand. Political opportunities, such as the collapse of the Soviet Union in 1991, reduced barriers for people in transition countries to mobilize. Global governance systems, such as the World Bank and United Nations, support and provide the infrastructure for nonprofit organizations to mobilize and act. Similarly, international NGOs, such as Oxfam and Amnesty International, have opened up opportunities for giving across the world. Finally, technological progress has increased the ease with which people can communicate and organize into voluntary organizations.

The growth of nonprofits worldwide has also been accompanied by challenges. For example, in a cross-country analysis of nonprofits, Anheier and Kendall (2001) conclude that nonprofits worldwide are at a “crossroads.” In developed countries, nonprofits are increasingly treated as a “third arm” of the State and thus face challenges in defining their distinct identity and roles. In developing countries, nonprofits work in fragile political and economic environments, face uncertainties with their relationship with the international donor community, which includes the international NGOs that were referred to above, and experience tensions related to the role and power of nonprofits originating from OECD (Organisation for Economic Co-operation and Development) countries and those indigenous to developing countries. In transition countries, after the collapse of the former USSR, the transformation of civil society organizations into formal nonprofits left many nonprofits fragile (Anheier & Kendall, 2001).

Challenges also pertain to the current knowledge base of nonprofits in an international context. Namely, international comparisons are difficult because of country-level differences in terminology, definition, and data (Salamon, 1994). Moreover, since the problems affecting nonprofits across countries differ in terms of scale and scope, the research, organizational, and policy approaches to these nonprofits will also differ. These differences may have caused a bifurcation of the literature—nonprofits or NGOs in the “global south” are often studied within the development literature; nonprofits in the “global north” are often studied within the social policy and public administration literature. These divides make internationalizing the nonprofit literature difficult and reduce opportunities for researchers and practitioners to learn from different contexts and countries. These challenges largely contribute to the paucity of more recent cross-comparison research on nonprofits and NGOs (and international NGOs) worldwide.

Future Directions and Trends

Recommendations for how the nonprofit sector can address some of its current challenges are many. Given the increasingly close relationship between the nonprofit sector and government, nonprofits need to work to support and promote accountability and effectiveness in government, as well as within the nonprofit sector itself. The uneven funding environment that many nonprofits face may require reforming philanthropy so that the funding of general operating support is more common. Finally, new and diverse leadership for the sector will also need to be developed, as many executive directors are nearing retirement age and talented young managers have not been systematically recruited or paid adequate salaries to ensure their continued commitment to leadership in the nonprofit (versus the for-profit) sector. Social work practitioners need to be aware of and ready to face these challenges as leadership in many human service nonprofits is increasingly turning over to people with business and nonprofit management backgrounds who are perceived as having better marketing and data management skills.

It is also important in this era of increasing competitiveness that human service nonprofits be aware of the importance of maintaining a clear commitment to their original mission and be able to articulate their values clearly. Frumkin and Andre-Clark (2000) argue that nonprofits are not well placed to compete on a narrow efficiency basis with for-profit organizations and that uncritical acceptance of performance-based contracts and other market-related benchmarks is not the answer for long-term survival. For nonprofits to succeed in the current funding and policy environment, they must find a balance between efficiency, instrumentality, and their more expressive, mission-based reasons for existing. It is this commitment to a values-based role in society that makes nonprofit organizations and associations a unique alternative to for-profit or government-provided social services. Social workers are well positioned to lead from a mission-based perspective and need to find ways to show the value of their contributions.

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