Many may be aware, and some may be annoyed, that I’ve been wrestling a lot with the concepts of “capital” — what it is, how it works, and what it does in the context of the nonprofit arts. The issue draws my focus for three broad reasons. First, it’s a big, recurring, juicy issue for arts boards, leaders, funders, and policy makers. Second, those same people lack a useful frame and language for engaging the issue productively. And third, the frame and language we’ve borrowed from the commercial world often seem more elusive than illuminating.
No matter which way I wander to discover “capital,” I run into a wall called “ownership”. In much of the available research, the two concepts of capital and ownership are so deeply intertwined that they are almost codependent. Durable resources are aggregated, applied, and evaluated by an owner, or by an entire marketplace of owners observing each others’ successes and mistakes. Resources find their best use in comparison to all other possible uses by those who control them, and through the lens of optimal return (of money, of mission, of public good).
When we talk about capital among nonprofits, however, we rarely acknowledge that ownership is fundamentally different. If you don’t recall how it’s different, here are some short and sloppy bullet points to remind you:
- In the PRIVATE sector, assets are owned by somebody
- In the PUBLIC sector, assets are owned by everybody
- In the NONPROFIT sector, assets are owned by nobody
And yet we talk about “capital” in each of these sectors in strikingly similar terms.
In The Ownership of Enterprise, Henry Hansmann defines “owners” as “those persons who share two formal rights: the right to control the firm and the right to appropriate the firm’s profits, or residual earnings…” The word “formal” is important, since often an individual with a formal right to control has no effective means of control (a minority stockholder, for example, can’t control very much other than their inconsequential vote for corporate board members, or their inconsequential vote for merger or dissolution). But still, owners have rights (whether or not they can execute them). They have the larger right to enter or exit their ownership status in response to their assessment of its worth. And they feel the consequence, rather viscerally, if they choose well or poorly.
Yet, for a sector without any formal owners, the nonprofit arts talk about “ownership” a lot (consider those quotation marks to be air quotes). Or, rather, we talk about building a “sense of ownership” — a phrase that’s like air quotes, but with most of the air let out. The difference between “ownership” and a “sense of ownership” is similar to the difference between “danger” and a “sense of danger.” One has serious and immediate consequence. The other offers narrative value, and an occasional nudge to behavior.
When I share this point with my successful practitioner colleagues, several have said it’s a matter of semantics rather than deep concern. Boards essentially act as the owner, they say, even though the board members don’t always know whose interests they represent, and don’t feel direct consequence for bad decisions. They also say that good boards know to drive resources, impact, and leadership — which is most of their job. And that good executives can navigate them over the tricky bits. But I think the problem is beyond such jerry-rigging.
I’ve posted before (and others have argued better than me) about the missing value of equity investment in the nonprofit arts (not better than other values, but a useful one in certain circumstances). I’ve also posted about the unique challenge of dissolution, when there are no owner incentives or consequences to inform the difficult choice. But now I’m wondering more broadly about ownership, and the dynamics that come from removing ownership from control — both contractually and effectively.
And again (as ever), I’m not calling for ownership in the nonprofit arts. I’m just exploring the unique challenges of governing, managing, and supporting an ownerless enterprise. That’s what nonprofit arts leaders do, after all. So we might as well know, with some clarity and conviction, what that work entails.