Adam Huttler over at Fractured Atlas shares some interesting thoughts on the connection between private, publicly traded, and nonprofit finance and behavior. He quotes research that shows privately owned for-profit corporations invest twice as much in their companies, compared to similar publicly traded corporations — holding size and industry constant. The assumption is that private owners can focus on long-term health of their company, and can avoid the budget-chopping and immediate bottom-line demands of stockholders.Adam reflects on what forces might be at work on nonprofit organizations, where financial results are publicly posted, even as outcome metrics are squishy and abstract.
I’ve been focusing a fair amount of my research and reading time on the issues of capital structure and infrastructure investment in the nonprofit arts (exciting, I know). I’ve been intrigued by whether and how arts organizations build, buy, or borrow infrastructure (buildings, technology, staffing infrastructure, professional development). And why they so often seem to end up with structures that are too complex or cumbersome to sustain without significant corporate calisthenics and mission drift. And I’m finding that — regardless of sector, tax status, industry, or organization size — the answer is captured in a rather simple question:
What does the wealth want?
“Wealth,” here means any source of significant resources required for an organization to do its work.Wealth can be held by an individual (in the form of a private owner of a for-profit company, or an individual philanthropist). It can be held by an organizational aggregation of resources (a foundation, an investment company, a bank). It can be held by a public agency (where wealth is the aggregate tax income and service fees collected by a city, county, state, or nation). Or it can be held by a “marketplace” of those individuals, organizations, or agencies — where no one player holds dominant resources, but where the market, itself, has behaviors you can track over time.
Any of these holders of wealth can make choices about where to direct it. Some holders are constrained in those choices (nonprofit foundations, for example, are generally limited to tax-exempt organizations). But even within those constraints, they can choose.They make those choices rationally or non-rationally, through evidence or impulse, through publicly stated objective or hidden but emergent patterns. And the organizations and individuals seeking that wealth adjust their behavior and position accordingly — either consciously or unconsciously.
Privately held for-profit companies are initially defined by the desires of their owners. If they seek bank loans or angel investors, they become subject to the wants and needs of that wealth. Publicly traded companies are defined by the collective wants and needs of their stockholders — sometimes concentrated in a few large players, sometimes diffused among a crowd.
So what wealth drives the behavior of nonprofit arts organizations? And what does that wealth want? Obviously, the mix and the matrix are different for every organization. Some are dependent on a few large donors. Some are supported by many small gifts. Some are bending toward organized philanthropy. Some are defined and designed by the people who contribute their time and talents (rather essential forms of wealth).
There’s no crime or credit in any particular bundle. Just a need to understand how your current resources, and any desired new resources, might influence your choices about investing, acting, reflecting, or connecting in the world. If you want the same thing the wealth wants, good on you! If you don’t want the same thing, be prepared to align those wants or leave the money on the table and walk away.