CHAPTER 8
Workplace Cultures
The XO is as cute as a laptop can be, with its bright green buttons, chunky handle, and bubbly logo. In 2005, MIT professor Nicholas Negroponte unveiled the idea of selling the XO for a mere $100 so that children in poor countries could use it for school. Intel, Google, and several other technology giants were eager to get in on the feel-good moment. So they became official partners of Negroponte’s nonprofit, One Laptop Per Child (OLPC), pledging cash, materials, and expertise.
Soon, however, one partnership began to fray. Beholding the huge market at the bottom of the world’s wealth pyramid, Intel began to manufacture its own low-cost laptop, the Classmate PC. Because Intel’s Classmate would directly compete with OLPC’s XO, Negroponte asked Intel to stop selling its machine in regions where his nonprofit was active. But Intel was unwilling to let OLPC put the kibosh on a profitable venture. In 2008, Intel backed out of the partnership. An offended Negroponte summarized the organizations’ conflicting visions by saying, “[OLPC] views the children as a mission; Intel views them as a market.”1
Intel and OLPC are not alone in their mutual exasperation. As social and environmental problems take on global proportions, many nonprofits and corporations are attempting to join forces to fight for the common good. Their alliances are catalyzing a bevy of workplace innovations. Taking a cue from their charitable comrades, for example, the business world is spawning social entrepreneurs, triple-bottom-line companies (supporting people, planet, and profit), blended-value propositions (which include economic, social, and environmental components), corporate social responsibility initiatives, and other activities that are both magnanimous and money-making. And at the urging of their for-profit partners, nonprofits are launching revenue-generating ventures, posting quarterly performance dashboards, and lowering their operating costs. Governments are also getting in on the action, undertaking more public-private partnerships and borrowing ideas from both the business and nonprofit worlds.
Despite their best intentions, many sector-hoppers soon lock horns. Jim Fruchterman has a particularly bitter tale of a nonprofit-government clash. Fruchterman is the founder and CEO of Benetech, a Palo Alto–based nonprofit that develops new technologies to help people and protect the environment. In 2000 he learned that a company called Quantum Magnetics had invented a new device for detecting land mines. He wanted to work with the company to refine the invention for humanitarian organizations in war-torn regions. Quantum Magnetics agreed that “using the technology for humanitarian purposes [rather than just military ones] was incredibly cool,” says Fruchterman. So the two organizations began collaborating in earnest.
There was a hitch, however. Because Quantum Magnetics received funding from the U.S. government, and because the land mine detectors could be used offensively, Benetech would have to get permission to adapt the new technology from the Department of Commerce, the Department of Defense, and maybe even the State Department. “Actually, we weren’t quite sure whose permission we needed,” recalls Fruchterman.
Undeterred, Fruchterman sought the required clearances. “Everyone in government agreed that humanitarian land mine detectors were a great idea,” he learned. “But nobody actually got around to signing on the dotted line to give us access to the technology.” After two years of daily promises that the signatures were on their way, “we finally put the project on ice,” he says. “We realized that we just didn’t understand the culture of government.”
What exactly is that culture? Why does it so often rub nonprofits and corporations the wrong way? And why do so many nonprofits and corporations likewise chafe in each other’s company?
By now you can probably guess our answer: the business world is home to more independent selves and to the ideas, institutions, and interactions that support and reflect this way of being. But the nonprofit and government sectors hone more interdependent culture cycles, each one distinct from the other.
In short: you are where you work, to a surprising degree.
When these distinct workplace cultures collide, progress on fixing the world hits the skids, and sometimes even grinds to a halt. To avoid these clashes—and maybe even make the world a better place along the way—businesses, nonprofits, and government agencies must meet one another halfway. For their part, businesses need to brush up on the basics of interdependence and focus more on their relationships, both with their partners and within their organizational walls.
Nonprofits must take a different medicine. Because they are so focused on maintaining their relationships, charities too seldom speak truth to power, which hinders their ability to get what they need from their partners and serve their missions. A strong dose of independence could help them speak up for themselves and their beneficiaries.
Governments also suffer from too much interdependence, but of a different sort. They are in a quagmire of absurd hierarchies and obsolete traditions. To break through their own red tape, they need more independence to take risks, tolerate failure, and reward innovation.
Having amped up their independence, both nonprofits and governments should wield it for an additional end: to fight the businessification of everyday life. Over the past decade, both nonprofits and governments have increasingly adopted the practices and metaphors of the business world. Nonprofits are now honing their “competitive advantages,” for instance, and their donors are “seeking social returns” on their investments. Governments are outsourcing their work to for-profit firms whose goals are all too often at odds with those of the public.2 And people in all sectors are hailing profitable solutions over charitable or policy ones.
Although many organizations can benefit from the efficiencies that business practices lend, a knee-jerk preference for the culture of business—and, by extension, for independence—is not the wisest reflex. As the philosopher Michael J. Sandel argues in his book What Money Can’t Buy: The Moral Limits of Markets, not all problems have market solutions, and not everything should be for sale.3
If you have worked for more than one organization in your life, you will doubtless know that we are rolling over much of the variability within each kind of workplace. The unique business cultures of Apple and Microsoft, Southwest and American Airlines, and Toyota and General Motors are the stuff of bestsellers.4 Likewise, some nonprofits have so little in common with each other that critics routinely debate whether the category makes any sense. After all, the same nonprofit umbrella shelters Yale University and the Yazoo County Fair, the Southern Baptist Convention and the North American Man/Boy Love Association, and the Bill and Melinda Gates Foundation and the Last Chance Ferret Rescue. Likewise, few government agencies are created equally. A trip to the Department of Motor Vehicles is a decidedly different experience from a trip to the Smithsonian Institution.
In all this noise, however, we see signals. Business workers striving to make the biggest profit build, and are built by, a different culture cycle than nonprofit workers aspiring to serve the social good, or government workers intending to maintain the social order. Even when these diverse selves sincerely want to work together, the gears of their different cycles don’t always align. So before you boldly spearhead that cross-sector partnership, or even try out that best practice touted in the Harvard Business Review, take a spin through the culture cycles of business, nonprofits, and government agencies to learn what clashes you might encounter.
Like many Silicon Valley entrepreneurs, Peter Thiel, a cofounder of PayPal, would like to make the world a better place. But he avoids investing in “people with a nonprofit attitude,” he recently told The New Yorker, because they allegedly think, “We’re doing something good, so we don’t have to work as hard.”5
Thiel is half right. Compared to employees in the business sector, nonprofit workers indeed march to the beat of a more interdependent drummer, as do employees in the government sector. No research has directly examined workplace differences in models of the self. Yet many studies uncover that nonprofit and government workers are more cooperative and altruistic than for-profit workers, which suggests that they take more interdependent selves to work. In contrast, businesspeople are more competitive and self-interested, which suggests that their workaday selves are more independent.
In one early study, for instance, James R. Rawls and his colleagues found that business-school students who later pursued careers in nonprofits and government agencies valued being cheerful, forgiving, and helpful more than did students who headed for the corporate world. The more socially minded MBAs also scored higher on measures of cooperativeness. The business-bound students, in contrast, valued being ambitious and prosperous more than did their social-sector classmates. Notably, the groups did not differ in intelligence, creativity, or problem-solving ability.6
More recently, psychologists and sociologists have created a measure called public service motivation, which reflects people’s commitment to the public interest, compassion for the less fortunate, and willingness to sacrifice themselves for others.7 Researchers find that both nonprofit and government workers register higher levels of public service motivation than do business workers, even in countries with less aggressive business sectors such as Canada, the Netherlands, and Australia.8 After the workday ends, nonprofit and government workers continue to walk the walk of interdependence, logging more volunteer hours than do their corporate colleagues.9
To be sure, the business world is interdependent in many ways. To serve their stakeholders, businesses must rally their workers around a common set of values and closely coordinate their activities. And quite a few for-profit workers chase hefty paychecks and comfy corner offices as independent means to interdependent ends, such as funding charitable causes.
Yet in business settings (especially in the Global North), the collective pursuit of profit and the individual quest for wealth and status take on a decidedly independent tone. Businesses and businesspeople must identify their unique talents and achievements, express them clearly and broadly, and then, ultimately vanquish the competition. According to some models of human nature (see, for example, Richard Dawkins’s The Selfish Gene10), this pursuit of self-interest is people’s primary, basic, natural motivation. Partly because these theories enthrone independence as the natural and good way to be, observers such as Peter Thiel conclude that businesspeople will work harder than those with more interdependent imperatives.
Yet no studies show that for-profit employees work harder, longer, or better than nonprofit or government ones. To the contrary: the evidence suggests that nonprofit workers in many industries work just as many hours, for less money, to produce the same or higher-quality goods and services as do for-profit workers.11 For instance, a recent study of some 14,400 nursing homes showed that the quality of nonprofit and public facilities outstripped that of for-profit homes.12
One explanation for the greater productivity of nonprofit workers is that when people operate out of social motivations, rather than extrinsic motivations such as money, they like their work more and therefore work harder. Nonprofit workers indeed chart higher levels of job satisfaction than do for-profit workers.13
Dan Portillo has witnessed the gusto of the nonprofit worker firsthand. For five years he led hiring for Mozilla, a nonprofit whose best-known product is the open-source Firefox Internet browser. Because Mozilla employs a “drastically smaller” workforce than its main competitors, says Portillo, one Mozilla employee does the work that several hundred people do at larger, for-profit companies. “There are no small jobs at Mozilla,” he observes, “and so the organization attracts people who want to handle big, hairy projects.”
Mozilla’s employees may come for the challenge, but they stay for the mission. “People work at Mozilla because of what it stands for: open choice in innovation and pushing the boundaries of the Web,” says Portillo. He notes that during his years at the nonprofit, the average employee tenure was longer than that in corporate settings, where employees were “counting their minutes until their vesting was up.”
Like their nonprofit brethren, government workers also report working more hours than for-profit workers.14 But they aren’t as happy doing it. Despite their altruistic motivations, government workers routinely report the lowest levels of work satisfaction and commitment.15 The culprit lies not in the selves of government workers, but in the institutions and interactions with which they must contend. As we shall see, their culture cycles are clogged with so much bureaucratic nonsense that even the most dedicated workers lose sight of government’s lofty goals.
For many culture cycles we discuss in this book, seeing differences at the institutional level requires considerable scholarship. But the institutional differences between workplace culture cycles are quite obvious. When it comes to public corporations, for example, the law of the land is clear: their primary legal obligation is to maximize financial returns to shareholders. Full stop. So although corporations are legally “persons,” as the U.S. Supreme Court affirmed in 2010, they have few responsibilities to other persons other than to make them money.16
“That’s why it’s called the ‘bottom line,’” says Steve Beitler, manager of community and government affairs at Agilent Technologies, which is based in Santa Clara, California. “What started out as an accounting term has become a widespread cultural phrase.” In business, that phrase narrows the aperture onto one outcome: profit.
Ben Cohen and Jerry Greenfield learned the hard way that in public corporations, profit trumps all. The two entrepreneurs founded their ice-cream company, Ben and Jerry’s Homemade, on a bedrock of social responsibility, sourcing local and organic ingredients, dedicating 7.5 percent of their profits to community programs, and blazing the trail with many other people- and planet-friendly practices. But when their board accepted Unilever’s $326 million offer to buy the company, the founders had little choice but to comply; they were legally required to sell the company to the bidder that would increase the company’s share price the most. Since this sale, the founders have lamented that their company has shifted away from its original social mission.17
Compared with businesses, charitable nonprofits have a decidedly different legal mandate, as spelled out in section 501(c)3 of the U.S. tax code.18 According to this riveting read, 501(c)3 nonprofits are entities “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.” To put it in plain English: nonprofits are up to good—or, at least, their notion of what is good. Because our government is presumably not in the business of dictating what is good, it grants nonprofit status to a wide range of organizations.
For their pursuit of the good, nonprofits are exempt from paying many taxes, and their donors get a tax deduction for their contributions. Despite these breaks, nonprofits’ operational burdens can be considerably more onerous than those of for-profit firms. Businesses must track only one performance measure (profit), for a single audience (shareholders), in the short term (usually on a quarterly basis). By contrast, nonprofits must keep their eye on several, often ill-defined outcomes because measuring progress in, say, poverty alleviation or world peace, is not straightforward. They must also serve many audiences, including clients, communities, board members, donors, funding agencies, and partners. And they must track their outcomes for however long it takes to achieve their mission, which is seldom a short-term proposition.
Governments have a clearer legal goal than nonprofits, but they must fuss with a still gnarlier tangle of expectations and constraints. Although political philosophers and parties may disagree about the fine print, many agree that a major goal of government is to maintain social order.19 In capitalist democracies such as the United States, this job description also entails being accountable to voters. To dispense with these duties, government agencies must track an even larger dashboard of more complicated outcomes, for pretty much everyone all the time. And they must do so by following very strict rules while everyone scrutinizes them.
Of the three sectors, business is by far the largest, generating 77 percent of the nation’s gross domestic product and employing about 75 percent of its workforce. Government comes in second, contributing some 12 percent of the nation’s GDP while employing about 16 percent of its workers. Nonprofits, in turn, make 5 percent of the nation’s output using 10 percent of its workers.20
Farther downstream in the culture cycle, institutional differences breed different ways of working. In businesses, everyday interactions have a decidedly independent flavor. Managers are encouraged to make quick decisions and take risks in order to seize opportunities that will add dollars to the bottom line. When their speed, daring, and judgment generate more profit, they receive financial and status rewards, which are in greater supply in the business sector. For most job descriptions, financial incentives are higher in commercial enterprises than in nonprofits and government agencies.21
These material incentives need not ignite interpersonal attacks and winner-take-all smackdowns. But all too often, tensions rear their ugly heads in business settings, says Kerry Patterson, coauthor of the New York Times bestseller Crucial Conversations and cofounder of VitalSmarts, a corporate training consultancy.22 “I’ve spent the last thirty years making my living trying to undo the cutthroat tactics that people learn in business school,” says Patterson. He sees the seeds of the agonistic culture of business in business schools, where students are pitted against one another “like gladiators” to crack real-life case studies. “The professor cold-calls students, watches them struggle to answer the question, and, when they fail, invites their peers to tear them apart.” The message is clear: to be a good businessperson, you must be right, be right first, and be right at the expense of others.
Nonprofits, in contrast, rely on more interdependent practices to meet their missions and make their hay. Because nonprofits have so many stakeholders, managers must confer with many more people before making decisions. These stakeholders often have different understandings of the organization’s mission, and so managers must build consensus around their plan of action. They must then rally workers around the plan, as the latter are more motivated by values than money. And because nonprofits tend to be understaffed, underfunded, and underresourced, they must often reach out to partners starts the for help. In many cases, the addition of new partners starts the consensus-building process all over again.
With these constraints, nonprofit managers do not decide and direct so much as rally and respond. “It reminds me of what someone said life as an ambassador is like,” says Philip Lader, former U.S. ambassador to the United Kingdom, of his stint as the president of Winthrop University, a nonprofit. “There you are at the helm of the great ship, with everyone scurrying about. Only after about four months of steering the wheel do you realize that it is not connected to the rudder. Everyone is saluting you and saying ‘aye aye,’ [and then] they go below to steer the ship themselves. In many nonprofits, that genuinely is the case.”23
As Lader’s musings on ambassadorships hint, daily life in government agencies is likewise rife with interdependence, albeit of a different sort. In addition to having many stakeholders and broad, hard-to-measure objectives, government agencies operate in fishbowls. Everyone’s got his eyes on the government. To avoid incurring the wrath of this very large public, government agencies have generated reams of rules that employees must follow, “even if those rules lead to stupid outcomes,” says Richard Boly, the director of the Office of eDiplomacy at the U.S. State Department.
The technical term for these “good rules gone bad” is red tape, and their plentitude in government agencies is what puts them in a league all their own.24 Of course, we want public servants to account for their time and spending, and to make their processes transparent. But often, all that accounting and revealing suck up an alarming portion of government workers’ jobs, which is one reason government employees love their jobs least.25
In his classic report on red tape, Vice President Al Gore recounts several examples of the rules that make government employees miserable. For instance, a new Energy Department petroleum engineer requested a high-end calculator to do her job, completing all the necessary paperwork and receiving all the necessary permissions. “Three months later,” Gore writes, “she received an adding machine. Six months after that, the procurement office got her a calculator—a tiny, hand-held model that could not perform the complex calculations her work required. Disgusted, she bought her own.”26
Rigidly adhering to rules not only bums employees out, but also quells risk-taking and innovation.27 Witness the Benetech–Quantum Magnetics partnership, whose land mine project sank in an abyss of regulations that government employees themselves did not understand. They were likely not motivated to understand the innovation, as government workers have few incentives to take risks. “If you take a tremendous risk in Silicon Valley,” explains Boly, “you get a job with stock options, and a ton of money, and invitations to all the cool parties, and a speaking slot at South by Southwest and TED. But if you take a risk in government? If you’re a whistle-blower, you might get on 60 Minutes. Otherwise, the only thing you’ve likely risked is your job.”
The clashes between the culture cycles of different workplaces need not only provoke conflict. They can also inspire innovation and promote the greater good. Many businesses are finding that when they add interdependence to their tactics, they make cooler products, higher profits, and healthier communities. Meanwhile, many nonprofits are discovering that when they polish their independence, they can kick bigger dents in the problems they are trying to solve. Government agencies are likewise learning that taking a walk on the independent side can enhance their ability to serve their constituents.
In the business world, social innovators are hard at work infusing a little interdependence at every level of the culture cycle. The big news at the institutional level is the advent of the B Corporation. The B in B Corporation stands for “beneficial.” Unlike other corporate forms, B Corporations change their bylaws so that their boards must consider the interests of their employees, their communities, and the environment. The Pennsylvania-based nonprofit B Lab administers the B-Corp certification process, screening applicants, offering legal counsel, and lobbying state legislatures to recognize B Corporations. For their part, B Corporations comply with the B Lab’s certification standards, pay an annual licensing fee, and sign the organization’s so-called declaration of interdependence.
Businesses that receive the B Corp seal of approval not only attract socially and environmentally concerned consumers, but also protect their companies from assaults on their missions. Had Ben and Jerry’s received B-Corp certification, for example, it might have staved off Unilever’s buyout. (The buyout took place in 2000; B Lab was formed in 2006.) As of 2011, more than five hundred companies have registered as B Corporations, and seven states have passed benefit corporation legislation.28
At the level of daily interactions, adopting a few relationship-focused practices not only makes business employees happier and healthier, but may also thicken the companies’ bottom lines. First among these practices is what consultant Dev Patnaik calls the “no-zinger policy.” The rule? Fire employees who regularly insult their coworkers.29
“Insults stop people from being collaborative, which in turn makes them less creative,” explains Patnaik. As CEO of Jump Associates, he helps Fortune 500 companies innovate by developing highly collaborative cultures. (Among his firm’s successes: “We spent the last ten years helping Target morph into Tarzheh,” he says, referring to a campaign to give the big-box store a more upscale image.) He also advocates other empathic practices, such as making sure that you are listening more than you’re talking, and not assuming that the behaviors you see in others mean the same thing as when you perform them. For example, when your coworker smiles at your off-color joke, she might very well find it as hilarious as you do. But she might also just be trying to act polite.
Kerry Patterson agrees that a little workplace civility can go a long way. “If you shut down one person, then everyone else starts shutting down.” As the silence spreads, brilliance dies on the vine. To make it safe for people to express their opinions, leaders have to model how to disagree without being disagreeable. Rather than “stripping people naked to show how wrong they are,” he says, leaders should approach differences of opinion by asking, “What do people like about this argument?” or “What do you think I can learn from this argument?”
The raging success of online shoe retailer Zappos proves that nice corporations can finish first. Above all else, Zappos values its culture, whose big idea is captured in the title of CEO Tony Hsieh’s book, Delivering Happiness: A Path to Profits, Passion, and Purpose.30 Happy employees, reasons Hsieh, make for happy customers, and underlying all that happiness are warm personal relationships. To foster those relationships, Zappos requires managers to spend 10 to 20 percent of their work time “goofing off” with employees, encourages sales representatives to spend more (not less) time on the phone with customers, and hosts spontaneous Conga lines and other events to encourage cross-departmental friendships. Zappos also communicates that it cares for its employees by paying for their health care, lunches, and snacks.
Hsieh has repeatedly gone to the mat to protect Zappos’s highly interdependent culture, staving off buyouts and mollifying board members who disliked his emphasis on relationships over profits. Zappos’s commitment to its interdependent culture has paid off: in 2009, Amazon bought the company for $1.2 billion in a deal that preserved Hsieh’s role and dismissed several profit-fixated board members. Since that time, the company has placed in the top twenty-five of Fortune’s “Best Companies to Work For” every year.
The success of interdependence-breeding companies such as Zappos is probably not anomalous. In several studies, psychologist Jennifer Chatman shows that organizations that emphasize collectivism and interdependence better harness the creative power of diverse work groups than do organizations that emphasize individualism and independence.31 A large meta-analysis likewise reveals that the more that team members value collectivism (including interpersonal harmony, solidarity, and cooperation), the better they perform.32
At the individual level of the culture cycle, for-profit workers and managers can make smaller declarations of interdependence by watching their language. Psychologist Lee Ross and his colleagues randomly assigned Israeli pilots and American college students to play a game that was named either the Wall Street Game or the Community Game. In fact, all participants played a version of the Prisoner’s Dilemma, an economics game in which participants take turns either allotting rewards or extracting penalties according to rules that pit cooperation against self-interest. The researchers discovered that when the task was called the Community Game, participants cooperated more than when it was called the Wall Street Game.33
In another set of studies, Lee Ross and Aaron Kay similarly found that planting even subtler seeds of cooperation in people’s minds—say, by having them unscramble sentences that included words related to cooperation, such as fair or alliance—induced them to prefer cooperation over self-interest. In contrast, participants who unscrambled words related to competition, such as tournament or cutthroat, took the self-interested route in the game.34
Although laboratory experiments are a long way from your average Fortune 500 workday, these findings suggest that a few quick linguistic fixes could spawn a more collaborative, and therefore more creative, workplace. Why argue when you can discuss? Why throw down a competition when you can raise a challenge? Why go for the jugular when you can go for the gold? By taking a moment to choose more interdependent words, you could transform a snake pit into a brain trust.
As businesspeople put their own houses in more interdependent order, they should extend their sensitivity to the nonprofits and government agencies with which they work as program partners, donors, volunteers, and board members. To do so, they must overcome a common yet troublesome obstacle: misapplying their cultural assumptions and practices to the nonprofit sector.
For instance, because businesspeople track profits on a quarterly basis, they want to see nonprofits and government agencies “move the needle” on performance outcomes with similar alacrity. Yet moving the social-change needle often takes more time and effort than does turning a profit. In the late 1950s, for example, researchers in Ypsilanti, Michigan, randomly assigned 123 poor Black children to either the HighScope Perry Preschool program or to a comparison group that did not attend the preschool. Several years later, the preschool graduates were not faring much better than their counterparts in the control group. Based on this low initial “return on investment,” many contemporary funders would have pulled the plug on the preschool.
But some forty years later, researchers revisited the study participants. They discovered that the HighScope Perry graduates were more likely to have a college degree, job, spouse, and savings account; to own a home and car; and to have raised their own kids than the control group. They were also less likely to have been on welfare, to have been arrested, or to have been sentenced to prison. Those short-term-return-focused funders would have killed a program that has yielded over twelve dollars on every dollar invested.35
For-profit folks who want to get in on the business of social change must practice patience. “The problems that nonprofits are tackling aren’t going to get solved by next week,” says Beitler of Agilent. “Corporations need to stick around for the long haul.”
Businesspeople must also learn to appreciate how difficult it is to measure social change. At base, calculating profit is just a matter of math. But the social sector does not have an analog to profit. Success indicators for an arts organization in New York City are entirely different from those of a homeless shelter in Pine Bluff, Arkansas, a microlender in Bangalore, India, or an environmental advocacy group in the Amazon River Basin. And because many innovative programs are just one step ahead of the issues they have been formed to address, they often do not yet know which indicators they should be tracking.
“The next time corporate board members or donors get on an evaluation kick,” recommends business professor Chip Heath, “ask them about the return on their investment in their R&D unit, or their advertising expenses. They won’t be able to tell you. And yet outcomes in the corporate world are much easier to [track] than those that nonprofits are routinely asked to measure.”36
Measuring those outcomes, moreover, is a luxury that many nonprofits cannot afford. Even the most successful nonprofits wrestle with resource shortfalls that would be unheard of in the corporate world, including nonfunctioning computers, outdated software, and chronic understaffing.37 The for-profit mind-set is complicit in creating these shortfalls, argue Ann Goggins Gregory and Don Howard, both of the Bridgespan Group, a consultancy for nonprofits. In the absence of a nonprofit analog to profit, many for-profit folks rely on overhead ratios—the proportion of indirect expenses (operations, finances, human resources, and fund-raising) to program-related expense—to decide which nonprofits to support. Funders say they use this metric because they want to fund the action on the ground, rather than the infrastructure that makes the action happen. To win these donors’ dollars, many nonprofits report artificially low overhead ratios. These misrepresentations of how much it actually costs to run a nonprofit then feed funders’ already unrealistic beliefs.
The result is what Gregory and Howard call “the nonprofit starvation cycle”: funders underestimate the cost of running a nonprofit, and assume that nonprofits with higher overhead ratios are simply inefficient; nonprofits misrepresent their costs, and therefore receive less funding; infrastructure suffers, and nonprofits become more inefficient. In the worst cases, high-quality programs fold for lack of adequate support.
Because funders are the more powerful parties in this dynamic, ending the nonprofit starvation cycle begins with them. Gregory and Howard suggest that funders work with nonprofits to define their shared goals, and then invest in the infrastructure needed to make those goals a reality, rather than imposing their own language, metrics, and priorities. In other words, funders need to have more respect for what nonprofits do, and more empathy for what nonprofits need.38
Jan Masaoka suggests one technique that businesspeople can apply to make empathy flow more readily. As the former executive director of CompassPoint, a San Francisco–based consultancy for nonprofits, Masaoka has brokered her fair share of cross-sector partnerships. She learned that corporations make better partners when they treat nonprofits as they would a small business. “For some reason, people in corporations understand that if you partner with the local pizza parlor, you cannot expect it to have its own lawyer,” she says. Corporations are also more understanding of small businesses’ slower decision-making and turnaround times.
A final step that businesspeople can take to help out their nonprofit brethren is to acknowledge the limits of markets. With the rise of social entrepreneurship, social enterprise, and other business solutions to social and environmental problems, many people have lost sight of the fact that not all problems have business solutions. Indeed, two of the most important roles that nonprofits and governments play are to intervene where markets fail and to fix the problems that markets created in the first place. Nonprofit and government-owned medical clinics, for example, accept patients so sick or impoverished that businesses could not profit from treating them. Likewise, many environmental nonprofits and government agencies act on behalf of people whose health has been harmed by unscrupulous businesses. Rather than trying to crowd out this good work by starving organizations or governments, the more business-minded among us should support our partners in all sectors.
On the more interdependent side of the labor pool, nonprofits should not just wait for the business sector to grant them their proper place at the economic table. Instead, workers in the charitable sector need to amplify their independence by speaking up for what they need. Yet because the selves of this sector are so steeped in interdependence, they sometimes fail to get out their biggest guns: their voices.
At the institutional level of culture cycles, speaking up means lobbying local, state, and federal governments. Lobbying lets citizens shape the new laws of the land, and so it is nonprofits’ biggest lever. Yet many organizations avoid lobbying because they mistakenly believe it is illegal (or at least completely sleazy). The truth of the matter, however, is that nonprofits can spend up to $1 million on advocacy annually (the actual amount depends on the size of overall budgets). They can also speak their truths to power in less formal ways, including educating government officials about pending legislation, or alerting them to the consequences of policies already in place.39
“You have to show up,” says Jim Fruchterman of Benetech, which devotes considerable time and money to lobbying. “The people who are defending the status quo are working full time to bend the ears of policy makers. When you don’t show up, policy makers don’t know that there’s an alternative, and reform doesn’t happen.”
Fruchterman gives the example of an early Benetech project: the Bookshare online library for people with visual or learning disabilities. Although the technology was ten times more cost-effective than an older program’s approach, the latter received government earmarks to the tune of $14 million. When Benetech, then an unknown player, lucked out and competed successfully for record-breaking funding from the Department of Education, “I started getting calls from congressional staff saying that we were crooks because they didn’t know who we were.”
To stay on the radar of policymakers, Benetech now employs the Sheridan Group, a government-relations firm that primarily serves nonprofits. Fruchterman also spends ten days a year on Capitol Hill. Consequently, the work of Washington now reflects some of the ideas he espouses. Benetech can also feel a more tangible benefit of its advocacy: the nonprofit’s annual budget has grown from $3 million to $12 million, “a big chunk of which is government contracts,” Fruchterman says.
Many corporations would like to hear from nonprofits as well. “I want you to pester me,” says Beitler of Agilent. “If I had to initiate all the learning I need [in order] to do my job well, my job would be a lot tougher, and I wouldn’t be able to learn as much about what different groups are doing.” A big part of his job is to partner with nonprofits working on STEM education. Because these nonprofits are much closer to the people who are grappling with the daily details of teaching STEM, they often have the best insights into how to improve it. In addition to briefings from these organizations, says Beitler, “I need them to be very frank about their needs and how we can be helpful.”
Nonprofits must also speak up to break the nonprofit starvation cycle. Left to their own devices, many donors invest in pet programs or eponymous real estate. But with calm reasoning at strategic times, nonprofits can convince donors that an organization’s programs and facilities are only as good as their management and maintenance.40
In their everyday communications with the outside world, nonprofits should also flaunt both their competence and their kindness. Word on the street has it that nonprofits are warm but not too smart, while businesses are clever but cold. Because of these different stereotypes, people would rather buy products or services from the allegedly sharper for-profit sector than from the allegedly less capable nonprofit sector. In one experiment, for instance, psychologist Jennifer Aaker and her colleagues found that participants wanted to buy a laptop bag from WorldofGood.com, presumably a for-profit company, more than they wanted to buy a laptop bag from WorldofGood.org, presumably a nonprofit. Yet when participants learned that the staunchly competent and independent Wall Street Journal had endorsed the dot-org bag, participants wanted to purchase it more than the dot-com one. The Journal’s endorsement made the nonprofit seem both warm and competent (both interdependent and independent), which is a combination that consumers find quite enticing. Nonprofits that speak to both heads and hearts may ultimately win more donor dollars than ones that advertise only their warmth.41
Government agencies should get hip to independence of a different sort: the willingness to take risks. For this shift, Richard Boly of the State Department recommends that institutions adopt the “fail-fast mantra of Silicon Valley.” This is the mentality that made Apple, Google, and design firm IDEO famous. Rather than tiptoeing into a project by knocking out its easiest features, the fail-fast method makes organizations dive headlong into the hardest part of a project, see if it’s doable, and if not, recalibrate.
Built into this approach is the message that “it’s okay to fail,” says Boly. This reassurance frees people up to dream bigger, try harder, and build better than do more conservative mind-sets. It makes people embrace risk rather than avoiding it.
It can also help break the stalemate of red tape. In government, the highest hurdle is often getting the approval of the relevant hegemons, as Fruchterman woefully learned. Applying the fail-fast mantra means that the first action items on an ambitious project’s to-do list are to get the most persnickety stakeholders in the room, present the idea, encourage them to poke holes in it, and then iterate solutions that respond to stakeholders’ concerns. By enlisting the toughest audiences early, workers in the government sector wind up not only better serving their stakeholders, but also getting their buy-in.
“Don’t complete 80 percent of a project in stealth mode only to find out that you can’t finish it,” advises Boly. “That’s been the fate of too many government projects.”
Government agencies are also discovering that ripping off the red tape and flattening the hierarchy so that all stakeholders can let their unique ideas fly win efficiency and effectiveness. At the State Department, for example, Richard Boly’s eDiplomacy was born from a $16 million failure: the Foreign Affairs System Integration. FASI was an old-school, top-down, command-and-control system for sharing information within the agency. The system was a flop. “People just won’t go fishing through a gigantic ‘databasement’ to find what they need or to share their knowledge,” he says. They will, however, happily ask questions and post their greatest ideas on Wikis, blogs, Twitter-like feeds, ideation platforms, and other social media.
To harness the creativity of the State Department staff, Boly and his team established half a dozen open-source platforms behind the department’s firewall. These sites have shaped not only what the agency does, but also how it gets things done. For example, a perennial problem in Washington, D.C., is that government buildings are too far apart for people to walk to meetings, but taxis are too scarce to ride to them. Fare reimbursement is also a tedious process.
To fix these problems, employees used an ideation platform, the Secretary’s Sounding Board, to suggest, and then to implement, a greenly efficient plan: purchase a stable of twenty bicycles that employees can check out. Since the program’s beginning, employees have put more than three thousand miles on the bikes.
A change-the-world story that is making the conference rounds goes like this: “A man walking along a shore covered with washed-up, dying starfish notices a boy throwing them back into the ocean, one by one. The man says to the boy that there are miles and miles of beach and hundreds of starfish, and that he’ll never make a difference. As the boy throws a starfish back into the ocean, he says, ‘I just made a difference to that one.’”
Although the starfish story has warmed the cockles of many an independent heart, Rich Tafel’s is not among them. As founder of the nonprofit Public Squared, he trains nonprofit leaders and social entrepreneurs in public policy. He objects to the starfish story because it exalts a lone hero who is reacting to the problem right in front of him, rather than reaching out to others to understand what is beaching the starfish in the first place, and then stopping it at the source.
“Real world problems usually result from a broken ecosystem,” Tafel notes, “and solutions most often require some kind of change to the rules.” For instance, when thousands of starfish really did wash up on the shores of Kent, England, the Marine Conservation Society (a charity) and the Environment Agency (a government office) discovered that it was because local businesses were too aggressive in their fishing of mussels—a problem whose solution will likely require the government to create new laws, as well as companies to cooperate with the laws and nonprofits to monitor the progress.
In other words, identifying and addressing the root cause of the mass stranding will require the cooperation of all three sectors. Kids will always throw starfish back in the sea, and well they should; independent approaches have an important place. But to make the kinds of change that twenty-first-century problems require, all three workplaces will need to work together interdependently.