January 7, 2010 | Read Time: 3 minutes
By 2020, could tax-exempt charitable groups be considered an outdated model of philanthropy?
Some philanthropy experts and others say that’s a real possibility as business increasingly becomes seen as a primary tool for social change.
Today’s young Americans will reshape corporate culture as they become CEO’s, focusing companies on financial gains and fighting poverty, improving the environment, and other causes, says Jed Emerson, a former managing director of Uhuru Capital Management, who has advocated for a “blended” business-nonprofit approach to charity.
“They’re saying, I want to work in a company that has values that reflect my values. I want to make money that will take care of me and my family but not in a way that will destroy my community or the planet or people living on the other side of the world,” Mr. Emerson says.
Jeff Erikson, who leads the American office of SustainAbility, a consulting company, says that by 2020 big companies will have infused philanthropy into their “DNA.”
“There’s this continuing march that companies will make toward more progressive, more responsible business practices. It will be just how business is done,” he says.
New Hybrids
At the same time, the popularity of hybrid business-and-nonprofit models will grow.
Charities that have a for-profit arm or low-profit, limited-liability company—known as an L3C, which makes money but has a social mission—will become more commonplace.
“The for-profit whose job is only to make money or the nonprofit which is a charity, those are two poles. In reality there is an entire spectrum in between them,” says Jim Fruchterman, chief executive of Benetech, a nonprofit technology organization in Palo Alto, Calif.
In the next 10 years, he expects changes in federal and state laws to foster the development of L3C’s.
“Someone should be able to operate a business and have a social mission without getting sued by shareholders for not making the maximum [amount of] money,” he says.
Currently six states have enacted laws to allow the establishment of L3C’s.
Greater Scrutiny
John Kania, managing director of FSG Social Impact Advisors, a consulting group for grant makers and charities, says that by 2020 foundations will be a major driver of new approaches. They will begin allocating a significant portion of their assets to loans and using other nontraditional financial assistance to support experimental business ventures, he says.
For example, in 10 years foundations with an environmental mission will frequently support venture capitalists who invest in clean energy, Mr. Kania predicts.
But if the lines between businesses and charities continue to blur, Diana Aviv, chief executive of Independent Sector, a nonprofit association in Washington, predicts greater scrutiny by lawmakers and the public.
If prominent members of Congress “can’t tell the for-profits from the nonprofits, then why would they give us a tax-exempt status? And if we don’t have the status, why would people give us money they give now?”
Ms. Aviv emphasizes that charity and business leaders need to be “thoughtful” about the potential consequences of merging the two kinds of organizations, though she does not foresee the demise of tax-exempt groups anytime soon.
But Lucy Bernholz, a foundation consultant, says that in the future charities, as defined under Section 501(c)(3) of the Internal Revenue Code, may become a vanishing breed.
“Social goods will come from a lot of different places,” she says. “It won’t be the purview of the 501(c)(3) alone anymore.”
