How recent changes to funding approaches highlight the importance of organisational structure in non-profit organisations, by Dr Sudeep Mohandas
Disruption to typical business models has made a drastic imprint on the non-profit organisation (NPO) sector in the Asia Pacific region. With the increase of social enterprises and philanthropists creating their own foundations, the type of conversations happening in the third sector has changed over the last decade, and this is particularly true in Malaysia.
This greater focus on philanthropy is especially prevalent within the context of Islamic religious giving (zakat), environmental, and educational issues. The ‘next generation’ is also asking more of the boards and management of NPOs, when it comes to managing their organisations.
By fixing their own organisational infrastructures, NPO boards and management can help raise their philanthropic impact further; but, crucially, without compromising on their effectiveness. This is a significant alteration to the typical business model most NPO are accustomed to, and many NPO, particularly those that work with the community, have shifted to a ‘social enterprise’-based model.
An organisation with a robust structure can demonstrate and instil confidence and control: with decision-making that allows the operations of an organisation to produce effective and efficient results.
Many NPOs go through a process that is referred to as a ‘starvation cycle’. This is where an NPO is in need of funds and is vulnerable to funders dictating their own terms of how they wish the NPO should be structured, to see it achieve its goals. Such decisions, although made at the management and board level, affect the staff and organisational culture. If such a situation continues for extended periods, it results in a situation known as ‘mission drift’, where the organisation drifts away from its original mission set by its founders.
The good news is that many funders who are aware of this dilemma have taken pro-active steps to mitigate this risk. For example, many foundations in Asia are now establishing pre-agreements with the NPOs they work with, agreeing contributions of no more than 30 per cent, for example, of the total revenue. This is called a ‘dependency metric’. Although high dependence does not always signify a problem, it can impact the NPO’s operational structure.
Funders must therefore find ways to proactively engage with their chosen non-profits to agree on the transition plan. For example, dependency metric that will reduce over time, moving from 45 to 30 percent over a time period so that the non-profit will achieve their impact, and be able to drop their the NPOs ‘dependency’. Other foundations are up scaling their investment and structural change to the non-profit such they can be sustainable and relevant in future.
As more philanthropic organisations are created, the non-profit sector has redefined itself by restructuring to manage larger investments, referred to in the industry as ‘big bets’. These organisations invest huge sums to do social impact work, and pose wider organisational challenges, as funders offering substantial sums generally want to solve or significantly ameliorate a problem. Such aspirations require considerable human resources, financial management and legal advice, which will impose operational structural changes that can either shift work culture or board direction.
It is highly desirable for NPOs in Malaysia to realise that the philanthropic community will embrace the change rapidly and thus, will expect the NPOs to follow suit. The NPOs in the region must be prepared for an overhaul, while consciously guarding the relevance of their mission.
Suzanne Reisman and Diana Hamade, ‘Articles of faith’, STEP Journal, (Vol27 Iss1), pp50-51
Ann Goggins Gregory and Don Howard, ‘The Nonprofit Starvation Cycle’,Standard Social Innovation Review(August 2009)
Mission Drift: The Unspoken Crisis Facing Leaders, Charities, and Churches, Chris Horst and Peter Greer Bethany House Publishers (2014)
William Foster, ‘Introduction to Unleashing Philanthropy’s Big Bets for Social Change’, Standard Social Innovation Review, Spring 2019