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Exploring how the convergence of for-profit and philanthropy impacts the charitable sector
order by potential of
having the greatest impact
Businesses and charities once worked in silos, but today the sectors are converging. The lines between for-profit and nonprofit are blurring, and innovation for social good awaits on the horizon.
Nonprofit organizations and for-profit companies are learning from each other. For decades, nonprofits have been encouraged by board members and donors alike to embrace best practices from business. This includes metrics for efficiency, strong fiduciary oversight, diversified streams of revenue, and effective talent management including competitive employee compensation and benefits.1 Increasingly, businesses are motivated by employees and consumers to pursue social impact goals that once were the domain of the charitable sector. Our research on the priorities and strategies of high-net-worth philanthropists provides further evidence of this trend.2 Whether through impact investing, taxable philanthropy, crowdfunding, social media campaigns, cause-related purchasing or another mission-aligned means, American businesses are leveraging nontraditional tools to create change in their communities and around the world.
This update seeks to explore cause-related purchasing and its potential impact on traditional charitable organizations as an example of the convergence of business and philanthropy. Often referred to as conscious consumerism, this combination of profit and purpose has fueled the rise of companies that not only generate financial returns but also provide positive social impact through sales of goods and services.
This convergence is fueled by the 78% of Americans of all ages who believe that companies must do more than make money, they also must leave a positive impact on society.
This convergence is fueled by the 78% of Americans of all ages who believe that companies must do more than make money — they also must leave a positive impact on society.3 As indicated in the Global Corporate Sustainability Report, millennial consumers are more likely than older age groups to prefer products tied to a sustainable brand.4 Accordingly, this trend is likely to gain additional momentum as millennials increase their economic power. Millennials are the fastest growing group in the workforce with approximately 80 million participants who already control an estimated $1 trillion of U.S. consumer spending.5 The United States is not alone in experiencing this phenomenon, as many socially conscious companies are well-known and emerging globally. “Nonprofit leaders must factor this emerging trend, including conscious consumerism, into their strategic plans for 2020 and beyond.” says Dianne Chipps Bailey, National Philanthropic Strategy Executive at Bank of America.
According to the Global Corporate Sustainability Report:
Companies that market and sell products with the promise of social good often create significant benefits for nonprofit organizations. For example, many companies partner with existing nonprofits by providing financial grants and/or in-kind support to advance their missions. These new sources of funding are valued by nonprofits seeking to diversify their revenue streams. Less tangible but equally important benefits include increased awareness about issues impacting the environment, health, education, poverty and other critical social issues. As companies market their socially conscious goods and services, the public is informed about problems to be solved or opportunities to be supported through traditional charitable initiatives. The rise of cause-related purchasing, however, may have unintended negative consequences for traditional nonprofits. For example, this convergence may increase competition for qualified employees. Individuals who would have pursued professional opportunities with nonprofits in prior generations may now shift their professional focus to for-profit companies as socially meaningful careers are more readily available outside of the nonprofit world.6 The good news is more than 80% of millennials report that making a positive difference is more important than professional recognition.7 This statistic is particularly significant as millennials are forecasted to comprise 50% of the American workforce by 2020 and 75% of the global workforce by 2025.8 The pool of skilled and passionate professionals may be adequate to provide leadership for both for-profit and nonprofit initiatives for social change.
If those who are giving begin to derive personal satisfaction from purchases instead of donations, the seemingly fixed amount given to charity overall could decrease.
An additional significant concern is whether cause-related purchasing over time could decrease the total financial support directed to nonprofits and the causes they advance. The amount given to charity has been fixed at 2% of the gross domestic product for the last 40 years.9 Research also demonstrates that charitable giving correlates to life satisfaction and happiness.10 If those who are giving begin to derive personal satisfaction from purchases instead of donations, the seemingly fixed amount given to charity overall could decrease. According to a study conducted by University of Michigan’s Ross School of Business, people who buy cause-related products give significantly less in direct contributions.11 In addition, if consumers were to reallocate the dollars they previously directed to charity to cause-related purchases, the net impact could be a further reduction in the total amount flowing to the charitable cause.
As previously mentioned, these unintended negative impacts associated with cause-related purchases on traditional nonprofit organizations could accelerate over time given the preferences of the next generation. The Millennial Impact Report reflects this potential in their study on how millennials take social action. The top ranked outlets include posting on social media, signing petitions and shifting buying behavior to more sustainable brands. Outright donations to charity did not rank nearly as favorably within the millennial cohort, further solidifying the results of the University of Michigan study. 4
|90%||of millennials say that they are driven to donate due to a compelling mission or cause, not just because of a specific organization|
The most successful nonprofits will not simply mimic their new for-profit competitors but will clearly and unapologetically articulate their distinctive positive impacts on society.
—Dianne Chipps Bailey,
National Philanthropic Strategy Executive at Bank of America
Traditional charities have much to learn from the rise of conscious consumerism, and sophisticated nonprofit leaders will factor cause-related purchasing and related trends into their organizations’ strategic plans. One opportunity will be for nonprofits to diversify their revenue by marketing their own mission-aligned goods and services. Examples include consumer products made or delivered by the clients served by the charitable organization. The most important lesson may be that potential consumers and donors alike are motivated by the opportunity to create positive impact. Consider that 90% of millennials report they are driven to donate due to a compelling mission or cause, not just because of a specific organization. 12Now more than ever, nonprofit organizations must clearly demonstrate the link between donors’ contributions and the intended benefits. The most successful charitable organizations communicate this impact by leveraging social media and digital marketing strategies borrowed from popular and profitable socially conscious companies. "Importantly, though, the most successful nonprofits will not simply mimic their new for-profit competitors but will clearly and unapologetically articulate their distinctive positive impacts on society,"says Dianne Chipps Bailey. Traditional nonprofit organizations who differentiate their missions with a focus on higher-level investments in social systems change from companies that rely on a simplistic “buy one-give one” charity model will continue to attract significant contributions from donors of all ages. Together, for-profit and philanthropy have the power to innovate for social change that is meaningful and enduring.
1 Hawley, Pamela. “The Professionalization of Charities: What Nonprofits and For-Profits Can Learn From Each Other.” Forbes, January 11, 2019.
2 2018 U.S Trust® Study of High Net Worth Philanthropy
3 2018 Cone/Porter Novelli Purpose Study
4 Landrum, Sarah. “Millennials Driving Brands to Practice Socially Responsible Marketing.” Forbes, March 17, 2017.
5 Rudominer, Ryan. “Corporate Social Responsibility Matters: Ignore Millennials at Your Peril.” Georgetown University Center for Social Impact Communication. 2015.
6 Mollenhauer, Linda. “Forces of Change: Reshaping How Non-Profit Organizations are Governed, Managed, and Resourced.” The Philanthropist, May 29, 2017.
7 Buffet, Howard and William Eimickle. “How Companies, Governments, and Nonprofits Can Create Social Change Together.” Harvard Business Review, May 31, 2018.
8 Economy, Peter. “The Millennial Workplace of the Future is Almost Here.” Inc. January 15, 2019.
9 Flandez, Raymund. “Buying Products Tied to Charities Depresses Giving, New Study Finds.” The Chronicle of Philanthropy, March 31, 2011.
10 Women’s Philanthropy Institute.
11 Sandoval, Timothy. “Donations Grew 1.4% to $390 Billion in 2016, Says ‘Giving USA’.”The Chronicle of Philanthropy, June 13, 2017.
12 Buffet, Howard and William Eimickle.“How Companies, Governments, and Nonprofits Can Create Social Change Together.”Harvard Business Review, May 31, 2018.
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