Funding Governance for Systemic Transformation — r3.0 Blueprint #8–Regenerative vs. Corporatized Nonprofits: Subverting or Replicating Capitalist Values? Case Study 2
This is part 5 of a series of Medium articles on r3.0’s newest Blueprint, released on September 6, 2022, at the 9th r3.0 International Conference in Amsterdam and online. This fifth part covers the second of two case studies regarding the Blueprint’s generic critique of current funding governance. The full version of the Blueprint can be found here.
By Alex Wise
Mission-driven organizations (including nonprofits, non-governmental organizations, educational institutions, foundations) exist to accelerate solutions to systemic problems like poverty, racial injustice, greenhouse gas emissions, etc. But when such organizations adopt practices and values associated with the corporate world, they may begin to embody the same corporate excess and capitalism-fueled values that generate and exacerbate the very inequities and harms that these organizations are designed to counter. Larger nonprofits whose governing boards tend to include corporate executives and high net-worth individuals are particularly vulnerable to this ontological contradiction.
Corporatized nonprofits may appear highly successful, based on their ability to bring in dollars and wield influence with governments and policymakers, but their wealth and close ties to the corporate world undermine their ability to take down the structures they‘re enlisted to fight. The more “successful” organizations are sometimes, ironically, less capable of getting to the root of the problem. Partnerships with companies misaligned with the organization’s stated mission, board members from the corporate world, and high executive pay are key indicators of this form of missionderailed governance.
Organizations committed to regenerative funding governance, by contrast, have far greater freedom. With fewer corporate ties, they are less encumbered and more able to subvert corporations responsible for global resource exploitation, human rights violations, and other nefarious impacts that result from rampant corporate greed. These sorts of organizations are highly successful in promoting an agenda that advances their stated mission, although they may never become as large or economically dominant as the corporatized nonprofits.
There is a need, therefore, to retool the evaluative metrics by which a successful mission-first organization is recognized. Rather than an organization’s fundraising ability or a high rating by a third-party nonprofit assessment agency, success should be measured by an organization’s ability to address the root causes of the systemic problem identified by its mission. This sort of measurement will enable analysts to identify organizations committed to regenerative and resilient governance.
This case study compares two mission-driven organizations in the nonprofit sector, both designed to support environmental sustainability and combat the depredation of the planet. Both are international in scope and mission, and both receive favorable ratings on both GuideStar and Charity Navigator (independent nonprofit evaluators). The first organization, exemplifying corporatized, mission-askew governance, is The Nature Conservancy. The second, an example of sound, regenerative governance, is 350.org. The case study considers a number of practices and metrics to compare and contrast the two organizations.
This case study is built on the assertion that fund development need not derail an organization’s mission, and concludes with a set of recommendations and principles to help guide regenerative funding governance for missiondriven organizations.
Corporatized, Mission-Askew Governance
The world’s largest environmental nonprofit organization in terms of assets and revenue (around $1.8 billion in 2021) is The Nature Conservancy (TNC) (TNC Annual Report, 2021). It serves as an illustration of a mission-driven organization that has largely embraced corporate values.
The Nature Conservancy’s corporate ties and principles exploded in the 2000s, but were built on a pro-business foundation established decades earlier. Pat Noonan, CEO of TNC during the 1970s, has been identified as the first of TNC’s leaders to court corporations (Brichard, 2005). Noonan was apparently famous for borrowing a saying from the for-profit business world in his fundraising slogan: “the donor is always right“ (Brichard, 2005).
Mark Tercek, a former Goldman Sachs partner, served as TNC’s CEO from 2008–2019, and left a huge imprint not only on The Nature Conservancy itself but on Big Conservation as a whole. He successfully raised an enormous amount of capital, espousing what he referred to as “real world” (aka capitalist-based) solutions. Determined to bridge the cultural gap between the environmental movement and Corporate America, Tercek re-framed The Nature Conservancy’s funding governance approach toward “persuading big business to save the environment” (Max, 2014).
During Tercek’s tenure, The Nature Conservancy went from approximately $600 million in annual revenue to over $1 billion. In order to grow its coffers so immensely, TNC forged partnerships and courted alliances with numerous Fortune 500 companies, including corporations easily identifiable as foes to the environment (e.g., chemical manufacturers and industrial logging companies). In 2021, Dow published a press release celebrating its ten year collaboration with TNC (Dow, 2021), and in 2020, The Nature Conservancy put out a press release un-ironically touting that partnering with “one of the world’s largest packaging, pulp and paper companies,” (International Paper Company) was helping to reduce the “carbon impact of logging and protecting biodiversity”.
During this time, The Nature Conservancy’s board of directors also changed. Conservationists were highly critical of TNC’s turn toward “Wall Street and corporate” governance (Max, 2014) at the time, although these objections did not appear to have an impact on TNC’s momentum toward corporatization. Today, TNC’s board of directors is a veritable corporate all-stars list, including Sergio Rial (CEO of Banco Santander), Douglas Petno (CEO of commercial banking at JPMorgan Chase), Bill Frist (healthcare magnate and former US Senator), Fred Hu (the founder of Primavera Ventures who bought a Hong Kong mansion in 2021 for $55 million — finews.asia), Joseph Gleberman (Managing Director at the Pritzker Organization), Edwin Macharia of Dahlberg Ventures (one of Kenya’s wealthiest individuals), and Vincent Ryan (Schooner Capital founder with a net worth of $600 million in 2018) TNC Website- Our People. While TNC’s board of directors may appear relatively diverse, at least in terms in terms of racial/ethnic demographics (26% of the 23-person board are non-white), the preponderance of bankers and billionaires on the organization’s board shows very little socioeconomic diversity. The amount of wealth on that board and the ties to corporate interests are likely to influence the direction of the organization and its initiatives.
Another sign that an organization may have embraced the values of corporate excess is high executive compensation, an area overseen by a board of directors. A corporate-infused governance body is far more likely than a board comprising grassroots activists to recruit and compensate according to corporate standards. TNC clearly has higher salaries than those typically found in the nonprofit space. According to tax filings for fiscal year 2020, The Nature Conservancy had at least twenty-five employees (executives that were listed on the organization’s 990 Tax Form) that were paid over $320,000 per annum. Its Chief Conservation Officer, Brian McPeek, earned $1.68 million that year (Schwenkcke, et al., 2022).
To put this in context, Direct Relief, a large foreign aid-focused nonprofit organization with nearly twice the annual revenue of TNC ($2 billion in 2020) had only two executives on its staff making over $320,000 per year. The Nature Conservancy is not, however, an outlier from an industry trend of paying executives hefty sums. Looking at two other large nonprofits with highly paid top executives, the National Geographic Society (annual revenue of $401 million in 2020) had eleven executives making $320,000 or more in 2020 with its top executive paid a salary of $759,000 and Planned Parenthood (annual revenue of $491.4 million in 2020) had ten executives above the $320,000 threshold with its highest paid executive kin $1.24 million in salary.
The Nature Conservancy’s strategy of embracing deep-pocketed interests has been justified as a way to find common goals with and assist large corporations to become “green” themselves, but the organization consistently finds itself in the crosshairs of ecologists and activists (actors who, in theory, should be allies of a powerful environment protecting organization). These critics point to TNC’s corporate culture as well as practices that undermine the health of the planet (Colman, 2019; Wise, 2022). As Naomi Klein argues in her book, This Changes Everything: Capitalism v. The Climate, it may be nearly impossible for large organizations to avoid taking money of “questionable origin.‘‘ Nevertheless, in the case of TNC, “there is a compelling reason to believe that funding is having undue influence — shaping the kinds of research undertaken, the kinds of policies advanced, as well as the kinds of questions that get asked in the first place” (Klein, 2014, p. 198).
Regenerative Governance
Although a much smaller entity, climate change-focused 350.org stands in stark contrast to The Nature Conservancy. Founded by a group of university friends in the United States along with Bill McKibben in 2008 (350.org Website), the organization‘s name reflects its lofty goals of aiming to reduce global carbon emissions to 350 parts per million. Prior to helping establish 350.org, McKibben was an author, environmentalist, and activist. 350.org’s annual revenue in 2020 was $25.2 million (Schwenkcke, et al., 2022) — nowhere near the size of The Nature Conservancy’s budget. 350.org is, nevertheless, a relatively sizable organization in the context of the overall environmental nonprofit sector. While TNC orients itself around corporate values, both in terms of growth and impact, 350.org uses activist tactics. For example they have modeled their fossil fuel divestment approach on the anti-apartheid divestment movement (Kusmer, 2021).
The most notable partners that 350.org claims are other players in the nonprofit social justice and environmental spheres, such as Greenpeace, Sierra Club, Amnesty International, and Oxfam (350.org). Their strategies don’t include any partnerships with large corporations or major polluters — rather, they explicitly target corporate actors who contribute heavily to negative climate outcomes (Kusmer, 2021).
The composition of 350.org’s board of directors is truly diverse. Women and people of color are well-represented on 350.org’s board (7 of the board’s 11 members are women and only 3 members are white). It is composed solely of climate and social justice activists, academics, and environmentalists, with no millionaires (or billionaires) involved in the organization’s funding governance.
The current executive director of 350.org, May Boeve, is a high-profile leader and climate activist whose profile on 350.org’s site boasts of her activism-related arrests (350.org Website). She holds many awards and commands noteworthy media appearances, yet her salary (the top salary at the organization) is $135,000 per year. This is on the low-end for an organization with an annual budget of around $25 million. To put Boeve’s salary into context, some comparable salaries of executive directors at similarly sized nonprofits include: Climate Reality Project ($420,000 per year), Lambda Legal ($389,000 per year), Rainforest Trust ($135,000 per year), and Energy Outreach Colorado ($272,000 per year). It is also less than one-tenth the salary of TNC’s highest paid executive.
While 350.org and The Nature Conservancy may not appear commensurable given their very different sizes, 350.org also has a global presence and an ambitious agenda. Throughout its decade-long existence, 350.org has stuck to its large-scale vision of doing whatever it can to keep atmospheric carbon emissions below 350 parts per million. 350. org’s campaigns have been effective in stopping the Keystone XL pipeline in the U.S, promoting public institutions everywhere to divest from fossil fuels, and fighting the development of coal power plants in India. The organization has been able to inject itself into large-scale policy debates through effective media campaigns and individuals who echo the organization’s clearly-defined mission.
Discussion
What’s wrong with corporatized mission-driven organizations? If partnering with corporations allows them to bring in large sums of money, doesn’t that help advance positive change? With the financial allure of a more corporate structure, an organization often becomes less willing to disrupt the actors who are creating and exacerbating the problem. In the case of The Nature Conservancy, this has led to alliances with organizations responsible for a tremendous amount of pollution and deforestation. For example:
Ex1) The Nature Conservancy has used its extensive land holdings to help large companies develop carbon offset programs which have come under scrutiny for being “false offsets.” TNC’s critics assert that the offsets were protecting forests that did not need defending, thus allowing corporations such as Disney, Blackrock, and JP Morgan to take credit for reductions that were already taking place. They also make the case that these corporations conspired with TNC in employing “far-fetched logic to help absolve them of their climate sins“ (Elgin, 2020).
Ex2) The Nature Conservancy has opened itself to criticism from within the environmental movement by being a proponent of “responsible logging practices,” which have come under scrutiny from smaller environmental groups such as the Dogwood Alliance and the John Muir Project (Wise, 2022). While it is not clear just how harmful these logging practices are, aligning with pro-logging corporate interests and policymakers is certainly not in lockstep with The Nature Conservancy’s self-proclaimed mission “to conserve the lands and waters on which all life depends” (TNC Website). In reference to the much-maligned oil and gas extraction partnership between TNC and Exxon-Mobil near Galveston, TX, Naomi Klein writes that “to all appearances, it [the alliance] was a shining conservation success story – proof that a nonconfrontational, partnership-based approach to environmentalism could yield tangible results…[But] for traditional conservationists it was a little like finding out that Amnesty International had opened its ownprison wing at Guantánamo” (Klein, 2014, p. 192).
What does an organization like 350.org accomplish by having board members and leadership grounded in activism and science?
Because they operate the way they do, 350.org can be fearless. The organization does not function as if it is beholden to any high-powered interests. Some examples of the organization‘s ability to disrupt the status quo include:
Ex1) Since launching its Go Fossil Free: Divest from Fossil Fuels! campaign in 2012, 350.org has been at the forefront of fossil fuel divestment efforts, helping to stigmatize investment in the coal, oil, and gas industries. The campaign, which calls for universities, pension funds, municipal investment managers, and religious institutions to withdraw their investments from fossil fuel companies, has been a key component of the movement‘s relative success (Flannery, 2015; Toronto350, 2015).
Ex2) 350.org has formed alliances with indigenous communities in the U.S. and Canada to fight the extraction and distribution of tar sands oil. Through protests and other activist efforts to raise awareness of the environmental dangers of tar sands oils, 350.org and its partners were able to help stop construction of both the Keystone XL Pipeline and the Energy East Pipeline from being completed (Henn, 2021).
While overall capitalization is indeed a legitimate factor in assessing an organization’s ability to create change and disrupt the status quo, it is also imperative for evaluators to understand where a nonprofit gets its money. In 2020, for instance, 350.org received $13.87 million of its $25 million annual revenue from 190 different foundations and entities, and $11 million from individual donations (350.org 2020 annual report). By contrast, The Nature Conservancy saw its annual budget leap from $1.23 billion in 2020 to $1.82 billion 2021 (its 11th consecutive year of revenue growth), mostly attributable to an increase in investment income, from $78 million in 2020 to $615 million in 2021 (TNC 2021 annual report). According to its annual report, “investment income was the organization’s largest driver of revenue growth, reflecting a buoyant equity market and active management decisions by our team of investment professionals” (TNC 2021 annual report, p.26). While this capital influx may not come directly from corporate donations, it demonstrates how TNC’s success is tied to corporate growth in a capitalist market.
The Nature Conservancy is helping to protect a great number of fragile ecosystems, to be sure. In doing so, however, it is unwilling to sacrifice any of its own bottom line. In fact, the opposite holds true: TNC’s NatureVest arm continues to add to the organization’s significant land holdings across the globe, from California and Maine to Kenya and Australia. It‘s notable that NatureVest’s operating expenses are paid by the Robertson Foundation, founding sponsor JPMorgan Chase and the Jeremy & Hannelore Grantham Environmental Trust (Gunther, 2015). [1]
By contrast, in an effort to ensure that global climate strikes hit critical mass, 350.org engaged in a “hiring spree,“ which, in the end, their budget could not support (Colman, 2022). 350.org paid a price for the strategic and fiscal decision to prioritize a successful action over financial stewardship — there were layoffs, mass staff resignations, and associated demoralization — but the strikes took place as envisioned. The organization spent the next year trying to redeem its reputation, regaining its fiscal footing, and planning actions targeting the coal industry, the U.S. Federal Reserve, and the Chinese government (Colman, 2022). While many people, both internal and external to the organization, may hold critical views of what happened at 350.org that year, the organization never compromised its mission.
Lessons
This case study reveals a number of lessons for regenerative funding allocation decision-making. The two examples profiled demonstrate how the drive for notoriety, growth, and wealth-accumulation (corporate values) can push an organization off its path. Below is a set of questions to help guide funding decisions and to ensure allocations are directed toward more regenerative organizations.
Does the organization prioritize systems-disruption over its own “success?”
The principle of endless growth is a key tenet of capitalism. It’s also a leading cause of the climate crisis, rampant inequality, and most violent global conflicts. The increasingly close connection between the non-profit and forprofit sectors highlights that economic survival as a mission-driven nonprofit is a precarious proposition in a forprofit world. Money is required to fuel any action, and the pressure to grow financially in order to maximize impact is palpable in the nonprofit sector. The temptation to grow at any cost (especially if an infusion of capital offers an organization increased flexibility) is likely to feel irresistible to an organization that would otherwise be scrambling to survive. Growth may well help an organization increase its impact. When an organization begins to believe there is value in the growth itself, to the point where it is willing to compromise its values, however, that’s when it is at risk of becoming mission-askew.
In order to guard against that, mission-driven organizations should put systems disruption at the center of their work. This subversion of the entities, policies, and structures that underlie the problem they are working to combat should be a higher priority than their growth. So, for example, imagine two hypothetical organizations, both with a mission to address childhood poverty. Organization A chooses to tackle the root causes of parental poverty (immigration policy, abortion access, restrictions on employment for formerly incarcerated, etc.). Organization B partners with a megastore to distribute tons of food. The mega-store partnership may bring Organization B the means for widespread impact. It may also enable Organization B to garner considerable pecuniary support, success and a favorable programexpense ratio. Organization B’s impact, however, will always be superficial. While it can alleviate hunger by providing meals, it will never address the root causes of poverty. Organization A’s impact could provide more lasting solutions to reduce the severity and number of families struggling to feed their children, which, of course, should be the aim.
Does the organization compensate its executives reasonably?
The lesson here is not that people who work nonprofit jobs are undeserving of high salaries. It is hard work that merits a generous wage. It is also important, though, that organizations not fall subject to the fallacy of the exceptional individual or get sucked into corporate values, and inflate executive pay to the level we see in some of these giant nonprofits.
There are many rationales for the exorbitant salaries noted among corporatized organizations. Many argue that in order to attract the “best and brightest” talent, the nonprofit sector needs to compensate staff at levels that can compete with the corporate world, Some insist that top executives at nonprofits need to be paid top wages in order to keep their organization’s coffers filled. For an organization whose board of directors is filled with high net-worth individuals from the corporate world, these salaries are easily justified as they still seem relatively low to those accustomed to corporate salaries (ultra-rich board members tend not to view wealth accumulation as a moral issue like many who work in mission-driven organizations). Depending on the organization, there are certainly kernels of truth in each of these rationales. Those leery of corporatized nonprofits, however, will recognize salaries in the high six-figure, low seven-figure range (salary levels where generational wealth is created) as red flags that an organization is not strictly mission-driven.
Executive compensation in a vacuum should not be the primary way to measure an organization’s impact or effectiveness, but it can be a useful tool in gauging the values of a nonprofit. Relatively high staff salaries do not necessarily indicate that an organization is unable to realign its lens to be as mission-focused as possible — it just means that there are often competing internal interests that support the status quo. Sound governance is still possible as long as stakeholders are able to see “real world solutions” (as evangelized by crossovers from the corporate world such as Mark Tercek) for what they actually are: synonyms for capital-fueled solutions and a mindset that rewards endless growth. By definition, endless growth is not regenerative.
Are you relying too heavily on the organization’s rating from a third-party nonprofit assessment agency (e.g., Charity Navigator or Guidestar)?
Many of the metrics used by rating agencies such as Charity Navigator and Guidestar favor larger organizations. Guidestar (partnering with BoardSource), for instance, asks whether an organization ensures “an inclusive board member recruitment process that results in diversity of thought and leadership?” (Guidestar profile of TNC). According to Guidestar, The Nature Conservancy passes this demographic-based diversity test. As noted earlier, however, billionaires tend to view issues like executive compensation and corporate partnership differently than most people, irrespective of race or gender. Rating agencies would provide potential funders a service by incorporating a “net worth of board members” litmus test into their evaluation process, especially as board membership with a charitable organization can be a remedy for “polluters seeking to green up their reputations” (Colman, 2019).
These third-party evaluators also use financial indicators. To get a high rating, an organization should have both a good working capital ratio (100% or more) and a sound liabilities to assets (L/A) ratio (0.3 to 0.6). While these are objectively sound indicators of organizational stability, they do tend to favor organizations that have been more successful in accumulating wealth. Corporate partnership would likely enhance an organization’s financial indicators, even if it forced a detraction from the organization‘s mission. Meanwhile, many nonprofit organizations designed to be disruptive to the status quo struggle to make ends meet.
One of the most salient indicators used by third-party evaluators is the program-expense ratio. On its face, this is a sensible and reasonable metric, but it has a number of flaws. In addition to potentially missing innovative approaches that don’t fall into identifiable “program” categories and encouraging organizations to focus on short-term returns (Urban Institute, 2005), it is easier for organizations with a large budget to fare well on this standard. For a small organization, simply paying the executive team decent wages will take a large chunk out of their budgets, while a wellendowed organization can pay its executive inordinate amounts without making a dent.
Another pay-related indicator that is not included in third-party rankings but could be is a measure of pay equity. Such a metric would be calculated on the basis of executive compensation as well as the proportion of staff earning a nonliving wage. Potential funders may want to know if an organization that pays its top executives extreme salaries also employs an army of minimum-wage outreach workers soliciting donations from strangers on the streets (in order to pay those top salaries).
A pay-equity indicator could be similar to calculations that highlight salary inequity in the corporate world. The Economic Policy Institute, for instance, publishes a Corporate Wage Tracker that examines 66 large retail and food service firms, and compares CEO pay to the wage levels of each company’s hourly workers (EPI). While it may not be feasible to provide data to the public about every nonprofit’s pay ratios, third-party nonprofit raters could require organizations to provide compensation data in order to be considered for repeated top tier ranking status.
Pay equity issues in the corporate world have become pervasive talking points to the political class and valuable barometers for many environmental, social, and corporate governance (ESG) investors. With a few simple initiatives to raise awareness and transparency, the business world template could be replicated by the nonprofit sector — an actual example of lessons from the corporate world helping to improve its non-corporate counterparts. Increased transparency in the compensation arena could allow donors to make better-informed decisions as to which organizations to fund.
None of this is meant to suggest that the metrics already provided by third-party evaluators aren’t valuable. But these ratings should be taken with a grain of salt. An analysis conducted by the Urban Institute’s Center on Nonprofits and Philanthropy and Indiana University’s Center on Philanthropy (Urban Institute, 2005) points out the potential unintended consequences of relying too heavily on these evaluators, to the detriment of smaller organizations:
Strict financial ratio standards favor larger organizations, longer-established organizations, and those with popular causes. They discriminate against those nonprofits that are newly established, support relatively unpopular or unknown causes, or do not have an established “top-of-mind” position amongst potential donors.
The proposed changes could help level the playing field for smaller, less well-known organizations competing for positive ratings against large, deep-pocketed organizations.
Conclusion
In their treatise on the conversion of symbolic capital into economic capital, using Bourdieu’s theory of forms and mechanisms of capital conversion as their framework, Rannard, Bocquet & Ferrari write:
Credibility, image and reputation for non-profit organizations are important to the non-profit purpose of their mission. They take the risk of losing their soul by partnering with for-profit organizations…[W]hy do some nonprofit organizations decide to partner with for-profit organizations, taking the risk of selling their soul to the devil by partnering with firms, while others do not? (Rannard, Bocquet & Ferrary, 2017, p. 3)
In their development of a four-part model, the authors recognize that some nonprofit organizations (the civic model), which are primarily funded through individual donors and public administrations, are less willing to take this gamble:
[Civic model organizations] have a high level symbolic capital and are well-known and loved by the general public. Because of their high level of symbolic capital, the risk of losing it by getting involved with firms is significant. In this configuration, nonprofits are largely in confrontation with the business sector because they aim to protect their symbolic capital. (Rannard, Bocquet & Ferrary, 2017, p. 10)
This model corresponds closely to 350.org, while their “opportunistic model” organizations, which readily form alliances with for-profit firms in order to secure economic resources, corresponds to The Nature Conservancy. To suggest that TNC has “sold its soul to the devil” may be hyperbolic and dismissive of the achievements that TNC has made toward preserving habitats. It does seem clear, however, that an organization like 350.org more courageously confronts the root causes of the problem, remains uncompromised in its mission, and provides a better example of regenerative governance.
Notes:
[1] Ironically, the same Jeremy Grantham, a British billionaire investor, once wrote that “capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence” (Fortune, Feb. 27, 2012).
Earlier parts of this series:
