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Updated: October 14, 2019 Rule of Law

Attempts to redefine capitalism must also look at philanthropy

By John Horak
John Horak

Capitalism is always being criticized in fundamental ways, while philanthropy generally escapes serious scrutiny.

I am juxtaposing the two this way because there is a new wave of thought about reforming capitalism that simultaneously (if unwittingly) begs as many questions about philanthropy.

The new wave thought readily embraces capitalism’s ability to create wealth, but wants to spread it around more widely — not by taxation and redistribution, but at the level of corporate governing boards.

The traditional obligation of corporate boards is to govern solely for the financial gain of shareholders, but the new wave requires them also to attend to matters of social justice that benefit the public generally. It does this by requiring corporate boards to also take into account the needs of other “stakeholders.”

Stakeholders is a broad term — it can mean the community, environment, nonprofits, employees, suppliers, customers, financiers and more.

In August, JP Morgan Chase CEO Jamie Dimon convinced the National Business Roundtable to endorse the stakeholder concept. In 2018, Leadership Greater Hartford promoted an organization called Conscious Capitalism, which (from the web) puts it this way:

“Conscious businesses are galvanized by higher purposes that serve, align, and integrate the interests of all their major stakeholders, … are driven by service to … all the people the business touches, and the planet we all share together … to evolve our world so that billions of people can flourish, leading lives infused with passion, purpose, love and creativity; a world of freedom, harmony, prosperity and compassion.”

The questions that stakeholder capitalism pose for philanthropy are self-evident in the aspirational words quoted above. These words are, essentially, a philanthropic-sector mission statement found in nonprofit by-laws and charters.

In other words, stakeholder capitalism splices some philanthropic DNA into the genome of corporate America so that it will operate more justly — to contribute more to the general good and not solely to enrich shareholders.

The immediate reciprocal question this raises is whether we should be splicing some DNA in the other direction. Would philanthropic-sector organizations be improved if we spliced a strand of capitalist DNA into their genome?

The answer is yes, and I’m not talking simply about common anodyne exhortations that “nonprofits need to be run more like a business.”

I suggest that new DNA is needed because philanthropic organizations still follow a 19th-century operating model that is ill-suited for the 21st century.

Modern nonprofits are highly regulated complex enterprises, with duties, real estate, payrolls, exposures and financial challenges as daunting as those of shareholder-owned businesses — yet, we still regard them as mere charities.

The term charity should be deleted from the philanthropic lexicon. It is demeaning and disrespectful to the hard 21st-century operating conditions nonprofits face daily.

Similarly, the term nonprofit is an accident of history that does more harm than good. The term’s original purpose was as an identifier — to distinguish corporate entities whose purpose is to create wealth from those whose purpose is to advance a mission. But the term has taken on a life of its own and birthed a “poverty-is-virtue” mindset that creates a sense of entitlement and an expectation that these organizations must do everything on the cheap.

My point is that it would be a mistake to delve deeply into capitalism without delving as deeply into philanthropy. The two evolved on a parallel track, and philanthropy’s purpose is to offset capitalism’s harder edges.

Former Connecticut College President Clare Gaudiani put it this way in, “The Greater Good — How Philanthropy Drives the American Economy and Can Save Capitalism,”: Philanthropy softens “capitalism’s more destructive features, cutthroat competition and wealth concentration, … the destructive facets of competitiveness.”

We do better when our business sector and our philanthropic sector each perform optimally and in concert.

John M. Horak is the director of TANGO Nonprofit Education and Consulting. His opinions are his own.

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