Business Skills in the Social Sector

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• NESsT Promotes Business Ethics in the Field of Social Enterprise
• Conference on Social Enterprise

NESsT Promotes Business Ethics in the Field of Social Enterprise

Whether viewed from the perspective of a for-profit venture or nonprofit social enterprise, today's business landscape requires that enterprises address stakeholder demands for greater transparency, accountability and responsibility. In the wake of recent corporate scandals, the private sector is grappling with regulatory reform, adopting more responsive forms of corporate governance, and re-examining the ethical basis of corporate values, policies, and practices. As reported in the Summer 2005 issue of Business Ethics magazine, companies are turning to a rapidly expanding number of consulting firms, advisory services, publications, tools, and other resources in the field of business ethics. In business schools nationwide, business ethics is surfacing as an area of significant emphasis in classrooms and research centers. Here at Fuqua, two centers are addressing the research and education needs of ethical corporations and leaders: the Fuqua / Coach K Center for Leadership & Ethics and the Duke Global Capital Markets Center.

The nonprofit sector has also come under increased public scrutiny as the IRS and Congressional committees have investigated ethical lapses in governance, fundraising, and other practices. Drawing upon recommendations made in recent hearings, Independent Sector has developed a “Checklist for Accountability” which lists actions every charitable organization can take to strengthen transparency and accountability. An earlier code of ethics and accountability pioneered by the Maryland Association of Nonprofit Organizations is being replicated by partners in seven other states, including North Carolina. Based on the core values of honesty, integrity, fairness, respect, trust, compassion, and responsibility, the Maryland Standards for Excellence serve as a model of how well managed and responsibly governed nonprofits should operate.

Despite these advances, there have been few attempts to address ethical challenges faced along the blurring boundary between the private and social sectors as nonprofit organizations increasingly turn to social enterprise to generate income and produce social and environmental value. Anticipating the need to maintain the trust of social sector stakeholders, the Nonprofit Enterprise and Self-sustainability Team (NESsT) has drawn upon best practices in both sectors to develop the first "code of ethics" designed to help social enterprise leaders recognize and better prepare for the unique ethical challenges of entrepreneurship in the nonprofit sector.

Principles and Standards for Social Enterprise

Through its Social Enterprise Ethics Initiative, NESsT aims to promote greater accountability and transparency in the social enterprise field. NESsT has published “Commitment to Integrity: Guiding Principles for Nonprofits in the Marketplace” (.pdf document) to help ensure that standards of professionalism are reflected at every stage of social enterprise business planning and development.

As NESsT points out in its declaration, entering the marketplace via social enterprise means entering unknown territory for many social sector organizations. “By entering the ‘for-profit world’ we not only have a responsibility to carefully manage the risk placed on our valuable financial assets. We also have a responsibility to preserve and protect another asset -- perhaps even more valuable – our reputations. Understanding the ethical dimensions of our involvement in commercial activities is therefore especially important. As values-driven and mission-oriented organizations, we must be very careful to manage our commercial activities as transparently and fairly as possible, always placing our nonprofit mission and values first. We must maintain the trust placed in us by our constituents and the public at large. Not only for our own individual organizations, but for the civil sector as a whole, maintaining this trust is paramount and should govern all decisions and actions we make in the marketplace.”

The NESsT Commitment to Integrity identifies principles and standards in the areas of mission and values, transparency, fairness, and accountability. For example, under the “Commitment to Mission and Values,” the declaration states that social sector organizations:

• must place their mission above all other considerations
• should be socially and environmentally responsible in their enterprise activities
• should manage their enterprise activities to simultaneously balance their “social bottom line” with their “financial bottom line”
• should not divert organizational resources (whether financial or non-financial) away from their mission-related activities in order to develop or operate their enterprise activities
• should never exploit their constituents to generate revenues for the organization
• should ensure the highest quality standards in their enterprise activities, recognizing that high quality in enterprise activities can also reflect well on the mission-related activities of the organization

NESsT Encourages Wide Distribution of “Commitment to Integrity”

NESsT developed “Commitment to Integrity” in collaboration with colleagues in Europe, Latin America and the United States. This code of ethics is an evolving document intended to be discussed and revised for use by social enterprise practitioners and donors. NESsT distributes the document free of charge -– they ask only that users quote and cite NESsT accordingly. Versions are available in French, Hungarian, Portuguese, Russian, Slovak, Slovene, Spanish, and Urdu, with other translations forthcoming. NESsT welcomes all comments and suggestions.

About NESsT

The Nonprofit Enterprise and Self-Sustainability Team (NESsT) was estabished in 1997 to help civil society organizations worldwide develop alternative financing mechanisms. The organization has helped more than 500 social change organizations apply entrepreneurial approaches to create a sustained base of financial support. NESsT pursues its mission through traditional approaches such as training and peer learning, and innovations such as a nonprofit venture capital fund and a global, on-line shopping portal designed to enable social enterprises to reach a wider consumer market for selling their products and services. In 2004, NESsT was recognized as a recipient of the Skoll Awards for Social Entrepreneurship. Through its flagship award program, the Skoll Foundation supports social entrepreneurs who are using innovative approaches to address pressing social issues.

Fuqua Alumni and Nonprofits Benefit from Conference on Social Enterprise

Nonprofit managers, philanthropic leaders, and Fuqua alumni from across the Carolinas attended the conference

Fuqua’s Center for the Advancement of Social Entrepreneurship (CASE) and Duke Law School’s Community Enterprise Clinic (CEC) teamed up June 1 to help nonprofit organizations understand how they can use business strategies to help support their charitable endeavors, co-sponsoring a one-day conference on the theme, “Developing Earned Income Strategies to Enhance Social and Community Impact.” The conference attracted more than one hundred nonprofit managers, philanthropic leaders, and institutional money-managers from across the Carolinas, interest largely generated by the fact that more and more nonprofits are trying to find new ways to finance their operations.

“The reality is that a lot of government and foundation funding is being cut back,” said Andrew Foster, Director of CEC, which provides pro-bono legal services to nonprofit organizations and low-wealth entrepreneurs. “Many nonprofits have to decide on appropriate business plans for sustaining their charitable work, and these choices involve significant legal issues as well as business questions. The conference was intended to begin a conversation about how social enterprise can be used effectively as a tool, both to support organizational sustainability, but also for social change.”

Because business development is so hard—the number of business failures far outweighs successes—alignment between an organization’s charitable mission and any business is key, remarked CASE Faculty Director Gregory Dees in his keynote address.

“The businesses that are going to have a greater chance of success are those that build on your strengths, your assets, your resources, and your capabilities,” noted Dees. “In the end, a social enterprise makes sense only if it helps you make greater mission impact. At least for a time, it’s going to detract and pull some resources away from other things you could be doing. It’s got to help you serve your mission, either by generating money that can be used for mission purposes, or by serving the mission directly.”

As an example of the latter situation, Dees pointed to TROSA, a Durham-based residential substance abuse treatment program that runs a number of businesses staffed and managed by its residents. The businesses provide an income stream for the nonprofit while directly serving its rehabilitation mission by providing residents with job training and work experience. A profile of TROSA appeared in the spring 2005 issue of CASEconnection.

Dees highlighted the importance of a business plan for any social enterprise, but pointed out that few ventures unfold exactly as anticipated.

“You have to adapt as you go, and perseverance is crucial. Think of it as a process of discovery. Set milestones to test this concept. ‘We’ll test it with a certain amount of investment, but we won’t make the huge investment until we see that the concept works.’ In most cases you can move into the venture in a way that manages risks and test the assumptions that you’re making.”

Panelists Mary Mountcastle, President, Self-Help Center for Responsible Lending, and Kevin R. McDonald, President and Founder of Triangle Residential Options for Substance Abusers (TROSA)

A series of break-out sessions focused on such issues as preparing to launch a social enterprise, marketing strategies, leading cultural change, aligning financial and mission performance, and the legal implications of a nonprofit’s involvement in a business venture. Participants also got to hear from a panel of nonprofit managers about their experiences with entrepreneurial endeavors.

Among the Fuqua alumni in attendance was Jessica Thomas, MBA 2004, a program manager at CFED, a nonprofit, nonpartisan organization that works to expand economic opportunity. Jessica co-led a breakout session entitled, “Are You Ready for Earned Income?”

“The conference was an excellent opportunity for me to share my organization’s exploration of social enterprises and to learn from other participants’ experiences,” Jessica noted. “It was also a welcome occasion to reconnect with other Fuqua alums in the field. The conference was just the beginning of what I hope will be a long, fruitful conversation around Social Enterprise with local practitioners.”

Also in attendance was Peter Curtice, MBA 1997, a global account manager for SAS Institute. Peter volunteers as a board member and chair of the Special Olympics North Carolina (SONC) development committee.

“My volunteer role is to help steer SONC towards fundraising activities and programs that offer excellent return on investment while also allowing the organization to stay true to its mission,” explained Curtice.

“During the conference, I participated in an exercise meant to help us better understand the potential untapped assets of our organization. This exercise led me to identify a huge development opportunity for which the infrastructure and much of the investment is already in place. Best of all, this new development project is perfectly aligned with the SONC mission. I really appreciate that Fuqua and CASE are providing an outstanding environment to help organizations and individuals run their non-profits as effective businesses.”

Reflecting upon the success of the conference, CASE Managing Director Beth Anderson observed, “Social enterprise is a hot topic in the nonprofit sector, and we are fortunate to have growing initiatives related to this area at both the business and law schools at Duke. With limited marketing efforts, demand for this conference exceeded our expectations. CASE hopes to continue to find opportunities to draw on the strengths of the University and promote the thoughtful application of business expertise in organizations addressing social issues.”

The conference was co-sponsored by the North Carolina Center for Non-Profits. Financial support was provided by the North Carolina Community Development Initiative, Mary Reynolds Babcock Foundation, Wachovia Bank, and Z. Smith Reynolds Foundation. The North Carolina State University Institute for Nonprofits and the Duke Certificate Program in Non-Profit Management provided additional support.

Presentation materials from conference are available at www.ncsocialenterprise.org.

For Further Reading:

• “Putting Nonprofit Business Ventures in Perspective,” by J. Gregory Dees, Chapter One in Generating and Sustaining Nonprofit Earned Income: A Guide to Successful Enterprise Strategies, Edited by Oster, Massarsky, and Beinhacker, Wiley 2004.
• “Developing Viable Earned Income Strategies,” by Beth Battle Anderson, J. Gregory Dees, and Jed Emerson, Chapter Nine in Strategic Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit, Edited by Dees, Emerson, and Economy, Wiley 2002.
• Managing the Double Bottom Line: A Business Planning Reference Guide for Social Enterprises, by Sutia Kim Alter, Pact Publications, Washington DC, 2000.
• Venture Forth! The Essential Guide to Starting a Moneymaking Business in Your Nonprofit Organization, by Rolfe Larson, Wilder Publishing Center, 2002.

Resources - Organizations and Initiatives:

• Social Enterprise Alliance: A membership organization for nonprofits and funders seeking to advance earned income strategies. Offers extensive resources, activities, and events.
• Community Wealth Ventures: A consulting firm that helps nonprofits generate revenues through business ventures and corporate partnerships.
• The Institute for Social Entrepreneurs: Offers seminars, workshops and consulting services for nonprofits seeking to develop earned income business ventures.