Non-profit organizations
and their purposes

Non-profit organizations aim to deliver a benefit to a group of people as the Intended Beneficiaries.

Business benefits owners.

Non-profits also intend to benefit someone.

Schools are for students. Hospitals are for patients. Trade unions intend to benefit employees. Nations should benefit their citizens, and so on through the myriads of organizations in our society. Hospitals are not for drug companies, nurses, doctors, and so on.

Sadly, many not for profit organizations do not have this clarity of purpose.

They use ‘stakeholder theory’.

This view holds that non-profits should benefit all of their many stakeholder groups. The figure shows benefits directed to all groups.

Stakeholders of Non-profit organizations

Stakeholder Theory says governors should share benefits among all the stakeholders. The equal sized boxes suggest equality of benefits for each group.

Some theorists say that management should give benefits to meet the needs of all the stakeholders'.

Suppose a business makes 10% more profits, and allocates 10% more dividend to its shareholders. Should the employees also get 10%? Should the suppliers pay an unsolicited price increase of 10% for their goods and services? Not likely!

If all stakeholder groups are not ‘treated equally’ in this way, how should the organization treat them? If the workers are not to receive 10% more, what should they get? Does the Theory tell the management that 10% more for shareholders should be matched by some other figure like 20% to employees - that one employee is worth two shareholders? This Theory does not offer practical help to managers in deciding such matters. There is no rational way to trade-off the interests of one stakeholder group against another. Such a view opens the door to a political tug of war.

Beneficiaries of non-profit organizations

The diagram below shows another view. The role of every management in every organization is to act in such a way towards all groups as to enhance the performance of the organization. This performance is delivery of satisfactory levels of benefit to its Intended Beneficiaries.

Hospital managers may think of ways to support nurses. They could increase their pay. The hospital could arrange more training opportunities. They might make more family friendly rosters. Managers might include them in consultations on hospital policy. If any of these would improve the care the hospital provided to its patients, then they should do those things. If they will not improve the hospital performance in caring for patients, or might even reduce the care, then they should not be doing these things.

The responsibility of non-profit organizations towards stakeholders

It is important how an organization behaves towards those groups that have an interest in the organization. Organizations cannot benefit Intended Beneficiaries without effectively engaging other groups in supporting the organization’s purpose. Well-managed organizations go out of their way to engage their stakeholders. Most organizations would end up in trouble if they did not make efforts to minimize harm to these groups.

Return from Non-profit Organizations to Corporate Objectives.

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