28 and locally based such as weekly meetings at a local community center to feed hungry community members, or even large and internationally based such as NPOs from around the world that collaborate to address global issues such as global warming. Thus, these organisations are very important in improving local and global affairs by facilitating the involvement of citizens in raising awareness of community and global issues and in encouraging their participation in the understanding and betterment of these issues and problems (Hannum et al., 2011; Ryan, 1999). As such they have a greater capacity to mobilize entire communities, societies or even countries to further their social missions, than the private and public sectors alone. NPOs have developed a myriad of strategies for attracting volunteers and community members as much of the work that allows them to sustain themselves and survive requires the continuous and committed assistance of such volunteers and community members.
2.6 Differences and similarities between non-profit, government and commercial
29 prescriptions to ensure that their citizens pay (and continue paying) their taxes, fines, rates, etc.
as well as through foreign investments. In addition, which social causes or endeavors are worthy of the state’s attention cannot be decided by a single individual alone, but has to be agreed upon by the relevant state authorities via collective (and sometimes lengthy) deliberation and appropriate legislations (Moore, 2000). NPOs do not require such intense amounts of deliberation or legislative permissions as their government counterparts because the manner in which their finances are distributed is decided by a relatively small group (when compared to the numbers involved in deciding on the allocation of state funds) of people such as the Board of Directors, senior personnel, etc.
NPOs accrue financial resources through donations, gifts and grants from individuals, organisations and foreign donors, thus they have to ensure that they adequately market and publicize the work they do (or hope to do) and vocalize their social mission in such a way so as to attract funds that can contribute to such a social mission. Thus, NPOs must contend with a variety of different stakeholders, as well as a more complex and difficult stakeholder environment (Weerawardena, McDonald, & Mort, 2010) to ensure financial viability and thus accomplishment of its social mission. Some NPOs do sell particular products or services, the income of which is then channeled into accomplishing its social mission. As Ryan (1999, p. 128) states: “…non-profits and their government funders invest in people, and for-profits invest in profits.”
Thus, a distinguishing feature of the non-profit form is its distribution of its income towards improving some social ill or issue, unlike commercial enterprises that strive to earn as much of a profit as possible, which is then distributed to its owners, employees and/or its stakeholders (Dees, 1998). This is further legally entrenched by the non-distribution constraint governing NPOs, according to which, as explained earlier, they are not allowed to distribute net earnings or profits to directors and employees, thereby encouraging the reinvestment of such profits into their social work.
However, this presents an overly simplistic view of the distribution of finances in NPOs. Even though the non-distribution constraint serves as a mechanism that ensures that non-profits do as they claim and use the finances they receive from donors for the welfare of society, non-profit organisational directors and employees are just as prone to the misappropriation of funds as their commercial and government counterparts. Therefore, it is imperative that they are exposed to the
30 same strictness of measuring and evaluation methods as commercial and government enterprises, with the non-profit form requiring an even higher level of monitoring to ensure that the people or issue they claim to be assisting are actually the ones benefiting at the end of the day.
Besides the similarity between non-profit and government organisations as contributing their financial resources primarily to the betterment of society (or some segment of society), rather than to their financial performance; is the fact that both these types of organisations receive money from individuals or entities that are different from the final recipient/s of such financial resources (Moore, 2000; Morris, Coombes, Schindehutte, & Allen, 2007). For example, the non- profit receives money from donors, but this money then benefits some other group of people. In the same vein, citizens pay taxes to the state and these taxes are channeled into other initiatives that may not directly benefit the initial taxpayer.
However, in commercial enterprises the contributor of the funds is the same as the one who receives the benefits of such a contribution, either in the form of a particular service or product, or both. For example, when a person pays for a meal at a restaurant, they are also the ones that will benefit from such a payment through the enjoyment and consumption of the meal itself.
Non-profit donors are thus metaphorically paying for a meal that they will not consume, but they achieve some degree of satisfaction from knowing that others will benefit from such a payment.
For this reason, donors, or the people or agencies that contribute financial or other resources to the NPO to enable it to function and to meet its proclaimed social obligations, are the most vital element or variable in non-profit functioning (Weerawardena et al., 2010). This position is occupied by the clients or customers with regard to commercial enterprises, while the citizens and international assistance can be regarded as the gold-filled pot at the end of the rainbow for government organisations.
The above similarity also serves as a degree of motivation for the application of similar strategies to both non-profit and government organisations (Moore, 2000), especially since non- profits and government organisations tend to provide similar services such as those related to healthcare, education, social upliftment, poverty reduction, community development, etc.
(Hansmann, 1980). However, an added benefit of the non-profit form pertains to the fact that while it may share this similarity with governmental organisations, it is not as restricted by the politics and structures of national government as are government organisations themselves
31 (Palmer & Birch, 2003). The exception to this is NPOs that have a strong political affiliation or ones that possess a politically motivated social mission.
NPOs also differ from commercial enterprises with regards to taxation of the organisation as they are often allowed a reduced tax charge or tax exemption (Hansmann, 1980). To qualify for such an exemption, the NPO must adhere to certain legal prescriptions, which vary from country to country, with South African non-profits being required to be registered with the Department of Social Development and thus included in the national NPO database. According to Hansmann (1980), the non-profit form began to emerge much earlier than the invention of corporate income tax, and for this reason, the earliest NPOs were not formed simply to benefit from these tax exemptions. Tax reductions and exemptions can, and often do, serve as an incentive for adoption of the NPO form, but whether this is the primary motive, will be known only to those who establish the organisation itself. It is unlikely then that they will disclose this reason as their primary motive as it is expected that those who establish NPOs do so for the greater social good and not simply to benefit from these tax exemptions.
It is not only the NPO that benefits from tax exemptions, but the donors as well. The ‘Charitable Deduction’ refers to the fact that those who donate to a NPO can deduct the amount of their donation from their overall income in determining the amount they must eventually pay in taxes, provided that the organisation is recognized by the relevant tax authorities as being legible for such a deduction (Hansmann, 1980). In South Africa, NPOs must be registered with the South African Revenue Services (SARS), in order to be able to issue tax certificates to donors allowing for charitable deductions.
The distinction between for-profit and NPOs can take an interesting turn when we move away from how they differ logistically and financially, to how they differ with regards to their human resources. According to Benz (2005), NPOs tend to attract more women employees, than men, not because of their gender alone, as is often too easily assumed, but rather because NPOs are mostly concentrated in the domain of ‘professional & other services’ (such as that of healthcare, education, research and development, culture, etc.)and such professional services are usually offered to or filled by women. In addition, he concluded that people working for non-profits tend to be more satisfied than those working in for-profit organisations due to the intrinsic benefits they receive from working in a NPO(Benz, 2005), for example, the feeling that they have contributed to the ‘greater good’ or helped somebody or a group of people, in some way.
32 A significant difference between non-profits and commercial and government organisations with regards to human resources pertains to the fact that while commercial and government organisations can attract highly skilled and experienced people into their working environments, NPOs often have to perform their functions with people who may not have the necessary skills or experience, but who want to assist the organisation purely out of a desire to contribute to its social mission. This is effectively encapsulated by Smit(cited in Leuvennink, 2010, p. 32) when he says: “ Both (commercial and NPOs) need staff to do the work; but in the case of commercial business, staff are carefully recruited, paid according to market rates and performance is managed, while in the case of non-profits the work most often gets done by unpaid volunteers.”
In addition, unless employees or volunteers are highly committed to, and passionate about, the social mission of the NPO, they will be prone to offering their services and skills to the non- profit only for a limited amount of time, or until a better offer comes along, or they may not even consider getting involved with a NPO at all. Thus, attracting and keeping skilled and experienced professionals, while being of critical importance, can also be challenging for NPOs.