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Business-nonprofit alliances: The new social contract

Todd Haskell | July 28, 2020

I'm a firm believer in the power of businesses to do social good. At the same time, decades of studying and doing research in psychology have made me very skeptical of the idea of pure altruism. In general, people's behavior is driven by their own needs and goals. People help others when they believe that doing so benefits them in some way. Those benefits may be indirect and abstract. For example, a person might help someone else because they believe that good deeds "come back around." But there has to be some kind of benefit involved, at least in the eyes of the person doing the good deed. The same point applies to businesses - after all, business decisions are ultimately made by people. Therefore, businesses do good deeds when they perceive an alignment between their own interests and the collective good.

Sometimes, that alignment just isn't there. Society may, intentionally or accidentally, set up incentive structures that reward selfishness. However, I believe that in the big picture and the long run, it generally is in the interest of a business to work for the collective good rather than against it. In my view the main obstacle is less that there isn't alignment, and more that it's easy to lose site of the big picture and the long run, especially when we have the possibility of short-term rewards staring us in the face. One way to avoid this is to ensure that a business has a clear vision of what the link is between "good for us" and "good for everyone." And, perhaps even more importantly, that the business has a person or group of people in the organization who are responsible for continually reminding everyone of the link, to ensure that it is front of mind for every business decision, every day. I will call that group of people the "vision-keepers." The general idea of a vision keeper is certainly not original; here is one reference to it, and here is another, and there are many other references to the general idea by other names. The one twist I'm giving on the idea is to specifically link it to social good.

What I'm going to propose here is that a nonprofit organization can often be an excellent fit for the role of a vision-keeper. In future posts, I'll walk through more of the concrete details of how to pursue this with your own business. In this post, I want to focus on why you would want to do that. I'm going to get pretty theoretical for a minute, but if you bear with me, I think you'll see how it all fits together in the end.

The social contract

The success of the human species is largely due to our ability to collaborate on a large scale. For example, building roads and highways to connect cities requires the collective efforts of hundreds or even thousands and people, all working toward a common goal. People recognize that they receive enormous benefits by being part of a group rather than going it alone, and therefore are motivated to stay part of the group. Being in a group is beneficial because by making a small contribution to the group yourself, you get to take advantage of everything the group is able to accomplish. Using the road example again, you only build a small portion of the road, but when it’s done you get to use all of it. In return for those benefits, you agree to go along with the rules and norms of the group, rather than just doing whatever you like. This general idea is often referred to as the social contract, and versions of it can be traced at least as far back as Confucius.

Although the idea of a social contract may seem straightforward, putting it into practice is not. At first glance, one might think that everyone should contribute the same amount, and everyone should receive the same amount of benefits from the group’s work. However, people are not all the same in either their capacity to contribute or in their needs. For example, a young child can’t contribute to building a road in the same way that an adult heavy equipment operator can. Similarly, someone who has cancer may have much greater needs than someone in good health. Given that, people generally agree that a system that takes equal contributions / equal benefits too literally is unfair. Of course, there is great disagreement about what is fair.

On top of that, people often try to work out a better deal for themselves. People generally understand that it’s beneficial to a society as a whole if people follow a social contract. However, with large groups in particular, the contribution of any individual person often feels negligible. Suppose a group of 1000 people decide to build a road. 999 actually help build, while 1 person does not. The resulting road will be almost as good as if all 1000 helped out. Looking at it purely in terms of a rational cost / benefit analysis, if a person can manage to reduce their own contribution to the group but still receive just as many benefits, why wouldn’t they do that? So you need some way to prevent or at least discourage people from violating the social contract for their own self-interest.

Managing this big complicated mess is often seen as the central job of the government. It's pretty much an impossible task. Even when government works well, there is almost always a gap between the ideal and the way the system operates in practice. In recent times, many people feel that this gap has been growing larger, and have called for reform of our social contract to address what seem to be increasingly large failings. If you're interested, you can check out this opinion piece put out by the Brookings Institution, or this one put out by BSR.

The role of nonprofits

Broadly speaking, social cause nonprofits are created to narrow the gap between what is happening in practice and the ideal (here is an article talking about this gap-filling role, and here is another. To oversimplify things a bit (okay, a lot), in the real world, some people are contributing less and/or benefitting more than is fair. And other people are contributing more and/or benefitting less than is fair. In essence, what many nonprofits try to do is to re-balance things. In some cases they work to change the system itself, through lobbying government officials or pushing political initiatives. In other cases they try to redistribute resources by soliciting them from those who have more, to support delivering services to those who have less. And in yet other cases, they encourage individuals to change their own behavior.

Nonprofits often have a great vision, in the form of the ideal world that they want to work toward. Here are a few examples of these kinds of visions. This one is from Boys and Girls Clubs of America:

Imagine a place where who you are, where you're from or the circumstances that surround you don’t determine your access to experiences or opportunities.

Here's another one, from Habitat for Humanity:

We build strength, stability and self-reliance through shelter.

One final one, from Goodwill Industries:

Local Goodwills are nonprofits that help people overcome challenges to build skills, find jobs and grow their careers.

It probably also goes without saying that the folks who work for nonprofits are motivated more by mission than money. They need money to do the work, but money isn't what gets them out of bed in the morning. They therefore are natural vision-keepers.

The role of businesses

The appropriate role of businesses in all this can feel a bit unclear. On the one hand, in many ways businesses are similar to individuals. They benefit from all our collaborative projects like roads and schools and fire departments, so they also need to contribute their share, typically through taxes. And just like we have mechanisms in place to discourage individuals from violating the social contract, we have regulatory agencies that are supposed to play the same role with businesses.

At the same time, businesses are also groups of individuals collaborating to accomplish goals - a mini-society within the larger society, if you will. In that role, businesses can take steps to address societal challenges that no individual could. For example, when I drive around in my city, I see lots of people driving a Toyota Prius or a Tesla. Those cars were created by for-profit businesses, with the goal of generating profits for the company. They also produce less pollution than a traditional gasoline powered car, thereby contributing to the common good.

It seems much more common for nonprofits to relate to businesses in the first role than in the second, using essentially the same approach as government. They often solicit businesses for resources, which can be viewed as a form of voluntary taxation. Some nonprofits also seek to hold businesses accountable for exploitive practices, much like a regulatory agency. But when it comes to actually solving societal challenges, nonprofits often see themselves as the problem solvers, with the role of businesses limited to writing checks to support that work. They may even see businesses primarily as problem creators.

The new social contract

I believe that overlooking the capacity of businesses to solve problems is a big mistake. Businesses are incredibly good at making stuff happen. Much better than government, and much better than academia, where I spend much of my time. But they are going to do stuff that helps them achieve their own goals. If you want businesses to work toward the collective good, you need to make sure that they don't lose sight of the ways that "good for the business" and "good for us all" are aligned. And you get that by making sure the business has effective vision-keepers.

Government can do some of that, through mechanisms like tax deductions for charitable contributions. But I've grown increasingly skeptical of government's ability to solve big, challenging problems. I believe businesses may be more capable of solving these problems, but they need a force to push them in that direction. Individual consumers can do that to some extent. After all, that's the idea behind corporate social responsibility. Consumers agree to spend money with a business, in exchange for that business committing to doing good. But I think nonprofits can add an important element to the equation. Individual consumers can't work with a business as strategic partners. Individual consumers can't provide an objective assessment of the biggest needs, and recommend the most effective ways to address them. Individual consumers can't serve as a channel through which businesses can demonstrate their commitment to the community. Nonprofits can do all these things.

That's what I see as the new social contract. Not as a replacement for the old one - I still believe in the idea of a contract between people and their government. But as a supplement to it, and a way to resolve the tension between people who are afraid of big government and people who are afraid of big business.

Of course, all I've done in this post is put forward some big ideas. In my next couple of posts, I will share some concrete examples of what a strong business-nonprofit alliance looks like. I certainly don't want to claim that it's some kind of panacea for all the world's ills, or that it would work for every business and every nonprofit. But I do believe that it's an underutilized tool, and I'm hoping to see a lot more of it in the next few years.