More and more nonprofits are setting up for-profit ventures, raising ethical questions about missions and money, Business Week reported June 26.
The College Board plans to set up a web site that will compete with Kaplan, Inc. and the Princeton Review to tutor students for the SAT. The American Cancer Society earns millions every year from licensing its name to appear on products like Nicoderm. The National Geographic Society has National Geographic Ventures, which has gone into television and film production, a mapping service, and has opened a store at Reagan National Airport in Washington, D.C.
Critics say forays into the private sector can distract a group from its mission, alienate donors, or take it into areas where it has an unfair advantage over its for-profit competitors.
The question of profits also looms large. Legally, nonprofits can pursue almost any kind of money-making project as long as they pay what is known as an unrelated business income tax on commercial activities that are not related to their central mission.
Society forgives taxes on nonprofits so that they can do good, however, not so they can make money. Critics, and taxpayers, are increasingly asking why a nonprofit should be allowed to use a name built with tax dollars to enrich shareholders.
Most nonprofits establish subsidiaries when they go into for-profit business. The line between non-profit and for-profit activities can be a fine one, however. In the case of the College Board, critics attack the board’s plan to move registration, book-selling and tutoring over to the for-profit subsidiary.
“If they can shift services to the for-profit that easily, why were they ever tax-free in the first place?” Andy Rosen, chief operating officer of Kaplan, Inc., asked Business Week.
Culture clash is also a problem for nonprofits dabbling in the business world. National Geographic’s move into business, for example, has caused tension among its nonprofit staff. They fear that priorities are shifting towards profit, and that the pursuit of stories that sell well may compromise the group’s scientific mission.
For-profit ventures can provide a safety net for nonprofits that is not tied to the vagaries of traditional fundraising. Nonprofits should take care, however, not to let profit-seeking besmirch their good names.