Money & Finance Opinion

1996: Entrepreneurship Reaches a Critical Mass in Public Education (II)

February 15, 2008 6 min read
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This is the fifth in a series addressing the questions implied by Alexander Russo’s statement:

“Social entrepreneurship is everywhere these days…. And of course it’s a big buzzword in certain education circles as well. I still don’t know what it means.”

Today, it’s hard to find an operationally useful definition in academic or popular use; i.e., one that distinguish “social entrepreneurs” from other categories of people in the crowd.

The term entrepreneur dates to the 1700s. “Social entrepreneur” was coined in the 1960’s. It became part of the social science vocabulary in the 1970’s. I would say the phrase was popularized by students and readers of Harvard Business School Professor Rosbeth Moss Kanter. (She was one of the first to bring issues of gender and family into the cannon of academic business literature, and so one of the first to explore the social dimensions of corporate existence.) The phrase has been used to cover everyone from those who run firms with “a social conscience” (Bill Gates – Gates Foundation), nonprofit leaders (Michael Brown – City Year), wealthy individuals (Baron Michael Young of Dartington - Open University), academics with ideas that are being used by nonprofits (Greg Dees - Fuqua). At some point, such breadth takes meaning away from the phrase as a definition. For example, everything these folks did was done long before the term was invented.
If “social” entrepreneurs running for-profits are simply commercial entrepreneurs with a marketing spin, the true vehicle of social entrepreneurship must be the nonprofit. And among those who use and write about the term today, it is most often employed to describe the founders of nonprofits in public education. For this sector (and, as I’ll discuss later, very ironically for those who’ve watched this closely – or lived it directly), 1996 marks the golden age for the social equivalent of the small businessperson, specifically some 3000 “guys or gals” who saw the need for a particular kind of local school and seized the charter opportunity. It is also the time when research projects like Success for All (1997) and the Northwest Evaluation Association (1997) became stand-alone nonprofit fee-for-service providers. The confluence of the charter and standard movements, and the several other factors mentioned in the last posting, opened up a space for a certain kind of nonprofit leader in public education just as it did for commercial entrepreneurs.

What differentiates these nonprofit leaders from the commercial entrepreneur is ownership and control. The budding social entrepreneur cannot have a legally cognizable ownership stake. I’m a lawyer, and I managed the somewhat complicated legal work leading to formation of the Education Entrepreneurs Fund, but let me cite the Non Profit Kit for Dummies:

No one person or group of people can own a nonprofit organization…. Nonprofit assets can be sold, but the proceeds of the sale must benefit the organization, not private parties…. If you start a nonprofit and decide at some point in the future that you don’t want to do it anymore, you have to walk away from it and leave the running of the organization to someone else. Or, if the time has come to close the doors for good, any assets the organization owns must be distributed to other nonprofits fulfilling a similar mission…. When nonprofit managers and consultants talk about “ownership” of a nonprofit organization, they’re using the word metaphorically....

Nor is it permissible for the social entrepreneur to have legal control over a nonprofit. This time a section from The ABC’s of Nonprofits published by the American Bar Association, titled “Do you Really Want a Nonprofit? – Control Issues”

To assure that the organization is operated for this “nonprofit” purpose, controls are necessary.... One common method to assure such control is to have a board of directors made up of a majority of “independent” or “disinterested” directors. This means that Sam cannot be the only director; he will have to select others to serve with him. Of courtse that also means that Sam’s ultimate ability to control the organization will be limited. In fact, it may mean that at some point, Sam will be outvoted, and perhaps even removed from the board.

Some individuals, when they form a nonprofit, do so with a specific vision of what they want to see accomplished, and indeed, without their energy and vision, the nonprofit is unlikely to succeed. However if the founder is unwilling to share control, serious consideration should be given to whether a nonprofit corporation is the correct form of entity.

Consider as well the answer given on nonprofit advisory Board Source’s website to the question : What control does a nonprofit founder have over the organization?

Getting a nonprofit organization up and running is no small feat. Nonprofit founders invest a great deal of time, effort, and often personal funds, to get their organizations established. Rightfully so, they possess a certain pride of ownership and sense of personal accomplishment. Their creativity and commitment deserves real respect…. But they do not “own” the organization the same way founders of a small business have personal equity in their companies…. Nonprofit founders need to recognize that, ultimately, the buck stops with the board…. As a part of the board, a founder can voice opinions during meetings and when voting, like all board members. As the chief executive, he or she manages the operations, reports to the board and, like all nonprofit chief executives, should be evaluated by the board on his or her performance.

Because of their passionate commitment and personal sacrifices, founders exert considerable influence that extends well beyond managing the organization. Many founders have difficulty imagining someone else leading the organization, and it is natural for them to fear losing control as time passes and others get involved. Some founders seek to establish a permanent position for themselves by amending the bylaws. However, “founder” does not fit into an organizational chart and does not have easily defined roles and responsibilities within an organization.

Legal ownership is essential to the entrepreneurial dynamic of commercial settings. There is a huge difference between the brilliant research scientist, the incredible general counsel, the great site manager, the best salesman, and the owners. Without ownership, the individual is simply selling his or her time. She may be “psychologically” invested, he may have taken out his own wallet to meet the entity’s expenses, but ultimately he or she is subject to the strategy and direction of those with legal ownership.

Because founders are prevented by nonprofit law from controlling these entities and/or holding any ownership stake of their assets, they cannot be seen as simply a subset of entreprenreurs. They are something different. However, nonprofits operated in public education long before 1996, and the personality type of founders hasn’t changed that much, Either we call all nonprofit founders social entrepreneurs – in which case the term is again, spin; or we come up with something important to distinguish this new group of nonprofit leaders from their predecessors.

What distinguishes the nonprofits formed circa 1996 from those formed before is potential sources of revenue. Before that time, education nonprofits relied on philanthropy to work in schools. By that time, it became possible - at least to in principle - to operate on a break-even basis with fees charged to public education for services rendered. What the new nonprofit leaders brought to the table was a commitment to demonstrate the social value of their views on public education more by convincing schools and parent to buy their offerings, and less by convincing foundation program officers. With this came an interest in business skills. This in turn drew the new wealth creating new foundations to the idea of venture philanthropy – basically applying the commodification of venture capital to the development of social enterprise, and the valuation of Starbucks for k-12 over k-12s neighborhood coffee shop. If you are an independent charter school you are a “mom and pop.” The “social entrepreneurs” are running the nonprofit outfits with aspiring to national scale.

Next: Zeroing in on the reality of social entrepreneurship?

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