Nonprofit Human Services on the Market: Inherent Contradictions and the Impact of Commercial Revenue on the Ethnic Composition of Clients and Boards

Background and Purpose: Over the past three decades, increased government contracting, heightened competition with for-profit service providers, and greater emphasis on business activities and entrepreneurship has prompted scholars to consider the implications of commercial revenue streams for human service organizations (HSOs). Studies have shown that the inherent contradictions posed by commercial revenue indeed threaten the integrity of nonprofit missions and the efficacy of service provision to low-income populations. This paper explores the nature of commercial income among nonprofit HSOs in Los Angeles County, examining the impact of commercialization on the ethnic composition of HSO clients and board members. The central research question being asked is, In what ways and to what extent is commercialization threatening two of the pillars of the local nonprofit human service sector: aid to those in need and representative leadership?

Methods: The analyses examine survey data from a representative sample of 501(c)(3) nonprofit HSOs in LA County. The sampling frame was constructed from state and IRS nonprofit registries along with three referral directories. Out of a final sampling frame of 6,850 organizations, a random sample was stratified by organizational revenues and location. Conducted by the UCLA Center for Civil Society, the survey relied on hour-long telephone interviews with the respective Executive Directors. A total of 707 interviews were completed for an overall response rate of 53%. The key outcome variables in the analyses included percentage of clients who are minorities and percentage of board members who are minorities. Predictor variables included proportion of commercial, government and donative income. Control variables included organizational size and age. Ordinary least squares regression models were employed to analyze the relationships among variables.

Results: The analyses showed that commercial revenue has a negative association with both the percentage of minority clients (p <.05) and the percentage of minority board members in an organization (p <.05). The former result seems to suggest that as organizations rely more heavily on commercial income, they may be increasingly seeking out a clientele with means to pay for services (i.e., not the low-income, and often minority, client populations that have the most needs). The latter result may mean that organizations that adopt more for-profit tendencies are failing to involve diverse leadership in the ranks of their boards.

Conclusions and Implications: Commercial trends in the nonprofit human service sector inevitably impact social workers and their client populations. Over 40% of social workers work for private nonprofit organizations and so factors that impact the sector also affect the social work community. Even for those in the field of social work who do not work directly for a nonprofit agency, inevitably their clients, communities or policy targets do rely on nonprofit service providers. From a macro level vantage point, it is vital for the social work community to understand the implications of increased commercial activity among nonprofit HSOs not only for the vulnerable populations who rely on nonprofit services, but also for the organizations that serve those populations.