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Social Sector Business Ventures: The Critical Factors That Maximize Success

June 1, 2008

This paper seeks to help social sector leaders understand the factors that they should consider when launching revenue-generating business ventures. Given that much of the research on social sector business ventures is based on the personal experiences of individual practitioners, there is a wide array of advice for organizational leaders who are thinking about launching business ventures. Consequently, we approach the subject of social sector business ventures in a systematic and analytic way in order to determine what organizational leaders really need to know about launching successful ventures. We introduce a framework called "business in a box" that separates the process of thinking about launching business ventures from the organizational characteristics and dynamics that influence these ventures. We assert that organizational leaders who wish to maximize the success of their business ventures must explore (1) what is "inside" the box (The Business and its Context) to understand the business fundamentals of launching a venture and (2) what is "outside" the box (Assets and Internal Destructive Forces) to understand the forces and dynamics within the organizational context that impact these ventures.This publication is Hauser Center Working Paper No. 43. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

Countering a Legal Threat to Cultural Exchanges of Works of Art: The Malewicz Case and Proposed Remedies

December 1, 2007

The ability of U.S. museums to borrow for exhibition works of art from museums owned by foreign governments is seriously threatened under a ruling of the Federal District Court for the District of Columbia in the case of Malewicz v. City of Amsterdam that is now on appeal. If upheld, future cultural exchanges may be seriously curtailed; in fact, there is evidence that the case has already had a chilling effect on the willingness of foreign lenders to permit their works of art to travel to the United States. The case in question involves works of art lent by the city of Amsterdam to two U.S. museums that, under the terms of the 1965 Immunity from Seizure Act, were protected from seizure while in the United States. At issue in the case is a separate statute, the Foreign Sovereign Immunity Act, under which foreign governmental entities whose property is at any time in the United States are immune from suit here unless the property involves a violation of international law and commercial activity. The District Court held that the Immunity from Seizure Act only protects works of art from seizure; it does not preclude suits for damages against the owners; and that the loan of art works to U.S. museums is commercial activity as that term is used in the Foreign Sovereign Immunity Act. In order to assure continued cultural exchanges, legislation is needed that will extend the Immunity from Seizure Act to protect a foreign owner from any suit based on the presence of artwork in the United States that has received protection under the Act.This publication is Hauser Center Working Paper No. 42. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

Attorney General Oversight of Charities

October 1, 2007

The attorneys general in each of the states have broad powers to regulate nonprofit, tax exempt charitable organizations. In ten states there us active enforcement of the duties of loyalty care of charitable fiduciaries, while in another twenty-nine, the attorney general oversee charitable fundraising. This paper describes the operations of these state offices, the advantages and shortcomings of state regulation, and recent changes in the laws. It contains suggestions for changes in both state and federal law to improve accountability of the charitable sector. This publication is Hauser Center Working Paper No. 41. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

The Road Less Traveled: Funders' Advice on the Path to Nonprofit Sustainability

July 1, 2007

(With apologies to Robert Frost, The Road Not Taken, 1920.) As part of the Capital Ideas symposium co-hosted by the Hauser Center for Nonprofit Organizations at Harvard University and the Nonprofit Finance Fund in March, 2007, an online survey was conducted about funder practices that support nonprofit sustainability. This article highlights the survey findings and the advice that funders offered from their own experiences as paths to greater nonprofit strength. Rather than a qualitative analysis of funding initiatives, this article presents guidance to the field from the field, as funders grappling with how best to strengthen the long term health of their grantees reflect on their works in progress. This article then goes a step further by annotating these lessons learned with the additional perspective offered from just four of the ten draft funding principles that have evolved from the Capital Ideas symposium with the hope of encouraging more funders to consider these principles and practices in their own work. The Capital Ideas survey generated 48 profiles of funding approaches, practices and strategies that support nonprofit organizational capacity building, long term financial health and or programmatic improvement. The lessons funders learned from those initiatives informed ten funding principles that were introduced at the Capital Ideas symposium on March 15, 2007 at Harvard University. Four of those draft principles, outlined below, offered concepts that resonated throughout the profiles and are offered as key steps for funders to consider as they reflect upon their own giving practices. These principles include: Understand when youre building or buying, and fund accordingly. Actively pool resources when more funds are required to achieve results. Minimize the transaction costs for grantees and funders of applying for and reporting on grants. Fund at the organizational rather than the programmatic level, even when your primary interest is in one program. This publication is Hauser Center Working Paper No. 40. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

What Matters to Whom? Managing Trust Across Multiple Stakeholder Groups

May 1, 2007

Trust has been widely recognized as a key enabler of organizational success. Prior research on organizational trust, however, has not distinguished between the potentially varying bases of trust across different stakeholder groups (e.g., employees, clients, investors, etc.). We develop a framework that distinguishes among organizational stakeholders along two dimensions: intensity (high or low) and locus (internal or external). The framework also helps to identify which of six potential antecedents of trust (benevolence, integrity, competence, reliability, transparency, and identification) will be relevant to which type of stakeholder. We test the predictions of our framework using survey responses from 1,296 respondents across four stakeholder groups from four different organizations. The results reveal that different antecedents of trust are indeed relevant for different stakeholder types, and provide strong support for the validity of the intensity and locus dimensions. This publication is Hauser Center Working Paper No. 39. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

Comparative Advantage in Disaster Response

March 1, 2007

This paper introduces a framework for a systematic analysis of the comparative advantages of various types of emergency responders. Our hypothesis is that one can define and then test comparative advantages across categories of actors and that a policy-making framework can help prepare better disaster responses in the future. We present an analytic framework that categorizes NGOs, governments, militaries and private responders at various levels. This initial theoretical framework provides a structure to begin to analyze comparative advantage. It suggests that there might be better combinations and sequences of responders in given situations. With the basic theory set forth, the framework is tested against data from two cases: 1) the disaster response following the 2004 Tsunami in Sri Lanka and 2) the response in Honduras after Hurricane Mitch in 1998. Ultimately, this work is intended to inspire other researchers interested in questions of disaster response to employ this methodology to develop and publish cases as well, creating a body of analysis that could then be further refined into policy recommendations to improve humanitarian emergency efforts.This publication is Hauser Center Working Paper No. 38. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

The Search for Greater Accountability of Nonprofit Organizations: Recent Legal Developments and Proposals for Change

March 1, 2007

Recent changes in federal and state laws governing non-profit charitable organizations are transforming the rules under which they operate and the methods by which they and their fiduciaries are held accountable to government and the public. These changes include relaxing the rules prohibiting donors from bringing legal suits to enforce the terms of their gift or agreeing to modify restrictions; liberalizing the doctrines of cy pres and deviation under which charitable purposes and methods for administering them may be revised due to changed circumstances; imposing new duties on directors of charitable corporations and redefining the scope of their duties of loyalty and care. The Pension Reform Act of 2006 changed some of the IRC provisions dealing with charities and others are being considered in the Congress. Recommendations to increase federal and state regulation are also being considered together with proposals for expanding the breadth of self-regulation. The paper describes these changes and their proponents. It concludes with observations on their efficacy and the likelihood of their being adopted.This publication is Hauser Center Working Paper No. 33.8. Hauser Working Paper Series Nos. 33.1-33.9 were prepared as background papers for the Nonprofit Governance and Accountability Symposium October 3-4, 2006.

Civil Society Legitimacy and Accountability: Issues and Challenges

January 1, 2007

University education rarely focuses its attention and imagination on teaching students how to turn a vision into reality; how to design, develop, and lead social change organizations. The author co-created the Social Entrepreneurship Collaboratory (SE Lab) at Stanford University and then Harvard University as a model educational program designed to achieve this goal. The SE Lab is a Silicon Valley influenced incubator where student teams create and develop innovative pilot projects for US and international social sector initiatives. The lab combines academic theory, frameworks, and traditional research with intensive field work, action research, peer support and learning, and participation of domain experts and social entrepreneurship practitioners. It also provides students an opportunity to collaborate on teams to develop business plans for their initiatives and to compete for awards and recognition in the marketplace of ideas. Students in the SE Lab have created innovative organizations serving many different social causes, including fighting AIDS in Africa, promoting literacy in Mexico, combating the conditions for terrorism using micro-finance in the Palestinian territories, and confronting gender inequality using social venture capital to empower women in Afghanistan.

An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents

December 1, 2006

Losses due to fraudulent activities are particularly troublesome in the nonprofit sector because they directly reduce resources available to address tax-exempt purposes. The ensuing bad publicity may also reduce contributions and grants in subsequent periods. This paper uses data provided by Certified Fraud Examiners to report on the types of fraud they identified in nonprofit organizations and the characteristics of both the victims and the perpetrators of the fraudulent activities. Based on the analysis of the data, the authors suggest ways that fraud losses can be prevented or mitigated. In particular, governing boards are urged to consider important controls in addition to the annual financial statement audit.This publication is Hauser Center Working Paper No. 35. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

Misreporting Fundraising: How do Nonprofit Organizations Account for Telemarketing Campaigns?

December 1, 2006

The purpose of this study is to examine the frequency, determinants and implications of misreporting fundraising activities. We compare state telemarketing campaign reports with the associated information from nonprofits annual Form 990 filings to directly test nonprofits revenue and expense recognition policies. Our study indicates that smaller nonprofits, and those with less accounting sophistication, are more likely to inappropriately report telemarketing costs as a component of net revenues rather than as expenses. In addition, less monitored firms are more likely to report telemarketing campaign revenues net of expenses. Additionally, among those firms that do report telemarketing costs as expenses, we find that smaller firms, and those with relatively less officer compensation, are more likely to allocate telemarketing expenses to non-fundraising expense categories.This publication is Hauser Center Working Paper No. 37. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers.

Charity Oversight: An Alternative Approach

October 1, 2006

In this paper, a former director of the Internal Revenue Services Exempt Organization Division argues that the IRS is structurally ill suited for the task of providing vigorous oversight of the nations growing number of nonprofit organizations. The author proposes a new, national institution, modeled loosely on the corporate sectors National Association of Securities Dealers that would, among other features, derive sufficient funding for vigorous oversight through contributions from nonprofit organizations. The author envisions an amendment to the Internal Revenue Code that would enable the nonprofit organizations to take a credit against excise taxes, particularly the excise tax on the net investment income of private foundations, they would otherwise pay to the federal government. This publication is Hauser Center Working Paper No. 33.4. Hauser Working Paper Series Nos. 33.1-33.9 were prepared as background papers for the Nonprofit Governance and Accountability Symposium October 3-4, 2006.The author, Marcus S. Owens is with Caplin & Drysdale; Chartered.

A Framework for Analyzing Nonprofit Governance and Accountability Policies and Strategies

October 1, 2006

This paper presents a framework for analyzing the sprawling topic of nonprofit governance and accountability. It distinguishes various accountability-generating mechanisms and actors, including the unit-level governing board; government policies aimed at shaping the behavior of governing boards; and a broader, natural demand for accountability, generated by an organizations many stakeholders. The aims of these accountability mechanisms and actors also vary, and include the prevention of theft and fraud; the efficient use of resources; the choice of socially valuable goals; and the effective performance of an organization in service of those goals.This publication is Hauser Center Working Paper No. 33.3. Hauser Working Paper Series Nos. 33.1-33.9 were prepared as background papers for the Nonprofit Governance and Accountability Symposium October 3-4, 2006.