Integrating For- and Non-Profit

Humans have a wonderful tendency to make distinctions where underlying reality has no such boundaries. Some of these distinctions prove useful for a time and become unquestioned givens — new definitions or categories that we believe are reflective of a fixed reality, rather than temporary constructs of human meaning-making. Eventually though, all distinctions outlive their usefulness — and when that happens, evolution’s challenge is to draw new boundaries to collapse and integrate what we previously thought of as fixed opposites. One such distinction I see as no longer useful is the divide between for-profit and non-profit organizations.

We’re used to thinking of for-profit companies as existing to generate profits for shareholders, while non-profits exist to serve some social good. Our governmental and legal structures are all setup within this mindset. There are a few progressive movements today trying to add a third category of “for-benefit” companies, which exist for both purposes, yet that requires a more granular definition of what “social benefit” means — what to include and exclude. And that’s when things get messy, at least if we pay attention. When we follow this definition exercise to its logical conclusion, I think it reveals the limits of the entire distinction.

As I see it, the vast majority of organizations today are already doing the work of the world. Virtually every one of them is already playing a role in unfolding evolution, advancing society, providing something the world needs — that’s already in their nature. Cotton was once limited to the garments of kings, and now it’s providing more sanitary clothing in the poorest African countries — and I doubt the for-profit cotton farmers and loom-makers that contributed to this evolution really had a conscious focus on this level of greater good. They just did the work reality called them to do — and that was of benefit.

So, aside from fringe cases (the Enron’s of the world), how can we possibly make a reasonable distinction around which organizations are “doing social good” and which are “just generating profits”? What organization isn’t doing the work of the world in some way, to some degree? And what organization can afford to ignore profit — that is, an overall economic indicator of whether it’s building more value than it is consuming in the world? But instead of trying to define yet-another artificial category of the “for-benefit” company, perhaps we’d be better served by collapsing them all back into a single entity type that integrates all of these distinctions, and frees each organization to contribute to our shared journey to the best of its capacity.

Holacracy enables this collapse and integration with its shift to a transpersonal model of organization. Whether or not there are investors involved, its organizing system aligns all activities around realizing the organization’s broader evolutionary purpose. This can be legally-encoded in an organization’s bylaws or similar governing documents, which will also shift the board from entirely shareholder representatives to a multi-stakeholder board that stewards the organization towards its purpose. Its structure also honors the need to optimize profits (in balance with other considerations). If investors are involved these profits provide them a needed return, and if no investors are involved then all profits can be reinvested in better pursuing the purpose. The old for-vs.-non-profit distinction now becomes a relatively minor one — instead of a major difference in both the fundamental intent and control of the organization, it’s simply a question of whether the organization has taken on an investment obligation to better pursue its purpose.

With this shift in place, it is no longer relevant to talk about the “owners” of the organization, any more than it is relevant to discuss who owns you or me — we certainly do have economic responsibilities to the individuals and organizations that help fund our journey, but we are not owned by them, laboring simply to bolster their profits. And nor would it make sense for us to be — history has shown that relying on slave labor isn’t as economically advantageous as a free workforce. Holacracy offers this liberation to organizations doing the work of the world. Its self-organizing structures and integrative decision-making effectively frees an organization to govern itself, to find its own unique purpose and follow its higher calling. And, I believe, to generate better economic returns for those who provide needed resources along the way.

Looking at the bigger societal picture, what might it look like to legally integrate this distinction between “for-profits” and “non-profits”, while capturing the wisdom of each? I think it looks like requiring corporations and other entities with limited liability protection (“personhood” status) to use a purpose-driven legal power structure, like Holacracy, in lieu of the current control paradigm as a condition of receiving personhood treatment. And what then would happen to the many societal systems designed to rebalance the externalities and injustices created by organizations pursuing profits at the expense of other important considerations? Environmental laws, labor laws, unions — all have their roots in compensating for the limits of the current paradigm, and a good percentage of lawsuits today are specifically to counteract for its unwanted side-effects. Once we legally orient around organizations as purpose-driven entities doing the work of the world, what old systems are no longer necessary… and what new ones might emerge? I’d sure like to find out…