Running head: A HISTORICAL OVERVIEW OF NONPROFITS AND WHAT THEY ARE 1

A Historical Overview of Nonprofits and What They Are

M. Thilo Williams

Goldey Beacom College

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Abstract

This paper overviews the nonprofit sector. Specifically, it provides a historical overview

of nonprofit sector since Benjamin Franklin, then forward to the early 1900s, to onset of WWII,

to the Civil Rights Movement, and to the inception of the internet. It also attempts to provide a

clear understanding of what a nonprofit is in light of the ambiguity surrounding the term. Finally,

with documented support, it highlights consistent practices exhibited by nonprofits that have had

the highest impact in U.S. history.

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A Historical Overview of Nonprofits and What They Are

Benjamin Franklin has been considered by some to be the catalyst of organizational

philanthropy, especially its relation to charitable giving across horizontal latitudes, and

particularly since it was customary of the time for charity to be top-down endeavor (Gifford,

2015). Before helping to draft the constitution, Franklin organized the first scholarly voluntary

association, which subsequently led to the formation of the first lending library (aka the

Philadelphia Library) and later the Pennsylvania Academy (aka the University of Pennsylvania)

(Gifford, 2015; Johnston, n.d.). He also organized the first fire department, and through a public-

private partnership, he also organized the Philadelphia Hospital (Gifford, 2015; Johnston, n.d.).

The uniqueness in these endeavors: they were independent of church and state, and were for the

social benefit of the community (Johnston, n.d.).

In 1889, Andrew Carnegie came out with, Gospel of Wealth to encourage civic

responsibility and giving back (Muslic, 2017). However, Carnegie’s efforts may have been

overshadowed by Charles S. Ward and Frank L. Pierce, two distinguished leaders at the YMCA

in the early 1990s who developed “YMCA School” - a structured, well-orchestrated, never-

before-seen, national fundraising campaign (Muslic, 2017). With the onset of WWII, national

volunteering and fundraising progressed such that service organizations partnered together; for

example, the Salvation Army, The American Red Cross and YMCA partnering to form the

United Service Organization for National Defense (USO) (Muslic, 2017). During the Civil

Rights Movement, the government became more involved, like passing the Tax Reform Act of

1969, which created Section 501(c)3 in the Internal Revenue Service (IRS) Code to allow

charitable organizations to offer tax exemptions to donors (Muslic, 2017). Organizations filing
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for 501(c)3 status skyrocketed, but access to the internet around the turn of the millennium had

an unprecedented impact on charitable contributions to nonprofits (Muslic, 2017).

The term “nonprofit” was created by the IRS over 100 years ago and has remained

unique to the U.S. since ((ThirdSectorCompany, 2017). However, getting consensus of what

exactly the term means only promulgates ambiguity. For example, most think of nonprofit as an

industry when in fact it is a sector consisting of many industries (ThirdSectorCompany, 2017).

Also, the term itself, i.e. nonprofit, is often used when in fact the term is meant to imply a tax

exempt entity (National Council of Nonprofits, n.d.). The difficulty in coming up with a

consensus understanding of what a nonprofit is evident in that Congress has created 29 variations

of nonprofits (National Council of Nonprofits, n.d.; ThirdSectorCompany, 2017).

Nonetheless, a consensus interpretation of “nonprofit’ may be inferred from the

successful arguments heard by the IRS, whose rulings have favored those organizations whose

activities provide a public good, and not for financial gain, but rather for social benefit

(ThirdSectorCompany, 2017). This interpretation of a nonprofit is akin to the definition

provided by the Legal Information Institute, which suggests that nonprofit organizations are

groups whose actions do not make a financial return, and net earnings from operational activities

cannot be disbursed to stakeholders affiliated with the nonprofit (Legal Information Institute,

n.d.). However, with well over a million charitable nonprofits throughout the U.S. (National

Council of Nonprofits, n.d.), a refinement of this interpretation needed, especially to distinguish

nonprofits that have had highly impacted the social good.

After several years of studying the leadership, governance, strategies, programs,

fundraising and marketing of the most successful nonprofits, Grant and Crutchfield (2007)

concluded that nonprofits having the greatest impact achieved success not by focusing on the
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internals (e.g. ratio analysis, cost efficiencies, etc.), but rather by working outside the boundaries

of their organizations. Another words, efforts to get the organizations to operate more efficiently

were adequate, but significant, positive change came from leveraging opportunities and those

resources held outside the organization. For example, in order to do so, the authors noted six

repetitive activities their sample of high-impact, successful nonprofits exhibited: 1) Serve and

Advocate, where organizations provide great service/programs, but inevitably push governmental

policies to propel their great programs; 2) Make Markets Work, where nonprofits leverage

opportunities by partnering with for-profit organizations; 3) Inspire Evangelists, where

nonprofits leverage relationships with supporters to build a presence in the community; 4)

Nurture Nonprofit Networks, where nonprofits collaborate with other nonprofits for mutual self-

interests; 5) Master the Art of Adaptation, where nonprofits accommodate resources and goals

given changing or challenging circumstances (note: the authors also include the four steps in the

Cycle of Adaptation: i) listen to feedback; ii) innovate and experiment; iii) develop new idea or

improve on existing ones; and iv) evaluate and learn); and finally, 6) Share Leadership, where

leadership is about being charismatic versus egotistical, but also kind versus weak.

Interestingly, Grant and Crutchfield (2007) also found that successful nonprofits were not

mired in developing the conventional competencies inundating modern literature on nonprofits,

for example, spending countless meetings on pontificating on the ideal management structure,

the brand image, a mission statement or the budget. Much like the Benjamin Franklin, these

organizations focused simply on fulfilling one thing: to “advance civic public purposes and at the

same time support the self-help efforts of the individual.” (Johnston, n.d., para. 15). It would

seem then that today’s nonprofits need only look to the efforts of Benjamin Franklin for a

virtuous model to follow.

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References

Grant, H. & Crutchfield, L. (2007). Creating High-Impact Nonprofits. Retrieved from

https://ssir.org/articles/entry/creating_high_impact_nonprofits#

Gifford, D. (2015). Was Benjamin Franklin the father of American philanthropy? Retrieved from

https://americanhistory.si.edu/blog/benjamin-franklin-philanthropy

Johnston, K. (n.d.). Franklin, Benjamin. Retrieved from

https://www.learningtogive.org/resources/franklin-benjamin

Legal Information Institute. (n.d.). Non-profit Organizations: Overview. Retrieved from

https://www.law.cornell.edu/wex/non-profit_organizations

Muslic, H. (2017). A brief history of nonprofit organizations (and what we can learn). Retrieved

from https://nonprofithub.org/starting-a-nonprofit/a-brief-history-of-nonprofit-

organizations/

National Council of Nonprofits. (n.d.). Retrieved from

https://www.councilofnonprofits.org/what-is-a-nonprofit

ThirdSectorCompany, (2017). What makes a nonprofit a nonprofit? Retrieved from

https://thirdsectorcompany.com/makes-nonprofit-nonprofit/