James Undercofler

Why, why are arts organizations being advised to research models other than the 501(c)(3)? It’s vitally important to analyze the reasons behind this “movement” in the arts and culture sector.

The changing nature of philanthropy surely plays a central role. Reduced contributed revenue from government, foundations, and corporate entities has placed increased pressure on individual giving AND earned revenue. These latter two elements tend to work in opposition to each other, in that increased pressure on individual giving generally leads to more, less-informed board members who require attention, while the need to increased earned revenue requires a fleet-footed executive team. 

Increasingly the board becomes an obstacle, not an enhancement (I should add from my experience teaching arts administration that until recently budding arts executives have not received much, if any education in traditional business practices; but are highly skilled in nonprofit management, including managing boards of directors).

Additionally, individual giving has become highly transactional. Donors see themselves as investors. They demand predetermined, program-specific outcomes for their investments.

Again, this places double pressure on management: no relief from general operating expense pressure, but adding administrative cost at the program level (The L3C, in its hybrid construction, confirms the philanthropist-cum-investor in its capital formation).

So evolves a conundrum, a puzzle – so we look for new organizational models that will solve our problems.

Unfortunately, organizational models cannot fully solve these problems.

In the end, the bottom line: net revenue, whether earned or contributed, and the need and size of capital expense will play the more significant roles in determining the most effective organizational model.