Skip to content

The Power of Sharing: Nonprofit Risk

We’ve all heard about the rise of the sharing economy or collaborative consumption in the context of for-profits. Such high profile examples like e-Bay where anyone can become a retailer or Airbnb where owners of underused assets rent out their home are becoming the norm for how we think and access services.  So far, the sharing economy has been led and defined by the for-profit sector.  But what about nonprofits?  How can the nonprofit sector go beyond collaborating or networking to actually sharing benefits, resources and risk to participate in nonprofit structures that allow founders, entrepreneurs or experienced social change agents to be more creative and focused in how they achieve their mission.

Fiscal Sponsorship at its core is about sharing—tax exemption, back-office services, risk, etc.—but it hasn’t been perceived in this way or necessarily perceived itself in this way.  In this three-part series, we will explore how fiscal sponsorship, particularly at Community Initiatives is thinking about the lessons and practices of the sharing economy in how it operates as a fiscal sponsor.

In this first piece, we will focus on the benefits of sharing within the context of risk.  This might seem odd to start with risk—but if you examine the sharing economy examples, overcoming risk has removed serious impediments to sharing whether it’s through offering affordable insurance and better coverage by spreading the risk, or rating drivers or retailers to discourage and identify individual bad actors.

Today’s nonprofit cannot afford to forego insurance.  This is true regardless of your perspective on the purpose of insurance—protect the assets of the nonprofit and/or provide a remedy to people injured by the nonprofit.  And, there are all types of injuries—those deriving directly from the work of the nonprofit to accidents.  Insurance as part of fiscal sponsorship is very similar to how insurance is used in the sharing economy—spreading risk among all of the projects to enable better and more expansive coverage for less cost.  If you have ever purchased car insurance, you know that a family plan allows for reduced rates on insurance and increased coverage.

However, Community Initiatives goes beyond what the sharing economy provides to protect participants from legal risks.  Community Initiatives incurs liabilities on behalf of most of its projects regardless of insurance coverage.  Community Initiatives has five sets of lawyers on retainer to review and develop legal agreements and protect the intellectual property rights of projects. This added layer of protection is only possible because Community Initiatives can spread the cost of these legal services among projects with common legal needs.  Sometimes, projects also want tailored and unique legal services or opinions—this is usually able to be offered at a reduced cost because we use the same sets of lawyers who become very familiar with the issues and only charge for additional research. Only very large nonprofits can access this level of legal services and protection.

In the for-profit sector, protection against bad actors can be about individual retailers misleading buyers, home owners misleading renters, dangerous drivers, or any number of variations. The sharing economy uses ratings by users of the service to discourage and identify bad actors.  In the nonprofit sector, bad actors can be nonprofits who mislead donors, fail to provide services to beneficiaries as promised, take advantage of IRS tax exemption but do not serve a charitable or educational purpose or any similar variation.  We do not use ratings—as the services our projects offer are often complex, about intangible and hard to measure objectives, and often involve a much longer time horizon than a ride to the airport.  We do provide an avenue for donors who feel a project has misused donations since we manage the finances of the project we have the ability to audit the expenditures in order to see if fraud or an honest mistake was made.  We also work closely with projects reporting on grant objectives to ensure they are fair and accurate. It is our reputation with donors and foundations that drives this work which is important as they often fund multiple projects—so our business depends on a good reputation.

We have a self-interest in ensuring projects don’t misuse the IRS tax exemption or violate laws since we share our tax exemption with projects and incur legal liabilities as a result of our contractual relationship.  Given the high cost of violating these provisions-we invest a lot of time and effort, from retaining lawyers who specialize in the most important issues facing our projects, to developing policies with templates, and a strenuous training program for staff.  Some projects have complained about the new policies and asked for exceptions, but in each case we must review exceptions with outside legal counsel because of the risk of violating laws and guidelines that could result in lengthy audits by the Attorney General, losing our tax exemption, or facing serious lawsuits.  This has been the most challenging aspect of our business from a sharing economy perspective because some individuals want the freedom to do what they think is right rather than what is right for all of the projects.

Clearly, an area we need to work on is helping projects to ensure they are providing services to beneficiaries as promised and achieving their goals.  The use of technology by the sharing economy to be able to measure and identify trends and results is an area we are exploring—unfortunately, it won’t be as simple as adopting ratings.  However, even here, it’s important to be open to thinking about how to use ratings to ensure we are delivering quality services or to think about how we share services.

As a nonprofit project of Community Initiatives, you are part of a movement about the power of sharing and its benefits. The next in this series will explore the economic benefits of being in a sharing community.