In recent decades, we have seen the blossoming of a wide diversity of organisations that defy easy dichotomous characterisation. Social enterprises, B-Corps, impact investors, Aboriginal prescribed bodies corporate – all of these don’t so much straddle the divide between for-profit and not-for-profit, as they are living proof that such a divide need not exist at all.

We cleave the infinitely complex whole of human private enterprise into two grand halves: the for-profit, and the not-for-profit.

These are said to be distinct in purpose and culture, and we cement the distinction in law, in our tax code, and in a wide range of practices and expectations.

Most importantly, we assign deep value judgements to these categories. In the common imagination, “not-for-profit” maps to “laudable”, while “for-profit” – let’s face it – can have a slight sour tang, mapping to something between “acquisitive” and “commercial”.

Does this mindset serve us well – if ever it did?

One alarm bell: the literal terms themselves are almost comically inaccurate.

For instance, “not-for-profits” can and do earn profits. These are generally referred to as a “surplus”, which is softer on the ear, but it is a profit by any other name. And not-for-profits can, should and do confer financial benefits in many other ways. Shockingly, charities pay their staff, engage private contractors, pay licensors, take out loans and pay them back with interest, and deliver programs and enterprises that improve the financial position of their intended beneficiaries.

Technically, a “not-for-profit” entity is better thought of as one in which equity investment is not permitted. Doesn’t it seem strange that we attach such importance to this one class of stakeholders in the enterprise – especially as they might receive only 10% of the financial benefit of an enterprise’s activities in any given year?

Conversely, the phrase “for-profit” begs the question: profit for whom? The usual answer, “shareholders”, merely pushes the question down the line. Does the company benefit only today’s shareholders, or future shareholders as well – and if so, how far into the future? What if the shareholders don’t desire profits at any cost… are other purposes permissible? Legally, the answer is a clear “yes”: in Australia, a corporation may define any purpose it likes in its constitution, and the Directors are bound to pursue this purpose. Prioritising shareholder returns is thus a choice to be made at the point of incorporation; it is not a legal obligation as such.

And then there is the delicious paradox that companies which stare too hard at shareholder returns tend to be not very good at generating them. The founders of Microsoft, Apple and Google did not initially set out to earn profits for shareholders; they were driven by curiosity, passion and a desire to develop something new and meaningful for humanity. Well-directed passion can generate profit; the reverse is seldom true.

Google’s purpose, “to organize the world’s information and make it universally accessible and useful”, tends to inspire a workforce and give the business direction a bit more than “earn an above-benchmark return on equity on a 3-year rolling basis”.

To be sure, there are some corporate leaders who seem bent, Qantas-like, on monetising every last scrap of employee and customer goodwill in the service of short-term shareholder returns.

But most CEOs and most shareholders I’ve encountered have a more nuanced and longer-term view: they recognise that their business provides financial and non-financial benefits to many – employees, contractors, lenders, traditional owners, and yes shareholders. And they engage in a constant negotiation among these groups about the best balance in the sharing of risks and rewards of the enterprise. And communities sure let them know it when they get it wrong.

To recap: “not-for-profits” are purpose-driven and can earn profits, just not for equity investors. And successful “for-profits” are also often purpose-driven, with profitability for shareholders and others contemplated as the natural result of dedication and innovation.

I suspect that the ongoing dominance of “for-profit” and “not-for-profit” thinking inhibits us from more creative and integrative thinking about the purpose of human enterprises. It is a kind of lazy shorthand, and in law a triumph of form over substance. I know many businesses that are transforming communities for the better – and conversely, some charities that may not wholly justify the favourable regulatory treatment accorded them.

What would our world look like if every enterprise was simply “for purpose” – and we had rich and ongoing enterprise-specific conversations about what those purposes are, and how they should be supported by our institutions of finance and governance?

Brewarrina Fish Traps, from Lindsay Thompson, History of The Fisheries of New South Wales (1893) Vs today:

Is the “not-for-profit” / “for-profit” divide an idea that is fifty years past its use-by date?

-Chuck Berger
chuck@impactseed.org