Where the Money Goes; the $1.6 Trillion Nonprofit Sector Behaves (and Misbehaves) More and More like Big Business

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Byline: Rana Foroohar

If it weren't for the raffia coasters and folk art in her office, it would be tough to tell Barbara Stocking from a big-time CEO. The director of Oxfam's British operation has the power manner, and calendar: one summer week took her to a meeting with EU Trade Minister Peter Mandelson, a fund-raiser with European business leaders and the G8 summit in Scotland. Minions shuffle in and out, briefing her on tsunami relief, Ethiopian elections, a Chilean earthquake. "Right, is that all the disasters?" she asks briskly.

Stocking says it's her mission to "save the world." But she's doing it in a suit rather than sandals--and so are many others. Spurred by a growing number of global conflicts, increased outsourcing of aid work by Western governments and the boom in private philanthropy, nongovernmental organizations like Oxfam have become big businesses. The Comparative Nonprofit Sector Project at Johns Hopkins University recently studied 37 nations and found total operating expenditures in 2002 of $1.6 trillion. The sector is dominated by charity schools and hospitals, which account for 57 percent of the expenditures, and includes everything from soup kitchens to professional associations, as well as the fast-growing budgets of aid-cum-activist NGOs, some of which now spend more than $1 billion a year.

This is an unusual growth story, for NGOs face tensions unique to their mission. If profit is the bottom line for business, what is the bottom line for nonprofits that seek a more businesslike efficiency? Who regulates a sector in which many executives now make serious money, yet still are not exactly in it for the money? The gray-area issues are coming to the fore now, as Republican Sen. Chuck Grassley of Iowa plans to introduce rules for nonprofits that some have compared to Sarbanes-Oxley, the corporate-governance code inspired by the scandals that began with Enron.

Remarkably, nonprofits grew faster than the rest of the U.S. economy even during the late-1990s boom that produced Enron. When the economy fell into a jobless recovery, with total employment falling between 2001 and 2004, employment in the nonprofit sector grew by 2 percent to 4 percent a year. Experts say international growth mirrors the U.S. experience. One reason is the boom in global services--most NGOs are, after all, service providers, delivering things like health care and education, and they are beginning to look more like the corporations they've been known to criticize. "Call it the 'moral economy,' if you like," says Nicholas Stockton, a former executive director of Oxfam. "There's a market for good works, and it's big business."

Salaries are rising as recruits arrive from the corporate world. Marsha J. (Marty) Evans, president and CEO of the American Red Cross, manages a $3 billion budget and makes $450,000 a year. She regularly hires from for-profit businesses (her new finance director is from a big bank) or from one of dozens of new NGO-specific business programs and courses at schools like Harvard and Stanford.

As M.B.A. s come onboard, nonprofits are opening profitable businesses. Oxfam, a loose federation of independent national offices coordinated out of London, recently hired McKinsey to review its private-sector work and has launched its own fair-trade-coffee shop in London's Covent Garden. …