For-profit think tanks and implications for funders

23 October 2013

Last week I visited a few think tanks in Hungary and Slovakia. The Think Tank Fund hosted a few think tankers from around the world for a meeting and took Ben Davies from AusAID’s KSI and myself to visit a few of their grantees. The visits and the conversations with the think tanks have given me lots of very interesting ideas and potential blog posts. I should note that these are not the official ideas of any of the organisations that convened in Budapest last week -as usual, my blogs are more work in progress than anything else: food for thought.

To our surprise (everyone’s, including the TTF), many of the think tanks in the region (someone said that ‘most of the think tanks in the region’) are for-profit companies: Ltds, Incs, S.A.s, etc.

They were set up with the idea of a think tank in mind but, for a number of reasons, their founders chose the for-profit model rather than the charity option that we would most commonly associate with think tanks. Some of the reasons given for this option include:

  • Limited information about the options available for setting up new organisations
  • The high up-front cost involved in setting up charities and civil associations
  • The high maintenance costs involved in charities and civic associations
  • Unfriendly (and often aggressive) civil society legislation what makes it impossible for an organisation focused on ‘politics’ to function freely

All of these are very valid reasons. In fact, they make a lot of sense when we think of some of the challenges that non-for-profit think tanks face. For example:

  • Charity legislation demands that think tanks have boards of directors composed of non-staff members. But how many people with the right knowledge and interest in think tanks are there in most developing countries? Is it any wonder that think tanks struggle to get their board members to commit to them and to even find appropriate ones?
  • In some countries, NGOs are prevented from accessing public funding or engaging in any activity that could be deemed to be ‘profit-making’ such as capacity building or consultancy work for private clients (even if it is research consultancy and all is eventually published). This is a series constraint for think tanks under pressure from their ‘traditional’ funders to diversify their income.
  • In many developing countries NGO legislation is used by governments to control civil society. They put conditions on the leadership of the organisations, on what they can and cannot work on, on how they can raise funds, who can fund them, etc. But they are less likely to do this to the non-profit sector. It would be very difficult to place similar conditions on businesses.

Does it matter if think tanks are set up as ‘for-profits’ if they behave, for all practical reasons as the charities we ‘stereotypically’ assume to be? Does it matter if they are transparent, if they keep their profits low and reinvest in ensuring high quality research, if they publish everything they do and invest in communicating with the public and performing a public education function? I know many non-for-profit think tanks that behave as opaque, hard-nose, bottom-line, and profit-maximiser consultants.

There are many good reasons for think tanks to register as for-profit businesses instead of NGOs. However, this decision can have unfortunate consequences:

  • Many funders (foreign and domestic) find it difficult, if not impossible, to fund them. And if they can they are likely to limit this to projects instead of institutional support.
  • The media can be suspicious of them -even if they are in practice more transparent than most NGOs are.
  • Being a for-profit means that they will have to pay corporate taxes and VAT which may very well be more or less of the cost involved in becoming a charity -but in many cases can make them too expensive to run.
  • Their status may also keep them away from other civil society organisations that may choose no to include them in networks and alliances.

What to do about this? I think that funders and think tanks could deal with this in a number of ways. Here are three:

  1. At the national and regional levels (depending on the differences that exist between countries) funders could help to develop user-friendly services to inform and advice new and existing organisations of the different legal options available to them as well as how to go about it taking full advantage of existing regulation. In the UK, for example, the Charity Commission provides advice to new and existing charities on anything from starting a charity, boards, staffing, finances, etc. It is a great resource. This, of course is useful for all non-governmental organisations and therefore an initiative supported by think tank funders not be limited to think tanks alone. Also, such an effort should be carried out in collaboration with local public or private institutions (such as charity commissions or umbrella organisations).
  2. At the national level, too, think tank funders ought to ensure that they are also supporting (or collaborating with others who support) initiatives to improve CSO regulation. It is of no use to put pressure on think tanks to reform if the legal frameworks in which they operate make it impossible to do so. If nothing changes, direct support to think tanks in unfriendly environments may be compared with pouring water into a leaking tank.
  3. More importantly, and difficult, I expect, think tank funders will have to recognise that if an organisation looks like a think tank, talks like a think tank, and walks like a think tank, it may not matter that it is a for-profit, a blog, a network, or even a bunch of friends. Funders will have to reform, including: making provisions to provide long term funding to for-profit think tanks (or other organisational and legal arrangements), developing a set of guidelines or conditions for such funding (e.g. that profits remain capped, salaries at a competitive average, that the think tanks are 100% transparent (even if the law does not require them to be), that they observe certain ‘non-for’profit’ principles, etc.). This, I think, could turn out to be an unavoidable future for think tank funders. They could start by hiring lawyers  or working alongside leading entrepreneurs to help them through the intricacies and nuances that the eventual reform will demand.

Of course, I am not suggesting that all new think tanks should just give up on the idea of being a non-for-profit and set up as a business. While it may be a logical choice in Hungary it would not be so in the UK. Each country will have to be looked at and studied before donors can make up their minds.

But the best way forward would be to try to find out more about the full range of think tanks out there.  Are you a for-profit think tank? An online/informal think tank? A civil association? A foundation? etc. Why not share your experience? Please comment below to tell us why you chose the legal status of your organisation.