The Best Solution for the Arts You've Never Heard Of
The Insurgent Power of Management Commons
To Summarize
The vast majority of arts and culture nonprofits are the unnecessary institutionalization of creative vision. This yields myriad problems for artists and cultural initiatives, from the challenges of setting up nonprofits, to competition over and barriers to accessing financial resources. Fortunately, there is a solution in commonized nonprofit infrastructure. Unfortunately, the arts community and philanthropy remain largely ignorant of or resistant to this solution. But that is changing. I’m hoping that the extreme pressures that confront the nonprofit community today will finally provide the pressure to push us over a tipping point to new solutions that have been resisted for far too long.
Setting aside institutions that aggregate multiple visions, such as large exhibiting and presenting organizations, the institution-as-individual-creative-vision drive of artistic endeavor imposes practical limits on the operating scale of arts nonprofits: they are only so large as the creative individual(s) behind them mean them to be. As a result, most arts organizations are intentionally or necessarily small in operating scale. This drive to institutionalization is motivated by a false orthodoxy in our sector that creating your own nonprofit is the only way to access charitable funds and other income to pay artists for their work. The resulting formation of thousands of tiny arts organizations and fragmentation of the field creates and amplifies challenges to equitable and inclusive access to resources:
Artists remain with unreliable and fragmented income streams, most earning at low-income or poverty levels, without employee benefits or savings.
The false equivalence of artistic identity and nonprofit institutionalization, leads to the proliferation of unnecessary, unwieldy, and unsustainable infrastructure.
In response to the above and cultural values placed on private ownership and entrepreneurship, artists reach for complex hybrid formations that often exacerbate the above issues.
This state of affairs does however have a remedy hidden in plain sight: management commons, or shared nonprofit infrastructure for the arts. Management commons is the 21st-century reimagining of comprehensive (Model “A”) fiscal sponsorship as a permanent operating solution for artistic practices, collectives, and companies of all sizes and shapes. Sharing back-end management, from corporate formation and tax status, to core finance, HR, legal, and compliance infrastructure lowers costs and barriers to accessing infrastructure, fosters solidarity and community, and leaves artists to do what they do best: create.
Let’s take a deeper dive into management commons and examine why the field remains so resistant to such a potentially transformative solution. In bearing witness to the myths and misconceptions that drive that resistance, perhaps we can move beyond them into a new era of cultural infrastructure building, one conducive to greater flourishing and diversity of expression.
Nonprofit Sector as Commons
The nonprofit sector is designed to steward public trust assets for the purpose of addressing civil society needs that are not met by either government (owing to lack of political unity of will) or the private sector (owing to the anti-prosocial nature of private interest). As a result the nonprofit sector is sometimes called the third sector. As I have written elsewhere, this public trust duty positions the resources of our sector very close to those of a commons. A commons is a specific resource, natural or manmade, shared by a defined but open group of people who steward and benefit from the resource. Resources can range from natural lands to knowledge, and yes, even nonprofit management and administrative infrastructure. Commons stewards establish rules of governance and management to sustain these resources, engaging in the work of commoning.
We could say that the nonprofit sector is really the commons sector, if we can cure it of its many infections and distortions from the private sector. Despite the public benefit promise of the commons sector, we have designed and developed it in the image of (and to a great degree to serve the interests of) the private sector. From legal formation to management theory, nonprofit practices are largely and morbidly based on the model of private asset management. And to add insult to that injury, we prohibit or constrain nonprofits from directly engaging in the income and wealth-building tools of the private sector (i.e., equity building, earning income through certain activities, etc.).
Our contemporary, neoliberal culture is dominated by the valorization of private ownership as the ultimate goal of all things and measure of success. A necessary attribute of the private sector is the need to corporately “enclose” assets in order to protect and substantiate ownership. This private sector corporate model, as applied to the nonprofit sector, leads to the false axiom that every independent nonprofit vision and mission requires its own legal formation, tax status, board, operating systems, staff, and so on.
Since assets of the nonprofit sector (money, real estate, intellectual property, etc.) are all designated for public benefit, the closest “owner” of these assets is the people/public. This is why nonprofit boards ultimately serve as a proxy and answer to the states’ Attorney General (AG), who is charged with representing the interests of the public. I will note that stand-alone corporate formation does address a practical need for distributed local fiduciary oversight of nonprofit assets. Each AG office could never keep an eye on thousands of nonprofits, so we have nonprofit boards that help the AG ensure that charitable resources are being spent wisely for public benefit. But even this practical need for local oversight can be accomplished without the need for such rampant stand-alone formation.
If we accept that the assets of one nonprofit have the same “owner” as another nonprofit, namely the public, then why do we need so many separate nonprofits to enclose these assets? The answer is, we don’t. In fact, I would assert that the radical fragmentation of our sector is fundamentally incoherent with the very legal, philosophical, and functional nature of our sector.
From Fragmented, Fragile, and Fleeting
The private sector infrastructure model–the necessity for independent corporate structure and asset enclosure–has resulted in a nonprofit sector that is radically fragmented into 1.9 million nonprofit corporations (and counting, every day). The orthodoxy pushed by the legal, accounting, nonprofit management consultants, and philanthropy is that every nonprofit entrepreneur needs their own corporation, tax exemption, staff team, bank account, and everything else. According to CauseIQ, arts and culture organizations number 130,000 or about 15% of the total nonprofit sector, employing over 600,000 people and stewarding $199 billion in assets.
The arts fall particularly victim to this misguided mandate of independent formation when we consider the nature of arts and culture as an entirely individualistic and marvelously idiosyncratic field. Despite commonalities in artistic disciplines (dance, music, visual arts, etc.) and other shared identities, most arts organizations, in particular among the 73% of the field that operate below $1 million annually, do not in fact share “common missions”. They are the institutionalization of profoundly individual (and sometimes collective) artistic vision, compelled to reach for nonprofit formation only in order to receive charitable subsidies for their work, as neither the government nor marketplace provides adequate support. As a result, most arts organizations are very small and are highly dependent on individual and institutional philanthropy. They are also fragile and subject to the vagaries of donors, patrons, and meager government support.
Compelling artists to create nonprofits sets them on an unnecessary and often damaging path toward institution building, and owing to the unique contours of artistic practice, most if not all arts organizations are not designed for unfettered scale. Once you have a nonprofit, it needs care and feeding and administrative support: bookkeeping, compliance, payroll management, insurances, and other kinds of support. With most arts organizations operating below $500,000 it’s nearly impossible to build high-quality, functionally integrated, sustained back office support–it’s a problem of financial scale.
The solution? To date, this has mostly arrived in two unsatisfactory forms: philanthropy relentlessly pushing “collaboration” among nonprofits under the somewhat misguided hypothesis that that will create efficiencies in the sector (I have written about this folly here), and funders encouraging mergers and acquisitions, a boon for the legal and accounting fields.
Despite such pressures from philanthropy, the individuality of arts organizations strongly resists the logic of corporate mergers and acquisitions. Using a theatrical metaphor, there are two ways of thinking about mergers: combining the front-of-house, namely programs, services and what delivers direct impact, the actors; or combining the back-of-house, or all of the management infrastructure needed to support programs, the stage crew. Mergers generally do both, but therein lies the challenge for the arts. Two theatre companies might share a general disciplinary identity, but their artistic visions are by definition entirely unique–a manifestation of singular curatorial or creative leadership. It makes no sense to merge them in a front-of-house sense, just because they are both theatres. But it may make sense to merge the vision-agnostic back-of-house functions.
The arts and culture field is unlike many other charitable disciplines that are focused on external, objective problems, such as the need to house the unhoused, cure the sick, educate kids, etc. Because such missions are focused on an objective, external issue–and while methods and approaches may differ–arguments can be more readily made to combine resources, both front and back-of-house, in the interest of amplifying impact. This may be why mergers and acquisitions seem to be far more common in areas like health and human services and environmental conservation, where there are objective, external impact drivers, than in arts and culture, where the reason for being is entirely subjective and endogenous. Artist practices are about feeding the individual human need to create and share that vision, joy, and wonder with others–an equally important need of civil society–but one that is predicated on highly individuated creative expression.
Beyond these legal and technical considerations, the individual (and often collective) emotional resistance to merger and acquisition is equally if not more a point of resistance. Nonprofits, in particular in the arts, come to be through sheer human will, sweat equity, and individual emotional investment in vision. The idea of having that identity and emotional ownership seemingly erased through the cold financial or impact logic of a legal combination is a non-starter for many nonprofit leaders and boards.
Toward Resilience and Right Size through Management Commons
What if artists could simply share nonprofit back-of-house infrastructure while retaining their independent identities and control/ownership over their work? They can through management commons, a next-generation version of comprehensive fiscal sponsorship.
Fiscal sponsorship is a collection of legal structures and management practices that allow one nonprofit (the sponsor) to share its infrastructure with multiple distinct and semi-independent charitable activities or organizations (the projects). Infrastructure, in this case, can range from just sharing tax-exempt status, allowing a non-exempt person or entity to access funding to do charitable work, to sharing all of the essential elements of an operating nonprofit: corporate home, tax status, employer of record, management systems and staff, insurances, charitable compliance, etc. The latter approach can be used to incubate new nonprofits, house temporary projects, and even provide a forever home to nonprofits as they scale–an alternative to stand-alone formation. And fiscal sponsorship is not just for smaller projects. Larger fiscal sponsors are regularly home to projects upwards of $10 million in budget.
Comprehensive, Model “A” Fiscal Sponsorship | Source: Social Impact Commons
The range of practice described above is represented by the two most prevalent “models” of the six that are recognized by the field: Pre-approved Grant or Model “C” fiscal sponsorship and Comprehensive or Model “A” fiscal sponsorship. The models were classified and given their alphabetical taxonomy by attorney Gregory Colvin in the early 1990s.
Comprehensive (Model “A”) fiscal sponsorship, offers a dynamic balance between maintaining independence of artistic identity and agency, while enjoying the benefits of shared infrastructure efficiency and true collective capacity building. In this model the artist(s) or “project” becomes an operating unit within the sponsor organization much like any other in-house program. The difference, however, is that there is a contract between sponsor and the artist that allows them to retain agency over all aspects of how they operate and create, whether a performing arts company or solo practice. This includes decisions about curatorial, creative, staffing, strategy, budgeting, fund development, and other key operating areas, all the while maintaining separate public identity and the ability to exit the relationship at any time. Unlike a merger, they are not handing over total control and ownership, as exit rights remain. Most critically, artists can retain control over their work, as creative decisions lie outside the sponsor’s purview and intellectual property provisions in the Fiscal Sponsorship Agreement that guides this structure can preserve artist control and ownership interests.
When “Model A” sponsorship is practiced with commoning values, such as governance by local stakeholders (the artists themselves), intentional community building, and ongoing learning, it becomes a management commons. Social Impact Commons has coined this term and is advocating for the comprehensive form of fiscal sponsorship, reinvented through commoning, as the future of nonprofit infrastructure and a direct challenge to stand-alone formation. We see this form of commonized infrastructure as one of the ways in which commoning practice appears natively in the nonprofit sector and thus a path to recover the sector from its degradation at the hands of the private sector. A well run management commons…
Lets artists just do art - which is the goal, right? Ever since I’ve been in the arts field, there has been a pernicious impact model imposed on artists, largely by funders and arts service organizations: teach them how to do the work of management, which they should be able to do alongside all the time it takes to create. So far, I don’t see this solution working out for most artists. It’s not a question of ability (there’s a lot of unjust infantilizing artists out there), but hours in the day, will, and energy. Time and energy to do management work is limited with the energy creatives need to put into bookkeeping, contracting and all the things. Also, I’ve not met many artists who enjoy admin work, and you’re simply not going to be diligent or good at something you don’t enjoy. So why force it?
Affords easy, equitable access to nonprofit resources - through allowing artists plug-and-play access to full-charge nonprofit management support while retaining creative independence. Removed are the knowledge and financial barriers to forming and managing a nonprofit, or any legal entity for that matter–management commons can work with just the artist as an individual as project director. There is no need to legally form anything or even open a bank account. And because the workaday job of fiduciary oversight is provided by the sponsor’s board, artists don’t even need to bother with building a board, unless they desire. Management commons can reduce the need for the acres of well meaning but poor governance that burdens our sector.
Fosters right size, efficiency, and collective capacity - through allowing artistic practices, companies, and collectives to be the size and shape they want to be. Just about every artist I’ve ever known has a sense of right size for the scale of their work, as well as personal financial and life goals. And most of these are modest in financial scale but vast in creative vision, making the efficient sourcing of management and administrative support challenging. Management commons provides holistic support in an amount that can vary proportionate to need. Costs for these supports are allocated as a percent of income, generally 10% to 15%, fluctuating with need and scale of practice, but always at right size. And since management commons organizations can support multiple artist operations, a model for collective capacity building and risk management appears. With many practices sharing one backbone, there is a way to manage financial risk at the portfolio level: if one practice or company is not bringing in money for a couple months, others are, allowing the shared management staff and systems greater resilience and ability to be financially carried and everyone to remain supported, regardless of vagaries in cash flow.
Concerning comparative efficiency with stand-alone, nonprofit arts organizations, Impact Commons completed a cost study several years ago using very granular data sets from SMU Data Arts. We examined three years of self-reported data from just under 1,000 arts organizations with operating expenses below $2 million in the California Bay Area and Southeastern Pennsylvania. We found that stand-alone arts nonprofits were spending between 17% and 27% of revenue on the same comprehensive management supports that a management commons can provide for 10% to 15% of revenue–an average difference of about 10%. If just the sample of organizations we studied were operating under a management commons, they would realize a net “savings” of nearly $50 million/year in funds that could be allocated to actual art making, as opposed to management and administration. This same cohort of organizations also reported total overhead at an average of 20% of overall budget. Since management commons supports are most of what organizations would classify as “overhead”, the 10% difference in efficiency amounts to a 50% reduction in overhead operating together rather than individually. Indeed, post-pandemic, we are seeing more small nonprofits moving under comprehensive sponsors as a means of accessing higher quality and less expensive infrastructure.
Comprehensive Model “A” fiscal sponsors are statistically the most prevalent, per our field scan, but are mostly supporting health and human services, environmental conservation, and various areas of social justice and community benefit missions. Some multi-mission sponsors support artist projects alongside myriad other charitable purposes. But at present, there are only a few comprehensive sponsors dedicated to arts and culture in the US. CultureWorks Greater Philadelphia, which I founded in 2009 and remains flourishing today under new leadership, was the first. More recently, we have added Local Color, and Austin Creative Alliance. The dominant model of fiscal sponsorship in the arts community remains the Pre-approved Grant or Model “C” form (sometimes erroneously called the “passthrough” model). This is the model offered by Fractured Atlas (which really made Model “C” the go-to form for the arts), Springboard for the Arts, Intersection for the Arts, New York Foundation for the Arts, The Field, and numerous local art service organizations across the country.
While Model “C” is probably the most well known form of fiscal sponsorship, if not by name, by form, it is more limited in support than its comprehensive cousin. As it is designed only to facilitate access to charitable funds. It certainly offers a valuable (and popular) solution for the arts community, but doesn’t provide other direct support, leaving much administrative work and liability to the project: bill paying, insurances, bookkeeping, HR, etc. In this model, the sponsor is acting purely as a recipient and re-grantor of gifts and grants to either the artist as an individual (under their Social Security Number) or a non-exempt LLC or other taxable entity the artist might be using, resulting in the following remaining burdens for the artist:
Responsibility and liability for the bulk of management - such as employing or contracting other workers/vendors, tax compliance, insurances, bookkeeping, bill paying, payroll, and all of the financial and legal liabilities that attach to these functions.
Potential tax positions on charitable funds received - since all gifts or grants received by the sponsor are re-granted to the artist as an individual taxpayer or a taxable entity belonging to the artist. This means that funds that started out tax-exempt (i.e., gifts and grants) become taxable once they hit the artist’s bank account; fiscal sponsors issue 1099 statements for all regranted funds. A tax position is not guaranteed, but it requires the artist to manage annual income and expenses closely, preferably with the guidance of a tax professional (yet more cost). Under a management commons, this concern goes away. The only money the artist receives is in the form of pure wages for their work. All other liabilities and responsibilities are held by the sponsor organization and do not attach to the artist.
Pre-approved Grant, Model “C” Fiscal Sponsorship | Source: Social Impact Commons
The Power of Myth and Misunderstanding
So if management commons can do so much more for the arts community, why isn’t it more well known and widespread?
Orthodoxy is hard to fight. Part of the answer is the dominant ontology of the nonprofit sector discussed earlier, namely that the only way to ensure control and fulfillment of an independent vision is independent (read, stand alone) infrastructure, and everything that entails. This assumption from the private sector is everywhere, in the air we breathe and water we drink. It’s hard to escape. However, closely allied with this issue is the sheer lack of awareness of comprehensive fiscal sponsorship as an alternative, in particular among the legal and accounting industries, the first stop for most folks who want to start a nonprofit. They still push the mainstream approach of “start your own nonprofit”, not just out of ignorance about fiscal sponsorship, but perhaps also out of some financial self-interest. The more nonprofits there are, the more legal and accounting business there will be.
Compounding these general challenges are some particularly pernicious myths and misconceptions within the arts community itself:
MYTH: Artists lose creative control and ownership of their work. There is a widespread myth among artists aware of the comprehensive form that it requires giving up ownership and creative control, owing to the nature of the relationship. This is false. While it is true that comprehensive sponsors generally steward and hold title to all assets and liabilities under their nonprofit entity, such ownership and control of creative work does not have to be subjected to the same treatment as other assets, so long as the sponsor can ensure some degree of public benefit resulting from the work (i.e., public exhibition, performance, educational use, etc.). This can be accomplished through the artist retaining title and ownership and offering a limited license for use back to the sponsor.
In 99% of the cases, the sponsor itself has no interest in “exploiting” the artist’s work; the license is a mundane compliance check to satisfy the basic legal requirements of charitable funds. If an artist uses public trust resources like grants or donations to fund the creation of a work, by charitable law that work has to retain some manner of public benefit. The sponsor, by retaining a minor licensing interest, is substantiating that public interest and covering itself in the unlikely event of an audit. Regrettably, intellectual property management is an area in which the fiscal sponsorship community is generally weak, and some sponsors do force control and ownership, which contributes to the perpetuation of this misconception.
MYTH: For-profit is a badge of honor and the only path to ownership. Closely related to the matter of creative ownership is the belief that a for-profit legal formation is the only way to secure control and ownership over creative work. It certainly can be, and indeed for-profit formations like LLCs can be used in concert with a management commons to be the above-mentioned owner of the work, but the artist as an individual person can play the same role.
Further complicating this misunderstanding is the intense cultural pressure, largely emanating from commercial entertainment, that artistic legitimacy is equated with commercial success and the ability to profit off of one’s work. Although a commercialized vision of the arts certainly can apply to some artist practices, this dominant thinking marginalizes a vast amount of artistic practice that creates value unrecognized by the marketplace and, even more significantly, belies why artists start creating in the first place. Artists whose work happens to have popular or commercial appeal should by all means go for it, but as many if not more artists need the resources of the nonprofit sector to fulfill their much-deserved financial and life aspirations.
MYTH: The Nonprofit Industrial Complex is evil because it is “nonprofit”. Lastly, there is the complex racial-cultural discourse around the Nonprofit Industrial Complex, popularized by the anthology, The Revolution Will Not Be Funded: Beyond the Nonprofit Industrial Complex, Anand Giridharadas' Winners Take All: The Elite Charade of Changing the World, and many other articles and writings over the last decade. The critique of the nonprofit sector as white-normative, top-down, and just as power-hungry as the private sector is totally legit. Its reputation for being an anti-refuge for BIPOC and other marginalized communities, and its founding in white saviorism, is well earned. These realities, which demand continued critique and challenge, lead to conflating and confusing important distinctions and ultimately, to a knee-jerk tossing out of the baby with the bathwater when it comes to the moniker “nonprofit”.
The principal confusion concerns the difference between organizational culture/structure and tax status. “Nonprofit” denotes a tax-exempt ruling from the IRS, nothing else. It is not a type of organization, business model, or management culture. This tax status can be applied to a wide range of organizational types, cultures, and value sets, from cooperatives and collectives, to those following more traditional top-down “corporate” management. Yes, the culture and management practices of most nonprofit organizations (including many fiscal sponsors) remain predominantly and powerfully white normative and structurally “top-down” in a 1950s Madmen kind of way, despite decades of equity-focused work in the sector.
But since the Civil Rights era, and more intensely since Geoge Floyd, we have seen the blossoming of nonprofits founded on values of equity, access, inclusion and solidarity among many historically excluded groups. Collectives, cooperatives, mutual aid organizations and a growing number of movement-based organizations are leading the way, many under 501(c)(3) tax exemptions. As the field of fiscal sponsorship grows, we see a similar drive toward specialization, focusing on intentional community building along geographic, identity, and mission lines. So we don’t need to abandon the nonprofit sector wholesale in the interest of social justice, but we do need to build more structures for strength and solidarity. Management commons is one of those structures.
So what can we do?
In closing, I can offer three calls to action necessary to continue our movement toward more shared infrastructure and an ecosystem of management commons for the arts.
Challenge the assumption that stand-alone nonprofit formation or re-granting fiscal sponsorship is the only or better path for artists and artistic initiatives.
Build more management commons organizations dedicated to arts and culture and with the values and tools to preserve cultural diversity, agency, and creative ownership.
Educate the funders, advocacy organizations, consultants, lawyers, and accountants that support the arts sector about the benefits of management commons as a path toward greater flourishing.
By taking every opportunity to engage in these actions, we can continue down the road toward a more just and flourishing arts ecosystem. Today, we face many challenges of colossal scale and complexity–climate change, social division, economic inequality, to name few. The problem of how to better the lives of artists is likewise complex, as it entails funding, sociocultural, and economic dynamics.
But compared to the above problems that require immense legal, financial, and political will, we can in fact greatly improve the support for artist and culture bearers of all kinds using the existing tools of the nonprofit sector, a bit of will and imagination, and some modest financial investment.
And we can start tomorrow. So, let’s get to work.